0 | Page Manufacturing Opportunities in KSA November 2018 | By: Ameer Yousif, Jaffer Al Hamad, Adel Al Banna Manufacturing Opportunities In The Kingdom of Saudi Arabia Actionable Market Intelligence Report A market intelligence report looking into the opportunities within the manufacturing sector in the Kingdom of Saudi Arabia, in view of the local content policy. The report also outlines the landscape of the sector and the various support & stimulation programs. With the objective to support the Bahraini private sector to expand and grow in the region, Tamkeen is developing a series of actionable market intelligence reports on various areas and sectors in the Saudi Market.
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Manufacturing Opportunities In The Kingdom of Saudi Arabia · 2019. 5. 9. · In The Kingdom of Saudi Arabia ... OIL AND GAS (ARAMCO – IKTVA PROGRAM).....24 PETROCHEMICAL (SABIC
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0 | P a g e M a n u f a c t u r i n g O p p o r t u n i t i e s i n K S A
November 2018 | By: Ameer Yousif, Jaffer Al Hamad, Adel Al Banna
Manufacturing Opportunities
In The Kingdom of Saudi Arabia
Actionable Market Intelligence Report
A market intelligence report looking into the opportunities within
the manufacturing sector in the Kingdom of Saudi Arabia, in view
of the local content policy. The report also outlines the landscape
of the sector and the various support & stimulation programs.
With the objective to support the Bahraini private sector to expand
and grow in the region, Tamkeen is developing a series of
actionable market intelligence reports on various areas and
sectors in the Saudi Market.
1 | P a g e M a n u f a c t u r i n g O p p o r t u n i t i e s i n K S A
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4. MANUFACTURING INFRASTRUCTURE To achieve Vision 2030, Saudi Arabia is growing and diversifying its economy: the industrial and manufacturing sectors, in particular, have the ambition to drive this diversification. The development and growth of the industrial and manufacturing industry are being catalyzed by an attractive ecosystem consisting of industrial cities, well-developed infrastructure, high-quality utility supplies, and a well-established logistics network.
Saudi Authority for Industrial Cities and Technology Zones (MODON) is the entity responsible for the infrastructure of 30 industrial cities and 5 oasis (dedicated for women projects) and X technology zone across the kingdom. Each city, oasis or zone, is strategically positioned and designed to provide operational competitive advantages such as production synergies, cluster benefits, and scale effect, supported by infrastructures such as shared services and on-site facilities to investors. The supply of industrial land, commercial real estate and utilities at a
very competitive price is considered a distinctive factor for the Kingdom, compared to other countries worldwide. Modon provides various services: Services Guide (Arabic content). With modon you can rent a ready-made facility or rent a land for the purpose of establishing:
1- An industrial project 2- A services project 3- A housing project 4- A logistic project
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INDUSTRIAL CITIES
Modon manages 30 Industrial Cities across the kingdom:
No Industrial city Total area (m²)
1 Riyadh 1st. 500,000
2 Riyadh 2nd. 19,000,000
3 Riyadh 3rd. 1,000,000
4 Jeddah 1st. 12,000,000
5 Jeddah 2nd. 8,000,000
6 Jeddah 3rd. 80,000,000
7 Dammam 1st. 2,500,000
8 Dammam 2nd. 25,000,000
9 Dammam 3rd. 48,000,000
10 Sudair 265,000,000
11 Qassim 1st. 1,500,000
12 Qassim 2nd. 4,000,000
13 Al-Kharj 99,000,000
14 Ha'il 2,560,000
15 Al-Ahsa 1st. 1,500,000
16 Al-Ahsa 2nd. 300,000,000
17 Al-Madina Al-Munawwara 10,000,000
18 Makkah Al-Mukarrama 730,117
19 Tabuk 4,000,000
20 Al-Baha 1st. 3,000,000
21 Al-Baha 2nd. 6,000,000
22 Assir 2,700,000
23 Najran 6,500,000
24 Jazan 39,000,000
25 Ar'ar 2,000,000
26 Hafr Al-Batin 100,000,000
27 Shaqraa 10,000,000
28 Al-Zulfi 18,000,000
29 Durma 11,500,000
30 Wa'ad Al-Shamal 290,000,000
MODON OASES
Modon Oases are industrial cities specifically set-up for women workers. Currently, there are five of them across the kingdom:
