Saudi Arabia’s New Export Challenge



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Source of picture: Indiaagrifarms

 

By John Richardson

Saudi Arabia continues to pursue its vision of adding social value to its hydrocarbon reserves by creating jobs. This involves going further downstream from basic petrochemicals.

“The Ministry of Petroleum has said, ‘we want an end to polymer tourism’ – i.e. plastic pellets leaving the Kingdom and returning as finished goods,” said an industry observer.

“As a result, the $20bn Sadara petrochemicals project has a $2bn downstream Sadara Value Park, where there will be plastic processing plants.

“The Saudi government has made it quite clear that approval for plain vanilla petrochemicals projects, such as commodity grades of polyethylene (PE) and mono-ethylene glycol (MEG), will no longer ben given.

“The first 25 years of petrochemicals strategy were about making cash out of gas and the next 25 years will be about adding value downstream.”

“If you visit one of these proposed plastic parks, right now you see nothing more than sand, but there is a real will to make this work.

“The cynicism is still there, but there is a growing determination to make this work, and, I think, more commitment from investors.

“It is also about getting the right incentives to make this work – for example, low-cost financing, free land, free electricity and tax incentives.

“This is a multi-pronged approach by the Saudi government. It recognises that it is not just about incentives for investors – it is also about changing the entire education system to encourage people to work behind hot and sweaty processing plants. There can only be so many ‘knowledge-based workers’ sitting nice, air-conditioned offices.”

But with a population of only 28 million, Saudi Arabia will still face the same problem that has confronted basic petrochemicals, if it ends up creating a big plastic processing industry: The need for substantial volumes of exports.

The problem for any exporter is that it can no longer depend on China to soak up imports of basic raw materials, and components of finished goods, that are then re-exported to the West.

Thus, it will be about very careful market segmentation. Companies selling to China, and emerging markets in general, will need to focus on the megatrends that will drive growth in the future. For example, PE resin and plastic pipes for better irrigation systems.

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