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VOLUME 8 - ISSUE 97
Growth Opportunities for the UAE Steel industry
The UAE steel industry is part of the basic material sub-sector, which is part of the manufacturing sector. Given the historical growth of the UAE economy, especially in construction, steel has been an important construction material. Furthermore, given the scope for improved design and innovations, the use of steel could also widen to include other consumer and business applications as well. This article discusses future growth opportunities for UAE steel industry given growth in the UAE economy and export prospects in potential foreign markets. It is based on information from the World Steel Association (WSA). According
to WSA, the world’s top steel companies in 2011 included Arcelor Mittal, Hebei Group, Baosteel, POSCO, Wuhan Group and Nippon Steel. Also in 2011 the top four steel producing countries were China, Japan, USA and India. These countries can serve as important source of steel for UAE businesses producing value added steel products for domestic use and exports. UAE Steel Industry overview Table 1 provides data on the number of companies engaged in different activities related to steel production and trading in Dubai. A healthy trend is shown because the number of companies engaged in steel manufacturing and trading has increased overtime indicating a buoyant and growing steel industry. Also as the data shows, signiﬁcant
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in South America about 5%. According to WSA.92 81. Major steel activity companies registered with Dubai Chamber Item Basic Steel Products Trading Steel Fabrication and Welding Workshop Steel Constructions Contracting Reinforcement Steel Bars Trading Steel Hangars and Sheds Manufacturing Structures and Structural Steel Manufacturing 2009 2010 621 179 152 82 88 65 661 192 157 90 92 73 2011 705 199 159 96 93 76 Up to Apr 2012 718 199 160 100 93 77 and countries in the East Asian region such as Indonesia and Malaysia. homes and furniture in foreign markets. structures of iron and steel have registered a CAGR of about 34% from 2007 to 2011. it also provides earnings through exports to major foreign markets. Source: UAE Federal Customs Authority. demand for this important material can be expected to increase. Table 2. As the global economy grows over the long-run. Areas in which differentiation can be done include timely delivery of products to ﬁnal customers.65 457. Therefore. Producing more sustainable designs and promoting the sustainability of steel use could further increase sales to domestic and foreign customers concerned about the environmental impact of their activities. Turkey.increase is seen in the number of companies involved in different types of steel trading which is in line with the data in table 2. offering more hi-tech and innovative products and by making more easily recyclable products. use in automobile parts or as stainless steel in applications such as cutlery. Demand for these applications could be expected to grow over the long-term with growth of the UAE economy.85 114. HS code 72045000 2007 2008 2009 2010 2011 187. iron ore is a major raw material used in manufacture of steel with limestone and recycled steel also being important. fabricators and designers could make use of the recyclable property of steel by designing products which are easier to recycle. in the Middle East about 7% and South and East Asia at about 10%. Demand for steel could also come from the use of steel in other applications in industry. The trade data also shows that the major destination countries for UAE’s exports of iron and steel and articles of iron and steel have been countries in the Middle East and North Africa (MENA) region such as Saudi Arabia. Foreign demand for steel is dependent on the growth of the global economy. According to WSA. furniture or industrial applications. UAE steel manufacturers. Given expectations for the long-term development in economies in the MENA region. Also the need to produce and sell more sustainable steel products could also present a challenge overtime. Casing & tubing of type used for oil or gas Re-melting scrap ingots of iron or steel. Table 1. Another challenge for the UAE steel industry is to source cheaper raw materials. Steel Statistical Yearbook..48 82. Figure 1 shows the apparent use of steel in selected regions such as Africa.2 percent of GDP in 2016.10 130.93 Source: Dubai Chamber.41 32.11 136. South America and the Middle East which has increased overtime.77 102. the share of the UAE construction industry is forecasted to increase from 10.000 10. Also countries such as the USA and the UK have been important export markets.6 percent of GDP in 2012 to about 11. apparent steel use in Africa has increased at a Compound Annual Growth Rate (CAGR) of about 6%. 