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Investment
Opportunities
For Abu Dhabi Companies
in International Markets
Sectoral Report
January 2016

Issue 02-08122015

In association with

www.ihs.com

Sectoral Report
For Abu Dhabi Companies in International Markets

Dear reader

Contents

These are turbulent times for industries. Company

executives started planning for 2015 more than a year ago,
when oil prices were close to USD100 per barrel and the
US dollar was hovering around USD1.30 per euro. Chinese
demand was still broadly untainted, although concerns
about a hard landing were clearly abundant.
Four months later, on New Years Eve, it was apparent the
assumptions, on which 2015 operating plans rested, were
off target and had to be corrected. Plans were scrapped.
This first issue of the Sectoral Report will offer our
understanding of the changes taking place. Changes also
need to be put into context with the underlying currents
of the global recovery. The report will help to identify the
challenges that have emerged in many sectors and, at the
same time, identify newly emerging growth opportunities.
The Sectoral Report provides a deeper dive into the
sectors critical for Abu Dhabis diversification strategy and
long-term development. These sectors include energy (oil
and gas); petrochemicals; metals; aviation; aerospace;
defense; pharmaceuticals; biotechnology and life sciences;
healthcare equipment and services; transportation, trade,
and logistics; media; financial services; telecommunication
services; microchip industry; and education.
Not all of these sectors will be covered in detail within the
Sectoral Report. In accordance with the mission of the Abu
Dhabi Chamber of Commerce and Industry, and similar to the
Biannual Abu Dhabi Report (BADER), private-sector business
will be the focus. Forthcoming reports will focus on global
and regional industry currents, but also on questions that are
important for nurturing sector development in Abu Dhabi.
The report does not have a fixed schedule as such; we
strive to publish one issue per month. The Sectoral Report
will complement the BADER, which concentrates on the
broader macroeconomic picture, and will support the
industry focus of Abu Dhabis long-term strategy.

Global industry recovery is still weak and

fraught with risks 3
The housing nightmare 4
The unraveling of the supercycle 6
Near-term outlook builds some confidence 6
High and low performers in the age of low oil 6
Distilling the impact of low oil 7
Impact on oil output 8
A deeper dive on global construction 8
Low-priced oil cuts operating costs for
chemical producers 9
but leaves some producers struggling with
a weaker competitive edge 9
Transport benefits from lower operating costs
and higher demand 10
Energy savings are lifting end-consumer demand 10
Investment location driven by currency movements 11
The bigger picture and Asias race up the
value-added ladder 11

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Cover image: IHS

Low oil, strong dollar, and

global industries
2014

$93
2015

$49

As companies scramble to adjust

operating plans, investments are being
shelved widely, and new opportunities are
emerging. The energy sector is primarily
affected but is not alone. Industries
adjacent to the energy sector and, in fact,
entire supply chains factor into the new
reality and reshape the sectoral landscape
and the economy. The process started less
than a year ago and is currently well under
way. (see table 1)
The adjustment process must be put
in context with the underlying currents of
global and regional growth patterns. Many
forces are at work. The damage inflicted by
the Great Recession still impairs the global
economy and financial system even while
they attempt to regain full health. Policy
responses, including fiscal austerity and
monetary expansion, are relevant.

Global industry recovery is still

weak and fraught with risks

The problem is most severe in the case

of advanced economies real estate,
construction, banking, and household
sectors. In some countries, these sectors
will need several more years to regain their
precrisis vitality. Some goods-producing
sectors will also need years to regain full
health. (see table 2)

