Manufacturing Opportunities in the Kingdom of Saudi Arabia

November 2018 | By: Ameer Yousif, Jaffer Al Hamad, Adel Al Banna

Manufacturing Opportunities In The Kingdom of Saudi Arabia

A market intelligence report looking into the opportunities within the manufacturing sector in the Kingdom of Saudi Arabia, in view of the local content policy. The report also outlines the landscape of the sector and the various support & stimulation programs. Actionable Market Intelligence Report With the objective to support the Bahraini private sector to expand and grow in the region, Tamkeen is developing a series of actionable market intelligence reports on various areas and sectors in the Saudi Market.

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TABLE OF CONTENTS

1. INTRODUCTION ...... 2

2. LOCAL CONTENT POLICY ...... 3

3. MANUFACTURING MARKET IN KSA ...... 5

MANUFACTURING LANDSCAPE ...... 5 MANUFACTURING COST STRUCTURE ...... 8 4. MANUFACTURING INFRASTRUCTURE ...... 9

INDUSTRIAL CITIES ...... 10 MODON OASES ...... 10 5. BUSINESS ENVIRONMENT & SUPPORT PROGRAMS ...... 11

LICENSING REGULATION AND PROCESS FOR FOREIGN INVESTMENT ...... 12 FINANCIAL SUPPORT ...... 13 LOCAL LOAN PROGRAMS ...... 14 REGIONAL LOAN PROGRAMS ...... 15 FISCAL SUPPORT ...... 17 EMPLOYMENT FUNDING ...... 18 SIDF FUNDING ...... 20 6. OPPORTUNITIES BY SECTOR ...... 23

OIL AND GAS (ARAMCO – IKTVA PROGRAM)...... 24 PETROCHEMICAL (SABIC – NUSANED PROGRAM) ...... 27 WATER DESALINATION (SWCC – LOCAL FABRICATION PROGRAM) ...... 29 ELECTRICITY (SE – LOCALIZATION PROGRAM) ...... 31 SECURITY & DEFENCE (AFED PROGRAM) ...... 32 7. RECOMMENDATIONS ...... 33

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1. INTRODUCTION

Kingdom of Saudi Arabia is determined to change the current trading deficit in terms of the imports and export products format being Raw, Semi-finished and Finished Products. The kingdom imports mainly finished products and exports raw materials.

To manage this transformation, the government issued a “Local Content” initiative, part of the transformation initiatives under the Vision 2030. The initiative is well governed by a dedicated body called "Nama'a" which takes responsibility for the supervising the implementation program.

Beside facilitating, supporting and encouraging the private sector to switch to local manufacturing, the government started with the major sectors and corporates they have the direct influence on its management:

. Military and Security, . Oil and Gas, . Petrochemical, . Electricity, and . Water

In each of these sectors, dedicated programs and teams were put in place to:

. Change the procurement policy to make sure that local content targets are applied . Creating an auditing process to ensure compliance with the policy . Creating a detailed supporting program for the local manufacturing projects

The "Local Content" policy is part of the economic diversification plan, where local manufacturing is a cornerstone of the program and is being catalyzed by attractive ecosystem consisting of industrial cities, the well-developed infrastructure of more than 35 industrial and economic cities, high-quality utility supplies, and a well-established logistics network.

Along the "local Content" initiative, Kingdom of Saudi Arabia is developing its business environment and economic performance, by establishing clear priorities, solid alignment amongst all relevant stakeholders, and serious commitments in leveraging private investments.

It is very important for businesses used to or looking to supply services or products to the government and above major sectors, the seriousness and determination of the Saudi government to implement the local content policy and achieve its targets. Accordingly, it is advisable to be one the first-movers and benefit from the policy offerings and the various incentives.

This report investigates the “Local Content” policy, the incentives and support programs, and the various manufacturing opportunities in the main sectors

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2. LOCAL CONTENT POLICY

In line with the objectives of Saudi national vision 2030, several programs were initiated by the main industries and government bodies to boost the local manufacturing and services sectors in order to increase the local content from current 36% to 50% by 2020.

