From a book:
The Middle East: Saudi Arabia
Saudi Arabian policy has focused on the need to transform the economy and to reduce the overall dependence of the country on the export of petroleum. Their economic plans prioritise the development of agriculture and industry; they seek to diversify the production base and to improve the skill levels of workers for the benefit of the national economy. There is also an emphasis on promotion of private sector participation and encouragement to the investment of capital in business ventures within Saudi Arabia.
In Saudi Arabia, offset programmes are not regarded as instruments for counter-trade. The objective of the offset programme is to create a number of private sector business projects, mutually beneficial partnerships between Saudi and foreign companies, usually in the form of joint ventures. The Saudi government is looking for technology transfer to upgrade its own capabilities for an overall diversification and strengthening of the economy. Other objectives are to make the best use of the country’s natural resources, to improve potential for long term export, and to develop various service industries which are needed for supporting infrastructure.
The three major programmes through which the Saudi offsets policy has evolved are discussed below:
Peace Shield: This was a programme with Boeing of the USA as prime contractor for establishment of a ground based air defence facility in which the Saudi government pursued an offset programme aimed at bringing in high technology transfer content. The Boeing group set up four Peace Shield offset companies-
The Advanced Electronic Company, to manufacture the latest and most advanced military and commercial electronic equipment within Saudi Arabia.
Aircraft Accessories and Components Company, for maintenance, repair and overhaul of aircraft components like flight controls, pneumatic fuel and hydraulic systems.
Al -Salam Aircraft Company for MRO, upgrade and modification of civil and military aircraft.
International Systems Engineering is a company that specializes in information technology, systems integration and development.
Al-Yamamah: This was a major defence contract between the UK and Saudi Arabia for purchase of military and civil aircraft, helicopters and ships, with associated training and support, as well as construction projects, with British Aerospace as the prime contractor. The total value of this programme was around $7-8 billion i.e. about four to six times larger than the Peace Shield programme. The contract had an investment target of about $1.5 billion. Investments in pharmaceuticals, vegetable oil manufacturing, petroleum, food processing, health care and environment care equipment were also welcomed. The objective was to acquire fully developed, proven technology for immediate commercial application.
Al-Sawary II: This was a programme for purchase of frigates from France for the Saudi Navy at a cost of $3 billion, carrying an offset investment obligation of about 35per cent, in various fields including glass, precious metals, smart cards and agro industry.
Offsets have certainly helped to contribute to the industrialization of Saudi Arabia, diversification of the economy, and participation by the private sector in national economic development. A number of high technology ventures which otherwise may not have fructified, came into existence. Ventures lower in technology content, but with favourable long term business prospects, have also been established. As per the Secretary General of the Economic Offset Program, as many as 36 industrial service projects have come up, with investments totalling about $4.5 billion. These projects have created more than 6,500 new job opportunities. In 2006, the total sales of the companies created under the offset program reached $8 billion and exports about $1.5 billion. The main investments have been in the aircraft, electronic and electric industries (13 per cent), food and medicine (12 per cent), and chemicals and petrochemicals (6 per cent). Health management through specialist medical colleges, nursing schools, nanotechnology research centres and production of specialist medical equipment are the next focus areas.
