Saudi Arabia has plans for truck manufacturing and not car manufacturing as some tend to think. “I would like to see automotive manufacturing in Saudi Arabia but before that I would like to see the parts being manufactured in Saudi Arabia, an active member of several committees in the Jeddah Chamber of Commerce & Industry (JCCI) and member of the National Automotive Committee in the Saudi Chambers of Commerce as well as recently joining the Committee for International Trade, Ali H. Alireza, managing director of Haji Husein Alireza & Co. Ltd., told Khalil Hanware of Arab News in an exclusive interview in Jeddah. Alireza, who is also deputy chairman of the Strategic Commercial Committee of the JCCI, headed by Mrs. Nashwa Taher, which is organizing the Jeddah Commercial Forum 2013 from April 20-22, said he considered the forum as a voice of the business community in the economy, voice of the current and potential investors about making the Saudi business environment friendlier and more competitive than certain others.
Following are excerpts from the interview:
What is your perception of the current business scenario?
We at the Strategic Commercial Committee of the Jeddah Chamber of Commerce & Industry (JCCI) actually have teams that address different sectors and areas of the economy and business for engaging certain agencies and business groups. Through the subcommittees, we also get deeply in touch with issues that are moving our economy today. The feedback we have is that we are living in a period of great opportunities in Saudi Arabia. We are living in a period of great transition. Our demographic picture is very much leading the change in Saudi Arabia. We have a very young population as we all know but it is also a fast growing population. We also have excellent income as a nation due to oil revenues so you have this great demographic picture, which provides great opportunities for growth and expansion, but also great challenges to properly invest this wealth for the benefit of today’s as well as tomorrow’s generations. We are in a position that any country would envy. Opportunities for economic growth, prosperity and innovation are there. It is for us to take advantage of it and lead ourselves to a wonderful future ahead of us. The trick is to talk with each other to make sure we take advantage of the gifts God has given us and not put obstacles in our way because I truly believe that only Saudi Arabia can stop Saudi Arabia, in the sense that our future is in our hands and we don’t depend on other countries to support us but, on the contrary, we help other countries. We have both human and financial resources. What we need to do is to manage our future in the right way and I am sure Saudi Arabia will become one of the leading economies in the world.
What are your expectations from The Jeddah Commercial Forum 2013, which is being held this month?
I look at this forum, which will be held from April 20-22 as a voice of the business community in our economy, a voice of current and potential investors about making the Saudi business environment friendlier and more competitive than it is today. As we all know we keep talking about the concept of global village and we are indeed in a global village. We can’t protect our markets, what we have to do is to be competitive to win new markets and not lose our own. Conferences like this will do the job of bringing the issues to the forefront; what we need to do is to be competitive as an economy.
Saudi Arabia is turning from an auto importer to a producer. What is the status of the Saudi auto market now?
It is an interesting dilemma, which deals with the subject of local assembly of cars. Saudi Arabia is a major automotive market. We compete with some of the most advanced and industrialized European countries in terms of the size of our market. We import over 700,000 units here. When I first started work in the mid-1980s, the size of the new car market was 120,000 a year. This year we expect the market for new cars to reach 750,000. The increase in number reflects the growth of the auto industry, the growth of the wealth of the people, and the growth of the population. We are now on the radar screen of major global automobile manufacturers. We used to be a small market but any market size that exceeds 500,000 automobile units is considered to be a major one. This has led many companies to think in terms of setting up local assembly plants here such as Tata and Isuzu. We already have Mercedes, MAN and Volvo assembling trucks here. Truck assembly is less complex because of the smaller number of components that are needed and the lower volume of units produced. So, it is easier to have a truck manufacturing plant than assembly for passenger vehicles. It is reasonable to have a truck assembly and just serve your local market. It is a viable business. But once you get into passenger cars assembly you need a bigger volume. You probably need to try to export and so the dynamics and feasibility study changes between truck assembly and a passenger car assembly. This is an important point. Because some people believe we already have car manufacturing in Saudi Arabia; in fact, we have mostly truck assembly plants. To truly build a car manufacturing base in Saudi Arabia, we need to first build the underlying infrastructure of supporting industries that would be the source of supply to most of the components needed to assemble cars. It is reasonable to expect to import many components from suppliers in other countries such as certain engine parts or the more advanced electronic components. But, we should be able to manufacture the more basic items such as body panels, brakes, wheels and tires, interior and exterior trim, etc.
SABIC has made good strides in this direction after its takeover of GE Plastics as well as using technologies developed in-house and can now be considered to have great capabilities to supply the automotive industry.
Of course there is nothing wrong with importing components for local assembly as we would be transferring the labor part of the assembly process to Saudi Arabia, but our ultimate aim should be to manufacture a great part of the needed components locally and then assemble the product. Only then can we claim to have an integrated automotive industry.
Add to this of course is the need for a proper distribution environment where we can efficiently import needed supplies as well as equally efficiently be able to transport and distribute the product whether locally or internationally. A high level of local demand is never enough to justify local production. An environment allowing proper and efficient transporting and distribution of the final production must also exist to make such manufacturing projects viable.
This vision is now further complicated by the global economic picture as most companies are now reducing their production capacity to save cost rather than look for new manufacturing hubs, but I am confident that going into the future the Middle East and the GCC in particular will continue to grow economically and can become an important automotive manufacturing region
When do you expect Saudi Arabia will start making cars?