The government started with the major companies and government bodies that have a major impact in the economy and in the trading balance, and where it can enforce the policy and stimulate the private sector serving these entities:

. Increase none oil export from 16% to > 50% . Oil & Gas sector from 40% to 75% . Health 10% increase annually . Defence from 2% to 50% by the year 2028

MAIN ENTITIES IN LOCAL CONTENT PROGRAM

NO ENTITY NAME PROGRAM NAME

(اكتفاء) Aramco Iktva 1

(نساند) Sabic Nusaned 2

3 Saline Water Conversion Corporation SWCC Local Fabrication Program

4 Saudi Electricity Company Localization Electricity Industry

(أفد) Defence & Security Sector AFED 5

Above entities listed hundreds of products and services as investment opportunities for both local and international investors with lucrative support programs including off-take agreements for ten years. More details about each program are the section “Opportunities by Sector”.

The entities made the responsibility for local content a core part of the day-to-day processes of the procurement teams, rather being a corporate social responsibility. They even established auditing mechanism to ensure conformity to the policy.

Following the standards of vision 2030 implementation, Saudi Arabia established an entity “Nama’a” http://namaa.gov.sa/en/ for monitoring and enforcing the local content policy. The entity ensures that all the companies where government own the majority or has a major influence on, and all government bodies are abiding by their obligations to achieve the targets of the policy.

ITEMS COUNTED UNDER LOCAL CONTENT POLICY

Salaries Paid To Saudis Training & Development of Saudis

Localised Goods & Services + Supplier development spending

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3. MANUFACTURING MARKET IN KSA

MANUFACTURING LANDSCAPE

More than 7,700 factories are operating in the kingdom of Saudi Arabia. They are located all over the 13 administrative areas, with a higher density in the main three areas Riyadh, Makkah, and Eastern Province. While Riyadh ranks first in terms of highest number of factories and the highest number of employees, Eastern Province ranks first in size of capitals.

Manfacturing Landscape Across The Administrative Areas

Sum of No. of Establishments Sum of No. of Employees Sum of Capital (Trillion SAR) 700,000 3,500

600,000 3,000

500,000 2,500

400,000 2,000

No No of Employees -

300,000 1,500 No No of Establishments

200,000 1,000 Capital Capital T SAR

100,000 500

- -

The top five manufacturing activities in terms of the number of establishments and manpower are:

1- Other non-metallic mineral products 2- Fabricated metal products 3- Rubber and plastic products 4- Food products 5- Chemicals and chemical products.

The following chart shows the landscape of the 25 manufacturing activities, followed by a table listing the size of each activity in terms of the number of establishments, capital, and manpower. The table also includes three more related activities to the manufacturing, which are:

1- Repair and installation of machinery and equipment 2- Electricity, gas, steam and air conditioning supply 3- Water collection, treatment, and supply

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Manufacturing Activities in KSA

Sum of No. of Establishments Sum of No. of Employees Sum of Capital (Trillion SAR)

600,000 1,800 1,600 500,000 1,400 400,000 1,200 1,000

No No Employees Of 300,000 - 800 200,000 600 400 100,000 No Estbalishments Of 200

Capital Capital T SAR - -

Textiles

Furniture

Beverages

Basicmetals

Foodproducts

Wearingapparel

Electricalequipment

Other manufacturing

Repairand installation of…

Fabricatedmetal products

Paperand paper products

Other transport equipment

Products and preparations…

Printingand reproduction of…

Leatherand related products

Rubber and plasticsproducts

Electricity,gas, steam air… and

Woodand of products of wood…

Watercollection, treatmentand…

Machineryand equipment n.e.c.

Computer,electronic and optical…

Motor vehicles,trailers and semi-…

Chemicals and chemical products Other non-metallic mineralproducts

Cokeand refined petroleum products

Growth Compared to Growth Compared to 2017 2016 (No) 2016 (%)

Economic Activity

No. of No.of No.of No.of No.of

Capital Capital Capital

Employees Employees Employees

(TrillionSAR) (TrillionSAR)

