By Jamal Salem Al Dhaheri
Opinion: Abu Dhabi government of an AED50bn economic stimulus package will increase foreign direct investment, writes Jamal Salem Al Dhaheri, CEO of SENAAT
The announcement in June by the Abu Dhabi government of an AED50bn economic stimulus package was both a challenge and an incentive to all parts of the Emirate’s economy to inject fresh impetus into its growth and diversification.
Details of what the package will look like in practice and how it will be implemented are expected imminently, as a deadline of 90 days has been set for an action plan to be fully drawn up and made public.
What we do know is that the package places much emphasis on strengthening Abu Dhabi’s competitiveness through job creation, as well as making Abu Dhabi an easier and more dynamic place for entrepreneurs, SMEs and private sector companies to start, grow and consolidate their businesses.
Some measures announced prior to the stimulus package include relaxed rules on foreign ownership and corporate fines, and the creation of an investor-friendly environment for foreign companies.
Ultimately, this will increase foreign direct investment (FDI), a key objective for Abu Dhabi’s government and a fundamental component of Abu Dhabi’s Economic Vision 2030.
In 2017, Abu Dhabi attracted AED108bn of FDI, 17.1 percent higher than 2016, according to Abu Dhabi’s Statistics Centre. The recently established Abu Dhabi Investment Office, created under the auspices of the Department of Economic Development, has set itself a target of increasing this rate of growth beyond 10 percent year on year. The message is clear and strong that Abu Dhabi is open for investment.
One of the most important initiatives outlined in the package is to encourage and organise local production. Undoubtedly, during the past few years, foreign investment has proven to play a major role in strengthening the position of the UAE’s manufacturing sector, especially in heavy industries.
At the end of 2016, according to the Ministry of Economy, more than 6,300 factories were operating in the UAE.
In 2017, the number of new industrial licences issued in Abu Dhabi nearly quadrupled to 86. Around 37 new industrial units reached production stage. A highly significant achievement resulting from this growth is the standardisation of the “Made in UAE” label initiative, lending credibility to the country’s manufacturers, helping reduce reliance on imports and strengthening the country’s export potential.
Encouraging both local production and foreign investment in Abu Dhabi sets an important dynamic that is mutually beneficial to local and international players
The UAE government has continuously extended support to local manufacturers without making the broader domestic trading environment uncompetitive. These include initiatives aimed at setting certain levels of local content requirements in major infrastructure projects in the UAE; Adnoc’s In Country Value-Add (ICV) initiative is a very welcome initiative that is aimed at strengthening the UAE industrial sector without altering fair market dynamics.
The Government has also adopted an open dialogue approach with the local manufacturers to ensure fair market dynamics are in place and fend off foreign exporters from undercutting prices to stifle local production. Measures such as implementation of safeguard duties have been widely discussed. If carefully calculated, this can strike the right balance enabling both foreign and local companies to thrive in both a fair and also a truly competitive business environment.
However, the trading community should make a conscious effort towards localising their supply chains by developing strategic alliances with local manufacturers. There are some very obvious benefits in sourcing products locally, which include direct control over supply chains, greater flexibility to respond efficiently to disruptions in local markets, shorter lead times, less vulnerability to global market fluctuations and reduced inventory accumulation and cost. All of this becomes even more important at a time when increasing efficiency is key to survival.
As such, encouraging both local production and foreign investment in Abu Dhabi sets an important dynamic that is mutually beneficial to local and international players. Many foreign companies investing and operating in Abu Dhabi and contributing to economic growth rely on locally produced materials and on local skills and knowledge.
Senaat aims to develop and profitably grow the industrial sector in line with the Economic Vision 2030. Our purpose and function aligns with this dynamic, as we aim to partner with world-class manufacturers to establish business in Abu Dhabi that serve the local market and beyond. The combination of the new planned initiatives thus has the potential to create a vibrant ecosystem – a virtuous circle – in which both local and foreign businesses can establish themselves, grow and deliver value to their owners and investors.
Senaat operates in four of the key industrial sectors listed in Abu Dhabi Economic Vision 2030 through its portfolio of nine companies – metals, oil and gas services, construction and building materials, and food and beverages manufacturing. Its 2017 highlights include:
- Revenues surged 18 percent to AED16bn, with total EBIDTA rising to AED2.1bn, a 16 percent increase compared to 2016.ֺ
- The group invested AED1.2bn in assets in 2017. Total assets reached to AED27.2bn at year-end, representing a compounded annual growth rate of 18.3 percent since Senaat’s inception in 2004.ֺ
- The group’s total industrial investments reached AED23.3bn in the last 13 years. Senaat continues to self-ﬁnance its growth and reinvest proﬁts to further develop its asset base. This reﬂects the company’s role in developing the manufacturing and industrial sector in Abu Dhabi and the UAE to further diversify the national economy.ֺ
- The company announced the opening of two new portfolio companies: Ducab Aluminium Company and Taweelah Aluminium Extrusion Company, helping build a competitive edge for “Made in UAE” industrial products.