No Modon Oasis Total area (m²)
1 Al-Ahsa Oasis 500,000
2 Jeddah Oasis 5,000,000
3 Qassim Oasis 600,000
4 Al-Jouf Oasis 3,000,000
5 Yanbu Oasis 500,000
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5. BUSINESS ENVIRONMENT & SUPPORT PROGRAMS Saudi Arabia has launched the Vision 2030 aimed at enhancing its business environment and economic performance, by establishing clear priorities, solid alignment amongst all relevant stakeholders, and serious commitments in leveraging private investments. Government initiatives across different areas such as ease of doing business, social and cultural participation, and fiscal balance review show the undeniable commitment of the Kingdom in improving the whole business environment. Specific regulations and initiatives have been recently implemented by Saudi regulatory entities such as:
The settlement cycle amended from T+0 to T+2, with securities’ transactions completed after two business days following the transaction execution date,
The opening of the domestic IPO market to qualified foreign investors, and The introduction of NOMU, a parallel equity market with lighter listing requirements serving as
an alternative platform for all companies to go public. Saudi Arabia's incentives and support schemes are specifically designed to encourage investment with the potential to diversify and improve the Kingdom's competitiveness. Amongst the primary objectives of the incentives and support schemes:
Enhance the development of business, Promote the creation of clustering activities, Ensure the transfer of knowledge and Accelerate the building of skills and capabilities within the country.
The Kingdom offers a wide range of incentives and support programs to help to achieve the above objectives:
Financial support Local Loan Programs Regional Loan Programs Fiscal support Employment support
The following sections summaries the licensing regulation and process for foreign investment and the above support programs with interactive links to visit the support entity webpage for more up to date details.
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LICENSING REGULATION AND PROCESS FOR
FOREIGN INVESTMENT
Being licensed to operate in Saudi Arabia as a foreign investor is necessary to obtain any permit to start operations. Established in 2000, the Saudi Arabian General Investment Authority (SAGIA) is the Kingdom's investment promotion agency responsible to set up and govern the regulatory framework for international companies willing to enter the Saudi market, offering assistance from the initial planning stage to comprehensive aftercare services. The granting of a license to invest in Saudi Arabia is a crucial activity for obtaining all permits before starting a new business. The first step is the selection of the type of investment license for which investor wishes to apply and verify whether there are any specific requirements, such as minimum acceptable capital and any cap to foreign capital. Investors can register and apply through the SAGIA official website, with a simplified process.
Fiscal regime elements relevant for foreign investment Four main fiscal regime elements are particularly relevant for foreign investment
1. Corporate income tax, applicable to foreign ownership of Saudi Arabia-based company; with the statutory corporate rate set at 20%, it is the lowest among the G20
2. Zakat, applicable on local ownership of Saudi Arabia-based company; set at 2.5% of the Zakat base
3. Value-Added-Tax 4. Social Security contribution; only for Saudi personnel
International trade agreements
Saudi Arabia is a member of the World Trade Organization, working to further liberalize its trade regime and accelerate integration in the global economy.
On a regional basis, the Kingdom is a member of the Gulf Cooperation Council and of the Greater Arab Free Trade Area.
Bilaterally, Saudi Arabia signed treaties for the avoidance of double taxation of income and capital (Double Taxation Avoidance Agreements, DTAs) with 29 countries as well as agreements (23) aimed at promoting and protecting the investments of the enterprises of one contracting party in the territory of the other.
