While governments have done much to enhance competitiveness around the GCC, the next step should be the establishment of regional think tanks to identify and pursue new areas of competitive advantage, said Mohamed Al-Mady, SABIC vice chairman and CEO,
He was speaking at the 2014 Gulf Petrochemical Association (GPCA) Research and Innovation Summit in Dubai
Al-Mady is also the chairman of the association.
Speaking at the opening of the first event of its kind to be hosted by the GPCA, Al-Mady also said that the changing business environment in the region made the drive for innovation more important than ever.
The shale gas revolution in the US, for example, has driven down the cost of natural gas from double digits to low single digits in the space of only a few years.
In June, 2008 the spot price of natural gas quoted on the NYMEX commodity exchange peaked at $12.69 per million British Thermal Units (BTU). In 2012, the price went as low as $1.95.
“Cheap and abundant fossil resources have been our original competitive advantage,” said Al-Mady.
“Recent history proved that entrenched competitive advantages can fade and that there is little mercy for those who do not get new ones. Innovation has therefore become a must to deliver advantage.”
Al-Mady acknowledged the efforts of government to boost competitiveness, highlighting the establishment of KAUST and the Masdar Institute of Science and Technologies as well as technology parks such as the Dhahran and Riyadh Techno Valleys.
He, however, said innovation think tanks remain mostly located in other parts of the world. Of more than 550 think tanks listed on Wikipedia only one is in the Gulf region.
“It would be good to see the development of think tanks able to better target rich research budgets, generate or acquire the right innovation faster and better exploit it via monetization of intellectual property and more effective marketing,” said Al-Mady.
“If something is critical for our future competitive advantage, we should master it,”
Al-Mady said the timeframe for developing a new chemical or polymer can take a decade, while the smartphone in which the polymer will be used can be developed in months.
At the same time, improving extraction technologies are reducing the time from developing new reserves of natural resources to depletion of those reserves to about a decade.
“The simple truth is that the chemical industry in the Gulf started late in the innovation game and needs to find ways to get to competitive advantage faster than entrenched competitors,” he said.
Ahead of the event, a top GPCA official said GCC petrochemical producers were ramping up R&D funding despite a global slowdown in investments.
“Chemical companies in the Gulf are pioneers in the Middle East when it comes to building research and development facilities,” said Moayyed Al Qurtas, chairman of the GPCA’s Research & Innovation Committee.
“While the region’s petrochemicals industry may spend a fraction on research compared to global investment, the GCC has amongst the highest year on year growth rates in R&D expenditure in the world.”
In 2012, GCC chemical producers spent an estimated $380 million on research and development initiatives, just 0.8 percent of the global R&D spending.
However, the 2012 figure also highlights a 30 percent growth in investments as GCC petrochemicals producers spent $266 million on R&D in 2011.
With global R&D expenditure rising by just 10 percent in the same period, it is clear to see the Gulf’s increasing focus on this sector.
GCC petrochemical companies have already stepped up efforts in developing R&D facilities with Tasnee and SABIC launching products development research centers in the recent past.
Sipchem in Saudi Arabia, and Borouge in the UAE, are also set to open their own facilities in the near future.
“Moving forward, petrochemical research centers focusing on the performance products are set to become more common in the GCC,” predicts Qurtas.
Petrochemicals represent the second largest manufacturing sector in the Gulf, according to the GPCA.
The Gulf’s petrochemicals output reached $97.3 billion in 2012, a $3.2 billion increase on the previous year.
The industry is also export oriented, with petrochemicals accounting for $52.7 billion in 2012.
The need for research was a key focus of discussion at the summit.