Supply Chains
Saudi Arabia is making a determined effort to become a significant player in the global mineral supply chain, driven by its Vision 2030 strategy to diversify its economy and reduce its dependence on oil exports. The Kingdom is seeking to strengthen its local processing and industrial value-added sectors, and is actively seeking international partners to help achieve this goal.
A Questionable Pillar of Europe’s Diversification Strategy
While Saudi Arabia’s efforts to develop its mineral resources sector are ambitious, there are concerns about the Kingdom’s governance and human rights standards, which could impact the operational efficiency of the sector and pose risks for European companies. The dominance of the Public Investment Fund (PIF) in the sector raises concerns about state control and the potential for supply relationships to be co-opted for foreign policy objectives.
Saudi Arabia’s Diplomatic Efforts
Saudi Arabia is seeking to position itself as a geopolitically neutral partner and “link” in supply chains, leveraging its financial strength and location advantages to attract international companies. The Kingdom is deepening its relationship with China, while also strengthening its ties with the US and other Western nations. Saudi Arabia is also engaging with resource-rich countries in Africa and Latin America to secure stakes in mining projects.
Challenges and Delays
Despite its ambitious plans, Saudi Arabia faces significant challenges and delays in developing its mining sector. The Kingdom’s geological data are lacking, and it relies heavily on foreign expertise and investment for exploration and new mining projects. The employment potential in the mining sector is limited, and the Kingdom is actively seeking international partners to develop its steel industry and other downstream supply chains.
The Role of the Public Investment Fund
The PIF plays a crucial role in financing Saudi Arabia’s efforts to develop its mineral resources sector and downstream industries. The fund’s extensive financial involvement gives the state considerable control over the sector, and its investment decisions are often driven by a clientelist template that favors well-established economic elites with close ties to the Saudi royal family.
Recommendations for Targeted Cooperation
While a strategic raw material partnership with Saudi Arabia is not currently advisable due to concerns about governance and human rights standards, targeted, selective cooperation should be pursued. The EU, alongside MSP partners such as the US and the UK, could intensify dialogue with Saudi Arabia on governance and standards setting, and encourage its involvement in international frameworks such as the Extractive Industries Transparency Initiative (EITI). European companies are expected to become increasingly involved in Saudi Arabian supply chains, and German support for the private sector should be stepped up to provide expertise and advice on the opportunities and risks of cooperating with the Saudi raw minerals sector.
