Efficio’s Adam Forgács on local content’s role in economic diversification

As the kingdom works to diversify its economy, reduce dependency on imports, and build a more sustainable future, local content has become a cornerstone of the national strategy.

In an exclusive interview with Adam Forgács, VP for the Middle East at Efficio, shares insights into how the global procurement and supply chain consultancy has been instrumental in shaping local content policies, partnering with public and private sector organisations, and driving impactful initiatives aligning with the kingdom’s long-term socio-economic goals.

How would you define ‘local content’, and why is it critical to achieving Saudi Arabia’s Vision 2030 goals?

The best way to understand ‘local content’ is to think about the value that is being created and retained in an economy. This has several elements, as value can be created through developing local talent and creating jobs, growing and using local suppliers in the supply chain, conducting local research and development activities, and others.

In Saudi Arabia, the Local Content & Government Procurement Authority (LCGPA) has established a standard definition, formula, and scorecard to measure local content.

Local content is critical to achieving Saudi Arabia’s Vision 2030 goals as it drives focus on building and using local capabilities and capacities, which enables the vision’s goals of growing economic diversification and ensuring long-term socio-economic sustainability.

Through focusing efforts on increasing manpower Saudisation and creating high-value jobs, preferencing the use of local suppliers in supply chains, developing local small and medium-sized enterprises, and other levers, local content has become a key engine in realising the vision objectives, with a holistic national ecosystem underpinning the kingdom’s local content development efforts.

How does local content differ from traditional localisation, and what unique advantages does it offer for the kingdom’s economy?

I like to think about localisation as a precursor to local content. Localisation focuses on developing new local capabilities, often through attracting investment and localising technologies required for local manufacturing, or developing brand new industries, for example in the renewable energy or ICT space. In contrast, local content is about leveraging and further developing existing local capabilities – driving value from available local suppliers, the local workforce, and other elements.

Both localisation and local content are critical for successful socio-economic development. local content is fundamental to ensure value is retained through leveraging the local manpower and supply chains, while localisation is key to driving further economic diversification and growth through localising industries, technologies, and know-how in the kingdom.

What recent milestones or successes in local content development do you think have had the most significant impact on Saudi Arabia’s diversification efforts?

Local content development has been on an exciting journey in Saudi Arabia since 2015. One of the first key milestones was to establish the right definition and focus on local content back in 2015 and 2016 when Efficio worked with several leading public and private sector organisations in the kingdom to define the original local content formula and establish the initial local content governance structure.

In parallel, several national champion organisations, such as Aramco, SABIC, Ma’aden, STC and others have launched their local content programmes and have become the respective leaders for local content development in their sectors.

Programmes such as IKTVA, Nusaned, Tharwah, and Rawafed have since become household names in the kingdom. They have demonstrated major local content impact through developing and implementing strategic local market development initiatives such as supplier enablement and development, investor outreach, and strategic alliance partnership programmes, together with driving local manpower development and increased Saudisation through large value contracts and recognising local content as a key pillar in the overall organisational strategy.

Recently, we have seen an expansion of local content development activities to a wider set of companies in the kingdom, driven heavily by the Public Investment Fund (PIF) establishing a Local Content Policy and Supplier Development Guideline, and cascading these to their diverse network of portfolio companies.

In addition, to address the gap in local manufacturing and service delivery capability in certain market segments, several public sector organisations, such as the Ministry of Industry and Mineral Resources, Ministry of Energy, Ministry of Communications & Information Technology and others have been very active in developing sector level localisation and local content development and incentivisation programmes.

These efforts have translated into tangible impacts. For example, we have witnessed an increase in the private sector’s contribution to GDP, a reduction in unemployment, a major increase in the number of local small and medium-sized enterprises, and an expansion in the number of locally manufactured products.

Efficio has been fortunate to have been involved at the centre of this Saudi localisation and local content development ecosystem for over a decade now, partnering with leading public and private sector entities along this journey.

How does local content contribute to greater economic resilience, particularly in reducing reliance on imports and protecting against supply chain shocks?

Local content drives the growth and use of local capabilities and capacities, which reduces reliance on imports.

