Paints & Coatings in UAE: A Burgeoning Economy in MENA Region

The major change that has taken place in the coatings industry during the last 40 years has been the adoption of new coating technologies. Until the early 1970s, most of the coatings were conventional low-solids, solvent-based formulations; waterborne (latex) paints, used in architectural applications, accounted for 30–35% of the total. In the late 1970s, however, impending government regulations on air pollution control focusing on industrial coating operations stimulated the development of low-solvent and solventless coatings that could reduce the emission of volatile organic compounds (VOCs). Energy conservation and rising solvent costs were also contributing factors. These new coating technologies include waterborne (thermosetting emulsion, colloidal dispersion, water-soluble) coatings, high-solids coatings, two-component systems, powder coatings, and radiation-curable coatings.

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Coating works
Coating works

Maintenance Projects are Keeping Paint Sales Buoyant

Coatings provide two primary functions – decoration and protection – that are of considerable economic importance. About 45 percent of the coatings produced worldwide are used to decorate and protect new construction as well as to maintain existing structures, including residential homes and apartments, public buildings, and plants and factories (referred to as architectural or decorative coatings or simply, “paints”).

Another 40 percent of the coatings are used to decorate and/or protect industrial products (called “product finishes”). Without coatings, product lives might be shortened drastically and many products would not even be marketable. Most of the remaining coatings, called “special purpose”, are used for miscellaneous applications such as traffic paints, vehicle refinishing, high-performance coatings for industrial plants and equipment, and protection of marine structures and vessels.

These are usually applied outdoors in ambient conditions. According to a recent report by the Coatings Group, the United Arab Emirates (UAE) is one of the few burgeoning economies in the Middle East region afflicted by instability and conflict that offers solid returns to the paint and coatings industry. While the Gulf States’ economy is not as bullish as several years ago – with not as many new construction projects under way – maintenance projects are keeping paint sales buoyant, albeit in a competitive market.

That said, manufacturers are keeping a close eye on regional developments. “From 2014 onwards, we are seeing a big improvement in Dubai. Many old contracts have been revived, as well as some new projects. Also many villa projects, from 500 to 2000 units in size”, said Bassam Bizri, General Manager of Chemipaint, which has a 15,000m² factory in Abu Dhabi.

A major challenge for the industry this year is to find more sustainable and environmentally friendly products. The coatings industry and the government bodies have to work hand in hand.

Private Sector Developments are Driving Growth

In Dubai, private sector developments are driving growth, a blessing for paint companies due to better scheduling and payment timeframes than the government sector, which is particularly active in the Abu Dhabi market. “Up till now Abu Dhabi payment issues are the same, although it is better in Dubai, as most projects are privately owned and scheduling is more professional”, he added.

Although Dubai and Abu Dhabi, the largest and wealthiest UAE emirates are more buoyant markets, the other four emirates’ economies are less dynamic. “Sharjah has slowed down and while there is some activity in Ras al Khaimah, Fujairah and Ajman, nothing to make you feel the good times are here again”, said Sunil Gudur, General Manager of Al Gurg Paints, which manufactures its own brand, Oasis and under license for Dulux. He didn’t mention the least populous emirate Umm al Qaiwain. “The industry still seems to be quite sluggish, as there’s been no major developments over the past few years.

There are some new entrants into the market but not necessarily because the market has grown or has potential but because other markets, like Saudi Arabia, are not doing well”. Indicative of the general market, neither contracting nor notably growing, Al Gurg’s factory is consistently producing 1.2-1.3 million liters per month. According to Euromonitor, the UAE paint sales grew by 3.3 percent for home paint and decorative paint in 2013-14, with forecast growth for 2015-16 at 4 percent.

The UAE market is dominated by manufacturers Jotun, Hempel, National Paints, Gurg Leigh, Sherwin-Williams and Chemipaint. Last November 2014, AkzoNobel opened a USD10 million facility in Dubai producing powder coatings for the oil and gas industry, initially 7000 tons per year with a capacity for 14,000 tons. Meanwhile, Saudi Arabia’s Al-Jazeera Paints also entered the Emirati market. To boot, tough competition among manufacturers has led to price wars for tenders and contracts, heightened by the demand for cheaper quality paint.

“Most UAE developments are luxury projects but contractors want cheap paint. For example, they may use the best marble but at the same time choose paint at the lowest price, as they will repaint it. In Lebanon, paint is two to three times the price of the UAE, as people want quality paint for their houses”, said Bizri. He estimates that around 90 percent of UAE sales are for contracting and maintenance due to residential, office and retail properties being primarily owned by companies and the state. This leads to regular maintenance contracts, with less demand for higher quality and more durable paints. “In Abu Dhabi houses can be repainted every six months or year”, added Bizri.

Such market particularities are a boon for paint manufacturers amid fewer new projects, despite tougher overheads. “The silver lining is maintenance for the decorative sector, as the UAE’s business model is MICE (meetings, incentives, conferences and exhibitions) and tourism, so there’s a need for refurbishing on a regular basis,” said Gudur.

However, due to the demand for more competitively priced paints, few new products are being launched in the market and there is only niche demand for low volatile organic compounds (VOC) or other environmentally friendly green paints.

Specialized coatings, intumescent, marine, protective and industrial continue to do well, accounting for up to 15% of the UAE market. “Protective and marine coatings are in better shape than decorative, as no matter what is happening, the economy is driven by oil so they have to ensure infrastructure is in good shape, so these fundamentals are there,” said Gudur.

With that being said, the UAE is a major export and re-export hub, affecting manufacturers’ export business. Paint exports to Iraq and Kurdish Iraq, for instance, have dropped following the advances of the Islamic State or ISIS, over the past year and a half. The conflicts in Syria and Yemen, and instability in North Africa has also weakened the regional economy and appetite for new investments. Other UAE export markets, such as Africa and the Indian subcontinent have been hit by currency devaluation and political instability. While the UAE is weathering the political and economic storm in the MENA region, caution remains.

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