Which industrial segments are driving growth in Abu Dhabi?

 

Abu Dhabi’s industrial sector continues to be a key contributor to GDP and the drive for diversification away from oil- and gas-based growth. The sector has also widened its industry portfolio in recent years, with companies based in Abu Dhabi now ranging from steel production to high-tech manufacturing, among other areas. Many of these outfits are located in the emirate in order to take advantage of the investor-friendly approach adopted by Abu Dhabi’s industrial and free zones. Companies are able to leverage the emirate’s geostrategic location via a wide range of air and shipping routes – the emirate is within four hours’ flying time of approximately one-third of the world’s population – enabling them to conduct export and re-export activities.

As the emirate continues with its long-term development plans, rationalisation of governing structures is progressing. The year 2019 saw the establishment of a major fund to support new businesses. Further efforts have been made to boost foreign direct investment (FDI), with an acceleration in reform of the rules on foreign participation (see Trade & Investment chapter). At the same time, costs have been falling as competition for investment increases, both within the emirate and the region.

Structure & Oversight

At the federal level the Ministry of Energy and Industry oversees the sector, while within the emirate the Abu Dhabi Department of Economic Development (ADDED) is responsible for the industry portfolio. The department is charged with achieving the emirate’s long-term development plans – the Abu Dhabi Economic Vision 2030 and the Abu Dhabi Plan. The Abu Dhabi Economic Vision 2030 aims to increase the non-oil and gas sector’s contribution to the emirate’s GDP to 60% by 2030. The Abu Dhabi Plan, meanwhile, calls for increased regulation of the industrial sector, as well as the promotion of an entrepreneurship culture, greater participation of the emirate’s small and medium-sized enterprises (SMEs), and higher levels of FDI. ADDED is charged with policy planning and regulation of the sector, and is responsible for the issuance of licences and other relevant permits, among other areas. The chairman of ADDED, which is currently Mohammed Ali Al Shorafa Al Hammadi, also sits on the Abu Dhabi Executive Council, the emirate’s executive authority, enabling close coordination across a range of associated government agencies.

Department Sections

The department contains two main sections: the Industrial Development Bureau (IDB) and the Abu Dhabi Business Centre (ADBC). The latter is the one-stop shop for licences for all kinds of businesses, including the industrial licence, which is required to open a factory. The IDB is charged with developing and regulating the manufacturing sector, and also offers a range of incentives for businesses, including the Abu Dhabi Local Content Programme. This programme favours companies that have high local content and/or high levels of Emiratisation in their workforce when awarding government contracts. The IDB can also award a Customs duty exemption of 5% for the import of machines, spares, equipment, raw materials, and intermediate and finished goods, among other items, with the ultimate goal of assisting local industrial firms. The bureau similarly runs an electricity tariff reduction scheme, with discounts of up to 40%, which incentivises companies to boost energy efficiency and lower consumption. The IDB can also grant a two-year licence fee exemption for new businesses.

Public Initiatives

The aforementioned electricity scheme forms part of the Ghadan 21, or Tomorrow 21, programme. First announced in 2018 and formally beginning in January 2019, the Abu Dhabi government initiative is aimed at supporting existing private sector businesses as well as attracting new ones through a Dh50bn ($13.6bn) investment and reform programme. Running from 2019 through to 2021, Ghadan 21 is based on a nine-point strategy, with the other points covering instant licences through a digital portal at the ADBC, which processes and issues commercial licences at one of the fastest speeds in the world; a commitment by the government to pay all of its suppliers within 30 days; a series of sites identified for ecotourism investment; an SME loan financing scheme, under which First Abu Dhabi Bank can extend funds to SMEs with a government guarantee of up to 75%; a technology licensing regime that fills a gap in licensing for tech firms, such as those operating in artificial intelligence and autonomous vehicles; an open data culture, under which businesses will have greater access to government data; an expansion of the government’s TAMM services centre, which issues a range of licences and permits online; and a new Dh4bn ($1.1bn) research and development (R&D) fund, run by the Abu Dhabi Investment Office (ADIO), which seeks to encourage private sector-led innovation. This last plank includes rebates of up to 50% on a company’s R&D expenditure, with a further 25% on offer if a resulting product successfully comes to market.

