PIF sounds alarm on Saudi manufacturing delays

• Billions invested in construction
• Domestic base needed
• Factories must be built quicker

Saudi Arabia’s Public Investment Fund has warned that the kingdom is racing through its construction boom without locking in a domestic manufacturing base. It also wants the the time it takes to build local factories slashed.

The Gulf state wants a homegrown industrial sector to drive its Vision 2030 building spree – it needs everything from building materials, construction equipment and machinery to contracting capacity and technology for marquee giga-projects. 

Delays in developing the domestic manufacturing base risk squandering a rare chance to localise supply chains, leaving flagship projects short of inputs, the fund said. This forces the PIF – the $1 trillion engine behind the programme – to rely on costly imports that are susceptible to global inflation and supply chain issues such as Red Sea disruptions.

It is “very clear that the opportunity is here. What we need today in the localisation space is speed,” Leyla Abdimomunova, PIF’s head of real estate and construction in their national development division, told the Private Sector Forum in Riyadh on Monday.

“This construction boom will not continue forever. If we do not utilise it to build this strong, resilient manufacturing we will lose [the opportunity].”

Even as some ambitions are pared back, Riyadh is still pouring hundreds of billions of dollars into new cities, infrastructure and tourism. Commitments such as Expo 2030 and the 2034 World Cup are intensifying demand as it faces pressure to deliver on time and on budget.

Abdimomunova said one of the biggest drags is the time it takes to set up factories after an investment decision, pointing to “issues that need to be resolved in collaboration” across government – the speed from the point of company registration and permits to land allocation and workforce hiring.

“In our experience, unfortunately, it takes on average about two and a half years from the point of [when] an investment has been completed and then till the factory is open. This time can be significantly shorter,” she said.

Abdimomunova said bottlenecks extend beyond bureaucracy to the availability of developed industrial land and “plug-and-play” facilities, as well as limited market visibility.

“What we are missing today is just simple information: what capacity is available, what additional capacity is upcoming, what are the prices for the key products.” She said she wants to make the market as transparent as possible.

Nasser Al Shawaf, CEO of investment and services at Saudi contractor AlBawani, said at the conference that new event commitments have added to the pressure “that is creating overheating in the local market”.

He said global shocks have compounded the strain, alongside rising interest rates that have lifted borrowing costs. “You’ve had the Ukraine war, which we all hear about in the news, but it had a profound impact on that sector,” Al Shawaf said.

“We’ve had [increasing] inflation and pressure in commodities, energy prices, even on grains. That is not something you can discount.” 

• ‘New Dammam’ real estate development revealed
• What if Saudi Arabia had stuck to the original Vision 2030 plan?
• Saudi Arabia scales back giga-projects to focus on World Cup

PIF’s priority, Abdimomunova said, is keeping major real estate and infrastructure programmes on track. 

“Our project, PIF, is not just about deploying our own capital but also to facilitate it,” she said.

The fund is courting and supporting investors with everything from feasibility studies through to approvals and operations. 

PIF has identified more than 60 opportunities across 21 different product categories, with 47 companies committed to invest and 13 factories already operating, Abdimomunova said.

More than 180 factories are in the pipeline, she added, and in total, “we’re talking with almost 300 investors globally.”