The universal expansion of manufacturing and trade has become imperious in an increasingly globalized business environment. The United Arab Emirates is no exception, and it has already recognized the advantages of expanding its manufacturing sector. The manufacturing sector currently contributes 14% to GDP, but the UAE has laid out plans to increase this to 25% in the next 15 years. Notable investments will be made in petrochemicals, fertilizers, and metal production, among other areas.
While the Emirate will remain dependent on the oil sector for many years, its level of dependence is gradually decreasing, and oil's share of the UAE's GDP is gradually shrinking. Although the petroleum industry continued to be the most important individual sector in terms of GDP share (31% in 2016), the non-oil sectors' combined share (69%) reflects the UAE economy's growing diversity.
The UAE's Manufacturing Industry in Its Early Years
The manufacturing industry in the UAE is the non-oil sector's second most active economic growth driver. In terms of GDP contribution, it came second to the hydrocarbon sector in both 2007 and 2008, with 12.9 percent and 12.2 percent, respectively.
The government's considerable investment in the manufacturing sector has resulted in inconsistent performance. Recognizing the importance of the manufacturing sector in diversifying the economy, the government took many steps to ensure the development of free zones. As the economy grows, so does the demand for finished goods and materials.
According to an official report from the third quarter of 2008, the total cumulative industrial capital value of all non-oil and gas industrial projects in the UAE exceeded US$ 20 billion, accounting for approximately 290,000 jobs. This new generation of manufacturers caters to the 'new economy,' supplying equipment and tools for the construction, infrastructure, shipbuilding, and power generation industries.
Among the different areas, the manufacturing industries sector has the highest added value. This government-targeted industry is used to achieve long-term growth, either by going back to raw materials or forwards to intermediate and final products.
Various emirates around the country are pushing for the development of industrial zones to meet demand and the vision of becoming the world's most vibrant manufacturing hub.
Manufacturing Industry Leaders in the UAE
The manufacturing activity income of Dubai investments, the Dubai Financial Market-listed company, increased by 15% from US$ 381 million in 2016 to US$ 435.5 million in 2017, indicating that the UAE's manufactured exports have increased significantly in recent years.
Dubai
The industrial sector's contribution to Dubai's Gross Domestic Product (GDP) ranged from 11 percent to 14 percent in the past decade. Dubai has 18 industrial areas, eight of which are located within free zones and account for 30% of the Emirate's total industrial regions.
Manufacturing operations accounted for 9.4% of Dubai's GDP in 2017, with a total value of US$ 100 billion, representing a 2% year-on-year increase and contributing 6.8% to overall economic growth. Manufacturing has grown at a faster rate than only storage and transportation in recent years, with projections that it will contribute 25% of the UAE's GDP by 2025.
Apart from that, Dubai's industrial growth is expected to reach US$ 16.1 billion by 2030, resulting in the creation of 27,000 new specialized jobs. The Dubai government has launched a concerted effort to encourage, expand, and maintain a thriving manufacturing sector in the city. The government has identified 75 projects as part of the Dubai Industrial Strategy 2030 to transform Dubai into an international hub for knowledge-based innovation and sustainable industrial activities.
The Dubai Industrial City is a dedicated free zone for the industrial and manufacturing sectors. Dubai Industrial City, which combines industrial land, labor villages, and warehousing facilities to create a cost-free and efficient business climate for the region's manufacturing hub, now serves as an enabling ecosystem for investors.
Furthermore, it is becoming increasingly difficult to gain credibility among companies seeking logistics solutions, open storage yards, commercial office spaces, and retail showrooms with storage in Dubai.
What makes Dubai the best manufacturing hub in the world?
Here are a few reasons why Dubai is the preferred location for manufacturing companies:
Location and Connectivity – It is situated in a strategic geographical location and is served by two international airports. It is the connecting hub between the East and West markets, strategically located to bridge the crucial time zone gap between them and allow 24x7 connectivity.
Talent Pool – Dubai's Talent Pool is a breeding ground for outstanding local talent as well as a magnet for the world's most ambitious, forward-thinking, and sophisticated engineers, innovators, and technologists seeking a rewarding career-enhancing environment in which to succeed, flourish, and change the world.
Foreign Direct Investment – Dubai is one of the top ten international cities in terms of attracting foreign investment, with a total value of US$ 7.4 billion in 2017. A plethora of pro-investment policy decisions had gone a long way toward putting Dubai on track for inclusive and sustainable growth based on innovation and high productivity.
