Abu Dhabi taps new industries to drive non-oil growth

Sixty years after Abu Dhabi’s first oil discovery at the Murban Bab oil field, industry is proving to be an engine of growth and economic diversification in 2019, as Emirati entrepreneurs explore and nurture new opportunities to reduce reliance on the volatile energy sector. Their efforts to diversify include vertical development into downstream industries such as petrochemicals, plastics and by-products like sulphur; horizontal moves into energy-intensive manufacturing of steel and aluminium that in turn feeds production clusters; and lateral shifts into the technologies of the future that are expected to shape the Fourth Industrial Revolution (4IR).

Strategic Planning

The emirate’s leaders acknowledge that any economy that stands still is likely to be overtaken by competitors, and that economic development and diversification are central pillars of strategic planning. The UAE declared 2018 to be the Year of Zayed, marking the 100th anniversary of the birth of Sheikh Zayed bin Sultan Al Nahyan, the country’s founding father, who passed away in 2004. Sheikh Zayed created Abu Dhabi’s first five-year plan in 1966, laying the foundations for the rapid transformation of the emirate and the lives of its people. In 2006 Sheikh Khalifa bin Zayed Al Nahyan, president of the UAE and ruler of Abu Dhabi, initiated planning for a new future, instructing committees to examine the potential of a range of sectors including aerospace, aviation, defence, pharmaceuticals, telecommunications, energy, metals and mining, and chemicals.

In 2008 the committees’ work and the government’s conclusions resulted in the Abu Dhabi Economic Vision 2030, and in the same year Statistics Centre - Abu Dhabi (SCAD) was created. In 2016 a new five-year strategy named the Abu Dhabi Plan was launched to set new, shorter-term goals to help the emirate’s economy move forward on the road to 2030. The plan was the result of studies by 65 Abu Dhabi government entities and identified 25 goals across five sectors, to be achieved through 83 programmes and projects. One of the key priorities is economic development, with the goal of creating an effective private sector that provides business opportunities and creates an environment that is both competitive and flexible. Programmes were devised to attract foreign and national investment and promote the role of the private sector, as well as to develop a culture of entrepreneurship and encourage the role of small and medium-sized enterprises (SMEs). The emirate is placing an increased focus on improving business measures and practices, enhancing competitiveness while protecting consumers, and improving Customs measures and procedures while also developing new export markets.

Performance Indicators

The most recent and comprehensive performance indicators for the industrial sector are published in SCAD’s “Statistical Yearbook 2018”, which includes data up to and including 2017. SCAD figures showed that 2017 GDP at current prices was Dh832.5bn ($226.6bn), up 9.5% from Dh760.4bn ($207bn) in 2016. In constant price terms, the GDP growth rate was up 0.6% in 2017.

Oil’s share of GDP stood at 35.9%, compared to 27.5% in 2016, reflecting increases in global oil prices. Non-oil GDP grew in the same period by 3%, from Dh52.8bn ($14.4bn) to Dh54.4bn ($14.8bn). In terms of business growth, 82,325 companies renewed their licences, while 9417 new businesses were registered and only 2596 licences were cancelled.

Manufacturing is a significant sector: capital formation in manufacturing, as a percentage of GDP, remained constant at 1.5%. Compensation of employees in the manufacturing sector grew from Dh19bn ($5.2bn) in 2015 to Dh20bn ($5.4bn) in 2017. Data from SCAD’s “Economic Survey 2016” shows that manufacturing accounted for 7.5% of the Dh692bn ($188.4bn) value added to the economy in 2016. That same year 197,299 people were working in manufacturing, making it the third-largest sector in the emirate’s economy in terms of employees.

Manufacturing

The manufacturing sector’s overall contribution to GDP was Dh54bn ($14.7bn) in 2017, accounting for 6.5% of GDP and 10.1% of non-oil GDP based on SCAD estimates. The latest SCAD figures from 2016 show that chemicals, plastics and related products contributed Dh89bn ($24.2bn); basic metals came to Dh22.6bn ($6.2bn); the repair and installation of machinery was worth Dh15.7bn ($4.3bn); non-metallic products other than oil were valued at Dh11.4bn ($3.1bn); Dh10bn ($2.7bn) worth of structural metal products, excluding machinery and equipment, were produced; and machinery, equipment and devices accounted for Dh8.6bn ($2.3bn). The figures also illustrate the negative impact of falling petrochemicals and metals prices from 2014 to 2015. The value of goods production of the former slumped by 18%, while the latter fell by 11%. These declines, which in the case of the petrochemical industry mirrored the slump in global oil prices, illustrate the challenges that some diversification strategies may face.