2011 Trade data shows that UAE businesses source steel in primary form from countries like Georgia.000 0 Middle East 2009 2010 2001 2002 2003 2004 2005 2007 2006 2008 Africa South America While steel is a basic commodity. while semi-manufactured steel products of iron or non-alloy steel are sourced from countries like Russia. it still provides room for substantial differentiation. In addition to providing steel for a wide variety of domestic applications. thereby providing more lucrative prospects for UAE exporters. From 2001 to 2010.000 20. For example.000 50. Figure 1.10 65. Other developing regions such as Central Asia and Eastern Europe have also seen a trend of growing use. East Asia and the Paciﬁc and in Latin America to increase their steel product exports.74 7. Nails of iron or steel HS code 73042900.82 149. the potential for the uses of steel in the UAE is not limited to construction but could also include packaging. countries in South Asia such as India and Pakistan 3 . UAE exporters could further explore increased exports in these and other products in the developing regions highlighted earlier. Table 2 shows some iron and steel sub-products with fast growing exports and re-exports from the UAE. in South Asia. According to BMI UAE Infrastructure report for Q2 2012. while nails of iron and steel registered a CAGR of about 63% in same period. In addition to providing steel for a wide variety of domestic applications.03 88.000 40.15 266.53 242. Opportunities for the UAE Steel industry Opportunities for growth of steel businesses in the UAE domestic market are partly due to growth in steel demand from the construction industry. Source: World Steel Association. the MENA region. These and other steps could position UAE steel businesses to proﬁt from the growth of key developing markets and gain larger market shares in these markets. and modern designs of articles of steel and superior customer service. These challenges can partly be mitigated by introducing more efﬁcient production processes and producing more value added designs in steel products. USA. to gain market share over competitors thereby contributing to the long–term growth of UAE exports to the world.96 157.000 30. Ukraine and Malaysia. which shows an increase in exports in some steel sub-product categories. Oman and Qatar. Structures of iron and steel HS code 73170010.78 127. Demand for the UAE’s steel exports is therefore widespread and UAE steel exporters should further explore potential in growing foreign markets in Central Asia.76 309. UAE steel businesses could develop closer links with importers in those countries. Challenges for the UAE Steel industry Demand for steel depends on growth of the global economy. East Asia and Latin America.95 611. Doing so could mean that they are able to establish a strong market presence in these countries and increase their proﬁt margins by providing quality products and differentiating their product and services. Steel consumption by region (000 metric tons crude steel) 60. UAE’s selected Steel sub-product exports and re-exports (AED million) Product category and HS code HS code 73089090. better packaging. which would drive demand for usage of steel in construction and in appliances. any weakness in global economic growth could translate into weakness in global steel demand. Conclusion The UAE steel industry is an important part of the manufacturing sector and therefore the UAE economy. Rising prices of these raw material inputs could also present a challenge for UAE steel businesses. the UAE steel industry also provides earnings through exports to major markets. Germany and Sweden. highlighting their potential as important markets for UAE steel exports.70 11.
