Don’t Underestimate The Middle East

 

509px-Middle_east.jpgSource of picture: Wikimedia Commons

 

By John Richardson

THE theme of last week’s Gulf Petrochemicals and Chemicals Association (GPCA) conference in Dubai was “Moving Downstream, Creating Added Value and Sustainable Growth”.

There is a huge effort underway in the Gulf region, as we have discussed before, to move away from only basic petrochemical production.

A wide range of semi-speciality (if such a term exists) and speciality chemicals projects are being planned, in the hope that this will create an “umbrella effect” – a wider range of manufacturing industries downstream of this broader chemicals portfolio, and therefore more jobs.

Sceptics aplenty discussed in private the difficulties in executing this strategy, which include:

*Distance from big consumption markets. Speciality chemicals producers traditionally like to be close to their customers in order to provide “value added” pre and after-sales services. Plus, the economics of shipping some finished goods from the Gulf as opposed to plastic pellets or liquid chemicals are said to be more challenging. In the case of car bumpers, for example, you are essentially paying to ship fresh air in a container, said some commentators.

*Foreign investors might be a little more leery of committing to the region due to diminishing margins as you go further downstream, away from basic petrochemicals.

*Local skills need to be developed in, for example, selling and marketing speciality products, where much-more focus on the final customer is required than basic commodities.

But in what was a refreshing change for the blog, we came away feeling very positive about what the Gulf is attempting to achieve.

At least the industry has a plan, based on wider domestic societal needs, rather than on satisfying investors over the next quarter and on pumping-up the share price - which can be the approach of some Western competitors.

And we feel that, given strong government commitment and ample financial resources, the changes being attempted in the Gulf will be successful, even if they take longer than originally planned.

 

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