Saudi Private Sector Companies Strive for Excellence

With government encouragement and support, the Saudi Arabian private sector has grown steadily in recent years. A technician at the Riyadh-based Advanced Electronics Company inserts components into a printed circuit board.
Respect for private property, opportunities for individuals to freely engage in industry and commerce, and encouragement of private involvement in the growth and progress of the nation: these are all principles espoused by Islam and observed by Saudi Arabia. The Kingdom has historically encouraged free and private enterprise as a vital element in the country's continued development. The private sector has been viewed as a pool of talent, initiative and industry that with government support can play an increasing role in realizing sustained growth and prosperity for the nation.

The Kingdom offered, over the course of the five-year development plans that began in 1970, a variety of incentives and support facilities to the private sector to properly utilize its boundless energy and realize its full potential. To facilitate the expansion of the private sector, the government has established five specialized credit agencies to provide the means by which Saudi individuals and companies can more effectively compete and function in the marketplace. The principal institution, the Saudi Industrial Development Fund (SIDF), was established in 1974 to supply long-term interest-free loans that can be used to finance up to 50 percent of the capital for a new industrial facility or expansion of an existing one. By the end of the Fifth Development Plan (1990-94), the SIDF had provided 25.48 billion Saudi riyals (6.89 billion U.S. dollars) for 1,365 new industrial projects and expansion of 380 existing ones. During the course of the current Sixth Development Plan (1995-99), the institution is projected to supply a further 5.3 billion riyals (1.41 billion dollars) in such loans to the private sector. The other credit agencies function in similar ways to provide Saudis with soft loans in the agricultural, commercial and housing sectors.

The National Industrialization Company invests in a variety of private sector industrial ventures, including plants manufacturing glass bottles.

In addition to providing the necessary funds to help Saudi individuals and private companies enter into joint ventures with foreign partners, thereby easing the transfer of technology that is needed to enhance self-sufficiency and increase their competitiveness in international markets, the government, offers consulting and support services to the private sector through a number of ministries and specialized agencies. It also offers access to information services and gives priority in public tenders to locally manufactured products and to Saudi companies.

Through these and other services, Saudi Arabia has managed to nurture a thriving private sector that is now active in different industrial, commercial and service sectors. One measure of the success of the Saudi effort to bring about a steady expansion of the private sector is reflected in its contribution to the gross domestic product (GDP), which rose from 4.42 billion riyals (1.1 billion dollars) in 1970 to 220.8 billion riyals (58.87 billion dollars) in 1994, an astonishing growth of 53-fold in less than a quarter century.

The great variety of Saudi companies operating in the Kingdom and abroad today testifies to the strength of the private sector. While most such companies are limited firms owned by individuals or a group of investors, and joint ventures between Saudi and foreign firms, others are joint-stock companies established to allow the smaller investors to participate in various economic activities and reap any benefits associated with such ventures.

One such firm was established in 1985 to cater exclusively to the small investor. As its name implies, the National Industrialization Company (NIC) is dedicated to ventures in industry in fields that complement the activities of larger established private and public operations. Its primary objectives are to provide investment opportunities for Saudi citizens, facilitate the transfer of technology to Saudi Arabia and the Arab world, enhance the Kingdom's self-sufficiency in industry and to develop job opportunities for young Saudis.

In its first nine years, NIC invested more than half a billion riyals (133.3 million dollars) in 43 industrial projects. While some of these operations are wholly owned by NIC, others are joint ventures with Saudi firms or straight investment projects in new factories. The company's investment strategy is to either independently establish new ventures or support those of other companies that complement its own industrial projects. In its short history, the company has earned a reputation for the acquisition of advanced production and management technologies from companies abroad and successfully transplanting them in Saudi Arabia in projects that are environmentally friendly.

One of NIC's projects involves the manufacture of electrical insulating components in Dammam on the Arabian Gulf. These components are used in installation of Saudi Arabia's vast power distribution network. Another operation in Riyadh produces millions of glass bottles to meet the specific demands of various Saudi beverage and food companies. The company also operates many other plants which, among other things, generate electric power, manufacture automobile batteries and produce various metals for industry and construction.

NIC is currently in the process of establishing the National Heavy Industries Company in a joint venture with U.S. companies to manufacture heavy equipment and machinery for the oil and petrochemical industries of Saudi Arabia. NIC is also investing with other Saudi firms in the establishment of a vast industrial complex. Four plants are to be built at the complex for the production of salt-based chemicals, including caustic soda, calcium hypochloride and other byproducts. The plants are expected to meet local demand for these chemicals and export excess production to regional and international markets.

Private sector companies in Saudi Arabia manufacture a wide range of consumer and industrial goods, including paints.

The company currently employs 7,000 workers at its various plants and operations. Emphasizing Saudization of the work force, more than 70 percent of its technical and specialized positions are filled by trained Saudis.

Another example of the diversity and success of the Saudi private sector is the Riyadh-based Advanced Electronics Company (AEC). Established in 1988 under Saudi Arabia's Economic Offset Program, which seeks to create local capabilities in strategic areas such as advanced manufacturing technologies, communications systems and product support, AEC is truly at the cutting edge of technology and compares favorably with the most modern manufacturing facilities in the United States and Europe.

Specializing in the manufacture of advanced electronics systems, including printed circuit boards, the company has many civilian and military contracts in Saudi Arabia and the other Gulf Cooperation Council (GCC) states. Among its first contracts was a deal with Northrop-Grumman Corporation for the manufacture of elements of the ALQ-135 electronic warfare systems for the F-15S aircraft produced by McDonnell Douglas Corporation for Saudi Arabia. It also manufactures flight data recorder systems for the Aerospace Group of Smiths Industries of Michigan.

The high quality of the company's products, which have received international standardization certificates, including the prestigious ISO 9002 quality system certification, has attracted more and more contracts from international companies. One of AEC's most popular products is a state-of- the-art tactical radio for infantry units and military vehicles. AEC currently produces such radios for several U.S. and European companies for placement in a variety of helicopters, tanks and armored personnel carriers.

The company, which recently relocated to a modern facility at the King Khalid International Airport Technology Park, also manufactures a variety of printed circuit boards for civilian and military applications. In early 1995, the company won a contract from AT&T Corporation worth 252 million U.S. dollars for the manufacture of printed circuit boards for the American company's electronic transmission and switching systems. The new boards will be used by AT&T in its multibillion dollar contract to upgrade the Saudi telecommunications system, which provides for the installation of 1.5 million new telephone lines, 200,000 cellular lines and thousands of associated network components.

AEC's reputation for excellence is rapidly spreading in the GCC states. Last year, the Ministry of Communications of Kuwait awarded the company a contract to repair different types of printed circuit boards used in its telephone switching network. The company edged out a European firm which had previously been carrying out the operation at a much higher cost.

The contribution of the Saudi private sector to the gross domestic product (GDP) has grown by 53-fold in less than a quarter of a century.

Speaking at a ceremony last year during which his company was awarded yet another international certificate of excellence, AEC President Abdul Aziz Al-Sugair attributed his company's success to the support of the Saudi government and to "our highly skilled, highly dedicated and motivated workforce." By offering extensive technical education programs and incentives, the company has steadily raised the proportion of Saudis in its workforce. Currently 58 percent of its employees are Saudis and the company seeks to raise that percentage every year.

The success of these and thousands of other Saudi private sector companies testifies to the initiative of Saudi entrepreneurs and the dedication and technical prowess of Saudi workers.

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