Abu Dhabi focuses on driving sustained industrial growth and diversification

With proven crude oil reserves of 98bn barrels and an established downstream infrastructure, which has positioned the UAE as the sixth-largest petroleum producer in the world, the country’s industrial landscape is dominated by hydrocarbons activity. The bulk of the nation’s reserves are located in the emirate of Abu Dhabi, and the proceeds from their extraction have transformed the federal capital from historically being a small trading and pearling centre to the vibrant city it is today. However, while oil and gas remain central to the emirate’s development, diversifying the economy from hydrocarbons activity has been a central ambition for years.

Widening Abu Dhabi’s industrial base is a key element of this process, which to date has been led by the government both in terms of strategy and investment. With a number of anchor industries in place, the private sector is now expected to take on a larger role in future expansion, as investors seize downstream opportunities that are resulting from the presence of heavy industry in the emirate.

Strategy 

The development of industry in Abu Dhabi is guided by a multi-layered strategic process, the highest level of which is the Abu Dhabi Economic Vision 2030. Its overarching ambition is to establish a diversified economy in the emirate, and the year 2030 was chosen as a target because baseline growth assumptions indicated that tangible levels of diversification away from the emirate’s reliance on oil activity could be achieved by that time.

A number of industrial growth drivers are established by the strategy. Given the emirate’s hydrocarbons wealth, oil and gas will continue to play a leading role in the economy, with continued exploration and production activity by Abu Dhabi National Oil Company (ADNOC) feeding into the growing refining sector headed by its Group Company (TAKREER) and by the International Petroleum Investment Company (IPIC) (see Energy chapter). However, a much wider range of industrial activity is called for by Abu Dhabi’s economic planners, including petrochemicals, metals, aviation, aerospace and defence, and material and life science industries and biotechnology. An integral element of the development strategy is to transition Abu Dhabi into more capital intensive, high-tech manufacturing, with an emphasis on low-energy industries.

Upcoming Aerospace Summit

Aerospace, aviation and defence, for which Abu Dhabi already has core infrastructure in place, will be the focus of substantial investment over the coming years, as the emirate targets becoming a global leader in aircraft maintenance, services repair, overhaul and parts manufacturing and develops its civil and military aerospace equipment capabilities.

Innovation, essential to ensuring long-term sustainable growth for the sector, was the central theme of the Global Aerospace Summit, that was hosted by Abu Dhabi, in March 2016. The summit discussed how the development and integration of automation can best be utilised to enhance productivity. Automation has been identified as of vital importance to future sustained growth.

The material and life science sector, meanwhile, currently a nascent industry for the emirate, has been identified as an attractive prospect for future growth, although the emirate would be required to invest substantially in research and development in order to expand the sector. In addition, the metals industry will remain an integral component of development, as low-energy costs and good industrial and transport infrastructure already in place promise significant profitability of 27% per annum.

Under the Abu Dhabi Economic Vision 2030, the Abu Dhabi Department of Economic Development (ADDED) is tasked with producing five-year economic development strategies containing detailed plans and targets for the growth of each economic sector, which are, in turn, supplemented by regular 12-month action plans to ensure that the necessary momentum is maintained. The most recent of these action plans was the Strategic Plan 2011-15, which placed a focus on developing the export capacity of Abu Dhabi’s industrial sector, particularly with regard to refining and downstream petrochemicals, aluminium and steel, aerospace, food and beverage, and clean energy technologies.

Role Of IDB

While the Economic Vision 2030 addresses the entire economy, in recent years the approach to industry has been fine-tuned through main outcomes of the industrial strategy and the establishment of a dedicated entity, the Industrial Development Bureau (IDB). Established in late 2013 the IDB is tasked with developing the industrial sector via a mandate that falls under three pillars. The first of these – industrial strategy and policy – encompasses the development of a strategy for the entire sector: the industrial zones; policies and regulations; industrial performance; management; and industrial information and intelligence. The second pillar of the IDB’s mandate – sector development – establishes the body as the chief source of sector planning and coordination and charges it with promoting the sector to all potential participants. Finally, the IDB is tasked with overseeing investor services, including industrial business support and regulatory services, which include licensing, health and safety, and the environment.

“Global mega-trends are driving innovation in various technology fields and supply chains,” Ayman Al Makkawy, director-general of the IDB, told OBG. “Regions differ depending on stages of economic development. Nevertheless, in the UAE, and this region, our product space mapping is driven by these trends. It is not enough just to innovate products and processes; it is imperative to create value from the services surrounding manufacturing.”

