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GPCA
Dominating the Downstream Domain
The Gulf Petrochemicals and Chemicals Association (GPCA) is an influential and high-profile body that represents the downstream hydrocarbon industry and derivatives in the energy rich Arabian Gulf. The industry constitutes the second largest manufacturing sector in the region, producing over US$ 108 billion worth of products a year.
Established in 2006, the GPCA represents the interests of more than 250-member companies from the mega chemical and allied industries accounting for over 95% of chemical output in the Gulf region.
The association supports the region’s petrochemical and chemical industry through advocacy, networking and thought leadership initiatives that help member companies to connect, to share and advance knowledge, to contribute to international dialogue, and to become prime influencers in shaping the future of the global petrochemicals industry.
Committed to providing a regional platform for stakeholders from across the industry, the GPCA manages six working committees—Plastics, Supply Chain, Fertilizers, International Trade, Research and Innovation, and Responsible Care.
Global Supply Chain spoke exclusively to Dr. Abdulwahab Al-Sadoun, SecretaryGeneral, GPCA, in a wide-ranging interview on the current health and state of the industry, performance, challenges, vision, the future and its implications for the industry. Global Supply Chain (GSC): The recently published ‘GPCA--Pulse of the Chemical Industry Report’ released at the 14th GPCA Annual Forum held in Dubai in December 2019 bodes well for the industry. How has the chemicals sector fared in the GCC in 2019 and how does that compare with the 2018 performance? Dr. Abdulwahab Al-Sadoun (AWS): The year 2019 was positive year for the performance of the chemical industry in the GCC region. We saw new investment being injected into the growth and development of the regional industry, with the focus being placed on portfolio diversification, new assets acquisition, and consolidation to build critical mass.
In order to secure the industry’s future
Dr. Abdulwahab Al-Sadoun Secretary General, GPCA Dr. Abdulwahab Al-Sadoun has been Secretary General of the Gulf Petrochemicals and Chemicals Association (GPCA) since 2009, following a career of more than two and a half decades in the GCC region’s petrochemicals and energy sectors. His career began in 1990, as a Senior Researcher at SABIC Research and Development Center in Saudi Arabia. He has since worked for several prominent regional agencies, including Saudi Arabian General Investment Authority (SAGIA), Gulf Organisation for Industrial Consulting (GOIC), Al-Sharq Plastic Industries Co., and PetroBaas for Industrial Investment Co.
Dr. Al-Sadoun is member of the Steering Committee of the International Council of Chemical Associations (ICCA) and the Board of Trustees of the Riyadh Economic Forum and the Arabian Society for Human Resources Management. He holds a PhD in the field of Industrial Chemistry from King’s College, University of London, United Kingdom, in addition to being a graduate of the General Management Program (GMP3), Harvard Business School (HBS), Harvard University, USA.
and maintain its market share, the GCC chemical companies need to continue to invest. In the region, the Capex of GPCA member companies is on the rise. In 2018, investment in green field projects reached US$ 3.6 billion, up from US$ 1 billion in 2017. This is expected to almost double in 2019 to US$ 6.8 billion. GSC: How significant is the chemicals sector and ‘downstream hydrocarbon activities’ for GCC economies? Dr. AWS: The chemical industry’s economic impact in the Arabian Gulf region is substantial. In a recent report published by GPCA entitled ‘Beyond Petroleum: The impact of the chemical industry on the Arabian Gulf economy’, we estimate its total annual contribution to regional GDP to be US$ 81.6 billion, sustained through a combination of its direct, indirect, and induced economic channels.
To give a sense of scale, this impact was more than the annual GDP of Doha, Qatar. The total impact (including the direct, indirect and induced channels) of the chemical sector in the Arabian Gulf region equates to 4.9% of the region’s GDP in 2018.
