Manufacturing sector poised for significant expansion

The diversification of Saudi Arabia’s oil-based economy is progressing steadily.

The diversification of Saudi Arabia’s oil-based economy is progressing steadily.

IT spending in Saudi Arabia is increasing at the fastest rate across all countries in Central Europe, the Middle East, and Africa (CEMA) region, according to the latest insights released recently by International Data Corporation (IDC).

In the manufacturing sector specifically, IT spending is expected to increase at a compound annual growth rate (CAGR) of 7.5 percent over the 2013–2018 period.

Continuous GDP growth has resulted in ambitious development plans in the country, and there is an apparent push for improvements in the business environment to attract more foreign direct investment (FDI) to a number of different manufacturing sub-sectors.

“The Saudi manufacturing sector is poised for significant growth and has the potential to become a technology-intensive industry, not only on an advanced regional level but also on a par with global competition in most areas,” says Martin Kuban, lead research analyst at IDC Manufacturing Insights, CEMA.

“The diversification of the country’s oil-based economy is progressing steadily, supported by a positive economic environment and favorable investment attitudes. And IT innovation spirits are rather high, as many of the new businesses are not saddled with extensive client-based solutions,” he added.

Software and IT services will be the fastest-growing segments, transforming the traditionally rather hardware-oriented IT market. 3rd Platform IT solutions and the Internet of Things are also expected to play a more essential role in the Saudi manufacturing sector over the coming 5–10 years.

The future of manufacturing in Saudi Arabia will remain dominated by large manufacturing entities and conglomerates focusing on asset-oriented and brand-oriented manufacturing.

“Manufacturing in technology- and engineering-oriented value chains will be driven by emerging SMBs, mostly established in industrial zones surrounding big cities,” continues Kuban.

“Many of these hubs will emerge as centers of innovation and excellence, closely tied to newly developed R&D facilities. IT will play a crucial role in these new establishments, and this will be in visible contrast to the country’s large manufacturing companies. While these will also undergo considerable IT transformation, it will typically be at a much slower pace and with less grace due to the lack of IT skills and poorer decision-making capabilities of their internal IT organizations.”

The manufacturing sector delivers roughly 10 percent of Saudi Arabia’s GDP, and it holds significant potential both in terms of its contribution to GDP and the ongoing diversification of industries. Oil and gas processing and the related chemical industry remain the major drivers of economic growth, but a significant increase in output from these industries is unlikely due to global competition and international agreements.

Indeed, the dynamics of development and emergence of new players lie in nonoil resource mining and processing and other high-added-value industries like aerospace and defense, pharmaceuticals and life science, electrical machinery and hi-tech equipment.

These industries are still comparatively very small but they show high growth rates and offer a number of opportunities for both IT and non-IT investments.

 
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