High raw material costs ‘hurt Saudi downstream growth’

Updated 17 February 2013

High raw material costs ‘hurt Saudi downstream growth’

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.

Iran sanctions shadow falls on smaller German banks

Updated 27 May 2018

Iran sanctions shadow falls on smaller German banks

  • Some German companies plan to press on with Iran dealings
  • German exports to Iran rose 15.5 percent last year

Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.

There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.

But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.

“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.

The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.

German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.

Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.

Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.

Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.

Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.

What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.

One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.

Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.

DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.

Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.

Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.

Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.

Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”

Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.

“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.

Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.

German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”

KCI’s Melfi said time is running out for EU governments to act.

“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.

On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.