JEDDAH, 12 September 2005 — With increased petrochemical competition in the international market, companies in the Gulf Cooperation Council (GCC) states are facing challenges that require a new strategy based on opening new markets, developing new products and establishing cooperation. According to a new study by the Gulf Organization for Industrial Consulting (GOIC), petrochemical industries in the GCC must build a better network of information and cooperation between them in order to face the growing competition by international companies that have adopted a restructuring and merging approach.

The study indicates that the continued development of new production capacity in the GCC and the great similarity in circumstances and types of products produced as well as the move toward exporting makes the petrochemical industry in the Gulf connected to foreign markets and that market’s fluctuations. This requires extra effort for coordination and cooperation between Gulf producers in order to avoid harmful competition. This is especially true given that Gulf petrochemical industries have similar competitive advantages and are targeting the same markets. Furthermore, the producers are having a problem exchanging information due to the lack of developed information networks about the petrochemical industries and market status. This raises the issue of the need to cooperate in the field of technology, research and development and in operating systems.

The study emphasizes improving economies by finding bigger Gulf companies which would lead to increased competitive capacity in international markets. In addition, strengthening the association, understanding and cooperation between Gulf petrochemical producers would strengthen their standing with their customers, suppliers of machines and tools and with transportation companies, especially since international manufacturers are moving toward mergers and conversions in order to influence the market and become more specialized. The study points to the GCC countries being a promising market for petrochemical products with 2004 statistics indicating 1.8 million tons of plastic consumption, an average of 55 kg per person compared to the international average of 28 kg.

In a recent interview with Al-Jazira newspaper, the governor of Saudi Arabia General Investment Authority (SAGIA), Amr Al-Dabbagh, supported the strategy recommended by the GOIC study by initiating a study on ways for greater cooperation between Saudi plastic- producing companies and Saudi Basic Industries Corp. (SABIC), the Ministry of Petroleum and the Ministry of Commerce in order to provide a better investment environment for this industry to grow. This is in recognition of the need to have united strategy and effort in reducing the pressure on the plastic-producing companies as a result of raw material price fluctuations in international markets, opening new export markets and increasing production capacity by establishing better partnerships between the companies and SABIC.

According to the GOIC study, GCC countries are currently producing around 30 basic, intermediary and final petrochemical products with a total production capacity of 36 million tons in 2004 representing 7 percent of world production. Saudi Arabia has the lion’s share of this production capacity with 76 percent of the GCC industries followed by Qatar with about 11 percent while Kuwait, UAE are next with 5.8 percent each and then Bahrain with 1.1 percent. Changes are expected in these percentages in the next few years if Kuwait and the other Gulf countries implement their expansion plans.

A recent report by the statistics agency in Saudi Arabia showed that the Kingdom’s total non-oil exports to Gulf countries in 2004 increased by 32 percent from the year before and that during the first quarter of 2005 reached SR32 billion compared to SR31 billion for the same period last year. The most-exported products were mineral and chemical products. By the same token, total imports to the Kingdom from the Gulf countries during the first quarter of 2005 reached SR21 billion compared to SR18 billion in the same period last year.

The GOIC study shows that the petrochemical industries are part of the chemical industries sector which is the most transfer industry attracting investment capital reaching around $62 billion and representing 60 percent of the total transfer industry investments in the Gulf. It also employs some 153,000 workers representing more than 20 percent of the total workers in the transfer industries. The GCC countries have witnessed great development in petrochemical industries with the number of factories in 2004 reaching 55 with an estimated investment of $29 billion and employing more than 15.6 thousand workers and clerks. The plastic and rubber factories in particular have great importance in GCC countries because most depend on raw materials produced by the local final petrochemical products such as polyethylene, polyphynelechloride and polypropylene. These plastic and rubber factories amounted to 989 factories in 2004 with an estimated investment of $3.8 billion and employing 64,000. They have an annual production capacity of around 1.6 million tons; their most important products include storage products, home products, pipes, insulation material and fiberglass products.