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n the new global supply chain — reduced by globalizaton and falling trade barriers — the crunch to shrink costs is driving world-class industries to position production facilities strategically closer to raw materials sources.
Low-cost development zones are emerging to accelerate the reverse migration and few industrial sectors have been impacted more than petrochemicals where the rush is on to grab “best cost” locations for high-growth clients in the emerging world.
Development zones configured as superprojects with the capacity to serve as platforms for mega-production facilities will surely win the race to attract the investment inflow.
These were only some of the conclusions of an investment conference last Nov. 13-15 in Jubail, Saudi Arabia, a city listed in the Guinness Book of Records as the largest engineering and construction project ever undertaken.
Said McKinley Conway, president and chairman of Conway Data Inc., parent company of the World Development Federation, which organized the Major Investment Opportunities in the 21st Century conference with the Royal Commission for Jubail and Yanbu: “Jubail ranks as a superproject that has the essential infrastructure to support the new technologies and industries that will open economic opportunities for the Middle East and nearby Asian countries.”
Jubail Global Super Projects Conference |
The Jubail Global Super Projects Conference (GSPC) was organized by the World Development Federation (WDF) in association with the Royal Commission for Jubail and Yanbu (Saudi Arabia). Sponsors included SABIC, SIPC, Shell, Bechtel, Parsons, IBM and others. Sessions were oriented toward new investment and business opportunities in Saudi Arabia in light of the recent investment regulation changes that removed barriers to foreign investment. Topics included various sectors of the Saudi market and infrastructure, including the petrochemical industry, oil and gas, water, energy and transportation. Among others, speakers included ministers from several Saudi governmental entities; Terry Newendorp, chairman and CEO of Taylor-DeJongh; Kosaburo Morinaka, managing director with Sumitomo Corp.; and Charles E. Redman, senior vice president with Bechtel International. WDF is a non-profit, international federation of individuals and organizations involved in large-scale development projects. The organization’s goal is to improve global quality of life through the implementation of “super projects” — billion-dollar projects that enhance the environment, create global linkages and contribute to effective economic development. WDF has held GSPCs in Atlanta (2000), Jubail (2000), Madrid (1999), Paris (1997), San Francisco (1996), Osaka (1995), Barcelona (1994), Singapore (1993) and Honolulu (1992). The events bring together project developers, planners, service providers and leading experts in international development. WDF is managed by Conway Data Inc. For more information, contact WDF at 35 Technology Parkway, Suite 150; Norcross, GA 30092 USA. Tel: 1-770-446-6996; Fax: 1-263-8825, Email: wdf@conway.com, Web: www.wdf.org. |
Jubail Prepares for the Future
In the past 25 years, Jubail has grown from a sleepy, gulf-side fishing village to a mega-industrial development pole boasting US$30 billion in industrial investment — projects in primary industries (16), secondary industries (17) and 100 light and support industrial units. Some $11 billion has been poured into infrastructure alone to support the investment inflow.
Sitting on one-quarter of the world’s oil reserves beneath the sands of eastern Arabia, Jubail is positioning itself for the expected expansion of downstream manufacturing using cheap petrochemical feedstocks astride the EuroAsian transport routes to serve both Middle East and Asian markets.
H. E. Mohammad H. Al-Mady, vice chairman and managing director of Saudi Basic Industries Corp. (SABIC), told a packed conference hall, “Recent economic projections show that high GDP growth with moderate inflation encourages the migration of manufacturing facilities to the developing world and that Saudi Arabia will get the petrochemical firms.”
According to Al-Mady, the Middle East will follow the example of other regions in moving from basic products to downstream secondary and eventually more complex products. “The petrochemical industry offers clear examples of an evolution towards sophisticated downstream products,” Al-Mady said. “Developing regions have shown two to three times faster growth in downstream demand for downstream products. In Asia and elsewhere in the Middle East, downstream demand has outpaced expansion of primary petrochemical manufacturing capacity.”
New Regulations Slash Taxes
The new foreign investment regulations promulgated last April slash the corporate tax rate by one-third to 30 percent for annual profits of more than $100,000, give the nod to tax loss carry forwards for several years, and allow 100 percent foreign ownership of land and facilities. The newly created General Investment Authority (GIA) will be responsible for proposing and implementing policies to promote foreign investment in the Kingdom and for issuing investment licenses to foreign investors.
Said GIA Gov. His Highness Prince Abdullah bin Faisal bin Turki: “A comprehensive tax code is expected to be announced in the near future because of its direct relation to the Foreign Investment Act, since the subject of taxes represents one of the major considerations to foreign entrepreneurs for allocating investments.”
A one-stop shopping function, filled by the newly created comprehensive service center inside the GIA, will combine the procedures from 10 government bodies into one investment-related office with full-time delegates from all ministries related to investment.
The costs of setting up a business are minimal. “Low volatility in currency exchange and interest rates along with low inflation and a moderate tax structure make financial operating conditions attractive for foreign investors in the Kingdom,” said Brad Bourland, chief economist at Saudi American Bank. “The banks offer sophisticated products, and they are strong, well regulated and very liquid. For investors they offer a source of short-term lending for working capital at very good prices.”
Entering the WTO
Trade flows already reflect the accelerating shift towards secondary products as the Kingdom lobbies for entry into the World Trade Organization. “Though problems remain to be resolved, the growing diversification of the Saudi economy, the new investment laws, the rapid growth of non-oil exports in recent years, and the government’s commitment to pursue this course in the years to come point to eventual Saudi entry into the WTO,” said John M. Weekes, chairman of the Working Party on the Accession of Saudi Arabia to the WTO.
Under way this year are bilateral market access negotiations aimed at securing Saudi compliance with WTO procedures for the free movement of trade. Currently, Commerce Minister Osama J. Faquih and his team are laying the groundwork for the integration of WTO procedures in the Kingdom.
