The Kingdom of Saudi Arabia

Investing in Industrial Infrastructure and Attracting Foreign Investment

Today, Saudi Arabia is known for its enormous reserves of oil and gas, but an export-led economic diversification effort will soon help the Kingdom become a significant global producer of value-added industrial components and manufacturing inputs — from aluminum and fertilizer to high-tech fiber-optic cables.

The country is also aggressively pursuing foreign direct investment (FDI), for both the capital investment and the technology and expertise that FDI brings. This technology transfer is particularly valuable when coupled with the extensive experience of the Kingdom's well-respected and long established Saudi family firms, which operate inside the Kingdom and collaborate with international partners through joint ventures and other cooperative agreements.

The opportunities Saudi Arabia offers to international investors are tremendous and enhanced by the strong demographics. A growing number of pro-business laws and regulations, as well as increased spending on infrastructure and industrial-plant expansion, support these investment opportunities. In response to the global slowdown, the government has committed to a five-year, $400 billion spending program on development projects across the Kingdom. In addition, blue-chip companies, including Saudi Aramco, the world's largest oil company, and Saudi Basic Industries Corporation (SABIC), the largest Middle East company by market value, are also pursuing multibillion-dollar expansion projects. Saudi Arabia already has many competitive advantages, including low energy costs; domestic supplies of valuable metals and minerals; a geographic location close to fast growing, emerging markets in Asia, Europe and Africa; and a pool of entrepreneurial talent nurtured by long-established trading families.

In 2007 and 2008, the World Bank named Saudi Arabia the most business-friendly country in the Middle East and ranked it among the world’s top 20 business-friendly countries. With its commitment to creating a pro-investment environment, the Kingdom aspires to be recognized as one of the top ten countries in the world for doing business in 2010.

Asharqia Chamber

Billion-Dollar Opportunities in a Business-Friendly Environment

The Eastern Province of Saudi Arabia generates 60% of the Kingdom’s total GDP, making it the second-largest economy in the Middle East, as well as the region’s undisputed industrial capital. Saudi Aramco, the largest oil company in the world, is headquartered in the Eastern Province, and SABIC, the Middle East’s largest company by market capitalization, has many of its operations and subsidiaries in the region. There are several massive industrial zones in the Eastern Province, including the 5,500-square-hectare Jubail Industrial City I, home to one of the largest methane crackers in the world.

What’s more, the Eastern Province is eight years into a ten year, multibillion-dollar investment program to develop its oil and gas, water and power, and petrochemicals infrastructure — primarily to support export-led growth and a Kingdom-wide diversification drive away from dependence on oil revenues. Already, 90% of Saudi Arabia’s exports come from the Eastern Province. In 2008, Saudi Arabia’s GDP was $481.6 billion, and the GDP of the Eastern Province alone was $288 billion, substantially more than the $260 billion economy of the United Arab Emirates, the next largest in the region.

The government is pursuing a proactive, countercyclical fiscal policy in the face of the global slowdown that includes spending $400 billion across the Kingdom on development projects.

Scale of Opportunity

This multibillion-dollar investment program offers Abdulrahman Rashed Al Rashed, President of the Asharqia Chamber, an easy way to demonstrate the enormous scale and scope of opportunity for international companies in the Eastern Province. He explains that these billions of dollars in new infrastructure will generate annual plant servicing requirements totaling between $3 billion and $5 billion a year, and that’s on top of the billions already contracted to service the plant.

In addition, the government is pursuing a proactive, countercyclical fiscal policy in the face of the global slowdown that includes spending $400 billion across the Kingdom on development projects over the next five years.

"We are marketing the Eastern Province as an investment destination and discussing its business opportunities in concert with His Royal Highness Prince Mohammed Bin Fahd Bin Abdul Aziz Al-Saud, Governor of the Eastern Province," says Al Rashed.

Ease of Doing Business

The chamber is also redesigning its Web site to ensure that it has constantly updated data and provides comprehensive information about doing business in the province and the Kingdom. It will have clear and accessible facts about all its members, including contact information, for the convenience of potential partners.

