Dubai playing catch-up in heavy machinery push

Local markets may not offer the type of volumes required for machinery makers with factories in China and India to set up UAE plants.

Dubai’s plan to develop a construction and machinery sector as part of its 2030 Industrial Strategy faces some tough challenges, not least the fact that many of the world’s biggest companies in the sector have already built factories in emerging markets such as China and India.

Construction equipment and machinery was one of six key markets identified by the committee that devised the strategy, which was led by the Jebel Ali Free Zone Authority and Dubai Industrial Park in Dubai Wholesale City, with support from the Executive Council of Dubai and experts in 25 government entities.

It was chosen because it is already classed as one of the biggest industrial sub-sectors in Dubai, accounting for about 25 per cent of industrial GDP because of high domestic demand and the fact that Dubai is the regional hub for equipment providers. A study carried out by research firm Markets and Markets last year put the estimated value of the UAE market at more than US$2.6 billion, with earth-moving equipment being the biggest sub-sector, valued at $1.6bn. The study predicted a compound growth rate of more than 8.6 per cent until 2020, bolstered by investments in housing and roads infrastructure, it said.

Sayani Roy, a senior industry manager with research firm Technavio, said the Route 2020 extension of the Dubai Metro Red Line, and the expansion of Jebel Ali Port and Al Maktoum International Airport are all projects that are likely to drive demand in the sector.

“The growing urban population demands better infrastructure facilities, which plays a significant role in boosting the market,” Ms Roy said. “Government initiatives to develop infrastructure, coupled with rising investments in the construction industry, are projected to drive consumption of earth-moving equipment.”

However, many of the world’s biggest firms such as Caterpillar and JCB already have plants serving emerging markets from China and India. Moreover, although Dubai offers long-term growth as a hub, there is little doubt that the market is experiencing short-term pain.

Gaby Rhayem, the regional dir­ector for the Middle East and Africa at South Korea’s Doosan Heavy Industries & Construction, said its business with a number of energy-dependent territories – Algeria, Angola and Nigeria – had been hit by falling oil prices. Saudi Arabia, its biggest regional market accounting for about 60 per cent of sales, has been particularly hard hit by a construction downturn.

The company produces heavy construction equipment and the Bobcat range of mini-excavators and loaders.

“As a supplier, we are completely affected by this. And when I am affected by this, our factories are affected,” he said.

He said Doosan is always looking to adjust to demand to make sure that its volumes match demand, but that this market can be effectively covered from existing factories in India, China, South Korea, France and the Czech Republic.

“The shipping time between Europe and the UAE now is three to four weeks, so we can respond positively and in a very, very quick time to demand in the industry,” he said.

Similarly, Sharbel Kordahi, who heads US crane maker Terex’s Middle East operations, said it is not likely to establish heavy manufacturing operations in the region.

“Any market that is [targeting] manufacturers to come in really has to offer three things. One is volume, another is economic benefits and, of course, stability.”

Mr Kordahi said Dubai certainly offers stability and a range of economic benefits, but may not offer the volumes that a producer of heavy equipment would require to set up a plant.

“That has to be determined by each manufacturer. Does it make sense to produce here for a volume of a few hundred mach­ines every year?

“Also, how much will the GCC market like GCC products? Will a contractor in Saudi accept a backhoe loader made in the UAE, and will they see that as an advantage or a disadvantage?”

He believes, however, that Dubai could carve out a niche in providing lighter or more compact machinery, such as mini-excavators and light towers or “gensets” – a combination of diesel engines and electricity generators used to provide power on sites. There are also opportunities in assembly.

“In our materials-handling arm [which makes overhead cranes], we bring crane kits from Germany, we manufacture girders locally and we fit the crane sets on to the girders and send them out to customers. The crane kits are German, but everything around them is manufactured and assembled in the UAE,” he said.

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