Sharjah's free zones and a welcoming business environment contribute to industry and energy sectors

With limited oil and gas production by regional standards, Sharjah has had to look to other sectors to build a robust and diversified economy. Prominent among these has been industry and manufacturing, and the emirate has emerged as an important Middle Eastern industrial hub, with the sector accounting for around 17% of Sharjah’s GDP and around a third of manufacturing activity in the UAE as a whole.

Free Zones

Much of Sharjah’s industrial activity is concentrated in two free zones that allow for full foreign ownership, namely the Sharjah Airport International Free Zone (SAIF Zone) and the Hamriyah Free Zone (HFZ). More than 50,000 people work at the HFZ – about half of whom live onsite – which is located adjacent to Hamriyah Port, one of the emirate’s three deepwater ports to the north of Sharjah City, and near the emirate of Ajman, which is completely surrounded by Sharjah and the sea. The port is the emirate’s main oil and gas terminal and HFZ, which hosts 6600 companies, is also dominated by hydrocarbons- and petrochemicals-related industries, as well as heavy industry more generally.

HFZ is sub-divided into a zone for small and medium-sized enterprises (SMEs), known as Hamriyah SME Zone, a microbusiness zone (Hamriyah MB Zone) and a logistics zone (Hamriyah Logistics Village). Hamriyah SME Zone, which is 10m sq metres in size, is in turn sub-divided into seven industry-themed areas, respectively focusing on oil and gas, petrochemicals, steel, timber, perfume, construction and maritime-related industries such as ship-building and repair. Businesses located at HFZ have access to the 14-metre deepwater port and the seven-metre inner harbour. The free zone also offers pre-built warehouses, office units and factories for rent and renewable leases of up to 25 years. According to Saud Salim Al Mazrouei, the director of HFZ and SAIF Zone, Hamriyah has attracted more than $3bn in foreign direct investment since it opened.

New Players

Major recent investments in the zone include Sharafco Group’s inauguration in September 2016 of a $100m, 80,000-cu-metre petrol storage terminal with 16 storage tanks. The facility can be used to store fuel oil, base oil and gas oil. It is connected to the deep harbour by two, 12-inch pipelines and to the inner harbour by three eightinch pipelines. Sharafco Petroleum hopes to lease the tanks on a contract basis to international companies. India’s Radiant Group is building a $10m oil distillation plant on 107,639 sq feet of land at HFZ, which it hopes to open in 2017. The company manufactures alternate petroleum products and refines used or waste lubricating oil. Gulf Petrochem also opened a $60m storage terminal in the zone in November 2015; the facility has a storage capacity of over 200,000 cu metres. It uses 37 tanks to store naphtha, gasoil, fuel oil, base oil, bitumen and petrochemicals, among other things. The Sharjah facility complements a similar-sized storage centre in Pipavav, India, as well as 412,000-cu-metre fuel oil and gas oil facility in Fujairah.

Dayal Building Material Trader (DBMT), a UAE-based firm, is currently building a Dh20m25m ($5.4m-6.8m) steel fabrication facility on a 55,000-sq-metre plot in the zone, due to open in 2017. DBMT supplies steel to the oil and gas sector, as well as to contractors, steel fabricators and contracting companies. Its markets include the UAE, Oman, Kuwait, Bahrain, Qatar, the US and Europe. Sarsan Heavy Engineering has also invested in HFZ in 2016, opening 200,000-sq-foot manufacturing plant capable of an annual output of 25,000 tonnes of structural steel and 15,000 tonnes of pressure vessels. The UAE-founded company provides modular process systems for the oil, gas, petrochemical, minerals, power and nuclear industries around the world. The steel industry is a key sector for HFZ, with a number of fabrication yards and engineering workshops operating from the site. Another business set to start operations in HFZ in 2017, is the German textile firm SOEX, which invested $5.64m in a new plant on a 322,917-sq-foot site. The company markets and recycles used textiles and plans to export 50% of its products to Africa and 25% each to the Middle East and Eastern Europe. The Sharjah plant will employ 300-400 workers.

Broader Horizons

The zone is currently expanding its logistics and warehousing capacities, with 32 new blocks of warehouses and a combined area of 588,280 sq metres under construction at Hamriyah Logistics Village, where most existing warehouses have filled up. The new facilities are due to be completed by April 2017. Another 1008 new rooms to provide on-site accommodation for staff and associated infrastructure and amenities, including a sewage treatment and shopping facilities, are also under construction and due to be completed by April 2018.

