SAUDIS DISCUSS LOCALIZING MANUFACTURING, TRANSFERRING

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TAGS: SA PGOV ECON ELAB
SUBJECT: SAUDIS DISCUSS LOCALIZING MANUFACTURING, TRANSFERRING
TECHNOLOGY

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1. (U) KEY POINTS:



-- The Eastern Province Chamber of Commerce and Industry (EPCCI)
held its first-ever Local Content Forum on March 23, which
discussed transferring foreign technology and manufacturing
capabilities to Saudi Arabia.



-- Training and educating Saudis was cited often as the initial
step before technology and manufacturing capabilities can be
successfully established in the Kingdom.



-- The SAG's Saudization policy was discussed throughout the
conference, with most participants from the private sector and
government identifying hiring more Saudis as a top priority.



-- The forum was well-attended with many prominent businessmen
and government officials, including the CEO of Aramco, a Deputy
Minister of Labor, and most of the Eastern Province's prominent
business families.




2. (U) COMMENT:



-- Several participants told PolOff that this was the first time
that a forum on this topic was held in Saudi Arabia. Although a
handful of companies have been successful in transferring
technology to the Kingdom, the participants noted a deficit in a
technically trained and professional Saudi workforce. It is
clear from the discussions at this event that the Saudi
educational system continues to fall short of the private sector
demands for skilled and qualified technicians and
professionals. With more than half of the Saudi population
under the age of 25, job creation remains one of the SAG's most
difficult challenges.



End key points and comment.




3. (U) LOCAL CONTENT FORUM 2009. The EPCCI held a very
well-organized Local Content Forum 2009 at the chamber's main
auditorium. The forum consisted of four sessions: Opportunities
for Localizing Content, Role of Government in the Transfer of
Technology and Saudization, Participation of Heads of Strategic
Sector Firms in the Transfer of Technology and Saudization, and
Success Stories in the Private Sector. Each session included
four to five panel members, including a chair. The panels were
made up of an impressive group of prominent business and
government leaders. Some of the more notable panel members
include: Khalid al-Falih, President and CEO of Saudi Aramco; Dr.
Abdullah al-Dabbagh, President and CEO of Ma'aden; Ali al-Barak,
President and CEO of Saudi Electricity Company; Dr. Abdulwahed
al-Humaid, Deputy Minister of Labor; Thabit al-Lihaibi, Vice
Governor of Sweet Water Conversion Corporation.




4. (U) FIRST STEP IS TRAINING AND EDUCATION. All four sessions
of the forum discussed in detail the need for increased
resources invested in training and education. Perhaps the
boldest comments came from Deputy Minister of Labor Dr.
Abdulwahed al-Humaid when he called for an overhaul of the
curriculum starting in primary education and the need to send
more Saudi college students abroad. (Note: Contacts describe
al-Humaid as progressive like his boss, Minister of Labor Ghawzi
al-Gosaibi. End Note.) Several participants emphasized the
need for better vocational colleges and the responsibility of
the private sector to establish training centers. Aramco and
Zamil Industrial Group highlighted the success of their
respective training institutes. The representative of Advanced
Electronics Company (AEC) noted that without more well-trained
and qualified technicians, brining manufacturing technology and
processes to Saudi Arabia would not be possible. (Note: AEC
was itself created under a tech transfer "offset" program
related to a multibillion dollar Hughes air defense contract in
the 1980s. End note.)


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5. (U) SAUDIZATION. Dr. al-Humaid said that the SAG had
recently decreased Saudization quotas for industrial businesses,
dropping the percentage of Saudi nationals from 30% to 20%. In
a subtle critique of the Saudi workforce, al-Humaid noted that
it was important for Saudis to be capable, qualified and
hard-working and that hiring Saudis without these
characteristics would lower productivity and damage the economy
in the long-term. He added, "Most of the opportunity is with
females, which we are not tackling because of social reasons."
One participant commented on the value of keeping foreign
experts in the company as a mentor for Saudi employees,
achieving "Saudization by expansion, not replacement."




6. (U) TECHNOLOGY TRANSFER. Abdulmohsen al-Majnooni, VP of
Saudi Operations for the Kuwait-based Al-Khurayef Petroleum
Company (APC),laid out the key steps to his company's success
in transferring technology to the Kingdom: 1) gain knowledge of
a technology as a distributor or agent for a foreign company, 2)
recruit top-notch experts of that technology -- regardless of
nationality, 3) properly fund in-house R&D, and 4) cooperate
with large, established companies in the region. Another
participant stressed the urgency of transferring technology to
Saudi Arabia saying, "We [Saudi companies] rely heavily on
foreign sources of technology and things are only getting worse
with the WTO agreement." (Note: The participant did not
elaborate on what he meant by "worse." End note.) According to
one participant, only 8% of Saudi Arabian exports are
technology-based (defined as: value added to an export through
the application of technology) compared with roughly 50% for
South Korea and Japan.




7. (U) SPARE PARTS MANUFACTURING IS BEST OPPORTUNITY. Nearly
every major company identified their preference to source spare
parts locally, rather than from foreign suppliers. Buying spare
parts from abroad often requires maintaining costly inventory
levels, procurement delays, and increased costs due to
shipping. A representative of the Saudi Electricity Company
said that 80% of the procurement of their replacement parts
comes from foreign sources. However, Saudi Aramco president,
Khalid al-Faleh, noted that his company would not forego any of
their quality standards just to procure locally. Several other
large firms reiterated this point, saying that local suppliers
must be as credible and qualified as the foreign competition.
Nevertheless, the opportunity for local producers to fill this
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