20 Feb 2012 (76 Pages)
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Includes 3 FREE Quarterly Updates.
Although the UAE’s economy is set to slow in 2012, the outlook for the food industry remains strong. The UAE is set for another year of steady yet relatively uninspiring growth through 2012 as global headwinds stemming from the eurozone crisis and the imposition of more stringent international sanctions on Iran weigh on the outlook for the non-oil sector. Real GDP is forecast to expand by 3.0% following an estimated 3.3% rate of expansion posted in 2011. The latest HSBC Purchasing Managers' Index for the UAE would seem to confirm that a slight slowdown is already under way.
The index, which is a measure of the economy's manufacturing and services sectors, dropped to a four-month low of 51.7 in December 2011. While the UAE's service sector received a boost in 2011 as a result of the Arab Spring (which saw tourists and some business activity shift to Dubai from other locations in the region), for the moment the defining feature of 2012 appears to be less about the Middle East and more about the global economic downturn. Given its relatively more open trade and capital market links with Europe and Asia, the UAE will likely be hit the hardest among its Gulf Cooperation Council peers.
Headline Industry Data:
- 2012 per capita food consumption growth in local currency = 4.9%; forecast to 2016 = 31.4%
- 2012 soft drinks value sales growth = 6.3%; forecast to 2016 = 48.1%
- 2012 mass grocery retail sales = 7.0%; forecast to 2016 = 53.3%
Key Company Trends:
Al Ain Dairy Announces Expansions – In December 2011 the UAE dairy company Al Ain Dairy announced plans to invest US$180mn to beef up its production capacity with demand for dairy products likely to continue growing quickly over the next few years. Al Ain is a diversified company with products positioned across a number of dairy areas and juices too. Holding a particularly strong position in the fresh milk segment, the company has been expanding its portfolio of healthy dairy drinks, like laban, as health-consciousness continues to rise.
Agthia Make Major Acquisition – Abu Dhabi state-backed food and beverage producer Agthia Group acquired Turkish spring water producer Pelit Su in early 2012. The acquisition will provide Agthia with an existing manufacturing plant that is equipped with three bottling lines, as well as additional space for future capacity expansion. With this acquisition, Agthia has clearly underlined the growing significance of its bottled water division as a growth pillar, and Pelit Su's established spring water brands should facilitate Agthia's expansions beyond Turkey and the UAE.
Risks To Outlook:
Despite our below-consensus growth forecast for 2012, we believe risks are firmly to the downside. Our projections have fully priced in the global macroeconomic slowdown currently taking shape; however, the majority of risks that our forecasts have not yet taken into account stem from the UAE's large debt repayment schedule over the coming quarters, which will see approximately US$25bn in bonds and loans falling due before end-year.
