Shaping the Global Agenda: From the World Economic Forum Annual Meeting in Davos, Switzerland
Al Mady, Mohamed, The Middle East
MOHAMED AL MADY, the vice-chairman and CEO of the Saudi Arabian Basic Industries Corporation (SABIC), is one of the few Arab leaders who have clout and influence at the World Economic Forum. He gave the following interview assessing the new global trends, as highlighted by the conference, and how some of the issues in the spotlight might impact on the petrochemicals industry in the coming years.
* The theme of the Annual Meeting is "Shaping the Global Agenda: The Shifting Power Equation". Be it in geopolitics from west to east, the rapid rise of certain emerging market economies, or in business with the shift from producer to consumers, what is the primary shift in power that is having the most impact on your industry and the world?
China and India are leading global economic growth. China dominates in the area of manufacturing and has the benefit of a large domestic market with spending power. India, on the other hand, is strong in technology/IT services. Both economies currently enjoy strong positions with ample foreign exchange reserves.
The next decade will see the emergence of production capabilities in these markets, with China and India becoming net exporters rather than importers of goods and services.
The global petrochemicals industry is at a crossroads, largely because China is becoming an increasingly important consumer and supplier of petrochemical products, and further, one which enjoys a competitive advantage due to its cheap cost of labour and sizable domestic market. In China, petrochemicals consumption has increased by about 12% per year over the past 10 years compared to only 4% for Europe and the USA.
The industrial countries are shifting their petrochemicals activities to China, in such diverse areas as the automobile, electrical and electronics, communications and textiles industries.
The petrochemical industry is experiencing major change, much of it revolving around feedstocks, geography and demographics. Nevertheless, our industry is no stranger to rapid change and it will, as it has in the past, meet these new challenges.
* What in yore opinion are the key influences on global growth prospects, and for growth in your industry over the coming year? What can be done to sustain and create new opportunities for growth and by whom?
During 2006, the world economy demonstrated that it can deal with geopolitical disturbances, as well as with economic discontinuities. Nevertheless, in our view such threats have increased further. The US economy continues to face the risk of recession, partly due to the biggest decrease in home construction of the past 15 years. US GDP decline is the main threat to the global economy because this economy has been the primary engine of global growth in recent years.
The stability of the Middle East is an equally important factor for global economic growth prospects in general and for growth in our industry in particular. Unfortunately, efforts to achieve such stability through diplomacy appear to have shown serious limitations in resolving long-standing conflicts.
To grow, the petrochemical industry requires a number of adjustments; with respect to the manufacture of commodity petrochemicals and plastics, it is necessary to attain a regional, or even better global, production cost advantage. The Middle East is certainly one region with this advantage and has predictably attracted a growing nucleus of major world-scale petrochemical manufacturing plants.
It is also of primary importance for a competitive manufacturing company to have manufacturing assets in multiple regions. This diversification serves to moderate overexposure to any single geographic market. Leading petrochemical producers today operate globally with multiple large world-scale plants capable of supplying all regional markets. SABIC's acquisition of DSM and Huntsman's petrochemical assets in Europe is an example of this geographic diversification and has laid the foundation for SABIC to become a more significant participant in the European petrochemical industry. …