Abu Dhabi’s manufacturing base to expand significantly

With the first phase of the Khalifa Industrial Zone Abu Dhabi (KIZAD) projected for completion in the fourth quarter of 2012, Abu Dhabi’s manufacturing base looks set to expand significantly over the next few years. Authorities from Abu Dhabi Ports Company (ADPC), the state-owned entity that is developing KIZAD and other manufacturing zones and ports in the emirate, are confident that KIZAD’s low-cost business environment and links to transportation infrastructure will help ensure its success.
A number of potential tenants have already signaled their interest in setting up at KIZAD, with Alexander Haex, the vice-president of business development at ADPC, telling local newspaper The National in July that more than 40 agreements had been signed with local and international businesses, either to reserve land or to secure long-term leases. According to Haex, demand for plots at the 417-sq-km complex has come primarily from firms in the aluminum, steel and other energy-intensive sectors.
The names of a few tenants have been released in recent months, including that of Brasil Foods, the world’s largest exporter of poultry, which in July told the local press that it would open a facility at KIZAD’s food manufacturing cluster by the end of 2012. The factory, which will produce items such as burgers, specialty meats, bread and pizza, is expected to reach full capacity by 2014.
This followed an announcement in April that KIZAD had finalized a contract with Talah Board, a UAE-based company that will manufacture construction boards from the waste of date palm trees for distribution in the UAE and the larger Middle East region. Talah has signed a Musataha agreement – a long-term lease that grants the right to build on another person’s land – for a 50,000-sq-metre plot.
The new facility will manufacture boards that can be used for furniture, formwork, prefabricated housing and joinery works. Machinery at the factory will be supplied by Binos, a German firm that specializes in the development and manufacturing of machines and technology for the wood board industry.
Other identified tenants at the industrial zone include Al Batha Trading & Industry Group, which in March signed a 50-year Musataha lease for a 27,511-sq-metre plot of land. The logistics firms will use the space to build temperature-controlled warehouses to store food and pharmaceuticals.
For firms looking to set up operations in the Gulf, KIZAD offers a number of advantages, including a low-cost operating environment. Utilities such as water, gas and electricity are supplied at some of the lowest rates in the world, while land costs are also competitive. For foreign investors, there are no foreign exchange controls and the currency is fully convertible currency. Other incentives at the site include zero personal and corporate income taxes, and 100% repatriation of capital and profit.
The option for 100% foreign ownership is also available at Abu Dhabi’s designated free trade zones, including certain areas within KIZAD. This status confers advantages, such as exemption from duties on imported goods that are kept in bonded status at KIZAD and re-exported from the UAE. For the non-free zone areas, foreign investors can partner with a local firm, with up to 49% foreign ownership permitted. These joint ventures can claim exemption from import duties on raw materials, and goods manufactured by these firms are then exempted from Customs duties when exported to most GCC countries.
The emirate has also invested heavily in building up transportation infrastructure in and around KIZAD to ensure that its tenants have access to imported raw goods and a means by which to export their finished products. For example, the planned Etihad Rail network, which will connect the principal centers of population and industry of the UAE, as well as form part of the larger pan-GCC railway network, will run through the industrial zone and terminate at Khalifa Port, the deep-water port currently under development which sits adjacent to the industrial zone. According to Khaled Salmeen, the executive vice-president at the ADPC, proximity to the new port and other transportation facilities help differentiate KIZAD from other industrial zones in Abu Dhabi and the broader region.
“KIZAD offers a different proposition,” Salmeen said. “Khalifa Port will offer tenants direct access to deep-water loading and unloading facilities, enabling easy import of bulk raw materials and export of finished goods. KIZAD will therefore be attractive for companies that either require more space or need easy access to global markets via sea, road, air or rail, rather than direct access to the local market in Abu Dhabi.”
Scheduled to be fully operational by September 2012, Khalifa Port is expected initially to handle about 2.5m TEUs of container traffic and 12m tonnes of general cargo each year, growing to 15m TEUs and 30m tons, respectively, by 2030. By comparison, Abu Dhabi’s current port, Mina Zayed, handled some 767,700 TEUs and around 8.6m tons of general cargo in 2011.
The capacity projections for Khalifa Port underscore the potential future importance of KIZAD to Abu Dhabi, particularly as the government works to diversify its economic base away from hydrocarbons. Indeed, the industrial zone is expected to contribute 15% of Abu Dhabi’s non-oil GDP by 2030. It will also help attract foreign direct investment and is expected to create, directly and indirectly, more than 150,000 jobs.
Oxford Business Group
30 August