Oil to grease wheels of industry

As Abu Dhabi seeks to diversify its industrial base, the emirate's huge hydrocarbon reserves are likely to give access to enormous amounts of comparatively cheap energy.

Masdar City under construction.

Industrial diversification has been a long-standing goal of Gulf states as they seek to reduce their reliance on hydrocarbons. Abu Dhabi is moving close to realising that ambition with a US$5.6 billion (Dh20.57bn) computer chip investment announced last week and an $8bn joint venture with General Electric (GE) also nearing its launch.

Oil and natural gas accounted for 38 per cent of the UAE's Dh929bn GDP last year. Along with renewable energy and tourism, manufacturing is one of the key sectors on which Abu Dhabi is focusing its diversification strategy. "Manufacturing ventures can provide an added new dimension to Abu Dhabi's economy and can bring across technology transfer, which the Gulf region is in need of," said Monica Malik, a senior economist at EFG-Hermes. "Technology will play an increasing role in the global economy so it makes sense to invest in areas such as these."

Investments in industrial projects totalled Dh1.92bn in the UAE last year, according to the Ministry of Economy. But a breakdown of data on Abu Dhabi's industry and manufacturing sector shows investment in high-tech ventures in the capital is badly needed. The food, beverage, tobacco and chemical industries made up the bulk of industry and manufacturing last year, figures from the Department of Economic Development show. Metals and machinery production and the paper and printing industry together accounted for 7 per cent of the sector, with the country having no presence at all in other forms of manufacturing.

However, big projects being set up by a number of government-related entities will diversify the emirate's industrial presence into more sophisticated, technologically-progressive fields. The purchase by Abu Dhabi's Advanced Technology Investment Company (ATIC) of Singapore's Chartered Semiconductor Manufacturing could lead to the building of a semiconductor fabrication plant in the capital. The renewable energy company Masdar is scheduled to start building a plant making solar panels in Abu Dhabi later this year. The emirate has also set its sights on establishing itself as a leading centre for aerospace manufacturing.

Mubadala Development Company, the strategic investment arm of the Abu Dhabi Government, plans to begin operations at an aerostructure manufacturing plant it is building by the end of next year. Mubadala is also progressing with an $8bn joint venture with GE, the American conglomerate, that will provide commercial finance in the region. The two partners are also establishing the Abu Dhabi Leadership Development Centre, intended to be "the premier corporate leadership and management development centre in the region".

Channelling further resources into manufacturing, a sector often requiring intensive energy usage, makes a lot of sense for an emirate that sits atop 9 per cent of the world's proven oil reserves. With Abu Dhabi holding the overwhelming majority of the country's vast natural energy resources, at 95 per cent of the oil and 92 per cent of the gas, the push into manufacturing will harness its competitive advantage in energy.

"There's a logic behind the deals we are seeing and the Abu Dhabi Government has targeted a number of key sectors for development," said Giyas Gokkent, the chief economist at the National Bank of Abu Dhabi. "There's a strategy to target sectors like manufacturing where Abu Dhabi has a particular advantage. One of those is where the use of energy is intensive, as unlike other parts of the world, it is in abundance here."

The UAE is aiming to whittle its hydrocarbon dependency down to 20 per cent in the next 10 to 15 years, Sultan al Mansouri, the Minister of Economy, said last week. The UAE Government is in the final stages of preparing an industrial law, which is also expected to encourage the creation of national industries. One of those industries could well be the manufacture of computer chips, with hints that the capital has aspirations to become a global leader in semiconductor manufacturing. The intention of ATIC's purchase of Chartered Semiconductor is to merge the company with Globalfoundries, the chip manufacturer that ATIC runs in a joint venture with the US chip company AMD. Ben Simpfendorfer, an economist at RBS in Hong Kong, said: "It emphasises the growing sophistication of commercial ties in this region beyond simply oil and cheap consumer goods."

The purchase of Chartered will mean Globalfoundries taking over six semiconductor fabrication plants in Singapore and a $1.7bn-a-year company with 5,500 employees across seven countries. The deal could also lead to the building of a semiconductor fabrication plant in Abu Dhabi. Such facilities, known as "fabs", require access to cheap and reliable power. Globalfoundries has said it may build a plant in the capital to add to its existing facility in Germany and another one it is building in the US state of New York.

The development of sustainable clean technology is another field the emirate wants to tap into. Masdar, which is building the world's first carbon-neutral and zero-waste city in Abu Dhabi, has invested heavily in the fast-growing technology of thin-film solar energy panels. Masdar PV, the company's subsidiary, said in July it had finished building a factory in Ichtershausen, Germany, to test a Dh2.2bn plan to focus on the low-cost panels. It aims to produce thin-film panels with a total capacity of 65 megawatts a year at the plant. The company also intends to start construction by the end of this year on a separate plant in Taweelah, Abu Dhabi, capable of manufacturing enough panels each year to produce 130mw.

These plans, as well as forming part of Masdar's directive to diversify the emirate's industrial base into renewable energy, are also intended to develop the company's own sources of clean technology. Mubadala, which was established in 2002 with a mandate to generate financial returns and drive economic diversification, aims to create between 5,000 and 10,000 jobs over the next decade in the aerospace industry. Its new manufacturing plant, Strata, for carbon-fibre aircraft parts will form the centrepiece of an aerospace industrial zone opening in Al Ain late next year.

The considerable challenge Mubadala is embarking on also involves building entire companies from the ground up and signing joint ventures with industry leaders such as Airbus, Rolls-Royce and GE. Perhaps an even greater task will be finding sufficient numbers of Emiratis to fill the thousands of jobs that could be created through such investment. Of the 49,052 workers employed in the industrial sector in the emirate last year, expatriates accounted for 96 per cent, the Department of Economic Development said. Eckart Woertz, an economist at the Gulf Research Centre, said: "The difficulty for Abu Dhabi will be finding sufficiently skilled manpower within the country to make this project a success."

To try to ensure it has the manpower, Mubadala is encouraging the nation's youth to enrol in the science and engineering programmes it is establishing, with the promise of a rewarding, challenging and exciting career choice in aerospace. Manufacturing jobs for locals will also be generated by Abu Dhabi Airports Company through the setting up of new small and medium-sized technology ventures that have already agreed to move to Al Ain, including German companies such as Aircraft Electronic Engineering, Aerotech Peissenberg and MT Aerospace.

* additional reporting by Wayne Arnold [e-mail]