Manufacturing Industry

In an increasingly globalised business climate, the universal expansion of manufacturing and trade has become imperious. The UAE is no exception to this rule and has already recognised the benefits of boosting its manufacturing sector. Contribution of the manufacturing industry to the GDP currently stands at 14 per cent and the UAE has drawn out plans to increase this to 25 per cent in the next 15 years, In particular, noteworthy investments will be made in petrochemical, fertilisers and metal production.

While the Emirate will remain dependent on the oil sector for many years to come, its level of dependency is gradually declining, and the share of oil in the GDP of the UAE will shrink progressively. Although the petroleum industry remained the most significant individual region in terms of its share of GDP at 31% in 2016, the non-oil sectors’ mutual share—69%— reflects the UAE economy’s increasing diversity.

The Early Days of the Manufacturing Sector in the UAE

UAE’s manufacturing sector is the second most active economic growth driver among the non-oil areas. In terms of its GDP contribution, it ranked in 12.9% share in 2007 and 12.2% in 2008, placing second to the hydrocarbon sector at both the times.

Consistent performance reflects the government’s substantial investment in the manufacturing industry. Realising how crucial the manufacturing sector’s role in diversifying the economy the government took many initiatives which maintained the growth of free zones. As the economy develops, the demand for finished products and materials increases.

By the third quarter of 2008, an official report placed the total cumulative industrial capital value of all non-oil and gas industrial projects in the UAE to be exceeding US$ 20 billion, accounting for about 290,000 jobs. This new wave of manufacturers is catering for the 'new economy' providing machinery and tools for industries related to construction, infrastructure, shipbuilding, power generation and even retail.
The manufacturing industries sector has the highest added value among the various areas. This sector, which is besieged by the government, is used as a means to achieve sustainable growth, either backwards towards raw materials, or forward towards medium and final products. Across the country, various emirates are pushing initiative to develop industrial centres to cope up both with the demand and the vision of being the world’s most vibrant manufacturing hub.

Leading Emirates for Manufacturing Industry in the UAE

The UAE’s manufactured exports have risen dramatically in recent years as indicated by the 15% rise in the manufacturing activity income of Dubai investments, the Dubai Financial Market-listed company, from US$ 381 million in 2016 to US$435.5 million in 2017.

Dubai

Within the previous decade, the contribution of the industrial sector in Dubai’s Gross Domestic Product (GDP) ranged between 11% to 14%. Dubai has 18 industrial areas, eight of which are inside the free zones and representing 30% of total industrial regions within the Emirate.

In 2017, manufacturing activities contributed 9.4% of Dubai’s GDP with a total value of US$ 100 billion in 2017, registering a 2% year-on-year growth and contributing by 6.8% to overall economic growth. Only storage and transport have seen a stronger growth rate than manufacturing in recent years, and expectations are that the sector will contribute 25 per cent towards the UAE’s GDP by 2025.

Apart from this, Dubai’s industrial growth is expected to reach US$ 16.1 billion and add 27,000 new specialised jobs by 2030. The government of Dubai has embarked on a concerted effort designed to promote, develop, and sustain a prolific  manufacturing sector in Dubai. Under this Dubai Industrial Strategy 2030, the government has identified 75 initiatives to renovate Dubai into an international hub for knowledge-based innovation and supportable industrial activities.

A dedicated free zone to the industrial and manufacturing sector called the Dubai Industrial City. Offering a cost-effective and effective business environment for the region’s manufacturing hub, Dubai Industrial City today helps an enabling ecosystem for investors with combined offerings of industrial land, labour villages, and warehousing facilities. Besides, it is also increasingly ahead to get credibility among businesses looking for logistics solutions support, open storage yards, commercial office spaces, and retail showrooms with storage within the emirate of Dubai.

Why is Dubai the Best Manufacturing Hub?

Here are the few reasons to understand why Dubai is the go-to place for manufacturing business.

  1. Location and Connectivity – It has a strategic geographical location and is easily accessible through two international airports. It is the connecting hub between the markets of the East and the West ideally located to bridge the crucial time zone gap between the markets to enable 24*7 connectivity
  2. Talent Pool – Dubai is an incubator for exceptional home-grown talent and a magnet for the world’s most ambitious, forward-thinking, and sophisticated engineers, innovators, and technologists who desire for a rewarding career-enhancing environment to thrive, prosper, and change the world.
  3. Foreign Direct Investment – Dubai ranks among the top ten international cities in attracting foreign investment estimated at US$ 7.4 billion in the year 2017. Abundant and pro-investment policy decisions had gone a long way in setting Dubai on a path towards achieving inclusive and sustainable growth based on innovation and high productivity.
  4. Diverse Consumer Base - With its varied and mature consumer base, Dubai has a proven track record of being the launch-pad to test and expand operations across the broader Middle East, Africa and South Asia.

