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The Borouge plant in Ruwais, Abu Dhabi

The Borouge plant in Ruwais, Abu Dhabi



Challenge and resilience

The UAE has had a remarkable ride both in the oil and non-oil sectors but when the chips are down no country in the region can match her in bouncing back

March 2016

The UAE, perhaps the most diversified amongst the Middle East’s oil producing states, sees 3 per cent growth this year as challenging in the backdrop of strong economic headwinds driven by a steep decline in oil prices.

The country’s Minister of Economy, Sultan Al Mansouri, himself conveyed that less-than-cosy sentiment at a conference. “It’s a challenge not only for us but for everyone around the world, so it will depend on the price of oil as we move on,” he said.

The country has made giant strides in the non-oil sector mainly through manufacturing and general services. Over the years, oil’s share of GDP has declined, standing now at 30 per cent, and is likely to plunge to 20 per cent by 2021.

One thing the UAE is certain to do is maintain momentum as much as possible in areas that have brought it wealth and respect – producing goods in a range of industries and building the attractions that beckon tourists. Home to the world’s tallest tower and largest mall and to a plethora of world-class hotels and resorts, the UAE knows a thing or two about business. The global recession of eight years ago and the ensuing lessons have not been forgotten. Despite the gloom, optimism persists as also the overriding belief in resilience should the economic troubles go further than foreseen.

 

SMALL FIRMS IN DISTRESS

One of the assurances the government was quick to extend was directed at small and medium enterprises (SMEs), not surprisingly as the sector makes up and overwhelming number of businesses in the UAE.  The Emirates Development Bank reaffirmed its commitment to helping them overcome hurdles. Rashid Mehboob, acting CEO of the bank, said: “Comprising of around 300,000 companies and accounting for 86 per cent of the workforce in the private sector, SMEs play a critical role in the UAE economy. With more challenging economic conditions, it has never been more important to support this sector, which is so important to the future growth and prosperity of our nation.

“We want to send a clear message to SMEs and entrepreneurs that our door is open and we are here to help with expert advice and accessible finance.”

SMEs will need all the help they can get. They have been having a rough ride since falling oil prices muddied the waters. According to a Gulf Finance survey, more small businesses in the UAE struggled to get financing than in earlier months with a consequent postponing of expansion plans and suspension of hiring.

David Hunt, chief executive of Gulf Finance, remarked: “The last quarter of 2015 witnessed a significant increase in negative sentiment sweeping the SME market. After a strong start of the year, UAE SMEs rapidly struggled to raise and collect money, pushing plans to recruit, launch products or open new outlets aside.”

A Jabel Ali Port terminal

A Jabel Ali Port terminal

74 per cent of respondents of Gulf Finance’s survey reported difficulties in their ability to raise money compared to 48 per cent in the third quarter and about 29 per cent reported problems in collecting payments in Q4 compared to 15 per cent in Q3.

The situation was already quite serious last November when Abdul Aziz Al Ghurair, chairman of the UAE Banking Federation, commented that he thought some small businessmen may have left the country with unsettled debts.

The UAE has still some major projects ongoing that could help SMEs pick up some of the business and keep them going for another day. After all, big-time contractors subcontract their responsibilities to local businesses more familiar with the terrain.

 

BRISK BUSINESS ACTIVITY

A GCC update issued by the Abu Dhabi Commercial Bank  reports that key service sectors such as tourism and aviation are continuing to see growth, although slowly.

“There are initial indications that Dubai’s investment programme has gathered pace into 2016, with a number of projects awarded including ports, hotels, leisure/tourism and real estate,” said Dr Monica Malik, chief economist at Abu Dhabi Commercial Bank.

One of those projects is the Dubai Metro expansion to the Expo 2020 site. Dubai has actually announced a 2016 budget where investment spending will rise around 20.6 per cent. DP World has announced it has awarded construction contracts for its $1.6 billion Terminal 4 at Jebel Ali Port whose first phase will add 3.1 million teu by 2018, taking total capacity at the port to 22.1 million teu.

DP World is quite sanguine about its prospects in the wider arena, saying it will invest $1 billion in its
Indian terminals.

Though there will be challenges, the economic situation will not be as bad as in 2009, Dr Malik stated.

Announcements of new ventures planned or opened are heard from time to time. Leminar opened its state-of-the-art duct manufacturing facility that will manufacture ducts and other related accessories for the HVAC industry.

Al Gharbia Pipe Company, a Senaat unit, is implementing a project to produce large-diameter, high-quality sour-grade steel pipes for the oil and gas sector. A consortium of Japanese and Emirati banks signed a $185 million loan to finance its manufacturing and sales business. The financing reflects the confidence of the project’s promoters in the validity of their initiative and confidence the banking firms have in the project’s viability.

There was cracking news from the interior fitouts sector. Cloisall has secured contracts worth $191 million to be implemented within the next two years – a safe cushion at a time like this.  The company has come out of a year that was impressive: organic growth of 50 per cent and contracts increasing 40 per cent.

That Cloisall has been busy picking up orders is also because of expertise, having successfully completed iconic projects such as Midfield Airport, Dubai World Central, and all concourses at Dubai International Airport.

 

INNOVATIVE SPIRIT

Part of the reason why the UAE has advanced spiritedly in the non-oil sphere is its propensity for big and classy projects. A case in point in manufacturing is Emirates Global Aluminium, which is not only running a giant operation but has developed smelter technologies in-house. Its proprietary DX and DX+ reduction technologies rank among the most efficient in their class.

Its latest innovation is the DX+ Ultra Smelting Technology that assures lower capex, lower energy and high-amperage reduction cells. In a recent development, Aluminium Bahrain (Alba) announced it has upgraded technology for its Line 6 Expansion Project from EGA DX+ to the EGA DX+ Ultra.

A study is in progress to introduce yet another advanced smelting technology – DZ, which will allow operations at amperages above 600 kA and energy consumption levels less than 12 kWh/kg.




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