Table 2: Industry output CAGR*

*Compound annual growth rate, world economy

1995-2007

3.7%
4.3%
8.9%
4.8%
5.4%
2.4%
2.3%
3.4%
3.5%
9.1%
2.0%
3.7%

Sector

2011-2015

2.5%
Iron & Steel
2.7%
Electronics (Computers
& Communications)
4.2%
Medical & Measuring
Equipment
3.3%
Pharma
(Drugs & Medicines)
3.5%
Media and Entertainment
1.7%
Construction
2.5%
Transportation,
Logistics & Wholesale
2.6%
Medical & Healthcare
3.5%
Information &
Communications Technology 4.3%
Refined Petroleum
Products
1.6%
Chemicals (excl. Pharma)
3.2%
Manufacturing

Source: IHS World Industry Service

2016 Abu Dhabi Chamber of Commerce & Industry

Table 1: World industry annual output growth

12%
9%
6%
3%
0%
-3%
-6%
-9%
-15%

2005-Q1
2005-Q2
2005-Q3
2005-Q4
2006-Q1
2006-Q2
2006-Q3
2006-Q4
2007-Q1
2007-Q2
2007-Q3
2007-Q4
2008-Q1
2008-Q2
2008-Q3
2008-Q4
2009-Q1
2009-Q2
2009-Q3
2009-Q4
2010-Q1
2010-Q2
2010-Q3
2010-Q4
2011-Q1
2011-Q2
2011-Q3
2011-Q4
2012-Q1
2012-Q2
2012-Q3
2012-Q4
2013-Q1
2013-Q2
2013-Q3
2013-Q4
2014-Q1
2014-Q2
2014-Q3
2014-Q4
2015-Q1
2015-Q2

-12%

Source: IHS 2016 Abu Dhabi Chamber of Commerce & Industry

2016 Abu Dhabi Chamber of Commerce & Industry

Sectoral Report
For Abu Dhabi Companies in International Markets

Table 3: US dollar rates and oil price

Oil price (USD/barrel) USD/EUR USD/JPY USD/CNY

120

2015-D215

2015-D190

2015-D165

2015-D140

2015-D115

2014-D90

2015-D65

2015-D40

0
2015-D15

$0
2014-D251

20
2014D226

$20
2014-D201

40

2015D176

$40

2014-D151

60

2014-D126

$60

2014-D101

80

2014-D76

$80

2014-D51

100

2014-D26

$100

2014-D1

Crude oil price (WTI)

$120

Source: IHS 2016 Abu Dhabi Chamber of Commerce & Industry

For example, despite its impressive

V-shaped rebound after the recession,
global manufacturing still has huge excess
capacity in some sectors (e.g., automobiles,
steel, and aluminum). Recent growth has
been weaker compared with the long-term
historical average. In the case of the steel
and automobile sectors, the problems
are structural, and remedying them will
require major reform, restructuring, and the
retirement of less-efficient plants.

Table 4: MSCI sector rankings

Industry groups
Retailing
Software & services
Consumer durables & apparel
Diversified financials
Insurance
Media
Healthcare equipment & services
Food, beverage, & tobacco
Consumer services
Banks
Commercial & professional services
Capital goods
Pharmaceuticals, biotechnology, & life sciences
Semiconductors & semiconductor equipment
Telecommunication services
Automobiles & components
Household & personal products
Technology hardware & equipment
Food & staples retailing
Transportation
Real estate
Energy
Materials
Utilities

Index, 1 January
2015 = 100
122.9
121.7
110.0
108.3
108.0
107.6
107.5
107.3
106.7
105.6
104.6
104.3
102.5
101.1
100.9
100.8
100.7
100.3
96.8
96.6
94.5
91.4
90.9
90.7
Source: Morgan Stanley, IHS
2016 IHS

January 2016

Momentum in other sectors has

slackened, too. Its not just the old heavy
industries, which are suffering from
structural problems. The growth pace in
electronics manufacturing has more than
halved in the last five years compared
to the historic average before the Great
Recession. (see table 3)
Growth in the services sector, which
represents nearly two-thirds of the global
economy, has generally lagged that of
industry because the finances of advanced
economies household sectors have been
under pressure from high unemployment,
weak income growth, and tight consumer
credit. As a result, investor confidence indices
are still well below their precrisis peaks, and
the corporate sector is very cautious about
spending and payroll expansion.

