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Cement Market in Saudi Arabia - A Brief History

Syed Haroon Haider Gilani

Saudi Arabia



In May 1939, King 'Abd al-'Aziz travels to Ras Tanura for a ceremony to mark the rst export of crude oil from Saudi Arabia, loaded onto the D. G. Scoeld. The ship, named after a co-founder of Socal. The whole economic boom in Saudi Arabia is reasoned behind the oil discovery in Eastern Province in 1938, a gift of God to King Abdul Aziz Bin Abdul Rahman Aal Saud and his people. The rst oil shipment was exported in May 1939 and at the time; the government revenues were about $7.17 million a year (Sabri, 2001). King Abdul Aziz received the oil royalty of $3.21 million in 1939 and it grew to $10 million in 1946, and to $110 million in 1951. It touched $212 million in 1952 (Sabri, 2001). King Abdul Aziz Ibn Saud has extended the new riches to the Arabian society and the result was enormous and miraculous uplift in every walk of Saudi life. The Oil revenues were also extended massively to the international community, particularly; to Muslim World i.e. King Abdul Aziz abolished the Hajj duties, which had remained the nancial back-

bone of his government. An amount of approximately $56 (today it is worth $900) was collected from every Hajj pilgrim.

tons capacity, sufcient for the countrys needs, is in operation. Although the bulk of Saudi Arabs still wear sandals very well adapted to a hot climate there is a few factory which produces 700 pairs of shoes daily, together with travelling bags and ladies handbags. For several years, furniture of good style and quality has been manufactured. In addition to the furniture factory in Jidda, there is a branch at Hadda (The house of Saud in commerce, 2001). During the reign of King Ibn Saud (1880 1953), most of the infrastructure development was of oil industry, schools, hospitals, construction of roads, including the 350-mile modern paved highway between Jeddah and Medina, and construction of buildings for ministries. Saudi Arabian government announced to spend $ 100 million on its ve-year modernization plan, and King Abdul Aziz Ibn Saud bought, in 1947, eight Army Hospitals complete from beds to operating rooms from West, and showed interest in electrifying Saudi Arabia, installation of sanitary water supply and sewage system while a brick kiln and cement plant were reported to be operational in Saudi Arabia (Edson, 1947).

Pilgrims arriving at Jeddah Port in 1906. During 1950s, except for Oil, Saudi Arabia had to import nearly everything wood, cement, steel, copper and other metals, cloth and food (Thompson, 1957). According to an American engineer, who surveyed for minerals in Saudi Arabia for King Abdul Aziz Ibn Saud, one of the rst productive enterprises was that of quarrying and processing of marble. This was entirely due to the initiatives of Mohamed Bin Laden and his brother. A soap factory of 900

King Abdul Aziz with Winston Churchill in Egypt.


Introduction of Cement Production in Saudi Arabia

Arabian Cement Company (ACC) was the rst cement company to be established in Saudi Arabia in 1956. In 1957, King Ibn Saud laid the foundation stone of the rst plant of the Arabian Cement Factory. The rst plant that was located north of Jeddah city, started production in 1959. The original plant started production in 1959, with 300 tonnes per day (tpd) clinker and 100tpd lime capacity.

Due to the expansion of Jeddah City towards the North, the construction of King Abdul Aziz international airport, and to maintain safe and healthy environment for Jeddah city and its people, it was decided to construct a new plant far from Jeddah City. Rabigh area was the site of the new plant due to certain locational advantages, like the availability of abundant limestone deposits and proximity and easy accessibility to major markets, such as Jeddah, Makkah and Madinah. The new plant had a capacity of 4,000 tpd clinker, consisting of four long kilns, and was inaugurated in 1984. The capacity was further increased to 4,400tpd (Global Investment House KSCC, 2007). Although Saudi Cement Company (SCC) was founded in 1955, with a plant in Hofuf, but it started operation in 1961 with one kiln of 300 tons of clinker per day (Saudi Cement Company). The Hofuf Plant since then has executed four expansions and/or renovations and upgrading of its facilities, the last of which, was in 1997 where a kiln of 3,500 tons of clinker capacity (kiln # 6) was added, bringing the total capacity of the plant to 7825 tons of clinker per day. At the end of 1991, the company took over the Saudi-Bahraini Cement Company based in Ain Dar in the Eastern Province, which then had a capacity of 2mt of cement. It, thus, has two plants one in Ain Dar, about 90 km from Dammam, and the second in Hofuf, about 120 km from Dammam. The year 1962 witnessed a number of measures towards industrialization in Saudi Arabia. These were the programs for the Protection and Encouragement of National Industries, providing a number of concessions and facilities to the local industrialists. Yamama Saudi Cement Company (YSCC), that ranks among the biggest cement producers in the country and one of the earliest as well, was