In 2014 the IDB identified several targets for future development: building materials, petrochemicals, metals engineering, iron and steel, plastic, aluminium and food industries, renewable energy, oil and gas, packaging, aviation and transportation equipment. “The implication going forward is that there will be increasing localisation of manufacturing supply chains, a dramatic increase in competition to attract foreign direct investment (FDI), massive innovation in material sciences due to scarcity of resources and intensified public policies to enable the manufacturing supply chains,” Al Makkawy told OBG. “The keys to differentiating the UAE in terms of manufacturing competitiveness going forward are an ability to innovate at an accelerated pace, availability of development of human capital, competitive and sophisticated infrastructure and affordable clean energy.” According to the IDB, Abu Dhabi grew its non-oil industrial manufacturing sector by 9% in 2014, more than double the average GDP growth in Abu Dhabi and over three times more than global growth indices. “Industrial manufacturing is becoming increasingly important as the UAE is looking to diversify its GDP into sustainable industries,” Al Makkawy told OBG. “Some key enablers that will allow further investment in the industry include enhanced private sector investor services, affordable utilities and the availability of industrial financing.”

Investor Friendly

However, challenges still exist for industrial investors in the emirate, and improving coordination between entities, reducing organisational procedures and swiftly processing industrial licences is facilitating more efficient investor-friendly services. “Resources, capabilities development and public policy are the key areas of collaboration between government and business leaders in developing the solutions necessary to benefit private enterprises and the well-being of nations,” Al Makkawy told OBG.

The federal structure of the UAE means that the development of Abu Dhabi’s industrial sector is also shaped by strategic decisions at the national level. The UAE’s broad economic direction is mapped out in the UAE Vision 2021, developed by over 300 officials from 90 federal and local entities. The document sets out a path towards a knowledge-based economy driven by an entrepreneurial culture and private sector capital (see Economy chapter). The national government contributes to Abu Dhabi’s industrial sector through its ability to introduce federal legislation. In June 2015, for example, the UAE Minister of Economy revealed in a statement to the press that a much-anticipated investment law had moved into the final phases of drafting. When promulgated, the new legislation is expected to allow 100% ownership to foreign investors in certain sectors. This development would most certainly provide a useful stimulus to Abu Dhabi’s emerging manufacturing industry.

Drawing Power

Federal legislation, such as the proposed new investment law, contributes to the numerous draws that make the UAE an attractive destination for industrial enterprises. One of the most fundamental of these is the nation’s location among the rapidly expanding economies of the Gulf and between the sizeable emerging markets of Asia and Africa, as well as its long-established trade ties with the developed markets of Europe and the US. Abu Dhabi, according to the ADDED, is only five hours away from around 25% of the world’s population and is linked by more than 1000 weekly flights to destinations across the globe. Moreover, the UAE’s federal framework has resulted in more than 40 years of political stability as well as an open diplomatic policy, while its robust economy has resulted in AA sovereign ratings from S&P and Fitch, as well as an Aa2 rating from Moody’s.

Other attractions of equal importance include a strong health care and education policy. The UAE’s gross school enrolment rate at primary level stands at 108%, according to World Bank data from 2012, exceeding 100% due to the inclusion of over-aged and under-aged students and grade repetition.

Abu Dhabi is also the host of a number of international health care facilities, such as Cleveland Clinic Abu Dhabi, and Al Rahba Hospital and Tawam Hospital, which were set up in collaboration with Johns Hopkins Medicine International, plus a range of local and global universities, such as Paris-Sorbonne University Abu Dhabi, business school INSEAD Abu Dhabi, NYU Abu Dhabi and Abu Dhabi: MIT.

One of Abu Dhabi’s most effective means of boosting activity in the industrial sector lies in its provision of locations in which industrial development can take place. Industrial zones in Abu Dhabi take a number of forms, the simplest of which are small industrial areas, such as those at Mafraq and Madinat Zayed, which cater to modest, domestic enterprises in segments such as light industry, packaging and building materials.

