Saudi Arabia's Quest for Economic Diversity

A recent post on FinanceAsia.com discusses Saudi Arabia's attempted movement from an economy based solely on oil.

Saudi Arabia is in the middle of an economic transformation. Long known as the oil capital of the world, the kingdom is now focusing its economic policies on manufacturing and other non-oil activities as it tries to move away from oil dependence and build on its other competitive advantages.

Both domestic and overseas demand for Saudi goods is on the rise - the country's non-oil sector grew 5.8% in 2007, thanks in part to a boom in the non-oil hydrocarbons industry.

"The non-oil trade data illustrates that the diversification going on within the Saudi economy is focused on generating greater value-added from the kingdom's hydrocarbon reserves rather than developing unrelated industries," writes Brad Bourland, Jadwa Investment's chief economist.

With hydrocarbons leading Saudi Arabia's non-oil sector, Sabic is the undisputed leader. The company has three major petrochemical projects underway in Kayan, Sharq and Yansab, and is investing more than $12 billion in adding 20 million tonnes of petrochemical production capacity to the kingdom by 2010. If growth goes as planned, Sabic will have 75 million tonnes of petrochemical production capacity by the end of the decade.

Sabic is hardly alone in seeing opportunities in the petrochemical sector. National oil leader Saudi Aramco is currently building a $10 billion petrochemical plant on the Red Sea, called PetroRabigh, with Japan's Sumitomo Chemical.

"We are the most cost-effective production location in the world for the industries we are targeting," says Amr Al-Dabbagh, governor of the Saudi Arabian General Investment Authority (Sagia). He goes on to explain how, as the lowest cost location for targeted industries, including petrochemicals and plastics, he expects investment in the sectors in to increase.

What does this mean for domestic propane retailers? It means that a large net exporter of propane is doing its best to start consuming the propane that otherwise would go to Africa or America. Many propane cargoes originate from Yanbu and Ras Tanura, and if these locations begin creating their own polyethylene pellets it will greatly impact the import/export economics of the industry.

The economic development cities are crazy - new, clean, big, and hot (a lot like Vegas). Here are their websites: Jazan, King Abdullah, Knowledge and Prince AbdulAziz bin Mousaed.