As of September 2014, the latest available data for the zone, there were 6173 companies operating in the SAIF Zone, up from 5037 in 2010. The zone, located adjacent to Sharjah International Airport (SIA), east of Sharjah City, is less heavily focused on industry than HFZ, with 7.3% of licences issued for companies at the zone covering industrial activity, compared to 61.5% for trade and 31.3% for services. The industrial activity that does take place in the zone is also more focused on lighter industry and manufacturing than at HFZ. In 2015 the zone also announced plans to develop a 3m-sq-foot third phase, including 127 new warehouses Recent notable industrial investments in the zone include the construction of an Dh60m ($16.3m) tin can manufacturing facility announced by Indian firm Delta Food Industries in March 2016. The 5000-sq-metre plant will be used for the company’s existing lines of tomato paste, milk powder, custard powder, starch and oats. The tins will also be used for evaporated milk and cream. In March 2016 the company opened a Dh40m ($10.9m) dairy plant at the SAIF Zone capable of handling 250,000 cartons per month of evaporated milk and cream. Delta Food Industries began its operations in Sharjah in 2012 and uses it as a base to distribute to customers in 20 countries in the GCC, Middle East and Africa.

Other Industrial Zones

In addition to the free zones, Sharjah is home to another 18 industrial zones. The government is currently in the process of closing down inner-city industrial zones and moving them out of the city to improve quality of life in Sharjah City. A further zone is currently in the pipeline, and Sharjah Asset Management, the emirate’s state-backed investment fund, announced plans in October 2015 for the development of a new industrial zone, Al Saja Industrial Oasis. The 14m-sqfoot facility, containing 353 plots, will be located between Hamriyah and SIA on Emirates Road, a main road running from the northern emirates through Sharjah to Dubai and Abu Dhabi.

Competitive Advantages

The availability of land in industrial and free zones is among the emirate’s key competitive advantages as regards industrial development. “Sharjah is a natural place for manufacturers to locate at a time when other industrial zones in neighbouring Dubai, Abu Dhabi and Ajman are filling up,” said Mohammed N Al Hazzaa, director-general of Emirates Industrial City, one of the emirate’s industrial zones. While other emirates have established major free zones of their own, offering similar advantages such as full foreign ownership, Tushar Singhvi, vice-president for corporate development and investments at Sharjah-headquartered holding firm Crescent Enterprises, said that Sharjah would remain attractive to industrial companies. “Other emirates will provide similar investment incentives, but Sharjah has an inherent advantage in that it is home to long-standing free zones that have already given rise to an industrial ecosystem, which companies need for cost-effective local procurement, for example,” he told OBG.

Other prominent competitive advantages include the emirate’s well-developed logistics sector, which benefits from the country’s only container port located outside the Straits of Hormuz. This reduces shipping time and costs, as well as insurance costs during periods of geopolitical tension in the region. The advantage of being home to Khorfakkan Port could be boosted by long-term plans for the development of a national and regional rail network that will connect to the port. “The GCC rail project would improve efficiencies and logistics costs, enhancing Sharjah’s status as an industrial hub,” said Singhvi. “Sharjah’s proximity to sources of raw materials also makes it highly attractive for segments such as construction materials,” he told OBG, mentioning as an example nearby limestone quarries.

Costs & Location

Lower costs are another major attraction for industrial firms. “The great advantage for industry in Sharjah is that costs of labour, electricity and accommodation, as well as land prices, are much cheaper than in Dubai,” said Lalu Samuel, chairman of Kingston Holdings. Other industry figures agree. Al Hazzaa told OBG, “Costs are between 25% and 40% cheaper in Sharjah compared to the neighbouring emirate, which is its major competitive advantage.” Samer Saleem Sayegh, managing director and partner of National Paints told OBG, “Residential rents are 30% lower in Sharjah, which has an impact on labour costs as it makes it cheaper to house labourers. In addition, transport of these labourers is also more efficient because they can be located closer to the work field.”

It is also well-placed to export to a wide range of major international markets. “Sharjah is a great export hub, especially for markets such as CIS states, Africa, India, Pakistan and Iraq,” said Ahmed Ali Nalwala, managing director of Anchor Allied Factory. He added, however, that competition from northern emirates was strong. “Ras Al Khaimah is cheaper than Sharjah and has access to strong port facilities. As a result, a number of Sharjah-based companies have decided to relocate there, which could be a significant threat, in particular if improvements are not made to the business operating environment.”