Diverse Consumer Base – Dubai has a proven track record of being the launch-pad for testing and expanding activities across the wider Middle East, Africa, and South Asia, thanks to its diverse and mature customer base.
Governmental Support - Together with the Dubai Export Development Corporation and the Dubai Chamber of Commerce and Industry, the Department of Economic Development plays a critical role. Its goal is to make the UAE a global platform for innovative businesses and a preferred destination for international companies seeking a unified and stable environment for long-term growth.
Abu Dhabi
The Emirates of Abu Dhabi, the largest and wealthiest of the UAE's seven Emirates, is similar to the UAE, with the petroleum industry accounting for 32 percent of the emirate's GDP in 2016 and continuing to expand in 2018. Meanwhile, the non-oil sector's combined share of GDP was 68 percent in 2016, but it is slightly decreasing in 2018.
Economic Vision 2030, Abu Dhabi's ambitious development and diversification plan, aims to increase non-oil sector growth. Diversification away from oil should benefit the manufacturing industry. Investors can choose from a variety of opportunities.
Abu Dhabi's biggest manufacturing industries include:
Metals
Building materials and non-metallic mineral products
Petrochemicals and chemicals
Pharmaceuticals
Food, beverage, and consumer goods
Aerospace and defense equipment
Industrial equipment
Between 2010 and 2017, the manufacturing industry in Abu Dhabi grew at a compound annual growth rate (CAGR) of 6.1 percent.
Apart from that, Abu Dhabi has successfully developed a range of industrial zones that provide world-class infrastructure, logistics facilities, and convenient labor accommodations to support the growth of the manufacturing sector.
Risk and Challenges
When it comes to the growth of the manufacturing industry in the United Arab Emirates, Abu Dhabi is having some issues. A few are listed below.
Skilled labor: For many manufacturers, skilled labor is frequently cited as a major issue. The main problem is not so much finding qualified staff as it is finding qualified local staff. The Abu Dhabi government wants to increase the number of Emiratis in the workforce. However, in many cases, businesses are forced to leave a position open or recruit an expatriate worker due to a lack of qualified employees.
Energy prices: While input costs may not have been the primary issue, specific costs for a few input items may not have posed a competitive threat. Increases in power prices can have serious consequences for industries that use power as a critical input factor in their manufacturing processes.
CURRENT SITUATION
On a global scale, the fourth industrial revolution (4IR) is forcing the manufacturing industry to evolve. As a result, digital technologies and related developments provide a previously unimaginable opportunity for growth and revolution.
While both the East and the West have experienced numerous industrial revolutions over the centuries, this will be the first for the Gulf, where the manufacturing industry is still young – and in a region with forward-thinking leaders, a vibrant private sector, and a well-planned geographic location, this paradigm shift can only be seen as an opportunity.
The industrial sector is recognized as a planned driver of the country's economic sustainability in the UAE's economic diversification plans, Abu Dhabi's Economic Vision 2030, and UAE Vision 2021, and the numbers back this up: According to Oxford Economics, the UAE's industrial sector grew by more than a third between 2007 and 2017, including manufacturing, extraction, utilities, and construction.
The manufacturing sector's expected growth in the Gulf demonstrates how important it is to the region's economic prosperity. It is critical to direct investments toward innovations and technologies to ensure long-term benefits. A culture of change has been deeply ingrained in the UAE, and with the 4IR still in its infancy, now is the time to pilot it in the manufacturing industry.
The UAE's manufacturing industry is currently promising, as the Emirate is developing a well-rounded strategy to promote the sector, with a particular emphasis on knowledge-based, sustainable, and innovative industries.
FUTURE OF MANUFACTURING INDUSTRY
When it comes to the UAE, the industrial industry is on the rise. For the Middle East's manufacturing industry, the coming year will be transformative. To help you understand, here are a few examples of government initiatives in Dubai, UAE, that are helping to develop this industry.
Dubai Industrial Strategy 2030
Sheikh Mohammed launched Dubai Industrial Strategy 2030 in 2016, to make Dubai a global platform for knowledge-based and sustainable businesses. The initiative is built around five main goals that will lay the groundwork for Dubai's industrial future.
The plan aims to boost the manufacturing sector's total output and value addition, improve the depth of innovation and expertise, make Dubai a preferred destination for global businesses, promote environmentally friendly and energy-efficient manufacturing, and establish the UAE as a global hub for Islamic products.
UN’s 2030 Agenda
The Sustainable Development Goals (SDGs), also known as Global Goals, are a set of 17 objectives aimed at improving people's living conditions. Industry, Innovation, and Infrastructure are also part of the Agenda for SDGs. The primary goal is to create resilient infrastructure, promote inclusive and sustainable industrialization, and encourage innovation.