Basic metals prices were subject to their own dynamics around the world, but this segment’s output fell by 34.4% in 2017. These losses were tempered by growth in other manufacturing segments, with the repair and installation of machinery up 30.5%, and structural metal products up 20%. The manufacture of machinery and equipment also showed positive upwards growth, expanding by 41.4% in 2017. The main import categories for 2017 were machinery, sound recorders, reproducers and parts, which accounted for 24.9% of total value.

Petrochemical Production

The overall volume of petrochemical production in Abu Dhabi stood at 6.25m tonnes in 2017, with domestic sales accounting for 467,678 tonnes. Production and export volumes for polyethylene and polypropylene both grew, with 2.4m tonnes of polyethylene produced and 2.1m tonnes exported in 2016. In the same year 1.2m tonnes of polypropylene were produced, 945,544 tonnes of which were exported.

In 2013-17 the price for each product measured in dollars per tonne slumped. The price of ammonia fell by 43% from $514 to $225 per tonne; urea fell from $334 to $222 per tonne; polyethylene lost a quarter of its value, down almost 20% from $1576 to $1263 per tonne; and polypropylene prices dropped by almost 25% from $1539 to $1159 per tonne. Figures from SCAD’s “Statistical Yearbook 2018” show that non-oil product exports generated a total of Dh22.3bn ($6.1bn) in 2017, down from Dh28bn ($7.6bn) in 2016 and Dh30.8bn ($6.7bn) in 2015.

Sector Administration

The data published by SCAD is drawn from a number of different departments and government agencies that regulate and administer the industrial sector. Saif Mohamed Al Hajeri is the chairman of the Abu Dhabi Department of Economic Development (ADDED) and sits on both the Executive Council of Abu Dhabi and the Executive Committee of the Government of Abu Dhabi. ADDED is charged with steering the non-oil sector towards the targets of the Economic Vision 2030 and Abu Dhabi Plan. It performs a number of functions including developing exports, licensing businesses, protecting consumers and advising investors.

There are two ADDED centres: the Industrial Development Bureau (IDB) and the Competitiveness Office of Abu Dhabi (COAD). The IDB is responsible for promoting economic diversity and championing the growth of industries such as manufacturing. COAD was established in 2011 to improve the emirate’s business environment and performance against international economic indicators.

International Indices

The World Bank’s “Doing Business” report and the World Economic Forum’s “Global Competitiveness” report both cover the UAE, but do not report on changes in individual emirates. The country’s ranking in both indices reflects improved practices in Abu Dhabi, and is also a useful tool in marketing the emirate to potential investors and business partners. The UAE ranked 21st out of 190 economies in the “Doing Business 2018” report, behind Germany and ahead of Austria, up from 26th place in 2017 and 34th in 2016. Positive developments noted in the report included: stricter qualifications requirements for professionals reviewing construction drawings; a reduction in the time and cost needed to obtain a building permit; a streamlining in the process for receiving electricity coupled with a reduction in costs; improved access to credit information through providing consumer credit ratings to banks and financial institutions; and the introduction of an insolvency law that allows debtors to continue business during insolvency proceedings.

While the UAE’s overall score improved in the “Global Competitiveness” report, the country slipped one place to 17th out of 140 countries in 2018. The UAE scored well in the rankings, coming in third for goods market efficiency, 11th for labour market efficiency and 13th for business sophistication. In terms of innovation, quality of scientific research institutions, and higher education and training, the country ranked 25th, 30th and 36th, respectively.

The merger of three of Abu Dhabi’s higher education institutions – the Petroleum Institute, Masdar Institute and Khalifa University of Science, Technology and Research – to form Khalifa University may well also help to raise performance in these categories in future years. In 2017/18, its first year of operations, the combined university saw its international rankings improve, taking it into the 301-350 band of the Times Higher Education rankings of 1102 universities, the UAE’s best performance on record in this comparative international study.

Abu Dhabi plays a key role in the aims of the federal UAE Vision 2021, which seeks to build a knowledge-based and competitive economy. The federal Ministry of Economy, led by Sultan bin Saeed Al Mansoori, is focusing on linking education with market needs. This will promote greater Emirati participation in the employment market, develop a regulatory framework to support key sectors and encourage the development of emerging sectors, as well as promoting pure and applied scientific research.

4IR

The UAE government is also coordinating the country’s response to the possibilities envisaged in the 4IR. This is the notion posited by Klaus Schwab, the founder and executive chairman of the World Economic Forum, that global economies are on the threshold of exponential changes that will be driven by new technologies and scientific discoveries ranging from intelligent robots to self-driving cars, and from genetic engineering to neuro-technological brain enhancements. In September 2017 the UAE Strategy for the 4IR was launched. It focuses on key fields including innovative education, artificial intelligence, intelligent genomic medicine and robotic health care. The strategy also identified the potential to use 4IR technologies to address future water and food scarcity, enhance economic security by developing blockchain technologies, optimise satellite data in city planning, and develop advanced defence industries by utilising robotics and autonomous vehicle engineering. The announcement was made by Mohammad bin Abdullah Al Gergawi, federal minister of cabinet affairs and the future, who is also chairman of the 4IR Council.

