If you were under the impression that the air conditioning market isn’t vital to Saudi Arabia’s future, think again. As a rapidly growing population — with a propensity for more modern comforts, including larger homes and vast shopping malls — builds up in the kingdom, demand for power is skyrocketing. In the heat of the Gulf summer, air conditioning takes a particularly heavy toll on Saudi Arabia’s grid.
And as demand for electricity and water increases, by around 8 percent every year according to local estimates, Saudi Arabia has to siphon off more of the crude it would ordinarily export, and use it instead to fuel power and desalination plants at subsidised rates. The cost to the Saudi economy runs to not far $100bn a year, with Citigroup warning in 2012 that the kingdom could become a net oil importer by the end of this decade.
So where does Sheikh Mohammed Al Rahbani fit into all of this? As the chairman of Saudi Finn Ducting Company Ltd (SAFID), and one of the Middle East’s richest men, he owns perhaps Saudi Arabia’s largest manufacturer of air distribution products.
“Saudi Arabia is our heartland, and we have a very successful track record in the kingdom,” says Sheikh Mohammed during a recent interview in Dubai. “In fact, if you take the road from Riyadh’s airport to our headquarters in the city’s industrial area, many of the buildings that you will pass contain our systems.”
As power demand rises, the heating, ventilation and air conditioning (HVAC) market in the Gulf is similarly hotting up. According to industry analyst TechNavio, the sector is set to grow annually by an average of 7.4 percent between 2012 and 2016, with local vendors like SAFID posing a huge challenge to the established international players. Saudi Arabia is by far the biggest market, largely due to its fast-growing 28-million-strong population. Another analyst, TechSci Research says that the sectors’ compound annual growth rate between 2013 to 2018 will hit 10 percent.
All this, of course, is good news for SAFID. Founded in 1979 as a joint venture between the Rahbani Group and Finnish tech giant Nokia, with just 60 people making a single type of duct, the firm has quickly grown to become one of the largest providers of air distribution products in the kingdom. As a private company, SAFID keeps its numbers close to its chest, but Sheikh Mohammed says that turnover grew by roughly 10 percent in 2013, while he expects to see “low double-digit growth” for this year. The firm’s performance is also being driven by the kingdom’s colossal infrastructure spending plans, which involve billions of dollars being spent yearly on new houses, new schools and new hospitals.
Right now, SAFID is currently working on at least 35 projects in Saudi Arabia. These aren’t just any projects either; included in the roster is work on the King Abdullah Financial District in Riyadh, King Abdulaziz Airport in Jeddah and last, but not least, the expansion of the Masjid Al Haram (Grand Mosque) in Makkah. In fact, you would be hard pressed to find a major Saudi ministry or developer that doesn’t rely heavily on SAFID’s products for its projects.
“We have a very strong pipeline of projects and our current order book is also looking very healthy,” says Sheikh Mohammed. “We are confident that 2014 will be a landmark year in our history. Construction in Saudi Arabia continues apace, and SAFID is well-placed to capitalise on that growth in the wider economy.”
The firm is working hard to build the kind of products that will help keep the use of electricity demand to a minimum, thus also helping to reduce Saudi Arabia’s carbon emissions, which are some of the highest, per capita, in the world. To that end, SAFID has developed its own research and development facilities, including a state-of-the-art acoustic laboratory.
“One example of innovation is the development of cylindrical ducts as opposed to rectangular ducts,” says Sheikh Mohammed. “Not only does this prevent stale air from being trapped within the system, it also allows a more efficient flow of air. While, of course, we don’t control the energy usage in buildings, it is up to us to ensure the most efficient delivery systems possible.”
The chairman says that, for the time being at least, SAFID has no plans to diversify into other industries, although he does point out that in his personal capacity, he does invest in other areas that can complement the portfolio of companies in which he has an interest.
One of those investments is United Iron and Steel Company, a joint venture between SAFID (the majority shareholder) and the Dubai-based AJ Group, which was set up last year. The joint venture’s first step has been to start building a plant in Abu Dhabi that will provide 250,000 tonnes per year of galvanised steel when complete. The factory will make use of cheaper feedstock to make its product, and the plan is to export the steel to markets as far away as Europe and Africa, as well as catering to high demand at home in the Middle East.
“Currently, 70 percent of the GCC’s galvanised steel is imported, but when complete United Iron and Steel Company will be able to service GCC-based customers, including SAFID,” Sheikh Mohammed says. “The project is due to be completed by September 2015, with production commencing in 2016.”
The plant, which will cost $138m to build, will be based in Abu Dhabi’s KIZAD industrial zone, and about 20 percent of its product will be used by SAFID to build its products back in Saudi Arabia.
The outlook for SAFID looks strong, but Sheikh Mohammed says he has no plans to take the firm public in the near future.
“Right now, our priority is focusing on delivering the best possible products and services to our clients,” he says. “I have seen too many regional companies be very vocal about holding an IPO, only for it to be pulled or cancelled. In the event that SAFID was to go public, it would be following a rigorous exercise to determine whether it would be in the best interests of the business, our people, and our customers.”
As well as ownership of SAFID, and the investment into United Iron and Steel Company and other private-held firms, Sheikh Mohammed has also invested in Pathway Genomics, a San Diego-based company that aims to develop cheaper ways to test for diseases like cancer. He’s hoping at some point to bring the firm’s technical expertise to Saudi Arabia, to enable the country’s population to have diseases diagnosed quicker and cheaper than they are currently.
But how is all this being funded? Much of it is due to the foresight of the chairman’s father.
“My family is very fortunate because my father, Sheikh Haleem, took a very long-term view as an investor and built up significant landholdings in Saudi Arabia, Kuwait, the UAE and elsewhere,” Sheikh Mohammed says. “The majority of this land is currently undeveloped and it is my objective to enhance the value of the land through selective development. My real estate ream is working on a strategy to identify which areas we should develop first.”
Included in this landbank is a 200 sq km slice of Kuwait, bought by Sheikh Haleem in the 1950s, as well as prime land in Makkah, Jeddah, Rabigh and Riyadh. The family also has land on the coast in the Eastern Province, where some development is already taking place. For the time being, however, it seems the chairman’s central focus will remain on meeting the demand for SAFID’s products.
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