Any organisation bidding for contracts or awarding projects to suppliers in the Middle East should be aware of the drive to promote local content in the region, an initiative to increase local
participation, employment and foreign direct investment in manufacturing and services.
Nowhere is this more evident than in the Kingdom of Saudi Arabia, where the local content policy has been explicitly laid out in the government’s Vision 2030 document released in 2016 and which estimates that SAR 270 billion of opportunities for local businesses can be generated in this way. The Saudi government believes this will help to create 450,000 jobs in the non-government sector by 2020, reducing the Kingdom’s reliance on sourcing labour from overseas, and increasing the use of local employees. Other Middle Eastern countries, including Oman, have similar policies, while major businesses such as the Kuwait Oil Company have mandated the use of local content as part of their own supply chain requirements.
The challenge for organisations based in Saudi Arabia or already trading in the region lies not just in sourcing locally, but also in identifying what can be considered as local content. It is one thing to say you must buy locally but another to find suppliers with the quality and capacity to meet your demands in an area without a strong tradition of local suppliers producing their own materials. Also, the definition of local content is not just about the number of employees a company has or where it’s registered. It’s much wider, including the question of how you compare one company with another when they are operating in very different industries. Efficio has been working with both the Saudi government and major Saudi companies to develop a common definition, methodology and set of online tools to track and monitor local content performance in the Saudi supply chain. There are different challenges depending on the stakeholder.
It is one thing to say you must buy locally but another to find suppliers with the quality and capacity to meet your demands in an area without a strong tradition of local suppliers producing their own materials
you spend go and how much of it stays within the community in terms of value, whether through employment, manufacturing, investment in training and infrastructure, or research and development? Part of this process involves identifying the main suppliers in the region, what they do and how well they do it, which can enable businesses to alter their sourcing strategy if the business case is strong. Local content shouldn’t drive up costs or drive out competition, and should allow for foreign direct investment and competition to create a healthy economy. This baselining exercise often delivers additional benefits by identifying savings improvements. You can assess an organisation’s risk around the number of suppliers it uses and introduce a local provider or foreign business using local labour to help move away from a sole sourcing strategy. This allows a company to examine the local provision, its pricing and whether it can meet demand. One business that has taken these steps is mining firm Ma’aden, which worked with Efficio to determine how local content processes and principles could be built into its operating model. This included identifying the current baseline and developing an online reporting and monitoring toolset. Efficio captured data from suppliers to determine a value for the local content and highlight the good and bad performers within Ma’aden’s supply chain.
Taking such steps early on can give organisations a competitive advantage in bidding for contracts. The same applies to international businesses looking to win work from governments or other organisations in Saudi Arabia or the wider region. Companies need to understand how they’re going to be assessed on their local content contribution, and factor this into their response to requests for proposals, as well as questionnaires for their own suppliers. In some cases, these contracts may operate over a 30-year period, so it is essential to take a long-term view. The main benefit for first movers is simple: the more local content they have, the greater the opportunity to grow their business.
Following the launch of Saudi Arabia’s Vision 2030 initiative in September 2015, the government commissioned Efficio to develop a strategy and recommend changes to laws, regulations and procurement practices. Efficio embarked on four main workstreams:
Efficio created a clear strategy designed to deliver a transformative improvement in local content and numerous jobs for Saudi nationals, adding billions in value to the Saudi economy in long-term sustainable benefits. The recommended changes will ensure national manufacturing and employment is prioritised in Saudi Arabia’s procurement regulations, developing a long-term sustainable supply base to support future prosperity.
Saleh Agili, Kingdom of Saudi Arabia Local Content Project Director, said: “Efficio’s ability to manage large volumes of economic data was impressive, as was their work ethic and commitment to the task. The recommendations have been well received at the highest levels of government, and will help shape future economic policy.”