Overcoming Shortages

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Abdul Razzaq Yousuf, CEO of Ras al Khaimah-based Julphar Pharmaceutical Industries, recently reported that shortages of power and water were hindering industrial growth in the emirate.

According to Yousuf, "electricity and water problems are limiting production scales in some factories, since heavy machines that require more power cannot be operated".

Yousuf also claimed that Ras al Khaimah (RAK) was facing a shortage of skilled industrial labour, with companies increasingly forced to look abroad for workers - incurring an Dh8,000 ($2180) fee in the process.

Julphar are one of RAK's most impressive success stories, being one of the largest pharmaceutical producers in the region, exporting to 47 countries. Yousuf's criticism comes at a time when the company is attempting to double its factories in the emirate from seven to 14, and to expand production overseas. The company enjoyed sales growth of over 14% in 2007, reaching Dh661m ($180m) and is planning Dh2bn ($540m) of new investment over the next three years.

Yousuf's comments will certainly strike a chord with fellow industrialists in the emirate. Unlike its oil and gas rich neighbours in the United Arab Emirates (UAE), RAK has never produced large quantities of fossil fuels. In recent years the emirate's few fields have entered into maturity, and production has steadily declined to around 30m cubic feet per day (cuf/d) of gas and 5000 barrels per day (bpd) of condensate. Whether to proceed with further expensive - and potentially futile - exploration for new reserves is a key decision facing the emirate over the coming years. For industrialists though, the more immediate concern is powering RAK's factories now.

Industry represents a growing share of RAK's economy - 8% in 2007, compared with less than 4% for oil and gas. Aside from Julphar's contribution to the pharmaceutical market, other areas of strength include cement manufacturing, to which RAK contributes 70% of the UAE's total, and tile production, with RAK Ceramics being one of the world's largest tile producers. These are energy intensive industries, which currently rely at least partially on heavy oil to power them. Diesel does not enjoy the subsidies of, for example, petrol, meaning companies have been forced to absorb heavy price increases in the past two years. For some of the emirate's producers, diesel comprises as much as 60% of energy costs.

Relief may lie around the corner though. Dolphin Energy began piping gas to RAK in 2005, and finished construction of an ambitious network in the middle of 2007 linking Oman, Qatar and the UAE. RAK receives 40m cuf/d from Oman, and another 80m cuf/d from Umm al Qaiwain. Securing sufficient quantities of natural gas from Gulf Cooperation Council (GCC) neighbours, thus enabling companies to switch entirely from diesel, may provide savings of up to 15%, and enable further growth to proceed unhindered.

However, regardless of the potential pitfalls in securing RAK's long term energy supply, its industry is by no means staring down the barrel. It is a measure of the maturity of the emirate's industrial sector that companies such as Julphar are able to look with confidence to new overseas ventures in order to offset rising costs at home.Yousuf's response to energy shortages in RAK would seem to entail ramping up his already well advanced plans for global diversification, from four overseas plants to seven. Factories are due for completion in Sudan and Morocco by 2009, with plants in Yemen, Iran and Lebanon due in 2010. A joint investment in Afghanistan will begin construction this year, with Julphar providing 10% of the Dh75m ($20m) capital. The company is also studying market potential in Turkey, the Philippines, Malaysia and Indonesia.

Moreover, plans are in place to increase Julphar's high street pharmacy presence under the Planet Pharma brand, a joint venture with Gulf Investment House, an investment bank based in Kuwait. Together, they aim to establish a chain of 2000 pharmacies across the Middle East and Asia with an investment of Dh3bn ($800m). New products, such as crystal insulin developed using biotechnology, should consolidate the company's strong position in the region.

Regardless of Yousuf's comments, it would seem that Julphar proceeds from strength to strength. Growth is projected at 50% a year from 2008 to 2010, and a Dh1bn ($272m) share bonus for existing shareholders is planned within three years.

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