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Executive Summary
Virginia has diversified
manufactured and service exports to Saudi Arabia during the past
five years. Lower
value added export categories, such as tobacco and beverages,
have gradually ceded to machinery, computer equipment and
electronic components. Saudi
imports currently provide just under 7,000 service and
manufacturing jobs in Virginia.
Jobs could reach 10,000 in Virginia by 2013 under a
modest growth scenario.
However, as already heated Saudi
infrastructure development continues to be buoyed by unexpected
petroleum revenue windfalls, diversified exporters, such as
Virginia, could capture a higher share of opportunities.
The Virginia Economic Development Partnership, with two
overseas offices in Asia and one in Europe, should consider
whether growing Arab market opportunities justify greater
representation in Saudi Arabia.
A savvy regional presence to promote manufactured goods
and services trade where Virginia enjoys a competitive advantage
could generate an additional 3,500 Saudi export jobs for
Virginia's economy.
Merchandise Exports to Saudi
Arabia
During
the years 1999-2003, the beverage and tobacco share of total
exports to Saudi Arabia declined on average 12.3% per
year. Annual
export share growth of higher value added categories, such as
machinery (+50.2%), computers and electronics (+47.3%),
electronic equipment (+28.9%), and transportation equipment
(+17.6%), diversified Virginia's Saudi export "basket"
toward higher value added goods. (See Exhibit #1)
Exhibit
#1 VA's
Diversified Exports to Saudi Arabia (Category % of Total)
(Source: U.S. Department of Commerce and IRmep 2004)
Saudi
market demand should continue to favor Virginia's exports in the
medium term. Macroeconomic
and demographic realities in the Kingdom will drive steady
growth in sales of consumer goods in Saudi Arabia through the
first half of 2005. Household durable goods demand increased
from 3.5 percent during 2002 to over 4 percent in 2003.
Even if Virginia export growth to Saudi Arabia only keeps
pace with the past four years, manufacturing and service jobs
tied to Saudi exports should increase from 7,000 in 2004 to
10,000 by 2013. (See
Exhibit #2)
Exhibit
#2 Forecast Virginia Service and Manufacturing Jobs tied to
Saudi Imports
(Source: IRmep 2004)
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Saudi manufacturers compete for their own fair market share of
household goods, imports amount to over 65 percent of total
sales. With a quarter million new households forming each year,
the outlook for continued household furnishings, appliances and
electronic goods sales, such as microwave ovens, blenders and
vacuum cleaners, should continue to increase five percent per
year in the foreseeable future.
Understanding Saudi Arabia's youth consumer market is
also key. Family members under the age of 15 make up about 42
percent of the population and have as strong an influence on
consumption decisions as their young American counterparts.
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A Saudi shopping center.
(Photo by Burnett H. Moody/Aramco/PADIA)
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Infrastructure
projects driven by an expected windfall from petroleum revenues
could deliver incremental business growth to Virginia.
The Saudi government originally projected an U.S. $8
billion deficit for fiscal 2004 on revenues of U.S. $53 billion
but may actually generate a surplus.
Higher world oil prices could double the official
revenues creating an additional U.S. $35 billion for debt
repayment and expanded infrastructure projects.
An
existing Gulf-wide construction boom is raising prices for all
categories of building materials. Household savings and public
funds are being directed into construction and real estate.
Building material demand necessitates investment in new
plants for steel, cement and other building materials, such as
steel reinforcing bars and wire rods.
One local manufacturer estimates rate of growth in demand
for steel in the Saudi
market at about 7% per year. Saudi cement
companies that will expand their plants and upgrade existing
facilities include Tabuk Cement, Arabian Cement, Southern
Province Cement, Yanbu Cement.
To date, foreign engineering firms that have made efforts
to be present in the market, such as Germany's Thyssen Krupp
have been winning contracts to expand Saudi plant and equipment.
Turkey's Gama will build new cement production capacity as well
as work on the civil works and erection part of the project in a
contract valued at U.S. $110 million.
Growth is also spurring demand for Virginia service exports.
In January 2004, the Saudi Telecommunications Company (STC)
chose LCC International, Inc. of McLean for the expansion of a
cellular telecommunications network. The renewable engineering
and consulting services contract is worth $27.2 million in the
first year.
Enhanced
Saudi spending on logistical, education and telecom
infrastructure could spell steady annual growth in Virginia's
manufactures and service exports to Saudi Arabia, which we
conservatively forecast to reach just under U.S. $600 million in
the year 2013 (See Exhibit #3).
Exhibit
#3 Forecast Virginia Merchandise and Service Exports to Saudi
Arabia
(Source: IRmep 2004)
However, Virginia exports could greatly exceed
this conservative forecast, generating new jobs and
communications linkage with Saudi Arabia if Virginia takes steps
to "close distance" with the market and position
itself in the path of the Saudi infrastructure build out.
One competitor has done this exceedingly well.
Netherlands' moves to boost trade development promotion,
presence and export focus on Saudi Arabia provides a good model
for Virginia.
Virginia: Repositioning for
New Saudi Growth Opportunities
The Virginia Economic
Development Partnership (VEDP) was chartered by the Virginia
General Assembly in 1995 to stimulate and support the
development and expansion of the economy of the Commonwealth.
Virginia's international exports are significant enough that
VEDP opened two offices in Asia and one in Europe.
In
2002, the VEDP Division of International Trade sent the first
U.S. delegation to visit Saudi Arabian companies for
international trade after the 9/11 attacks. Twenty-four Virginia
companies went to strengthen relationships, commercial
representation and sales in Saudi Arabia.
Virginia Transformer Corp. of Roanoke logged over
$500,000 in sales as a result of the visit, and signed agent
agreements with two Saudi companies for the continued sale of
their transformers into Saudi Arabia.
However, some internationally competitive Virginia export
categories could achieve even more success as Saudi market
demand continues to spiral.
Exhibit
#4 Virginia High Potential Exports
(Source:
U.S. Department of Commerce and IRmep 2004)
| VA
Export Category |
2003
Global Exports
(U.S. $ million) |
%
Share Total
2003 VA Exports |
| Airplane or Helicopter Parts |
$340.9 |
3.1% |
| Road Tractors for Semi-Trailers |
$240.0 |
2.2% |
| Refrigerating Equipment Compressors |
$168.2 |
1.6% |
| Motor Vehicles parts and Accessories |
$140.4 |
1.3% |
| Gas Turbine Parts |
$138.2 |
1.3% |
VEDP
could take a page from Netherlands' export playbook in Saudi
Arabia. An
international rival to Virginia's agricultural and machinery
exports, Netherlands has redoubled its efforts to penetrate the
Saudi market, through energetic export promotions and planned
reopening a previously shuttered office in Riyadh.
Could a new VEDP Middle East presence in Riyadh stimulate
an incremental 20% gain from high potential Virginia exports?
High demand manufactured exports, where VA clearly enjoys a
competitive advantage, include aircraft parts, road tractors,
refrigeration equipment, vehicle parts and gas turbines.
Savvy export promotion through increased presence in the
Saudi market would not only add 3,500 jobs to the Virginia
economy but could also strengthen communications, mutual
interests and understanding between Virginia and Saudi Arabia.
By establishing a permanent regional trade presence,
Virginia could begin to retake market opportunities from
international rivals now sharpening their focus on Saudi Arabia.
Also
see:
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