Solar panels at a plant north of Riyadh, in Saudi Arabia © Photo by FAYEZ NURELDINE/AFP via Getty Images
Solar panels at a plant north of Riyadh, in Saudi Arabia © Photo by FAYEZ NURELDINE/AFP via Getty Images

Could the energy transition turn the Middle East into a manufacturing hub?

23 May 2023

Gulf Cooperation Council (GCC) countries could generate an estimated $300bn in foreign direct investment through reconfigured global supply chains if the region’s ambitious plans to generate green energy come to fruition, a report claims.

The Reconfiguring Global Value Chains report, by PwC-owned Stretegy&, said cheap energy and rapidly expanding renewable energy generation in countries such as Saudi Arabia and the UAE could create new manufacturing hubs in the Middle East.

“Global value chains (GVCs) are being reconfigured, focusing less on cost and more on resilience, agility and sustainability. This reconfiguration is upending traditional competitive advantages and creating opportunities for new manufacturing hubs,” says the report.

It said GCC countries could potentially become major beneficiaries of this change through an “abundant and cost-competitive supply of green energy, a geographically attractive location, and robust industrial and logistics infrastructure, including ports and airports.”

The report said GCC countries have stable electricity tariffs and gas prices – which were vastly cheaper than in the EU, for example.

“That advantage carries over into renewable energy. The GCC region has some of the lowest production costs in the world; the levelised cost of solar power is as low as 1 cent per kilowatt hour,” said the report.

It added that Saudi Arabia has a goal of meeting 50% of its total energy requirements from renewable sources by 2030, while the UAE has plans to generate half of its energy mix from renewable and low-carbon energy sources, including nuclear power, by 2050.

If GCC countries focused on attracting downstream manufacturing to develop high-value-added end products instead of exporting fuels such hydrogen the region could capture new supply chains, the report said.

Instead of exporting hydrogen, for example, GCC governments could develop domestic manufacturing clusters and attract industries such as green steel, ammonia and glass manufacturing.

Doing this alone could attract $200bn in foreign direct investment (FDI), the report said.

However the report also urged GCC countries to move fast to seize “fleeting opportunities”.

“Companies are already relocating key elements of GVCs, and other countries are competing vigorously to attract them,” it said.

The report identified 11 product categories in which GCC countries “possess a clear competitive advantage”. Attracting manufacturing in these product categories could generate an estimated $300bn in FDI and create 150,000 jobs. It could also unlock $25bn annually in non-oil exports, the report added.

The categories included synthetic pesticides, steel automotive parts, recycled plastic, silicon wafers, polysilicon, graphene, titanium aerostructures, cotton yarn, carbon fibre, alternative proteins and “green” steel.

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