GCC on track to become global powerhouse in manufacturing

The manufacturing sector has played a crucial role in the economic growth and rising standards of living worldwide, particularly among developing economies.

The sector is considered an essential and powerful economic force across nations and political systems, as pointed out by the McKinsey Global Institute report.

Among advanced economies, a strong manufacturing sector creates well-paid employment and maintains technical prowess, while in developing economies manufacturing is seen as an economic engine and a key platform that has catapulted developing nations to become players in the global economy.

The future of the manufacturing sector looks even more promising. The McKinsey report states that over the next 15 years another 1.8 billion people will enter the global consuming class and worldwide consumption will nearly double to $64 trillion. In the GCC region, manufacturing now contributes on average around 10 per cent to 15 per cent of GDP, clearly demonstrating the huge growth potential of the industry.

The manufacturing sector’s contribution to the UAE’s overall GDP, in particular, reached Dh141.7 billion in 2011, growing by over 11 per cent from Dh127.6 billion in 2010. The same robust figures are echoed in other GCC countries such as Qatar, Kingdom of Saudi Arabia, and Oman.

One may think that to grow the manufacturing sector, cheap labour is critical and in GCC most of the countries rely on an imported labour force to sustain their economies. In comparison to Asian manufacturing bases, imported labour in GCC is relatively expensive. So how is it possible to grow manufacturing in GCC? Interestingly in most of the GCC countries, manufacturing is capital intensive and not labour intensive.

A robust manufacturing industry serves as one of the cornerstones of socioeconomic development as it supports various strategic initiatives, including foreign trade. Indeed, as manufacturing countries become even more competitive, they will likewise be expanding their trade and export activities to take advantage of the globalised market. On the other hand, ensuring the sustainable growth of the manufacturing sector requires having an efficient transportation and logistics infrastructure.

This is quite evident when we look at fast-emerging economies such as the UAE, Kingdom of Saudi Arabia and Qatar, which are now increasingly becoming major manufacturing and trade hubs in the region.

The UAE has aggressively invested in large-scale transport and logistics infrastructure such as the first-of-its-kind Dubai World Central in Dubai, which provides a dedicated gateway for manufacturing companies in the UAE to reach out to global markets.

Such initiatives are likewise being implemented in KSA and Qatar, clearly underlining the role of logistics in supporting the long-term growth of the manufacturing sector. Driven by proactive, government-led investments, GCC countries such as the KSA, UAE and Qatar have quickly emerged as among the leading supply chain and logistics markets in the world.

Recent studies suggest that cement, food and beverages, engineering equipment and metals are among the manufacturing industries that are aggressively taking advantage of advanced logistics services in the region, and therefore account for relatively higher logistics expenditure compared to other manufacturing industries.

The UAE’s logistics sector, for instance, has been predicted to sustain an annual growth of between eight to nine per cent until 2020, setting record revenues of $16 billion in the next 10 years, according to a study by Frost & Sullivan. Manufacturing certainly relies on a number of key service providers to realise its full economic potential. In this regard, I believe that logistics is one of the crucial services that will have a major impact in the sustainable growth of the manufacturing industry.

I am, therefore confident that the GCC is strongly positioned to emerge as a global powerhouse in manufacturing and as a supply chain and logistics hub. Because of proactive government efforts to develop a world-class logistics infrastructure that is helping unlock exciting growth opportunities and supporting the global growth plans of manufacturing companies in the region.

Moreover, with trade volumes expected to sustain positive growth in the next several years, I also believe that logistics companies will play an equally important role in driving the reputation of the GCC as a key player in the global logistics sector.

The writer is chief executive at Barloworld Logistics for Europe, Middle East and Africa. Views expressed are his own and do not reflect the newspaper’s policy