KIZAD

One highly significant development that is playing a vital role in the emirate’s provision of industrial infrastructure is the Khalifa Industrial Zone Abu Dhabi (Kizad). Opened for business by Abu Dhabi Ports in 2010, Kizad is the development taking shape adjacent to Khalifa Port, which officially opened in 2012, and is situated some 60 km from Abu Dhabi City and 45 km from Dubai’s Jebel Ali Free Zone. The port is currently undergoing further expansions and provides a link between the emirate and international markets, reaching up to 4.5bn people, according to Abu Dhabi Ports. It is the first semi-automated container port in the region and has taken over the handling of Abu Dhabi’s roll-on-roll-off cargo and all its container traffic. Covering an area of 2.7 sq km, it currently has an annual capacity of 2.5m TEUs and 12m tonnes of general cargo, and when all of its demand-driven development phases are complete it will be capable of handling 15m TEUs and 35m tonnes of general cargo per year. Therefore, Kizad’s location places it right next to Abu Dhabi’s largest transport gateway, as well as conveniently close to the port of Jebel Ali in the neighbouring emirate.

Kizad is being developed using a cluster model, creating value for investors through economies of proximity. Through integrated clustering, increased productivity by facilitating inter-business synergies and operations from within the zone is possible. Its targeted sectors are diverse and include aluminium; engineered metal products; food processing and packaging; trade and logistics; and general industries like polymer converting; pharmaceuticals and health care equipment; and automotive spare parts.

Logistics Park

The industrial zone also includes Kizad Logistics Park (KLP), the first pre-built quality product of its kind in Abu Dhabi. KLP is unfolding in two phases, the first of which is comprised of 41 warehouses and fully let, while the second phase is under construction and set to be completed by the third quarter of 2016. Tenants already situated within the KLP include: logistics firm Agility, United Printing and Publishing, Al Kabeer Group, Back Office Logistics, E-file Masters, Abu Dhabi Islamic Bank, First Gulf Bank, Smart Design, Protect Middle East, Galaxy Trading, Global Medical Supply Chain LLC and IRIS Equipment Trading.

The unique feature of Kizad is that it is a hybrid trade and industrial zone with flexible ownership options. Companies setting up in Kizad can either take advantage of partnering with a local owner or have full ownership within the designated free-zone plots. With the 51% local ownership rule, the principal attraction of this ownership option from a regulatory point of view is that raw materials can be imported and exported on a duty-free basis. As for full ownership, companies have the ability to establish one or multiple shareholders, the right to full repatriation of profits and capital, and potential exemption from Customs duty for goods and services in the zone. Both of these options benefit from a zero personal and corporate tax rate and a competitive operating environment.

New Deals

In 2015 Abu Dhabi Ports signed a number of agreements with local and foreign investors to establish their facilities in the zone. Advanced Manufacturing Solutions LLC, a subsidiary of the FourWinds Group, is developing a single source steel foundry that will produce automotive parts for both local and international markets exported via the Khalifa Port. With a capacity of 300,000 metric tonnes per year, the foundry is set to become the largest of its kind in the world. UAE-based Gulf Precast, meanwhile, will invest in a 72,000-sq-metre development, while Polar Specialised Industries, a subsidiary of refrigeration and cooling systems company Adearest, is to construct a 23,617-sq-metre manufacturing facility. In an investment worth around Dh130m ($35.4m), SIDDCO’s iNGENIUM will construct a 122,000-sq-metre equipment manufacturing plant catering to the oil and gas industry. Several companies are expected to become operational in the first quarter of 2016.

Zonescorp

Indeed, the emirate’s potential as a seat of industry lies in the specialised areas it has established with the aim of attracting local, regional and global investment. Some of the most significant of these fall under the aegis of the Higher Corporation for Specialised Economic Zones (ZonesCorp), which currently operates four industrial zones, with three more in the pipeline. Since its inception in 2004, government-backed ZonesCorp has developed around 50 sq km of specialised economic zones, which taken together are the source of nearly 50% of Abu Dhabi’s manufacturing GDP.

The first of the ZonesCorp economic zones to be established – the Industrial City of Abu Dhabi (ICAD) – is located close to both Musafah Port and Abu Dhabi International Airport and covers an area of 14 sq km. Designed to accommodate clusters of specialised industries in areas such as textiles, foods, engineering, wood, chemicals, plastics, construction and high tech, operations at ICAD I are underpinned by Dh1.2bn ($326.7m) worth of infrastructure and public utilities, which has helped it to attract investments in excess of Dh6bn ($1.6bn). The adjacent ICAD II has installed infrastructure worth Dh450m ($122.5m) and covers an area of 11 sq km.

