Published — Tuesday 8 January 2013
Last update 8 January 2013 2:01 am
LONDON: At a time when manufacturing is increasingly moving away from its traditional bases in the US and Europe and toward emerging markets, the news that British automotive giant Jaguar Land Rover is eyeing a plant in Saudi Arabia came as little surprise.
As Ralf Speth, chief executive of Jaguar Land Rover, pointed out last month, the letter of intent signed between the company and the Saudi National Industrial Clusters Development Program (NICDP) comes after an assembly plant project was announced in Shanghai, China, while a facility in Pune, India, will also be expanded.
Although talks are at an early stage, it is likely that aluminum production will be an area of interest for JLR – the automaker, like Audi, is one of few mainstream motoring brands to have adopted aluminum for its road cars. It is no coincidence that the announcement follows the development of the world’s largest integrated aluminum complex in Ras Al-Khair, which is due to begin production in 2014.
It is also no secret that Saudi Arabia and its GCC neighbors are incredibly lucrative markets for automakers as Europe and the US still struggles with the impact of the global recession. Consultancy Frost & Sullivan estimates that MENA is the fifth largest market for Jaguar and sixth largest market for Land Rover. Between April and September last year JLR sales grew by 21 percent and Land Rover by 33 percent. Jaguar XF sales grew 38 percent. “This is an exciting project that could enable Jaguar Land Rover to establish a joint venture partnership in a part of the world where luxury vehicle sales are expected to rise,” said Speth, quickly re-assuring those at home in the UK that a push into Saudi Arabia does not mean a pull-out of Britain. “If we proceed, it will complement our existing expansion in the UK and elsewhere,” he said.
Recent research by Euro Monitor International revealed that 94 percent of households in Saudi Arabia have an annual disposable income in excess of $10,000, while 86 percent earn more than $15,000. Car registrations are now significantly outpacing population growth in the Gulf state, spurned on by low petrol prices. As a result, Subhash Joshi, program manager at Frost & Sullivan’s automotive and transportation practice expects the luxury car market in the region to grow by a 20 percent minimum year-on-year
“Setting up a local assembly plant is expected to aid JLR to capitalize the available opportunities in the region, and it would also allow free movement of vehicles within the GCC – meaning no tax,” he said. “KSA allows imports of most of the raw materials and components with the nominal import duty of 5 percent.”
But pitfalls could remain. The recent drive to push greater numbers of Saudis into jobs in the kingdom – by introducing the controversial “expatriate tax” as well as quotas on companies for the number of nationals they employ – could hit specialist industries such as auto manufacturing, where the need for experienced manpower is paramount. Questions also remain about the availability of components other than aluminum in Saudi Arabia, and the costs associated with the mass import of them.
That said, JLR is not the first company to set up a manufacturing plant in Saudi Arabia, and the recent experience of Japan’s Isuzu Motors bodes well. Isuzu announced its intention to set up a plant with a capacity of 25,000 commercial vehicles in June 2011 and the Damman-based facility opened in December 2012 – a rapid turnaround for a project of its scale. With regard to components, commercial vehicle manufacturers have operated in the kingdom for decades, so a supply chain does exist.
“The development of large scale local vehicle assembling facilities would attract component manufacturers to set up production unit in the region to remain competitive,” Joshi said, adding that subsidised electricity and an availability of land – outside of city centers – were further benefits.
Given all this, it is possible that other major manufacturers, while perhaps not going as far as manufacturing in the kingdom, may seek to push themselves further into the Gulf to capitalize on growth still lacking in their traditional markets.
“We expect key vehicle manufacturers like Ford, General Motors and Hyundai who have realigned their global strategies to support their regional presence in the MENA. The luxury car makers like Lexus, BMW, Range Rover, and Porsche also have started focusing on the MENA region,” Joshi said.
— Exclusive to Arab News