By TBY | UAE | Sep 14, 2017
As revenue from fossil fuels has become less and less reliable, the country’s leadership has orchestrated a carefully planned pivot away from the energy economy, and key to this is […]
As revenue from fossil fuels has become less and less reliable, the country’s leadership has orchestrated a carefully planned pivot away from the energy economy, and key to this is the development of a strong and durable industrial sector. Industrial development has historically been the cornerstone of any emerging economy including fellow oil producers Malaysia and Mexico, and the UAE will be no exception. Thus, the rise of the Emirates as a global commerce hub hinges in part on the country’s industrial plan and its ability to support the growth of small manufacturers into major players in the economy.
As detailed in the UAE’s Vision 2021, and in Abu Dhabi’s Economic Vision 2030, there is a standing goal of reducing the contributions of oil and gas to 20% from its current level of 30%. More specifically, Abu Dhabi aims to elevate the share of its non-oil private sector to 40% of GDP by 2030, against the current level of 27%. This private-sector growth is most feasible in the manufacturing and industry sector. On this front, the Ministry of Economy expects to nearly double the manufacturing base of the UAE to 20% by 2021, and then raise it further to 25% by 2025. Within the Emirate of Abu Dhabi, however, the manufacturing base trails at around 5%, with the Department of Economic Development highlighting its intentions to double the sector to 10% in the long run.
Commenting on the drive for industrialization, Director General of Abu Dhabi’s Industrial Development Bureau Ayman Al Makawi said, “The 2016-20 strategy will be all about enabling the private sector, about linking the larger industries with the smaller and medium-sized companies.“ Makawi is shrewd to put faith in the UAE’s SME sector. Globally, SMEs fail at a rate of 80%, with only 20% of businesses surviving. However, the UAE’s failure rate is far lower, with the success rate hovering between 25 and 30%.
With the support of several initiatives and agencies, the success rate for such enterprises may rise to as much as 50%, high above the international benchmark. Initiatives such as the Khalifa Fund for Enterprise Development and the National Programme for SMEs help to provide a framework for the SME sector to thrive, incentivize entrepreneurship, and offer technical support and training to businesses after they have launched, helping them to blossom into larger industrial entities.
Government support also comes from the National Industrial Coordination Council and the Industrial Development Bureau of Abu Dhabi, which seek to steer a bulk of the UAE’s economic growth toward the industrial sector. One key achievement of these organizations has been a law allowing for 100% ownership of businesses in industry and manufacturing to foreign nationals, bolstering FDI in the sector.
These types of initiatives are critical, as industrial development is noted to be the most difficult area for SMEs to emerge. Entrepreneurship in manufacturing is relatively risky, requiring huge capital investments. However, it is also the sector that has the best opportunity for contributing to local growth. Manufacturing goods are more likely to use local resources, and are more likely to be exported compared to other sectors. Conversely, trade sectors bring in goods from foreign markets and move cash outside of the UAE. Because of this, manufacturing has a powerful multiplier effect; for every USD1 million of development in manufacturing, USD1.3 million is added to the economy.
To showcase the vision for industrialization and to facilitate the development of SMEs into major players in the manufacturing industry, the UAE hosted the Global Manufacturing and Industrialization Summit on March 30, 2017. The summit was a joint effort by the UAE Ministry of Economy and the United Nations Industrial Development Organization (UNIDO). This was the first global gathering of manufacturing industry leaders and SMEs, and was hosted under the patronage of HH Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi. The goal of the summit was to connect the industry’s decision-makers, creating a forum for sharing best-practices in industrialization, while backing the local vision for technology and innovation in manufacturing.
The World Industrial Summit did more than launch a platform for collaboration between small and large industrial businesses. It was also a signal to the world that the Emirates will not settle for nominal diversification. Instead, it is positioned to propel itself to the forefront as a regional leader in industry, transforming a sector that had lagged behind for decades. Bringing the UAE’s industry to the core of its economy is no small order.