Catering to such industries as chemicals, plastic products, construction materials, and oil and gas, the facility has attracted around Dh11bn ($3bn) worth of investments in terms of capital and operating assets. Both it and the 12-sq-km ICAD III are being developed using the public-private-partnership (PPP) model, which has enabled ZonesCorp to harness private sector capital in order to establish international-standard infrastructure, thereby reducing the burden on the public purse. ICAD III is designed to house industrial clusters in areas such as chemical compounds, construction materials and engineering and, according to ZonesCorp, has already generated significant demand from both local and international investors.

ZonesCorp’s fourth operational site is based 20 km west of the interior city of Al Ain. The Al Ain Industrial City is divided into zones I and II which, following infrastructure investments worth Dh125m ($34m), have attracted investments of Dh1.4bn ($381.1m) across their 300 industrial plots. Sectors of focus include light manufacturing and maintenance businesses, agricultural and food processing, chemicals and plastics, and technology.

ZonesCorp’s developments outside Abu Dhabi and Al Ain offer a range of advantages to the investor. While financial benefits such as tax exemptions, free repatriation of profits and duty-free import of machinery and raw materials are important incentives, the government is keen to emphasise other competitive advantages, with a view to ensuring that the zones become centres of industries that fit strategically with Abu Dhabi’s long-term development goals. Such advantages include the fact that companies setting up in a ZonesCorp area have immediate access to installed infrastructure and can benefit from the cluster-based zoning system, which is organised to facilitate industry integration and promotes synergies as well as economies of scale. Moreover, all the products manufactured in the zones are entitled to duty-free access to the GCC countries, as well as to the signatory countries of the Greater Arab Free Trade Agreement.

Focus On Manufacturing

While oil and gas activity remain central to the economic landscape of Abu Dhabi, accounting for 50.5% of GDP in 2014 according to preliminary estimates from the Statistics Centre - Abu Dhabi (SCAD), the emirate’s industrial zones have enabled a significant expansion of manufacturing processes over recent years.

Manufacturing activity accounted for 5.5% of Abu Dhabi’s GDP in 2014, according to SCAD’s preliminary estimates, while the value added by it increased approximately 7.1% over the year, from Dh48.6bn ($13.2bn) to reach over Dh52bn ($14.2bn). This upwards trend is central to the emirate’s long-term ambition of developing its non-oil economy in order to ensure stable economic growth, and is taking place across an increasingly diverse array of sectors. In terms of gross output, chemicals and plastics have emerged as the most significant manufacturing segment in Abu Dhabi, accounting for Dh112.4bn ($30.6bn) of the Dh183.5bn ($49.9bn) total gross output of the sector in 2013, according to the most recent data issued by SCAD.

Other segments, such as basic metals and food, beverages and tobacco, have also attained significant levels of activity. In most of Abu Dhabi’s emerging industrial segments, key companies, often government owned, have acted as anchor facilities from which further growth, more often private sector in nature, is emerging. This symbiosis of public and private capital is expected to play a significant role in the future of Abu Dhabi’s industrial growth, according to its economic vision.

A Global Reach

Reflecting the sector’s increasing prominence in the emirate’s economy and its commitment to expanding its manufacturing capabilities, Abu Dhabi, in partnership with the UN Industrial Development Organisation, is set to host the inaugural edition of the Global Manufacturing and Industrialisation Summit (GMIS) in the second half of 2016. Located on Al Saadiyat Island, the event, the first of its kind, is designed to promote and advance inclusive and sustainable industrial development and to address important global themes that influence the manufacturing sector, such as the fourth industrial revolution, the capabilities gap, the standardisation of global manufacturing and innovative applications to reduce the carbon footprint. It is anticipated the event will attract an estimated 1500 representatives from governments, industry and civil society, and will include more than 300 representatives from the UAE and the wider Gulf region.

Strata Manufacturing, the aero-structures manufacturing facility set up by the Mubadala Development Company, an Abu Dhabi-based investment and development company, has been nominated to host the GMIS. The company has previously collaborated with international companies in a number of training and development programmes that are aimed at developing local businesses, entrepreneurs and the workforce in order to position the UAE as a future leader of the aerospace industry.

Petrochemicals

Abu Dhabi’s substantial oil reserves and gas resources mean that there is a readily available supply of the feedstock needed for petrochemicals manufacturing, and therefore it is no surprise that this segment is both long-established in the emirate and central to its goal of economic diversification. “The chemical industry continues to grow at above GDP rates,” Al Makkawy told OBG. “As a core competence, the UAE operating companies have continuous improvement programmes to enhance capital and operating cost efficiencies through technologies, collaboration between industries and research institutes, and capability development and transfer.”