Added to that. 6th for registering property and 7th for paying taxes. along with sustained inﬂation. Moving forward. UAE has long been an attractive investment destination.2 thus placing UAE as one of the highest-ranking countries in the GCC region. However.00 6. receiving a score of 6. both income and sales taxes are non-existent. The purpose of this article is to analyze the latest trends in the international competitiveness and business environment of the UAE.50 -1. According to the World Bank’s 2011 World Governance Indicators (based on ﬁgures for 2010). Qatar (14th) and Saudi Arabia (17th). Added to that. a trend that has been advancing in recent years (Figure 2).50 1.15 -0.5 4.4 years and the average OECD experience of 1. It is far from evident that the UAE tax regime is a major attraction for foreign investors. UAE has become more competitive. the legal and regulatory environment is more than adequate in UAE. with only Qatar posting a higher result.00 2.2. UAE ranks 5th in the world for trading across borders.50 -0. according to the same report.2 cents for the average OECD countries. protecting investors (122) and getting credit (78). Speciﬁcally. the recent drawbacks in the Euro area are closely related to modest competitiveness performances that limit long term productivity growth.74 5. UAE advanced two places to 33 out of 183 countries compared to the rankings of the previous year.88 4.1 4. but higher than other regional peers. This score is the second-best of the GCC region. whereas general standards across the region have been intensely improved during the last few years. has recently raised the possibility of introducing a widespread value added tax (VAT) over the next few years.00 5.00 10.38 0.00 least competitive 3.00 8.42 1. Efforts to stabilize ﬁscal positions and reduce debt burdens must therefore be complemented by competitiveness enhancing reforms aimed at improving the potential for economic growth.3 and the 2003 report when it received a score of 5. government effectiveness is high and the overall freedom to conduct business is well protected under the existing regulatory environment. UAE has successfully addressed corruption in 2011. In the current challenging economic environment.8 4.43 5. below Switzerland (in the 1st place).77 0.7 years. UAE has recorded the ﬁrst place globally in the ﬁeld of efﬁciency of governmental ﬁscal policy issued by the International Institute of Management Development (IMD) in Switzerland. UAE score has dramatically improved since the 2010 when it received a score of 6.50 0.24 5.64 4. The reason behind this stems from the fact that a highly competitive taxation regime strengthens Foreign Direct Investment (FDI) inﬂows.9 (where 0 is the least competitive and 7 is the most competitive economy). contract enforcement (134). United States (5th).18 0.51 0.00 6. The inadequacies of the bankruptcy legislation remain a major challenge for UAE. In addition.8 9. According to the World Bank’s Doing Business 2012 report. UAE government.4 7. second only to Qatar (Figure 3). in 2012. Figure 1: Relative Competitiveness 2011/2012 Switzerland United States Qatar Saudi Arabia UAE Oman Kuwait Bahrain Egypt 0.00 2. 2011 New Zealand Qatar United States UAE Bahrain Oman Kuwait Saudi Arabia Egypt 0.9 4. there are aspects of the business regulatory environment that remain problematic. the time for implementing VAT is expected to be postponed.8 (where 10 represent the lowest level of perceived corruption and 0 the highest).62 4.50 1.00 8.00 2. although it is expected that the level to be no higher than 5%. the time taken to resolve bankruptcy is around 5. the control of corruption has upgraded. those are accountable to a tax of the proﬁts earned in the respective emirate. According to Transparency International’s Corruption Perceptions Index.00 5. if not in the world. such as Oman (32nd).89 Figure 2: Regulatory Quality. it is projected that UAE would deﬁnitely seek to ensure that its GCC peers will consider introducing a similar form of tax simultaneously in order to ensure that domestic competitiveness is maintained. according to the World Bank’s Doing Business 2012 report. with many exemptions in the ﬁrst instance.18 0. however there are a number of challenges that need to be addressed.5 = lowest quality + 2. Bahrain (37th) and Egypt (94th) (Figure 1). According to the World Economic Forum’s Global Competitiveness Report 2011/12 UAE ranks as the thirdmost competitive economy in the region after Qatar (1st) and Saudi Arabia (2nd).17 4. Overall.50 2. well above the regional average of 3. the regulatory quality is improving in UAE. and factors that determine the level of productivity of a country. The recovery rate (at 11 cents in the US dollar) is low in comparison with the regional average of 29. along with a number of other GCC countries. UAE ranks 27th out of 142 countries. Policymakers are advised to look into these problematic issues of business environment and bring them up to the best practice in the region.6 4. while corporate taxation is limited to oil-producing companies and foreign banks. competitiveness is identiﬁed as the set of institutions. 2011 Switzerland United States Bahrain Qatar Oman UAE Kuwait Saudi Arabia Egypt -2.54 0 = most corrupt 10 = least corrupt Source: Dubai Chamber based on data from Transparency international 7 = most competitive Source: Dubai Chamber based on data from world economic Forum Moreover.1 6. As the data shows.5 = highest quality Source: Dubai Chamber based on data from world bank governance indicators Figure 3: Corruption Index. with a score of 4. With the upsurge in government revenues as a result of the increase in the oil price and the economic recovery gaining momentum.54 0.1 years.UAE competitiveness has improved while the business environment remains robust According to the deﬁnition of the World Economic Forum (WEF).2 7.7 cents and 68. Kuwait (34th). 4 . including resolving insolvency (ranked 155). Moreover. UAE scores reasonably well in comparison with other countries in the region for its rule of law.90 . policies.