founded by His Highness Late Prince Mohammad Bin Saud AlKabir in 1961 in Riyadh city with a capital of SR25 million, to produce and sell cement. The commercial production started in 1966 with a 300tpd line. With time, YSCC expanded its plant capacity by adding new production lines. Along with these cement plants, in 1965, there were 11 cement pipe factories, and over 170 brick works, of which only 3 were mechanized (Sabri, 2001). For Saudi Arabia, the period from 1973 to 1980 was a boom period, during which oil price rose from $2 a barrel to $42. It brought immense oil revenues to the Saudi government, from $1214 million in 1970 to $22, 573 million 1974, enabling it to embark on a massive program of industrialization and modernization. The Second Five Year Development Plan (1975 80) with a total outlay of SR 498 billion ($142 billion) laid special emphasis on building a physical infrastructure (Sabri, 2001). Qassim Cement Company (QCC) was founded in 1976 at Buraydah in Al Qassim region in the heart of the Kingdom of Saudi Arabia, 330 Km Northwest of Riyadh. Prince Abdullah Bin Faisal Bin Abdul Aziz was its rst chairman and held stake worth SR 5,625,000 out of its equity of SR 120 million that was set aside for 14 promoters. Among them include several members of the AlMushaiqeeh and Al-Amri business families. Its paid-up capital stood at SR 300 million that, however, had been raised to 450 million in 1993. It produced 1,286,888 tons of cement in 1993. Prince Muhammad Bin Abdullah Bin Faisal Bin Abdul Aziz, headed the company in early 1990s and the prot for 1991, 1992, 1993, and 1994 stood at SR 73 million, SR 105 million, SR 140 million, and SR 149 million respectively. In 1995, its net prots were

estimated at SR 160 million and a dividend of SR 135 million was distributed (The house of Saud in commerce, 2001). Yanbu Cement Company (YCC) is one of the biggest cement producers in Saudi Arabia with the capacity. YCC was established in 1976 with initial production capacity of 3,000 tons of clinker per day, which was subsequently raised to 4,000 tons per day. YCC commissioned two of its long dry kilns each 1,500tpd at Ras Baridi 60km north of the city of Yanbu on the west coast of Saudi Arabia. Southern Province Cement Company (SPCC) was founded in 1978, and operates two plants, one in Jizan and other in Bishah with total annual cement production capacity of around 4 Million Tons Per Year. Eastern Province Cement Company (EPCC) was established in 1983 as Saudi Kuwaiti Cement Company. The rst commercial clinker production was started on 6th October 1984. The 2 x 3500 MT/ day clinker production capacity plant is located at Al Khursaniyah, close to the Dammam-Kuwait and Jubail-Abu Hadriah Highway. It is located just over 60 kms away from the biggest commercial port of Jubail making easier cost effective export facilities to any part of the globe. Tabuk Cement Company was founded in 1994. The plant is located south of Duba port on the coast of the red sea, 25km north of Duba city, which is 180 km away from Tabuk province. It is capitalized at SR 700 million and 687 shareholders held its capital while Princess Anoud bint Faisal bin Abdul Azizs stake is worth SR 600,000. Princess Noura bint Sultan bins Abdul Aziz and Princess Muneera bint Sultan bin Abdul Aziz, being among its promoters, holds stake worth SR 200,000 each in Tabuk Cement Company. Other promot6

ers and stakeholders are, Al-Hawaz Trading and Marketing, Saudi Industrial Exports, and Southern Province Cement hold stake worth SR 600,000 each in it as promoters (Sabri, 2001). It is decreasing its shareholders by time. In 1996, it had 12,402 shareholders, 9668 in 1998 and 8,185 in 2001. Among the other private sector industries, cement manufacturing is one industry with the royal members has the majority stake and it has attracted the attention of Saudi Royalty above all other industries. The cement companies where the members of Saudi Royal families have decisive control and substantial investments are Saudi Cement Co., Al-Qassim Cement Co., Yanbu Cement Co., Southern Province Cement Co., and Al Yamama Saudi Cement Co.