The GCC chemical industry supported almost 620,000 jobs both directly and through its ‘multiplier channels’ in 2018. This is almost as large as the entire population of Luxembourg and equates to 2.4% of the entire employment in the region. GSC: Which among the GCC countries have been the top performers? Dr. AWS: We have strong performance fundamentals across the chemical industry in all GCC states. Oman’s chemical sector had the highest contribution to GDP among all GCC countries, with 5.1% in 2018, double the figure in the region. This achievement is attributable in part to the manufacturing sector being inscribed within the top five sectors identified by Oman’s ‘National Programme for Diversification’. Saudi Arabia has maintained its exceptional standing in 2018, retaining its spot in the top ten exporters of chemicals today globally. It is also the region’s powerhouse, with the largest volume output and chemical sales revenue. In 2018, Saudi producers generated US$ 62 billion in revenue. The Saudi chemical industry is also a champion in terms of portfolio diversification, with GPCA member companies in Saudi Arabia producing as many as 126 products with a total capacity of 119.2 million tons.
Against the backdrop of the positive price trends in fertilizer and polymer products, revenue trends in the UAE have increased by 28.4%. The petrochemicals sector in the UAE was characterised by rapid development, with 77% of the current production capacity being launched in the last decade (2008-2018).
In 2018, the UAE chemicals output was 14.5 million tons, with basic chemicals
representing one third (33%), followed by polymers (28%) and fertilizers (30%). Bahrain’s chemical sector achieved the highest revenue growth of 39% in 2018, attributed primarily to higher revenue from fertilizer products. Bahrain’s production capacity reached 1.4 million tons and achieved revenues of US$ 327 million in 2018. Kuwait achieved the second highest chemical revenue growth of 32% in 2018. With industrial expansion being a top priority as part of the long-term development priorities in Kuwait’s 2035 strategy, this achievement further cements its position as a global center for petrochemical production.
Following Oman, with 4.1% in 2018, Qatar’s chemical sector has the second highest contribution to the GDP among the GCC countries. The production capacity reached 19.1 million tons and achieved chemical revenue of US$ 7.3 billion, an increase by 14% in 2018. The fertilizers represent 51% of Qatar’s share in the country’s total production capacity, the highest in the country thus far. GSC: What implications will the Chinadriven Belt & Road Initiative (BRI) have on the GCC and specifically the Saudi chemicals industry? Dr. AWS: With Saudi Arabia representing China’s largest trading partner in MENA, mainly in the area of oil and gas, the chemical and petrochemical industry is well positioned to seize the opportunities of the Belt and Road Initiative (BRI). In a recent GPCA report, entitled ‘Saudi – China Relations through the lens of the Chemical Industry’, we highlighted several key benefits for the kingdom from the new initiative:
The BRI will support greater connectivity, improve economic flow, create new job opportunities, bring new investment, raise consumption, and enhance cultural exchange in the spirit of the ancient Silk Road.
The shipment time between Saudi Arabia and China will be reduced by 2 to 3% which in turn will substantially reduce transport costs by up to 33%. For some, significant declines in costs will be evident after switching from air transport to rail, or rail to sea.
The BRI is expected to bring significant gains when it comes to lowering trade barriers, amounting to annual savings of up to US$ 4.5 billion. The GPCA estimates that the Saudi-China FTA (Free Trade Agreement) could yield between US$ 600 million (low end) to US$ 4.5 billion (high end) of savings annually.
The opening of domestic markets in both countries and diverting more investment from China to Saudi Arabia through BRI collaboration may create new opportunities for growth. GSC: How is non-dependence and diversification away from oil impacting the chemicals segment in the region? Dr. AWS: Between 2001 and 2018, the real value-added CAGR (compounded annual growth rate) of the region’s petrochemical and chemical sector has averaged 5.2%, compared to a global average of 3.4%. This growth and diversification have catalyzed new economic activity—even more so as the region’s producers seek to move toward higher value-added products and investment in new technology.
The chemical products manufactured here serve as inputs into several sectors and industrial activities that help to increase productivity and raise living standards across the region. As a major supplier of inputs to many other sectors, most industries use chemical products for energy generation, cleaning products, and even medicine.
