JEDDAH, 11 July 2005 — The automobile industry has the potential of becoming an investment sector in the Gulf region particularly Saudi Arabia if the right strategy and procedures are implemented. According to a recent study by the Gulf Organization for Industrial Consulting (GOIC), a research center based in Doha serving the GCC, the automobile industry in the Gulf market continue to face obstacles that prevent it from developing into a positive economic contributor.
There are around 300 factories for assembling cars and other car related industries in the Gulf with investments worth $1.1 billion and which employ 26,000. The Gulf countries import cars worth SR8 billion annually in addition to billions of dollars worth of spare parts. It is a market sector that is growing at 9 percent annually in the region.
Saudi Arabia leads the Gulf countries in this industry with 183 factories and investments worth $980 million, followed by Kuwait with 16 factories and $67 million investments, UAE with 78 factories and $56 million investments, Bahrain with 15 factories and $22 million investments, Oman with eight factories and $14 million investments and last Qatar with nine factories and $6 million worth of investments in the auto industry.
These factories and investments service the assembly of different kinds of vehicles. The GOIC report points out that it would be easy for the Gulf countries to activate and expand their investments in the auto industry since they already produce some of the spare parts such as the brake linings, air and oil filters and batteries most of which are produced in Saudi Arabia, Oman and Kuwait.
Transmissions, radiators, windows, gaskets and seals are among the other products produced locally. They do not however make the basic standard parts such as fuel injectors, small electric generators, distributors or safety equipment.
The study lists some of the main obstacles facing the automobile industry sector in the Gulf and standing in the way of its development. At the top of the list is the reliance of most of the car factory companies on imported parts for their production. This results in high manufacturing costs of the final product compared with foreign cars.
There is also a lack of a unified Arab or Gulf strategy in car manufacturing that could distribute the cost. The high industrial costs and high tariffs on the machines and equipment needed for manufacturing cars and related industries in some Arab and Gulf countries also presents obstacles to cooperation between the Arab countries to reduce cost. Added to that is the tough international competition in the car market between top car manufacturing companies and small companies which decrease the chances of exporting Arab cars.
The automobile industry is one of the most important industries in the world because it contributes to diversifying national revenue sources and provides large numbers of job opportunities for different specialties from technicians to engineers. World production of cars in 2002 was estimated at 584 million cars.
GOIC numbers on the demand for cars in the Arab countries including Gulf countries predict an increase to 12 million cars in 2005 and the demand should increase at a rate of 4 percent annually.
To take advantage of this, GOIC recommends that the Gulf governments go into partnership with the private sector in manufacturing cars because of the high capital investment needed for this type of industry. The factories should focus on producing two kinds of “Saloon” passenger cars between 2.24-2.7 liter capacity that can be sold inexpensively and be for the first few years until it proves its quality.
Other recommendations for developing the automobile industry sector in the Gulf include establishing a database on the industry across the region to establish a correlation between the car industry and the industries related to it and to distribute the manufacture of basic parts between a number of countries that have the appropriate industrial infrastructure.
Another recommendation is the establishment of an Arab Gulf technology center for manufacturing cars to prepare the human resources needed who are trained to fill the requirements of the industry. As for developing the industries related to car manufacturing, the report recommends that foreign companies assembling their cars in the Gulf countries to use parts produced in the region, establish a Gulf-based company to market the industry in the Arab countries and work at developing the basic industries for the related metal, engineering and chemical industries.
