Happily Grinding Away

While industry may not be the first thought in the minds of many when looking at the many economic opportunities in Dubai, it is certainly gaining traction, being the third largest job generator in the Emirate. Although the UAE’s booming domestic marketplace attracts numerous investors, even more are being attracted by the combination of logistics, energy, and favorable operating terms in both the mainland economy and in Dubai’s many free zones. Industrial development is being formed with an eye to meeting the objectives of the Dubai Plan 2021, released in late 2014, which calls for the Emirate to become a smart and sustainable city. Increased economic diversification, and the encouragement of SMEs and an Islamic economy also lie at the heart of Dubai’s goals going forward. The continued roll out of the GCC rail network will also see industrial activity pick up, as manufacturers look for better bulk freight solutions with the UAE’s regional neighbors. Much of the industrial activity in the Emirate aims to support local growth, especially in the fields of construction, food and beverages, and consumer products, though as the economy shifts to becoming “smarter” in nature, pharmaceuticals producers are also beginning to show the way on the production side.

SIZE COUNTS

In preliminary numbers released by the Dubai Statistics Center (DSC) in early 2015, manufacturing activity in the Emirate was estimated to have grown by 6.5%, the highest among all other categories aside from the retail and services category, which saw growth of a whopping 28.2% over the year. The DSC estimated that the value-added from industry had risen from $6.08 billion in 2013 to $6.46 billion over 2014. In GDP terms, manufacturing represented 13.9% of the Emirate’s economic activity, and contributed a 0.9% share in the GDP growth rate for the year, which is estimated at up to 4.7%. And the number of workers involved in manufacturing has also shown healthy growth, with the Department of Economic Development (DED) estimating the presence of 340,735 workers at end-2012 (the last available statistics), up some 4.88% in YoY terms and becoming the third largest employer after wholesale, retail trade, and repair services (549,800) and construction (464,711). However, the same metric over the 2009-12 period was up a whopping 54.62%, demonstrating the growing strength of transformative industries in Dubai’s diversifying economic matrix.
In trade terms, the strength of Dubai’s industrial sector really begins to shine. From 1Q2014 to 3Q2014, manufacturing trade accounted for 77.7% of the Emirate’s non-oil trade, or $205.67 billion. As Dubai is unusual in having so much of its manufacturing located in free zone areas, the export and re-export of manufactured products—hopefully with some value-adding on the way—amounted to $81.28 billion over the same reporting period according to Emirates NBD Research. Instructive in the total is the breakdown between the main export/re-export segments, with electrical and machinery at 41.7% of the total, followed by pearls, precious stones, and metals on 29.2%, base metals and products at 8.2%, chemicals and products at 5.2%, while processed food and beverages rounds out the top five on 4.9%. On the imports side, there is little change, with electrical and machinery dominating again on 40.5% of the $124.39 billion recorded over the January to September 2014 period. In second place came pearls, precious stones, and metals (29.9%), chemicals and products (7.8%), base metals and products (7.1%), and minerals and products (4.3%). Of note is the rise of the pearls, precious stones, and metals category for Dubai, with the rise of the Dubai Multiple Commodities Centre (DMCC) playing a major role in supplying a place for those looking to perform value adding, such as in diamond cutting and jewelry manufacturing.

Credits supplied to the manufacturing sector are also on the rise, with Dubai-based lenders particularly conspicuous. Over 2014, lending to the manufacturing sector across the UAE reached $16.98 billion, up some 21.3% in YoY terms, and outpacing the 11.3% growth in loans for 2013, according to research generated by Emirates NDB. Dubai Islamic Bank represented 29.7% of all loans, putting it in first place at the federal level, while Emirates NBD supplied 12% of loans to the sector, coming in third. Still, in terms of overall licenses issued to new SMEs, manufacturing only represented 2.1% of the 132,288 licenses issued over 2014, according to the DED.