Diversification of the GCC economies away from oil—this is focused on sectors such as tourism, as well as oilrelated sectors such as chemicals. Rising competitive pressures will provide impetus for diversification in the Middle East, with the GCC chemical industry expected to move further down the supply chain and away from its focus on basic chemicals. This is, for example, emphasised in the Saudi Arabia’s 2030 Vision goals. GSC: How will the fortunes of chemicals be affected with an increasing focus on the circular economy? Dr. AWS: The chemical industry in the Arabian Gulf and globally is at the forefront of championing the circular economy and its adoption. Emanating from its fundamental principle is that the value of products, materials and resources is maintained for as long as possible by returning them to the cycle after use, thereby minimising waste.
At the beginning of a product’s lifecycle, the process starts with smart product design and production which saves resources, avoids inefficient waste management and creates new business opportunity.
Therefore, with the adoption and
38 FEBRUARY 2020 implementation of the circular economy we can expect to see some adjustment and disruption to current petrochemicals demand and material flows. However, where the opportunity lies is in driving smart product design and innovations that ensure the sustainability and adaptability of our products in line with the circular economy principles--reusability re-usability, recyclability, circularity and more. GSC: How will the chemicals industry be buoyed with strategic investment and carefully crafted partnerships? Is that the way forward? Dr. AWS: Forming strategic partnerships can help chemical players in the region develop robust business models and generate consistent returns. Specifically, in the Middle East region, such partnerships have proven to be very successful, with close to 55% of total chemical capacities in the region being run in partnership mode, compared to the global average of 25%. Strategic partnerships can benefit the industry and increase the competitiveness of chemical players by sharing the high cost of investments in capital-intensive projects and widening companies’ portfolio; sharing of supply chain and distribution networks, especially in a challenging trade environment. Other contributory factors include business and technology capabilities sharing across the value chain; leveraging capabilities and learning from digital players to improve current business and grow in adjacent spaces and allowing quicker entry into higher growth markets such as Asia through partnership with local players who have an established distribution network. GSC: The GCC energy is at the crossroads in the region as also globally. Where does it go from here and what does the future hold for the industry? Dr. AWS: The GCC chemical industry will face more of the same opportunities and challenges as it did in the past financial year. I expect the following global trends to continue to drive demand for plastics and chemicals around the world. These include the growth of the middle class; accelerating urbanisation; increased longevity and population growth. Four emerging forces including globalisation and trade, digitalisation, environmental sustainability and plastic waste and circularity are changing the direction of the chemical industry for good. For instance, the digitisation of
GPCA In April 2020, Dubai will hold The 12th edition of GPCA’s Supply Chain Conference under the theme ‘Supply Chain 4.0 – Maximising Performance through Technology’.
research and development is creating an opportunity for improved ideation, experimentation and automation, with a potential value of US$ 28-31 billion, according to the World Economic Forum. Chemical players would need to capitalise on these trends in order to remain successful in the coming years.
Other areas where demand growth is expected include health and clean water; the drive for light weighting/ electrification of vehicles, the proliferation of vehicle ownership, and finally, the sustainability trend. GSC: How, in your estimation, is the chemicals industry expected to fare in 2020? Dr. AWS: Megatrends impacting the 2020s will include the implications on energy transformation by the mobility trend; crude to chemicals and refinery integration; light vs. heavy feedstocks; the impact of plastics waste on demand; and last but not least, the global impact on petrochemicals by China. The current chemical industry cycle will continue into 2020, as we saw a decline in earnings in 2019, and the mediumterm outlook, according to economists will include the next industry down-cycle. A slowing economy and a new wave of chemical capacity additions will be key contributors towards a down-cycle.
