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Tue 13 Jun 2017 11:30 AM

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Firing up the engines: How Saudi's new investment agency aims to grow the kingdom's industrial sector

Saudi Arabia’s new industrial investments agency has kicked off a multi-billion dollar strategy with its first deal sealed last month. CEO of Dussur, Rasheed Al Shubaili, explains how the state entity intends to ignite the kingdom’s domestic sectors and support Vision 2030.

Firing up the engines: How Saudi's new investment agency aims to grow the kingdom's industrial sector

The Arabic word ‘dussur’ refers to the fasteners used to bind sections during the shipbuilding process. It is a fitting name for Saudi Arabia’s newly-branded industrial investments agency, which aims to pull together local and global resources to build a thriving industrial sector, its CEO Rasheed Al Shubaili tells Arabian Business.

Dussur was established in 2014 as the Saudi Arabian Industrial Investments Company (SAIIC) — 50 percent owned by the kingdom’s Public Investment Fund (PIF) and 25 percent each owned by Saudi Aramco and state petrochemicals giant SABIC (Saudi Basic Industries Corporation), where Al Shubaili worked before joining Dussur.

Having spent two years compiling a business plan and readying itself for market, Al Shubaili says the company is now in talks with scores of the world’s biggest players in oil and gas, renewables, power, maritime and advanced manufacturing, as it commences a multi-billion dollar investment strategy to grow the kingdom’s industrial sector.

Last month, Dussur signed one of the first deals under its new name — a joint venture (JV) with power giant GE worth more than $267m. The JV followed a 2016 memorandum of understanding (MoU) between the two parties, which is expected to result in nearly $1bn of co-investment across various sectors in 2017 and more than $3bn over a longer timeframe.

The first JV is to create new capacity to supply most of Saudi Arabia’s need for gas turbines in line with domestic electricity demand. It is a huge deal for Dussur, but just the first in a string of lucrative partnerships the company expects to sign with global corporates over the coming years, its CEO proclaims.

“My mission is to identify, establish and implement strategic investments in the industrial space in Saudi Arabia — profitable investments that also have a strategic impact on the economic diversification of the kingdom,” Al Shubaili says.

“As far as I’m concerned, we have a good level of industrial activity in Saudi already, but we could benefit from greater activation of the sector through sizeable, transformative investments in partnership with global players.”

Saudi Arabia is laying out plans to provide better opportunities for partnerships with the private sector.

Saudi national Al Shubaili held a string of executive and senior management positions at SABIC before being appointed vice-president of the organisation’s oil-to-chemicals (OTC) division, then joining SAIIC as CEO in 2015. The company was renamed in 2016.

Together with government shareholders, Al Shubaili has been working with a joint team from PwC and Strategy& on a build-operate-transfer (BOT) programme to establish Dussur’s investment strategy and objectives. According to a progress note from PwC last year, “a solid pipeline of deals is in place” — which at the time included the MoU with GE.

The ultimate goal is to stimulate economic diversification. Growing the industrial sector is a key plank of Saudi Arabia’s Vision 2030, a roadmap for localising industries and increasing exports, as well as creating jobs for the next generation of Saudis, enabling participation of small-to-medium-sized enterprises (SMEs) and attracting foreign capital to the kingdom.

Al Shubaili claims Dussur is in talks with multinationals in key target sectors with a view to entering into investment partnerships. “I can assure you we have established conversations at least with the three or four first-tier companies in each of these [aforementioned] sectors, including manufacturing and renewable energy.

“Discussions go faster with some than others, but we are offering the opportunity for collaboration and will progress the talks as and when.”

His work at present involves identifying possible investments and considering the type, size and structure of these investments, as well as the best partnership or scheme to deliver them.

“Typically, we will partner with international companies in a 50:50 or major-stake JV to deliver work on the ground in Saudi Arabia, like the GE deal,” he says, adding that he is seeking long-term ventures of 15-25 years to maximise returns for all parties.

Dussur is “open for discussion” with Saudi or GCC-based firms as well as multinationals, Al Shubaili  adds, but they are not the principal target and formal discussions with such parties have not taken place. “We want to establish relationships with companies with the technology, know-how, expertise, the best manufacturing capability,” he says.

“If there is a local Saudi or GCC manufacturer that would like to expand or grow their offering we would be more than happy to collaborate with them — and we hope to target global markets outside Saudi eventually. However, our initial focus has been on the major companies who can help us create a bigger impact here in our early years.”

The targeted range of investments is $50m-$200m, Al Shubaili says. The GE deal is therefore at the upper end of the scale and Dussur would “go higher if necessary”. But the minimum investment level is a strategic necessity to ensure the company complements rather than competes with private investors.

Dussur partnered with US industrial giant GE to meet the kingdom’s growing electricity demand.

“What’s key is that we achieve our objective: to maximise impact, bring localised industrial activity to Saudi Arabia and create opportunities for the private sector to get involved.”

There is no target for the total number or value of deals Dussur plans to sign each year. “Whatever brings the most activation to the sector — if we take one, two or three investments, so be it; if a larger number, fine too.

“It could also be one anchor investment and then we open up additional opportunities for the private sector and SMEs to fill in. We don’t want to use any monetary target as a constraint for ourselves.

“As much as we can activate the industrial landscape in Saudi Arabia — we will go out of our way to do that.”

Vision 2030: making a play for localised industry

The National Transformation Program (NTP) is the blueprint for how to implement Saudi Arabia’s Vision 2030 economic diversification plan. Under the NTP, private sector contribution to GDP is to grow from 40 percent to 65 percent, with particular focus on energy, healthcare, housing and municipal services, while the energy, industrial and natural resources sectors will be localised to support a targeted rise in non-oil exports from SR185bn ($49.3bn) to SR330bn ($87.9bn).

Growing the industrial sector, as Dussur hopes to do, is a significant plank of this and regulatory reforms, such as permitting 100 percent foreign ownership of companies, paves the way, says CEO Al Shubaili.

“If you look at the changes made to industrial and investment regulations in Saudi Arabia in recent years you will see the line of improvement has accelerated tremendously.

“Our international partners are subscribing to these changes, and applying for investment licences and setting up new businesses is now a streamlined process. It’s a journey, of course, but it hasn’t been a challenge to convince foreign investors to come to Saudi Arabia.”

Saudi Aramco: the kingdom’s new industrial conglomerate

The kingdom’s soon-to-be-partially-privatised oil giant Saudi Aramco signed tens of billions of dollars worth of deals with US companies during President Donald Trump’s visit to Riyadh last month. CEO Amin Nasser said the deals included 16 MoUs with 11 companies including Schlumberger, Emerson, Halliburton and McDermott, and an unspecified further number of joint ventures (JV).

Among the deals was a JV with Texan professional services firm Jacobs to plan and execute social infrastructure projects across Saudi Arabia initially, then the wider Middle East and, eventually, Africa. The projects are to include “everything from housing, highways, hospitals, schools, rail, aviation, entertainment and even ‘smart’ cities and the infrastructure associated”, Jacobs Engineering Group CEO Steve Demetriou told reporters in Riyadh.

Aramco is worth more than $2 trillion.

Under the National Transformation Program, Aramco is to be transformed into a “global industrial conglomerate” with operations across a much wider range of industries. Saudi Aramco plans to double the amount of locally made and supplied goods to 70 percent of its supply chain within five years, creating a further 500,000 local jobs.

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