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Saudi Arabia and the world
Tuesday, Aug 09, 2022

KPMG: Rethinking value creation to support local content in Saudi Arabia

A strong supply chain network is a key enabler for a country’s resilience and ability to provide for its local needs while playing a significant role in the global supply chain linkages.
The global supply chain disruption witnessed as result of the pandemic has challenged this resilience from multiple fronts. Managing business continuity during disruptive times became a primary concern for many organizations. This can be achieved by developing greater resilience through the build-up of a world-class digitally enabled supply chain.

A new KPMG publication delves into Saudi Arabia’s transformation phase and the opportunities ahead for the country to leapfrog other countries to establish data-driven local supply chains. “Leveraging data to establish local supply chains, a new publication by KPMG, takes learnings from best practices from other resource-rich countries that strived to diversify their economies and build up domestic manufacturing industries.

As such, the Kingdom has already developed a sector strategy to improve supply chain efficiencies to increase locally sourced products and services, as well as adopt Industrial Revolution 4.0 technologies.

Currently, manufactured parts in the Kingdom constitute less than 10% of the annual spending on spare parts. Over the next decade, the country plans to spend more than SAR 1 trillion purchasing industrial equipment and spare parts, excluding military. These investments are predominantly set to be spent overseas (75%) with limited value-add to the local economy – this presents an opportunity for a significant localization of the supply chain for industrial products.

The Ministry of Industry and Mineral Resources (MIM) has embarked on a journey to boost the localization efforts in the industrial sector. These efforts are driven by Vision 2030 and the National Industrial Development and Logistics Program (NIDLP), with a primary focus on the energy, mining, industry, and logistics sectors.

The Kingdom’s efforts are driven by two key areas of focus: developing local content and implementing concepts of the Industrial Revolution 4.0. As global supply chains become more complex and continue to be sensitive to disruption, it makes sense to call for national agendas and development of local content.

The strategic directions to boost promising sectors in Saudi Arabia have been set out by NIDLP. In its assessment, NIDLP identified 15+ sectors in the Kingdom that would need screening to define priorities and ensure maximum value generation via localization.

Prioritizing sectors would require an initial assessment of their maturity within the Kingdom and region, using a set of selected assessment parameters such as share of GDP contribution, demand (local, regional, global), capacity to attract foreign direct investment, barriers to entry, capacity to generate employment, sales, and exports.

In addition, the sectors in focus should also be aligned with the objectives of Vision 2030, which defines mining and energy sectors among its top priority sectors.

Saudi Arabia has also established a Local Supply Chain Development Initiative (LSCDI) to provide an information platform and tools that lead to the establishment of local supply chains that are integrated, sustainable, and expected to facilitate the development of locally integrated industries.

Once implemented and operational, the LSCDI will help raise awareness of local supply chains – structure, gaps, database, supporting industrial network, and increasing visibility of SMEs. Open government best practices have been leveraged by Saudi Arabia to help enhance transparency and competitiveness in government procurement.

With an aim to transform Saudi Arabia into a leading industrial powerhouse and international logistics hub, the latest venture came from the NEOM project, with the announcement of Oxagon, which is set to become a leading modern manufacturing and industrial research and development (R&D) facility.

Close coordination among entities concerning policies and actions will allow LSCDI to achieve its commitment to supporting local supply chains in the Kingdom. With the MIM spearheading the initiative, it will be the National Industrial Information Center’s (NIIC) role to lead and orchestrate the coordination of data and information among all the entities to promote localization.

Local content policies are commonly used in resource-rich countries with varied goals and degrees of success. Investments in supply chain infrastructure, a strong local value chain and an integrated industrial ecosystem allow policymakers to have a holistic understanding of the parts that need to be put together to develop a successful program instead of focusing on incentivizing single products and services.

Saudi Arabia has the potential to pave its path to becoming a global powerhouse in the manufacturing sector and support its goal of building a resilient future.
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