The same rules and regulations that apply to Saudi investors also apply to GCC investors
and their %100 owned companies. GCC investors enjoy the same benefits offered to Saudi
nationals directly through the Ministry of Commerce and Investment. You can find more details on
their website: www.mci.gov.sa/circular, All GCC companies with a foreign partnership of %1 or more
are treated as a foreign investment and can apply for licenses from SAGIA. For more details,
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LOCAL LOAN PROGRAMS
1 - LOAN PROGRAM FOR INDUSTRIAL PROJECTS
Cover the risk of banks in financing small and medium enterprises
Interest-free Admin fee around 2.5% Repayment periods of up to 15 years 2-year grace period Additional advice on administration,
marketing, technical
Main conditions Responsible entity
1. Financeable industrial project with a valid industrial license and to realize considerable value for the economy. Characteristics:
2. Economically viable To provide training and employment opportunities for
Saudi To use locally sourced raw materials To integrate with other projects in KSA or GCC
countries To replace imports with local products To target export opportunities To bring advanced technology
Saudi Industrial Development Fund
2 - LOAN GUARANTEE PROGRAM (KAFALAH) FOR SMALL & MEDIUM ENTERPRISES
Cover the risk of banks in financing small and medium enterprises
Guarantee rate up to 75% of the loan
Main conditions Responsible entity
1. Legal entity 2. Annual sales < SAR 30 million 3. Viable in the economic, financial, technical and
administrative terms 4. Contributes positively to the Saudi economy in terms of: Hiring and training Saudi nationals Replacing imported goods with local ones and/or
producing high-quality innovative goods and services
Saudi Industrial Development Fund
Saudi banks
3 - PRODUCTIVE LOANS FOR SMALL PROJECTS AND START-UPS
Interest-free loans provided across a variety of paths to support the Saudi society
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1. Investment insurance for investments in an Arab country, the investor shall not be from the same country of the investment
2. Export credit guarantees for exports to/from Arab countries
The Arab Investment & Export Credit Guarantee Corporation
4 - EQUITY & DEBT FINANCING FOR ENTERPRISES AND PRODUCTIVE PROJECTS IN MEMBER COUNTRIES
Offers different financing schemes to support investment capital of projects, grants loans to enterprises and productive projects, and accepts deposits to mobilize financial resources in accordance with the provisions of Islamic law
Main conditions Responsible entity
Prospective member country should:
1. Be a member of the Organization of Islamic Cooperation (OIC)
2. Pay its contribution to the capital of the Bank
3. Be willing to accept such terms and conditions as may be decided upon by the bank's Board of Governors
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FISCAL SUPPORT
1 - CUSTOM DUTY DRAWBACK
Refund to importers/ exporters of raw material imports that are processed in Saudi Arabia and re-exported as more finished products
Main conditions Responsible entity
1. Importer to inform Customs at the point of entry on raw materials for manufacturing
2. Importer to provide the Customs 3. Import Declaration
4. Receipt for payment of duty
5. Certificate of Origin
6. Copy of the invoice to the buyer certified
Saudi Customs
2 - CUSTOM DUTY EXEMPTION
Exemption on authorized imports for industrial establishments (e.g., materials, equipment, machinery)
Main conditions Responsible entity
1. Available only if local supply does not exist, or
2. The local supply is not up to the specifications of the manufacturers
Ministry of Commerce and Investment
3 - TAX INCENTIVES
Up to 50% tax credit on Saudi national worker's payroll and training cost for 10 years
Main conditions Responsible entity
1. Available in specific regions: Hail, Northern Border, Jazan, Al-Jouf, Najran, Al-Baha 2. The number of employees > 5: Either technical or administrative jobs Contract time not less than 1 year 3. Capital > 1M SR.
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EMPLOYMENT FUNDING
1 - PROGRAM TO SUPPORT THE GROWTH OF SAUDIZATION OF ENTERPRISES
15% of monthly salary for male citizens 20% of monthly salary for female citizens
Program duration: 1 October 2017 – 30 September 2019
Main conditions Responsible entity
1. Saudi national
2. Age between 18-60
3. Employee's monthly salary not exceeding SAR 6,000
Human Resource Development Fund (HRDF)
2 - TAMHEER PROGRAM
On-the-job training program for Saudi graduates
To provide financial support of SAR 3,000 per month during the 3 to 6 months long period of training, and
Occupational hazard insurance
Main conditions Responsible entity
1. Saudi national (or foreign national with Saudi mother) 2. With a bachelor, master or Ph.D. degree 3. Currently unemployed and not employed for the past 6
months 4. No previous participation in Tamheer program
Human Resource Development Fund (HRDF)
3 - PROFESSIONAL CERTIFICATION SUPPORT PROGRAM
The aim is to enable the Saudi workforce to obtain professional certificates accredited in several professional fields required by the labor market, e.g., CMMP, CIT, PMP,…etc.
