Energy to the United Arab Emirates
(Last updated: 14 Nov 2011)
Trends and opportunities
The market
Australia is a strong exporter of products and services to the UAE construction sector. Statistics indicate that in 2010 Australia exported A$98 million of construction-related products to the UAE. Total services exports to the UAE, which are harder to quantify, totalled A$1.7 billion in 2008, with a significant amount of this income coming from the construction sector. Many large Australian services firms have an office in the UAE including Leighton, Worley Parsons, GHD, Cardno, Bovis Lend Lease, Woods Bagot and PTW. In fact, the total number of Australian offices of building-related companies numbers over 100.
The year 2012 is believed to be the year that UAE’s construction industry recovers from the effects of Dubai's downturn and the value of the infrastructure and construction sector is expected to return to normal growth.
The oil price is still high enough to provide the financial backing that the capital investments programs require. As per the GCC trend, the UAE is also seeking to diversify its economy to reduce dependence on oil and gas in the future, while UAE is also looking to create jobs for their fast-growing and largely young population. It is believed that the government’s ongoing heavy spending on capital expenditure projects such as schools, hospitals and transport infrastructure, energy and utilities will provide more opportunities for the construction industry, than commercial or residential developments. The Abu Dhabi government is also keen to pursue the provision of affordable housing for both local citizens and low income expatriates creating more opportunities in the residential sector. (Source: ‘Construction in UAE capital faces grim year ahead’, ConstructionWeekOnline.com, October 2011).
Significant changes in the market
A number of other significant changes have taken place in the market along with the global economic slowdown:
- Firstly, there has been a shift away from residential and commercial construction towards large social infrastructure projects. Significant infrastructure spending is occurring on power and water, roads, ports and rail.
- Secondly, financing and delivery of the some of these large projects has been opened up to the private sector. Power and water projects have been attracting private sector financing for some time.
- Thirdly, transport projects are taking centre stage. Even in Dubai which has experienced a major property decline, more than 45 per cent of 2010 budget expenditure (US$4.71 billion) was allocated to infrastructure and transport. (Source: The UAE's economy: a tale of two cities in 2010, Middle East Economic Digest 2010, Richard Nield). The UAE is moving forward with plans to be part of the US$100 billion GCC Railway Project which will link the Gulf countries together by rail. The UAE’s portion of the GCC rail project comprises a 1,500km domestic rail network which is due to be delivered by 2015 with a forecast value of US$11 billion. Light rail and metro systems are also under consideration. Abu Dhabi is building and rejuvenating a series of large ports. In all emirates, road and bridge construction and upgrades are receiving significant funding.
- Fourth, government investment in Abu Dhabi is flowing into regional areas such as Al Ain in the south, and Al Gharbia (known in English as the Western Region), which despite their small populations contribute roughly half of the UAE’s GDP from agriculture and oil and gas.
- Fifth, green building and sustainable infrastructure is being championed and mandated in Abu Dhabi by the Urban Planning Council and Department of Municipal Affairs under new building codes effective from 1 September 2010.
Market drivers
- Increased government spending on infrastructure – roads, ports, airports, rail, power and water. In response infrastructure bottlenecks and the GFC, both the federal and individual emirate governments have announced a commitment to increasing infrastructure spending.
- The development of Abu Dhabi – Abu Dhabi has released an extensive plan for its own development called Plan 2030. Under that plan, Abu Dhabi will develop its 200 natural islands, create a new capital city, construct an expansive public transport system, and become the cultural and sporting hub of the UAE.
- Vast financial and oil reserves – The UAE has the world’s third largest oil reserves and fifth largest gas reserves, predominantly located in Abu Dhabi. This gives the country a significant long-term asset base. The UAE also has the world’s largest sovereign wealth funds.
- Favourable investment climate – An accommodating regulatory environment relating to private investments in infrastructure is encouraging the private sector to engage in the development of big-ticket items.
Energy
Although the UAE holds 10 per cent of the world’s proven oil reserves, the majority of this oil goes to exports, with the emirates consuming just 1.4 per cent of the oil it produces. Most electricity in the UAE is generated from domestically produced gas with the shortfall imported from Qatar by Dolphin Energy. The UAE’s consumption of electricity has grown substantially as the population has risen; by as much as 75 per cent in the last five years. Currently commercial consumption accounts for the bulk of power demand, closely followed by residential consumption, but the industrial sector is poised to be the biggest consumer in the future.
Abu Dhabi Water & Electricity Agency (ADWEA) expects power demand in the emirate to double by 2015, and water demand to rise by nearly 45 per cent. ADWEA is predicting that demand for power is set to grow from 6,885MW in 2010 to 14,052MW by 2015 and 22,356MW by 2020 representing a demand growth of 12.5 per cent per year. Including Abu Dhabi’s power exports to the northern emirates, demand will increase from 8,563MW in 2010 to 18,532MW in 2015 and 28,188MW in 2020.
