Automotive Cluster

Saudi Arabia’s Strategy for the Auto Industry

Although the segment is among the most sophisticated in the world and there is no single market model for the industry, we have chosen to consider the industry in the “tiers” which have been commonly understood for some time in the auto communities. The tier model is illustrated below.

Given that only a quarter of the value is created by the OEMs in the modern auto industry, Saudi Arabia has a clear understanding that there is much more than assembly. However given the needs for customized production and therefore co-location and sequencing, it is clear that assembly does unlock a large part of the value in the auto industry Of course Saudi Arabia has been long established as a critical part of the value chain as the world’s largest supplier of crude oil and refined products. However the Saudi Clusters initiative looks beyond the pump and has adopted an auto strategy which has two related prongs; assembly and parts. We shall briefly highlight the anchor projects we are currently focusing on.

Vehicle Assembly | back to top

For assembly we see the population profile and rising levels of GDP per capita as providing the engine for significant growth of local vehicle consumption in all segments meeting individual aspirations and the needs of growing regional and international businesses in Middle East and North Africa. There is very little vehicle production in the region today and certainly not a world class production base.

Saudi Arabia boasts a healthy domestic market which we expect to grow to around one million new sales per year in the next decade or so, and also a highly central and efficient base for exports. With these fundamentals we expect to be able to offer a strong base for first rate international partners, with an interest in developing a leadership position in regional sales and a competitive base for exports to Europe and Asia.

Vehicle Component Manufacture | back to top

The last decade has seen an explosion in the supply of “deep sea” vehicle components, generally standardized parts where the labour cost of producing such parts in Europe and North America has become prohibitive. Countries such as China, Turkey, India and Mexico have taken advantage of their low labour costs to muscle in to the value chain. As labour costs in these countries inevitably increase with their growth, Saudi Arabia is looking to participate in a different way. For sure the labour cost in Saudi is low relative to Europe and North America; however Saudi Arabia can offer more sustainable benefits through concentration on parts which have high content of energy, plastics, steel, aluminium and glass. Underpinned by the plans underway to further improve Saudi’s industrial infrastructure and to reach the world’s top ten for ease of doing business by 2010, we believe these material benefits can be attractive for the serious investors look for strategic national partners.

Saudi Arabia has also invested heavily in developing schools and programs to bring the vocational skills of the Kingdom’s young men and women to leading world standards. Under programs already underway, the number of students graduating from 2 year vocational programs will grow from around 120,000 in 2005 to 450,000 in 2015. The programs involve a total of close to 80 new vocational schools across the country and 4 new schools to train the trainers. English will be used as a tuition language and will be on the syllabus and the training agency is working closely with the NICDP team to ensure that supply numbers and quality will meet the demand.

Tire Manufacture | back to top

The tire business is booming in the Middle East with Saudi Arabia, the largest market of around 5 million tires, growing at somewhere in the region of 12% per year. Despite the market attractiveness, there are no world scale and class tire manufacturing facilities in the region. One reason for this has been the lack of raw materials being produced in the region. The material picture is about to change with the establishment of synthetic rubber and carbon black production associated with the next wave of petrochemical expansions due to start-up 2008-2012. Additionally the extension of diversification of the steel industry and the efficient trading connections with the world’s natural rubber suppliers suggest strong tire industry fundamentals. Electricity costs of just over US 3c/kwh and highly competitive land, regulatory and tax environment combine for a strong value proposition.

Advanced Composite Development | back to top

The final area of focus illustrates the ambition of Saudi Arabia to move beyond low labour cost products towards areas where the knowledge input is the major driver of value creation. Saudi Arabia can specifically be a major driving force in moving the carbon fibre composite industry from a high end niche market serving aerospace and military used to one serving broader industrial needs including those of the auto industry. There are already a number plans being developed for carbon fibre production in Saudi Arabia, again linked to the petrochemical expansions where highly competitive feed will be made available. Successful uptake of carbon fibre in auto will depend on manufacturing technology as much as carbon fibre supply security and competitiveness. Saudi Arabia intends to be at the front of the pack in both of these developments.