Saudi Arabia and the UAE avoided high tariffs imposed by the US government. In the past, international companies often set up anew in low-tariff nations to avoid higher prices. Will it happen in the Middle East too?
“Made in Saudi Arabia” — the suggestion has been hyped ever since US President Donald Trump imposed high tariffs on goods produced in China and other Asian countries.
“Saudi Arabia should be sending their trade representatives to the Trump administration right now, asking, ‘what was China providing you? Tell us what it is and we will make it in Saudi Arabia’,” Ellen Wald, a historian and author of the 2018 book “Saudi, Inc.: The Arabian Kingdom’s Pursuit of Profit and Power,” told media outlet Middle East Eye last month.
China and other countries, including Vietnam and Thailand, are all major centers for manufacturing with many multinational companies, from Adidas to Apple, making everything from laptops to tracksuits there. But in April, the Trump administration imposed higher tariffs on them.
Other nations managed to escape the toughest Trump tariffs though. Most Gulf states, including Saudi Arabia and the United Arab Emirates, were only landed with 10% tariffs.
One of the options companies have used to avoid high tariffs in the recent past has been to pivot to manufacturing in low-tariff nations. For many international businesses, this started a few years ago as US-China trade tensions grew — it’s part of the reason why Vietnam and Thailand have been doing so well in this sector.
Next “pivot countries” in the Middle East?
Both Saudi Arabia and the UAE have been trying to diversify their economies away from oil and to advance manufacturing, especially in the high-tech sector. The UAE has Operation 300bn, which was launched in 2021 and refers to increasing the local industrial sector’s contribution to national income to 300 billion UAE dirhams (€72 billion). Saudi Arabia has Vision 2030, with a similar focus on growing local manufacturing and industry.
There have already been reports about some of the world’s largest technology companies, including US brands Dell and HP, scouting sites for new factories in Saudi Arabia. Chinese firm Lenovo is building a computer and server assembly factory there and Saudi company Alat — state funded to the tune of around $100 billion (€88 billion)— is collaborating with Japan’s Softbank Group on industrial robotics, that could later be used on assembly lines, addressing local labor shortages. The Saudis have apparently also been wooing China’s Foxconn, a major supplier of Apple’s iPhones, and Taiwan’s Quanta, who make computers and computer parts for the likes of Dell.
“Dozens of countries are pitching to take advantage of high tariffs on Asian countries that export to the US, in the hope that they will be able to penetrate the US market,” David Butter, an associate fellow at the UK think tank Chatham House, told DW.
Pivot has positives, negatives
“And countries like Saudi Arabia could position themselves as relative safe havens for businesses seeking to escape higher tariffs or mitigate the uncertainties surrounding them,” Nader Kabbani, director of research at the Qatar-based Middle East Council on Global Affairs, or ME Council, explained.
Saudi Arabia has a lot of attributes that could help make that happen, Kabbani continued.
“It has abundant natural resources, including and in addition to oil. It has a large domestic market. It is centrally located, serving as a bridge between Asia, Africa, and Europe,” he told DW. “And its government actively supports economic diversification efforts. It also has reasonably well-developed infrastructure [and] is willing to attract migrant workers at all skill levels.”
The region does have some advantages, agreed Frederic Schneider, an independent policy consultant and a senior non-resident fellow, also at the ME Council. He added to Kabbani’s list of advantages, the Gulf states’ large logistics industry, low- or no-tax regimes and the fact that local currencies are pegged to a weakening US dollar, meaning their exports may become cheaper and therefore more competitive.
But there’s an equally long list of potential disadvantages, including some tough competition.
“Existing manufacturing is still relatively underdeveloped and largely confined to sectors adjacent to the hydrocarbon sector,” Schneider told DW. If the Saudis want to compete in high-tech manufacturing, they’ll be up against countries like China, South Korea, Taiwan, Japan, Germany and Switzerland. In lower-tech sectors, they’re competing against Malaysia, Indonesia and Vietnam.
“And while these countries suffer from different disadvantages … they have decades of experience, an existing infrastructure and large domestic market and human capital pool,” Schneider pointed out.
There are other negative factors too, Schnieder continued. That includes growing cultural issues as more foreigners work in previously conservative Gulf communities, climate change causing the region to heat up faster than others, and ongoing geopolitical uncertainty around possible conflicts between, for example, Iran and the US.
“Project risks are also sizeable,” Schneider added. “While the region is keen to sport technological ‘firsts,’ many do not materialize.” He pointed to unsuccessful drone taxis and travel via hyperloop as well as cryptocurrency investments gone wrong and abandoned or downsized construction projects.
There has also been heavy criticism of Saudi Arabian plans by a group called Never Neom. “What exists [of Saudi plans] are vague investment announcements — mostly tied to foreign partnerships and projects still on paper,” Never Neom writes on its website.
The activist group, which protests grand plans for futuristic Saudi city, Neom, previously had a Facebook page blocked for “inauthentic behavior” connected to political opponents of the Saudi government. Still, the group’s statements offer some of the only counter-arguments to all the more dominant paid content online about Saudi manufacturing prowess.
Trade war trumps all
So is it all just hype? The answer likely lies in the middle somewhere.
Governments in Saudi Arabia and the UAE are certainly building more factories and seeing non-oil activities contribute more to national income every year.
But even if there is a pivot of some sort to Gulf states, higher international tariffs and a possible trade war would still undermine any benefits, experts argue.
Source : https://www.dw.com/en/laptops-iphones-made-in-saudi-arabia-hype-or-genuine-opportunity/a-72687658