As per the BMI Infrastructure Q3 2011 report, the Dubai Electricity and Water Authority (DEWA) has established a US$19 billion capital expenditure plan from 2012 – which will see power generation capacity and water desalination capacity also triple in 2017. ADWEA projects account for about 26 per cent of the new generation capacity, with US$1.3 billion invested in expanding five existing desalination plants. ADWEA is planning to build at least three new integrated water and power plants (IWPPs) by 2016 to meet demand for water and power, which the utility estimates will rise by between seven and eight per cent in the next five years. (Source: ‘Abu Dhabi expects power demand to double by 2015’, Middle East Economic Digest, April 2011 and Business Monitor International United Arab Emirates Infrastructure Report Q3 2011).
In the UAE, water and power are interconnected and reform of the power and water industry to increase private sector involvement has been underway for a number of years. This has spurred on a raft of IWPPs, which have allowed new players to enter the UAE market and freed up capital at the utilities for other investments. An estimated US$16.3 billion worth of investment is taking place in desalination, power generation and wastewater as a direct result of the privatisation program (Source: Business Monitor International, United Arab Emirates Infrastructure Report Q3 2011, p33). ADWEA projects account for about 26 per cent of the new generation capacity, with US$1.3 billion invested in expanding five existing desalination plants. ADWEA is planning to build at least three new IWPP plants with a capacity of 5GW of electricity and 300 million gallons of water daily by 2016.
Despite the success of the IWPPs to date, concern about future supply shortages have forced the UAE to look at alternatives including solar and nuclear energy. In late 2009, the contract for the construction of four 1400MW nuclear power facilities in Abu Dhabi was awarded to a consortium of South Korean companies called KEPCO. Construction of the power station at Braqa near the border of Saudi Arabia is expected to be completed by May 2020 and is said to be valued at close to US$20 billion.
The Emirates of Ajman and Ras Al Khaimah have announced plans to build coal-fired power stations, despite the fact that the UAE has no coal and would need to import it. In fact, a mining venture, the Ras Al Khaimah Minerals and Metals Investment (RMMI), is set to construct a US$600 million railway and jetty in Indonesia with a view to transporting coal back to the emirate for use in the new power plant. (Source: Business Monitor International, United Arab Emirates Infrastructure Report Q3 2011, p30). Regionally, as a result of concern that economic development could be hampered by inadequate power, the GCC countries are beginning to link up to a common power grid. The GCC Interconnection Authority (GCCIA) estimates the total cost of the project will be more than US$3 billion. Components of the project will include transformer stations, a control centre and a converter in Saudi Arabia. The first phase of the project has been implemented.
Opportunities
Services opportunities
General construction and specialist sub-contracting services, specialist consulting and services for roads, bridges, light, metro and heavy-haul rail, ports development, sports infrastructure, affordable housing, green building and sustainable infrastructure, parks and landscaping, schools, universities, hospitals, power production and desalination.
Engineering and architecture firms should note that the downturn in the greater Gulf region has diminished the pipeline of construction projects coming on-stream and made conditions for the numerous firms very competitive. New entrants in design and engineering are likely to struggle in the current environment.
Product opportunities
A wide variety of building materials and products including green building and sustainable infrastructure solutions, water saving devices, systems for building automation, air-conditioning and security and swimming pool equipment.
In addition, products for roads and bridges, light, metro and heavy haul rail, ports, solutions for industrial and business zones, sports infrastructure, affordable housing, hotels, parks and landscaping, schools, universities and hospitals, power and desalination.
What makes the UAE an attractive place to do business?
- The UAE is Australia's second-largest market in the Gulf, with good growth prospects. It has a sound economy, a youthful population, a well-established and managed banking system, excellent infrastructure, and a sophisticated business community familiar with Western practices.
- Australia's profile in the UAE is high. There is increasing recognition of Australian companies and capabilities. Over 100 building-related Australian companies have established themselves in the UAE. Many take advantage of the UAE’s advanced transport, financial and communications infrastructure and make the UAE their regional base.
- Australia's advanced engineering and building-services, innovative products, ‘can-do’ approach and ability to deliver are ideal for the UAE's large infrastructure programs.
- The UAE Government is continuing to invest heavily in infrastructure projects which present opportunities for Australian companies.
Competitive environment
The UAE is strategically located between India and Europe and not far from South East Asia. It has typically been a trading hub, so competitors from Europe and Asia are numerous. Australian companies comment that there is a general preference for cost effectiveness over quality.
