LPM: The Smart Concept Behind Saudi Arabia’s Manufacturing Renaissance
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It’s really impressive to read about how the use of AI and big data analytics is increasingly optimising manufacturing processes in some industries in the Kingdom.
This’s minimizing wastage in manufacturing by reducing the amount of materials, energy, time, and other resources that are used inefficiently during production.
Sensors and AI algorithms track the consumption of materials like metals, plastics, fuel, and of course our precious water throughout the different stages of manufacturing.
By having accurate data on usage patterns, project managers across the different industries can strategically identify when and where excess consumption or waste is occurring. Everything is under efficient control: temperature, pressure, speed and resources.
This efficiency in local manufacturing is our main takeaway of this weekly edition of Argaam Macro.
It is directly aligned with the industrial concept of the Localized Production Model (LPM) within Saudi Arabia’s National Industrial Strategy, especially under Vision 2030.
The concept refers to a production approach that emphasizes manufacturing goods within the local or national context, leveraging advanced technologies, especially those associated with Industry 4.0 like automation and AI, to create efficient and sustainable manufacturing ecosystems tailored to local market demands.
Let’s have a simple example that’s taking place in the Saudi localised automotive industry. AI algorithms can optimize the paint application process to use the minimal amount of paint required for uniform coating, reducing chemical waste and environmental impact.
Likewise, machinery can adjust power consumption dynamically based on production demand, reducing electricity waste
From a financial perspective, this directly lowers Cost of Goods Sold (COGS), which includes expenses such as raw materials and labor. The approach eventually improves the gross margin, as it increases the difference between revenue and COGS, which improves in turn profitability and of course without comprising quality.
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Islam Zween
One more thing
before I leave you with our overview of the state of manufacturing in the kingdom in numbers and context, while
38%
of Saudi firms have adopted Industry 4.0 technologies as of
2024
reflecting encouraging momentum in digital transformation, there still remains significant portion of firms across all industries that need to keep pace with the state-of-art-technology.
Adoption of Industry 4.0 not only requires skills but also substantial corporate investments in R&D and digital infrastructure.
But above all this requires a renewed and innovative approach to how we think about strategic management.
The success of the local production model is not measured solely by the number of factories or operating licenses, but by the smart industrial culture we cultivate and the space we provide for minds and systems to experiment with new ideas and go beyond the conventional.
As the Kingdom accelerates in establishing its industrial infrastructure, the real challenge remains ensuring that every new factory is a smart factory, every production decision is data-driven, and every project manager is both a technical and intellectual leader.
The question worth asking now is: Are we advancing at the same pace in developing the human competencies needed to manage these factories as we are in building them?
Building the Future
Saudi Arabia’s National Industrial Strategy (NIS), launched in October 2022 is the cornerstone of the Kingdom’s Vision 2030 economic diversification agenda.
Regulatory reforms, tax holidays, and streamlined licensing have created a business-friendly environment that is attracting both domestic and foreign investment.
The NIS targets a doubling of non-oil industrial exports to SAR 557 billion by 2030, with new trade agreements and market access initiatives underway. Export-led growth is being driven by chemicals, plastics, automotive, and machinery.
New investment and licensing activity remain robust, as evidenced by the issuance of 1,346 industrial licenses in 2024.
With
SAR 1.5 trillion
already invested (i.e. cumulative investments made in industrial and economic development projects) and
SAR 1.3 trillion
more targeted by 2030, Saudi Arabia is rapidly building out special economic zones and logistics hubs.
The “Made in Saudi” program has become a flagship initiative, boosting local content and global competitiveness for Saudi products.
-
2016: 7,206 factories
-
2019: 8,829 factories (+22.5% growth from 2016)
-
2023: 11,549 factories (+30.8% growth from 2019)
-
2035 Target: 36,000 factories
This surge in new factories and licenses reflects Saudi Arabia’s proactive push to diversify its economy and reduce oil dependency.
Analysis of Growth Trends
Factory growth surged by
30.8%
2019 to 2023
22.5%
2016 to 2019
This acceleration reflects the impact of Vision 2030 reforms and the National Industrial Strategy (NIS) launched in 2022.
The issuance of 1,346 industrial licenses in 2024 alone, attracting SAR 50 billion in investment, signals continued momentum - with 1,075 factories commencing production in 2024 alone.
4,000 fully automated factories are planned by 2035, supported by initiatives like the Advanced Manufacturing and Production Center (launched May 2025). Automation adoption rose to 38% of firms in 2024, up from 25% in 2020.
FDI Inflows into Manufacturing Sector
Saudi Arabia’s manufacturing sector has seen a dramatic rise in FDI inflows, culminating in a record SAR 34.44 billion in 2023, according to the latest
This growth is a direct outcome of Vision 2030’s industrial reforms, targeted incentives - including expatriate fee exemptions, streamlined licensing, and the launch of Special Economic Zones, and the National Industrial Strategy’s prioritization of high-value manufacturing.
FDI inflows more than tripled from SAR 11.2 billion in 2020 to a record SAR 34.4 billion in 2023, with the 2023 figure representing a 60.8% increase over the previous year.
The 2023 data above reveals that Saudi Arabia’s industrial base is highly diversified, but four sectors dominate the landscape.
Non-metallic mineral products account for the largest share at 19.08% of all factories, driven by the Kingdom’s strong construction sector and demand for materials like cement and glass.
Food products (14.23%) and rubber and plastics products (12.92%) reflect both domestic consumption and Saudi Arabia’s role as a regional supplier.
Shaped metal products (12.82%) and chemical materials and products (10.14%) further highlight the country’s strength in manufacturing, especially in petrochemicals and downstream industries.
In contrast, high-value sectors such as pharmaceuticals (0.87%), computers, electronics & optical products (0.76%), and motor vehicles (1.55%) currently have smaller shares, underlining the National Industrial Strategy’s focus on scaling up advanced manufacturing and localization in these areas.
This sectoral distribution supports Vision 2030’s goal of building a resilient, export-oriented industrial economy, while also identifying areas for targeted investment and technology transfer to accelerate growth in strategic industries.
Conclusion
Saudi Arabia’s industrial sector is undergoing a paradigm shift from oil dependency to a diversified, knowledge-based economy. The rapid increase in factories, robust investment flows, and export growth signal strong momentum.
The government’s proactive approach, represented in streamlining regulations, incentivizing private sector participation, and investing in infrastructure, has created a dynamic environment for industrial growth.
Public-private collaboration, regulatory vigilance, and a commitment to sustainability will be critical for realizing the strategy’s ambitious goals.
The success of the NIS hinges on effective policy execution, continuous upskilling of the workforce, and the ability to attract and retain global talent and investment.
This report is produced by
combining expert human analysis with advanced data tools. All insights reflect the editorial judgment of the team, supported — but not replaced — by AI technologies.