High raw material costs ‘hurt Saudi downstream growth’



DIANA AL-JASSEM

Published — Saturday 16 February 2013

Last update 17 February 2013 8:03 pm

| نسخة PDF Print News | A A

Saudi downstream industries are still restricted despite tremendous revenue generated by the petrochemical industry in Saudi Arabia.
Minster of Petroleum and Mineral Resources Ali Al-Naimi announced recently that total production in petrochemical industry is expected to exceed 80 million tons in 2015. The announcement was made during the Gulf Petrochemicals and Chemicals Association Forum in Dubai. Al-Naimi also said that he expected investment in the Saudi chemical industry would far surpass the $ 100 billion mark by 2015.
“In Saudi Arabia, we are blessed with abundant natural resources, and we have been able to overcome challenges and provide competitively priced gas and Natural Gas Liquids (NGL) products fostering strong growth in our chemical industry, said Dr. Yassin Al-Jefri, an economist. “The only problem that we have is the monopoly strategy. SABIC (Saudi Basic Industries Corp.) is the only company that determines the prices of natural gas, which is why the prices are getting higher and the downstream industries are not able to expand or even survive.”
According to Al-Jefri, Saudi Arabia has the qualified human resources and low-cost natural resources to develop downstream industries, but they lag behind because of SABIC’s monopoly.
“The restructuring of the Saudi market is still in the first phase, which is gas processing. Other restrictions like raw materials prices and monopolistic practices have hindered Saudi Arabia from growing in terms of downstream industries,” he said.
The owner of a petrochemical and plastics company, who asked to remain anonymous, said that most plastic and downstream factories in Saudi Arabia would not survive because of the high prices of raw material and the cost of human capital.
“The raw material prices are getting higher although they are available in the Saudi market at fair prices. Furthermore, the cost of human capital has also increased, especially after the Labor Ministry launched its Saudization programs,” he said.
Fadhul Albuainain, an economist, confirmed that the petrochemical industry generates important raw materials for several downstream industries such as autos, electronics, cosmetics, agriculture, packaging and textiles.
“The petrochemical industry has a significant effect on the development of the country, directly and indirectly. The effort that the government has made to develop this sector was great. The sector owes its success to the government,” he said. “We hope to see further development in this sector through boosting the downstream industries in Saudi Arabia. This could happen if the governments establish companies and SMEs to produce downstream products.”
According to Albuainain, downstream and raw materials prices should not be high in the Saudi market.
“Besides SABIC, many foreign factories prefer to operate in Saudi Arabia due to the Kingdom’s flexible laws in terms of environment and production. The big question that we should ask is: What delays the production of downstream industries?” he asked.
He states that increasing the local production of downstream industries will create clusters of job opportunities. “Setting up SMEs that provide downstream industries with fixed raw material prices is necessary. We shouldn’t depend on exporting crude oil and the petrochemical industries,” he said. “Global society has automatically turned into an industrial society, which is why we have to be turned into be an industrial company rather than being only an exporter.
“Saudi Arabia can become competitive on a global basis. Key sectors now are being developed, each representing a different category of manufactured products: automotive value chain, metals processing, plastics, consumer goods, and solar. Such cluster programs will create not only manufacturing industries but also will spur additional development of our mineral resources,” he said.
All experts who spoke to Arab News stated that there is a need to organize the trade system and stop the dumping policy that many countries are following to compete with local products.
“Our goal is for global and regional markets to contain not just basic products but also a significant number of consumer and industrial products that are labeled “Made in KSA.” To implement this we have to set up regulations that restrict importing the fake products, and we need to follow the quota system, which determine the specific rate of imports for each country,” Albuainain, said.

What's happening around Saudi Arabia

RIYADH: The Kingdom and New Zealand have signed an air services agreement to set a comprehensive regulatory framework for air transport, operating on a safe and organized basis.The deal was signed at the General Authority of Civil Aviation (GACA) he...
RIYADH: Education Minister Ahmed Al-Issa has called on teachers, educators and other officials of his ministry to work hard for the common goal of producing quality graduates. “I urge you to do your level best in transmitting knowledge to the student...
AL-AHSA: Uncoordinated production resources, lack of risk planning, evaluation, non-study of similar projects and poor planning are among the reasons for failure of projects, an expert has said.“Total quality management (TQM) is an integrated scienti...
JEDDAH: The Specialized Criminal Court has issued its verdict against two Saudis for terrorism-related offenses and for supporting extremist groups, a local daily has reported.The court issued a prison sentence of ten and a half years to the first de...
RIYADH: The second phase of the operation on a Polish child for a genetic heart disease was successfully performed at the King Abdulaziz Medical City (KAMC) of the National Guard Health Affairs on Wednesday. On a directive from Custodian of the Two H...
JEDDAH: A new breast cancer treatment improves survival rates by an average 20 percent, with life expectancy lengthened by 29.9 months.This is according to Ahmed Al-Wabari, breast oncology consultant at King Fahd Specialist Hospital in Dammam, who ou...
RIYADH: The projects of Saudi students at the Technical Trainers College (TTC) is being showcased at the German pavilion in the 30th Janadriyah Festival. With the slogan “Welcome to Your Future”, the TTC is participating in the festival with Germany...
JEDDAH: The Ministry of Labor has urged firms to immediately start implementing the 10th phase of the Wage Protection System before it becomes mandatory on March 31.Mohammed Al-Faleh, assistant undersecretary for inspection and development of the wor...
RIYADH: As many as 104 antique items that have come from the Pergamon Museum in Berlin, Germany, have gone on display at the National Museum here. The exhibition coincides the Janadriyah festival for heritage and culture.According to local media, the...
RIYADH: A visiting Kuwaiti delegation has praised Saudi Arabia for collecting and preserving various heritage items at the King Abdul Aziz Historical Center in Riyadh.The delegation, led by Kuwait’s Education Minister Bader Al-Essa, was given a tour...
RIYADH: Road security forces in Madinah apprehended two Asian expats who were caught in possession of a huge amount of money totaling SR1.6 million and talismans.“The two Asians were riding in a Japanese-made car when they were stopped at the Yanbu-...
RIYADH: Good news for the 25,000 British expatriates in the Kingdom, who will get their franchise to participate in the referendum on the UK’s membership of the European Union.In an announcement on Thursday, the British Embassy here said that the Uni...
JEDDAH: Jeddah Municipality, with cooperation of the Check Safety First British company, launched an award of excellence for services in restaurants under the name E-Cristal to support the establishment of best services in restaurants and eatery shop...
JEDDAH: Well-known Indian cricketer Irfan Pathan married Safa Baig, an Indian woman, who was born in Jeddah and raised here by her Hyderabadi parents.The marriage was solemnized at a simple ceremony at the Grand Mosque in Makkah on Wednesday. Only a...
RIYADH: The Ministries of Interior and Islamic Affairs are considering appointing security guards at all the mosques in the Kingdom where Friday prayers are held.The move comes as a precautionary and regulatory measure to protect the mosques from at...

Stay Connected

Facebook