Oped on industry

Oped on industry

Mohamed Bin Faisal Bin Qassim Al Thani

Vice Chairman-Aamal Company

An important part of the Qatar National Vision 2030 is diversifying the economy and reducing dependence on imports by encouraging local industry. Led by governmental and private companies, Qatar’s industrial manufacturing sector has grown rapidly in recent years due to government spending on infrastructure projects and increasingly strong demand for products to feed the construction boom. However, these companies need to understand that the long-term profitability of manufacturing in Qatar will partly depend on how they adapt to competition and a likely decline in infrastructure investment.

In the decade up to 2013 the value of Qatar’s manufacturing output rose from QAR12.4 billion to QAR32.9 billion (in constant 2004 prices).  During those years, the variety of industrial manufacturing enterprises also increased considerably. Products such as readymix concrete, cables and pipes – all essential to the country’s development – either began to be made in Qatar or saw their production rise. In 1994, for example, there were 12 to 15 readymix producers in Qatar. That number went up to 55 in 2008 and is about 80 today.

Qatar enjoys resources which can give local firms valuable advantages over foreign competitors. Energy is cheap and translates, for instance, into competitively priced products such as aluminium and plastic; there is plenty of land; basic materials such as limestone and sand for cement making are readily available.  A particular advantage of local production is much lower transport costs.

But it can also be hard for Qatari firms to compete.  The country’s fast-growing economy and ambitious infrastructure investment plans have attracted foreign firms from the GCC and further afield.  Some enjoy competitive advantages. Saudi cement companies are vertically integrated, owning quarries, sand sources and cement plants.  Chinese fibre optic cables are cheap by world standards.  At the same time, Qatari firms often rely heavily on imported raw materials such as micro silica, fly ash, aggregates and some slag for cement and concrete production, and copper for cables

Not surprisingly, Qatar’s developing industrial sector has been marked by periods of intense competition, volatile prices and fragmented markets which have depressed profits. For now, manufacturing companies in Qatar expect that the burst of infrastructure work over the next five to eight years will boost profits and justify their shareholders’ investment. Cement output will go up from 6 million tons a year in 2010 to 10 million in tons a year in 2015-18. About 15% of infrastructure spending over the next five years will be on pipes alone, ranging from water and sewerage pipes to massive pipes for the metro and railway.  Indeed, 2014 may be the peak period for awarding infrastructure contracts.

Manufacturers are well aware, however, that the infrastructure boom will subside. Markets will not vanish, of course. Qatar’s economy and population will probably continue to grow and construction will remain important. But there is a risk that lower public spending will lead to excess capacity in some sectors and a return to cut-throat competition. The more far-sighted companies are therefore already thinking about how to remain sufficiently profitable a decade from now.

There are broadly two main answers to this question. The first is to diversify.  An enterprise such as Doha Cables, part of the Aamal Company, is setting up a factory to make transformers and is considering other relevant projects. Aamal Readmix, another part of the same group, has branched out into making blocks and slabs (for pavements, for example) and into high-tower pumping – technology to pump up readymix concrete direct from the delivery truck to many floors above the ground as building progresses. Seeking export markets in the region and other areas such as South-East Asia is another route to diversification.

The second is to add value to goods and improve efficiency. Progressing from assembling products such as domestic appliances from imported parts to manufacturing locally is a way of moving up the value chain. Another is to improve quality, perhaps by better training for employees, sourcing of components and raw materials, and simple experience of the local market’s needs. Efficiency also involves factors such as labour costs, managers keeping abreast of the latest developments in their industry, the willingness of shareholders to invest, and the quality of public administration and essential services such as water and power.

Judging by the increase in the value of Qatar’s manufacturing output over the last decade, the advantages of manufacturing locally rather than importing can outweigh the disadvantages. Many manufacturers in Qatar are already rising to the challenges.  It is important for the nation that they do so successfully.

ENDS