Gold & Jewels

The most recent data published by Sharjah’s Department of Statistics and Community Development (DSCD) shows the significance of the jewellery sector to the emirate’s trade, manufacturing and retail sectors. The DSCD statistical bulletin for the second quarter of 2015 showed that during that period, 21% of all the emirate’s imports and nearly 42% of its exports were categorised as pearls, stones and precious metals. In total, goods worth Dh12.15m ($3.3m) were imported, including Dh2.63m ($716,000) worth of pearls, precious metals and jewellery. Of the Dh11.29m ($3.1m) in total goods exported from Sharjah during the same period, precious metals and stones and jewellery worth Dh4.72m ($1.3m) were shipped abroad.

In comparison, Dh1.4m ($381,000) worth of electrical machinery and electrical goods was imported and Dh2.84m ($773,000) of the same was exported, while the vehicle and aircraft category accounted for Dh1.84m ($501,000) of imports and Dh1.43m ($389,000) in exports. In addition to its impact on trade figures, the jewellery industry in Sharjah is organised around manufacturing, wholesale and retail activities. India’s Kalyan Jewellers opened six retail outlets across the UAE in 2014; since then, it has established a design and production facility at the SAIF Zone that is capable of handling some 5-8 kg per day of gold jewellery.

The Malabar Gold and Diamonds Group also has two Sharjah production facilities with a combined capacity of 500 kg per month. Additionally, twice a year, Sharjah hosts the Mid East Watch & Jewellery Show at Expo Centre Sharjah. The 41st show in September 2016 attracted 1275 trade visitors and 60,384 general visitors (8% more than the spring event) to see jewellery offered by 505 exhibitors.

Education, Research & Innovation

Another local competitive advantage for industry is the presence of a well-developed education sector, including the American University of Sharjah (AUS), around 50% of the graduates of which study engineering. Al Hazzaa told OBG, “With two of the best universities in the Middle East, Sharjah has consolidated its position as an education hub. Therefore, it should now focus on high-tech industries that need land, as well as educated workers that could be drafted from that local talent pool.”

Plans to develop the emirate’s research and innovation capabilities should give a further boost to local industry, and AUS is currently developing a new technology centre, the Research, Technology and Innovation (RTI) Park, which will focus on areas including industrial design and architecture, water technology, transport and logistics, energy, environment and digitisation. RTI park, slated to be completed in 2018, will be located close to the university and is being set up as a creative community modelled after areas like neighbouring emirate’s Dubai Internet City and Dubai Media City. The park will cover an area of roughly 1.86m sq metres, with space for around 180 companies, as well as residential properties and retail, and will focus on a number of key education and employment areas likely to be in future demand in Sharjah and the region as a whole. The aim is to establish joint ventures with major local and international companies in these areas.

Crescent Enterprises is also looking to develop innovative new businesses in the emirate via an in-house business incubation unit, CE Ventures, which was launched in 2014 and will include industrial ventures. “Our aim is to give birth to the next set of operating businesses within the group,” said Singhvi, adding that the company was looking across a wide range of segments, from consumer-centric businesses to industrial ventures. “The key criteria is that the businesses must have a clear social purpose and be economically sustainable,” he told OBG.

Start-Up Boost

The Sharjah Economic Development Department (SEDD) noted a significant increase in home-grown start-ups in its most recent annual report. In 2015 it issued new or renewed licences for 253 small businesses under the Eitimad scheme, which supports nationals who want to launch a new business based out of their home. Eitimad licence holders are offered free exhibitions and workshops designed to help them put their business ideas on commercial footing, as well as given additional support.

Furthermore, a new Design and Innovation Award was introduced for engineering and fine arts students at the University of Sharjah to enable them to develop designs and concepts from their final-year projects. Entries included designs for factories, packaging concepts, and environmental and recycling schemes. In November 2016 82 entrepreneurs, Eitimad licence holders and university students took part in SEDD’s National Entrepreneurship Exhibition to showcase their ideas.

Oil & Gas

Sharjah’s oil and gas sector is small compared to those of major oil-producing emirates such as Abu Dhabi. Oil was first discovered in the emirate in the 1960s, with commercial production beginning in 1974 and boosted by the discovery of two new fields in the Sajaa area in 1980 and 1982. However, its importance to the economy has contracted significantly since then, and Sharjah’s 2017 budget anticipated oil would account for just 1% of government revenues, according to a January 2017 report from Abu Dhabi-based daily The National. Hydrocarbons accounted for 7.7% of the emirate’s GDP in 2015, according to figures from credit rating agency Moody’s, compared to 24% for the UAE as a whole. The two figures were respectively down from 13% and 36% in 2014. Total energy production stood at about 6m barrels of oil equivalent (boe) in 2016, according to Moody’s. Production has been declining in recent years, from 17.2m boe in 2008. The value of oil production has declined even more rapidly in recent years thanks to the fall in the international oil price that began in late 2014 and accelerated in 2015, leading to a 31% fall in the value of the hydrocarbons sector GDP in 2015.