The growth of production, marketing and export of petrochemical products has seen Abu Dhabi rise to quickly become a significant player in the global petrochemical arena. According to SCAD, in 2014 aggregate petrochemical production in the emirate increased from 3.7m tonnes to 5m tonnes, an increase of around 35%. The value of exported petrochemical products, meanwhile, totalled 3.4m tonnes in the same period. Important products include urea fertiliser, of which the emirate produced a total of 1.96m tonnes in 2014 and exported 1.91m tonnes; polyethylene (1.26m tonnes produced, 993,476 tonnes exported); ammonia (1.1m tonnes produced, 24,800 tonnes exported); and polypropylene (669,357 tonnes produced, of which 493,606 tonnes was exported). “The petrochemical industry is becoming increasingly competitive, but there is still good opportunity for further investment into the sector here in Abu Dhabi,” Ali Vezvaei, president of the Middle East and North Africa at Linde AG, Engineering, told OBG. “The key, however, will be how to manage heavier feedstock, such as Naptha, and the utilisation of advanced technologies, integration and scale to ensure the ventures are economically attractive; or let’s say ‘value cracking.’”

Borouge

Much of the expansion of the petrochemical sector has been driven by Borouge, a joint venture between state-owned ADNOC and Austria’s Borealis, which in turn is 64% owned by Abu Dhabi’s IPIC, formed in 1984 to invest in energy and related sectors across the world. Borouge has established a global reputation as a provider of innovative, value-creating plastics solutions for infrastructure, such as pipe systems and power and communications cables, in addition to automotive and advanced packaging applications. Its focus in 2014 was the rollout of Borouge 3, the third phase of a multi-year expansion programme that has brought its total annual production capacity to 4.5m tonnes.

The most recent expansion works include Borouge’s third ethane cracker – the largest in the world – as well as two polyethylene units, two polypropylene units and a low-density polyethylene unit. “The start-up of Borouge 3 was benchmarked against Borouge 2, but exceeded it,” Abdulaziz Alhajri, CEO of Abu Dhabi Polymers Company (Borouge’s production company), told OBG towards the end of 2015. “So operational performance played a part, and demand has increased for our products. Prices held better than anticipated.”

Indeed, despite volatility in global polymer prices in 2014 and 2015, the recent period of development has brought encouraging results for the company. “The 2014-15 year has been a good one for us. It was the year in which our mega-project Borouge 3 came online,” Alhajri told OBG. “All of the units are now operational, apart from the small cross-linked polyethylene plant, which produces special grade for the wire and cable business. We continue month after month seeing sales records. The bottom line for 2015 was 10% to 15% above our business plan forecast, so it has been a wonderful year for us and for the industry. It has also served as a useful message to the government that in tough times in the energy market it is good to have value downstream.”

Innovative Approach

Innovation is crucial to maintaining growth levels and hard-fought-for market share in the petrochemicals world, and 2015 saw an important development in this regard with the official opening of Borouge’s Innovation Centre in Abu Dhabi. The new facility, which works closely with other Borealis innovation centres in Europe and Borouge’s application centre in Shanghai, includes 16 plastics research labs and more than 230 pieces of advanced testing equipment.

The centre, which will initially focus on developing pipe, film and moulding applications, strongly supports Borouge’s expansion and growth strategies, especially now that its new Borouge 3 mega-plant has come on-stream, increasing the company’s total production capacity to 4.5m tonnes per year, and making Borouge the largest integrated, single-sited polyolefins complex in the world, according to the press. Around 15% of Borouge’s products have been developed in the Innovation Centre’s research labs and, since beginning its research and development operations, it has filed “over 200 patents covering 40 product families” according to Alhajri, which accounts for about 30% of all patents filed in the UAE that are registered in the World Intellectual Property Organisation database.

Steel Expansion

Basic metals manufacturing is another segment which has seen significant growth over recent years. Although it accounted for a relatively modest 0.7% of GDP in 2014, according to SCAD’s preliminary estimates, it is a sizeable export earner for the emirate and the government has played a leading role in its development. Al Makkawy told OBG, “The metals industry is an important diversification anchor for the UAE and developing the downstream processing sectors is a key driver to further this diversification.”

