An investor might see two bids for a major Saudi solar project. One is 8% lower than the other, yet the contract goes to the company with the higher price. To an outsider, this may seem counterintuitive, but for those familiar with the Kingdom’s strategic objectives, the logic is clear. The winning company demonstrated a stronger commitment to local economic development, a factor now as critical as cost.

This scenario illustrates a core principle of doing business in Saudi Arabia today: Local Content Requirements (LCR). For any entrepreneur planning to enter the Kingdom’s rapidly expanding solar module manufacturing sector, understanding and integrating these requirements isn’t just an option—it’s essential for long-term success. This article explains the LCR framework and outlines how a new manufacturer can strategically align with these national priorities.

What Are Local Content Requirements (LCR) in Saudi Arabia?

Local Content Requirements are policies designed to boost the contribution of domestic industries to the national economy. Driven by the ambitious Saudi Vision 2030 initiative, these mandates are enforced by the Local Content and Government Procurement Authority (LCGPA). The goal is to shift from consuming imported goods to building robust, self-sustaining industrial ecosystems within the Kingdom.

For the solar industry, this policy ties directly into the National Renewable Energy Program (NREP), which targets an ambitious 58.7 GW of renewable energy capacity by 2030. To achieve this, the government requires that a significant portion of the value chain—from materials to labor—originate within Saudi Arabia. Companies that fail to meet specified local content thresholds risk ineligibility for major government tenders, effectively sidelining them from the nation’s largest energy projects.

The IKTVA Program: A Framework for Measuring Local Value

To standardize how local content is measured, many government and semi-government entities have adopted the In-Kingdom Total Value Add (IKTVA) program. Originally developed by Saudi Aramco, IKTVA provides a clear, verifiable formula for calculating a company’s contribution to the local economy. A higher IKTVA score directly translates into a stronger competitive position.

The score is calculated based on several key areas:

Localized Goods and Services: The value of materials and services procured from Saudi-based suppliers.

Saudi Salaries: The proportion of the payroll paid to Saudi nationals.

Training and Development: Investment in training and upskilling the Saudi workforce.

Supplier Development: Proactive efforts to help local Saudi suppliers grow and improve their capabilities.

Research & Development: The value of R&D activities conducted within the Kingdom.

Understanding these components is the first step toward developing a compliant and competitive manufacturing strategy. This goes beyond mere assembly; it’s about embedding the entire operation within the Saudi economic fabric.

Practical Steps to Achieve LCR Compliance in Solar Module Manufacturing

For a new solar module manufacturer, achieving a high LCR score requires careful planning from the outset. The focus should be on integrating local elements across the entire operation.

Sourcing Local Materials

A significant portion of an IKTVA score comes from procuring local goods. While highly specialized components like solar cells may need to be imported initially, many other materials can be sourced domestically. A typical solar module manufacturing process involves numerous components, creating several opportunities for localization.

Key areas for local sourcing include:

• Aluminum Frames: The Kingdom has a strong aluminum production industry.

• Glass: Local suppliers are increasingly capable of producing the high-quality solar glass required.

• Backsheets and Encapsulants: While historically imported, local production capabilities for these polymer-based materials are emerging.

• Junction Boxes and Cables: These components can often be sourced from local electrical supply manufacturers.

A common challenge for new entrants is identifying and vetting these local suppliers. Building a resilient local supply chain is a critical early-stage task.

Building a Local Workforce

The IKTVA framework places a strong emphasis on employing and developing Saudi talent. A manufacturer must plan for the recruitment, hiring, and training of Saudi nationals at all levels, from shop-floor technicians to engineers and management.

Investing in robust training programs not only boosts the LCR score but also builds a sustainable, skilled workforce. Experience from past turnkey projects shows that partnering with local technical colleges and vocational institutes can be an effective strategy for creating a talent pipeline.

The Business Case: Why LCR Compliance is a Strategic Advantage

Meeting Local Content Requirements should be viewed not as a regulatory burden but as a powerful strategic advantage. The incentives for compliance are substantial and designed to reward companies that align with national goals.

Gaining a Competitive Edge in Tenders

The most direct benefit is preferential treatment in government procurement. Companies with a qualifying LCR score can receive a price preference of up to 10% in tenders. This means that if a compliant company’s bid is up to 10% higher than a non-compliant competitor’s, it can still be awarded the contract. This mechanism fundamentally changes the competitive landscape, rewarding local investment over absolute low cost.

Accessing Key Incentives

High LCR compliance can unlock further support, including:

• Favorable Financing: Access to loans and financial support from bodies like the Saudi Industrial Development Fund (SIDF).

• Prime Industrial Locations: Eligibility for land in specialized industrial zones with established infrastructure.

• Government Support: A closer working relationship with government bodies tasked with developing the national solar industry.

Ultimately, embracing LCR is about building a sustainable and profitable business. A company deeply integrated into the local value chain is more resilient, better positioned for growth, and viewed as a committed partner in the Kingdom’s development.

Common Challenges for New Entrants

Entrepreneurs new to the Saudi market often face a few predictable hurdles. The primary challenge is navigating the local supplier ecosystem to find partners who can meet the technical and quality standards required in solar module manufacturing. Secondly, meeting skilled labor requirements demands a proactive approach to recruitment and training.

These challenges underscore why meticulous preparation is so important. A comprehensive solar panel manufacturing business plan that incorporates LCR strategy from day one is essential for mitigating these risks and setting the foundation for success.

Frequently Asked Questions (FAQ)

What is the minimum local content percentage required?

There is no single minimum percentage, as the required LCR score varies by tender and project. A new manufacturer’s objective should be to maximize its score to ensure the highest level of competitiveness across all opportunities.

Can I import all raw materials when starting out?

While technically possible, importing all materials would result in a very low LCR score, making it extremely difficult to compete for major government-backed projects. A phased approach—starting with locally sourced frames and glass and gradually increasing local content—is a more viable strategy.

How is the IKTVA score audited?

The IKTVA score is certified through a formal audit process conducted by approved third-party firms. This requires detailed documentation of procurement, payroll, and training investments.

Is it necessary to have a local Saudi partner?

While not mandatory in many sectors, having a local partner can be immensely valuable. A good partner can provide critical insights into the regulatory environment, help navigate bureaucracy, and facilitate introductions to key suppliers and stakeholders.

Conclusion and Next Steps

Saudi Arabia’s Local Content Requirements are a cornerstone of its industrial strategy. For prospective solar module manufacturers, they represent a clear roadmap for market entry and growth. By prioritizing local sourcing, investing in the Saudi workforce, and integrating operations into the domestic economy, a new enterprise can transform a regulatory requirement into its most significant competitive advantage.

That journey begins with a solid foundation. For entrepreneurs starting this process, the next logical step is understanding the fundamentals of how to start a solar panel manufacturing business. Gaining clarity on the technical, financial, and operational requirements is essential before tailoring that plan to the specific opportunities within the Kingdom of Saudi Arabia.