Riyadh is enacting the local content goals of its procurement policy through a framework of strategic partnerships with leading private and public entities
Local content development has increasingly emerged as a vital cornerstone of value creation in Saudi Arabia’s economic transformation. By stimulating growth across sectors through its five essential components – labour, goods, services, assets and technology – it will drive up production capacity and contribute towards greater job creation within the economy.
A situation of higher local content is the ultimate win-win – it equals lower imports, higher non-oil exports and higher non-oil revenues. Besides reducing the balance of payments deficit, local content development is also expected to create and promote new industries, leading to the expansion of job opportunities for the youth in the kingdom.
It will eventually also help to strengthen national capacity building as companies hire more Saudi talent. Similarly, the building of greater research and development capacity will promote the local knowledge and technology industries, further contributing to the national transformation plan.
A situation of higher local content is the ultimate win-win – it equals lower imports, higher non-oil exports and higher non-oil revenues
As a government entity that has been mandated to develop and promote local content across the nation, the Local Content and Government Procurement Authority (LCGPA) has put in place a strategy that will ensure constructive collaborations with stakeholders to accomplish our objective of nurturing local content with support and partnerships of the public and private sectors.
In October 2019, the LCGPA launched the Local Content Partnerships Initiative, a framework for cooperation between the LCGPA and leading national private and public entities, as well as the establishment of the Local Content Coordination Council (LCCC) to coordinate the joint efforts of member entities in developing local capacity, scaling up local content and upgrading local practices.
Under the initiative, LCGPA’s partners have pledged their support in ensuring that international best practices are followed in local production methods, and the LCGPA is in turn extending technical support on local content applications through, for instance, educational workshops.
Initial signatories to the initiative included Saudi Aramco, Sabic, Maaden, STC, Saudi Electricity Company (SEC), Saudi Arabian Airlines (Saudia) and the Council of Saudi Chambers (CSC). More recently, these have been joined by the Ministry of Industry & Mineral Resources and the Ministry of Energy.
The development of robust local content will prove imperative in the shaping of a sustainable Saudi economy
Target setting for local content
The LCGPA is also in the process of calculating the local content baselines – a mandatory requirement under the new Government Tenders and Procurement Law – for companies in order for local content targets and initiatives towards increased local content to be set and measured.
The baselining has already been set for the local content of 109 companies in different sectors based on the national components of the company’s assets, workforce, procurement and capacity building.
The LCGPA’s local content development scheme, which is accessible both to large companies and small and medium-sized enterprises (SMEs), also includes mechanisms that are focused towards promoting the private sector to drive local content.
Under the scheme, a price preference mechanism grants preference to local products in government tenders by adding 10 per cent to the bidding price of foreign products. Suppliers with government entities are also required to procure specific listed products exclusively from local manufacturers.
To better facilitate the application of local content policies in the new Government Tenders and Procurement Law, the LCGPA is also developing a local content portal on the government’s Etimad unified digital services platform that will host the guidelines and provide access to tools and training.
The result of these efforts towards developing greater local content will only be realised in time with the support and involvement of all the relevant stakeholders. Ultimately, however, the development of robust local content will prove imperative in the shaping of a sustainable Saudi economy and as part of nationwide efforts to achieve the country’s development goals.
About the author
This article was written by Abdulrahman al-Samari, CEO of the Local Content and Government Procurement Authority