1. Report on Vision 2020

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1. Report on Vision 2020 Powered By Docstoc
					           Strategic Positioning and Industrial Development Vision
                         For the Kingdom of Saudi Arabia

‗Vision 2020‘ is an expression for the national development strategies of the Kingdom of Saudi
Arabia up to the year 2020. It was developed consensually at a Symposium held in October
2002, organized by the Saudi Ministry of Economy and Planning in collaboration with other
Ministries and Public Authorities. Vision 2020 sees Saudi Arabia emerging as ―a diversified and
prosperous economy that guarantees the existence of rewarding job opportunities and higher
levels of economic welfare for the Saudi citizens, and provision of education and health care for
the population to equip the labour force with adequate skills, in addition to preserving religious
values and cultural heritage of the Kingdom.‖

The strategies of Vision 2020 were organized along five distinct themes:

   (i)      Economic diversification;
   (ii)     Development of human resources;
   (iii)    Expansion of public services needed to support these objectives;
   (iv)     Promoting the expansion of the private sector as a key partner in the implementation
            of Vision 2020
   (v)      Streamlining and modernizing the governance structures of the public sector to meet
            the challenges of implementation. The concrete implications of these distinct themes
            are spelled out below starting with the nature of the current international context and
            the fundamental challenge that underpins the formulation of Vision 2020.

Saudi Arabia is alive to the historic challenges facing nations in this epoch of accelerating global
change. Developing countries such as China, India and Brazil are emerging rapidly as major
industrial powers, accumulating impressive capabilities in knowledge-intensive technologies
such as ICT, biotechnology, pharmaceuticals and aerospace. The challenge for the KSA is to
decisively shift the economic basis of prosperity from excessive reliance on natural resource
endowments to mastery over knowledge-based technologies over the next 15 years or so. The
ability of the country as a whole to deploy modern technologies is the only basis for long-term
economic security, since inherited comparative advantage built on natural resource endowments,
could vanish as the technologies that impart value to particular resources are displaced. The
safest way to build on comparative advantage as it exists now is to use windfall resource rents to
build long-term technological capability which is the only safeguard against the uncertain
evolution of global technologies. Vision 2020 is best realized by diversifying the economy and
building industrial competitiveness to international standards in a number of select sectors, since
small-to-medium countries can only specialize in a limited range of industries.

An underlying premise of Vision 2020 is that manufacturing is critical to Saudi Arabia‘s future
progress. Manufacturing is the main engine for deploying new technologies and raising
innovation, which are both essential for success in the emerging world economy. Manufacturing
is crucial to enhancing exports and moving them from low-value-added products to higher value,
skill and technology-intensive products that grow faster in world markets and can sustain faster
income growth. Manufacturing is also vital to creating new skills and inducing growth and
technological change in agriculture, finance, construction and modern services including the
management of environmental quality. Manufacturing capability development and external
linkages interact positively: skills and capabilities develop faster and better if they can draw upon
the knowledge, technologies and quality standards provided by export markets and if they are
exposed to global competition.

Manufacturing brings about the above-described benefits by inducing faster accumulation of
human capital – skill and capability – in individuals, firms and even society as a whole. In short,
economic progress and human capital development are two sides of the same coin, as is indicated
by the experience of most advanced countries. The accumulation of human capital means raising
the technical, managerial and innovative capabilities of the working population through various
learning processes, along the following lines.

     - raise standards of technical and scientific education in schools and colleges
     - enhance managerial competence and innovative capabilities of existing firms through
       industrial learning accelerated by producing for competitive markets.
     - encourage the expansion of technology-based small and medium enterprises
     - develop a national innovation system to support technological learning, innovation and
       the exchange of technological knowledge between R&D centres and private firms
       producing goods and services.
     - provide support and encouragement for all firms to upgrade production technology
       through alliances with international technology leaders, collaboration with domestic
       technology centres, especially science and technology schools of KSA universities,
       licensing arrangements and the use of domestic and foreign consulting services.

The building of economically significant human resources along the above dimensions can only
be realized by a sustained drive to position a select set of national industrial clusters at
internationally competitive levels, similar to that of the petrochemicals industry today. The
Kingdom needs to selectively support the most viable clusters, that given global market trends
and emerging competition, promise the fastest growth of exports and offer the largest spillover
benefits in technology and skill development. This effort would also reverse the secular declines
in industrial productivity and per capita income observed in recent years. The creation of a
number of world-class industries and the building of human capability through sustained learning
are mutually reinforcing processes that are the defining feature of all advanced economies today
ranging from Europe and the USA to South Korea, Taiwan, Norway and Finland. The consensus
achieved in Vision 2020 is that this overarching goal is realizable by 2020.

Clusters—not industries—should become the main unit of policy analysis and delivery. Clusters
span several industries, so supporting them involves dealing with the whole value chain from
suppliers through all factor markets and support institutions to final buyers. Analyzing the supply
chain helps policymakers build on the strengths in the value chain and address bottlenecks to
international competitiveness. Cluster-based strategies are particularly important for promoting
competitiveness in small firms to overcome constraints in finance, credit, skills, inputs and
export activity. Pooling resources and experience enables small firms to realize economies of
scale, access funds, obtain market information, learn from each other, exchange ideas, explore
new distribution channels and also collaborate on large contracts. International experience also
shows that focusing on clusters is an effective and economic way to deliver support services to

Enterprise competitiveness will define the ability of Saudi industry to grow, create new jobs and
increase exports. With entry into the WTO system competitiveness is necessary for all
enterprises – not just exporters – because firms will face intensifying competition in domestic
markets. The entire industrial value chain, from input and service suppliers to final producers,
must become competitive for firms to survive. Becoming ‗sustainably competitive‘ does not
mean taking the ‗low road,‘ i.e. cutting wages or environmental standards, avoiding taxation or
subsidizing uncompetitive firms. It means implementing long-term strategies to improve
efficiency and quality, raise skill and technology levels and moving into higher value products
and services.