Reimbursement for training costs, and test fees
Main conditions Responsible entity
1. Saudi national
2. Certificate to be accredited by HRDF
3. Certificate to be valid and not expired
4. Maximum reimbursement: 2 certificates for each person
Human Resource Development Fund (HRDF)
4 - DOROOB PROGRAM
The aim is to obtain certificates approved and recognized by the main companies
A comprehensive program involving electronic learning courses
Priority in the direct employment for the certificates holders
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SIDF FUNDING
Saudi Industrial Development Fund provides several funding programs. The summary of programs
are tabulated below:
1 - FINANCING OF PROJECTS IN THE PROMISING CITIES
Category City Maximum Loan Term
SIDF Loan (%)
1 Including Major Cities Of Riyadh, Jeddah, Dammam, Jubail, Makkak, Yunbo, And Ras Al-Khair.
15 Years 50%
2 Including The Cities Of Some Economic Advantages, Namely Qassim, Al-Ihssa, Rabigh, Taif, Kharj Industrial City, Sudair Industrial City, Madinah, (Except Yunbou)
20 Years 60%
3
Including Economically Promising Cities Such As Hail, Northern Borders, Jouf, Tabouk, Jizan, Najran, Al-Baha And Assir. In Addition To Cities That Are Located No Less Than 150 Kilometers From The Centers Of Major Cities And No Less Than 70 Kilometers From The Nearest Industrial City Of The SecoNd Category.
20 Years 75%
2 - SECTORS CURRENTLY NOT FINANCED BY SIDF
1. Double Glazed Glass. 2. Steel Billets. 3. Aluminum Fabrication and Cladding. 4. Automatic Bakery is making Croissant,
Pastry-Puffs, Cupcakes and Mammoul. 5. Cartons Duplex and Corrugated. 6. LLDPE Colored Powder. 7. Interlock & Curbstone Industry. 8. Crushers. 9. Aluminum doors and Windows. 10. Ice plants. 11. School notebooks manufacturing. 12. Sulphuric acid. 13. Medium and low-pressure Iron pipes. 14. Cement blocks and tiles. 15. Scrap iron shredding and recycling. 16. Pre-Printed Steel Coils 17. Terrazzo & Mosaic Tiles. 18. Traditional Prefabricated buildings. 19. Commercial Printing 20. Writing papers. 21. Dairy products from milk powder. 22. Leather tanning. 23. Meat packaging. 24. Dates packaging.
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SR 100,000,000 (50%) of the financeable costs in all regions of
the Kingdom.
Financeable Activities Scope of Scheme
1. Logistic and Warehousing Projects.
2. Model Factories projects.
3. Vocational Training Centres.
4. Laboratory Facility Centres.
Industrial cities located in: The Economic Cities Authority. Royal Commission for Jubail and Yanbu. General Authority of Civil Aviation. Saudi Ports Authority. Saudi Railways Organization. Saudi Industrial Property Authority
(MODON). Ras Al-khair and Jazan industrial cities.
Main conditions
1. The requirement for an industrial license to be replaced by a permit from the concerned
authorities.
2. The project should be owned wholly or partially by the private sector.
3. The project should be financially viable and supported by a feasibility study.
4. The sponsors should be financially strong and ready to provide adequate guarantees.
5. The Fund should be able to mortgage all fixed assets of the project.
6. The land lease agreement should be in line with SIDF requirements.
7. Disbursements to be based on actual cost incurred and paid for.
8. The projects under the scheme should contribute to the service of the industrial sector.
9. SIDF loans for this scheme will follow the same requirements as SIDF's loans to industrial
projects with regard to financing cost, repayment period, guarantees needed, disbursements,
conditions, and covenants whenever are applicable.
