Industry Holding Firm

Economic News

22 Jul 2010
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Representing the first step in Dubai's policy of economic diversification, launched in the 1970s, industry continues to play an important if reduced role in the emirate's economy.



From relatively small beginnings, Dubai's industrial base has expanded to include chemicals production, textiles, aluminium, building materials, food processing, machinery and fabricated metals products.



According to a report from the UAE Ministry of Economy, the manufacturing sector's share of non-oil GDP fell slightly from 20% in 2001 to 18.8% in 2006. However, this does not so much reflect falling industrial output as it does the increasing role played by other sectors of the economy.



Indeed, as other sectors expand and the process of diversification in Dubai gains a wider scope, industry's importance for the emirate's future appears to be diminishing. The Dubai Strategic Plan 2015 - unveiled in early 2007 by the emirate's ruler, Sheikh Mohammed bin Rashid Al Maktoum - did not directly refer to the manufacturing sector. Rather, the plan, which laid out a strategic vision for Dubai over an eight-year period, identified tourism, transport, trade, construction and financial services as the main pillars of the economy.



Dubai's industries rely to a great extent on imported raw materials, as the emirate has few natural resources. This includes having to import energy resources to power the sector. Unlike some of its Gulf neighbours, Dubai has only limited fossil fuel reserves, with oil and gas production contributing approximately 5% to GDP, a situation predicted to continue in 2009, according to the recently released budget.



As such, most of Dubai's industries are powered directly or indirectly by gas piped from other regional suppliers, with Abu Dhabi and Qatar being the main sources.



By far the largest single industrial enterprise in the emirate is Dubai Aluminum (Dubal), established in 1979. With its current annual output of 960,000 tonnes of processed aluminium, Dubal alone accounts for 7% of the emirate's GDP, well over one-third of the industrial sector's combined contribution.



While the company committed in early January to keeping production at current levels, its market has been hard hit by the downturn in the international economy, with demand slumping and prices falling by 35% in the last quarter of 2008.



In 2004, the government moved to consolidate the emirate's manufacturing sector by announcing the creation of the Dubai Industrial City (DI), on site close to the Al Maktoum International Airport and the Jebel Ali Free Zone, where there are already 200 factories operating.



The city, built on an area of 52m square metres, has six separate zones dedicated respectively to the production of machinery and mechanical equipment, transport equipment and parts, base metal processing, chemicals, food and beverage and mineral products.



By October last year, more than $175m had been privately invested in the DI, with 19 new production facilities expected to be operational in 2009.



Dubai's manufacturing industries have benefited from the government's programme of improving the emirate's infrastructure - part of plans to support and diversify the economy. Apart from expanding the country's road network, the state has invested heavily in increasing air and sea cargo handling facilities. The Al Maktoum International Airport is projected to have a cargo shipping capacity of 12m tonnes a year by 2013, while the emirate's main maritime facility, the Jebel Ali port, already has the capacity to handle 11m containers annually, to be increased to 14m.



Much of Dubai's manufacturing sector is linked to construction, and supplies the domestic market. These industries could face harder times in the coming year, as the local property market is tipped to slow dramatically due to the global economic downturn. Domestic industries that could be affected include the prefabricated metals sector, cement production and machinery producers.



However, Dubai's manufacturing sector was given a boost in the 2009 budget, released on January 10, with the government announcing it would increase spending on infrastructure projects. The budget set out a 42% increase in government spending, of which investments in infrastructure will total $3.24bn, 33% up on the 2008 figure.



One firm that could benefit from the beefing up of infrastructure spending is Jebel Ali Cement, located in the Jebel Ali Free Trade Zone. The firm will have a ready market for its annual output of 880,000 tonnes, although even with the downturn in the construction sector local production is still outstripped by demand.



Though it is likely Dubai's industries are in for a leaner short-term, the groundwork laid by the government to develop the emirate as a trade and business hub in addition to its well-established infrastructure and the promise of state support should see the manufacturing sector survive the global downturn and prosper in better times.
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