Along with most other countries Saudi Arabia believes that the vehicle for building global
industries is the private sector. The target is for all firms to produce goods and services
competitively for domestic and international markets; some would latch onto global value chains
of production. Research shows that participation in internationally competitive markets is the
best way of building economically significant human capital because it leads to faster
technological learning and innovation through cluster networks. Hence the establishment of
international linkages through links with foreign firms and international R&D centres is essential
for faster domestic innovation and technological learning.

At the same time private firms will not be able to upgrade technology and build industrial
competitiveness without the provision of critical public support. The government has to provide
a sound and stable macroeconomic framework and clear rules for industrial firms to operate
under. Framework issues cover macro management, tax policy, trade policy, competition policy
and a stable environment for business (transaction costs, business regulations, labour laws and
privatization). These determine the investment climate for private enterprise. Macro management
is already very effective in the Kingdom. But it is widely felt that procedures are excessively
bureaucratic, cumbersome and riddled with delays and inefficiencies in many governance
structures relating to regulation of business. While significant progress has been made by
organizations such as SAGIA, it is essential that such streamlining and modernization be
extended to all government institutions.

The government also has to build up the supply of skills, finance, technology support and
infrastructure and other support institutions, so that firms have access to the high-quality factor
inputs needed to reach world-class competitiveness. These are developed in greater detail below.
The infrastructure for metrology, standards, testing and quality needs to become more effective
to support improvements in industrial competitiveness. Providers of private technology service
could also be encouraged to get involved in metrology, standards, testing and quality activities.

The country needs to set up an effective ‗national innovation system‘ by strengthening and
widening R&D activity in universities, other public research institutions and firms and
developing strong linkages between all R&D and technology upgrading in firms.
     - For maximum effectiveness, funded R&D must conform to technologies targeted in the
       present industrial development plan as relevant to the selected set of clusters.
     - R&D promotion must be matched by effective and timely patent registration.
     - Enterprises must be made aware of the need for periodic technological upgrading and
       the need to link up with R&D centres; i.e. strong links must be set up between
       technology infrastructure and industry, possibly through ‗mixed formula funding‘ or
       collaborative research projects, technology incubators and so on.
     - Intermediaries could be set-up to forge linkages among firms, research institutions and
     - Research parks could be set up for new, high-tech government supported ventures such
       as in biotechnology, desalination and nanotechnology.
     - The role and structure of public R&D institutions also needs to be re-examined, and
       material incentives introduced to encourage links with industry. Academic research
       leading to patents and commercial products needs to be rewarded with royalties shared
       with the host institution.

Major steps have to be taken to strengthen the Kingdom‘s educational system and shift emphasis
to science and technology at the secondary and tertiary levels. While the quality of graduates is
high in some tertiary institutions, it is not adequate across the entire range. Furthermore, quality
and relevance of education have not kept pace with the growth in numbers. In particular, industry
finds a mismatch between the output of the education system and its skill needs. An urgent
programme of reform is necessary to improve the quality and content of education, teacher
training, facilities and the use of technology.

Additionally, it is essential to further develop technical and vocational training and employee
training within firms to periodically upgrade employee skills. Employee skill development
programmes should be coordinated with overall industrial strategy, and training programmes
need to be scaled up on a sectoral basis and made more responsive to industry needs, for
example, through wider use of skills audits, relevant management courses, industrial sponsorship
programmes and a graduate placement scheme. Incentives could also be provided for employee
training, such as double tax-deductibility of training expenses, as in Malaysia, or treatment of
training as an investment (in an investment allowance scheme). Skills and training provision
must be specifically adapted to small and medium-size enterprises, which face constraints in
skill-intensive activities. Small and medium-size enterprises need help upgrading their
employees‘ existing skills and gaining new ones.

The encouragement of small and medium enterprises (SME) is an essential component of the
Vision 2020 programme. SME formation and success needs to be promoted by the provision of
flexible credit facilities and subsidized consulting services to solve business and technical
problems. Financing could be facilitated by means of credit bureaus and rating agencies to assess
the credit viability of loan applicants. Guidelines to develop collateral security could be
formulated in collaboration with industry associations. A system of financing based on
collateralization of land and fixed structures could also be created, with a separate system for
movable property, including a registry of security interests, procedures and regulations. SME
promotion is already very active in the KSA.
The decentralization of development is also an explicit target of Vision 2020. Cluster-based
promotion of industry is generally believed to be more conducive to regional development and
governance than sector-based strategies. Modalities for devolving the support activities on a
regional basis need to be worked out along with strategies for building regional networks.

The coordination and implementation of strategies outlined here requires new governance
structures. Implementation is to be realized through a National Industrial Policy Office set up
under the Minister of Commerce and Industries with assistance from UNIDO; this will be the
executive body responsible for day-to-day governance. The formulation of strategy and policies
will be carried out by a Steering Committee set up by the Minister, consisting of representatives
of all major stakeholders from the public and private sectors. A subset of the Steering Committee
to be called the Executive Board which will meet frequently will oversee the work of
implementation by the National Industrial Policy Office.

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