High raw material costs ‘hurt Saudi downstream growth’


Published — Saturday 16 February 2013

Last update 17 February 2013 8:03 pm

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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.

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