Manufacturing growth in Dubai

29 November 2010

Jafza’s value proposition has proved compelling even in the middle of a regional downturn and continued to attract firms looking to set up local industrial units

In numbers

50 per cent: Growth in the number of manufacturing units at Jafza between 2005-09

40 per cent: Growth in new entrants at Jafza during 2008-09

$100m: Investments by Conares Metal Supply

Source: JAFZA

Since its inception 25 years ago, Jebel Ali Free Zone (Jafza) has worked hard to transform itself into an attractive regional base for manufacturers looking to service a growing local and regional market.

From local Dubai Aluminium to smaller scale producers of industrial equipment, cement, paint, plaster, adhesive and consumer goods, the benefits of establishing a foothold in a brand-leading free zone have convinced an increasing number of international players in recent years.

Superior infrastructure at Jebel Ali Free Zone

Jafza’s Dubai location, granting producers access to the emirate’s superior infrastructure and transport networks for setting up manufacturing and distribution operations, is one critical factor in establishing the free zone’s manufacturing credentials.

In turn, Jafza’s value proposition of integrated infrastructure, a world-leading port and best international practice has proved compelling even in the middle of a profound regional downturn.

The past five years have seen a steep rise in the number of manufacturing units at Jafza, with a 50 per cent growth between 2005 and 2009. Even during the recession of 2008-09, which hit Dubai particularly hard, the number of new entrants in the industrial sector still grew by an impressive 40 per cent.

Jafza chief executive officer, Salma Hareb has noted a trend towards a qualitative improvement in the foreign direct investment (FDI) that Jafza has attracted over the past two years, with more well-established manufacturers and service providers moving there in search of stable operational bases. The trend has accelerated in the first half of 2010, with Jafza attracting new clients such as Canada’s Proclad Stream-Flo; Schoeller-Bleckman, a UK supplier of seamless stainless tubular product; and New Zealand’s Pultron Composites.

Being a Jafza company provides stronger customer recognition and better access to markets

Indika Gunasekera, Pultron Composites

Pultron set up in Jafza in June and represents the New Zealand composite pultrusion technology company’s first overseas venture. The Jafza location reflects its growing operations in GCC markets over the past six years, particularly, the UAE and Bahrain. Pultron has supplied soil walls and highway barriers for multiple Gulf civil projects, such as the Muscat Expressway and Dubai Marina, where soil walls and highway barriers require reinforcement with high corrosion resistance.

One of the main benefits of Jafza, says Pultron manager Indika Gunasekera, is the proximity to the port, which saves operating costs in a big way and means a much shorter lead-time for delivery to customers.

“For import and export it’s quite easy for us to do our transactions here. Another key reason for establishing in Jafza compared to another industrial estate was because of strong recognition that it provides. Being a Jafza company provides stronger customer recognition and better access to markets. When you say you are a Jafza firm, straight away they know where you are located.”

The free zone will face intense competition from other locations bidding for Dubai’s logistics crown

The Middle East in particular, is seen as a major growth market by Pultron, driven by the significant corrosion issues, which exist in much of the region. The new factory plans to service the Middle East in the first phase and Europe and US subsequently.

Dubai’s strategic location appeals strongly across the board for the free zone’s burgeoning community of manufacturers.

For UAE-headquartered Conares Metal Supply, a metal trading, pipe and rebar producing company operating in the free zone since 2002, Jafza’s attraction went beyond the familiar benefits of 100 per cent ownership of investment and 100 per cent repatriation of profits.

Doing business in the UAE

Manufacturers also like the way that Jafza’s leadership has put a priority on the ease of doing business.

“Operational ease, acquiring specific permits, processing legal procedures are facilitated in Jafza, not because there are short cuts,” says Mathew Ambat, director of Conares.

“There is a certain customer focus that they provide to make the process doable in manner that will allow businesses to conduct their business while implementing the necessary guidelines,” he adds.

Despite the downturn in the global steel market, Conares is in the middle of a $100m expansion plan, which will increase its production capacity fivefold to 1 million tonnes a year (t/y) by 2011. Its expansion within Jafza has been rapid over the past eight years, since starting out as a company trading in steel products. It then took a 22,500-square-foot plot and from a purely trading endeavour, the company transformed itself into a manufacturing entity with substantial assets.

Within a year’s time it added another 15,000 sq ft and then another 7,500 sq ft. “In the North zone, we have a total plot size now of about 450,000 sq ft, where we have housed our tube manufacturing facilities, which has been in operation since 2005,” says Ambat. “In 2006, we embarked on a rebar mill project wherein we took almost 1 million sq ft in the South zone of Jafza. This plot currently houses our state-of-the-art rebar facility having a capacity of 500,000 t/y. An investment of about $65m has been put in place in the plot.”