Abu Dhabi’s flagship steel facility is Emirates Steel, owned by Senaat, a public joint stock company owned by the government of Abu Dhabi. Established in 1998, Emirates Steel is located in Abu Dhabi Industrial City where, as the only integrated steel plant in the UAE, it acts as an anchor for the steel sector. The plant employs the latest rolling mill technology in order to produce rebar, wire rod and heavy sections and has a overall production capacity of 3.5m tonnes per annum (tpa).

The company has worked hard to establish itself within the global industry, with product innovation playing a large part in this effort. For example, it is the only steelmaker in the MENA region qualified to produce Q-class (nuclear quality) reinforcing steel, and the fourth company in the world to be qualified by the American Society of Mechanical Engineers to produce Nuclear Qualified reinforcing rebar. Moreover, in May 2013 it dispatched its first shipment of structural steel to the American and Mexican ports of Houston and Altamira, a development that represented a notable expansion from the company’s established markets on the Indian sub-continent, Asia and Africa. Further enlarging its global presence forms a central part of a five-year strategy unveiled by Emirates Steel in August 2014.

Spearheading this drive will be high margin, high strength value-added products – a category which is traditionally resistant to the drop-offs in demand that lower value products are more susceptible to. “The market for value-added products is less crowded, and margins are higher and business is controlled by performance rather than price,” Saeed G Al Romaithi, CEO of Emirates Steel, told OBG. “This will allow us the opportunity to move from transactional sales into sales that enhance relationships and from extracting a price to winning a price within a highly competitive market.”

While moving from commodity-grade to high-value products is expected to boost the company’s export prospects, anticipated domestic demand also underpins Emirates Steel’s growth potential over coming years. The firm has recently started developing steel for the construction of offshore oil and gas structures, supplying a demand that was hitherto largely met through imports. Emirates Steel has also entered into a strategic partnership with the UAE’s civilian nuclear energy programme, supplying the Emirates Nuclear Energy Corporation (ENEC) with high-value steel products for its nuclear plants. Around 100,000 tonnes of steel has already been delivered to the nuclear reactor project sites and their peripheral developments, and the coming five years will see further orders as the construction of ENEC’s four nuclear energy reactors progresses.

Aluminium

One of the most prominent growth stories in the basic metals segment over recent years is the rapid rise of aluminium exports. In 2013 aluminium counted for around 1.9% of total exports, but just a year later its share had increased substantially to 12.2%, according to SCAD. Here, again, a government-owned facility is at the forefront of expansion efforts. Emirates Aluminium (EMAL), established as a joint venture between Mubadala Development Company and Dubai Aluminium (DUBAL) in 2007, is the anchor tenant of Kizad and an integral part of the zone’s aluminium cluster. It is comprised of a 1.3m-tpa smelter, a 3100-MW power station, extensive casting operations, a water desalination plant, dock and other facilities. The 6-sq-km facility was built in two phases, with the first completed in 2010, and resulted in the world’s largest greenfield smelter development. Commissioning for phase two began in 2012, and when full ramp-up of the 1.7-km potline was achieved in mid-way through 2014, EMAL was established as the largest single-site smelter in the world.

The company is now part of Emirates Global Aluminium (EGA), which was formed through EMAL’s merger with DUBAL in 2013, creating a $15bn global giant. Combined, the DUBAL-EMAL production range comprises high-quality aluminium in four main forms: re-melt ingot (foundry for automotive applications and high-purity aluminium for electronics and aerospace industries); slab ingot (used in food and drink packaging, automotive industry); billet (construction, industrial, transportation and automotive forging); and liquid metal. The combined casting capacity of EGA in Abu Dhabi and Dubai now stands at around 2.8m tonnes per annum – almost half of the region’s annual production capacity. Indeed, with a hot metal production capacity of 2.4m tpa, EGA is one of the five largest aluminium producers in the world and exports 90% of its product to 350 customers and around 70 countries. In 2016 more progress is expected on EGA’s $3bn Shaheen alumina refinery, which is currently taking shape adjacent to the EMAL plant. The project has received the go ahead following the completion of feasibility studies, and phase one is expected to be completed in 2017, thus bringing 2m tonnes on stream to feed EGA’s smelters. Phase two, pegged for completion in 2020, is expected to double Shaheen’s capacity to 4m tonnes.

