Abu Dhabi looks to widen its non-hydrocarbons strategy

Boosting downstream industrial activity as a means to further diversify Abu Dhabi’s economy from its hydrocarbons base is not a new concept. The drive to develop downstream is preserved in the Abu Dhabi Economic Vision 2030 strategy, but dates from an even earlier period.

Senaat, then known as the General Industry Corporation, was formed by the government in 1973 with the aim of establishing a diversified industrial sector with its downstream components. Since its restructuring into a public joint stock company in 2004, the corporation has pumped Dh16bn ($4.4bn) into the non-oil sector in a bid to turn Abu Dhabi’s vision to reality. The government’s efforts to establish a vibrant industrial sector through institutions like Senaat has paid off in the form of a number of anchor industries, which have placed the emirate on the global industrial map.

Metal Producers

In the metals sector, the state-backed Emirates Global Aluminium, of which Abu Dhabi’s Emirates Aluminium (EMAL) is a significant component, currently exports as much as 90% of its 2.4m tonnes per annum (tpa) capacity to markets around the world, and is making plans to increase its output by an estimated 200,000 tonnes over the coming six years, while directing an increasing proportion of product towards the domestic market. In addition to this, Senaat-owned Emirates Steel has, after undertaking a number of expansions, boosted its capacity to 3.5m tpa and now has plans in the works to focus on high-end products that are capable of retaining value during times of suppressed steel demand. Saeed G Al Romaithi, CEO of Emirates Steel, told OBG, “Emirates Steel will be positioned among the few regional steel producers with a diversified product range, including rebar in straight and coil form, wire rod, sections, sheet piles and semi-finished products, such as billets and direct reduced iron.”

Petrochemicals

Meanwhile, the dynamic petrochemicals industry in Abu Dhabi, itself a downstream component in the wider hydrocarbons sector, produces an aggregate 5.7m tonnes of product on an annual basis, according to the Statistics Centre - Abu Dhabi (SCAD), and is establishing the emirate as a significant exporter of fertiliser, polyethylene, ammonia and polypropylene. Borouge, a joint venture between state-owned Abu Dhabi National Oil Company (ADNOC) and Austria’s Borealis, is a key player and has driven much of the expansion of the petrochemicals sector, establishing a global reputation as a provider of innovative, value-creating plastics solutions, while fertiliser manufacturer FERTIL, a joint venture between ADNOC and TOTAL, has expanded its capacity substantially and it now exports 94% of its product to international markets, such as the US, Latin America and Australia.

Aerospace

With the industrial anchors in place, the development of sizeable downstream activity is now possible and advances in some areas have been made. In the aluminium segment the development of an Abu Dhabi aerospace sector offers obvious synergies in terms of the aluminium produced at EMAL and the anticipated demand for aluminium composites for aircraft components.

In 2009 the Abu Dhabi government-owned Mubadala Development Company established the aero-structures manufacturing facility Strata, and production at its Al Ain facility began the following year. Strata’s early growth derived from an agreement with Airbus to produce flat track fairings for the A330 and A340, the first deliveries of which were made in November 2010. Since that time it has substantially increased the range of components it ships to the European giant, and has broadened its client base to include Boeing, for which it produces empennage and vertical fin ribs; and the Italian airframe manufacturer ATR, to which it delivers the entire empennage, both rudder and vertical stabiliser.

The substantial growth of Abu Dhabi’s aerospace industry has brought financial rewards – in 2014 the commitment from Boeing and Airbus reached a combined worth of $7bn, according to press reports. But of equal importance is the structural effect it has had on the domestic economy. Such is the success of the segment that aerospace is emerging as an anchor industry in its own right, supporting the associated industries and small and medium-sized enterprises, which provide it with both materials and services (see Security, Aerospace and Defence chapter).

Small & Medium Enterprises

Abu Dhabi’s steel industry also offers sizeable downstream potential. One area of particular promise in the short term are the smaller industries, which can make use of the 600,000 metric tonnes of wire rod the facility produces each year. According to Emirates Steel there are around 20 to 25 domestic companies that utilise wire rod to manufacture a range of products, from wire mesh producers to fabricators of steel nails.

Traditionally, however, this small-scale but important manufacturing segment has relied on wire rod imports to produce their goods – a state of affairs Emirates Steel is working to change through stepping up domestic production. The company has decided to address the issue by more closely examining the requirements of its downstream customers, and as a result of this process it has introduced an array of different wire rod grades, which have diverse chemical compositions and distinctive physical properties. “[We have developed] value-added wire rod products for different applications, like prestressed concrete strands, cable armouring, welding electrodes, cold heading applications, etc,” Al Romaithi told OBG. “The end users are primarily the construction and fabrication sectors.”

Private Sector Power

While the state-backed anchor industries can help to boost downstream activity by increasing the volume and variety of their output, harnessing the power of the private sector is essential in order to achieve long-term growth in the industry. The myriad smaller firms that populate the lower echelons of any downstream industry, agile enough to pursue opportunities as they arise and sufficiently nimble to operate in niche markets, are generally driven by the entrepreneurial elements of any given economy, rather than national champions such as Borouge, EGA and Emirates Steel.

The work of the Abu Dhabi Industrial Development Bureau (IDB), therefore, is crucial to the emirate’s downstream ambitions. Established in 2013 as a department within the Abu Dhabi Department of Economic Development, the IDB is charged with coordinating the development of the emirate’s industrial sector. As part of its broad mandate, the new body is tasked with both establishing the industrial regulatory framework and overseeing its implementation – one of the principal areas of concern for any small- or mid-cap firm seeking to grow its business.

Making It Simple

One of the practical steps taken as a result of this focus is an ongoing review of all local and federal laws and regulations governing the industrial sector, in which every procedure that investors are asked to undertake is reviewed in such a way that areas of possible improvement are identified. The IDB will then cooperate with the relevant entities, forming joint working teams to review the pertinent regulation and make changes where necessary.

According to Ayman Al Makkawy, director-general of the IDB, difficulties currently facing potential industrial investors, which have already been identified by the investment bureau, include the necessity of moving between a number of government agencies to discover what requirements they must meet in order to license a business, the number of application forms that must be submitted, and limited communication and cooperation between official entities.

The ambition of the IDB is therefore to establish a single location where all of these activities can be coordinated, a development that it hopes will significantly reduce the time between concept and production. It has already taken an important step towards realising this goal through the creation of the Industrial Licensing Services Centre, which caters to the needs of industrial investors who plan to locate their facilities outside the existing industrial zones.

Looking ahead, the results of the IDB’s efforts to attract private capital to the industrial sector will become apparent over the coming years.