Establishments Establishments Establishments

Food products 794 60,596 160,648 4 837 6,367 0.51% 1.40% 4.13% Beverages 219 25,867 49,506 -1 108 1,617 -0.45% 0.42% 3.38% Textiles 102 6,523 18,215 1 276 259 0.99% 4.42% 1.44% Wearing apparel 110 1,202 14,041 -2 -24 -443 -1.79% -1.97% -3.06% Leather and related products 32 527 2,607 0 0.01 5 0.00% 0.00% 0.19% Wood and of products of wood and cork 98 1,559 8,599 -1 75 93 -1.01% 5.04% 1.09% Paper and paper products 264 14,066 36,880 6 651 1,133 2.33% 4.85% 3.17% Printing and reproduction of recorded media 42 2,181 5,229 -3 -406 -345 -6.67% -15.70% -6.19% Coke and refined petroleum products 148 94,640 18,537 -1 1,627 667 -0.67% 1.75% 3.73% Chemicals and chemical products 751 565,598 99,794 17 3,062 989 2.32% 0.54% 1.00% Products and preparations pharmaceutical 43 5,391 10,321 3 193 677 7.50% 3.72% 7.02% Rubber and plastics products 1,052 27,907 98,811 12 1,199 2,922 1.15% 4.49% 3.05% Other non-metallic mineral products 1,610 103,246 199,560 -18 1,778 1,057 -1.11% 1.75% 0.53% Basic metals 340 75,036 68,358 8 897 -1,539 2.41% 1.21% -2.20% Fabricated metal products 1,087 24,272 115,916 -13 72 -1,850 -1.18% 0.30% -1.57%

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Computer, electronic and optical products 49 3,124 9,934 -1 204 -107 -2.00% 6.98% -1.07% Electrical equipment 238 20,610 43,489 4 1,626 553 1.71% 8.57% 1.29% Machinery and equipment n.e.c. 222 15,335 32,878 1 -20,831 -15 0.45% -57.60% -0.05% Motor vehicles, trailers and semi-trailers 152 2,928 13,865 -1 -144 -197 -0.65% -4.68% -1.40% Other transport equipment 8 1,036 4,578 -2 -17 -85 -20.0% -1.60% -1.82% Furniture 317 3,102 26,513 -1 -7 359 -0.31% -0.23% 1.37% Other manufacturing 71 1,912 11,791 -2 -3 37 -2.74% -0.13% 0.31% Repair and installation of machinery and 3 11 141 0 0 0 0.00% 0.00% 0.00% equipment

Electricity, gas, steam and air conditioning 5 39,803 830 1 20,713 240 25.0% 108.51% 40.68% supply

Water collection, treatment and supply 2 3,120 645 0 0 0 0.00% 0.00% 0.00%

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MANUFACTURING COST STRUCTURE

The manufacturing sector expenses increased over the past six years. The annual growth in the employees’ salaries of 8% and operating expenses at 7%. On the other hand, there has been a similar annual growth in the revenues at 5% and accordingly a growth in the operating surplus at 2%.

The following tables list down the costing structure for each manufacturing activity for the year 2017. A further breakdown of the details can be accessed by clicking on each activity name.

Operating Manufacturing Activity Salaries Expenditures Revenues Net Asset Surplus

Food products 4,444,812 34,961,365 79,019,840 39,229,101 2,917,243 1,097,593 6,438,333 11,055,874 3,230,055 656,197 Beverages 4,924 16,411 28,102 6,159 1,239 Tobacco products 579,005 7,484,861 11,420,947 3,272,349 660,344 Textiles 1,494,355 4,978,542 10,622,359 4,056,016 634,543 Wearing apparel 51,632 233,211 660,765 366,730 81,120 Leather and related products Wood and of products of wood 627,990 4,663,348 8,099,646 2,756,333 461,664

and cork 931,723 8,118,945 18,529,839 9,272,740 494,612 Paper and paper products Printing and reproduction of 656,191 4,982,318 8,000,561 2,245,646 468,838

recorded media Coke and refined petroleum 5,449,078 63,445,877 142,922,078 73,319,061 4,788,218

products Chemicals and chemical 9,520,817 86,430,010 181,626,466 82,946,904 16,786,883

products Products and preparations 432,780 2,051,092 3,452,053 917,858 191,463

pharmaceutical 858,567 9,483,923 19,579,191 9,069,194 442,272 Rubber and plastics products Other non-metallic mineral 4,925,346 20,914,316 40,833,922 14,107,244 9,587,945

products 3,736,010 18,002,344 32,940,182 10,856,959 268,712 Basic metals 2,934,199 14,059,679 32,195,728 14,558,109 580,065 Fabricated metal products Computer, electronic and 85,527 403,337 802,918 300,817 198,607

optical products 862,632 12,456,202 24,938,691 11,459,713 405,736 Electrical equipment Machinery and equipment 1,118,197 6,954,064 12,859,701 4,565,421 404,126

n.e.c. Motor vehicles, trailers and 239,750 1,531,803 4,588,696 2,748,415 277,353