For the second year in a row, the World Bank has named Saudi Arabia the most business-friendly country in the Middle East. It ranked in the top 20 globally in the bank’s annual “Ease of Doing Business” survey and has an official stated goal of reaching the top 10 by 2010.

Multibillion-Dollar Industrial Cities

Located on the east coast of Saudi Arabia and bordering the Arabian Sea, the Eastern Province holds more than 20% of the world’s total 1.3 trillion barrels of proven oil reserves, as well as a population of 3.4 million, or nearly 15% of the Kingdom’s 24 million total. Most industrial and manufacturing activities take place in Jubail Industrial City I. The $3.7 billion Jubail Industrial City II, which is currently under construction and will be nearly the same size as Jubail I, is expected to attract $60 billion in new investment.

In addition, Ras Azzour in the north will be the site of a phosphate-processing plant and a 740,000-ton-per-year aluminum smelter being developed by Maaden, the Saudi Arabian Mining Company. A water and desalination plant, producing 1 million cubic meters of water a day and 2,400 megawatts of power, will service this complex and other industry facilities. Several industrial parks in Dammam and Al Khobar house hundreds of manufacturing firms operating in chemicals, plastics, aluminum, steel, building materials, and wood and metal furniture making.

One more factor in Saudi Arabia’s favor is its domestic market. Not only is Saudi Arabia the second-largest Arab country by population after Egypt, but its population is growing at 2.3% a year, says Al Rashed. “We offer local consumer demand. Compared to other countries in the region, we are heavily populated and have quite a nice population growth.”

Rawabi Holding Company

A Corporate Culture of Transparency, Partnership and Good Governance

Sheikh Abdulaziz Ali AlTurki gestures toward his office window in the direction of the headquarters
of Saudi Aramco, the Kingdom’s national oil company and a global giant. He is explaining why he changed the business focus of his privately held Rawabi Holding Company ten years ago.

“We are a few kilometers from the world’s largest oil production company,” says AlTurki, who is Group Chairman of Rawabi. “People come from all over the world to take a piece of the action. We’re next door, so why not take advantage of it?”

In late 1999, AlTurki bought out the stakes his two brothers held in Rawabi, which the three had formed in 1984 to aggregate their various holdings.

Today, Rawabi has an annual surplus in billions of U.S. dollars, making it one of the largest integrated providers of supplies and services to the Saudi and regional oil, gas and petrochemicals industries. It has come a long way toward achieving its goal of becoming the leading oil, gas and petrochemical services provider in the region. The group is particularly strong in the areas of onshore and offshore drilling, integrated oil-field services, equipment, chemicals manufacturing and supply, and various support services.

“Still, we feel we are just seeing the tip of the iceberg,” says AlTurki. “The deeper we get into the oil and gas industry, the more we find there are so many areas of opportunity that we didn’t know were there.”

But Rawabi only moves into a new area after it has hired, acquired or partnered with the right expertise and capabilities. “That’s why we are trying to gain more and more expertise in order to take the company to the next level,” AlTurki says. The main issue standing in his way is finding the qualified personnel necessary to deliver the best-quality services.

At the same time, he continues to expand his list of services and new equity joint ventures with international companies that have the field expertise in opportunity areas identified by Rawabi. The sectors that AlTurki is most keen to expand into include specialized manufacturing of equipment used in the oil and gas industry, as well as offshore construction services, which is why the group is currently building a derrick pipelay barge.

The company has also identified huge opportunities in IT services for the oil and gas industry.

Expanding Oil and Gas Infrastructure

The opportunities for Rawabi and its partners come from Saudi’s oil, gas and petrochemical service industry’s ongoing growth. AlTurki cites two examples that recently have been in the news: the $9.6 billion, 400,000-barrels-per-day oil refinery that is a joint venture of Aramco and Total, to be built in the Eastern Province city of Jubail; and a similar-size refinery that’s a joint venture of Aramco and ConocoPhillips, on Saudi’s Red Sea coast.

