Dr Yahya Anouti, Georgie Saad and Jayanth Mantri
GCC countries can capitalise on their abundant and cost-competitive green energy, attractive location, and industrial and logistics infrastructure, thereby unleashing a new wave of economic growth, says a report.
According to the latest report by Strategy& Middle East, part of the PwC network, entitled 'Reconfiguring Global Value Chains', global value chains are rapidly moving away from a primary focus on cost towards high-value, resilient, and operationally agile industries.
Thanks to their unique advantages, this presents GCC countries with a historic opportunity to capitalise on local resources to ramp up backward GVC participation to innovate and manufacture locally while accelerating domestic productivity, it says.
“Countries around the world are actively reconfiguring their industries. They are focusing on innovation and investment in world-leading technologies, products, and services that play to their own strengths,” said Dr. Yahya Anouti, Partner with Strategy& Middle East. “For GCC countries, this means using their geographic location, abundant renewables, and infrastructure to become a hub for global value chains, he added.
For too long, GCC countries have secured growth through exporting basic resource goods – like oil and chemicals that then go on to be processed into high-value products in other countries. If GCC countries are to achieve long-term economic growth, they need to produce more value-added products.
Strategy& believes that GCC countries should move towards ‘backward’ GVC participation which involves importing or using domestic raw materials to produce complex components (such as semiconductors) and finished goods (such as electronics). Such a strategy would bring global value chains to the region and thereby boost domestic productivity and economic growth, the report said.
The Strategy& report highlights the paucity of backward GVC activity in the region: Saudi Arabia has only a 4 percent backward participation rate, which is very low compared to the world’s top-15 exporting countries. To develop their backward GVC – or ‘downstream’ industries’ – GCC countries need to consider their unique advantages and rethink how they use the resources at their disposal. Rather than exporting hydrogen, for example, governments can build national manufacturing clusters and infrastructures to create inward investment opportunities in areas such as green ammonia, green steel or glass manufacturing.
11 ownstream industries
“We identified 11 GVCs that GCC countries can develop thanks to their abundance of energy and raw materials such as products such as silicon wafers, recycled plastic, green steel, and titanium aerostructures, among others,” said Georgie Saad, Principal with Strategy& Middle East.
“Our analysis also suggests that localised manufacturing of such products has the potential to attract $300 billion in foreign direct investment (FDI) – with up to 150,000 jobs and $25 billion in non-oil exports every year,” he added.
The report from Strategy& provides stakeholders in the GCC region with the following steps to seize the opportunity to lead the development of new GVCs.
Governments should partner among themselves to reinforce each country’s competitive advantages and develop agile, resilient, and sustainable GVCs. They should join with business to develop targeted measures for each priority GVC component. These can include financial incentives such as capital investment grants, subsidized inputs, financing, and demand guarantees.
For example, in April 2022, the Saudi government signed an agreement with carmaker Lucid Group guaranteeing the purchase of at least 50,000 electric vehicles over a 10-year period. Governments also can fund innovation efforts and develop circular, technology-enabled industrial cities and special economic zones centered on priority sectors.
SWFs can build
Sovereign wealth funds (SWFs) can also build resilient GVCs by securing reliable supplies of raw materials such as lithium, cobalt, nickel, and copper, which are all critical to enable green industries and products (such as lithium-ion batteries) and to achieve ambitious sustainability targets. In addition, SWFs can target distressed global companies to gain access to proprietary technology, relocate operations to the region, and accelerate the domestic development of key value chains.
As value chains develop, private businesses can also play their part by pursuing joint ventures (JVs) and partnerships with regional tier-one suppliers across the 11 primary product categories. They also have the ability to engender technology transfer and technical off-take arrangements.
“GCC countries have the chance to become a global value chain hub across a range of industries, unlock significant economic development, and diversify the economy,” concludes Jayanth Mantri, Manager with Strategy& Middle East. - TradeArabia News Service