The housing nightmare

A renewed housing downturn remains the

global economys worst nightmare. During
the past three years, real estate markets
in many emerging markets have boomed
(e.g., those of the Philippines, Hong Kong,
Singapore, Taiwan, China, India, Turkey, and
Brazil). In many cases, though, monetary
tightening has stabilized prices and, in some
cases, reversed the price increases recently.
Meanwhile, real estate markets in some
developed economies (such as Spains)
have remained under downward pressure
since the Great Recession. (see table 4)
The pressure on real estate is reflected by
asset market currents as real estate stocks
displayed a relatively weak performance in
the year to date. The related MSCI world
index is down 5.5% from the beginning of
the year, with only commodity stocks and
utilities performing still weaker. Notably,
consumer-related industries can be found
at the high-performing end of the stock

Table 5: IHS World Material Price Index (exchange-traded commodities, January 2002 = 100)
8
7
6
5
4
3
2

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: IHS 2016 Abu Dhabi Chamber of Commerce & Industry

performance spectrum, reflecting improved

household purchasing power, chiefly in oilimporting countries.
In any case, because house prices in
many countries were vastly overpriced,
there is a significant risk that prices could

undergo another correction over the

coming years, particularly if the world
economy does not reaccelerate or central
banks tighten their monetary policy rapidly.
A protracted, synchronous housing crash
could further weaken the global economy

Table 6: Growth opportunity and sector size: World sectors compared

Growth (CAGR, real) in 201417

Relative sector sales level in 2014

Large
More than USD $2,320 bn

Medium
USD $875 to $2,320 bn

Fair
USD $412 to $875 bn

Small
Less than USD $412 bn

High
More than
3.5%

Textiles & apparel;

Communications; Banking
& related financial; Business
services

Basic industrial chemicals;

Pharma: drugs & medicines;
Mineral-based prod. (ex.
glass); Nonferrous metals;
Wire, cables & batteries;
Semiconductors, CBs, &
LCDs; Parts for motor
vehicles; Computing &
related services

Synthetic fibers; Glass &

glass products; Electric
motors & generators;
Electric distribution &
control; Receivers, players,
sound systems; Optical &
photographic equipment;
Railroads & equipment;
Motorcycles, bicycles,
transport. equip.; Recycling

Synthetic resins;
Transmitters,routers,
telephony; Medical &
measuring equipment;
Aircraft & spacecraft;
Jewelry, toys, musical,
sporting; Air transport

Medium
2.6% to 3.5%

Agriculture; Food products;

Motor vehicles;
Construction; Wholesale
trade; Hotels & restaurants;
Land transport; Education;
Health and social services

Mining of metals & stone;

Specialty chemicals (ex.
pharma); Plastic products;
Other general industry
machinery; Supporting
transport services; Leasing
of machinery & equipment;
Recreational, cultural, &
sporting

Watches & clocks; Pipeline

transport

Beverages; Wood products

(ex. furniture); Rubber
products; Structural metal
products; Domestic
appliances; Furniture;
Water transport; Research
& development

Low
Less than
2.6%

Oil & gas mining; Refined

petroleum & related; Iron &
steel; Electricity, gas, &
steam; Retail trade - total;
Public Admin. & Defense

Paper & pulp; Metal coating

& related services;
Sanitation, trade
organizations

Uranium mining; Tobacco

products; Printing & related
services; Reproduction of
recorded media; Fertilizers;
Engines & turbines; Lifting
& handling equipment;
Agricultural machinery;
Machine tools; Metallurgy,
machinery, & casting;
Mining & construction
machinery; Shipbuilding;
Water supply

Coal mining; Publishing;

Other special industrial
machinery; Computers &
office machinery; Post &
courier services

World total in 2014:

USD $114 trillion

Sector size: USD $7-$10,159 bn
Growth rates: -1.1%-5.7% (nominal)

Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry

2016 Abu Dhabi Chamber of Commerce & Industry

Sectoral Report
For Abu Dhabi Companies in International Markets

Table 7: Growth opportunity and sector size by country: private non-agricultural business

Growth (CAGR, real) in 201417

Relative sector sales level in 2014

Large
More than USD $1,320 bn

Medium
USD $512 to $1,320 bn

Fair
USD $273 to $512 bn

Small
Less than USD $273 bn

High
More than
3.6%

China; India; Indonesia

Poland; Malaysia; Nigeria

Slovak Republic;
Bangladesh; Sri Lanka;
Jordan; Qatar; Panama;
Uruguay; Cameroon;
Kenya; Morocco;
Zimbabwe

Czech Republic; Ireland;

Romania; Philippines;
Pakistan; Vietnam; Egypt

Medium
2.4% to 3.6%

Mexico; United States;

Spain; United Kingdom;
South Korea

Sweden; Turkey;
Singapore; Thailand;
Taiwan; Emirates (UAE);
Israel

Hungary; Bulgaria;
Bahrain; Bolivia; Costa
Rica; Ecuador; Honduras

Hong Kong; New

Zealand; Iran; Kuwait;
Peru

Low
Less than
2.4%

Canada; France; Germany;

Italy; Netherlands;
Switzerland; Russia;
Australia; Japan; Brazil

Austria; Belgium;
Denmark; Norway; Saudi
Arabia; Argentina;
Colombia

Ukraine; Jamaica

Finland; Greece;
Portugal; Chile;
Venezuela

World total in 2014:

Sector size: USD $22-$28,126 bn

Growth rates: -5.3%-8.1% (nominal)

USD $132 trillion

Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry

and unleash powerful, self-feeding

deflationary pressure for several years.
Given the weakness of banking systems in
many countries around the world, a housing
crash could trigger a renewed financial crisis
and further damage the world economy.

The unraveling of the supercycle

37.5%
is the percentage
point by which the IHS
Materials Price Index
(MPI) is below its
year-earlier level

Against this backdrop of global economic

currents, the unraveling of the commodity
supercycle combined with Chinas
weakness and a stronger US dollar has
added new dimensions to the global
economic and industrial (dis-)order. During
the last 20-odd years, the surge of demand
from emerging markets, first of all from
China, had driven prices for all key industry
commodities to new heights, but that surge
crashed as growth in many emerging
markets slackened and inflated production
capacity mattered suddenly. (see table 5)

The bottom is nigh?

The downturn might not have reached its

nadir quite yet. Industrial commodity prices
continue to slide. The IHS Materials Price
Index (MPI) is now 37.5% below its yearearlier level and 54.5% below the high
reached at the end of 2013. In real terms,
the MPI now matches the level reached in
the first quarter of 2009, during the Great
Recession. In many cases, prices are now
below IHS estimates of average global cash
operating costs.

January 2016

Current price levels are pressuring

commodity producers. Real prices are close
to where they were in late 2008, a sign
that commodity prices may be nearing a
bottom. Although the trough could be near,
a recovery of prices in the near term is by no
means guaranteed.

Near-term outlook builds some

confidence

Against that background, and with results for

first-half 2015 taken into account, the new
reality of low oil can be reflected in industry
forecasts with some confidence. The sector
overview for 201417 displays industries
according to size (horizontal line) and
growth performance (vertical line).
(see tabel 6)
High-growth sectors on the global scale
are primarily sectors that are relatively far
down the supply chain and close to the
end consumer, such as textiles, media,
electric and electronic products, but also
services industries like communications
and banking. Furthermore, sectors that
enjoy direct benefits from lower oil prices,
such as basic chemicals, are ranked as
high performers, too.