semi-trailers 94,545 1,206,569 2,389,938 1,074,079 321,433 Other transport equipment 1,176,723 7,615,471 15,124,073 6,074,169 1,009,635 Furniture 208,912 774,131 1,568,588 548,217 165,632 Other manufacturing Repair and installation of 1,458,292 4,105,507 8,472,391 2,706,394 1,892,828

machinery and equipment Electricity, gas, steam and air 5,504,518 30,772,627 61,946,782 22,704,435 37,982,493

conditioning supply Water collection, treatment and 442,292 2,657,741 5,008,224 1,779,599 48,434

supply TOTAL 48,936,410 354,742,027 738,687,555 324,171,717 81,727,635

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4. MANUFACTURING INFRASTRUCTURE

To achieve Vision 2030, Saudi Arabia is growing and diversifying its economy: the industrial and manufacturing sectors, in particular, have the ambition to drive this diversification. The development and growth of the industrial and manufacturing industry are being catalyzed by an attractive ecosystem consisting of industrial cities, well-developed infrastructure, high-quality utility supplies, and a well- established logistics network.

Saudi Authority for Industrial Cities and Technology Zones (MODON) is the entity responsible for the infrastructure of 30 industrial cities and 5 oasis (dedicated for women projects) and X technology zone across the kingdom.

Each city, oasis or zone, is strategically positioned and designed to provide operational competitive advantages such as production synergies, cluster benefits, and scale effect, supported by infrastructures such as shared services and on-site facilities to investors. Visit Interactive Map The supply of industrial land, commercial real estate and utilities at a very competitive price is considered a distinctive factor for the Kingdom, compared to other countries worldwide.

Modon provides various services: Services Guide (Arabic content). With modon you can rent a ready- made facility or rent a land for the purpose of establishing:

1- An industrial project 2- A services project 3- A housing project 4- A logistic project

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INDUSTRIAL CITIES Modon manages 30 Industrial Cities across the kingdom:

No Industrial city Total area (m²) 1 Riyadh 1st. 500,000 2 Riyadh 2nd. 19,000,000 3 Riyadh 3rd. 1,000,000 4 Jeddah 1st. 12,000,000 5 Jeddah 2nd. 8,000,000 6 Jeddah 3rd. 80,000,000 7 Dammam 1st. 2,500,000 8 Dammam 2nd. 25,000,000 9 Dammam 3rd. 48,000,000 10 Sudair 265,000,000 11 Qassim 1st. 1,500,000 12 Qassim 2nd. 4,000,000 13 Al-Kharj 99,000,000 14 Ha'il 2,560,000 15 Al-Ahsa 1st. 1,500,000 16 Al-Ahsa 2nd. 300,000,000 17 Al-Madina Al-Munawwara 10,000,000 18 Makkah Al-Mukarrama 730,117 19 Tabuk 4,000,000 20 Al-Baha 1st. 3,000,000 21 Al-Baha 2nd. 6,000,000 22 Assir 2,700,000 23 Najran 6,500,000 24 Jazan 39,000,000 25 Ar'ar 2,000,000 26 Hafr Al-Batin 100,000,000 27 Shaqraa 10,000,000 28 Al-Zulfi 18,000,000 29 Durma 11,500,000 30 Wa'ad Al-Shamal 290,000,000

MODON OASES Modon Oases are industrial cities specifically set-up for women workers. Currently, there are five of them across the kingdom:

No Modon Oasis Total area (m²) 1 Al-Ahsa Oasis 500,000 2 Jeddah Oasis 5,000,000 3 Qassim Oasis 600,000 4 Al-Jouf Oasis 3,000,000 5 Yanbu Oasis 500,000

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5. BUSINESS ENVIRONMENT & SUPPORT PROGRAMS

Saudi Arabia has launched the Vision 2030 aimed at enhancing its business environment and economic performance, by establishing clear priorities, solid alignment amongst all relevant stakeholders, and serious commitments in leveraging private investments.

Government initiatives across different areas such as ease of doing business, social and cultural participation, and fiscal balance review show the undeniable commitment of the Kingdom in improving the whole business environment.

Specific regulations and initiatives have been recently implemented by Saudi regulatory entities such as: . The settlement cycle amended from T+0 to T+2, with securities’ transactions completed after two business days following the transaction execution date, . The opening of the domestic IPO market to qualified foreign investors, and . The introduction of NOMU, a parallel equity market with lighter listing requirements serving as an alternative platform for all companies to go public.

