500: Number of automotive tenants at Jafza
8 per cent: Total customer base
24 per cent: Average annual growth of automotive firms at Jafza between 2000-10
Dubai is the regional leader in imported and re-exported finished vehicles and automotive spares. Jebel Ali Free Zone (Jafza) is home to more than 500 automotive companies, representing some 8 per cent of the customer base, with average sector growth of 24 per cent a year for the past decade.
Companies based at Jafza include Japanese carmakers Toyota, Honda and Nissan, Germany’s Daimler and Chevrolet of the US. They, and other automotive tenants, generated about 5 per cent of Jafza’s total direct trade in 2009, of AED9.9bn ($2.7bn).
The UAE has among the highest levels of vehicle ownership in the world, at 540 vehicles per thousand inhabitants.
Despite local market saturation, Dubai’s double-digit growth has been driven by trans-shipment to neighbouring states. In 2008, Iran alone accounted for 52 per cent of all automotive parts and spares shipped via Dubai.
World sales slumped after recession hit in late 2008. As the downturn deepened, the automotive industry was hit hard. General Motors in the US went bankrupt and all major car makers have scaled back production.
|Vehicle sales in UAE (unit)|
|Source: Business Monitor International; DCCI|
Dubai has not escaped the drop in demand for new vehicles. “The automotive segment was particularly hard hit in 2009 and the transport sector generally slowed in Dubai,” says Alexander Borg, regional director of the Chartered Institute of Logistics and Transport.
From late 2008, the combined debt repayment and real-estate crises created an exodus of foreign nationals from Dubai. Sales of new cars plummeted as the market was saturated with abandoned cars sold for knock-down prices at government auction.
Dubai car sales also suffered from a lack of finance, says Andreas Petre, UAE manager for luxury carmaker, Koenigsegg.
“Many carmakers had a tough year in Dubai last year, because obtaining finance became a major issue,” Petre says. “The people who wanted a new car found that the banks refused to lend them money. This year, however, the banks have started lending again.”
Dubai Chamber of Commerce and Industry (DCCI) expects a 5 per cent increase in auto sales this year, as improved liquidity, flexible financing deals and new demand for smaller, fuel-efficient vehicles from Japan and South Korea pull the market out of the doldrums.
Jafza aims to target the automotive industry. In 2006, it unveiled a specialist free zone to handle automotive shipments and manufacturing. The $544m Dubai Auto Zone (DAZ) targets car traders, service companies, spare parts suppliers, light manufacturing and assembly companies.
“DAZ, a mixed-use facility, will consist of a free zone to attract foreign direct investment (FDI) in the auto sector, a specialised economic zone to cater to the GCC markets and a retail zone to serve the local markets,” Jafza says.
Some of Jafza’s tenants ship finished vehicles, components and parts through Jebel Ali. Others have established regional headquarters inside Jafza. One of the latter is Koenigsegg, Swedish manufacturer of custom-built super sports cars made for high-net-worth individuals. Of the 20 sports cars Koenigsegg produces every year, each of which cost about $1m, it sells about eight to GCC customers.
“We have been based at Jebel Ali for five years,” Petre says. “The GCC is an important market, but being based in Dubai means we’re close to emerging markets in the Indian subcontinent, the Middle East and Africa. Being in Jafza, our regional office does not need a local partner. And in terms of Gulf demand, 2009 was our best year ever.”
Renewed car equipment manufacturing focus in Dubai
The downturn could see carmakers approach Dubai with renewed focus, says Stefan Fallet, country manager for Danzas AEI Emirates. “We expect new interest in Jebel Ali – and the South Zone in particular – from original equipment manufacturers looking to establish their own local spare parts operations,” Fallet says.
While economic downturn saw a fall in car sales, growing demand for repairs has increased local and regional sales of spare parts. “Historically, Dubai car distributors have been able to source parts either from the official manufacturer or elsewhere,” Fallet explains. “By moving to Dubai, car makers will be able to push their own products on the retail market and increasing service levels.”
But while Dubai accounts for nearly 50 per cent of UAE finished vehicle movements, it faces new competition from Abu Dhabi. The emirate is planning an 11-square-kilometre automotive industry free zone at Musaffah.