High and low performers in the age

of low oil
Low performers are found among mining
industries, reflecting the weakness of
mining commodity prices. Suppliers for

mining sectors, including machinery and

equipment makers, are affected by that
weakness. Moreover, industries that are
confronted with structural challenges like
global excess capacities in steel are barely
growing in the near term as demand growth
will not be able to catch up with actual
production capacity.
China, particularly, has this problem,
where excess capacities are visible
in segments supplying construction
works. As the investment boom in China
slackens, high-flying expectations for
construction demand are no longer
realistic. Still, China remains among the
high performers in the country ranking.
(see table 7)
Overall economic growth has clearly
been slowing down as the investment bias
of Chinas growth model is toned down in
favor of more emphasis on consumption.
In fact, resilient consumer spending,
irrespective of recent volatility in local
financial markets, will offset much of the
slack from investment and construction.

Distilling the impact of low oil

How strong has been the impact of low oil in

this environment? Oil prices moved quickly,
yet industries have taken more time to adjust.
Commodity markets are apparently resetting
to lower expectations. These revised
expectations are evident in investment flows
of exchange-traded funds and hedge funds,
which have been retreating from commodities
as an asset class.

Table 8: World ranking low oil price vs. baseline, 2017

496

400
200
0

-756

Output change basis points

A

Capex change basis points

G

-200
-400
-600
-800
-1000
-1200

A
B
C
D
E
F
G
H

Social & personal services

Hotels and restaurants
Mining
Real estate & business services
Wholesale and retail trade
Manufacturing
Utilities
Financial intermediation

I
J
K
L
M
N
O

Transport, storage, communication

Education
Private household services
Healthcare services
Agriculture
Construction
Public administration & defense

Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry

To quantify the impact of persistently

low oil prices, IHS developed an industry
scenario that assumes a further decline
of oil prices. A difference of USD30 per
barrel to the IHS baseline forecast on
average for 2017 is the core assumption
behind the scenario.

Oil prices at USD30 less per barrel

$30

is the USD cost

difference per barrel
of oil by 2017

Broadly speaking, the industries that

fare best under these circumstances are
those driven by consumer spending. The
sectors that produce capital equipment for
nonenergy-related industries also perform
relatively well in such a scenario. Global

Table 9: Top and bottom performers low oil price vs. baseline

*Incremental output change 2017 (percent basis points)

1: North America*
*includes Mexico

Top three sectors

58 Utilities
55 Social & personal services
48 Manufacturing
Bottom three sectors
27 Agriculture
12 Public administration & defense
-169 Mining

2: Western Europe
Top three sectors
66 Hotels and restaurants
55 Private household services
53 Financial intermediation
Bottom three sectors
20 Healthcare services
13 Public administration & defense
-90 Mining

3: Middle East

4: Asia Pacific

Top three sectors

406 Mining
-87 Agriculture
-127 Transport, storage, communication

Top three sectors

57 Private household services
49 Transport, storage, communication
46 Education

Bottom three sectors

-286 Private household services
-374 Public administration & defense
-386 Construction

Bottom three sectors

34 Mining
32 Healthcare services
28 Agriculture

Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry

2016 Abu Dhabi Chamber of Commerce & Industry

Sectoral Report
For Abu Dhabi Companies in International Markets

Table 10: Construction, glass, & cement output change; regional performance low oil price
vs. baseline 2017 (percent basis points)
22

Total output

173
-709

47

Asia-Pacific

47

Western Europe

30

North America, incl. Mexico

26

Eastern Europe & CIS

Africa -20
Latin & Central America, excl. Mexico

Middle East
-400

World total

-49
-372

-350

-300

-250

-200

-150

-100

-50

50

Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry

70%+

of chemical production
costs are derived from
feedstock and energy

mining, including oil, is still increasing

output as producers scramble to retain
market share, but at the same time, capital
expenditure (capex) is curtailed. Capacity
reduction as a result of weaker capex will
kick in only toward the end of the decade.
(see table 8)
The regions of the world most influenced
by changes in energy prices are those
where production of oil and gas are a much
larger share of the local economy and
government revenues. With low oil prices,
members of OPEC located in the Middle
East, Africa, and Latin America suffer from a
decline in revenues and government funds.
The results are contracting government
spending and falling business investments.
(see table 9)