Labour Market Trends

While economists may not be able to agree on the anticipated impact of automation on labour markets, machine learning and artificial intelligence, some have suggested that as many as 85% of jobs in some emerging markets could be threatened by these trends. By comparison, a 2016 report by financial services corporation Citi and academics from Oxford University’s Oxford Martin School, built on research from the university’s Carl Benedikt Frey and Michael Osborne, found that 47% of US jobs could be at risk of automation over the next two decades. The socio-economic disruption caused by the anticipated shift away from low-skilled, repetitive tasks to roles requiring higher-order cognitive ability, creativity, knowledge and social skills may be more muted in an economy such as Abu Dhabi’s, where many of the most threatened occupations are often performed by an expatriate labour force.

SCAD employment data from 2011 shows that citizens accounted for just 9% of the Abu Dhabi workforce. The implication is that Abu Dhabi can respond to any structural changes to the global labour market caused by 4IR developments by using its work visa system to reduce the numbers of staff hired to perform tasks prone to automation, while educating its own citizens so that they can enter growing occupations. In that sense, it could accelerate the adoption of automated technologies at a pace that might create social or political tensions in economies such as the US or the UK, without risking the livelihoods of its citizens. The emirate has already demonstrated that these kinds of adaptations in labour can be expedited swiftly.

Health Authority - Abu Dhabi records on the number of expatriate workers and their family members with mandatory health insurance policies are a helpful indicator of the size of the expatriate population. For example, this figure fell by 263,698 in 2016 alone, leaving a population of 3.1m. In recent years, one of the attractions for companies considering establishing a new enterprise in Abu Dhabi was the availability of inexpensive labour. In years to come, the emirate’s 4IR strategy could replace this value proposition with the availability of automated technology.

Public & Private Sectors

SCAD data from 2018 on the distribution of the workforce in different sectors of the economy shows that 53% of employees were in the private sector, 16.3% worked in the government sector and 24.9% worked in private households. There was a stark contrast between Emirati employees and expatriate workers. The government employed 83.3% of Emiratis while 7.1% of citizens were working in the private sector. In contrast, 56.8% of private sector employees were non-citizens, while 26.6% worked for private households, and 9.1% directly for the government. One of the key aims of the Abu Dhabi Economic Vision 2030 is to draw more Emiratis into the private sector and to encourage more citizens to take the less secure but potentially more rewarding path of working in business and commerce. An important body championing this strategy is the Abu Dhabi Chamber of Commerce and Industry. The chamber was formed in 1969 and describes itself as an autonomous institution working for the public interest. It sees its mission as increasing the competitiveness of private sector companies in Abu Dhabi and helping its members to take advantage of new opportunities for growth.

Government-Owned Entities

Bridging the gap between the public and private sectors, but with a larger influence on the latter, are a number of government-owned entities in Abu Dhabi. Two of Abu Dhabi’s sovereign wealth funds merged in 2017: the International Petroleum Investment Company, created in 1984 to advance Abu Dhabi’s natural petroleum wealth and generate funds that could be used to develop the emirate; and Mubadala Development Company, formed in 2002 with the aim of generating returns and accelerating the diversification of the emirate’s economy. The combined entity, which is known as Mubadala Investment Company, has investments in 30 countries worldwide but has also been instrumental in working with international partners to nurture new industries in Abu Dhabi itself. Its portfolio covers aerospace, capital investment, defence services, health care, ICT, metals and mining, real estate and infrastructure, semiconductors, utilities, as well as the full spectrum of the energy sector including upstream and integrated, midstream, refining and petrochemicals, and renewables.

In April 2018 Mubadala published its financial results for 2017, showing revenue had grown from Dh145.4bn ($39.6bn) to Dh165.6bn ($45.1bn), with major contributions from upstream and integrated, petrochemicals and the semiconductor business lines. Petrochemical and aluminium manufacturing assets were major growth drivers, with overall incomes up to Dh10.7bn ($2.9bn), from Dh9.6bn ($2.6bn) the previous year.

Senaat

Another driver of industrial investment in Abu Dhabi is Senaat, the largest industrial conglomerate in the UAE. Founded in 1973 as the General Industry Corporation, it was incorporated as a public entity in 1979, before being reincorporated into a general holding corporation in 2004 as a public joint-stock company owned by the government of Abu Dhabi. Since then, Senaat has invested over Dh19bn ($5.2bn) in the non-oil sector.

