Italian trade with Saudi Arabia is booming. Last year Saudi Arabia bought SR8.5 billion worth of Italian goods, putting the country in eighth position in the list of principal suppliers to the Saudi market, ranking above Korea, France and India. More significant was that this figure represented a massive 48 percent growth on 2004. The only other principal supplier to register such growth was China. Impressive though such trade statistics are — and they grew another 20 percent in the first six months of this year — there is another area of growth in Italian business in Saudi Arabia which is already having profound effects on Saudi development.
A few days ago, a new $800 million Saudi-Italian joint venture to manufacture seamless stainless steel pipes was inaugurated at the project’s plant site in Alkhobar. The project brings together Italian steel giant Duferco and a group of Saudi investors. The managing director is Abdul Rahman Bin Zarah, former deputy governor for investment promotion at the Saudi Arabian General Investment Authority (SAGIA). An IPO to fund the project is expected to be launched next year and start-up is slated for 2008.
What is unusual about the joint venture is the way it has been pulled together. It has come about thanks to an innovative Italian way of doing business in Saudi Arabia. Simest, the Italian state organization set up to promote joint ventures outside the EU using Italian technology, brokered the Saudi partnership for Duferco. Simest is based not at the Italian Embassy, as you might expect, but at SAGIA.
Simest’s representative in the Kingdom, Cesare Orlandini del Beccuto, set up shop at SAGIA in early 2003. The request came from Simest itself. Closer investment links had been given the go-ahead at the meeting of the Italian-Saudi Joint Economic Commission in Rome in October the previous year, chaired by the then Italian Prime Minister Silvio Berlusconi and Saudi Finance Minister Ibrahim Al-Assaf. The meeting was itself the result of Berlusconi’s visit to Saudi Arabia in the spring that year, the commission having been effectively in abeyance for some time.
Today, Orlandini is convinced that being at SAGIA has made all the difference. Since his office was established in Riyadh, some 20 Saudi-Italian joint ventures have been put together; their total worth is some $1.4 billion. There are another 20 potential major joint ventures in the pipeline. The only other foreign investment promoters based at SAGIA’s headquarters are the Japanese.
It was not easy at first, Orlandini admits. Although there was a long history of Italian trade with the Kingdom and Saudi companies being involved in major construction and infrastructural projects, there had been no Italian investment in joint ventures. The political climate at the time was also difficult. It was just after the invasion of Iraq and there was an Italian reluctance to become involved; businessmen were scared off, both by fears of terrorism and perceptions about the difficulties of living in the Kingdom and getting paid. They happily went to Dubai, but not Saudi Arabia.
The office had to work “very hard” to change perceptions among Italian companies and gain credibility with Saudi ones. But contacts were made with multisector companies such as Zamil and Mutlaq and alliances forged. Orlandini paints himself as almost a marriage broker. “At the beginning we pushed (companies and investors together); they were suspicious;” but after a while working together, “they want to stay together; they don’t want to divorce. They are amazed at the opportunities together.”
This year saw things move a stage further with the establishment of SIDCO, the Saudi Italian Development Company, which now acts as promoter and investor in Italian-Saudi joint projects. Simest and 10 prominent Saudi businessmen and investors (soon to be 15) are the shareholders with Prince Abdullah ibn Faisal ibn Turki, former governor of SAGIA, as the chairman and Orlandini as managing director. It makes Saudi investors “much more committed” to developing new ventures, says Orlandini. Not only that, it has become both a model for Italian investment strategy elsewhere in the Gulf and a vehicle for joint investment outside the Kingdom. One development is a Saudi-Italian sugar mill in Sudan. Another joint venture is now looking at possibilities in China. Nevertheless, 90 percent of projects remain within Saudi Arabia.
Orlandini has set his sights on 200 to 300 joint ventures. “We are in a leading position,” he says. “The joint venture area used to be American and British dominated. But the Italians are now highly appreciated. We have double the European average of investment in Saudi Arabia. And it is growing. That is in large part due to our presence at SAGIA.”
It all comes down to simply “being there, which creates constant relationships,” he says. “You become familiar.”
Others might follow the Italian example.