Impact on oil output

In the short term, a few of the larger and

lower-cost producers of energy will be able to
increase their output of oil and gas volumes,
to partially make up for decline in price.
Nevertheless, the impact on oil revenues
from changing oil prices will outweigh the
smaller movement in output volumes.
Over the medium- and longer-term time
periods, even the low-cost producers of oil
and gas will adjust production downward as
energy prices remain below expectations.
Many energy-producing countries also
have large sectors in agriculture and
chemicals, both of which benefit from lower
prices of fuel and feedstock.

January 2016

A deeper dive on global construction

Low oil prices provide both an opportunity
and a drag for the construction industry.
For net oil-importing countries, reduced
spending on fuels transfers to more
spending power for consumers and
increased profits for corporation. The result
is intensified nonresidential construction
activity and increased spending on home
construction and improvements.
However, there is also construction
activity within oil exploration, production,
and distribution, which exerts a drag on the
construction industry when oil prices are low.
In some producing countries, oil revenues
are used to subsidize construction of
housing, and dependence of the economy on
energy can be such that reduced oil prices
hold back overall economic activity, limiting
nonresidential construction. (see table 10)

Net benefit from low oil

Oil-consuming nations have a larger share of

global economic activity than oil producers,
so the net impact on the construction
industry is slightly positive. The construction
industry of the United States is linked to
housing and commercial construction far
more than to energy. Global construction
spending grows faster in a low oil price world
compared with the baseline. Exchange-rate
variations appear to have hardly any impact
on construction sector performance. There
is very little trade in construction services;
virtually all of the supply is domestic.

Table 11: Chemicals output change 2017; regional performance low oil price vs. baseline 2017
(percent basis points)

Total output

219
-106

43

North America, incl. Mexico

43

Asia-Pacific

41

Western Europe
Eastern Europe & CIS

39
13

Africa

13 Latin & Central America, excl. Mexico

Middle East
-120

World total

38

-106
-100

-80

-60

-40

-20

20

40

60

Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry

The boost given to consumers will improve

housing activity, as well as commercial
structures where consumers spend, such
as retail, hotels, and restaurants. The net
positive impact of low energy prices on the
US economy will create more jobs, which
also results in construction investment.
The Asia-Pacific region in general, and
China in particular, will see construction
sectors benefit from low oil prices. In Chinas
case, it will help to mitigate but surely not
offset the slowdown of the investment boom.
Europe also benefits from a low oil scenario,
but the existing slack in the regions real
estate market translates into less of an
advantage compared with the United States.

Low-priced oil cuts operating costs

for chemical producers

Low-priced oil has caused a dramatic

swing in the marginal cost and competitive
positioning for many chemical producers
across the globe. Feedstock and energy
equate to about 7080% of chemical
production costs. In a low oil price
environment, chemical output will rise, in line
with overall gains to economic growth.
Low oil prices lead to a deflationary impact
on chemicals prices in the short term,
though. Since most producers lack pricing
power, consumers will take full advantage
of declining prices and abundant supply.
The effect of lower prices will likely offset
higher output and, therefore, lead to weaker
nominal sales and capital investment overall,

particularly in the short term.

Chemical producers are price takers,
fiercely fighting over market share, while
value-added specialty manufacturers
competing on innovation should be relatively
insulated irrespective of high or low oil
prices. (see table 11)
Given the presence of chemicals in our
daily lives, demand growth generally moves
in step with the broader economy. As such,
IHS expects chemical consumption to
outperform in oil-importing countries and
underperform in oil-exporting countries
when oil prices are low and vice versa when
oil prices become more expensive.

