How COVID-19 catalysed the digital transformation of the UAE’s Industrial Sector

How COVID-19 catalysed the digital transformation of the UAE’s Industrial Sector 

By: Contributor
Thought Leadership

Muath Al Mashaikh, Industrial Expert at Khalifa Fund, highlights the importance of the industrial sector in the development of the UAE economy and how COVID-19 reshaped this sector’s development in terms of technology, supply chain, resources and cost control.

As we are all aware, COVID-19 has plunged the global economy into the deepest recession since the Second World War, affecting the majority of sectors. The impact varies by sector and target market; primarily, the pandemic's effects limited economies' ability to raise real incomes in the long run and created a massive debt burden. Economic recovery will take precedence, and inclusive and sustainable industrialisation will be vital for constructing a brighter future. COVID-19 demonstrated that the industrial sector is critical to economic development, serving as a critical pillar of growth and an engine of trade and commerce by ensuring a continuous supply of produced goods domestically and, most importantly, increasing exports.

Numerous reasons exist for the industrial sector's importance in the development of any economy and its ability to quickly rebound from a recession, to name a few:

  • The industrial sector provides economic stability to its country by:
  1. Mass production and the inevitable economies of scale: the more units produced, the lower the per-unit cost, thereby increasing the value of outputs per input.
  2. Manufacturing tends to have strong linkages to other parts of the economy, creating demand for skills, inputs, manufacturing components, transportation and storage. This means that growth in manufacturing boosts growth throughout a broader set of activities, including in the service sector. 
  3. Most innovation and technological advances originate from the industrial sector, which can then feed into other economic sectors, making them more productive as well.
  • Increase in foreign exchange reserves; exports will rise and imports will decline, leading to more cash inflow, while self-sufficiency improves.
  • The utilisation of natural resources by converting them to finished goods, which will enhance trade flow and create self-dependency.
  • The creation of many jobs at all levels, via the sector’s long and complex supply chains.

Industrial capabilities and digitalisation efforts supported the resilience of many countries during the pandemic. Digital technologies enabled businesses to continue operating remotely and to maintain their consumer bases, making digitally-transformed firms better able to weather the pandemic’s impact and to adjust to the new normal. Therefore, preparing for the post-pandemic future also requires developing countries to further strengthen their digital capabilities. This, in turn, highlights three important megatrends expected to shape the post-pandemic landscape:

  1. Digitalization: This increases productivity, optimizes the supply chain, and provides businesses more control over their operations.
  2. Production rebalancing: This lowers bottlenecks and waste, allowing for higher capacity utilisation while using fewer resources, resulting in smart production.
  3. Industrial greening: Reducing carbon emissions and ensuring sustainability through the use of renewable energy sources.

Operation 300bn

‘Make it in the Emirates’ is an initiative that extends an open invitation to investors, innovators and developers to contribute to the UAE’s industry and advanced technology strategy, ‘Operation 300Bn’.

The UAE recognises the critical role of industry in the country's development and diversification efforts, with the country launching an industrial strategy dubbed Operation 300bn during March of 2021, a 10-year program that aims to boost the industrial sector’s contributions to the economy. The strategy envisages the industrial sector contributing AED 300bn to GDP by 2031.

The UAE Ministry of Industry and Advanced Technology will lead the strategy and roll out programs and initiatives to support 13,500 industrial small and medium enterprises out of 35,000 industrial SMEs operating in the UAE. The strategy is centred primarily on future industries making use of advanced technologies and Fourth Industrial Revolution (4IR) solutions and applications. The strategy will also focus on sustainable development. 

Overall, the strategy aims to add value to local output and increase the competitiveness of UAE exports globally. The plan also aims to offer a competitive package of facilities and incentives that attracts talents and the human capital needed to achieve those goals. 

Industrial businesses need to adapt

To avoid and mitigate the impact of future recessions on the economy, industrial enterprises must adjust to the new developments brought about by the COVID-19 influence on the market, as follows:

  • Automate business operations and adopt new technologies
  • Utilize green resources and reduce emissions and pollution
  • Rely on natural local resources, decrease dependence on imports
  • Optimise the supply chain to enhance time, cost, and efforts spent
  • Reduce the waste percentage and ensure better utilization of resources
  • Be agile enough to be able to diversify and be able to implement forward or backward integration
  • Maintain positive cash flow and manage the overall cash flow cycle
  • Reduce inventory turnover

Supporting industrial firms

In my opinion, and in order to implement the UAE's industrial strategy effectively, the regulatory framework should be updated to allow for 100 per cent foreign ownership of individual enterprises, as well as additional incentives and exemptions to boost competitiveness, such as subsidies on electricity, land rent, and labour costs. Additionally, the strategy can prioritise SME growth by increasing the attractiveness of financing choices for those businesses. The ideal financing option is to establish an industrial fund that can support and lead the industrial sector's growth in the UAE. 

About the author

A management professional with 19+ years of experience, Muath Al Mashaikh has an exceptional track record in spearheading turnkey business solutions for conducting feasibility studies, market research, performance management, counselling, training and business evaluation across key business hubs in UAE, in addition to managing and supporting innovative SMEs.

Muath has industrial knowledge in the GCC and particularly in the UAE. Throughout his career, Muath has supervised and conducted market research and feasibility studies for more than 300 projects in different sectors, to help and guide entrepreneurs in selecting the right opportunity for them. He has also evaluated and supervised more than 250 projects in different sectors: industry and manufacturing, F&B, services, retail, ICT and construction.

You can reach out to him for entrepreneurial support on the hub, here.

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