Saudi Arabia to develop car-manufacturing citySaudi Arabia is currently developing a car manufacturing city, and working to incentivize investors to inject money into the industry, the Ministry of Energy, Industry and Mineral Resources said on its official Twitter account.
The Kingdom will also provide the required raw materials including aluminum, rubber, plastics and others at competitive prices.
The Auto Cluster, as part of the Industrial Clusters, aims to attract Saudi and foreign investments, increase exports, provide job opportunities, and contribute to economic diversification as part of its 2030 Vision.
www.argaam.com/enShifting sands of time: The changing nature of Saudi Arabia’s automotive industryChanges to social and economic conditions, including the recent removal of a ban on female drivers, could give a welcome boost to the automotive industry in Saudi ArabiaSaudi Arabia boasts access to over 400m consumers in the Middle East and North Africa (MENA), a vast region where annual car sales are currently only around 2.3m.
Another benefit for companies looking to do business in the area is the Greater Arab Free Trade Agreement (known as Gafta) which permits duty-free access to 17 countries in MENA if local value added is 40% or above.
Yet the Saudi government has ambitions to serve an even bigger area, taking advantage of its location between Europe, Africa and Asia and its access to 2 billion consumers within a three-hour flight time.
A small proportion of imported vehicles (estimated at 5%) are shipped to neighbouring nations in the form of re-exports, of which the UAE, Jordan, Lebanon and Egypt are the key destinations.
Authorised OEM dealers – for example, Abdul Latif Jameel (ALJ) for Toyota, Al Majdouie Motors and Mohamad Yousuf Naghi Motors for Hyundai – are responsible for the import and sale of vehicles in Saudi Arabia.
Yazan Shukair, managing consultant at AEI Saudi, which provides market entry, insight and human resources services, says that most imported cars enter the country through Jeddah and Dammam ports. From there, they are normally moved by truck to dealerships – in Saudi Arabia, a relatively cheap method of transport.
By rail, it is possible to move cars to Riyadh from Dammam but not from Jeddah, according to Shukair.
A project called the Saudi Landbridge is currently underway to connect Riyadh and Jeddah by rail.
Research by Aranca indicates that Toyota leads Saudi Arabian vehicle sales overall, taking more than 30% of the market in volume terms. Hyundai is the second-largest player, accounting for over 15%, followed by Nissan, Mazda and then Chevrolet.
Saudi customs regulations require that imported cars and other light vehicles must have been manufactured less than five years before entry into the country, while the limit for heavy trucks is ten years.
Arabian adventures
A December 2018 report released by the Korea Trade-Investment Promotion Agency (Kotra), which consolidated research by Business Monitor International, Euromonitor, Saudi Arabian Industrial Cluster and Intertek, struck an optimistic note regarding prospects for new entrants to the market.
The report said that in September 2018 Saudi Arabia’s Public Investment Fund (PIF) concluded an investment agreement worth over $1 billion in US electric vehicle manufacturer Lucid Motors, through a special-purpose vehicle wholly owned by the PIF.
Meanwhile, the investment arm of Saudi conglomerate ALJ, the local distributor for Toyota and Lexus, has agreed to provide almost $500m in funding to US-based electric pick-up manufacturer Rivian Automotive, according to a November 2018 report by Reuters.The Saudi government is seeking to develop domestic manufacturing capability to create jobs and facilitate the transfer of technology, according to Aranca’s Sanghavi.
“The government has also initiated the National Industrial Clusters Development Program [NICDP] to provide support in the form of consultancy and financing for potential investors,” he states.
Industrial Clusters works with leading Saudi business partners such as the large chemicals conglomerate, Sabic, the aluminium smelter, Ma’aden, the nation’s largest industrial firm, Tasnee, and the world’s largest oil producer, Aramco, to produce advanced automotive materials, including carbon black and synthetic rubber (for tyres), carbon fibre, nylon 66, ABS, polyurethane, composites, steel sheets, aluminum sheets and molten aluminum.
To further develop the automotive value chain and exploit the availability of nearby raw materials such as aluminium, the NICDP has identified powertrain and structural automotive components as key segments for development.
These facilities are expected to serve both the export market and the assembly plants of the OEMs which operate in the country as part of the nascent Auto City development.
Crucially, if Saudi-based automotive manufacturers find that certain products are not available from domestic suppliers, they are exempted from customs duties on imported raw materials, associated equipment and spare parts used for the production of such items.
Enticingly for foreign investors considering setting up car manufacturing plants in the kingdom, once an automotive project is operational, capital and profits can be repatriated without restriction.
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