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Cement Imports in Saudi Arabia



Pre-Oil Trading in Saudi Arabia

Old houses in Riyadh during 1950 - 1960s. Riyadh is today, a modern city with most modern buildings, roads and infrastructure. Cement is the most important and prominent part of this modernization of Saudi Arabia. Trade and commerce is known to be an honorable profession, and it means a lot to Arabs, including the Saudis: it is their joy, their inspiration, and their way of being with people. Arabian peninsula has been heart of global trade since the Greeks has turned the Indochinese trading through Arabia, Persia, Egypt, Palestine to Europe. East India Company recorded in 1825, Alexander was diligently employing his attention, in the midst of his conquests, upon the commerce of Asia with Europe and Africa. His victories, indeed, by subverting the throne of Darius, diverted trade from its ancient track across Bactriana (now Bokhara), situated to the eastward of the Caspian Sea and Persia. But the Macedonian hero founded Egyptian Alexandria, and opened a new channel to the commerce of Central Asia and India, by the Red Sea and Egypt. He sent Nearchus with a eet to survey the India ocean, from the

mouths of the Indus to the Persian Gulf (East India Company, 1825). It was the emergence of trade of Arabian with Indians and Chinese. The trade has developed into the social, cultural and economical mix of both sides and continues today. At the middle of nineteenth century, Jeddah had a total trade turnover of 1,264, 360 sterling pound, with import volume of 833, 510 sterling pound and export volume of 430,850 sterling pound, as described by Charles Issawi. At the end of 1916, it was estimated that King Abdul Aziz had total revenue of about Rs. 20 lacs (133,322 sterling pound). His main source of income was camel trade from Syria. In 1920, King Abdul Aziz was reported to be heavily in debt. According to Dickson, he owed Rs. Six Lac (six hundred thousand) to Qassimi merchants, and Rs. One Lac (One Hundred Thousand) to his political agent in Bahrain. (The house of Saud in commerce, 2001). The merchants and their families in Saudi Arabia have traditionally exercised considerable inuence in shaping the government policies affecting the commercial sector. Before the ood of oil money, the merchants fortunes were made in traditional ways. Until the beginning of twentieth century; the regions that were involved in business were Hail, Al-Qassim, and Hejaz. The famous commercial ports in Arabian Peninsula during the eighteenth and nineteenth centuries were Basra (Umm-e-Qasr), Muscat, Bushire, Bandar Abbas, Bahrain, and Ras Al Khaimah. In Saudi Arabia, however commercial centre has always been Jeddah because of its proximity to Red Sea and Mecca. In the seventeenth and eighteenth centuries, Jeddah was already an international port with visitors from many nations and ourishing coffee trade, as well as the Indian trade.

Money Changers Shop in Jeddah in 1950s (c) 2012

The trading community in Hejaz, which composed of old mercantile families, had a liberal view and played a signicant role in turning Jeddah into an important port on Red Sea. They mainly depended on the thousands of Muslim pilgrims who annually came from all over the world to visit the holy cities. In late 1930s, there were a number of foreign banks and trading houses in Jeddah. The rst bank to open was Netherland Trading Society of Holland (Algemene Bank), which was established in 1925. On the other hand, the rst local bank, the National Commercial Bank, owned by two for-