2.2%

is the Chemical share

in world GDP

but leaves some producers

struggling with a weaker
competitive edge

A flattening global cost curve in a low oil price

environment is positive news for European
and East Asian naphtha crackers struggling
against the onslaught of new supply
originating in the United States, Middle East,
and Chinese western provinces.
When crude prices were in the USD100/
barrel (bbl) range, North Americas natural
gas liquidsbased ethylene producers had
a feedstock advantage of about USD1,000/
metric ton over naphtha-based producers
in Asia, according to estimates by IHS
Chemical. With oil closer to USD50/bbl, the
advantage has been reduced to USD500
600/metric ton.
Some North American projects may not
2016 Abu Dhabi Chamber of Commerce & Industry

Sectoral Report
For Abu Dhabi Companies in International Markets

Table 12: Motor vehicles output change 2017; regional performance low oil price vs.
baseline 2017 (percent basis points)
38

Total output

278
-264

66

Eastern Europe & CIS

59

North America, incl. Mexico

42
38
19

Africa
Asia-Pacific
Western Europe

17 Latin & Central America, excl. Mexico

Middle East
-300

World total

-264
-250

-200

-150

-100

-50

50

100

Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry

11%

is the Transport &

logistics share in
world GDP

be as compelling or reliable as they once

were in a low oil price environment. The
incentive is growing to postpone investment
decisions or even cancel some projects.
In contrast, chemical manufacturers in
these same swing markets will invest more
aggressively when oil prices bounce back.
If oil prices recovered faster, chemical
sector output prices expanded faster and
margins appear healthier with an increasing
portion of global production riding on
the back of unconventional feedstock
strategies, including US shale gas and
Chinese coal-to-olefins, which are price
independent of oil. Crackers using ethane
feedstock will be able to piggyback on the
upward movement in oil, pocketing higher
margins in the process.

Transport benefits from lower

operating costs and higher demand

The transportation industries are also major

beneficiaries of low oil prices. There is a direct
cost benefit from lower fuel prices. Fuel costs
are the largest percentage of operational
expenses in transportation. Transportation
will also see a significant impact on its output
from consumer and business spending
changes, from a volume perspective.
In a low oil price scenario, the portion of
the transportation sector that serves the
midstream part of the energy supply chain
will see a downturn in volumes due to the
lower supply from the marginal suppliers.
Transport of oil and gasmainly via

10

January 2016

pipelines, rail, and water-based shipping

should see a decline in operations, even
though the cost of fuel falls and the total
transportation sector is lifted overall.

Energy savings are lifting endconsumer demand

The motor vehicles sector, which includes

trucks, trailers, and buses, in addition to
passenger vehicles, will mainly benefit from
low oil prices via the oil price impact on
consumer and business spending.
A lower cost for fuel leaves more money
for buyers to spend, in particular those
customers with high incomes or big budgets.
In such times, consumers are also more
inclined to buy more vehicleslarger,
heavier, and less-fuel-efficient, but also
more profitable.
Countries that are large producers of oil
see a negative (or positive) consequence
from a low (or high) price of oil. Big hits to
their oil revenues and their economy result
in less spending on motor vehicles. Major
oil-consuming countries, or those where the
oil sector is not such a dominant feature,
will see a net benefit to the motor vehicle
industry from low fuel prices. (see table 12)
Capital expenditures by the motor vehicle
industry respond to the changing levels of
output and expected profitability among the
alternative scenarios on oil prices. Higher
demand for motor vehicles under the low oil
price scenarios drives the capital spending
higher during the next three years. With

Tourism

Transport & Logistics

higher oil prices, capital spending will

increase at a slower pace.
A strong US dollar, placed alongside the
low price of oil, also has an impact on the
individual countries. This effect benefits
capital spending by the industry outside the
United States, such as in Europe and Asia.
Latin and Central America see particularly
strong increases in real capital spending
with low oil prices and further ramping-up if
the US dollar remains strong.
With the motor vehicle industrys long
supply chain, changes in output can also
translate into sizeable impacts on the
supplying sectors. Major adjustments in
the output of motor vehicles can have a
strong influence on the output of metals,
electronics, machine tools, and other
industrial machinery.