Fortunately, the emirate’s economy was already among the most diversified in the region and is not heavily reliant on oil – though federally funded spending in Sharjah is more reliant on hydrocarbons receipts. Still, the decline in oil prices has not presented major difficulties. “We view lower oil prices in Sharjah as an opportunity, not a setback. It is an opportunity to further our diversification and develop the necessary legislative and policy frameworks to attract more investors to different sectors,” said Sheikha Bodour bint Sultan Al Qasimi, chairperson of the Sharjah Investment and Development Authority (Shurooq).

State Player

Sharjah National Oil Corporation (SNOC) is the emirate’s state oil and gas company, founded in 2010 to take over the operation of state-owned strategic oil and gas facilities. The firm operates three gas condensate fields at Sajaa, Moveyeid and Kahaif, as well as the Sajaa gas processing plant, which provides gas to the Sharjah Electricity and Water Authority (SEWA) for electricity production, and two condensate and liquid petroleum gas export terminals. Sajaa is the largest producing gas field in the emirate, and SNOC took over BP’s 40% stake in 2013. The firm is currently planning to execute its first exploration programme, with drilling expected to begin by 2018. As part of this, in November 2016 the company announced plans for a seismic survey in a 500-sq-km onshore area around 40 km southeast of Sharjah City.

The survey was scheduled for completion at the end of 2016, with thousands of sensors across the desert connected to a data processing centre by tens of kilometres of cables. The seismic data will be analysed using supercomputers that will produce detailed geological maps of the strata below the surface, enabling geologists to locate any potential reservoirs of oil or natural gas. Surveyors had to work around built up districts, as well as sensitive wildlife habitats to gather the data.

Private Activity

The private sector plays a large role in the local gas industry compared to other emirates and the wider region. A key independent player in the industry is Crescent Petroleum, which is also headquartered in the emirate and has several oil and gas operations there. These include the offshore Mubarek field, which has produced over 100m barrels of oil and 300bn standard cu feet (scf) of gas since production at the site began in 1969. In 2008 Crescent Petroleum and the government also signed an exploration agreement for the onshore Sharjah concession, and since 2010 the firm has been exploring the concession together with Russian oil company Rosneft under a 51:49 farm-out agreement. The companies have committed to funding Dh220m ($59.9m) worth of exploration work under their current investment plan for the concession, which will include the drilling of two exploration wells. Since 1999 Crescent has also been conducting exploration efforts in the Sir Abu Nu’Ayr concession, which surrounds an island of the same name located around 80 km offshore of Abu Dhabi that is part of Sharjah’s territory.

Gas Supply

Crescent is also a shareholder in Dana Gas, also headquartered in Sharjah, with a 19.1% stake. The gas company was founded in 2005, principally in order to build and manage a plant to process gas imported from Iran under a 25-year agreement signed in 2001. Dana Gas, which is solely responsible for the transport and processing of gas from the project, has a 35% stake in Crescent Natural Gas Corporation, which is responsible for marketing the gas. However, while the infrastructure for the project has been completed, Iran has yet to deliver any gas from the field due to a dispute over pricing after the National Iranian Oil Company (NIOC) pushed for an upwards revision to the price formula, which has led to an arbitration process. Dana Gas in 2014 said it had been notified that the tribunal had ruled in its favour, finding that the original contract between Dana Gas and NIOC remained binding and valid, though the firm said in early 2016 that arbitration procedures with Iran were continuing.

Dana Gas also operates the Sharjah Western Offshore Concession, which is located in the offshore waters between Ajman and Sharjah and includes the Zora gas field. The field began production in February 2016 and supplies gas to a processing facility in HFZ. Dana Gas spent $150m in 2015 alone on developing the concession, which was 64% of the company’s capital investment that year. The natural gas from the Zora field will provide clean energy for people living in the Northern Emirates. “Sharjah has historically had limited indigenous energy resources, so the addition of the Zora gas field in early 2016 was a welcome contribution to local production,” Patrick Allman-Ward, CEO of Dana Gas, told OBG.

The Zora Project consists of two wells that were drilled in 1999 and 2002. One of these wells has been re-entered and brought on-line with an unmanned platform standing in 24 metres of water. This is connected by a 35-km, 12-inch pipeline to the gas processing facility at HFZ. Dana Gas also has a 50% stake in a joint venture with Emarat, which developed a 48-inch pipeline in Sharjah capable of carrying 1bn scf per day (scfd). Dana Gas, which produced 63,900 boe per day in 2015 and has operations in Egypt and the Kurdistan region of Iraq, is also carrying out further exploration work in the UAE concession.