Saudi Arabia's incentives and support schemes are specifically designed to encourage investment with the potential to diversify and improve the Kingdom's competitiveness. Amongst the primary objectives of the incentives and support schemes:

. Enhance the development of business, . Promote the creation of clustering activities, . Ensure the transfer of knowledge and . Accelerate the building of skills and capabilities within the country.

The Kingdom offers a wide range of incentives and support programs to help to achieve the above objectives:

. Financial support . Local Loan Programs . Regional Loan Programs . Fiscal support . Employment support

The following sections summaries the licensing regulation and process for foreign investment and the above support programs with interactive links to visit the support entity webpage for more up to date details.

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LICENSING REGULATION AND PROCESS FOR FOREIGN INVESTMENT

Being licensed to operate in Saudi Arabia as a foreign investor is necessary to obtain any permit to start operations.

Established in 2000, the Saudi Arabian General Investment Authority (SAGIA) is the Kingdom's investment promotion agency responsible to set up and govern the regulatory framework for international companies willing to enter the Saudi market, offering assistance from the initial planning stage to comprehensive aftercare services.

The granting of a license to invest in Saudi Arabia is a crucial activity for obtaining all permits before starting a new business. The first step is the selection of the type of investment license for which investor wishes to apply and verify whether there are any specific requirements, such as minimum acceptable capital and any cap to foreign capital. Investors can register and apply through the SAGIA official website, with a simplified process.

The same rules and regulations that apply to Saudi investors also apply to GCC investors and their %100 owned companies. GCC investors enjoy the same benefits offered to Saudi nationals directly through the Ministry of Commerce and Investment. You can find more details on their website: www.mci.gov.sa/circular, All GCC companies with a foreign partnership of %1 or more are treated as a foreign investment and can apply for licenses from SAGIA. For more details, https://www.sagia.gov.sa/en/Pages/default.aspx

Fiscal regime elements relevant for foreign investment

Four main fiscal regime elements are particularly relevant for foreign investment

1. Corporate income tax, applicable to foreign ownership of Saudi Arabia-based company; with the statutory corporate rate set at 20%, it is the lowest among the G20 2. Zakat, applicable on local ownership of Saudi Arabia-based company; set at 2.5% of the Zakat base 3. Value-Added-Tax 4. Social Security contribution; only for Saudi personnel

International trade agreements

. Saudi Arabia is a member of the World Trade Organization, working to further liberalize its trade regime and accelerate integration in the global economy.

. On a regional basis, the Kingdom is a member of the Gulf Cooperation Council and of the Greater Arab Free Trade Area.

. Bilaterally, Saudi Arabia signed treaties for the avoidance of double taxation of income and capital (Double Taxation Avoidance Agreements, DTAs) with 29 countries as well as agreements (23) aimed at promoting and protecting the investments of the enterprises of one contracting party in the territory of the other.

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FINANCIAL SUPPORT

1 - CREDIT FINANCING, GUARANTEE, AND INSURANCE

Export credit financing, guarantees and Coverage up to 90% of credit value insurance by the Saudi Export Program Main conditions Responsible entity

1. Exports with Saudi origin 2. Min %25 local of value added (crude oil is excluded) 3. Min transaction value funded 100k SR . Saudi Fund for Development

4. Operational risk and creditworthiness to be accepted 5. Guarantees vary depending on risks associated

2 - ENERGY AND UTILITIES

. Power at $ 0.048 per kWh for the industrial sector . Water at $ 0.5 - $1.35 per cubic meter Subsidized tariffs for power, water, natural gas, (based on volume) ethane, diesel, and land . Natural gas at $ 1.25 per MMBTU . Ethane at $ 1.75 per MMBTU . Diesel at $ 14/ barrel . Land for lease starting from $ 0.26 per sqm Main conditions Responsible entity . Saudi Electricity Company . National Water Company None . Saudi Aramco . Saudi Industrial Property Authority

3 - FINANCIAL INCENTIVE FOR R&D PROJECTS

Investment in selected local and international R&D projects with the potential to boost the Financed amount uncapped country's economic growth and self-reliance Main conditions Responsible entity Investment with following characteristics . King Abdulaziz City for . Enable technology transfer to Saudi Arabia Science and Technology . Diversify Saudi Arabia economy . Create high skilled jobs