Governmental Support - The Department of Economic Development has a pivotal role together with Dubai Export Development Corporation and the Dubai Chamber of Commerce and Industry. It aims to transform the UAE into a worldwide platform for innovative businesses and a destination of choice for international companies seeking a unified and favourable environment for sustainable growth.

Abu Dhabi

The largest and the most affluent of the UAE’s seven Emirates, the Emirates of Abu Dhabi —is similar to the UAE with the petroleum sector representing 32% of the emirate’s GDP in 2016, which continues to grow in 2018. Meanwhile, the nonoil sectors’ combined share of GDP was 68% in 2016 but is shrinking slightly in 2018. Abu Dhabi has embarked on an aspiring growth and diversification program, Economic Vision 2030, to boost nonoil sector growth. The manufacturing industry stands to benefit from the diversification away from oil. There is a wide range of prospects available to investors.

The major manufacturing sectors of Abu Dhabi are-

  • Metals
  • Building materials and non-metallic mineral products
  • Petrochemicals and chemicals
  • Pharmaceuticals
  • Food, beverage, and consumer goods
  • Aerospace and defence equipment
  • Industrial equipment

The manufacturing sector in Abu Dhabi was growing at a compound annual growth rate (CAGR) of 6.1% between 2010 and 2017.

The table for gross output and value-added to the manufacturing activity is mentioned as under-

Apart from this, to support the development of the manufacturing sector, Abu Dhabi has successfully developed a range of industrial zones providing world-class infrastructure logistics facilities as well as convenient labour accommodations.

The free zones include-

  • Kizad
  • ZonesCorp
  • Industrial City of Abu Dhabi (ICAD)
  • Tawazun Industrial Park

Challenges and Risks

Abu Dhabi is facing a few problems with regards to the growth of the manufacturing sector in the Emirates. Few are mentioned below.

  1. Skilled Labor – Employment is frequently quoted as a critical problem for many manufacturers. The main issue is not getting qualified staff per se, but getting the qualified local staff. It goes without saying that the government of Abu Dhabi is keen to bring more Emiratis into the workforce. However, in many cases, there is a lack of qualified personnel, which forces companies to leave a position open or hire an expatriate worker.
  2. Energy Prices – While the input costs, in general, might not be the main problem, selected costs for a few input items might not have challenged competitiveness. Increases in power prices can have severe ramifications for sectors, particularly those that are working with power as a critical input factor in the production process.

Current Scenario

The fourth industrial revolution (4IR) is forcing the manufacturing industry into a state of evolution on a global scale. As a result, digital technologies and related innovations present an unprecedented possibility for growth and revolution.

While both the East and West have knowledgeable multiple industrial revolutions over the centuries, for the Gulf, where the manufacturing industry is relatively young, this will be a first – and in a region of forward-thinking leaders with a vibrant private area and a planned geographic location, this paradigm shift can only be seen as an opportunity.

The UAE’s economic diversification plans, Abu Dhabi’s Economic Vision 2030, and UAE Vision 2021 recognize the industrial sector as a planned driver of the sustainability of the country’s economy, and the numbers support this: according to data from Oxford Economics, the UAE’s industrial sector – including manufacturing, extraction, utilities and construction – grew by more than a third in 2007-17, and is predicted to grow by another third over the next decade.

The manufacturing sector’s anticipated growth in the Gulf signals how valued it is when it comes to economic prosperity. To secure long-term benefits, it is imperative to direct investments towards innovations and technologies. Specifically, in the UAE, a culture of change has been deeply instilled, and with the 4IR still at its infancy, now is the time to pilot it in the manufacturing industry.

Here is the contribution Of GDP is various sectors and particularly in the manufacturing industry.

The current stage of the manufacturing industry in the UAE looks promising, as the Emirate is working on a well-diversified strategy to promote the industry with a key focus on knowledge-based, sustainable, and innovative industries.

Future – What Lies Ahead for the Manufacturing Sector in the UAE?

The manufacturing sector is in an upward trajectory when it comes to the UAE. The year ahead will be that of a transformational one for the Middle East’s manufacturing sector. To understand, here are a few examples of an initiative taken by the Government of Dubai, UAE to grow this sector.

Dubai Industrial Strategy 2030

In the year 2016, Sheikh Mohammed launched Dubai Industrial Strategy 2030 to elevate Dubai into a global platform for knowledge-based and sustainable businesses. The initiative is based on five main objectives that will serve as a foundation for Dubai’s industrial future.

The plan aims to increase the total output and value addition of the manufacturing sector, enhance the depth of innovation and knowledge, make Dubai a preferred destination for global businesses, promote environment-friendly and energy-efficient manufacturing and make the Emirates a centre for the global Islamic product market.

