Abu Dhabi, UAESaturday 25 May 2019

Abu Dhabi makes big strides in diversifying economy as oil price remains low

As Gulf economies take stock of continuing oil price turbulence, the Abu Dhabi government is boosting investments in the industrial and petrochemical sector to diversify income from fossil-fuel energy.

From petrochemical projects to defence industries, the UAE has made strides in becoming one of the most non-oil dependent economies in the region.

“The UAE is one of the most diversified economies of the region and ranks favourably on competitiveness indicators,” the IMF says. “Structural reforms should aim at further diversifying the economy and accelerating private sector-led job creation for nationals.”

The industrialisation efforts are part of Abu Dhabi’s 2030 Vision, which counts on non-oil industries to play a significant role in supporting the economy.

As part of Abu Dhabi’s Economic Vision 2030, the contribution of the non-oil sector is aimed to be 64 per cent of GDP. In 2013, non-oil activities contributed 45 per cent to the emirate’s GDP, versus 43 per cent in 2012, according to the Economic Report of the Emirate of Abu Dhabi 2014.

The manufacturing industries sector in Abu Dhabi accounted for 12.6 per cent of the emirate’s non-oil GDP in 2013.

Petrochemicals and plastics remain the top manufacturing sector, accounting for about half of the manufacturing industries’ production and 73 per cent of its fixed capital formation. It is followed by the basic metal industries (iron and aluminium), which account for 11 per cent of the production value of manufacturing industries sector.

“Dubai has been traditionally the leader of the diversification effort, but Abu Dhabi has found its own competitive niches in different segments and it is natural to focus on the non-oil sector in the current period of low oil prices,” says Razan Nasser, a senior economist at HSBC Middle East.

For example, the plastics firm Borouge plans to reach a petrochemical production capacity of 4.5 million tonnes a year by 2016 as the country’s biggest petchems producer undertakes a US$4.5 billion expansion despite the oil price rout. Borouge 3, which had an initial start last year, will increase output to 4 million tonnes of petrochemicals a year by the end of this year from the current level of more than 2 million tonnes per year. Abu Dhabi-based Borouge is a joint venture between state-run energy firm Abu Dhabi National Oil Company and Austria’s petrochemical company Borealis.

Meanwhile, the state-owned Emirates Global Aluminium (EGA) is spending $5.2bn to boost capacity at its smelter in Dubai and build an alumina refinery in Abu Dhabi. EGA, the world’s fifth-largest aluminium producer, was formed last year by the merger of Dubai Aluminium (Dubal) and Abu Dhabi’s Emirates Aluminium (Emal).

EGA is adding about 40,000 tonnes per year to the 1 million tonnes per year smelter plant at Dubai due for start-up in 2017 and it is building a 2.2 million tonnes per year alumina refinery in Al Taweelah in Abu Dhabi set for start-up in the first quarter of 2018.

All of these expansion projects at EGA, which reached a capacity of 2.4 million tonnes per year last year, are part of plans to become the fourth-largest aluminium producer globally in the next two to three years.

“Currently, projects in chemicals, plastics and related products dominate manufacturing value added in Abu Dhabi. These are oil-related [petrochem] and energy intensive,” says Dima Jardaneh, an economist and director of research at investment bank EFG-Hermes in Dubai. “To more effectively diversify the manufacturing sector away from oil, there needs to be an emphasis on projects that are not oil-related.

“I believe that Abu Dhabi plans to expand efforts in this direction. For example, manufacturing clusters around basic metals, the aerospace industry, and health and pharma, albeit these efforts are still at early stages.”

Abu Dhabi has also been keen to develop the aerospace efforts and defines the industry as part of its Vision 2030. At this year’s edition of the International Defence Exhibition (Idex) in Abu Dhabi a large portion of deals went to UAE-based defence companies as part of government plans to carve up a local industry and create jobs for nationals. The newly-formed Emirates Defence Industries Company, Tawazun and Abu Dhabi Ship Building were among the local winners awarded contracts alongside foreign firms such as the US-based Boeing, Europe’s Airbus Defence, and the French-Italian aerospace manufacturer Thales Alenia Space.

Strata, a company owned by strategic investment company Mubadala, will make parts worth $80 million for Airbus this year and is expected to eventually produce composite parts for the A350 and A320.

Al Ain-based Strata, which also manufactures parts for Airbus’s rival Boeing, won deals with the two plane makers worth $5bn to make parts for their aircraft at the Dubai air show in 2013.

At the Khalifa Industrial Zone, where Emal and other industries are based, there are a number of projects that will support diversification efforts.

Abu Dhabi Ports this year signed an agreement with a unit of FourWinds Group to build a steel foundry to produce car parts at the capital’s Kizad free zone, with Germany’s car parts maker Continental Teves agreeing to buy the full output of the first production line.

The Abu Dhabi-based Senaat conglomerate is developing a Dh1.1bn steel plant that will create 370 jobs in Kizad through a joint venture with two Japanese steel makers, JFE Steel and Marubeni-Itochu Steel.

“With the introduction of Abu Dhabi Vision 2030, the AD government is in pursuit of economic diversification and sustainable growth,” says Alp Eke, senior economist at National Bank of Abu Dhabi.

“In my opinion AD is on the right track and is able to reach ambitious goals of Vision 2030 with projects like Khalifa Industrial Zone, Abu Dhabi Midfield Terminal, and Etihad Rail,” Mr Eke says.

“These projects will reduce reliance on oil sector, facilitate trade and transportation, will boost activity, enable direct and indirect economic growth.”


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Updated: July 19, 2015 04:00 AM