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Latent Gains

Large manufacturing projects that started in Oman in the last decade, ranging from petrochemicals to steel production and manufacturing of fertilisers and resins have gained immense prominence in the international arena. Projects such as OCTAL, Oman-India Fertilizer Company (OMIFCO), Jindal Shadeed Iron and Steel and Salalah Methanol have collectively contributed around three per cent towards the overall GDP of the nation and much of this success has been achieved by catering mostly to international clients.

But in the recent years, these large manufacturers are finding immense value in the local market itself and have started increasing their focus on Oman either through projects in downstream industries or secondary offerings. While the local market has proven to be a safe haven for those manufacturers exposed to the downturn in the US and Europe regions, executives across the board agree that the rising demand from local small industries and upcoming infrastructure and development projects is bound to result in Oman occupying a significant share in their total turnover in the coming days.

Unique Propositions

However, the primary products of some of the large manufacturers in Oman have not witnessed a high enough demand in the local market that prompted them to target large industrial clients abroad. For instance, plastics manufacturer OCTAL that produces PET resin and sheets of various thickness, sells 90 per cent of its products to clients in the US, Europe and Asian markets as the water and beverages industry is significantly large there. But in recent years, OCTAL noticed that the revenue from the local market for which it started supplying PET resins in 2008 has been witnessing good growth.

George Frieji, corporate development manager, OCTAL, says, "We have a natural competitive advantage in the local market. For manufacturers, a loyal and growing local customer base where they enjoy economic and supply chain advantages over their competition abroad acts as a sturdy support base against the vagaries and fluctuations in global markets."

The demand for clear rigid PET packaging grew at a rapid pace in the local market and the surrounding GCC region, which prompted OCTAL to start a downstream project, namely Crystal Pack, a thermo-packaging company in March last year in the Salalah Free zone area to cater to the food and agriculture industry like dates packaging in Oman and the Middle East. In the coming days, Frieji points out that there is good potential for fast moving consumer goods manufacturers that use PET packaging material to develop around OCTAL in the Salalah region.

Another key value added project in the sultanate that developed along the same lines came from OMIFCO.
The company, supplied nearly 100 per cent of its produce to markets like India till 2011. But in February this year, it launched a urea bagging unit, with an initial investment of US$500,000 to supply 30,000MT of urea in the local market for farmers across the sultanate.

This shift took place as OMIFCO noticed an increasing demand for urea owing to the recent government initiatives for the agricultural sector. This is almost two per cent of its entire production of 1.65MT of urea.
Ahmed al Alawfi, chief executive officer, OMIFCO says that apart from the good demand for urea, the company is able to command better pricing in the local market. "We are targeting a revenue of about RO2mn from the local market annually." The company currently contributes 0.469 per cent towards Oman's overall GDP.

Manufacturers like Sohar Aluminium , that already have a downstream partner in operation (Oman Aluminium Processing Industries) with the second one under construction (Oman Aluminium Rolling Company), has planned to allocate 60 per cent of its production towards downstream projects in aluminium recycling in the long term, reveals Henk Pauw, chief executive officer, Sohar Aluminium .

While these manufacturers first looked outward before tapping into the value in the Oman market, companies like Voltamp Energy , that operates the only 220KV power transformer manufacturing facility in the region, is looking into Oman for creating the base load that is important before it embarks on its pan-GCC focus. "There is a large and growing demand in Oman for power transformers. We look forward to orders from the Oman power utilities (OETC, distribution companies and IPPs) and oil and gas majors (PDO, Oxy, Daleel). These orders can serve as a stepping stone to our future aspirations in the region by first earning the reputation locally," says Alok Bhargava, CEO, Voltamp . By 2015, Voltamp will contribute about RO40mn to Oman's manufacturing sector, he adds.

Looking at the successful ventures of some of these large manufacturers, others in the industry are also looking at the Oman market with products that can be obtained from their next phase of expansion. Industrial heavyweight Jindal Shadeed Iron and Steel that currently produces 1.4MT of Hot Direct Reduced Iron is looking to produce steel rebars most of which will be sold in the Oman market for the construction sector. The rebars are constructed with reamers that will be produced in the plant once the company's steel melting shop is operational.

"We expect that in the first phase, about 20-30 per cent of our products would be used in the country. Once we set up the rolling mill, subject to the availability of additional gas, this percentage would go up very substantially," says Naushad Ansari, director and head of the plant, Jindal Shadeed. Such a roadmap for Oman has been created on the outlook that demand in the country is likely to improve substantially in the coming days, considering the government's initiatives to develop infrastructure facilities in the country, along with the introduction of an integrated railway network in GCC countries and the potential for growth of construction activities in the country, adds Ansari.

Tough Expansion

While most of these large manufacturers have created a solid roadmap targeting the local market in the coming days, further developments on this front for these companies is contingent on expansion plans for their facilities.

Big companies like OCTAL that have just completed the second phase of its expansion have planned to invest up to US$800mn for further upstream and downstream projects. Jindal with a planned investment of US$1bn in new projects is still in the process of constructing its melting shop and is looking to open a pelletising plant in Oman. Salalah Methanol too is currently looking at expanding its methanol plant and planning for an ammonia and urea plant. "We are open to supporting methanol-related downstream projects in Oman like formaldehyde production," says Awadh al Shanfari, CEO, Salalah Methanol.

These developments have been stalled due to the shortage in the supply of natural gas, a key raw material for their production processes, which is also hindering their growth in the Oman market. While the government explores new blocks, promises of tendering new projects by 2012 have been made to the manufacturers who are confident that expansion plans will soon resume. "Manufacturers across the board have accepted the fact that gas prices are going to increase for us," says al Alawfi. India recently accepted the impact on urea prices as a result of the proposal seeking a hike in the price of gas supplied by Oman to the OMIFCO urea plant in Sur.

While issues in capacity expansions are expected to get sorted out in the near term, manufacturers point out that other issues exist in the industry that make it challenging to develop good downstream projects or increase their revenue share from the Oman market. "One factor that can aid the development of downstream industries in Oman is simplifying and streamlining the processes and procedures for setting up smaller projects," points out Frieji.

Another area that needs to be seriously looked at to encourage those that have not yet started projects to cater to the local market, is infrastructure development, say others. "The pace of infrastructure developments in the country needs to be fast and in synchronisation with the new production capacity creation," says Ansari. Shanfari points out that additional infrastructure like power and sewage facilities also needs to be established in the freezone areas.

This is essential for incorporating more power and sewage facilities, along with superior road and rail connectivity to other markets for companies to have some incentives to develop around it. Manufacturers across the board agree that the quality of manpower needs to improve drastically if more downstream projects and smaller industries are to develop in the Oman market.

Most of the projects that are intended for the Oman market from the large manufacturers are a niche area of focus where these companies have virtually no competition. But for companies like Voltamp , the competition is high as the entry of manufacturers like Siemens and ABB into Oman is driving down the prices of its products. Bhargava says that they are well equipped to combat this competition as the company has the advantage of being the local manufacturer.

While the presence of these large scale manufacturers is gradually increasing in the domestic market, a majority of their business will continue to stem from global markets, due to the shortage of large industries in the country. However, the recent focus of the large scale manufacturers inward into Oman is opening up more employment opportunities in the region where their plant is located. If these manufacturers are able to succeed in their Oman-centric projects, then Oman moves one step towards developing as an industrial hub in the future.

© businesstoday 2012

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