How industrialisation could future-proof MENA’s Gulf economies

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Alexandre Raffoul, Head of Business Engagement, Middle East and Africa, World Economic Forum & Fatima Al Zahra Hewaidi, Community Lead, Business Engagement, MEA, World Economic Forum

• Encouraging industrial innovation has bolstered recent efforts to diversify the economies of the Gulf Cooperation Council (GCC) region, say local business leaders.
• They believe greater support for manufacturing, export and logistics industries, will help develop more resilient, knowledge-based economies.
• Such support has seen national and international organisations co-operate to train local talent and offer finance to growing businesses in the region.

If economic diversification is the linchpin of future growth in the Gulf Cooperation Council (GCC) region, then industrialisation is the blueprint. This conviction is guiding national strategies in the GCC with increasing force, as governments in the region aspire to develop resilient, knowledge-based economies.

In the last quarter alone, the United Arab Emirates announced plans to increase its industrial revenues to $81bn over the next decade – more than double the manufacturing sector’s current contribution to the local economy. Saudi Arabia launched its Made in Saudiprogramme, which aims to support industries to grow their local footprint and boost exports to priority markets. Under Qatar’s National Vision 2030, the country’s manufacturing sector is expected to employ more than 100,000 people by 2025 and will see a 30% increase in the value of production between 2019 and 2025, according to KPMG.

Three of the World Economic Forum’s Partners in the region are playing a key role in enabling a local industrial ecosystem to boost economic diversification. We asked them what it takes to nurture industrial development, both on a national level and across the GCC.

Championing entrepreneurship: Qatar Development Bank

“What would we be able to produce if oil and gas did not exist?” wonders Abdulaziz Al-Khalifa, CEO of Qatar Development Bank (QDB). For the GCC to shed its “single resource identity” he believes industrial SMEs must have access to training, finance and markets.

This thinking led to the creation of Fab Lab, a state-of-the-art fabrication laboratory for designing and prototyping products, and Factory One, a model factory launched in February 2021. The first of its kind in the GCC, Factory One’s mission is to train the next generation of manufacturers in optimising operations and digital transformation. “Our role as a development institution is to stimulate,” says Al-Khalifa. This includes providing entrepreneurs with core skills around starting a business and tailored industry programmes like the Lean Manufacturing Program run by QDB’s Qatar Business Incubation Center.

What would we be able to produce if oil and gas did not exist?—Abdulaziz Al-Khalifa, CEO, Qatar Development Bank (QDB)

Al-Khalifa warns against focusing on the process over the desired outcome of national development strategies. He also stresses the importance of learning from past failures. “While we can afford to make mistakes, we should also have the tolerance to fix them,” he says, and this will require a mindset shift in the region to see decision makers championing entrepreneurs. In Qatar, Al-Khalifa says this means creating an enabling environment for SMEs and strengthening the reach of private capital in research and development activities and commercial markets.

Unlocking talent to boost exports: The Saudi Industrial Development Fund

“We are on the cusp of a revolution in the Kingdom centred around technology and high value-add products,” says Ibrahim Al-Mojel, CEO of the Saudi Industrial Development Fund (SIDF). He oversees the primary financial enabler of the Kingdom’s National Industrial Development and Logistics Programme, which is the largest of the Kingdom’s Vision 2030 programmes. This involves supporting a common playbook to rally diverse stakeholders in the industrial process around the shared objectives of the nation’s Vision 2030 economic roadmap. “We have a large market,” adds Al-Mojel. “We must leverage it to build manufacturing capacity to meet our export challenges.”

The SIDF supports any commercially viable project in manufacturing, renewables, mining and logistics. It emphasises customisation over scale and automation over cheap labour. “We provide up to 75% of the capex required for automation by issuing low interest, fixed-rate loans for up to 20 years,” Al-Mojel says, adding that SIDF has committed nearly $50 billion in loans since its inception in 1974. By creating markets in the Kingdom, he believes export capacity will follow, as will the Kingdom’s ability to meet the needs of traditionally underserved markets in Africa, Central Asia, and the Middle East and North Africa.

We are on the cusp of a revolution in the Kingdom centred around technology and high value-add products.—Ibrahim Al-Mojel, CEO, Saudi Industrial Development Fund (SIDF)

The key to building local industrial capacity is unlocking a talent pool of more than 20 million Saudis, Al-Mojel says. To do this, SIDF partners with global institutions including Stanford University and London Business School to retrain talent in the automotive, manufacturing, advanced chemicals and plastics sectors. “We are exporting the country itself and what it can offer investors, businesses and tourists,” he says.

Creating a logistics hub: ASYAD

One of Oman’s strategic advantages lies in its geographic location, which has enabled the rise of its logistics sector and international trade. “A strong industrial sector leans on a reliable logistics infrastructure,” says Abdulrahman Al-Hatmi, CEO of Oman’s national logistics company ASYAD.

To support Oman’s national industrialisation objectives, ASYAD has cooperated with various government agencies to standardise procedures and create a resilient pipeline of industrial inputs and outputs. Such efforts helped Oman rank 1st among GCC states in the World Bank’s Trading Across Borders Index, says Al-Hatmi.

A strong industrial sector leans on a reliable logistics infrastructure.—Abdulrahman Al-Hatmi, CEO, ASYAD

ASYAD is now building new capabilities to enhance its integrated logistics services across Oman’s industrial ecosystem. This includes employing 5G and drone solutions for security, inspection and delivery, and IoT for automation.

The company owns four ports that run 200 weekly maritime services to 40 countries. China, India, the UAE, and Qatar are among those that have invested over $14 billion in a special economic zone that is fully integrated into one of these ports. This will serve as a commercial gateway from Asia to the Middle East and East Africa. Through ASYAD’s leadership, Al-Hatmi hopes Oman will be one of the world’s top 10 logistics hubs by 2040.

Building a rewarding future for all

There is a genuine campaign for industrialisation across the GCC. Success will rely on a pragmatic and outcome-driven mindset that balances a “willingness to make decisions” but also to “correct the course when necessary” says Al-Mojel.

While economic diversification is a process that can span generations, QDB, SIDF and ASYAD are showing that it is possible with the right investments in automated manufacturing, cross-skills training programmes and customised support for industrial SMEs. These business leaders also see the campaign for industrialisation acting as an equaliser as the GCC region slowly diversifies its economy. As Al-Hatmi says, deepening economic integration in this way “will be rewarding for everyone”.