Food & Beverages

The food and beverages segment is another significant contributor to the local manufacturing sector, with gross output of Dh7.9bn ($2.2bn) in 2012, rising to Dh8.7bn ($2.4bn) in 2013, according to SCAD. The strength of Abu Dhabi’s transport links make it an ideal location for manufacturing companies wishing to supply the region’s fast-moving consumer goods (FMCG) arena. The domestic market is a sophisticated one, with food and beverage lines, such as health food, organic produce and fortified food, growing in popularity. One of the most significant food and beverage players based in Abu Dhabi is Agthia, 51% of whose shares are held by Senaat, an Abu Dhabi government entity, with the balance held by retail and institutional investors. Established in 2004, Agthia offers a world-class portfolio of integrated businesses providing high quality and trusted food and beverage products for customers and consumers across the UAE, GCC, Turkey and the wider Middle East. The company has over 3500 employees under two business units operating in various food and beverage segments: agribusiness, which produces and markets Grand Mills, the leading high quality flour; and Agrivita animal feed products, and their consumer business, which produces and distributes leading brands such as Al Ain Water, Yoplait fresh dairy products and Capri Sun juices. The company recently expanded its bottled water portfolio by acquiring 100% of Al Bayan’s water business, a move that consolidates its position as a market leader in the UAE’s water segment. In 2015 the company reported a net profit of Dh231m ($62.3m), which is an increase of 20% over the same period in 2014. The company’s CEO, Iqbal Hamzah, told OBG, “Current market conditions are ripe for additional acquisitions, not only within the UAE’s food and beverage manufacturing industry, but regionally as well.”

Agthia is a good example of the government harnessing private sector capital to drive manpower-intensive industry in the emirate, as called for by the Economic Vision 2030 strategy. The potential for FMCG growth in the UAE and the region has attracted more private interest recently. “The long-term economic outlook for the emirate remains quite favourable and that in turn will drive population growth resulting in increased demand in the consumer food industry,” Hamzah told OBG. “While the market is fairly well supplied with a wide range of food and beverage related products, the diverse make up of the populace offers opportunities for the introduction of new products to the market.” According to Hamzah, developing the supply chain will be necessary in order to facilitate growth. “Within the highly competitive food and beverage industry, developing distribution channels will remain to be a key element in order to increase market share,” he told OBG.

In November 2015 Abu Dhabi Ports signed an agreement with international investment company Binghatti Holding to set up a new food and beverage production plant in Kizad. Binghatti, known for its Raubi juice brand, will make an initial investment of $40m in the project, according to local press reports. The development follows another high-profile market entrant in the shape of Brasil Foods, South America’s leading food processing company, which is developing a $160m facility in Kizad. Production started with around 350 people employed at the plant, according to the press, a figure that is expected to increase to 1400 by 2017, when the facility is fully operational.

Building Materials

Local producers in another growth segment, building materials, are well placed to benefit from the slate of upcoming construction projects in the emirate. A total of 76 approvals were granted in 2014 by Abu Dhabi’s strategic urban authority, the Abu Dhabi Urban Planning Council (UPC), which has delivered 428 projects and master plans since its inception in 2007, according to the press. These include housing projects; high-end retail developments; the capital’s first medical college and a raft of expansions for existing educational infrastructure; a wildlife park and botanical garden; a number of community parks; and the continued development of Al Maryah Island as a shopping, dining and entertainment destination. The $2.94bn expansion of Abu Dhabi Airport, due for completion in Q2 2017, adds yet more domestic demand for building materials, while Abu Dhabi-based producers are also taking advantage of opportunities arising from four more mega-projects in Dubai: the $3bn Dubai Parks and Resorts; Dubai Town Square, also with an estimated value of $3bn; the $6bn Akoya residential project; and the $64bn Mohammed Bin Rashid City (see Construction chapter). At the outset of 2015, the UAE was home to 12 integrated cement plants, eight cement grinding plants and 17 cement producing companies, according to Global Cement Magazine.

Abu Dhabi is home to the largest cement producer in the country – Arkan Building Material Company – which is controlled by the government through a 51% stake held by Senaat, and operates the 1m-tpa Emirates Cement Plant in Al Ain as well as the 5.7m-tpa plant in Arkan. The latter is a relatively new development, established in 2014, and has the capacity to produce 4m tpa of clinker in addition to its cement output. Other major players in the Abu Dhabi sector include National Cement, which operates a 2m-tpa capacity clinker grinding plant that is 44% owned by Holcim (which has full management responsibilities) and Nael Cement, which operates a 700,000-tpa clinker grinding plant in Al Ain.

