Increasing the bankability of UAE’s industries

Government, financiers and businesses must work in tandem to capitalise on the growth opportunities emerging from the UAE’s manufacturing and industrial sector

Securing finance for manufacturing projects is essential to the success of programmes such as Operation 300bn in the UAE.

The bankability of such projects has long been a topic of discussion between local manufacturers and banks and is a significant bottleneck in attracting funding for expansion.

Key players in the UAE’s manufacturing sector told the MEED-Mashreq Manufacturing Business Leaders Forum on 29 September that the investment gap in manufacturing is not the result of a shortage of capital but rather a lack of understanding of what factors make industrial projects bankable.

An inherently complex industry, manufacturing comes with a unique set of requirements and risk profile but presents massive growth opportunities.

“Financing such projects can often be very difficult,” a major UAE steel manufacturer has said. “There is a difference between a trader and a manufacturer – there is a need for greater clarity.”

The manufacturer said the mindset of financiers needs to evolve for the UAE economy to advance and meet the ambitious targets of Operation 300bn, which aims to expand the contribution of the industrial sector to the GDP from AED133bn today to AED300bn by 2031.

“Industry brings employment, it brings spending on utility, and it is the backbone of any country,” he said.

One steel manufacturer called for formal recognition of Al-Etihad Credit Bureau (AECB) reports, allowing them to leverage their creditworthiness further.

On a similar note, an executive from a manufacturing conglomerate added that if the industry, government, and banks collectively lift their data game to support financing for manufacturing projects, it could be a game-changer.

“Operation 300bn is a leap forward,” he said. “We are trying to achieve in eight years what the country has achieved in 50 years. Essentially, we are asking everyone to double or triple their investment. Funding is very important to be able to do that. But we need more data to strengthen our bankability.”

The executive called for a comprehensive market survey to understand national capacity and targets, which in turn could make banks more comfortable taking on the risk associated with such projects.

“We need an inter-market agenda, surveys, and transparency of data, available for industry and banks to minimise risk involved in undertaking such projects” he said.

“The government could provide incentive packages for banks to increase the percentage of lending and require banks to have an industrial unit to secure data and study the market.”

Another issue raised at the forum is one of distressed industrial assets.

“We need a fund that can help pass on a distressed asset or one that can at least help in valuing the investment. This again helps with the bankability factor.”

The government has already taken steps on this front. Abdullah Alshamsi, assistant undersecretary, Industry Growth Sector, Ministry of Industry & Advanced Technology (MOIAT), highlighted that the government is in the process of collecting data and is in conversations with financial institutions to help tackle industry challenges.

“We need to realise and appreciate that we are blessed with available capital,” he said. “We have a robust financial ecosystem with good banks, considerable liquidity, and large deposits. It’s time to see the industry as a very interactive economic sector. Considering that the UAE’s industrial sector’s contribution to GDP now stands at over 10 per cent and is growing, I’m optimistic that this change and transition is going to happen. Commercial banks are beginning to think differently.”

The ministry has partnerships in place with the government-backed Emirates Development Bank, Etihad Credit Insurance, and various commercial banks in the UAE to pivot the focus towards the industrial sector.

“We are also working with federal and local government entities to fix some of the ecosystem challenges that we see, to make it easier and more attractive to do business. Our immediate priority at the ministry includes helping existing manufacturers — small, medium, and big — achieve their growth and expansion plans and be even more ambitious.

“Through Operation 300bn, we are developing an ecosystem conducive to business growth. This includes introducing various incentives and enablers relating to the country’s unique value proposition.”

Collective efforts

Panellist Mohammed Almutawa, group chief executive officer at Ducab, said the responsibility to improve the stability and bankability of the industry goes across the board.

“We’ve seen how responsive the banks can be and how flexible and agile they are when we provide them with platforms for discussion,” he said. “We must sit down and explain our challenges – and I am certain they will respond. That’s the biggest advantage we have in the UAE.

Almutawa emphasised the need for more formal dialogue between the industry and its financiers.

“We need to explain the intricacies of the UAE industry sector that capitalises on the metals exchange, and what kind of financing and instruments that we would require. We need to adapt and talk progressively to change direction.”

30 November, 2022 | .By MEHAK SRIVASTAVA