In the Eastern Province alone, where Rawabi is based and which forms the industrial heartland of the Kingdom, there are tens of billions of dollars in other infrastructure, oil and gas, petrochemical and power projects already under development.

Aramco is also looking to expand its gas production capacity to feed increasing demand in the Kingdom, which is driven by both large projected increases in industrial expansion and a strong annual population growth of 2.3%.

What’s more, Saudi Arabia has announced it will spend $400 billion on various infrastructure and development projects over the next five years as part of a countercyclical fiscal policy to prime the Saudi economy during the global economic slowdown. In the Eastern Province alone, where Rawabi is based and which forms the industrial heartland of the Kingdom, there are tens of billions of dollars in other infrastructure, oil and gas, petrochemical and power projects already under development.

“Saudi Arabia remains a very good place in which to invest in the energy sector,” says AlTurki. “Saudi Arabia encourages people to invest, and there is a lot of cash available in Saudi Arabia, so you don’t need to go far to find the funds to carry out your projects. The government has a lot of cash for projects and is giving advance payments of 20% to 30% to encourage business to take on significant projects.”

Technology Transfer

More than 3,500 employees work across Rawabi’s approximately 25 business units, including fully owned subsidiaries, partially owned companies and joint-venture companies. Rawabi has international partners from more than 25 countries and represents over 100 leading global companies. Within the oil and gas sector, Rawabi has numerous joint-venture and exclusive distribution and agency partnerships with leading international firms, including Rowan Companies, Swiber Limited, Franks International, CUDD Pressure, Geoservices of France and, the most recent addition, Houston-based Allis-Chalmers.

An important component of Rawabi’s business model is technology transfer.

“It is a dream of Rawabi to enable technology transfer to the region,” AlTurki says. “That’s why we have fully supported the establishment of Energy Capital Group (ECG)” — an international investment company that was founded last year and specializes in investing in the energy sector in oil and gas, with a focus on majority-stake acquisitions of specialized drilling and oil-field services companies.

ECG’s activities have included the majority-stake acquisition of United Safety Limited of Canada, a leading international provider of specialized equipment and safety standards for the energy industry — a deal worth more than $100 million. Morgan Stanley Principal Investments (MSPI) was a minority investor in the deal. Rawabi and United Safety have been 50-50 joint-venture partners since 2002 when they formed Rawabi United Safety Services (RUSS) to provide critical H2S safety and monitoring services to the oil and gas drilling, transportation and refining operations in the region.

"It is a dream of Rawabi to enable technology transfer to the region."

— Abdulaziz Ali AlTurki

Teamwork and Training

Today Rawabi operates across a wide range of sectors, including construction and engineering, oil and gas, petrochemicals, utilities, power and electrical, telecommunications and IT, freight forwarding, marine, trading and manufacturing. However, about 85% of its revenue comes from the oil and gas industry.

AlTurki says the company has taken enormous strides since it was relaunched in the beginning of 2000. He attributes this success to teamwork. “Rawabi does not believe in a one-man show,” he says. “This is essential. At the same time, the company believes in the training and development of its people and in the delegation of responsibilities. Each general manager is responsible for his company, and neither the CEO, Osman A. Ibrahim, nor I interfere on a day-to-day basis. We want each one of our employees to feel that he is the owner of the company.”

Corporate Governance

The conversation moves to IPOs. “When you offer an IPO, generally you are either looking for money or for continuity of the company,” says AlTurki. He explains that Rawabi has excellent relationships with banks, so it doesn’t need money. Nor does it have to worry about continuity: In fact, Rawabi is a case study in succession planning for large family conglomerates.

“We have worked very hard on the separation of family from business — putting in bylaws, a family council, a succession process and a board of directors that makes us one of the few companies in Saudi Arabia that implements international standards of corporate governance.”

This focus reflects the personal commitment of AlTurki, who is not only a board member of the Lebanese American University in Beirut, but also Chairman of the Saudi Cancer Foundation and the Saudi Diabetes and Endocrine Association, and Founder and President of the Charity Run Committee, an annual race event that raises money and awareness for new charity issues each year.

