DAVOS, Switzerland — As business leaders, academicians and political officials try to better understand current global dynamics at the ongoing World Economic Forum, Saudi Arabia is poised to assert its rapidly expanding petrochemical industry in the global marketplace.
Saudi Basic Industries Corp. (SABIC) is one of the Kingdom’s — and the world’s — prime petrochemical producers. Mohamed Al-Mady, vice-chairman and CEO of SABIC is attending the forum, and he took time out yesterday to discuss the future in an exclusive interview with Arab News. Al-Mady said that for Saudi Arabia to effectively capitalize on its petrochemical potential, it must take a global view and become a world player.
“Leading petrochemical producers today operate globally with multiple large world-scale plants capable of supplying all regional markets,” Al-Mady told Arab News. “SABIC’s acquisition of DSM and Huntsman’s petrochemical assets in Europe is an example of this geographic diversification and has laid the foundation for SABIC to become a more significant participant in the European petrochemical industry. The petrochemical business continues its evolution from a regional industry to a global industry. As a reflection of this, SABIC continues to seek the opportunity to develop competitive manufacturing assets in regions other than the Middle East. These opportunities could involve participating in joint ventures, constructing new assets, or acquiring existing assets.”
Al-Mady said the Kingdom’s bountiful energy resources give it an important edge. “To grow, the petrochemical industry requires a number of adjustments; with respect to the manufacture of commodity petrochemicals and plastics, it is necessary to attain a regional, or even better global, production cost advantage,” he said. “The Middle East is certainly one region with this advantage and has predictably attracted a growing nucleus of major world-scale petrochemical manufacturing plants. It is also of primary importance for a competitive manufacturing company to have manufacturing assets in multiple regions. This diversification serves to moderate over-exposure to any single geographic market.”
Western markets are a part of SABIC’s strategy, but Al-Mady said China and India are the economic hot spots now. “China and India are leading global economic growth,” Al-Mady said. “China dominates in the area of manufacturing and has the benefit of a large domestic market with spending power. India, on the other hand, is strong in technology/IT services. Both economies currently enjoy strong positions with ample foreign exchange reserves. The next decade will see the emergence of production capabilities in these markets, with China and India becoming net exporters rather than importers of goods and services.”
According to economic forecasts, China will be the primary petrochemical market for some time to come. “The global petrochemicals industry is at a crossroads, largely because China is becoming an increasingly important consumer and supplier of petrochemical products, and further, one which enjoys a competitive advantage due to its cheap cost of labor and sizable domestic market,” Al-Mady said. “In China, petrochemicals consumption has increased by about 12 percent per year over the past 10 years compared to only four percent for Europe and the USA. The industrial countries are shifting their petrochemicals activities to China, in such diverse areas as the automobile, electrical and electronics, communications and textiles industries. The petrochemical industry is experiencing major change, much of it revolving around feedstocks, geography and demographics. Nevertheless, our industry is no stranger to rapid change and it will, as it has in the past, meet these new challenges.”
Al-Mady said the global economy is proving its resilience, but problems in the US economy and volatility in the Middle East both are causes for concern. “During 2006, the world economy demonstrated that it can deal with geopolitical disturbances, as well as with economic discontinuities,” he said. “Nevertheless, in our view such threats have increased further. The US economy continues to face the risk of recession, partly due to the biggest decrease in home construction of the past 15 years. US GDP decline is the main threat to the global economy because this economy has been the primary engine of global growth in recent years. The stability of the Middle East is an equally important factor for global economic growth prospects in general and for growth in our industry in particular. Unfortunately, efforts to achieve such stability through diplomacy appear to have shown serious limitations in resolving long-standing conflicts.”
He said that the way forward requires collaboration as well as good relationships around the globe. “International economic cooperation is increasingly important; an importance which is reflected by bodies such as the WTO, the World Economic Forum and the various “Free Trade Agreements” as forums or mechanisms for facilitating multilateral and bilateral investment relations,” said Al-Mady. “These provide SABIC with the opportunity to contribute our expertise and resource for the growth of our business and the advancement of domestic and worldwide economic and social progress. We also believe that the stability in relations between the East and West is crucial for the future of our business. Geopolitics, debt, conflicts and poverty are signs of tension in this relation. Our business is organized on a global basis to facilitate the continuous drive for improvement by enabling us the prompt identification, prioritization and sharing of ideas, technology and best practices around the globe. SABIC has demonstrated significant success and growth through international cooperative partnership. At the same time, it integrates the company into the culture, fabric and infrastructure of markets around the world.” To be in this global game of haves and have-nots requires SABIC to position itself on the cutting edge of both technology and management. “SABIC has recognized the profound impact and intensity of accelerated development and utilization of information and communication on today’s business. As a result we have seen unprecedented access to customers across the globe,” said Al-Mady. “SABIC has made the strategic decision to implement common business processes throughout the company’s worldwide operations. Closely associated with this decision is the implementation of a single enterprise system to support new chemical industry best-practice business processes. This entire effort — the SABIC Transformation Program — is essential for the improvement of SABIC’s competitive position in the increasingly tough global marketplace.”
To win in this global game of haves and have-nots requires SABIC to carefully craft a long view. “The mission of achieving a world-class information technology and communication function requires clear, long-range thinking that embraces all of the technology related issues facing SABIC,” Al-Mady said. “In this context, the Transformation Program, albeit the centerpiece and foundation platform for SABIC’s strategic technology development, is only one of a series of technology-related strategic programs that are deployed to ensure agility, mobility and enablement of our employees with the required information in order to accurately make timely decisions.”
