Industrial funding increased and extended to mining sector in Saudi Arabia

The Saudi Industrial Development Fund (SIDF) was formed in 1974 and has played a key role in supporting the Kingdom’s industrial development, providing soft loans that helped the country’s manufacturing pioneers through the hard first years in business and subsequently supported their growth. In January 2019 SIDF’s focus was realigned more closely with Saudi Vision 2030, the national development blueprint, and the National Industrial Development and Logistics Programme (NIDLP). The fund is set to play a pivotal role in enabling the NIDLP to deliver on its goal of boosting investment in new industrial sectors to SR1.7trn ($453.2bn) by 2030.

More Funding

In order to facilitate this role, the government increased SIDF’s capital by 60% to SR105bn ($28bn) in January 2019. A year later SIDF revealed its loans to industry in 2019 had increased by 32%, with the approval of SR12.5bn ($3.3bn) worth of loans in the 12-month period. In 2019, 77% of loans were granted for projects developed by small and medium-sized enterprises, while 41% were awarded for projects in promising regions and cities. The chairman of SIDF is Bandar Alkhorayef, who is also the minister of industry and mineral resources. “We are proud of SIDF’s performance, which came in line with the ambitious plans of Vision 2030... transforming Saudi Arabia into a leading industrial powerhouse and a global logistics hub,” he said at the announcement of SIDF’s 2019 results in February 2020.

SIDF’s 2018 annual report noted that it provided funding of SR9.4bn ($2.5bn) for 110 new industrial projects and 24 existing ones, with total investment reaching SR38.5bn ($10.3bn) that year. From its inception to the end of 2018, SIDF had provided 4350 loans worth SR157.4bn ($42bn), contributing to the establishment of 3218 new projects and the expansion of 1132 existing ones.

Extraction

In mid-2019 SIDF amended its by-laws to allow it to lend to a key sector that had not previously fallen under its remit: mining and mineral extraction. The development fund announced it would provide loans of up to 75% of the project costs in the sector, including during the delineation phase of exploration activity, such as drilling and initial mining works, as well as supporting service companies helping the mining effort. Prior to this announcement, the NIDLP roadmap identified a lack of commercial credit to the high-risk, high-reward mineral exploration industry as a significant impediment to the development of the sector.

SIDF also introduced new products in 2019, including a working capital financing programme for new businesses for investors with tenures under 12 months, as well as acquisition finance. The latter provides financial backing for a number of items, including the acquisition of specific technology and manufacturing methods, intellectual property, suppliers and clients, and competitors. Acquisition finance is offered either up front or after the transaction, with a repayment period of up to seven years.

Services

SIDF has also been working to improve its services by automating operations, reducing the time it takes to process applications by 60% in 2019 to four to five months, as well as focusing on customer satisfaction. “We are not a bank, but we are trying to benchmark our services to the standard provided by commercial banks. Thus, we have divided our credit department, with one section dealing with customer relations while another focuses on portfolio management. We have also created a customer satisfaction index,” Noor Shabib, vice-president of strategic planning and business development at SIDF, told OBG. However, the development fund sees its function as very different to that of a commercial lender. “A bank will assess whether you can cover the collateral when deciding to give you a loan, but we are more interested in the economic impact of the project, as well as its viability,” Shabib added.