UN’s 2030 Agenda

Sustainable Development Goals (SDG) also known as Global Goals are a set of 17 goals that aim to provide better living conditions for all. The SDG’s part of Agenda includes Industry, Innovation, and Infrastructure. The main aim of this is to build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation.

Abu Dhabi Economic Vision 2030

Abu Dhabi's Economic Vision 2030 envisages the development of strategic sectors capable of attracting both local and foreign investment, notably in export-oriented industries including manufacturing, telecommunications, transport, tourism, and energy. Motivated by the emirate’s desire to diversify the economy and the sharp increase of the population, manufacturing at various levels of industries has been at the core of significant government investment. Acknowledging favourable business conditions, several key industrial players are expanding their operations in Abu Dhabi.

Thus, the manufacturing sector in the UAE will hold an essential position in the UAE’ economy if we see future prospects. The UAE Industrial Coordination Council is developing an integrated and unified strategy for the country’s manufacturing sector.

How to Start a Manufacturing Business in the UAE?

Even if oil and gas are the main products manufactured and sold in the UAE, the manufacturing sector is comprised of several other branches. One of these branches which now effectively competes with oil and gas is the manufacture of food produces. Foreign investors seeking to open a company for the production of food products in Dubai must follow a few regulations.

Dubai and other Emirates in the UAE are the perfect spots for opening your own manufacturing company. Dubai has got its own definite and undeniable advantages for various business directions, including very different manufacturing.

If you are setting up a food manufacturing company, you must comply with the Food Code in the UAE. Among the few requirements, the list is as under-

  • Specific construction plans which must delimitate the ceilings, the floors and the walls for each section of the plant
  • Lighting and ventilation requirements
  • The plumbing system and sewage and waste disposal lines
  • The equipment used for manufacturing food products

Other requirements include obtaining a trade license. Additional individual licenses must also be obtained from the Municipality which also imposes regulations related to the products, mentioned below:

  • Canning and packaging of food products
  • Labelling of food products
  • The list of ingredients of the products
  • The name of the firm producing the goods which must be printed on the package
  • The expiry date
  • The bar code
  • The storage and use instructions
  • The net weight of the product

The steps to start a manufacturing business in the UAE are as follows-

  1. The first step is to choose an appropriate activity in terms of Manufacturing product
  2. After you select the right activity, you need to choose a reliable local UAE sponsor. This step is required in case a manufacturing company is started in UAE mainland
  3. Submit the necessary documents to the Department of Economic Development for getting name approval and initial approval also called as pre-approval
  4. After getting the name and initial approval, an applicant needs to sign the Memorandum of Association with the notary public along with the local sponsor
  5. You will need to opt for a proper warehouse to establish your manufacturing plant
  6. At this step, you can get the tenancy contract and Ejari from the landlord of the warehouse
  7. Next step is to get an Industrial License. for this, you need to get an approval from the Municipality of the particular Emirate
  8. After the process is completed, the approvals are obtained, you can submit the documents to the Environment Department for industrial clearance
  9. Get NOC from the civil defence
  10. Get external approvals from the department. These are for selected manufacturing units such as approval from food control if the manufacturing of food products, narcotics department for chemical production or even from Police if you plan to manufacture jewellery
  11. After getting all approvals, you can submit all the papers to the Economic Department  to get the industrial license
  12. Make a payment, and your industrial permit will be issued

Advantages of Manufacturing Business Setup in the UAE

The first set of positive advantages of Dubai and other Emirates of UAE for manufacturing business are the clear advantages according to the following parameters:

  • Taxes – There are no taxes for factories working in the UAE Free Trade Zones
  • Logistics – the Emirates is one of the influential international hubs giving definitive advantages when working in this country
  • The cost of the labour force – the primary source of labour is from countries like India, Philippines, Pakistan, and others whereby the trade union is prohibited in the Emirates by the government
  • The necessary infrastructure for business – land, ready industrial premises, offices etc.
  • The cost of energy sources
  • Favourable geographical location
  • Existence in an actively developing region, which gives new opportunities for business

Owing to the nonexistence of taxation in Dubai and other benefits mentioned above, an own factory makes sense to consider not just as an independent enterprise, but also as the cost optimiser for the final product in the manufacturing chain and structuring of manufacturing processes between countries.

Conclusion

Given that the manufacturing is always a long-term proposition for investors around the world, and that opportunities keep changing, the UAE, today, presents an excellent arbitrage opportunity. We believe investors should now invest in the Emirates of the UAE where the capital and economic growth for the next few years will be comparatively higher. Besides, the manufacturing sector does not have a saturation point, and it will only develop in the future.

Having said that, the market of manufacturing in the UAE does have its own set of challenges, foremost amongst which is understanding the country’s legal requirement and compliance laws.  What the future of the manufacturing sector in the Emirates holds depends on the initiatives taken by the government.