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LOCAL LOAN PROGRAMS

1 - LOAN PROGRAM FOR INDUSTRIAL PROJECTS

. Interest-free . Admin fee around 2.5% Cover the risk of banks in financing small and . Repayment periods of up to 15 years medium enterprises . 2-year grace period . Additional advice on administration, marketing, technical Main conditions Responsible entity

1. Financeable industrial project with a valid industrial license and to realize considerable value for the economy. Characteristics:

2. Economically viable . To provide training and employment opportunities for . Saudi Industrial Development Saudi Fund . To use locally sourced raw materials . To integrate with other projects in KSA or GCC countries . To replace imports with local products . To target export opportunities . To bring advanced technology

2 - LOAN GUARANTEE PROGRAM (KAFALAH) FOR SMALL & MEDIUM ENTERPRISES

Cover the risk of banks in financing small and . Guarantee rate up to 75% of the loan medium enterprises

Main conditions Responsible entity

1. Legal entity

2. Annual sales < SAR 30 million

3. Viable in the economic, financial, technical and . Saudi Industrial Development administrative terms Fund

. Saudi banks 4. Contributes positively to the Saudi economy in terms of:

. Hiring and training Saudi nationals . Replacing imported goods with local ones and/or producing high-quality innovative goods and services

3 - PRODUCTIVE LOANS FOR SMALL PROJECTS AND START-UPS

Interest-free loans provided across a variety of Financed amount uncapped paths to support the Saudi society

Main conditions Responsible entity

. Saudi national . Social Development Bank . Specific conditions for each path

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REGIONAL LOAN PROGRAMS

1 - LOAN PROGRAM FOR PUBLIC/ PRIVATE INVESTMENT PROJECTS

. Reduced interest rate to 2.5% for low- income Arab countries and 3% for other Financing for public/ private investment projects Arab countries . 4-6 years grace period . Long term extended to 22-25 years

Main conditions Responsible entity 1. Public sector: request to be accompanied by a techno- economic feasibility study (to be considered for financing)

2. Private sector: only for the legally independent entity with:

. Sound financial position . The Arab Fund for Economic

and Social Development . Good management practices

. Operating in a purely commercial basis

. The main objective of developing the economy

. Not less than 51% of capital owned by citizens of member states of the Arab Fund 2 - FINANCING FACILITIES FOR TRADE TRANSACTIONS OF GOODS OF ARAB ORIGIN

. Pre-export credits, Refinancing of Arab exports to Arab & non-Arab . Post-shipment credits, buyers’ credits, and countries through lines of credit . Import credits Main conditions Responsible entity

1. Goods entirely produced or manufactured in an Arab country from primary resources and other domestic components, or . Arab Trade Financing Program

2. If the value added in an Arab country is at least 40% of the value of the goods

3 - POLITICAL & COMMERCIAL RISK INSURANCE FOR INVESTMENTS AND EXPORT CREDIT GUARANTEES

Insurance schemes and guarantees to encourage investments in Arab countries, and enhance inter-Arab trade and Arab exports worldwide

Main conditions Responsible entity

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1. Investment insurance for investments in an Arab country, the investor shall not be from the same country of the . The Arab Investment & Export investment Credit Guarantee Corporation

2. Export credit guarantees for exports to/from Arab countries

4 - EQUITY & DEBT FINANCING FOR ENTERPRISES AND PRODUCTIVE PROJECTS IN MEMBER COUNTRIES

Offers different financing schemes to support investment capital of projects, grants loans to enterprises and productive projects, and accepts deposits to mobilize financial resources in accordance with the provisions of Islamic law Main conditions Responsible entity Prospective member country should:

1. Be a member of the Organization of Islamic Cooperation (OIC) . Islamic Development Bank 2. Pay its contribution to the capital of the Bank

3. Be willing to accept such terms and conditions as may be decided upon by the bank's Board of Governors

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FISCAL SUPPORT

1 - CUSTOM DUTY DRAWBACK

Refund to importers/ exporters of raw material imports that are processed in Saudi Arabia and re- exported as more finished products

Main conditions Responsible entity

1. Importer to inform Customs at the point of entry on raw materials for manufacturing

2. Importer to provide the Customs

3. Import Declaration . Saudi Customs

4. Receipt for payment of duty

5. Certificate of Origin

6. Copy of the invoice to the buyer certified

2 - CUSTOM DUTY EXEMPTION

Exemption on authorized imports for industrial establishments (e.g., materials, equipment, machinery)

