UAE manufacturing boom likely

Study suggests focusing on long-term trade openness policies

The UAE is expected to pursue its diversification programme through large scale investments in the manufacturing sector, according to a recently-released study by Dubai Chamber of Commerce and Industry.

The potential manufacturing sectors identified include shipbuilding and vessels, basic pharmaceuticals products, refined petrochemical products, motor vehicles parts and accessories and electric power generation, transmission, and distribution products.

The study recommends the UAE manufacturing sector to continue focusing on its long-term trade openness policies to ensure sustainability, especially on policies that promote manufacturing industry for exports to developing markets, while also urging the country to focus on projects that depend on highly advanced technologies which provide high value added to the economy to increase the competitiveness power of this sector in international markets.

At the regional level and in joint efforts with other GCC countries, this particular sector can launch large and efficient manufacturing projects to limit competition among the manufacturers as this creates difficulties in exporting manufacturing products overseas, informs the study.

In its analysis of the economic importance of the sector, the study states that the UAE manufacturing sector is amongst the highest contributing sectors to the UAE's non-oil GDP over the last decade, with stable percentage contribution of about 14 per cent over the period 2001-2012 showing growth pattern similar to that of the UAE GDP growth path.

The study informs that while Dubai has targeted services and light industries, Abu Dhabi believes its competitive advantage lies in heavier manufacturing industries, due to the availability of cheap energy. The development of free zones has spurred investment in UAE manufacturing sector.

The largest and most high-profile of the free zones is Dubai's Jebel Ali Free Zone that hosts over 6,000 businesses from over 110 countries; 75 per cent of them are involved in trading, warehousing, and distribution while 20 per cent in manufacturing and the rest in services. The bulk of industrial investment in JAFZA is concentrated on light engineering and final-stage assembly in sectors such as electronics.

--Structure of UAE manufacturing sector.

Based on the latest data released by the UAE ministry of Economy, in 2011, there were 5,201 industrial establishments with total employment of almost 399,794 workers. This is compared to 4,960 industrial establishments in 2010, registering an annual growth rate of 5%.

According to the study, this rating is relatively lower than the average growth rate in the number of establishments over the past few years which averaged about 9 per cent annually. In 2011, about 40% of the manufacturing firms were located in Dubai, 29 per centin Sharjah, 15% in Ajman and 7 per cent in Abu Dhabi. However, about 58.8 per cent manufacturing sector investments were in Abu Dhabi, 22 per cent in Dubai, 7 per cent in Fujairah and rest in other emirates.

UAE's main industries include food and beverages, tobacco, chemicals, mineral products, metal products, equipment, paper products, textiles, clothing and wood products. The largest individual manufactured products include aluminium, cabling, petrochemicals, steel, and marine industry products.

In the short to medium term, it is expected that the number of establishments, employment and investment in the manufacturing sector to increase with the development of Dubai Industrial City, a manufacturing zone that focuses on six industrial sectors including machinery and mechanical equipment, transport equipment and parts, base metals, chemicals, food and beverages and mineral products.

--Trade.

The study states that the UAE manufacturing sector has driven much of the country's non-oil trade. In 2012, manufacturing exports (including re-exports) accounted for 53 per cent of the UAE's total non-oil exports of merchandise goods and 22 per cent of total exports including oil exports, which are also considered as relatively high. UAE manufactured exports increased from $8.3bn in 2000 to about $59.2bn in 2012 registering a cumulative annual growth rate of about 18 per cent.

In 2012, about 77 per cent of the UAE manufactured exports went to Asia, 10.4 per cent to Africa, 6.4 per cent to Europe, and the rest to US and other transition economies. Despite the increase in the domestically consumed manufactured products in the UAE with the expansion of the economy, it is estimated that the value of manufactured exports exceeded the domestic consumption, says the study.

-- Manufacturing sector gross operating surplus.

Despite the cyclicality of the manufacturing sector output with the GDP during the global financial and economic crisis, the UAE manufacturing sector sustained positive returns on investment during and post the crisis years.

The study shows that the GOS measures generated surplus by the sector from operating activities after the labour factor input has been compensated.

According to data, the GOS of the UAE manufacturing activity has been growing on average by 8.2 per cent for the period 2001-2008, before dropping to -19 per cent growth rate in 2009 reflecting the impact of the global financial and economic crisis. In 2011, the sector profitability started to improve remarkably a trend which has been sustained in 2012, concludes the study.

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