Full Speed Ahead

Local manufacturing policy and COVID-19

The manufacturing sector in Saudi Arabia is among the fastest growing in the world. In recent years, the sector has achieved an average annual growth rate of around 7.5%, and […]

The manufacturing sector in Saudi Arabia is among the fastest growing in the world. In recent years, the sector has achieved an average annual growth rate of around 7.5%, and its rapid growth has increased its overall contribution to national GDP to 10%. The government has identified local manufacturing as a key enabler to greater economic diversification, as the country strives to reduce its dependence on the petroleum sector. State investment has increased substantially in recent years, with the government offering considerable financial as well as regulatory aid to the sector. Recent large-scale investments have included new industrial cities—such as Yanbu and Jubail, and a USD70-billion planned investment to build six more economic cities—as well as the creation of the Saudi Industrial Development Fund (SIDF), which has helped develop policies and financed projects aimed at transforming the sector in the Kingdom. The government has also played a key role in modernizing national infrastructure and R&D facilities, as well as relaxing laws and introducing new pro-business regulations, all of which have oriented the local manufacturing sector toward sustained growth for the foreseeable future.

As with nearly all other countries around the globe, the pandemic had a considerable economic impact and created a considerable obstacle to the government’s development plans. Despite the magnitude of the pandemic, SIDF was quick to respond and made 2020 a record year in loans and financing. In late 2020, the fund announced that its total value for initiatives aimed at reducing the financial and economic of the pandemic surpassed SAR5 billion that year. Nearly 550 of the fund’s projects had been restructured that year, adding up to over SAR4 billion. Approximately 274 payments for additional, smaller projects were deferred or restructured, which altogether valued over SAR825 million. Restructuring or deferment of payments were also provided another 118 medium-sized projects, totaling SAR906 million, 40 large-scale projects, totaling SAR2.3 billion, and 14 medical projects, totaling over SAR74 million.

Additional data released by the SIDF show that the value of financial products provided by the fund in 2020 in response to the pandemic exceed SAR1 billion, while a credit line aimed at supporting the operating expenses of some 86 SMEs provided more than SAR477 million. An additional 12 projects that focused exclusively on financial support to local medical and pharmaceutical companies to cover the cost of acquiring raw materials provided funds totaling SAR607 million.

Thanks to SIDF’s quick and proactive response, much of the local industry has been able to maintain seamless or uninterrupted work, which has helped to further stabilize and grow the sector. The fund has worked to enable its clients in ways other than just diverse and inclusive financial support during the pandemic; faster turnaround times for certain procedures, automated lending procedures, and the issuance of e-signatures (the first government entity in Saudi Arabia to implement such technology) have all been implemented over the course of 2020.

Aside from direct relief during the pandemic, SIDF also issued an impressive amount of funding through loans. At the end of 2020, the fund announced its approved loans for the year stood at well over SAR17 billion, a historic figure for SIDF. According to CEO Ibrahim bin Saad Almojel, this record was not due to the outbreak pandemic, but rather attributable to the increasing performance of the Kingdom’s industrial sector and is testament to SIDF’s mission of providing to support to promising industrial segments in the country’s economy as a means of strengthening economic diversification. The fund also deployed financial initiatives worth more than SAR5 billion aimed directly at promoting and enabling the local growth of the industrial and medical sectors as a direct response to the pandemic.

Looking abroad to promote growth locally, SIDF in early 2021 signed a memorandum of understanding (MoU) with French investment bank Bpifrance related to economic cooperation. Specifically, the MoU will see the fund and Bbifrance team up to boost the development of the Saudi entrepreneur ecosystem, with the agreement placing special focus on companies and startups working in the industrial, energy, mining and logistics sectors. The MoU will also accommodate partnerships between business in these segments, aiming for growth of industries in located in both countries.

While the decline in oil prices ushered in by the COVID-19 pandemic has to an extent slowed growth in the Kingdom, it has allowed the government to double down its focus in other industrial areas with potential; in the long run, such developments are likely to be greatly been to the advantage of Saudi Arabia, providing the oil-dependent kingdom the perfect opportunity to fast track its policies. With impressive government backing to advance the industrial sector, coupled with investment from abroad, the opportunities in the sector look bright.