mer money-changing families, Bin Mahfouz and Kaaki, was established in Jeddah in 1937 (Sabri, 2001). " Trade was mostly in the hands of merchants from Al-Qassim, Shaqra, Al-Zilfa, Al-Ahsa, Qatif, Mecca and Najran. However, four major groups of Saudi merchant families have been instrumental in Kingdoms economic development. The rst group consists of Nejdi merchants including those from the eastern part of the country, especially the people of Al-Qassim, Al-Zil and Shaqra who were renowned in central Arabia for their trading and entrepreneurial skills, and for their caravans traveling all over the Arabian Peninsula. The merchant families that belong to this group are of AlRajhi, Al-Zamil, Al-Kheiriji, Al-Olayan, Al-Juffali, Al-Jumaih, AlQusaibi, Al-Ajaji, Al-Rasheed, Al-Sanie, Abu Nayyan, Abdul Karim, Al-Suleiman, Al-Faraih, Howaish, Al-Omran, Al-Quraishi, Al-Mutlaq, and Al-Moajil. The last two families originate from the Eastern Province and the family of Al-Quraishi is from Hail. The Al-Qusaibi and Al-Ajaji families have their roots in Al-Hofuf, and a scion of Al-Qusaibi family, Abdul Aziz Al Qusaibi, has worked as the political agent of King Abdul Aziz in Bahrain. " The Second group consists mainly of those who hail from Hejaz area and settled there for generations. Among them are the merchant families of Shobokshi, Jamjoom, Abbar, Zaini, Haz, Faqeeh, Ashoor, Booqari, Attar, Rajab, Silsila, Fitaihi, Abu Zinada, AlHussaini, Zaidan, Ali Reza, Al-Ansari, Sharbatli, Khazindar, Samman, Al-Fadhl, Nowilaty, Fatany, Saleh Kamel, Abdul Majeed, Batterji, Al-Dehlwi, Al-Muhandis, and Al Mufarrij. The last family is from Al-Rabig at Red Sea coast. The Ali Reza family has the distinction of founding an import-export company in 1862. One of the senior members of this family, Shaikh Muhammad Ali Reza, was a

commerce and industry minister in King Sauds council of Ministers in 1957. " The third group of those who migrated to Hejaz from the Hadhramaut area in the former South Yemen. These are known as Hadhramauti, and had played a crucial role in the development of Hejaz area. These families are of Bin Zagr, Bin Mahfouz, Bin Laden, Kaaki, Bajrai, Bamaoudeh, Balahwal, Baqshan, Baeshen, Baroum, Al-Amoudi, and Noaman Said. The last family hails from Taiz in Yemen. A majority of these families have been involved in money changing trade in Jeddah and Mecca. Such was the nancial clout of these Hadarmautis that the government of King Saud in the 1950s used to regularly borrow from the National Commercial Bank owned by Bin Mahfouz and Kaaki families. " The nal group consists of those merchant families who had come from Palestine, Syria, and Egypt and have settled down in Saudi Arabia. This group consists of Al-Ajou, Al-Eisayi, and AlAqqad from Palestine, Pharaon from Syria and Ashmawi from Egypt. " King Abdul Aziz and his family members were not involved in any type of business activity before oil industry. Unlike the AlRasheeds of Aal Shammar, the Aal Saud Emirs also never involved themselves as caravan leaders in order to earn money. They were, however, dependent on other sources of revenue including tax on the business activities of merchants.


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Post-Oil Cement Imports in Saudia Arabia

An Ariel View of Jeddah in 1938

Increased oil revenues has lead the Government of the Kingdom of Saudi Arabia to diversify the economy from Oil dependence to other less cyclical industries and Service sectors. It was a time of great crisis for the West, second only to the Great Depression, created by the Wall Street. In September 1974, with oil extraction cost of 7.5 to 18 cents a barrel, oil price in the World has climbed to $11 a barrel (Taylor, 1974).

Demand of cement in Saudi Arabia witnessed a massive boom after the increase in oil prices during 1970s. The massive increase in revenues for the Saudi government has lead to the construction booms in Saudi Arabia. Hundreds of ships were reported, loaded with vehicles, food, and related construction materials and other goods docked at the two Saudi Arabian ports during 1970s (The Lewiston Daily Sun, Jan 20, 1977). The massive demand and im-