Together with localisation, local content enables the transfer of technologies and know-how, the establishment of new industries and manufacturing capabilities, the training and skills development of the local workforce, driving extensive socio-economic benefits through increased GDP, improved balance of trade, and job creation.

From a supply chain perspective, it reduces reliance on imports by building local supply chains through growing existing local suppliers, together with localising capabilities across the end-to-end product and service value chains. This ultimately allows better protection against supply chain shocks through local material, service, and workforce availability.

Global supply chain shocks, caused for example by Covid-19 and the logistical bottlenecks on the Red Sea, could significantly impact the kingdom’s GDP and economic performance. Localisation and local content are part of strategically mitigating these risks and therefore improving the kingdom’s economic resilience to external shocks.

In what ways are local content strategies aligned with Saudi Arabia’s sustainability goals, including efforts to lower carbon footprints?

Local content is a key driver to enabling increased sustainability. On a company level, a majority of a company’s carbon impact originates from its supply chain, which is part of what we call the ‘Scope 3’ emissions. Local content, through driving increased use of existing local suppliers, can help reduce carbon emissions as supply chains are shortened, and local warehouses and distribution networks are used for the supply. This also has other supply chain benefits, such as enabling improved lead times, supply availability, and security, together with often representing an attractive cost reduction lever.

Of course, localisation and local content, when looked at from the perspective of building local manufacturing capabilities, can create increased total national-level carbon emissions through increased manufacturing and economic activity. This is why it is critical to make local and foreign direct investments integrating sustainable solutions in the design, enabling both the use of local capabilities and also the transfer of – for example – carbon capture and energy-efficient manufacturing technologies.

Also, from a national industrial strategy perspective, leadership in developing and deploying renewable energy technologies can help offset the carbon impact of increased economic activity through the supply of more sustainable energy sources across the industrial value chain.

Finally, beyond the environmental aspects, local content is also a major contributor to improved socio-economic sustainability. Through creating local, high-value, future-proof jobs, and also economic diversification, and the development of the manufacturing and services industries, local content and localisation create long-term economic resilience, sustainability, and growth.

How is Efficio supporting Saudi Arabia in this regard, and what role does your Local Content Centre of Excellence play in this?

Efficio has been a leader in local content development in Saudi Arabia for the last decade.

First, we have led a programme with the government and the largest public and private sector organisations to create the initial local content formula and measure local content on a national level, then develop the initial national local content regulation, and establish the foundational entities to oversee and control its development in the kingdom.

Later, we led programmes to establish and launch the local content programmes of leaders across sectors such as petrochemicals, mining, telecoms, aviation and others.  These programmes cover the development of our clients’ local content vision and mission statements, local content policies, processes, procedures, digital measurement and reporting systems, together with establishing a local content baseline score, defining growth opportunities, and establishing an execution roadmap.

We have later led the implementation of these programmes, most often from a local supply chain development perspective – developing and executing strategic investor outreach initiatives, supplier enablement and capability development programs, strategic alliance partnership programs with international manufacturers, and others. Through these activities, we have formed multi-year local content development partnerships and are heavily involved in the implementation of these programmes to this day.

Recently, we have also been leading the development of local content at several Public Investment Fund (PIF) portfolio companies, following the publishing of the PIF Local Content Policy and Supplier Development Guidelines that portfolio companies are required to comply with. Through our best practice solutions, we help companies rapidly establish full compliance with PIF requirements through their policies and processes, together with enabling the measurement and reporting of local content performance and achievements, and the development and implementation of strategic supplier development programmes.

Finally, we are also leading activities in industrial development and localisation in the kingdom. Leveraging our global supply chain and procurement expertise, we work with public and private sector entities to develop end-to-end value chain localisation strategies, associated investment opportunities, and enabling industrial incentivisation programmes. These activities contribute directly to the execution of Saudi Arabia’s National Industrial Strategy and National Localisation Strategy.

Given this extensive engagement at the heart of the national local content development ecosystem, we have established a dedicated Local Content Centre of Excellence to oversee our efforts and to enable the development and sharing of best practice solutions across our projects.

Today, we have over 100 consultants working on local content and localisation development projects, and our Local Content Centre of Excellence is one of the largest dedicated, specialist practices for local content development in the Middle East.