The UAE's industrial sector, having already assumed sophisticated proportions in some fields, appears poised for further growth following a prosperous 2000 marked by strong oil prices. The year witnessed a 17 per cent spurt in the GDP to $60.7 billion and the non-oil sector is buoyant. There are indications that the UAE government will allow foreign companies to secure up to a 70 per cent stake in local firms. The thriving oil and gas sector, in conjunction with the manufacturing industries, raised the trade surplus nearly threefold to Dh38.2 billion ($10.4 billion) from Dh13.4 billion in the previous year while inflation was brought down to 1.2 per cent.
Industry can also expect greater support from banks, which saw profits climbing to $1.21 billion against $953 million in 1999. Well before oil prices assumed the high levels they did in 2000, the country was in diversification mode. The Central Bank announced late last year that the country's dependence on output in the oil industry had declined from 46 per cent to 26 per cent between 1990 and 1999. The non-oil GDP witnessed an average annual growth rate (AAGR) of 8.57 per cent during that period with the non-oil sectors of manufacturing, construction, agriculture, mining and quarrying and electricity and water posting an AAGR of 8.75 per cent. The share of these sectors went up from 19.33 per cent to 27.05 per cent.
The good news for those lobbying for a larger economic role for industry was that manufacturing expanded fastest, recording an AAGR of 10.59 per cent. Its GDP surged from 7.24 per cent to 12.61 per cent while total investments within it reached $5.71 billion at the end of 1999. The number of manufacturing establishments grew from 705 to 1989, generating more than 120,000 new jobs.
The involvement of foreign companies in UAE industry is gradually gathering pace. They have shown special interest in the free zones because of the liberal rules that govern them. Scarcely a fortnight passes without some overseas business organisation announcing an intention to partner local companies or concluding an agreement to set up a joint venture in the free zones or elsewhere. Dubai has also become the favoured spot for international organisations to site their Middle East headquarters. In recent months global tyre giant Goodyear established its regional sales company in the city and voiced expectations it would handle billings in excess of $125 million in the first year itself.
Few countries in the Middle East are working on their free zones as aggressively as the UAE. The one at Jebel Ali has been on the marketing offensive and some of the world's prominent corporations have established a presence there. Jafz is currently undergoing improvements to its infrastructure including road construction, which should facilitate movement of goods and traffic. Despite there being close to 2000 firms established within its confines, there is no trace of complacency among the authorities.
Other free zones in the emirates have been encouraged by Jafz's performance and have managed to draw investors into their folds. The Dubai Airport Free Zone (Dafz) is progressing with about 100 companies registered. It still has to catch up with Saif, the free zone for Sharjah International Airport, which has enrolled 475 businesses of various kinds. The UAE's faith in free zones has prompted it to set up several (the others being Hamriyah , Ajman, Fujairah and Ras Al Khaimah) around its ports and airports. The country scored a world first when it established the Dubai Internet City for e-commerce. Abu Dhabi is preparing to set up one on the 3,500-hectare Saadiyat Island. The plan suffered a setback recently with the cancellation of a contract with a local party entrusted with developing and managing the zone.
Happy with the performance at Jafz, Dubai and Saif and confident the others hold promise, the UAE government is contemplating building more free zones and expanding existing ones. Saif has already been allotted another five million sq m of land to the 10 million sq m it already has.
An example of the progress that the lesser-known free zones are making can be viewed from the reported announcement that Hamriya, the Sharjah seaport zone, is to house two manufacturing plants that are diverse in nature. One is to produce prefabricated steel structures and the other will manufacture textile chemicals including fabric softeners, petroleum jelly and leather chemicals. A substantial portion of the output is to be exported. Hamriya has 152 companies in operation, and investments there totalled $545 million.
Several UAE companies have made spectacular headway in recent years. Gulf Pharmaceutical Industries (Julphar), for example, received formal German approval to market its products in Germany. The company has established a US-based office with a view to selling its pharmaceuticals in that country, reputed to be the world's largest drug market accounting for 33 per cent of global drug consumption. Julphar is unique among companies of its kind in the Middle East in that it has two overseas factories, one in Equador, and the other in Germany, besides three in Ras Al Khaimah. It is putting up a sixth factory in the UAE at a cost of $30 million.
Another UAE company, RAK Ceramics, has reported sales of $165 million and recently commissioned one of the world's most modern plants to manufacture porcelain tiles. The company also produces sanitary ware and is one of the world's leading players in its field. The company has set up a plant in Bangladesh and says its exports go to over 100 countries.
The proposed law to raise the shareholding limit of overseas companies to 70 per cent will be restricted to specific industries. In another move signifying further liberalisation of the economy, the government is likely to open up the insurance sector to foreign companies. With overseas firms being allowed to operate more freely in the emirates, UAE businessmen are advocating a common market in the GCC states in order that their products move freely nearer home.
As UAE industrialists face increased liberalisation at home and begin to make a mark in manufacturing, they are confronting obstacles from powerful economic blocs. Dubai-based Al Khaleej Sugar Company, which is the Middle East's largest sugar refiner, attacked the EU for its export subsidies and the consequent dumping, forcing prices of locally refined sugar to dip below break-even levels.
The challenge to UAE businessmen is to find larger and safer markets and to promote regional market solidarity.