ZONES

Dubai’s industrial areas can be broadly split into two types: “non-free” zones based in Dubai’s economy proper, and free zones. However, while this split affects ownership limits for foreign companies operating under UAE rules and regulations, in reality the interdependent nature of the facilities and activities between the two areas help create vital synergies that drive economic activity. The 5% duty levied on most good types “exported” into the UAE economy proper represents only a small impediment. Broadly speaking, foreign ownership in companies in the non-free-zone areas is capped at 49%, while in the free zones 100% foreign ownership is allowed. For companies looking to use the UAE as an entry point into the GCC customs-free zone, having operations in the non-free zones is considered a key advantage. Some of the larger non-free-zone industrial areas include Al Quoz (1,838 ha), Al Awir Road (661 ha), Al Qusais (545 ha), Um Ramool (391 ha), Ras Al Khor (120 ha), and Al Khubaisi (102 ha). As well, across from the Jebel Ali Free Zone (Jafza) lies the Jebel Ali Industrial Area, with many of the companies operating here taking advantage of the close presence of Jebel Ali’s port and infrastructure facilities. As well, Dubai Investments Park (DIP), located near both Al Maktoum International Airport and Jebel Ali, has seen the number of companies operating in area grow to over 3,500, according to DIP’s General Manager Omar Al Mesmar in December 2014. Another key player is Dubai Industrial City (DI), a part of the TECOM Investments group of companies. DI, also located near Jebel Ali, has attracted over 500 companies since it commenced operations in 2004, with the main emphasis being on light to medium industry.

On the free zone side, while the DMCC is making strong strides, the flagship for both Dubai and the UAE as a whole is Jafza. In 2013 alone, Jafza has become the home of more than 7,100 companies across all categories, all looking to take advantage of not just its advantageous tax regime and world-class infrastructure, but also the cluster of other manufacturers across a broad range of industries. While big hitters in the oil and gas and metals sectors lie at the core of Jafza’s manufacturing matrix, food and healthcare has emerged as the third largest sector. In early 2015, Jafza announced that companies operating in the food and healthcare segment had grown from just 283 in 2004 to 829 by YE2014, with the volume of their trade reaching an estimated $2.72 billion. In 2014 alone, the number of food and beverage companies operating in Jafza had grown by 15%. Jafza’s parent company, Economic Zones World (EZW) is looking to double down on the Islamic food and beverage segment, with plans to develop two halal-specific zones for producers, one in Jafza and the other in TechnoPark, another initiative of EZW in Dubai.

SWING & A HIT

Dubai Aluminium (DUBAL) is one of the heavy hitters in the Emirate’s industrial complex, having the capability of producing over 1 million tons per annum of aluminum products, including billet form, re-melt ingots, and high purity aluminum for use in aerospace and electronic products. As the second oldest aluminum producer in the GCC region, starting operations in 1979, DUBAL is considered to represent almost 4% of Dubai’s GDP, according to HSBC research, while the company reports that around 92% of its annual production is bound for export. DUBAL is now held as one of the main assets of Emirates Global Aluminium (EGA), which is a 50-50 joint venture between the Investment Corporation of Dubai and the Mubadala Development Company formed in 2013. DUBAL’s facilities also include a 2,350 MW power plant that has the capacity to produce 30 million gallons of desalinated water per day. However, DUBAL is just the start of where manufacturing can go. Its products are used to supply a host of downstream industries, such as Gulf Extrusions, a part of the Al Ghurair Group. Gulf Extrusions has an annual aluminum extrusion capacity of some 60,000 tons, with its products finding a host of applications, with construction materials for local use and export predominating. Royal Engineering Fabrication Company (REFCO), another Al Ghurair subsidiary based out of the Jebel Ali region. The company aimed to produce over 1.9 million parts for the automotive, non-automotive, and construction sectors over 2014.

Another mainstay is Ducab, an electrical cable producing giant through its 590,000 sqm facilities located in Jebel Ali, featuring one of the world’s longest CCV lines, capable of producing medium and high-voltage cabling systems. As well, it hosts a PVC facility for the coating of cables, while Ducab HV, a joint venture between the Ducab Group (50%), the Dubai Electricity and Water Authority (DEWA) at 25%, and the remaining shares with the Abu Dhabi Water and Electricity Authority (ADWEA), addresses the local need for high voltage and extremely high voltage cables. Ducab is looking beyond the GCC region for new investment and export possibilities, taking over AEI Cables in the UK to help expand its product range.

Conares Steel, the second largest steel manufacturer in the UAE, also bases its operations out of Jafza. The company reported growth of around 40% for 2013, with it looking to up its annual capacity from 750,000 tons to 1 million tons over 2015. In terms of customers, the company estimates that 60% are from within the GCC area, with its output sent as far afield as the Far East and North America.

And while the big players are certainly underpinning the Emirate’s manufacturing strength, the automotive sector is also wandering into the field of assembly. By end-2014, Dubai played host to four armored vehicle manufacturers, Saxon Armour, Shell Armoured Vehicles, Mezcal Security Vehicles, and Inkas Armoured Vehicle Manufacturing, which all told produced around 1,600 specialized vehicles over the year. The manufacturers, all located in DIP, are seeing strong growth, with Inkas looking to expand its facilities from 110,000 sqft to 269,700 sqft over 2015, thus boosting its annual production capacity from 1,000 units to 1,600.