To remain agile and resilient in the current economic conditions, companies would need to assess forecast risks and opportunities along all key parameters including supply, demand, energy, economic, geo-political developments, technology, sustainability and people. GSC: What are the challenges and corresponding opportunities for the industry going forward? Dr. AWS: The challenges facing the chemical industry include—a challenging global macro-economic environment, with global GDP growth-rate nearing a decade low; uncertainty fueling geopolitical tensions, adding further stress to the global economy and the investment climate for businesses; acute escalation in the US-China trade conflict and the ongoing trade war, which is yielding structural changes to the global economy and disrupting supply chains. Furthermore, increasing focus on sustainability and the circular economy is also changing the end-market landscape. Technological disruptions create uncertainty in the near-to-medium term. In the longerterm technology disruption will create opportunities. Accelerated innovation and the adoption of path-breakingtechnologies, disrupting traditional industries and associated business models will also make their mark.
On the other hand, significant opportunities will continue to exist in the growing populations and increasing urbanisation driving demand for chemical products, materials, and solutions that improve resource efficiency and cater for better living standards; the mobility megatrend offers strong growth opportunities, as demand increases for high performance plastics, automotive catalysts, and battery materials.
Significant opportunities can also be found in advanced food ingredients; additive manufacturing; sustainable nutrition; cosmetic solutions and healthcare. GSC: The industry has also witnessed its fair share of mergers and acquisitions in the recent past. Are we going to see higher levels of this in the near future? Dr. AWS: It’s difficult to predict the level of consolidation, and mergers and acquisitions that could take place in the region in the
short to near term. The drivers behind consolidation and integration such as improved access to technology, building scale and critical mass, gaining access to crucial markets abroad, cost sharing, among other factors are here to stay.
Other significant benefits exist in pursuing new M&A deals from improving one’s competitive position globally to creating greater shareholder value and diversifying the business and product portfolio. GSC: Yousef Al-Benyan, Vice Chairman and CEO, SABIC, and Chairman, GPCA, made the case for strategic integration, JVs, consolidation and partnerships as being vital to unlocking industry growth at the recently concluded 14th Annual GPCA December 2019 meet. What is your take on this approach? Dr. AWS: Leveraging partnerships for growth and competitiveness will be absolutely key. As Al Benyan highlighted in his opening remarks, some of the benefits include—capital investments and risks/returns sharing; supply chain, operations, technology and innovation; sharing of supply chain and distribution networks, especially in a challenging trade
40 FEBRUARY 2020 environment. GSC: What is the role of new technologies in the evolving industry? Dr. AWS: New technologies present both challenges and opportunities for the chemical industry. Chemical manufacturers stand to benefit significantly from adopting digitalisation and best-in-class innovations.
Digitalisation will continue to help drive greater efficiencies and there is a huge potential to improve the customer experience through adopting cutting-edge innovations. Digitalisation in a typical chemicals business can deliver an EBITDA improvement of about 10-12%. By utilising and investing in technology to monitor and prevent disruptions, companies can make significant savings in the long run.
GPCA continues to be at the forefront of this discussion, and this year in its 12th edition, GPCA’s Supply Chain Conference will be held under the theme ‘Supply Chain 4.0 – Maximising Performance through Technology’ in mid-April, 2020 in Dubai. The application of a new set of technologies collectively called as Supply Chain 4.0 has brought a new set of challenges and opportunities for the chemical industry and will require companies to rethink and re-align their strategies to design their supply chains. GSC: What is the industry doing to attract fresh talent and special skills? Dr. AWS: Individual companies have their own recruitment drives to ensure they attract and retain talent. For our part, GPCA, with the support of our members, contribute to local talent development in the Arabian Gulf and building the local human capital with our flagship initiative, Leaders of Tomorrow (LoT).
The initiative falls under one of the key pillars of the association which is advocacy by promoting STEM and bridging the gap between academia and the industry. ‘Leaders of Tomorrow’ is considered as the first official collective step where industry stakeholders collaborate in shaping skills and preparing the future industry leaders with the required skills set.
The initiative consists of a year-round program where GPCA member companies sponsor university students from around the GCC to attend the GPCA annual conferences. n