Tariffs, regulations and customs
There is a five per cent tariff on all goods and services imported into the UAE. Steel and cement have been exempt for some time, but the tariff may revert to five per cent for these items in the future.
Industry standards
In the absence of a formal building code, over the years, the municipality of the Emirates accepted the practice of British standards. However, the UAE’s emirates have been developing their own building codes.
In many cases the accepted systems are British standards or equivalent. However the acceptability of British standards varies from product to product, so Australian companies need to make enquiries as to the standards applied to similar products.
In some cases, even if products meet British or Australian standards, they are may be difficult to sell if they are not tested, approved or certified by the municipal governments. This can take a significant amount of time and may involve a cost.
Companies should enquire as to whether testing and certification is required for their product. Generally, this is a process which local companies distributing the product can undertake.
Marketing your products and services
Market entry
Australia enjoys a good reputation in the UAE and Australians are influential leaders in construction management, both in local and Australian-owned companies. Australian products and services including consultancy, contracting, technology transfers and materials are heavily utilised.
Opportunities for Australia exist in almost all areas of the construction industry. Suppliers of products and materials usually require an agent who can work to ensure their products are pre-qualified with the architects and consultants. Providers of specialised services need to bid for projects and therefore, a local presence is recommended. Australian companies are encouraged to leverage the strong UAE-based Australian construction industry network.
The bulk of building materials are imported through Dubai. Major importers have significant warehousing facilities and well-developed distribution networks. The major importers have branches in at least the three major Emirates – Abu Dhabi, Dubai and Sharjah. The Middle East has a strong manufacturing base and well developed relationships with suppliers in India and China. Australian companies compete best when they have a value-added product with a distinct competitive advantage. Commodity-style products that do not have a strong technical component and are easy to produce do not generally fare well in the UAE.
All government purchases are carried out through tenders, which only UAE-owned agents can bid for. Therefore in order to sell to government, a foreign company usually requires local representation. In order to encourage local manufacture, the government provides a 10 per cent price advantage to local manufacturers over the equivalent imported product for local government purchases.
In the Middle East there is a strong focus on forming relationships to do business. For this reason, companies aspiring to succeed need the commitment and resources to make a number of visits to maintain relationships with their partners or establish an office.
How Austrade can help with market entry
The UAE, with its aggressive spending and high import propensity presents vast opportunities for Australian businesses in the building and construction industry. However, the large number of players, lack of Internet information, and different business culture makes it difficult for Australian companies to identify the most important contacts and secure appointments.
Experienced staff – Austrade's experienced Business Development Managers are members of key building sector business groups and provide input into a number of building and construction directories. They are well connected with key business people and able to open doors on behalf of Australian companies.
Arranging visits – Austrade arranges frequent business delegations to the UAE and appointment programs for companies making individual visits.
Trade exhibitions – The UAE is a regional hub for trade exhibitions. Austrade arranges activities, which bring local and Australian business people together at a number of key trade exhibitions each year.
Legal issues – There is a big difference between the commercial laws in the UAE and Australia, which if not understood by Australian companies, can result in decisions which impede the growth of business. It is very important to understand the legal context. Austrade provides information about agency/distribution and franchise regulations and the different types of commercial entities open to Australian companies.
Austrade can also refer Australian companies to providers of professional services, such as lawyers and accountants.
Links and industry contacts
Government, business and trade resources for United Arab Emirates
Abu Dhabi Chamber of Commerce and Industry – www.abudhabichamber.ae
Abu Dhabi Department of Transport – www.transportabudhabi.ae
Abu Dhabi Municipality – www.adm.gov.ae (website currently under maintenance)
Abu Dhabi Plan 2030 – www.upc.gov.ae/Plan2030_compressed.pdf
Australian Business Council in Dubai – www.abc-dxb.com
Australian Business Group in Abu Dhabi – www.ausbg.net
Dubai Chamber of Commerce and Industry – www.dcci.gov.ae
Dubai Municipality – www.dm.gov.ae
Government of United Arab Emirates – www.uae.gov.ae
Sharjah Chamber of Commerce and Industry – www.sharjah.gov.ae
UAE Federation of Chambers of Commerce – www.fcci.gov.ae
Media
Gulf Construction Online – www.gulfconstructiononline.com
Middle East Economic Digest – www.meed.com
Contact details
The Australian Trade Commission – Austrade – is the Australian Government’s trade, investment and education promotion agency.
Through a global network of offices, Austrade assists Australian companies to grow their international business, attracts productive foreign direct investment into Australia and promotes Australia’s education sector internationally.
For more information on how Austrade can assist you, contact us on:
Australia ph: 13 28 78 | Email: info@austrade.gov.au
A list of Austrade offices (in alphabetical order of country) is also available.