Given all this, it’s clear that Rawabi’s vision to improve the quality of life in the communities in which it operates is not just a concept — it’s a way of life for the entire organization, starting with the man at the very top.

ATCO

Bringing Innovative Technologies and Global Partnerships to Saudi Arabia's Industrial Services Industry

In 1953, A. A. Turki Group (ATCO) was founded by Abdulrahman Ali Al Turki as the East & West Establishment, a retailer of haute couture and high-end consumer goods in Saudi Arabia’s oil-rich Eastern Province.

Through the years the company has grown into one of the Kingdom’s largest industrial services conglomerates, operating primarily in the oil, gas and petrochemical sectors through more than 24 divisions. It provides its clients — including Saudi Aramco, SABIC and Saudi Electricity Company — with both project-specific services and large turnkey solutions that incorporate logistics, contracting and procurement, instrumentation, training and servicing.

"Our local knowledge of the operating environment, marketing ability and the strength of our relationships in the Kingdom stretch back more than 50 years."

— Ziad A. Al-Turki

Cutting-Edge Technology

ATCO has joint venture operations in Saudi Arabia with several multinational firms, reflecting its long-standing policy of seeking out industry-leading partners with the cutting-edge technology and expertise to meet the Kingdom’s industrial servicing needs. Today, these partners include Honeywell from the U.S., Keller Grundbau from Germany, and Larsen & Toubro from India.

These partnerships range from the new to the well established, from the two-year-old Larsen & Toubro ATCO Saudia L.L.C. to the 33-year-old Honeywell Turki Arabia Ltd.

“Our local knowledge of the operating environment, marketing ability and the strength of our relationships in the Kingdom stretch back more than 50 years,” says Ziad A. Al-Turki, Vice Chairman of ATCO Group. “This complements the expertise provided by our international partnerships.”

Infrastructure Spending of $400 Billion

Even as the global economy contracts, the economy in the Gulf is expected to grow by 2.3% in 2009 and 3.8% in 2010. Within Saudi Arabia, the government plans to spend more than $400 billion on infrastructure development over the next five years.

In addition, Saudi Arabia has the largest population in the Arabian Peninsula — 24 million, growing at a rate of 2.3% a year — and an economic diversification strategy that looks to develop energy and hydrocarbon-intensive inputs and downstream manufacturing for both domestic use and export.

ATCO’s Diversification Success

The company has seen the opportunities available in the Kingdom since its inception, and particularly since the mid- 1970s, when ATCO founder Abdulrahman Ali Al-Turki switched the company’s focus from consumer to industrial services as the Kingdom began its hydrocarbon-driven industrial development.

Honeywell holds 70% of the northern gas area’s installed instrumentation base, as well as more than 40% of both Aramco’s and SABIC’s installed instrumentation. The company’s influence in other sectors is equally commanding. Its contracting division has built the tallest building in the Eastern Province, as well as the largest horizontal project. Its marine-craft operations service the Jeddah Islamic Port and Jizan Port, which combined represent three-quarters of Saudi Arabia’s port volume. ATCO also maintains under contract the entire Saudi Red Sea navigational route.

The company is a sole proprietorship of Abdulrahman Ali Al-Turki, who remains its Chairman and CEO. “He is an institution,” says Ziad Al-Turki. In addition, Abdulrahman Al-Turki is a founder and the Chairman of Abraaj Capital, the largest private equity group outside North America and Europe; a founding member and a Director of Bahrain- and London-listed alternative investment firm Investcorp; and a founder of Samena Capital, a private equity firm focused on the Middle East, North Africa and South Asia regions.

Looking ahead, Ziad Al-Turki says that ATCO continues to search for new partners, including “niche players in high-tech” industrial services, such as the Canadian firm Can-K, maker of a patented twin-screw technology for down-hole and multiface service pumps.

In addition, ATCO recently entered into a joint-venture agreement with Ramky Group, the innovative Indian waste management firm, to provide high-tech solutions for waste management and environmental services.

ATCO has come a long way from its origins as an importer of luxury consumer goods to its position as one of the largest industrial services conglomerates in the Kingdom.

