News

The bid by Qatar (population 1.3 million) to host the 2016 Olympics highlights the confidence and deep pockets of the Middle East's oil-rich states.

The region is also becoming a growth area for some of the world’s major packaging companies, a trend only likely to increase following the launch of the Abu Dhabi Polymers Park, a $4bn (£2.05bn) dedicated plastics industrial zone backed by the state’s government.

The zone is expected to produce at least one million tonnes of converted plastics products a year. David Tyson, chief executive of the Packaging and Films Association, doesn’t foresee an immediate threat to Western European packagers, but says it could instead take work that has moved to Eastern Europe.

A lot of investment in Eastern Europe has been due to lower labour costs, he says. If those customers who’ve shifted production there start moving to the Middle East, that could move investment in packaging away from Eastern Europe.

Plastic packaging companies moving to the region won’t have to look far for raw materials. Borealis has been active in the Middle East for a decade, through its Borouge joint venture with the Abu Dhabi National Oil Company. It aims to add another 2.5 million tonnes of annual polyolefin capacity by 2014, while other major investments in the region include Octal Holding’s $300m APET plant.

Commodity capacity
RPC Group chief executive Ron Marsh says he wouldn’t rule out a move, and has talked to owners of plastics zones in the Middle East. However, he says current capacity in the region tends to be for high-volume commodity packaging, which does not fit with RPC’s focus on high-margin niche markets.

Packaging Federation chief executive Dick Searle says much of the packaging seen as sophisticated in developing economies is ho hum for UK producers. He says an opportunity could be the ability of modern food packaging to cut food waste, which can be a huge problem in developing economies.

Tyson says a lot could depend on the polymer and energy costs paid by companies setting up in Abu Dhabi. The park’s owner, Abu Dhabi Basic Ind-ustries Corporation (ADBIC), backed by the state government’s General Holding Corporation, has promised competitive long-term lease rates, utilities and quality labour for tenants.

But Tyson says the UK flexibles and films sector is in good shape to combat any threat. In the UK we have some very well-invested companies with a lot of skills. The markets they have concentrated on are very innovative and require short lead times, particularly the food industry. If shelf-life is one or two days you need local suppliers.

Britton Group chairman John Durston says the difficult financial climate could affect interest in the Abu Dhabi park, and also says it will be more suitable for commodity products, particularly films, and for companies looking to export to India.

Durston says joint ventures could be the most attractive entry route for UK producers, which is also the recommendation of the British Plastics Federation (BPF).

Director general Peter Davis believes the Abu Dhabi park will not yet threaten rigid plastics packaging firms in Western Europe, mainly due to the cost of transporting packs. Many of the opportunities lie in plastic pipes for the petrochemicals industry. However, like Tyson, Davis thinks Eastern European firms could face more competition.

Davis also says the burgeoning Turkish packaging industry could face difficulties. Turkey is helped by the fact it’s outside of the EU and not constrained by bureaucracy, he says. But it could lose out to the growing converting sector in the Middle East. Turkey has very high inflation, about 9%, and that always worries businesses.

Fledgling industry
Nevertheless, the Middle East plastics industry still faces challenges, particularly in securing enough highly skilled technical staff.

States like Dubai rely enormously on imported labour, not just on the shopfloor but technical people too, says Davis. For start-up converting industries they need to find technical managers, who are in short supply in the UK.

Gustaf Akermark, senior adviser for petrochemicals at ADBIC, says pre-marketing of the park, which started at the K2007 exhibition in Düsseldorf last October, has attracted enquiries accounting for 30% of its 4km².

Along with the booming local construction and infrastructure markets, the park is initially targeting companies making materials, such as films for consumer packaging, that can be exported economically and packed densely.

Akermark says the cost advantages of manufacturing plastic packaging in Abu Dhabi and exporting to Western Europe are big enough to make it interesting. With the dollar as it is, you can find differences in quoted raw materials prices of up to 20%.

Companies will only be able to lease space in the park, although Akermark claims terms of up to 30 years means this won’t be an issue.

Close to Abu Dhabi, but with a far bigger domestic market, there is another country with huge potential that is so far untapped – Iran.

With a population estimated at 66 million (see box), and 11.2% of the proven world oil reserves, it’s not surprising that the BPF’s Davis says some of his members are already showing an interest in the Islamic Republic.

The big problem is the political situation, but Iran’s business people are desperate to do business with the West, says Davis.