Supporting Bodies

ADDED works closely with the Abu Dhabi Council for Economic Development, a government advisory body that brings public and private sector representatives together.

Also representing the interests of the private sector is the Abu Dhabi Chamber of Commerce and Industry. The chamber runs a number of initiatives, including the Abu Dhabi Commercial Conciliation and Arbitration Service, an alternative judicial body for dispute resolution, and the Abu Dhabi Businesswomen Council, which completed its first five-year strategic plan in 2019. Among its initiatives was support for the Mubdiah licence programme, which allows a home to be used to run a small business – particularly useful for SMEs that are operated by homemakers. In 2015 UAE government established a Gender Balance Council and a national empowerment strategy, with official figures at the time stating that female business owners made up around 10% of the UAE-wide total. There are a number of other chambers of commerce and industry in the emirate, including the American Chamber of Commerce Abu Dhabi. For potential investors, a key contact point is the ADIO, which can assist at every stage of the investment and company establishment process.

The emirate-owned industrial holding company Senaat plays a major role in Abu Dhabi’s industry. Its portfolio includes Emirates Steel; the oil and gas steel structure fabricator National Petroleum Construction Company; the Arkan Building Materials Company; copper and aluminium wire manufacturer Ducab; food and beverage company Agthia Group; dates producer Al Foah; steel pipe company Al Gharbia, which is a joint venture with Japan’s JFE Steel and Marubeni-Itochu Steel; and stainless steel tube manufacturer NTS Group. Other major government or government-linked entities include Mubadala Investment Company, a government-owned investment company with shareholdings in the aerospace, semi-conductors, energy and metals industries that has joint ownership of Emirates Global Aluminium (EGA) with the Investment Corporation of Dubai.

Performance & Size

While Covid-19 is expected to weigh on sector performance in 2020, Abu Dhabi entered the crisis from a position of relative industrial strength. In the UN Industrial Development Organisation’s biennial Industrial Competitiveness Index, the UAE rose 13 places from 54th in 2010 to 41st in 2018. According to Statistics Centre - Abu Dhabi (SCAD), GDP at current prices was Dh760.4bn ($207bn) in 2016, with gross manufacturing output accounting for 22.6% of that total. The figures increased to Dh915.3bn ($249.1bn) and 23.6% in 2019, making the sector a larger contributor than construction in terms of gross output.

SCAD estimated that the manufacturing sector contributed some Dh57.7bn ($15.7bn) to the economy at current prices in 2019, up significantly from Dh34.3bn ($9.3bn) in 2010. While the sector had been negatively impacted by the regional downturn following the fall in global oil prices starting in mid-2014 – which saw manufacturing contract by 3% in 2015 and 1% in 2016 – there was a return to growth in 2017, at 9.3%. However, SCAD estimated that the sector contracted by 2% in 2019. As a percentage of total GDP at current prices, manufacturing contributed 6.3% in both 2018 and 2019, which was down slightly from 6.7% in 2017 and 6.6% in 2016.

Broadly speaking, slower growth in the emirate’s overall GDP of 1-2% in 2018 and 2019 due to regional and global slowdowns have impacted manufacturers. Given the heavy reliance many manufacturers have on international trade, the US-China trade war, uncertainties over European growth, the Covid-19 pandemic and ongoing MENA security issues pose significant headwinds. This uncertainty over future growth is also expressed in the Emirates NBD’s non-oil private sector purchasing managers’ index, which measures activity in manufacturing, services, construction and retail. The index showed significant volatility in recent months, reaching 61.2 in September 2019 before dropping to 45 in March 2020 amid the Covid-19 pandemic.