Saudi Cable Company Group

An Industry Leader for 35 Years

When the Saudi Cable Company Group (SCC Group) began operations 35 years ago, not only was it the first cable manufacturer in Saudi Arabia, it was also one of a select few that were operational in the entire Middle East region. It has remained in the vanguard of the industry ever since. In 1992 it was the first company in the region to manufacture fiber-optic cables, and in 1994 it was the first Middle Eastern manufacturer to be ISO 9001:2000-certified. Today it is one of only ten companies worldwide that manufacture a 400kV extra-high tension underground cable.

Well aware that lower-end cables have been falling prey to commoditization, SCC Group has consistently pursued the latest technologies and excellence in engineering in order to keep ahead of other manufacturers. "It is so crucial that we remain in the forefront of technology in this very competitive business," says Dr. Waheeb A. Linjawi, SCC Group President and Managing Director.

"Our aim is to provide turnkey solutions to all customers, from petrochemicals to utilities to contractors."

— Dr. Waheeb A. Linjawi

Sales of Nearly $1 Billion

SCC Group, which registered sales of nearly $1 billion last year, manufactures low-, medium-, high- and extra-high-tension electrical cables, as well as fiber-optic and coaxial telecom cables. It also provides worldwide turnkey solutions in the electricity and telecom-transmission sectors. In markets such as Saudi Arabia, Kuwait, Lebanon, Germany and Pakistan, this has included civil work, installation, commissioning and handover of cable systems.

The company's track record in this regard is unprecedented. Following the first Gulf War and the liberation of Kuwait, SCC Group marshaled 500 workers in a 19-day effort called "Operation Desert Light" to restore power to that country. More recently, it installed the overhead backbone electricity network in Lebanon following that country's civil war. In another example, it met a demanding commissioning deadline in Pakistan when it completed a 180-kilometer, 500kV transmission link in just 14 months, ahead of schedule.

Customers in 60 Countries

About 80% of SCC Group's business is in power cables, with the remainder in telecom cables. Eighty percent of the company's revenue originates from the Gulf Cooperation Council (GCC) countries of Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain. The company has installed about 60% of Germany's high-tension cable requirements, has sold cables to British Rail and utilities in California, and has customers in countries ranging from New Zealand to the Bahamas.

But SCC Group's strategic focus is to grow its turnkey solutions business so that in the future it contributes 50% to the company's total revenue, up from the 10% this business provided in 2008. The company is looking to do this not only by bidding on major projects in the region and beyond, but also by building its in-house centers of competence through the acquisition of companies that manufacture complementary accessories in the transmission business, such as cable joints, transformers, substations and switchgear.

"Our aim is to provide turnkey solutions to all customers, from petrochemicals to utilities to contractors," says Linjawi.

Manufacturing in Three Countries

Two years ago, the group committed to a major expansion of its existing manufacturing facilities in Saudi Arabia, Bahrain and Turkey, investing another $200 million. Some new capacity has already come onstream, while the remainder is set to become operational by mid-2010, bringing the total copper and aluminum output for cables to about 320,000 tons a year, up from approximately 250,000 tons a year now. This expansion is being funded from retained earnings, low-interest loans from one of the Kingdom's industrial banks, and supplier credit.

Some Sectors Continue to Perform Strongly

In the current environment, where spare capacity is an issue, Linjawi says the group is not pursuing acquisitions in the cable sector. But as the regional and global economies recover, that may change.

Linjawi predicts that demand for high-voltage cables in sectors such as petrochemicals should pick up along with the rest of the Saudi and GCC economies by the first quarter of 2010. Even in the current climate, he says, some areas of the business continue to perform strongly, particularly within the Kingdom, where demand for the company's building-wire and low- and medium-tension cables remains robust, driven by ongoing new-home construction. Increased production is necessary to keep up with Saudi Arabia's more than 2.3% annual population growth and expectations that the current population of 24 million will double in the next two decades.

Produced by Intermedia, Dubai. Project Director Vivienne Davidson, Project Manager Amy Boeker