In April 2018 Senaat released its full-year financials for 2017, which showed that the holding company had increased its earnings before interest, taxes, depreciation and amortisation (EBIDTA) by 16% to reach Dh2.1bn ($571.6m), on the back of an 18% increase in revenue, from Dh13.4bn ($3.7bn) to Dh16bn ($4.4bn), leaving the company with total assets of Dh27.2bn ($7.4bn).

Hot Metal

The availability of cheap energy, the UAE’s strategic location and its advanced transport infrastructure encouraged the country to become an aluminium producer despite having to import the raw materials. Emirates Global Aluminium (EGA), a joint venture between Mubadala and the Investment Corporation of Dubai, has grown into one of the UAE’s largest companies by revenue and profit, as well as a major exporter. In 2017 the firm had a net income of Dh3.3bn ($898m), an increase of 59% on 2016; revenue of Dh20.5bn ($5.6bn), an increase of 20% on 2016; and an adjusted EBIDTA of Dh6.7bn ($1.8bn), up 31% on the previous year.

Record production of 2.6m tonnes of cast metal, up from 2.5m tonnes the previous year, made EGA the third-largest producer of primary aluminium outside of China. Work on EGA’s $3.3bn Al Taweelah alumina refinery is due to be completed in 2019. The plant will be the first of its kind in the UAE, refining raw bauxite ore into alumina to be used in aluminium smelters. With a production capacity of 2m tonnes of alumina per year, the refinery is expected to produce 40% of EGA’s current requirements. Al Taweelah is located adjacent to EGA’s Al Taweelah aluminium smelter in Khalifa Industrial Zone Abu Dhabi (KIZAD).

Guinea Alumina Corporation

EGA is also investing in the Republic of Guinea to produce the raw material bauxite through its wholly owned subsidiary, the Guinea Alumina Corporation (GAC). GAC’s concession in the Boké Region of north-west Guinea is near existing mines and is expected to yield 1.4bn tonnes of high-quality bauxite ore, with the company expected to produce 12m tonnes per year when the mine is fully operational. The company is also building an industrial spur track from the mine to existing railway lines that will be used to transport the ore to Kamsar, a port city on the coast where GAC is building its own export pier.

Ducab

In January 2018 a new aluminium business was inaugurated at KIZAD. The Ducab Aluminium Company (DAC) is a joint venture between Ducab, the UAE-based manufacturer of cables and cabling products, and Senaat. DAC has signed a long-term partnership deal for the supply of molten aluminium, with the product to flow along KIZAD’s “Hot Metal Road”, designed to supply downstream companies with liquid metal so that their feedstock does not have to be melted down. DAC represents a Dh200m ($54.4m) investment by the business partners and is expected to manufacture 50bn tonnes of electrical-grade aluminium rod and overhead conductor cabling to both local and international companies.

Emirates Steel is also owned by Senaat. It was founded in 1998 and is capable of producing 3.5m tonnes of rebar, wire rod and heavy sections per year. The company is based in the Industrial City of Abu Dhabi (ICAD), 35 km from the capital city. Emirates Steel reported that its revenue for 2017 reached Dh6.6bn ($1.8bn), up 22% on Dh5.4bn ($1.5bn) in 2016, while production rose from 3.1m to 3.2m tonnes, with 80% consumed in the UAE and the remainder exported to 40 countries.

Aerospace

The Mubadala-owned company Strata has made its mark on the aerospace world, producing composite aircraft components for customers including Airbus, Boeing and ATR at the Nibras Al Ain Aerospace Park. Founded in 2010, 51% of its staff are Emirati citizens, with female technicians accounting for over half of the 48 team leaders and almost half of supervisors. In 2017 Strata completed delivery of its first set of A350-900 inboard flaps for Airbus, a contract the company won in 2015. Flaps produced by Strata have been used in new A350s since January 2018. In 2017 Strata delivered a total of 642 shipsets, including 9774 parts, generating sales of Dh500m ($136.1m). In March 2017 it worked with Germany’s Siemens and UAE flag carrier Etihad Airways to develop the MENA region’s first 3D-printed aircraft interior part for the national carrier.

Outlook

Specialised zones such as the Nibras Al Ain Aerospace Park, ICAD and Al Ain Industrial City (AAIC) have a vital role in generating investment in Abu Dhabi and coordinating the development of specialised clusters, enabling the organic growth of industrial sectors. ZonesCorp, which manages both ICAD and AAIC, has invested over $1bn in infrastructure in Al Ain and Abu Dhabi since 2004, with an additional $3bn spent on building residential cities for workers. ZonesCorp estimates that its tenants have already invested $8bn in industrial projects in the twin cities, driving growth and diversification. Ongoing capital investment, along with promising production trends, suggest that the emirate will continue on its growth trajectory in 2019, and with a fully fledged 4IR strategy in place, it will continue to progress along the path of technical innovation.

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The Report: Abu Dhabi 2019

Industry chapter from The Report: Abu Dhabi 2019

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