Saudi Arabia: Car Builder?

05/15/2013 7:00 am EST

Focus: GLOBAL

Saudi Arabia is on the verge of fulfilling a long-held ambition, as cheap aluminum and financial incentives are about to bring car manufacturing to the GCC for the first time, writes Florian Neuhof of The National.

The Arab kingdom is in negotiations with Jaguar Land Rover for a production line in the industrial city of Yanbu, after an initial agreement for a feasibility study was signed last year.

The Indian-owned company can count on Saudi government investment of close to $1 billion-and some of the world's cheapest aluminum. Senior industrial figures in Saudi Arabia are confident that a deal will be in place before the year is out.

"Hopefully, by the end of this year we will be able to finalize the contracts," said Alaa Nassif, the executive president of the Royal Commission of Yanbu, which oversees the development of the city on the Red Sea.

"We plan, once we've finalized the deal with Jaguar, to have the first batch of cars out of Yanbu by 2017," he said.

Saudi Arabia has committed immense resources to developing an industrial base in the country. The government and private sector have invested $53 billion in Yanbu, one of the two big industrial concentrations along with Jubail on the Gulf coast.

Cheap hydrocarbon feedstocks have proved successful in drawing in petrochemical companies and creating the world's largest player in the industry, the Saudi Basic Industries Corporation.

The kingdom is keen to build on the availability of basic materials by encouraging the development of a downstream industry that converts petrochemicals into plastics and to build components for consumer goods. The ultimate aim is to use such parts in complex manufacturing, with car production considered the apex of this development.

"That agreement, once it's there, will move Saudi Arabia to another level of industry," said Nassif, who spoke on the sidelines of the Middle East Downstream Week conference in Abu Dhabi yesterday.

The bulk of car components will be supplied domestically by the time production begins in 2017, said Nassif, with the aim of one day providing all components from within the kingdom.

A big draw for Jaguar Land Rover is the aluminum smelter of the Ma'aden-Alcoa joint venture, which will start delivering aluminum for use in cars by the beginning of next year.

The project will source its raw materials from mines in the country and produce at very low costs. Aluminum is the prime metal in Jaguars and Land Rovers.

"This smelter could make the production of aluminum in Saudi Arabia very competitive," Ratan Tata, the chairman emeritus of Jaguar Land Rover owner Tata (TTM), said last year.

"If we put an assembly plant there with a large press shop, given our commitment to aluminum in our products, we could have an interesting business case."

Further incentive is provided by the Saudi government, which would shoulder almost the entire amount needed to set up car manufacturing in Yanbu, which Nassif puts at about $1 billion. The facilities and infrastructure would be leased to Jaguar Land Rover.

Nassif puts annual Saudi car imports at close to one million vehicles. He says domestic demand, coupled with demand from the Gulf and the wider Middle East, makes car manufacturing in the country feasible.

Read more from The National here...

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