Quality & Competitiveness

Established in 2009 by the Abu Dhabi government, the Abu Dhabi Quality and Conformity Council (QCC) is mandated with improving the quality of the emirate’s traded goods, exports and services, ensuring that the quality of testing infrastructure is on par with the best international standards and creating a globally recognised Abu Dhabi brand. The function of the QCC is key to facilitating Abu Dhabi’s transition towards a more diversified, knowledge-based economy. Among the QCC’s key functions are two online portals, Jawdah and Manaa, accessible through its website, which aim to improve services for stakeholders and consumers. Jawdah allows both internal and external stakeholders easy access to all the core services on offer by the QCC, such as product certification and calibration services, while Manaa provides a forum for consumers to view recalled products and report incidents caused by goods.

Metrology Institute

As part of the QCC’s mandate to develop Abu Dhabi’s provision of metrology services, in December 2013 it established the Emirates Metrology Institute (EMI) to provide quality calibration services as well as conduct research and act as a consultant in the field of metrology. EMI’s mission is to provide internationally recognised reference measurements with a degree of accuracy high enough to support the objectives outlined in the Abu Dhabi Economic Vision 2030 strategy, and it aims to become the reference point for measurements for the whole of the Gulf region.

EMI’s roadmap is split into four broad strategic principles, each of which have their own set of aims. Alongside establishing and developing state-of-the-art capabilities, strategic goals include strengthening EMI’s position internationally (cooperating with GCC and other organisations), engaging in regional and international collaborations and enhancing knowledge transfer to all sectors of the UAE’s economy. An analysis of the potential economic impact of EMI by consultancy firm KPMG has found that the potential total direct benefits of the EMI to the economy, in return for expenditure of Dh2.6bn ($707.7m) between 2015 and 2024, could be over Dh6bn ($1.6bn), and amount to total cost reductions across all sectors of over Dh895m ($243.6m). EMI is set to benefit all sectors of the economy, with oil and gas, in particular, set to see the highest returns. The sector could gain as much as Dh2.6bn ($707.7m) in direct economic benefits, in return for Dh1.1bn ($299.4m) expenditure, and for costs incurred by the sector to be reduced by Dh389m ($106m).

In addition to direct monetary benefits, supporting other key economic and social imperatives is central to EMI’s strategy. The institute aims to become a global centre for measurements research, improving Abu Dhabi’s ability to compete in the global marketplace, alongside countries such as Germany, Switzerland and the US, whose significant investments in metrology, according to KPMG, have correlated with increasing levels of competitiveness and innovation. Moreover, with better infrastructure in place locally, Abu Dhabi and the UAE will be able to reduce dependence on foreign calibration services and encourage more FDI into the economy.

Outlook

With the establishment of the IDB, the government of Abu Dhabi has shown its commitment to broadening the emirate’s industrial base. Moreover, its advanced plans for the manufacturing sector, which include the ongoing development of the emirate’s burgeoning aerospace and defence industries, and high-tech, knowledge-based industries in life and material sciences, testify to its determination to ensure Abu Dhabi is well-positioned for long-term, sustainable development.

This institutional backing is matched by strong prospects generated by the sustained growth of the UAE. According to the IMF, the UAE is expected to show growth of around 3.1% in real GDP in 2016. Continued economic expansion is underwritten by ample external assets, not least among which is the fact that the UAE boasts one of the most business-friendly environments in the whole region, as well an ambitious government programme of infrastructure development, which will allow Abu Dhabi to ride out a period of low oil prices.

Prospects for petrochemicals and the two key metal industries in the emirate remain strong. Despite the slow recovery of the global economy from the turbulence of the economic crisis which struck in 2008, the OECD Steel Committee anticipates a growth in steel demand in 2016. The Middle East market is expected to use 55.6m tonnes of finished steel in 2016, compared to 53.3m tonnes in 2015. The US, European and African markets are also expected to consume a larger amount of steel in 2016 than they did a year earlier, and while China is expected to show a slight dip in demand, it is a modest one – from 707.2m tonnes to 703.7m tonnes. In the case of aluminium production, the global oversupply which lowered prices in 2015 may continue to do so in 2016. As with steel, therefore, the importance of producing a high-end product for niche markets and matching output with the demand that is arising from a growing downstream segment constitutes an important priority for the sector.

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The Report: Abu Dhabi 2016

Industry chapter from The Report: Abu Dhabi 2016

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