I believe that will happen only in conjunction with foreign companies when existing manufacturers decide whether it is feasible for them to manufacture cars in Saudi Arabia based on some of what I mentioned already. The business community can then partner with them. It is not necessary to invent our own cars. There are plenty of car manufacturers all over the world so I think it really depends on existing manufacturers looking at Saudi Arabia and deciding whether it is feasible to set up a manufacturing or assembly plant. It is possible. Our demography is similar to that of Sweden in terms of the size of the population, demand and maybe the potential to export. Sweden is a relatively small country where only local demand could not support an whole automotive industry but it depends more on exports. Sweden is a production hub for Volvo, Scania and formerly Saab cars. So, you don’t need to be a country as big as America or China to have an automotive industry. You can have an automotive industry and export to make that industry thrive. I would look at models other than America because they have a huge home market. I would look at countries like Sweden and Austria that are too small to support an automotive industry but export and grow. It is not just building a factory but what is important is to have the whole infrastructure around to support this industry. These are the things the Ministry of Trade and Industry is working toward to create this kind of environment. The future of the car industry is bright. Even though we have been going through a worldwide economic crises which hit some countries very hard, slow growth in Japan and Europe is compensated for by growth in Asia, the Middle East, and Africa. Global automotive market demand was at around 81 million cars and trucks in 2012 and is expected to reach 100 million vehicles by 2016 as these economies continue to grow and the rest of the world recovers from the current crisis.
What opportunities do you see in the real estate market?
You can divide real estate into two parts — commercial and residential. Opportunities are the greatest in the residential segment because of the growing need for housing among the Saudi population. The recent Jeddah Economic Forum made it very clear, and the statistics presented at the forum showed that there is a need for much more home building. There is great opportunity for investment in the housing sector. What we need is support from municipal authorities in providing more land and infrastructure in order to develop various housing projects. Housing is needed at all levels — low income, middle income and high income. We know at all levels of income there are housing shortages.
How do you think vacant land can be utilized?
Saudi Arabia covers 2.2 million square kilometers of land space, which is as big as Western Europe. We are a very sparsely populated country. There is enough land for people who want to sit on land and not develop it and there is enough land for people who want to develop it. Of course, you don’t like to see big parts of land in the middle of the city left undeveloped but in my opinion there are alternatives. The authorities, government agencies responsible for arranging land for investment or development, should invest in expanding the service network of roads, water and power. We should invest in expanding the municipal services network in order to create more land that will be usable for development. We do have a housing crisis and I don’t think it is helpful to point blame at who caused the housing crisis. What we need to do is to see where we are now and look at possible solutions and immediately implement them without delay.
What impact will the implementation of mortgage law have on the real estate market?
The mortgage law will help companies and establishments that work in property finance to conduct their business and grow their services. However, it is not going to help the consumer looking to buy a residence or finance a residence in terms of price. Implementing the mortgage law will not lower the price of land but, on the contrary, it might raise it if it creates more demand for real estate and mortgages. Right now, the problem facing potential home buyers has not only been the provision of financing, but the high cost of real estate in Saudi cities.
How will Saudization be effective in the economy and do you believe any reduction in the dependence on expatriates will have a negative impact on the economy?
We all want to see the Saudi population working; you want young people who are graduating from universities to be gainfully employed. It is the joint aim of the government and business to have Saudis working. But every country, no matter what level of competency you achieve with your population, needs certain expatriates who bring in certain specialties which may not be available or who are willing to do a lot of work that the local population is not willing to undertake. So it is a matter of striking the right balance between job seekers and between filling the gaps with qualified expatriate labor where Saudis cannot or will not participate. That will always be an ongoing issue; it is not a problem that you can solve in one day. This will always be something you will try to balance every year all the time. And we have to recognize that expatriate labor have always been a part of the growth of Saudi Arabia from the day of its creation and will always be a part of the Saudi Arabia workforce makeup at all levels. There is no question that our country would not have reached this stage of development without great numbers of expatriates working at all levels and in all sectors and we should be grateful that we had access to their contributions.
There are things which we can do now to help reduce the number of unnecessary foreign workers but which we are not doing. Take the issue of women driving, for instance. There are more than half a million expatriates working as drivers in Saudi Arabia because we don’t allow our women to drive. Why do we do this? We encourage women to go to work nowadays. We support them at the workplace, but we force them to pay nearly half of their salaries to hire an expatriate driver whose only job is to take them to work and back. And this salary will mostly be transferred to another country. Why do we do that? As a country, we also end up paying a tax to other countries who provide those drivers for the privilege of having our women go to work.
As our population grows and as the number of working women increases, the sums of money transferred overseas simply because our women don’t drive will become unsustainable. If we allow women to drive their own cars, many drivers will no longer be needed. I am not saying we force women to drive, of course not. It is a choice and that is the key here. Whoever wants to have a driver can still can have a driver. But we don’t force people to pay a part of their salary as a tax to a foreign driver for the simple job of taking them to work and back. That is not fair or right. The simple solution is to allow women to drive and the key here again is to give women the choice.
What future do you see for Saudi women who wish to excel in their careers?
I see Saudi women replacing our expatriate workforce, not the Saudi men. In fact, we’ve already seen that most expats in our businesses are being replaced by women because many of the jobs expatriates do in this country include retail, office, secretarial assistant and middle managerial jobs. I think replacing expatriates here would give more opportunities for Saudi women workers. They will be greater beneficiaries in getting jobs vacated by expatriates. I think Women have yet to make a great contribution in the development of Saudi Arabia. Any country’s most important resource is its people. We think oil is our greatest resource but actually the country’s nationals are the greatest resource. How people of a country manage their lives and manage their economy will determine how successful and how prosperous that society is. Until now, we have not given to nearly half of our population who constitute women a reasonable opportunity to contribute to our economic prosperity. Apart from very limited sectors like education and health, women have not participated in other fields. I think unleashing women on the workplace is going to be the biggest benefit for Saudi Arabia. Women will bring a certain energy, expertise, quality of work, etc., that are different from men.
