A more sustainable future is possible for the Kingdom. This aspiration is underpinned by Vision 2030, a government-backed social reform blueprint that seeks to further reduce the Kingdom’s economic reliance on oil. But to realize this goal, and truly diversify the Saudi economy, the enhancement of local content must remain a priority.

Local content is defined as ‘the total expenditure in the Kingdom of Saudi Arabia through the participation of Saudi components in the workforce, goods, services, production and technical assets’. In other words, it seeks to make the Kingdom become more self-sufficient by tapping into local resources, which can be anything from individual workers to entire sectors.

Conceptually, local content is still in its infancy. Only in 2016 did the Saudi government lay out its Vision 2030 document, which highlighted the need to strengthen internal supply chains across the Kingdom. As part of the program, it has made clear its intentions to prioritize government funding towards companies that will increase local content and create new local jobs. Since then, some of Saudi Arabia’s leading private sector players - including Alfanar Projects - have pioneered a range of programs to promote local content and ensure that innovation and prosperity are being fostered on a national scale.

The boldness of the Kingdom’s plans is in line with its economic performance on the world stage. Its post-pandemic recovery saw it become one of the world’s fastest growing economies in 2022, with GDP growth of 8.7%. This follows the similarly high annual figure of 8.1% in 2021. The sale of oil was undoubtedly a significant factor here, but the non-oil economy in the Kingdom has seen healthy growth too; the manufacturing industry, for example, experienced a 22% increase in sector activity.

Now is the time for the Kingdom to capitalize on its economic success. Together, the Saudi government and Saudi-based companies can work together to facilitate the enhancement of local content. If local resources are utilized and invested in, the shared goal of a more sustainable and diverse economy is well within the Kingdom’s reach.

What do the various elements of local content look like?

Local content can only succeed if each of its elements is given the tools needed to develop. This collective progress of these elements is also cyclical. According to the Local Content & Government Procurement Authority (LCGPA), the four elements are:

• Assets
• Labor
• Goods or services
• Technology

While they cover separate aspects of local content within the Saudi economy, these elements feed directly into each other. The logistical improvement of asset distribution - i.e. the components and goods used to develop production chains - can aid productivity; improve productivity, and reduce challenges with the production chain, making for a more efficient labor workforce; this labor workforce, unshackled from supply chain issues, can shift resourcing towards increasing innovation, which in turn will facilitate the creation of better local goods and services; and with the improvement of goods and services comes increased profit, more investment in technology, and ultimately the further improvement of all these elements.

Enhancing these individual parts through investment and additional allocation of resource will see the improvement of local content in its entirety. All along the production chain, improvements will be made. The result: more jobs, more profit, and more reinvestment – all of them contributing towards a more sustainable, self-sufficient future for the Kingdom.  

A growing trend

With the self-sufficiency of Saudi Arabia’s economy, a clear priority for the government, local content needs to continue being developed at all levels. This can range from positive societal perceptions of buying local products over imports - and the rise in individuals championing this attitude - to the implementation of administrative policies that ensure companies follow local content procedures.

But what does the real-life endorsement of this drive towards improved local content look like in reality? We’re already seeing some highly successful Saudi initiatives come to fruition. One of the most prominent projects is In-Kingdom Total Value Add (iktva), pioneered by Aramco – the world’s largest energy and chemicals producer. The program aims to “create value in every aspect of Aramco’s business, maximizing long-term economic growth and diversification.” This proactive approach from Aramco is seeking to drive domestic value creation. While it is partially in response to the changing economic environment, iktva is championed for the long term good of the Saudi economy.

The program was first announced in 2015, when local content in the Kingdom sat at 35%. By 2022 this number had risen to 63%, with the Saudi Energy Minister, Prince Abdulaziz bin Salman, stating that he hoped the local content would reach 85% by 2030. At the latest iktva forum - the seventh of its kind - earlier in 2023, Aramco signed more than 100 agreements and MoUs, valued at around $7.2 billion, to advance local content. The agreements are set to reinforce localization efforts in key sectors including digital, sustainability, industrial, and manufacturing.  

Aramco is not the only entity advocating for the development of local content. The Shareek Program, led by the Council of Economic and Development Affairs (CEDA), will support projects of large, private sector companies that aim to contribute to the Saudi Vision 2030 and local content targets of the Kingdom. The Shareek Program recently announced the first wave of projects that it is supporting, with investments of more than $50 million spread across eight companies.

Alfanar Projects and local content

At Alfanar Projects, we’re also contributing to the success of local content because we believe that it is key to the development of a sustainable future for the Kingdom. One of self-sufficiency and economic prosperity.

After being awarded the Smart Meter Project in 2019, we spearheaded a $1.5 billion project that replaced 5 million smart meters, 35% of which were manufactured locally in Saudi Arabia.

We have also entered into a groundbreaking partnership with Hewlett Packard Enterprise. Together, we’ll be making a joint investment worth more than $100 million into the development of an IT manufacturing site – the first of its kind in Saudi Arabia. This partnership will create new jobs, promote the local workforce, and help to develop the country’s tech ecosystem. Further, it’s expected to contribute more than $500m to the Kingdom’s GDP.

Our commitment to local content is unwavering and has been for many years. A quarter of a century ago, we began our first project on an area of 0.78 acres with the support of the Saudi Authority for Industrial Cities and the Saudi Industrial Development Fund. 25 years on, and we own 247 acres of industrial land, and we employ and qualify approximately 5,000 people – 800 of whom are Saudi women, who work in our industrial city.

Our progress is a success story. In 2021, we have achieved: 44% IKTVA and 24.25% LC in Engineering Construction, 34.69% in Alfanar Technical Services, and 19.08% in Steel Structures. But the best is yet to come. We can see what a sustainable future looks like for the Kingdom, and local content is helping us reach it.