Nevertheless, gross fixed capital formation has grown steadily in recent years, totalling Dh11.6bn ($3.2bn) in 2016, Dh13.9bn ($3.8bn) in 2017, Dh17.6bn ($4.8bn) in 2018 and Dh18.2bn ($5bn) in 2019. Exports of manufactured products have increased since 2017 as well, growing from a value of Dh24.9bn ($6.8bn) that year to Dh28.8bn ($7.8bn) in 2018 and Dh29.4bn ($8bn) in 2019. This represented 44.7% of all non-oil exports in 2018 and 50.7% of the total in 2019. In 2019 trade surpluses were seen in the categories of foodstuffs, beverages, spirits and tobacco; plastic, rubber and articles thereof; base metals; and textiles. Furthermore, manufacturing accounted for 20.3% of total FDI in 2018, according to ADDED.

Steel

Abu Dhabi is home to some of the region’s largest steel and aluminium plants, with Emirates Steel and EGA both based in the emirate. There are also a number of smaller outfits located in Abu Dhabi, such as Al Ghurair Iron & Steel, which specialises in flats; Gulf Steel Industries, which manufactures rebar; Al Khaleej Steel Industries, which manufactures galvanised wire; and fabricators such as Widest Steel Industries and Ahmed Almazroei Metal Industries. With the construction sector accounting for 60-70% of Emirates Steel’s output, slowing real estate growth has created more challenging operating conditions for the steel industry.

At the same time, producers have faced stiffening international competition, particularly given the protectionism exhibited by other players. The UAE has traditionally been an open market, free of barriers; however, a wave of protectionism has taken place internationally in the last few years, meaning that while the market is open, many export markets are closed to the UAE. Growth in the local market may therefore be key going forwards, unless the UAE begins to reciprocate some of the protectionist measures that are displayed elsewhere.

Emirates Steel has the capacity to produce 3.5m tonnes of rebar, wire rod and heavy sections annually at its integrated manufacturing plant in the Industrial City of Abu Dhabi (ICAD). This is also where Al Ghurair is located, operating a 400,000-tonne-perannum plant that has the country’s first and only steel cold rolling and galvanising complex. Al Khaleej Steel Industries is located at ICAD as well, and has capacity to produce 50,000 tonnes of steel wire per annum, ranging from 1.8 mm to 6 mm in diameter.

Aluminum

The aluminium industry contributed some 1.4% to the UAE’s overall GDP in 2018. This Dh20bn ($5.4bn) contribution supported roughly 60,950 jobs across the country, 7230 of which were at EGA. Headquartered in Abu Dhabi, EGA has one smelter in the emirate of Dubai, at Jebel Ali, capable of producing 1m tonnes of high-quality aluminium per year from 1577 reduction cells, and another in Abu Dhabi, at Al Taweelah in the Khalifa Industrial Zone Abu Dhabi (KIZAD). The latter has 1200 reduction cells and nine casting stations, also producing high-quality metal, and its products have an average aluminium content of 99.92%. A dedicated hot metal road from the plant can also deliver liquid metal to customers that are based in the nearby industrial zone. One of those customers is Ducab Aluminium Company, which manufactures electric conductive-grade aluminium wire, conductors and rods. Al Taweelah is the location of EGA’s $3.3bn alumina refinery, which can produce 2m tonnes of alumina per year from imported bauxite – enough to meet 40% of EGA’s annual requirements. The bauxite comes from Guinea, where EGA has a $1.4bn investment in the Guinea Alumina Corporation, which mines bauxite and has shipped it to Al Taweelah for refining since August 2019. EGA thus has a highly integrated upstream chain, which should help to safeguard the company against global shifts in mineral prices. Further investment upstream is a strategy that Emirates Steel is investigating as it seeks additional ways of securing supply.

