Capitals of Industry
By Ian Munroe • Jul 21st, 2009Technology-based industries like manufacturing could help close that gap. “If you look at the kind of GDP growth that China is enjoying today, that could be the Gulf tomorrow,” says Ken Goldstein, a labor economist with the US-based Conference Board. “By building up physical infrastructure, absorbing human capital, there could be a huge burst of productivity,” he adds. “If it’s all done right.”
Labor of love. As with many of the Gulf’s development blueprints, however, the devil is in the details. The financial crisis isn’t likely to derail industrialization. “What’s going on right now puts a speed bump - not a solid brick wall - in front of the strategic plan” to bolster manufacturing, as Goldstein puts it. But some government-led projects have been forced to regroup.
Saudi Arabia’s plans to build the world’s largest aluminum smelter have been scaled back as the project’s foreign partner, Rio Tinto, cut its capital investment budget. Dubai Aluminum Co. has also reported a 30 percent drop in sales in the first quarter of 2009, but says it won’t cut production this year.
Under gloomy economic circumstances, the Gulf’s heavy industry seems to be holding up well compared to other parts of the world. Local governments boosted spending to counteract declining foreign investment (the UAE has said it will increase state spending by 21 percent this year), and there are sizeable government reserves to lean on ($432 billion, in the case of Saudi Arabia).
More serious problems loom on the horizon though. Kinninmont wonders whether labor problems will discourage manufacturers from choosing to locate in the Gulf, in spite of the low tax rates and cheap energy on offer here. “There can be difficulties getting visas for enough staff, and shortages of skilled local staff,” she says. “There are still impediments to doing business.” Ownership restrictions, opaque government regulations and other bureaucratic headaches persist, and could limit industrial growth.
Above all, there’s an open question about how the region’s growing aluminum smelters, petrochemical crackers and steel plants will be powered. Qatar’s moratorium on new gas deals stands until at least 2010. The UAE is trying to develop sour gas reserves (a sulfur-rich variety of natural gas) to help fuel industrial expansion.