5 % change 20% .6 million in 2015. The number of tourist arrivals to KSA includes the arrival of Haj and Omura pilgrims which is considered as religious tourism mainly.000 50% 40% 30% 16. hospitality industry has emerged as a major pillar of the emirate economic development. As can be seen from Figure 1. Another manifestation is the presence of the most luxurious international hotel chains attracting tourists from all over the world.000 12. On the other hand. the sector showed signs of resilience and in fact acted as one of Dubai major economic sectors that supported its economic recovery. According to the latest estimates by Alpen Capital (Q2-2011). which will raise the competition among the existing players and will press revenues and proﬁt margin down. In 2011. Notwithstanding the current situation. The recent political turmoil in the Arab world (Arab spring) is a good test for the capacity of Dubai hospitality sector.3 million. Looking ahead.000. With the eruption of the Arab spring. it is expected that revenues may be affected due to supply of large number of rooms that are expected to enter the market over the next few years. Post the global ﬁnancial crisis.Dubai tourism industry robust recovery Hospitality industry in the GCC region is poised for growth in the coming few years.000.000 20.000 Figure 2: Dubai Hotel Room & Appartment Flat Occupancy 100% 80% 60% % 40% 20% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Hotel room occupancy Appartment ﬂat occupancy Dubai Chamber based on data from DTCM The recovery in Dubai tourism market can be attributed to the increase in both hotels and apartments occupancy rate and to the increased number of tourists’ arrivals .000. by 2015 their share is expected to dip marginally to 87% in line with the expected rise in the share of other countries in the region such as Qatar and Oman.000.000 2. nonetheless. about 61% the hotel rooms in the pipeline will be located in KSA and 29% are expected to be in the UAE and the remaining will be distributed among the rest of the GCC countries.000 4. The majority of tourists coming to UAE opt for Dubai domestic carrier “Emirates Airlines”. The recovery of the occupancy rate is correlated to the recovery in Dubai level of tourism and business activity which is reﬂected positively in Dubai GDP growth rate.000 10.000 50. Dubai hospitality industry revenues registered 20% annual growth rate in 2011as compared to -19% in 2009. the estimated room revenues from the GCC hotel industry was about USD 16 billion in 2010 and projected to rise to USD 27 billion in 2015. Dubai hospitality industry is on the path of robust recovery in line with Dubai GDP’s pick up. the number of tourist arrivals is expected to make a remarkable jump to reach about 64. Dubai average occupancy rate of 74% is higher than the GCC average of 67%. given the fact that on average about 23% of Dubai hotel guests are from Europe and the USA. In addition. most of the tourism activity has diverted into UAE from two of the most attractive tourism destinations of the region such as Egypt and Tunisia. Dubai has been the lead tourist destination in the GCC regarding sport tourism and event tourism. implying that both KSA and UAE will continue to dominate the region tourism market in the short to the medium term.000.000 Revenues in " 000" AED " 000 " 40. Dubai hospitality industry earned AED 15.000. Another indicator for robust recovery of Dubai hospitality sector in 2010 and 2011 is the “V” shape recovery in revenues growth rates of hotel and apartment. Figure 3: Dubai Hotel & Hotels Appartment Revenues 18. Therefore.9 billion in revenues from hotel and hotel apartments which is slightly higher than the industry revenues in 2008 of AED 15.9 million in 2010 to 53.000. justifying the projected increases in the industry revenues in the medium term.000 60.000.000 Oman Qatar Kuwait Bahrain UAE KSA GCC 14. Figure 1: GCC Tourist Arrivals 70. the most proﬁtable airlines internationally in 2011. Kingdom of Saudi Arabia (KSA) and the UAE dominate about 89% of the GCC region total market share and however. Another challenge to the revenues generated from Dubai hospitality industry is the increased number of newcomers.Based on latest data avialable form Dubai Department of Tourism and Commerce Marketing (DTCM). the Eurozone crisis and USA slow economic recovery might also present a challenge for Dubai hotels revenue and occupancy rates. In 2020.000 0% Dubai Chamber based on data from Alpen Capital -10% -20% -30% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 According to the same report. From the Figure. - Dubai Chamber based on data from DTCM Dubai key hospitality metrics In Dubai. KSA is highest GCC country that receives tourists followed by the UAE. in the short to the medium term the sector prospects are positive.000 10% 8. the number of tourist arrivals in the GCC region is projected to increase progressively from 40.. the expansion of the middle class in both India and China will contribute greatly towards tourism receipts in the Dubai and other GCC countries.3 billion (Figure 3). Figure 2 shows that Dubai hotel rooms and apartment ﬂats occupancy rates started to pick up in 2010 and 2011 reaching about 74% in 2011 for both as compared to 84% for hotel rooms and 82% for apartment’s ﬂats in 2007.000 10.000.000 30. which is reﬂected in the increased number of passengers coming to the UAE. Dubai hospitality industry experienced dynamic growth. Dubai takes the lead in the GCC as the fastest growing holiday destination in the history of the travel industry according to the World Tourism Organization (WTO). The total number of Dubai hotels guests showed an upward trend during 2010 and 2011 registering an average annual growth rate of about 10%. Conclusions To conclude. UAE is considered the main tourist destination in the GCC. the region remains an attractive destination for investors looking for medium to long term returns.000 6.
albeit with limited increases in revenue. The introduction of data-centric devices has deﬂected the use of traditional voice and SMS services towards relatively efﬁcient data platforms that are based on internet technologies. This article looks brieﬂy at some of these trends and how operators globally are responding to the new data-centric dynamic. Migrating to HTML5 has the added beneﬁt embracing an ecosystem that is app-centric such as Apple’s iStore and Google’s Play store.000 80.2 Voice (per minute)* DU Etisalat 30 33 212 212 450 450 Figure 1: Broadband and 3G Subscribers. These OTT content platforms present a spectrum of opportunities to operators. primarily because VoIP and smart phone adoption is in its nascent stages. Transmitting several bytes of data is a relatively cheap in comparison to the traditional services that those bytes replace. For businesses and consumers the increase low-cost OTT communication services represents a signiﬁcant milestone in cost efﬁciencies in addition to the added ease of doing business. Subsidies are however coming under scrutiny as revenue and margin pressures intensify going forward. The advantage is that operators can control the quality of the audio. strict net neutrality legislation was subsequently introduced which has limited room for operators to manoeuvre in response to OTT competitive threats. Doing so.000 60.000 60.000 3G Broadband subcribers (000) 100. can put network resources under cost pressures. In the Northern Europe.0 60. there are a number of other areas operators can address in the short-term. the introduction of VoIP to ﬁxed line services is typically seen as a high-risk to revenues. Figure 1. MENA subcribers (000) 100.000 20. which have different characteristics with regards to OTT content and how they deliver signiﬁcant beneﬁt to operators. Skype has the propensity to replace traditional voice calls but can prove costlier to the consumer if conducted over a 3G connection. music from Spotify or Deezer. While OTT substitution is a potent threat to operator revenues. This is in part driven by consumer desire to access OTT content such as video from Google’s YouTube. For the telecommunications market OTT services mean increased competition between telecom operators to attract consumers with lower rates and better ‘bundling’ of deals in which several mobile and ﬁxed line services are grouped together.0 30. Challenges Telecom operators globally have been facing a steady fall in the contribution of voice and short messaging services (SMS) to their revenues. one operator introduced deep-packet inspection last year to manage VoIP trafﬁc with a view to potentially block or charge for the service. Business Monitor International forecasts strong 3G and broadband subscriber growth across the Middle East and North Africa in the medium term. Sending an SMS of 140 characters using a feature phone costs approximately 18 UAE ﬁls. Limiting the growth of innovation in such an area.000 80.000 40. Such services that require a data plan come with less