4 - ENERGY EFFICIENCY PROGRAM
Financing program aimed at increasing energy efficiency in industrial enterprises.
Main Features
The program helps factories reduce their increasing energy costs.
It is available for all industrial sectors.
Extended repayment period and faster evaluation and financing procedures are among the
program features. Enterprises can get special offers on evaluation services rendered by several consulting offices
certified by the Saudi Energy Efficiency Center.
5 - INDUSTRIAL DIGITAL TRANSFORMATION PROGRAM
The program helps industrial enterprises develop their business mechanisms and productivity using modern technology.
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The program is available for all industrial sectors.
The program offers special features such as extended repayment period and short evaluation
period when conditions are fulfilled. The program offers a number of advisory organizations which help in evaluating and designing
the projects of Industry 4.0
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6. OPPORTUNITIES BY SECTOR The drive to increase local content in procurement in Kingdom Saudi Arabia presents a unique set of opportunities for companies bidding for business contracts or those with supply chain operations in the region. Any organization bidding for contracts or awarding projects to suppliers in the kingdom should be aware of the drive to promote local content, an initiative to increase local participation, employment and foreign direct investment in manufacturing and services. The Saudi government estimates that SAR 270 billion of opportunities for local businesses can be generated. In return this will help to create 450,000 jobs in the non-government sector by 2020, reducing the Kingdom’s reliance on sourcing labor from overseas, and increasing the use of local employees. This section will explain in detail the opportunities offered by five main sectors:
1- Oil & Gas – Aramco Iktva Program 2- Petrochemical - Sabic Nusend Program 3- Water Desalination – SWCC Local Fabrication Program 4- Electricity – Localisation Program 5- Defence & Security – AFED Program
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OIL AND GAS (ARAMCO – IKTVA PROGRAM) Saudi Aramco started its local content program since 1st December 2015, under the name of “In Kingdom Total Value Add (IKTVA)". Through which Aramco is targeting to achieve 70% of the local content out of overall operating expenditure by 2021. Through the program, Aramco works jointly with its registered suppliers to help them develop their abilities to produce the right quality of products and services at the right cost and according to a schedule. Following table list down the offered opportunities by Aramco:
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PETROCHEMICAL (SABIC – NUSANED PROGRAM)
In order to achieve SABIC’s localization agenda and local industry development, SABIC is initiating “Nusaned” – its first integrated Localization Engine, aimed at addressing some of the issues investors face from idea generation to execution of the idea. Nusaned is open to Entrepreneurs/SMEs, Local firms looking to expand or International companies looking to set-up or expand operations in KSA.
It aims to support investors in areas related: SABIC opportunities available to drive investment and create local demand through
- procurement spends - product conversion to develop downstream industry - commercialization of SABIC patents / technologies /applications
SABIC support packages to help in commercializing opportunities, including providing raw materials, technical support, etc.
Advise and support on financing
Local workforce development and training support through sponsorship or advice
Strong alignment of Nusaned’s program with different local authorities to ease project development Nusaned program addresses these challenges and implements the solutions through its four main pillars:
1. Entema Program: (View the details of the opportunities)
Through Entema, SABIC aims to provide investors with a portal to explore investment opportunities
and test their viability and attractiveness to receive SABIC support through Da'aem.
The attractiveness of each opportunity will be gauged based on
The socio-economic impact it has on KSA which includes GDP contribution to KSA, number
of jobs created, trade balance improvement
Long-term competitiveness and sustainability of the opportunity which includes local and
global market size and profitability, management team profile.
2. Daem Program (Support to Entma): (View the details of the opportunities)
DAEM, is the 2nd pillar of the Nusaned Localization engine, is to execute the proposed SABIC
support packages to investors during Entema
Only those investors who are qualified through the Entema process are eligible for DAEM support
packages.