Abu Dhabi Economic Vision 2030
The Economic Vision 2030 of Abu Dhabi envisions the growth of strategic sectors capable of attracting both domestic and foreign investment, particularly in export-oriented industries such as manufacturing, telecommunications, transportation, tourism, and energy. Manufacturing at different levels of the industry has been at the center of substantial government investment, driven by the emirate's desire to diversify its economy and the sharp increase in population. Several major industrial players are expanding their operations in Abu Dhabi, citing favorable business conditions.
As a result, if prospects are favorable, the UAE's manufacturing sector will play a critical role in the country's economy. The UAE Industrial Coordination Council is working on a cohesive and integrated manufacturing plan for the region.
PROCEDURE TO START A MANUFACTURING BUSINESS
Even though oil and gas are the primary products produced and sold in the UAE, the manufacturing industry includes a variety of other branches. The manufacturing of food products is one of these branches that are now successfully competing with oil and gas. Foreign investors who want to start a food manufacturing business in Dubai must adhere to a few rules.
Dubai and the other Emirates in the United Arab Emirates are ideal locations for starting a manufacturing business. Dubai has distinct and undeniable advantages in a variety of business sectors, including a wide range of manufacturing.
If you're starting a food manufacturing business in the UAE, you'll need to follow the Food Code. The following is a list of the few requirements:
For each section of the plant, specific construction plans must demarcate the ceilings, floors, and walls.
Lighting and ventilation requirements
The sewage and waste disposal lines, as well as the water system
The machinery used in the production of food
Obtaining a trade license is another requirement. Individual licenses must also be obtained from the municipality, which has its own set of rules for the goods listed below:
Food product canning and packaging
Food packaging and labeling
A list of the products' ingredients
The name of the company that makes the product that must be printed on the package
The date of expiration
The bar code
The instructions for storage and use
The product's net weight.
The following are the steps to starting a manufacturing company in the UAE:
The first step is to select an appropriate Manufacturing product activity.
After you've chosen the right activity, you'll need to find a reputable UAE sponsor. If a manufacturing company is established on the UAE mainland, this step is required.
To get name approval and initial approval, also known as pre-approval, submit the requested documents to the Department of Economic Development.
An applicant must sign the Memorandum of Association with the notary public and the local sponsor after receiving the name and initial approval.
You should get the tenancy contract and Ejari from the warehouse's landlord at this point.
The next step is to obtain an Industrial License. To do so, you must first obtain permission from the Municipality of the Emirate in question.
You can send the documents to the Environment Department for industrial clearance after the process is completed and the approvals are received.
Obtain a letter of authorization from the civil defense.
Obtain departmental permissions from outside sources. These are for specific manufacturing units, such as approval from food control if you're making meals, the narcotics department if you're making chemicals, or even the police if you're making jewelry
After you've received all of the necessary approvals, you can send all of your paperwork to the Economic Department to obtain an industrial license.
After you make a payment, you will receive your industrial permit.
The Benefits of Starting a Manufacturing Business in the UAE
The clear advantages according to the following parameters are the first set of positive advantages of Dubai and the other UAE Emirates for manufacturing businesses:
Tariffs – For factories operating in the UAE Free Trade Zones, there are no taxes.
Logistics – The Emirates is one of the world's most important international hubs, providing significant benefits to those who work in the country.
The cost of labor – the main source of labor is from countries such as India, the Philippines, Pakistan, and others, where the government prohibits trade unions in the UAE.
The required business infrastructure – land, ready-to-use industrial space, offices, and so on.
Energy sources are expensive.
Geographically advantageous location
Existence in a rapidly developing area that offers new business opportunities
Due to the lack of taxes in Dubai, as well as the other advantages mentioned above, an own factory makes sense to consider not only as a stand-alone business but also as a cost-optimizer for the final product in the manufacturing chain and the structuring of manufacturing processes between countries.
CONCLUSION
Given that manufacturing is still a long-term investment for investors all over the world, and that opportunities change all the time, the UAE offers an outstanding arbitrage opportunity today. We believe that investors can now invest in the UAE's Emirates, where capital and economic growth will be higher in the coming years. Furthermore, the manufacturing industry is not at capacity and will continue to expand in the future.
However, the UAE manufacturing market has its own set of challenges, the most significant of which is a thorough understanding of the country's legal requirements and compliance rules. The government's initiatives will determine the future of the manufacturing industry in the United Arab Emirates.
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