VZCZCXRO8289
PP RUEHDE RUEHDIR
DE RUEHDH #0045/01 0831435
ZNR UUUUU ZZH
P 241435Z MAR 09
FM AMCONSUL DHAHRAN
TO RUEHC/SECSTATE WASHDC PRIORITY 0050
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHDH/AMCONSUL DHAHRAN 0067

UNCLAS SECTION 01 OF 02 DHAHRAN 000045 
 
SIPDIS 
 
PLEASE PASS TO NEA/ARP JOSHUA HARRIS 
 
E.O. 12958: N/A 
TAGS: SA PGOV ECON ELAB
SUBJECT: SAUDIS DISCUSS LOCALIZING MANUFACTURING, TRANSFERRING 
TECHNOLOGY 
 
DHAHRAN 00000045  001.2 OF 002 
 
 
¶1. (U) KEY POINTS: 
 
 
 
-- The Eastern Province Chamber of Commerce and Industry (EPCCI) 
held its first-ever Local Content Forum on March 23, which 
discussed transferring foreign technology and manufacturing 
capabilities to Saudi Arabia. 
 
 
 
-- Training and educating Saudis was cited often as the initial 
step before technology and manufacturing capabilities can be 
successfully established in the Kingdom. 
 
 
 
-- The SAG's Saudization policy was discussed throughout the 
conference, with most participants from the private sector and 
government identifying hiring more Saudis as a top priority. 
 
 
 
-- The forum was well-attended with many prominent businessmen 
and government officials, including the CEO of Aramco, a Deputy 
Minister of Labor, and most of the Eastern Province's prominent 
business families. 
 
 
 
¶2. (U) COMMENT: 
 
 
 
-- Several participants told PolOff that this was the first time 
that a forum on this topic was held in Saudi Arabia.  Although a 
handful of companies have been successful in transferring 
technology to the Kingdom, the participants noted a deficit in a 
technically trained and professional Saudi workforce.  It is 
clear from the discussions at this event that the Saudi 
educational system continues to fall short of the private sector 
demands for skilled and qualified technicians and 
professionals.  With more than half of the Saudi population 
under the age of 25, job creation remains one of the SAG's most 
difficult challenges. 
 
 
 
End key points and comment. 
 
 
 
¶3. (U) LOCAL CONTENT FORUM 2009.  The EPCCI held a very 
well-organized Local Content Forum 2009 at the chamber's main 
auditorium.  The forum consisted of four sessions: Opportunities 
for Localizing Content, Role of Government in the Transfer of 
Technology and Saudization, Participation of Heads of Strategic 
Sector Firms in the Transfer of Technology and Saudization, and 
Success Stories in the Private Sector.  Each session included 
four to five panel members, including a chair.  The panels were 
made up of an impressive group of prominent business and 
government leaders.  Some of the more notable panel members 
include: Khalid al-Falih, President and CEO of Saudi Aramco; Dr. 
Abdullah al-Dabbagh, President and CEO of Ma'aden; Ali al-Barak, 
President and CEO of Saudi Electricity Company; Dr. Abdulwahed 
al-Humaid, Deputy Minister of Labor; Thabit al-Lihaibi, Vice 
Governor of Sweet Water Conversion Corporation. 
 
 
 
¶4. (U) FIRST STEP IS TRAINING AND EDUCATION.  All four sessions 
of the forum discussed in detail the need for increased 
resources invested in training and education.  Perhaps the 
boldest comments came from Deputy Minister of Labor Dr. 
Abdulwahed al-Humaid when he called for an overhaul of the 
curriculum starting in primary education and the need to send 
more Saudi college students abroad.  (Note:  Contacts describe 
al-Humaid as progressive like his boss, Minister of Labor Ghawzi 
al-Gosaibi.  End Note.)  Several participants emphasized the 
need for better vocational colleges and the responsibility of 
the private sector to establish training centers.  Aramco and 
Zamil Industrial Group highlighted the success of their 
respective training institutes.  The representative of Advanced 
Electronics Company (AEC) noted that without more well-trained 
and qualified technicians, brining manufacturing technology and 
processes to Saudi Arabia would not be possible.  (Note:  AEC 
was itself created under a tech transfer "offset" program 
related to a multibillion dollar Hughes air defense contract in 
the 1980s.  End note.) 
 
 
DHAHRAN 00000045  002.2 OF 002 
 
 
 
 
¶5. (U) SAUDIZATION.  Dr. al-Humaid said that the SAG had 
recently decreased Saudization quotas for industrial businesses, 
dropping the percentage of Saudi nationals from 30% to 20%.  In 
a subtle critique of the Saudi workforce, al-Humaid noted that 
it was important for Saudis to be capable, qualified and 
hard-working and that hiring Saudis without these 
characteristics would lower productivity and damage the economy 
in the long-term.  He added, "Most of the opportunity is with 
females, which we are not tackling because of social reasons." 
One participant commented on the value of keeping foreign 
experts in the company as a mentor for Saudi employees, 
achieving "Saudization by expansion, not replacement." 
 
 
 
¶6. (U) TECHNOLOGY TRANSFER.  Abdulmohsen al-Majnooni, VP of 
Saudi Operations for the Kuwait-based Al-Khurayef Petroleum 
Company (APC), laid out the key steps to his company's success 
in transferring technology to the Kingdom: 1) gain knowledge of 
a technology as a distributor or agent for a foreign company, 2) 
recruit top-notch experts of that technology -- regardless of 
nationality, 3) properly fund in-house R&D, and 4) cooperate 
with large, established companies in the region.  Another 
participant stressed the urgency of transferring technology to 
Saudi Arabia saying, "We [Saudi companies] rely heavily on 
foreign sources of technology and things are only getting worse 
with the WTO agreement."  (Note:  The participant did not 
elaborate on what he meant by "worse."  End note.)  According to 
one participant, only 8% of Saudi Arabian exports are 
technology-based (defined as: value added to an export through 
the application of technology) compared with roughly 50% for 
South Korea and Japan. 
 
 
 
¶7. (U) SPARE PARTS MANUFACTURING IS BEST OPPORTUNITY.  Nearly 
every major company identified their preference to source spare 
parts locally, rather than from foreign suppliers.  Buying spare 
parts from abroad often requires maintaining costly inventory 
levels, procurement delays, and increased costs due to 
shipping.  A representative of the Saudi Electricity Company 
said that 80% of the procurement of their replacement parts 
comes from foreign sources.  However, Saudi Aramco president, 
Khalid al-Faleh, noted that his company would not forego any of 
their quality standards just to procure locally.  Several other 
large firms reiterated this point, saying that local suppliers 
must be as credible and qualified as the foreign competition. 
Nevertheless, the opportunity for local producers to fill this 
STINEHART