The support package will differ in scale and scope on a case-by-case basis depending on the level of
socio-economic impact they have on KSA and the long-term attractiveness of the opportunity. These
scale and scope of the support packages are solely at the discretion of SABIC
Supplying materials and services to SABIC
Product offtake from SABIC
Technical Support and Products Application/Technology commercialization
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World-class practices at SABIC
Shared services and global supply chain
3. Access to Finance (Support to Entma): (View the details of the opportunities)
Access to Finance is the third pillar of the Nusaned initiative. It aims to provide financing for attractive investment opportunities through the right authorities for the Nusaned supported opportunities, to ensure the required financial support for the feasible opportunities
4. Muahal Program: (View the details of the opportunities)
Muahal aims to develop the technical and leadership capabilities of the local workforce for the Nusaned supported opportunities or for companies endorsed by SABIC LCBDU. This is to ensure that investors have the right workforce to execute the opportunity in a competitive and sustainable way:
providing local workforce development and training for investor opportunities
Executive MBA programs will be offered for leadership and management development.
Technical training will be provided through degrees and apprenticeship programs in
maintenance, operations, logistics, etc
Following table list down the offered opportunities by SABIC:
SABIC
View the details of the opportunities
Opportunities
Chemicals and Raw Materials Spare Parts Services Polymer Conversion Rubber Conversion Catalysts Oilfield Chemicals
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WATER DESALINATION (SWCC – LOCAL FABRICATION PROGRAM)
The desalination of the sea water sector offers a wide range of opportunities to locally manufacture their consumables spare parts and supplies. A dedicated division is established to support investors interested in locally manufacture the required parts and supplies.
Following table list down the offered opportunities by SWCC:
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ELECTRICITY (SE – LOCALIZATION PROGRAM) The tremendous growth in the residential, commercial and manufacturing sectors dictate a reciprocal growth in the generation and distribution of the power. Accordingly, the Saudi Electricity Company needs for parts and services have been growing over the years to maintain a reliable supply of the power to the various stakeholders. The company prepared a detailed list of opportunities in the manufacturing of the various spare parts required for the new projects as well as the maintenance. Summary of the various parts are listed in the following table and classified based on the business line and detailed in the following informative booklet: https://www.se.com.sa/ar-sa/Business_Document/localization/12_2_18_SE_Industrial_Investment_Opportunities_Booklet_2018_Web_Spreads.pdf
1 – DISTRIBUTION
Opportunities
Insulators of different types, Arresters, Cut-out fuses, Rods, Clamps, Accessories, Smart meters, Breakers,
Regulators, Boxes, Re-closers, Panels, Switches, Switchgears and Other spare parts.
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SECURITY & DEFENCE (AFED PROGRAM) The security and defence sector offers a wide range of opportunities to locally manufacture their consumables spare parts and supplies. A dedicated division is established to support investors interested in locally manufacture the required parts and supplies. Based on achieving the required quality and competitive prices, long-term contracts can secured with the various units in this sector:
1- Directorate Of Civil Defence – DCD
2- Medical Services Department – MSD
3- Royal Saudi Land Forces – RSLF
4- Border Guard – BG
5- Military Industries Corporation – MIC
6- Facilities Security Forces – FSF
7- General Security Aviation Command – GSAC
8- Royal Guard Regiment – RGR
9- Royal Saudi Air Defence Forces – RSADF
10- Royal Saudi Air Forces – RSAF
11- Royal Saudi Navy Forces – RSNF
12- Saudi Emergency Forces – SEF
13- Special Security Forces – SSF
14- Ministry Of National Guard – SANG
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7. RECOMMENDATIONS
The local content initiative offers a great opportunity for the manufacturing sector in Bahrain to expand in the Saudi market and benefit from the various incentives and support programs in the five categories covered in this report. The opportunity is valuable to the existing manufacturing industry to expand or extend their manufacturing facilities to further manufacturing stages in the Saudi market. The same opportunity is available for entrepreneurs and investors interested in the manufacturing industry. It is recommended to build a communication channel between the manufacturing community in Bahrain represented by the Chamber of Commerce and Industry with their counterpart in Kingdom of Saudi Arabia and Nama'a entity as well as the five major entities supporting the local content program.