Main conditions Responsible entity

1. Available only if local supply does not exist, or . Ministry of Commerce and 2. The local supply is not up to the specifications of the Investment manufacturers

3 - TAX INCENTIVES

Up to 50% tax credit on Saudi national worker's payroll and training cost for 10 years

Main conditions Responsible entity

1. Available in specific regions:

. Hail, Northern Border, Jazan, Al-Jouf, Najran, Al-Baha

2. The number of employees > 5: . Industrial Clusters . Either technical or administrative jobs

. Contract time not less than 1 year

3. Capital > 1M SR.

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EMPLOYMENT FUNDING

1 - PROGRAM TO SUPPORT THE GROWTH OF SAUDIZATION OF ENTERPRISES

15% of monthly salary for male citizens Program duration: 20% of monthly salary for female citizens 1 October 2017 – 30 September 2019

Main conditions Responsible entity

1. Saudi national

. Human Resource 2. Age between 18-60 Development Fund (HRDF)

3. Employee's monthly salary not exceeding SAR 6,000

2 - TAMHEER PROGRAM

. To provide financial support of SAR 3,000 per month during the 3 to 6 months long On-the-job training program for Saudi period of training, and graduates

. Occupational hazard insurance

Main conditions Responsible entity

1. Saudi national (or foreign national with Saudi mother) 2. With a bachelor, master or Ph.D. degree . Human Resource 3. Currently unemployed and not employed for the past 6 Development Fund (HRDF) months 4. No previous participation in Tamheer program

3 - PROFESSIONAL CERTIFICATION SUPPORT PROGRAM

The aim is to enable the Saudi workforce to obtain professional certificates accredited in . Reimbursement for training costs, and test several professional fields required by the labor fees market, e.g., CMMP, CIT, PMP,…etc.

Main conditions Responsible entity

1. Saudi national

2. Certificate to be accredited by HRDF . Human Resource

Development Fund (HRDF) 3. Certificate to be valid and not expired

4. Maximum reimbursement: 2 certificates for each person

4 - DOROOB PROGRAM . A comprehensive program involving The aim is to obtain certificates approved and electronic learning courses recognized by the main companies . Priority in the direct employment for the certificates holders

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. Providing also the opportunity of benefiting from the on-the-job training program

Main conditions Responsible entity

1. Saudi national . Human Resource

Development Fund (HRDF)

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SIDF FUNDING

Saudi Industrial Development Fund provides several funding programs. The summary of programs are tabulated below:

1 - FINANCING OF PROJECTS IN THE PROMISING CITIES

Maximum SIDF Category City Loan Term Loan (%)

Including Major Cities Of Riyadh, Jeddah, Dammam, Jubail, 1 15 Years 50% Makkak, Yunbo, And Ras Al-Khair.

Including The Cities Of Some Economic Advantages, 2 Namely Qassim, Al-Ihssa, Rabigh, Taif, Kharj Industrial 20 Years 60% City, Sudair Industrial City, Madinah, (Except Yunbou)

Including Economically Promising Cities Such As Hail, Northern Borders, Jouf, Tabouk, Jizan, Najran, Al-Baha And Assir. In Addition To Cities That Are Located No Less 3 20 Years 75% Than 150 Kilometers From The Centers Of Major Cities And No Less Than 70 Kilometers From The Nearest Industrial City Of The SecoNd Category.

2 - SECTORS CURRENTLY NOT FINANCED BY SIDF

25. Electric wires. 1. Double Glazed Glass. 26. Raw asphalt and bitumen. 2. Steel Billets. 27. Egg trays. 3. Aluminum Fabrication and Cladding. 28. Fiberglass tanks. 4. Automatic Bakery is making Croissant, 29. Monolayer films and LLDPE films. Pastry-Puffs, Cupcakes and Mammoul. 30. Traditional plastic products. 5. Cartons Duplex and Corrugated. 31. Precast concrete. 6. LLDPE Colored Powder. 32. Wet Glue Labels. 7. Interlock & Curbstone Industry. 33. Steel Lattice Towers 8. Crushers. 34. Gypsum powder and Gypsum boards. 9. Aluminum doors and Windows. 35. Soft drink cans. 10. Ice plants. 36. Pre-engineered buildings. 11. School notebooks manufacturing. 37. Thermoblocks 12. Sulphuric acid. 38. Decorative Stones Cutting 13. Medium and low-pressure Iron pipes. 39. Ready mix. 14. Cement blocks and tiles. 40. Bottled drinking water. 15. Scrap iron shredding and recycling. 41. Pozzolan Blocks. 16. Pre-Printed Steel Coils 42. Steel Drums (Barrels). 17. Terrazzo & Mosaic Tiles. 43. Pre-insulated Pipes. 18. Traditional Prefabricated buildings. 44. Steel Pipes Coating. 19. Commercial Printing 45. AAC Blocks & Panels. 20. Writing papers. 46. Artificial Stone. 21. Dairy products from milk powder. 47. Marble & Granite. 22. Leather tanning. 48. Building Chemicals (Concrete Admixture, 23. Meat packaging. Tile Adhesive, Waterproofing Powder, 24. Dates packaging. Epoxy Floor Coating).