Securing Supplies

With the emirate far from self-sufficient as regards hydrocarbons consumption, the authorities have been taking steps to secure long-term gas supplies. In October 2016 the UAE’s Dolphin Energy signed a long-term agreement with Qatar Petroleum (QP) for the supply of Qatari gas via the Dolphin pipeline between the two Gulf states to both SEWA and the Ras Al Khaimah Gas Commission for power generation. QP will deliver additional quantities of gas to Dolphin for export to the UAE through the 48-inch subsea pipeline, which has been in use since July 2007. By February 2008, daily throughput had reached 2bn scfd. In 2015 Dolphin installed three new export gas compressors at its Ras Laffan processing plant, increasing daily capacity to 3.2bn scfd.

The additional gas supplies for SEWA announced in October 2016 will be allocated through the UAE Eastern Gas Distribution Network. The same month, SNOC also signed a memorandum of understanding (MoU) with Germany’s Uniper for the provision of liquefied natural gas (LNG), which it will supply to customers in Sharjah and the Northern Emirates via an existing pipeline network. “Currently, the totality of Sharjah’s local gas production covers about 10% of summer peak demand and more than 20% of its winter needs, with the rest being satisfied with gas imports from Dolphin, power imports from Abu Dhabi or more expensive liquid fuel. The MoU to import LNG will displace all expensive options from Sharjah’s energy supplies, and provide excess to supply demand from the northern emirates and to Sharjah’s industry,” Hatem Al Mosa, CEO of SNOC, told OBG. The firm says the first deliveries of gas are due to arrive in Sharjah in spring 2018.

Electricity & Water

The state-owned SEWA is responsible for electricity generation and distribution, as well as water distribution in the emirate. The authority’s total installed electricity generation capacity stood at 2.89 GW in 2013, of which 83.9% was provided by gas turbines, 14.1% by steam turbines and 1.1% by diesel units. Electricity consumption in the emirate has been growing steadily in recent years, with total consumption at 9.8bn KWh in 2013, up from 9.2bn KWh the previous year and 8.9bn KWh in 2011, according to latest available full-year DSCD figures as of early 2017.

Generation stood at 11.1bn KWh in 2013, up from 10.8bn KWh and 10.4bn KWh in 2012 and 2011, respectively. According to a May 2016 report in Shurooq’s newsletter, peak power demand stood at 2275 MW in 2015. SEWA also produced nearly 33bn gallons of desalinated water and distributed 28.9bn gallons in 2013, compared to figures of 32.7bn gallons and 29.4bn gallons, respectively, the previous year, according to DSCD figures.

The authorities, who expect demand to continue to rise in coming years, by around 5% annually, are working to develop and expand the emirate’s electricity infrastructure to accommodate this. In May 2016 Shurooq also announced that SEWA was evaluating bids to expand the generation capacity of the Hamriyah power plant from 500 MW to either 1000 MW or 1500 MW, while also converting the plant from open cycle to combined-cycle technology. In early 2017 MEConstructionNews.com also reported that SEWA planned to build eight new electricity distribution stations during the year.

Looking At Consumption

According to the latest available DSCD data, in the second quarter of 2014 domestic customers accounted for 65.6% of desalinated water consumption, with 4.06bn gallons used daily in Sharjah’s homes, out of a total of 6.19bn gallons sold during the period. The desalination process uses a number of fuels. In the second quarter of 2014 the feedstock consisted of 16,739 tonnes of heavy oil, 34.4 tonnes of light oil, 66m cu metres of natural gas and 78.9m KWh of electricity. Shurooq has identified a solar thermal energy desalination plant as one of a number of green energy opportunities in the emirate. The government had until recently subsidised SEWA. However, this is no longer the case due to factors such as the fall of global oil prices and reduced operational costs at the authority. The latter have been brought down through measures including securing additional supplies for the emirate and elsewhere and purchasing electricity from the national grid, which should mean that Sharjah no longer needs to purchase costly fuel oil for power generation during shortfalls.

Outlook

Thanks to a number of competitive advantages such as a strong transport and logistics infrastructure, an advantageous geostrategic location and a well-established industrial ecosystem, Sharjah is set to remain an important manufacturing and industrial centre for the UAE in coming years. While oil and gas will remain just one of a variety of sectors in what is a highly diversified economy, the recent launch of the Zora gas field and new exploration efforts under way by both SNOC and private firms should ensure that local energy resources continue to contribute to the emirate’s economy.