Other Segments

Abu Dhabi has a wide range of locally based manufacturers, with many grouped around the real estate and construction sector. As a desert country, the UAE has been able to leverage local supplies of silica for glass manufacturing, with Emirates Float Glass now based at ICAD, where it can produce up to 600 tonnes of glass per day for both architectural and automotive applications. In ceramic tiles, Porcellan is also located at ICAD, manufacturing interlocking tiles, while the furniture segment has attracted firms such as Al Mashriq Medical Supplies and Eldiar Furniture Manufacturing and Decoration to the Mussafah industrial area.

Plastics companies have a major global petrochemicals industry in Abu Dhabi, with the large-scale Borouge complex at Ruwais. In early 2019 KIZAD launched its new Polymers Park, with a target of producing some 300,000-400,000 tonnes of plastic products per year and creating approximately 7000 new jobs. In August 2019 Polymers Park signed a strategic agreement with the All India Plastics Manufacturers’ Association to promote the facility among India’s plastics companies. ICAD is the location of a number of companies in the artificial fibre and fibreglass segment, including special purpose fibre manufacturer Exeed Geotextile, plastic sheet manufacturer Abu Mansoor Plastic Factory, and Bristol Fire Engineering Industries, which makes specialised chassis for fire engines and ambulances.

The well-established plastics manufacturing segment supports the growing packaging industry, which was estimated to be worth $2.67bn in the UAE alone in 2019, according to market research firm Mordor Intelligence. Dubai-based Hotpack Packaging Industries, which produces disposable packaging, and companies such as Al Ain Oasis Drinking Water Purification & Bottling have operations at ICAD. In addition, the industrial zone houses a vibrant food-manufacturing segment, which includes companies such as Gulfar Foodstuff Company, Nestlé Waters and Emirates Sesame Factory.

In the automotive subsector, Abu Dhabi-based Hafilat, which specialises in producing passenger buses, is a major player. The company uses its own aluminium body design to produce a variety of bus types, from European city buses to VIP vehicles. A new Dh1bn ($272.2m), fully integrated automotive city is being planned by the industrial zone operator, ZonesCorp. Known as Rahayel City, the project is located approximately 12 km west of Abu Dhabi City.

The pharmaceuticals segment has also establishing a significant footprint in the emirate. Neopharma was established in Abu Dhabi in 2003 and has since expanded its commercial operations to over 50 countries. The company has two plants in the emirate, with independent production blocks, R&D departments, testing labs and quality assurance centres. Neopharma entered into a joint venture with India’s Biocon to create Neobiocon in 2008, which is developing a biotech centre in the UAE.

SME & Start-Ups

As in many countries, SMEs form the backbone of the UAE’s manufacturing sector. The Federal Competitiveness and Statistics Authority estimated that SMEs contributed around 53% to national GDP in 2019. A range of incentives have been introduced to encourage such businesses to launch operations in Abu Dhabi. These include the SME loan financing scheme under Ghadan 21, which offers a government guarantee of up to 75% of a small business loan arranged with First Abu Dhabi Bank. In addition, an amendment to the UAE Agency Law, approved by the national Cabinet in February 2020, encourages family-owned companies to convert into joint-stock companies that can be registered on the Abu Dhabi Securities Exchange. With many SMEs fitting into the family-owned category, the new reform extends valuable protections to these businesses, potentially opening the capital markets and all their finance-raising benefits to more firms. A further endeavour benefitting SMEs in the UAE is Surkus, a marketing platform membership scheme that gives small business subscribers exposure. Surkus launched operations in the MENA region in October 2019, operating out of Hub71 in Abu Dhabi, and by the start of 2020 it was hosting 120 local businesses, 90% of which were SMEs.

Outlook

Global and domestic economic headwinds are likely to concern many sector players over the course of 2020, with falling growth predictions and ongoing uncertainty. Beyond the short-term challenges, however, Abu Dhabi’s industries are well placed to benefit from an enabling local business environment, strong government commitment to expansion in manufacturing and other non-oil industries, and the extensive and highly developed infrastructure of the emirate’s industrial parks.

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The Report: Abu Dhabi 2020

Industry & Retail chapter from The Report: Abu Dhabi 2020

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