RIYADH, 19 February 2007 — Import-substitution drive has received a big boost in the aftermath of September 11, 2001, with products manufactured either locally or elsewhere in the Middle East replacing those from the US and other western countries.
“Lots of changes have taken place in the Saudi import market after 9/11. Earlier, the market here was depending a lot on Europe and America, especially for the supply of consumer goods. It used to be a multibillion dollar market for those countries. After 9/11, more than 80 percent of the items are manufactured in the Middle East, including the Kingdom, with foreign collaboration, if necessary,” Mazen El-Salih, CEO, Al-Sadhan Trading Co. and a veteran from the hypermarket industry, told Arab News.
He was speaking in the context of his company’s restructuring program that would see the launch of over $200 million expansion plan for setting up 18 hypermarkets in the Kingdom within the next six months.
The first hypermarket opened on January 17 this year. “By Ramadan there will be another three stores. The target is to have 18 hypermarkets within the next six months. By 2008 we should be in Jeddah,” he observed.
The consumers would be the beneficiaries of this trend that has seen a proliferation of hypermarkets all over the Kingdom. “Some major players will enter the Saudi market — one this year and the other next. Now we have sharper prices and better offers than before. People think there are too many hypermarkets. The reality is that it is not.”
Referring to the changes in the post-9/11 period, Mazen said: “We used to import a lot of frozen products from Europe and America. Now Egypt has entered this market . Similarly, cheese and dairy products, which used to come from Denmark and other European countries, have been replaced by those from Syria, Lebanon and Egypt. 9/11 has also given a big boost to the manufacturing sector. The surge in local production has in turn dictated the need for free trade zones in the region to facilitate free movement of goods and also bring down the cost of production.”
He further said “chocolates, once the domain of European countries, are now being produced in Syria, Jordan, Lebanon and the UAE. These countries have entered into strategic alliance with multinational companies from the West. A side-effect of this development is that it has brought down the cost of production of these items. Powder milk that used to come mostly from Europe in the past is now being repacked locally and resold as a local brand in Oman, Dubai and Saudi Arabia. So also tuna coming from China and spices as well as food products from India are being repacked here. This in turn has created new opportunities for the printing and packaging industry.”
A new dimension to the growth of the dairy industry came about last year as a result of the cartoon controversy surrounding the Danish newspaper Jylland-Posten which published a series of cartoons insulting Prophet Muhammed (PBUH). This led to the boycott of Danish products by all hypermarkets, including Al-Sadhan. The impact was minimal on the market, which responded to the challenge by tapping a new outlet from the Arab countries.
“When Lurpac was taken off the market shelves, we found that there were at least a dozen high quality manufacturers in Saudi Arabia itself. This gave a new impetus to the import substitution drive. It also gave a shot in the arm to the market for tissue papers which also used to be imported. We found that there are five or six tissue paper factories, besides those from the UAE and other Gulf states,” he noted.
Aside from the food products, a noticeable impact was also felt on the market for non-consumables, such as electronic items, hardware and accessories. “Electronics is one huge sector that is now dominated by China. More than 90 percent of electronic products sold in hypermarkets in the Kingdom are coming from China. Of course, there are also some international brands from Europe and Japan, like Philips, Sony, etc. We haven’t got to that stage in replacing those brands. Now a factory for the production of TV sets has opened in Saudi Arabia, while another one became operational in Jordan.”
He pointed out that the Middle East has still not reached that stage when they can manufacture houseware products. “But light manufacturing industry has taken off in the Kingdom, where a number of factories are producing melamine kitchenware.”
At another level, according to Mazen, the proliferation of the retail sector has led to the downsizing of the wholesale market. “At one time in the early ‘90s wholesalers used to meet 60 percent of the total consumers’ market and 70 percent in the mid ‘80s. Now their market is shrinking. Of course, the wholesalers’ market will not disappear completely, but it will probably represent 20 percent of the total consumer market in the long term.
The reason is that the consumer can now go to a nice mall and shop in a pleasant atmosphere at the same price or even cheaper. Although commodity prices are rising, retail prices are maintained at more or less the same level.” He blamed the price hike on the freight charges which have doubled following the increase in oil prices.