Local Content Development for Saudi Arabia

Ibrahim Babelli

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Definition of Local Content

Local Content Measure

Local Content

Example of Local Content

Definition from Nigeria

Requirement that the investor purchase a certain amount of local materials for

incorporation in the investor’s product. (WTO)

https://stats.oecd.org/glossary/detail.asp?ID=5032

The local resources a project or business utilizes or develops along its value chain while

investing in a host country. This may include a share of employment or inputs, goods and

services to be procured from local sources, operations carried out in partnership with

local entities, development of enabling infrastructure, the improvement of domestic

capacity or the improvement of local technological capabilities. (OECD)

Local Content is defined as the quantum of composite value; either added to or created in

the Nigerian economy through a deliberate utilization of Nigerian human resources,

material resources and services in the exploration, development, exploitation,

transportation and sales of Nigerian crude oil and gas resources. (National Petroleum

Investment Management Services – Nigeria)

Local Content Requirements

The imposition of Local Content obligations (generally in the form of quantified targets or

quotas) enshrined in laws or included as part of licensing, procurement agreements or

other contracts, prescribing local participation in the opportunities of extractives projects

or operational activities in a variety of ways, ranging from the share of goods, services to

be procured locally, manpower to be hired locally or the share of research and

development to be carried out locally and the equity share to be owned by local

companies in joint ventures. (OECD)

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Local Content Development for Saudi Arabia

National Framework

Definition

Interventions

Pursuant to the definition, a national framework needs to be established to guide the

development of local content in Saudi Arabia

Saudi Arabia needs to define local content as it suits its economic and social

development

Once the definition and the national framework are in place, and the champion has been

assigned, a set of interventions must be identified, developed and proposed

ChampionToday, local content has no custodian. Several government entities have attempted local

content definitions and plans, with limited success. A champion is seen as a must

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Local Content Development for Saudi Arabia: Definition

Local Content

Total Spend

Asset Lifetime

Cost

Manufac-tured

products

ServicesTechno-

logy

Employ-ment

(Human Capital)

Standards

(Branding)

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Cases to illustrate importance of definition: Structures

Source: http://www.teamwaysolutions.com/

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Cases to illustrate importance of definition: Mining

Source: http://www.snowdengroup.com/

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Cases to illustrate importance of definition: Electrical Equipment

Source: US Department of Energy.

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Cases to illustrate importance of definition: Renewable Energy Power Plants

36%

53% 52%

27% 31%

42%

40%31%

30%

10%

7%17%

43%

59%

22%

CSP (1) PV (2) Wind Geothermal Biomass

2011 data; Split could varies through the period; (1) Average of Trough and Tower; (2) Average of Silicon, Thin Film, and HCPV;

Manufacturing EPC O&M

Cash cost split per technology throughout the useful life

%

100% 100% 100% 100%100%

Source: Oliver Wyman analysis

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Cases to illustrate importance of definition: Apparel

Source: https://www.choice.com.au/

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Local Content Development for Saudi Arabia: Definition

Asset Lifetime Cost

Total Spend

Employment

(Human Capital)

The Total Spend makes up the cost to own, but it is only a subset of the total lifetime cost

of the car. Maintenance (preventive and otherwise), fuel, depreciation, etc. all add up to

the Asset Lifetime Cost.

For a car, the Manufacturer's Suggested Retail Price (MSRP) is a significant component of

what the owner will spend, but is not the only one. Insurance, registration, tax, delivery,

dealership, etc. all add up to the Total Spend.

Servicing a car (e.g. oil change) is a service that is recurring. Ensuring a car is equally a

service. Both are required and both can be targeted; the criterion for localizing Human

Capital is the key.

Manufactured products

If Toyota Motor Corporation signs a deal to source out all carbon fiber material used in its

cars manufactured in Indonesia from Indonesian carbon fiber manufacturer, the sum of

this carbon fiber content is classified as Products in the local content.

ServicesOver the lifetime of the asset, the service part of the Asset Lifetime Cost increases with

lifetime, ultimately exceeding the Products part.

TechnologyThe first Hyundai car was 100% Japanese Mitsubishi. It had zero % technology local

content. The current Hyundai cars are 100% Korean technology content.

Standards

(Branding)

A necessary tool for enabling local content of products, technology, services and human

capital.

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Local Content Development for Saudi Arabia: National Framework

Saudi Arabia’s Commitment

Local Content Policies

Incentives

Human Capital

Development

Strategic Sectors

Oversight Body

Implementation Body

Oversight

Top-Down

Alignment

Bottom-Up

AlignmentEconomic

Development Potential

Local Content

Government Supervision

Feedback Loop Public and Private Sector Entities