Investment location driven by

currency movements

A strong US dollar has the impact of

moving the growth of production from
one geographic region to another, in line
with the country currencys standing in
relation to the US dollar. Up to 30% of the
machinery produced in the United States
can be designated for export so currency
fluctuations have a profound influence on
the industry. A stronger US dollar will give
a competitive advantage to European and
Asian manufacturers. They will see their
global market share improve not only in
machinery, but in primary and fabricated
metals as well.
The impact of low oil is difficult to distill
from global industry currents, especially
given the strengthening of the US dollar
against most major currencies of both
developed and emerging economies.
The US economy and economies whose
currencies are pegged to the US dollar, such
as the United Arab Emirates and Abu Dhabi,
are confronted with a competitiveness
challenge in terms of costs relative to many
economies in Europe and Asia.

Manufacturing

Media

Financial Services

The bigger picture and Asias race

up the value-added ladder

Other, particularly longer-term trends matter,

too. Asias manufacturing landscape is
undergoing important changes, with both
regional and global implications. As China
moves up the value-added chain, partly
by necessity because of rising incomes
and labor costs that have eroded its
competitiveness in low-cost industries, it will
compete more directly with current trading
partners within the region and globally for
investment and market share.
Whereas it presents a risk for countries
such as Korea, Japan, Malaysia, and
Singapore, given the increasing competition,
new opportunities arise for lower-cost
countries such as the South and Southeast
Asian economies of Vietnam, Cambodia,
Indonesia, and India. These countries
have the potential to benefit not only from
improved market share as China exits some
low-end industries, but also from increased
investment and outsourcing from the
countries now more directly threatened by
Chinese competition. There is compelling
evidence that this phenomenon is already
taking place, with countries such as Korea
and Japan sharply boosting investments in
the markets of the Association of Southeast
Asian Nations in recent years.

30%

share of machinery
produced in the United
States designated for
export

2016 Abu Dhabi Chamber of Commerce & Industry

11

Contacts
IHS Global GmbH,
Bleichstrasse 1, 60313 Frankfurt, Germany

Abu Dhabi Chamber of Commerce & Industry,

P.O. Box 662, Abu Dhabi, U.A.E.

Ralf Wiegert
Director Consulting IHS Economics & Country Risk
Ralf.Wiegert@ihs.com
+49 (0)69 20973 320
+49 (0)151 42628 143

Ohan S Balian, Ph.D.

Chief Economist Abu Dhabi Chamber of Commerce &
Industry
o.balian@adcci.gov.ae
www.abudhabichamber.ae
+971 2 617 7470

Matthias Herles
Director Consulting IHS Economics & Country Risk
Matthias.Herles@ihs.com
+49 (0)69 20973 218
+49 (0)174 1946560

About IHS:

www.ihs.com

IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape todays business landscape.
Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent
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IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005.
Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately
9,000 people in 31 countries around the world.

www.ihs.com:

.) IHS : ( IHS
165
1959 IHS . IHS
.2005
9000 IHS
. 31

Address:Main Building of Abu Dhabi Chamber, Corniche Road, P.O.Box:662

Phone:00971-2-6214000, Email:contact.us@adcci.gov.ae

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2016
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.662 :
+ 971 2 6214000 :
+ 971 2 6215867 :
contact.us@adcci.gov.ae :
8:00 3:00 - ( -)

www.abudhabichamber.ae

www.linkedin.com/company/abu-dhabi-chamber

: IHS

www.abudhabichamber.ae

2016

www.ihs.com