ports created a bottleneck when the government began a $142 billion ve-year plan to set up an industrial base and massive infrastructure development campaign in the Kingdom. The waiting time for ships to unload their cargo had reached at two months at Jeddah and forty days at Dammams seaport in 1977. Jeddah and Dammam ports were in emergency because of the massive cargo arrival. The journals and newspapers has detailed the situation, Authorities (Jeddah Port) have resorted to imaginative solutions to handle emergency. An American rm, Carson Helicopter Co., of Perkasie, PA, has brought in nine Sikorsky choppers solely to unload cement and speed up housing and other construction projects. Flown by Vietnam veterans, the choppers hover low over a freighter, hook a sling onto a two-ton load of cement, and deposit it near trucks to be transported inland. The helicopters never stop during daylight hours. They refuel with their engines running, in two minutes. They were then unloading 3,000 tons of cement daily, and pilots said none was lost. Cement that leaked out split bags was sucked up by two huge mobile vacuum cleaners and repacked. In the seven months since the helicopter operation began, the price of cement in Jidda (Jeddah) had been halved to $5 to $7 a 110 pound (50 kg) bag (Antar, 1977). The cement importation was unusual for Saudi Arabia identical to the unusual situation of oil revenues for the kingdom. It has evolved into the largest construction market in Middle East as well as the largest cement consumer. With multimillion dollar (these days multi-billion dollar) construction projects always underway, it develops a consistent cement demand to ll these constructions.

Such beautiful and lucrative demand has caught the eyes of industrial investors and in coming years, Saudi Arabia has witnessed massive investment in plant expansions and new establishments (See the Section, Introduction of Cement Production in Saudi Arabia).

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1980s, Recession and Saudi crisis

Modern construction in Saudi Arabia since the 1970s Oil Boom in the world.

During 1980s, the economy of Saudi Arabia has seen a declining trend, mainly due to the fall of oil prices, from a high of more than $40 per barrel in early 1980 to less than $10 in 1986 (Wilson, 1994). The fall of crude oil price has damaged the revenues of Saudi Arabia, from a high of $101.81 billion in 1981 to $37.35 billion just two years later (Wilson, 1994). Respectively hurting the imports, that fell by one-half in the ve-year period from 1983 to 1987. Peter W.

Wilson drew a factual picture of crisis in his book Saudi Arabia: The Coming Storm in 1994: Government spending started sliding in 1982, but its initial drop was slight as the government decided to draw down its rather substantial foreign reserves, estimated at between $115 billion and $ 120 billion, rather than making stiff cutbacks in programs and projects. The government also initiated several cost cutting measures.

Contractors often completed projects, delivered them to the client ministry, and then experienced payments delays for months or even years. Sometimes delays were justied: the easy money of the boom years had led many contractors to cut corners to reap larger prots. However, government inspectors began nding shortcomings, real or imagined, everywhere. Horror stories were common. Carlson al-Saudia, a joint venture of Carlson Company of the United States and Prince Saud bin Fahd bin Abdul-Aziz, son of the present King, had no choice but to declare bankruptcy while waiting for payment, a move that stranded thousands of Filipino workmen in the desert. Another major contractor, Laing Wimpey Alireza, a Saudi British joint venture, despaired of ever being paid after repeated delays, and nally cut its losses and spirited its employees out of the country to avoid Saudi ire. The issue of payment delays soon reached billion-dollar proportions and aficted both Saudi and foreign contractors. As of 1986, Korean Embassy estimated that its contractors were owed at least $4 billion. A similar amount was owed French contractors, who received partial payment for their work on Saudi power grid, but only after Paris had led a high-level protest. Although foreign companies were badly hit by delays, those taking the hardest blows were their Saudi counterparts, many of which were bloated through government largess, often overextended, poorly capitalized, inefciently managed, and unable to secure additional nancing as the banking crisis froze lending. It was a domino effect; contractors were pressed for funds and in turn delayed payment to subcontractors who in turn delayed payment to suppliers. Hundreds of Saudi rms went bankrupt in ensuing morass, including such behemoths as the Shobokshi Group and Gaith Phar-

aons (he setup Attock Cement Pakistan Limited in Pakistan) Redec Corporation. Although the above description is biased and exaggerated but It reect plenty of severances of 1980s in Saudi Arabia. The situation changed upon the increase in oil prices in the world market in early 1990s, particularly as a result of Gulf war. This boom has reasoned the massive expansion projects undertaken by Saudi ARAMCO, the Saudi Basic Industries Corporation (SABIC), the Saline Water Corporation (SWCC), and electricity companies. Estimated projection of the new contracts was placed over $50 billion during 1990s (Wilson, 1994).

Rabigh Cement Plant