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| By Dr Neil Partrick |
| Friday, 02 July 2010 09:00 |
 Industrial zones in the Middle East and North Africa region face differing challenges. Dr Neil Partrick considers those of Sohar (Oman) and Tanger-Med (Tangier, Morocco) Industrial zones are not a new concept in the Middle East and North Africa (MENA) region. Egypt set up industrial parks in the free zones it established after the launch of its Open Door Policy in 1974 and in the new cities it developed to take Cairo’s overflow. The concept gained a new lease of life with the advent of Jubail and Yanbu in Saudi Arabia, but only adopted the characteristics of an industrial hub with the development of Jebel Ali. Now the idea is very much in vogue from the Arabian Sea to the Atlantic Ocean. Oman’s Sohar Industrial Zone (SIZ) borrows from both Jebel Ali and Jubail in aiming to become an industrial hub based on petrochemicals. It is close to Sohar port, which has dedicated terminals for general goods, for containers and for storing and handling liquids, and has the space to expand. It is also close to the capital Muscat and has good links to the southern Gulf. But, perhaps most significantly, it is located in the Gulf of Oman, placing it south of the choke point of the Strait of Hormuz. This open access to the Arabian Sea, together with cheap readily available hydrocarbons, is a key selling point. Sohar boasts a refinery that provides feedstock for SIZ’s metals and petrochemical plants, a power plant and a waste water management facility; a part-government funded independent water and power project is under development. However, energy availability is a major constraint on developments as Oman has limited energy resources. Oil production has stabilised, bucking a long-term trend, but will struggle to maintain 900,000 barrels a day. So the focus has switched to using non-associated gas as an industrial feedstock. Some SIZ petrochemical production – such as methanol – is already gas-fed, as would be the planned urea plant. But despite hopes for new gas discoveries, Oman’s domestic gas stocks are, like oil, limited. Given the need to conserve gas as well as oil to generate export revenue, any expansion of gas-fuelled production at SIZ will most likely depend on imported gas from Qatar through the Dolphin Project pipeline. However, Qatar has declared a moratorium on raising Dolphin’s throughput until at least 2011. Any hope of utilising Iranian gas falls foul of US opposition and Iran’s own output constraints. SIZ has, nevertheless, begun to realise some of its heavy industry ambitions. Joint ventures with international companies have raised $10 billion. While the recession has set back some projects, a number are either under construction or active. Metals production is developing; a large aluminium smelter, operative since 2008, produces for export and can feed a planned downstream aluminium industry. Two steel plants are being built: one, Shadeed, is Emirati-owned and undergoing an attempted buyout from a UAE rival. The plant will convert iron pellets into steel products. The other plant, Sharq, will reprocess imported scrap metal. However, further metals expansion – for example, plans to double output from the aluminium smelter – are recession-prone, while feedstock limitations have hurt plans for a polyethylene plant and a second methanol plant. A major drive behind SIZ’s expansion is job creation in a region that suffers from chronically high unemployment. Some 25,000 manufacturing jobs are, SIZ officials claim, to be created specifically for Omanis. The Omani government is keen to see the allocation of private sector manual jobs to Omanis who have traditionally preferred working in the public sector or in private sector management. Oman recently set national quotas on job categories within specific parts of the economy which, though set comparatively low for unskilled positions, could make Omani employment in SIZ less of the sinecure it is elsewhere in the Gulf. For foreign investors, the higher costs of employing Omanis are offset by exemptions to Omanisation, tax breaks and other incentives. At the other end of the Arab world, Morocco is developing industrial hubs without the benefit of cheap energy supplies. Tangier-Med Industrial Zone (TMIZ) is its flagship special economic zone, one of a number created by the government to incentivise foreign participation. The TMIZ offers close proximity to the EU, comparatively low wage levels and a largely tax-free business environment. Furthermore, foreign companies can access the EU market under the Association Agreement and benefit from a free trade agreement with the US. The government hopes foreign companies will bring jobs and skills to a relatively impoverished part of the country where young Moroccans are rarely employed in industry and are more likely to be working in the informal economy or not at all. TMIZ’s principal attraction is Tangier’s major port development. The international economic downturn has, however, ended some planned foreign financing and raised doubts about demand for the port and for goods produced in the TMIZ. However, the government is not cutting back on its expansion plans and recently guaranteed financing for a fourth container terminal. It believes the terminal will secure for Tangier a 25 per cent market share of Mediterranean container traffic that might otherwise be swallowed up by neighbouring countries building capacity to capitalise on the market upturn. TMIZ is largely reliant on Renault car production and ancillary European suppliers. Not all associated production will be inside TMIZ – Faurecia, which manufacture seat trims, will operate near Rabat, for example. However, a small number of companies hold units at TMIZ where their output will range from cable manufacture to seat covers. The Renault car plant, as well as monopolising the first completed container terminal at Tangier port, will directly employ 6,000 Moroccans and, it is claimed, create another 30,000 jobs in feeder industries. However, a French industry journal reported in summer 2009 that Renault has thrown in doubt original plans for a start up production (now postponed from 2010 to 2012) of 140,000 units, rising eventually to 400,000. But Carlos Ghosn, joint chairman of the Renault-Nissan alliance which will run the operation, continues to insist Renault will start production on the new revised schedule and Nissan will join later. The downturn, however, has seen Renault scale back funding of preparatory work despite recourse to a €200 million European Investment Bank loan. Fears mount about the condition of the European market into which the plant will be selling its output, and the timeline for the production of the first TMIZ cars could, therefore, slip back beyond 2012. Global Arab Network Dr Neil Partrick runs the Middle East consultancy partrickmideast .org. his article is published in partnership with the Middle East Association, and was published in the Middle East Business Focus 2010 |