Dubai: The UAE’s manufacturing sector is expected to see “moderate growth” in 2012 and the medium-term, but the Eurozone crisis and the sanctions on Iran will limit the export markets for local products, analysts say.
“The UAE’s aluminium produce finds major usage in the automotive and construction sectors. Given that Europe is a major export market for aluminium produce, the Eurozone crisis will have a cascading impact on the demand for it,” said Virein Kumar Yadlapalli, an analyst with Frost & Sullivan.
The UAE is also a major re-export centre for Iran, which accounted for 20 per cent of exports and re-exports before the ban, he said. “Thus, sanctions would limit local production until new export markets are developed.”
There are encouraging signs of moderate growth for the industry this year, which will see a change in export markets due to changing international trade dynamics, said Yadlapalli. The need for economic diversification and the slowdown in real estate have contributed to the growing significance of the manufacturing sector.
Sustainable growth drivers for the UAE include the government plan to increase the GDP contribution of the industrial sector from the current 14 per cent to 25 per cent in 15 years. Proposed changes in the UAE companies law may allow for greater foreign ownership and this could enhance investment to the sector. Renewed trade relations with emerging economies in the East will open up new export markets, Yadlapalli said.
Currently, the manufacturing sector is seeing increased diversification in the downstream oil and gas industry. The need for more value-added products and fewer production capacity expansions are fuelling this movement primarily from oil production.
Also flourishing are the non-hydrocarbon industries such as cables, metals, food and beverages, Yadlapalli added. Energy-intensive industries like aluminium processing are benefiting from cheaper access to power.
With oil prices expected to rise this year, investors are upbeat and this opens the opportunity for local manufacturers of specialised cables, said Andrew Shaw, managing director of Ducab. However, demand for cables in construction and real estate remains “relatively low”, compared to previous years, he added.