Jafza: A Global gateway

As with many firms operating out of Jafza, Dubai’s strategic position was crucial in informing the Conares’ selection of Jafza as its regional base. “Dubai was identified by the company’s management as a key investment area to establish a niche manufacturing facility that will allow the company to have a solid foothold in a regional market,” says Anbat.

“There is also potential to distribute its product globally, with the competitive advantage of being in the middle of global trade routes.”

Conares is being joined by other steel producers in the free zone. Italian steel manufacturer Legnano Teknoelectric Company (LTC) is establishing a state-of-the-art factory in Jafza to process grain oriented electrical steel from coils to magnetic cores for distribution and electric power transformers. This will be LTC’s first facility in the Middle East and fifth in the world.

The new LTC factory in Jafza, covering an area of 27,500 square metres, is scheduled to open in 2012. It will produce precut conventional grade, high permeability, laser traded and non-oriented electrical steel to markets in the Middle East and Asia in less than a week. “The strategic location and excellent facilities in Jafza will reduce our lead time to reach target markets by one fourth,” said Daniel Bertelli, LTC Middle East director. LTC currently takes about four weeks to deliver goods to Middle East and Asian markets.

Another recent entrant to Jafza, Burckhardt Compression, provides service on all compressor valve types says the location helped it bolster its market presence. “It will help since our customers are looking for a closer personal contact and faster service with the same European standard,” says Burckhardt managing director Beat Jaggi. “It will definitely help to win business since we are independent and easier market access due to the free zone.”

Apart from Jafza’s strategic location, other business attractions, such as tax benefits, have also played a decisive role. “In the initial stages, it was simply that the company wanted to be able to make investments and should be able to keep 100 per cent ownership of its investments. The ease in forming a company and operating it from Jebel Ali made it attractive to set up in Jafza,” says Conares’ Ambat.

Though Jafza has provided a strong offering to investors, the free zone will have to continually strive to keep itself competitive. While the location and benefit of having a world-class port facility and infrastructure are clear, says Ambat, it needs to be constantly competitive – not only on the service and infrastructure, but in the cost that it provides for as well.

Jebel Ali Free Zone: Maintaining manufacturing sheen

There is more that Jafza needs to do to maintain its manufacturing cutting edge. “Dubai’s model of growth can be improved and Jafza can be a key strategic element in implementing a resurgence of confidence in the growth of this emirate,” says Ambat. “There is a need to positively focus back to the core values that has sparked that unique character allowing it to grow, but it should also be tempered with experience of what it has been going through.” 

In practical terms, this means creating a more stable environment for manufacturers to operate in. “Norms should not prevent companies to operate, but rather guide them on how to conform to international standards and initiatives in order to make their facility world-class, and not simply driven solely by the desire of making profit at an instant,” says Ambat.

Industrial manufacturing units should be encouraged to provide an impetus for constant economic activity that can emanate from Jafza and distributed globally, making a niche of what could possibly be the key strategic factor for the free zone.

Jafza is home to consumer food producers such as US companies Mars and Procter & Gamble. Mars GCC this year opened its new factory in Jafza. With an investment of more than $40m, this factory will produce Mars, Galaxy and Snickers brands for the GCC markets. The 6,000 sq m factory will manufacture the chocolate bars on new production lines. 

Jafza’s broader manufacturing offering goes beyond providing the actual manufacturing facilities; it also appeals to firms looking for a regional distribution hub. This year, Super-Max, the world’s second largest razor blade manufacturer, moved its global distribution headquarters from London to Jafza since it expects to serve its global sales network more efficiently from its new facility. The company’s five high-tech factories located in India, Bangladesh and Mexico currently produces more than 10 billion units.

The more efficient supply chain is expected to reduce operating cost by more than 30 per cent compared to London. Dubai offers efficient access to the Middle East, CIS and African markets for the firm. The new facility, to be completed in two phases, is being built on a 200,000 sq ft plot in Jafza South. The second phase of the construction, scheduled to complete in 2011, will add another 50,000 sq ft logistics space to its existing facility.

These examples are but a handful among scores of manufacturers which have made Jafza their home over the past 25 years. The wider message is clear: Jafza has worked hard to burnish its appeal to global manufacturers, and even in tough economic times, the unique proposition of location and investor-friendly business climate has proved of undiminished appeal. As the free zone develops its manufacturing prowess in future years, it will face intense competition from other locations bidding for Dubai’s logistics crown.

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