BrazilKPMG: Advancing Saudi Arabia’s industrial sector at a crucial juncture
Enhancing the competitiveness of Saudi Arabia’s industrial sector will be crucial to achieving the goals of Vision 2030. A new report from KPMG emphasizes the need for sector-wide strategies to be backed up by carefully designed policies and a robust focus on execution-related success factors.
The industrial sector is one of the cornerstones of Vision 2030. In support of this vision, Saudi Arabia in 2019 launched the National Industrial Development and Logistics Program (NIDLP), which aims to transform the kingdom into a global leader in logistics, energy, mining, and industry. Key initiatives include major investments in renewable energy, updated mining regulations, and the Made in Saudi program, which promotes local content.
More recently, in 2022, Saudi Arabia also launched its National Industrial Strategy (NIS), which seeks to raise the non-oil industrial sector’s contribution to GDP from $88.26 billion in 2020 to $377.06 billion by 2035, create 2.1 million jobs by 2030, and triple industrial exports to $148 billion by 2030. This strategy targets twelve key sectors, including chemicals, renewable energy, and aviation, focusing on building resilient supply chains and fostering innovation.
KPMG’s latest report, titled ‘Advancing industrial policy in Saudi Arabia’, takes a deeper look on the governance needed to make the nation’s industrialization agenda a success. Based on their analysis, the report’s key authors Ghassan Elchaarani and Omar Alhalabi (both are partner) conclude that success hinges on a number of key factors.
The right policies
At the outset, it is key to make the right decisions when it comes to policies and investments. “Policymakers must adopt a data-driven approach to target industries with the most potential for growth,” said Elchaarani. “The right mix of tools, tailored to the appropriate industries, is paramount in optimizing the impact of industrial policies.”
This decision-making should not be a one-off exercise, but instead adopt a continuous approach: “Policies should not be static; they must evolve in response to new challenges and opportunities. Continuous monitoring and evaluation enable policymakers to assess the effectiveness of their policies and make informed adjustments. This iterative process ensures that policies remain relevant and effective, driving sustained economic growth and development.”
Such evaluation should take place both at the local and global level, noted Alhalabi: “The success of Saudi Arabia’s industrial strategy also lies in its ability to adapt to evolving global challenges.”
Governance
Once the value-added sectors and the policy tools are identified, a robust governance framework should be implemented to ensure effective implementation and oversight of industrial policies. This framework should enable flexibility in applying the policy, said KPMG, allowing for necessary adjustments in response to changing environments and inefficiencies. “Effective governance structures provide the foundation for transparency and accountability,” noted Elchaarani.
Public-private partnerships
In terms of delivering major initiatives, public-private partnerships should be placed centre stage. This approach not only helps solve the investment and risk dilemma, but also promotes collaboration, encourages local investment, supports small and midsized businesses, and unlocks new business opportunities.
Knowledge and human capital
While the industrial sector leans heavily on machines, KPMG’s report emphasized that at its core, human capital remains the primary impediment to growth. As a result, fostering knowledge transfer and promoting a lifelong learning mindset will be pivotal in driving innovation and industrial development.
The government is expected to drive much of this agenda, among others promoting technology transfer or providing vocational and technical training to ensure the workforce‘s skills match current and future market demands. “Here too public-private partnerships will play a vital role,” said Alhalabi.
Research and development
Knowledge acquisition is necessary to boost Saudi Arabia’s industrial capabilities. The KPMG report highlights key enabler such as tax incentives and grants to encourage research and development, facilitating knowledge transfer between academia and industry through technology parks, and fostering innovation through innovation hubs.
Data availability
The lack of harmonized data across institutions can lead to conflicting policies and poor resource allocation, which in turn impedes Saudi’s ability to formulate robust industrial policies. “A national/sectoral accurate and timely database is essential for informed decision-making, monitoring policy outcomes, and evaluating the effectiveness of various initiatives across the various sectors and sub-sectors,” said Elchaarani.
Conclusion
Commenting on the report, Elchaarani and Alhalabi said: “Saudi Arabia’s industrial policies are pivotal to its economic transformation. The sector now stands at a crucial juncture, with its success depending on the ability to create an environment where industries can thrive, driving sustainable growth and aligning with the ambitions of Vision 2030.”
“By developing data-driven and adaptable industrial policies, that carefully balance government intervention with market forces to foster an environment of innovation, investment, and growth, Saudi Arabia’s industrial sector can remain resilient, globally competitive, and become a key driver of the Kingdom’s long-term economic success.”
