Industrial conglomerate to co-invest in key sectors as part of kingdom’s diversification strategy
In a press release on Monday, May 23rd, 2016 General Electric (NYSE: GE) announced that it has committed to investments worth over $1.4 billion in Saudi Arabia to support the kingdom’s Vision 2030 plan, aimed at reducing dependence on oil production and achieving diversification as part of its long-term growth strategy. GE’s deal with Saudi Arabia comes at a time when the kingdom saw a nearly $100-billion deficit in 2015 following a fall in global oil prices by more than 50% since June 2015. Saudi Arabia’s economy, which is predominantly fueled by oil revenue, is faced with a crisis owing to stunted public sector growth which has lead analysts to predict a whopping $87-billion deficit in 2016.
As a first step towards economic resurrection of the Gulf kingdom, GE announced that it has signed a letter of understanding with the Saudi Arabian Industrial Investments Company to co-invest $1 billion in strategic sectors such as water, aviation, and digital as of 2017. General Electric, which has been operating in Saudi Arabia for 80 years now, will co-invest another $400 million with Saudi Aramco and another company to build a forging and casting manufacturing facility for the marine and energy industries in the kingdom. The new facility will be operational by 2020 and create over 2,000 new local jobs.
GE is also looking to transform Saudi’s manufacturing sector by digitizing 10 factories through a partnership with MODON. GE’s energy startup, ‘Current’, is setting up a center of excellence for light emitting diode (LED) testing in Dammam. Apart from making 100,000 to 300,000 LED fixtures per year when fully operational, the center will also serve as a manufacturing, assembly, repair, services and training facility for advanced gas turbines and mechanical drives.
The Vision 2030 plan, announced by Deputy Crown Prince Mohammed bin Salman, the son of King Salman, will also pick up stake in the world’s largest oil company, Saudi Arabian Oil Co., and set up one of the world’s biggest government investment funds.
Gaining “Made in Saudi” capabilities
While the above joint ventures are aimed at adding ‘Made in Saudi’ capabilities to the Gulf kingdom, it will also create job opportunities. Additionally, with GE’s support, Saudi Arabia is looking to boost small and medium-sized businesses, drive exports, and improve economic competitiveness in the near term. Saudi Arabia’s population of 28-million is currently struggling with unemployment, and GE’s investment in the kingdom could provide employment opportunities outside of the public sector.
GE already employs around 2,000 people in Saudi Arabia working in the aviation, healthcare, oil, utilities, and transportation sectors, as it has three offices and seven facilities there. Under the deals announced on Monday, GE is looking to expand its workforce in Saudi Arabia to 4,000 by 2020. The company also has the world’s largest gas turbine service facility in Dammam, which became operational in 2011.
New economic strategy
Saudi Arabia’s heavy dependence on oil, compounded by the sharp drops, in oil prices has caused state revenues to drop substantially and growth prospects to weaken. As part of its new economic reforms, the kingdom is looking to diversify into sectors that do not rely on the country’s oil resources. Hence, weaning away its dependence on the oil sector and diversifying into other sectors are seen as the short-term fixes to tackle the current crisis within the kingdom. Additionally, Saudi Arabia is looking to attract international investors and gain technical expertise aimed at creating jobs for its growing population and to achieve sustained growth over the long-term. Saudi Arabia is relying on its strategic alliance with GE to thereby help achieve part of its long-term economic competitiveness and diversified growth.