3 - FINANCING OF LOGISTICS AND INDUSTRIAL SUPPORT SERVICES PROJECTS Maximum Financing Limit for a Single Financing Ratio (%) Project

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(50%) of the financeable costs in all regions of SR 100,000,000 the Kingdom. Financeable Activities Scope of Scheme Industrial cities located in: 1. Logistic and Warehousing Projects. . The Economic Cities Authority. . Royal Commission for Jubail and Yanbu. 2. Model Factories projects. . General Authority of Civil Aviation. . Saudi Ports Authority. 3. Vocational Training Centres. . Saudi Railways Organization. . Saudi Industrial Property Authority 4. Laboratory Facility Centres. (MODON). . Ras Al-khair and Jazan industrial cities. Main conditions

1. The requirement for an industrial license to be replaced by a permit from the concerned authorities. 2. The project should be owned wholly or partially by the private sector. 3. The project should be financially viable and supported by a feasibility study. 4. The sponsors should be financially strong and ready to provide adequate guarantees. 5. The Fund should be able to mortgage all fixed assets of the project. 6. The land lease agreement should be in line with SIDF requirements. 7. Disbursements to be based on actual cost incurred and paid for. 8. The projects under the scheme should contribute to the service of the industrial sector. 9. SIDF loans for this scheme will follow the same requirements as SIDF's loans to industrial projects with regard to financing cost, repayment period, guarantees needed, disbursements, conditions, and covenants whenever are applicable.

4 - ENERGY EFFICIENCY PROGRAM

Financing program aimed at increasing energy efficiency in industrial enterprises.

Main Features

. The program helps factories reduce their increasing energy costs. . It is available for all industrial sectors. . Extended repayment period and faster evaluation and financing procedures are among the program features. . Enterprises can get special offers on evaluation services rendered by several consulting offices certified by the Saudi Energy Efficiency Center.

5 - INDUSTRIAL DIGITAL TRANSFORMATION PROGRAM

The program helps industrial enterprises develop their business mechanisms and productivity using modern technology. Main Features

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. The program is available for all industrial sectors. . The program offers special features such as extended repayment period and short evaluation period when conditions are fulfilled. . The program offers a number of advisory organizations which help in evaluating and designing the projects of Industry 4.0

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6. OPPORTUNITIES BY SECTOR

The drive to increase local content in procurement in Kingdom Saudi Arabia presents a unique set of opportunities for companies bidding for business contracts or those with supply chain operations in the region.

Any organization bidding for contracts or awarding projects to suppliers in the kingdom should be aware of the drive to promote local content, an initiative to increase local participation, employment and foreign direct investment in manufacturing and services.

The Saudi government estimates that SAR 270 billion of opportunities for local businesses can be generated. In return this will help to create 450,000 jobs in the non-government sector by 2020, reducing the Kingdom’s reliance on sourcing labor from overseas, and increasing the use of local employees.

This section will explain in detail the opportunities offered by five main sectors:

1- Oil & Gas – Aramco Iktva Program 2- Petrochemical - Sabic Nusend Program 3- Water Desalination – SWCC Local Fabrication Program 4- Electricity – Localisation Program 5- Defence & Security – AFED Program

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OIL AND GAS (ARAMCO – IKTVA PROGRAM)

Saudi Aramco started its local content program since 1st December 2015, under the name of “In Kingdom Total Value Add (IKTVA)". Through which Aramco is targeting to achieve 70% of the local content out of overall operating expenditure by 2021.

Through the program, Aramco works jointly with its registered suppliers to help them develop their abilities to produce the right quality of products and services at the right cost and according to a schedule.

Following table list down the offered opportunities by Aramco:

1 – OILFIELD EQUIPMENT