Steaming Along

The government's focus on heavy industries has raised concerns among major manufacturing players, who seek to establish a direct channel of communication to explore opportunities for cooperation and improving CAPEX by filling in the gaps.

Over the 10 years to 2018, the UAE’s industry sector, consisting of the extraction, manufacturing, utilities and construction sectors, has grown by 31% and is forecast to grow a further 34% in the next 10 years to 2027, according to data from Oxford Economics. Over the same 10-year period to 2027, Abu Dhabi’s industrial sector is forecast to grow 56%. The growth and diversification of Abu Dhabi’s industrial sector are seen as key to the country’s economic future, and the private sector seeks to put forward its long-term vision for the sustainability of the manufacturing industry in the Emirate with a clearly defined strategy. Part of this strategy consists of advancing the idea that oil should not be factored in as energy, but as an ingredient in the industrial process. Energy-intensive industries, chemicals, paper, and packaging still offer a wide array of opportunities in terms of local production.

Abu Dhabi’s industry sector cannot be fully understood without mentioning Senaat, one of the UAE’s largest industrial investment holding companies owned by the government of Abu Dhabi. Managing more than AED27.2. billion of industrial assets, Senaat operates in four key industrial sectors; metals, oil and gas services, construction and building materials, and food and beverages manufacturing, announcing operating earnings of AED2.1 billion FY2017.

Overall, 2017 was a transition year for Abu Dhabi’s industry sector for many reasons. Instead of directly investing into the sector, the authorities are rather making policy changes that will facilitate and ease investment from private investors. The government believes what will make the sector among the most competitive regionally and globally will be maximizing Abu Dhabi’s attractiveness among industrial investors. As such, in 2017, the Emirate was able to attract some AED6.2 billion in investments specific to the sector, with some 37 new industrial facilities came online in 2017.

The numbers of industrial licenses also witnessed a significant growth: in 2017, there was an 85% increase YoY in the number of industrial licenses that went into production, with the number of new industrial licenses granted in 2017 rose nearly four times, from 22 in 2016 to 86 in 2017, bringing the total number to approximately 1,657 at the end of 2017. The most popular subsector for these licenses has been metal industries, which numbered 428. Other popular industries include building materials with 393 licenses; fiberglass, plastic, and sponge with 210; wood, cardboard, and paper industries with 176; and chemical industries with 160.

Part of the government effort has included the development of the Khalifa Industrial Zone of Abu Dhabi (KIZAD). Unveiled in 2010 and opened two years later, KIZAD is playing a critical role in achieving the Emirate’s industry goals. The total value of investments at the end of KIZAD’s first year topped USD7.2 billion, and the zone has not given up its momentum, with new international firms constantly investing. Although KIZAD remains focused on the container side, as steel import-export traffic grows, investors are hoping to see more infrastructure for cargo using a shore crane.

The aluminum and steel industries have proven to be Abu Dhabi’s strongest outside of oil. Leading the local steel market is Emirates Steel, which has in recent years seen accelerating growth. ESI meets approximately 60% of Abu Dhabi’s demand for certain types steel, exporting the rest along with other Abu Dhabi-based companies to more than 50 countries around the globe, to markets in Asia, Europe, and the Americas. At a time when raw material prices are rising, and the final products are not necessarily in line with that trend, local steel players have recently been able to regain market share in the GCC, especially since the Chinese market has been regulated.

With growing demand for both steel and aluminum across international markets, officials and experts anticipate the local industry will continue to remain a pillar of the Emirate’s non-oil economy. Working alongside ESI is Emirates Global Aluminum (EGA), ranked among the five-largest aluminum producers in the world. EGA has an ambitious plan to increase its regional market share to 51% by 2020. With a staff close to 7,000, the aluminum company currently produces more than 2.3 million tons of aluminum each year, with 95% of its products adding value to the market.

Alongside the success of the Emirate’s non-oil economy, the petrol industry remains an important aspect of local industry. Its role in the coming years, however, is sure to change, and TBY sat down with Ali Vezvaei, the Executive President and CEO of Bilfinger Middle East, to get a better understanding of the challenges facing the industry. “For Middle East producers, blessed by the low lifting cost, the game is all around the cost of availability and reliability and maintenance,” he said. “This is where the equation is heavily stretched. As long as the oil price is around USD70-75, shale producers have a healthy cash flow and solid margins to service their debt and continue to drill. The challenge comes when the needle drops to around USD40-50. That is where the social priorities prevail, growth CAPEX freezes, and the entire eco-system suffers.”

Moreover, the UAE and Abu Dhabi are stepping up efforts at an accelerated rate in order to become a hub and the world’s first open lab for experimenting and adopting Industry 4.0 technologies. This approach presents substantial opportunities for foreign companies that are considering establishing manufacturing operations in the Abu Dhabi and for local manufacturers. Key pillars of the Industry 4.0 Strategy include employing space data and technologies to make intelligent and strategic decisions, leveraging bioengineering, advanced sciences, and technologies; focus on designing and programming 3-D additive design, and manufacturing technologies to unlock the competitive potential of the UAE economy and entrepreneurs globally.