risks of revenue erosion. Implications Operators in the Middle East face challenges from OTT services. This also opens the potential for operators to grow revenues using innovation alongside the on-going operational cost strategies in a new era of data-centric service performance.OTT Services and the Implications for MENA Telecom Operators Over-the-top (OTT) services such as messaging.0 0. The obstacles can be segmented into OTT substitution and OTT content. over-the-counter (OTC) handset subsidies for high-end smart phones have eroded bottom-line ﬁnancial performance. Local International* IP (via 3G) * example: standard USA peak rate Source: Dubai Chamber based on Du and Etisalat portals Heavy data usage through OTT content. Relaying the same number of characters in the form of data through most smart phones using third generation (3G) network costs less than one ﬁl. This will also beneﬁt the consumers in the long-run. managed services. has created a dynamic where telecom operators are facing cost pressures to existing business models. video from YouTube or Netﬂix. operators can and should minimize network infrastructure costs through tower sharing. mostly due to the boom in smart phone adoption.or a combination of these measures across a geographic footprint. IP (ﬁls) SMS (per sms) DU Etisalat 18. voice over internet protocol (VoIP) and video have been evolving rapidly in recent years. In response to consumer and media backlash. Other operators have attempted to amend their service offerings.000 20. however. Middle Eastern operators are in a stronger position with respect to European operators. a leading telecoms operator in Europe has partnered with an established internet browser to implement HTML5 – a coding ecosystem that makes websites and smart phones work more efﬁciently in terms of data and usability. they also present signiﬁcant opportunities for operators who have adapted rapidly to the new norms. It should also be noted that. however. OTT services can take a broader range of forms including substitutes for traditional services. This has been considered as good for business in recent years. Beyond network costs Other than reducing costs by making networks more efﬁcient. This is probably a high risk but nonetheless illustrative of the scope for opportunity for operators.2 0. 6 . subsidies on Apple products from telecoms operators are often signiﬁcant but such subsidies ‘lock-in’ consumers for longer as they are less likely to migrate to other operators. Most MENA countries currently enjoy open access to VOIP services on a purely peerto-peer basis. To overcome the increase in data usage. in addition to driving subscriber uptake.0 60. telecom operator can introduce their own VoIP or SMS IP services to meter trafﬁc.000 0 2009 2010 2011 2012 2013 2014 2015 2016 0 Source: BMI On balance. operators globally have attempted to adjust their pricing strategies in order to adapt to the new norm. On the ﬂipside there are no traditional equivalents of WhatsApp. network infrastructure joint ventures. For example. including OTT services. Some operators are thought to be facing ﬁnancial challenges as a result of relatively slow growth in revenues and rising network costs due to a number of factors. also risks reducing space for experimenting with price and service delivery in the future across a broader range of other OTT services across mobile and ﬁxed devices. Messenger services such as the popular Blackberry messenger (BBM) is one such OTT offering. Networks have to be upgraded to accommodate the increase in trafﬁc. This will enable operators to compete on a more even footing in terms of innovation. As a way to harness the user experience. MENA operators are in a relatively strong position to offer regionspeciﬁc apps and content leaving ample scope for operator involvement in apps and platform development than other parts of the world. In this particular case.000 40. For example. adjusting in accordance with network usage. OTT video content has the added beneﬁt of boosting demand for higher capacity wireless and ﬁxed line broadband services thereby increasing the combined value of operators’ subscriber bases. Telecom operators have been quick to respond to the ramping up in demand for data. Table 1. Table 1: Messaging in the UAE: Traditional vs. Network sharing has thus become one way of achieving operational efﬁciency. One such example is subsidies for smart-phones. however.
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