Opportunities and Challenges in Developing
Sustainable Downstream Industry in the Region
Sanjay Sharma, Vice President, Middle East and India
• Opportunities and Advantages
• Critical Factors – Development of
Downstream Industry
• Structural Challenges –
Development of Downstream
Industry
• Lessons Learned
Agenda
• Opportunities and Advantages
• Critical Factors – Development of
Downstream Industry
• Structural Challenges –
Development of Downstream
Industry
• Lessons Learned
Agenda
0
5000
10000
15000
20000
25000
30000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Th
ou
san
d M
etr
ic T
on
s
GCC PE Demand GCC Ethylene Capacity
GCC PE Production GCC PE Net Exports
GCC Polyethylene Demand Vs Production • Major production of building blocks and
intermediates in the region driven by
advantaged feedstock
• Majority of the production currently exported
• Domestic demand less that 15 percent of the
total production for majority of products
• Opportunity to build competitive local
downstream/converter industry in the region
to cater to domestic demand as well as
target exports
• Challenges exist but not surmountable with
the right enablers and policies
Opportunity to develop local downstream industry
driven by raw material availability
Source: IHS Markit © 2019 IHS Markit
Basic Chemicals (Building
Blocks)
• Intermediates
• Commodity Products
• Specialty Products
• Performance Materials
Downstream Converter
Industry (Intermediate goods)
Final Products – Sector
Specific Applications
Examples:
• Ethylene
• Propylene
• Butadiene
• Crude C4s
• Benzene
• Paraxylene
• Methanol
• Ammonia
Examples:
• Polyethylene
• EVA
• EO/MEG/Ethoxylates
• EDC/VCM/PVC
• Polypropylene
• Propylene Oxide
• Polyols
• Acrylic Acid (GAA)
• SAP
• Oxo Alcohols/Butanols
• Acrylonitrile
• Cumene/Phenol/Acetone
• Styrene/PS
• Polycarbonate
• SBR/PBR
• MDI/TDI
• PTA/PET
• EPDM
• MTBE
• Urea
Examples:
• PE Films
• PE Blow model products (bottles, caps
etc.)
• Geotextile sheets/films
• PE/PVC pipes
• BOPP Films
• Non-woven PP
• Woven PP
• Garden Furniture (molded products)
• Compounding
• PET sheets
• PET bottles
• PC 5 gallon water bottles
• PC sheets
Examples:
• Automotive sector applications
• Food and Beverage Industry
• Textile Industry
• Computers/Electronics sector
• Defence/Aerospace sectors
• Furniture/Fixtures
• Medical Equipment & Supplies
• Pharma sector applications
• Construction sector applications
GCC Producers
Competitiveness
None
Sophistication and Job Multiplier
Critical to define downstream industry
boundaries
Downstream industry potentially a major GDP
and job multiplier
Direct Effects First-order responses of`
economy to changes in the demand
of petrochemical industry output
only
Indirect EffectsImpact on domestic supply
chain supporting the Chemical
industry (e.g., distribution and
logistics)
Induced Effects Impact on downstream industries dependent on petrochemicals
(e.g., automotive, construction, aerospace) and purchases induced by
wages of those in and supporting the industry
JOBSGDP
Multiplier Effects• Chemical industry directly employs a predominately
skilled/highly educated workforce, with less than
15% identified as un-skilled labor in advanced
economies
• Major multiplier effect reported in countries with
extensive downstream industries
o Indirect Effect:
▪ 2.1x of direct contribution on GDP
▪ 4.1x of direct contribution on jobs
o Induced Effect:
▪ In excess of 10x of direct contribution
• While an aspiration for Middle East countries, their
current multiplier is significantly lower
• Opportunities and Advantages
• Critical Factors – Development of
Downstream Industry
• Structural Challenges –
Development of Downstream
Industry
• Lessons Learned
Agenda
Investment
Drivers
Proximity
to Market
Capex
Advantage
Feedstock
Advantage
Lower delivered costs
Customer Intimacy
Access to low cost
feedstock
Cost to build
Low cost regions (China & India)
US WEP MDE India China
Capex
AdvantageX X X
Proximity to
Markets
Feedstock
Advantage
X
X X
US, India and China are preferred investment destinations as they have major
advantage on at least two of the three major attributes important for an
investment decision
Chemical Industry Investment Drivers
Investment Decision
Project Returns
Country Risk
Cost To Deliver
Cash Cost
Long Term Project Returns
• Business case IRR
• Country risk acceptable
• Total capital cost
Surviving the down cycle
• Competitive ex-works cash
cost
• Competitive delivered cost
Typical Investment Hurdles
Cluster Management Responsiveness
One Stop Shop Offering
Competitive Raw Materials
Rapid Decision Making and Issue …
Cluster Organization and Role Clarity
Adequate Infrastructure
Small/Mid-Size Company Support
Clear Key Processes
Shared Services
Marketing of ClustersCustoms Management
Regulation Clarity/ConsistencySufficient Capability/Skill Availability
Supply Chain and Logistics Facilities/Support
Service Culture Orientation
Operational Efficiency
Integration Synergy Potential
Comprehensive Product Portfolio
Market Proximity
Imp
ort
an
ce
Timeliness to Address
Importance vs Timeliness
High
Medium
High
Medium
High Priority Factors
Critical factors for the development of
downstream industry
• Opportunities and Advantages
• Critical Factors – Development of
Downstream Industry
• Structural Challenges –
Development of Downstream
Industry
• Lessons Learned
Agenda
US and China are ahead of other regions when compared on a five point scale, Middle East has a
feedstock advantage but realizing it down the value chain is a big question
• India
• West Europe
• China
• Southeast Asia
• Middle East
Technological
Advancements
Proximity to Key
Demand Centres
Access to Low
Cost FeedstockCapex Advantage Level of Integration
Hig
hM
ediu
mLow
Access to Low
Cost FeedstockProximity to Key
Demand CentresCapex Advantage
Technological
AdvancementsLevel of Integration
• US• India
• China
• Southeast Asia
• US
• West Europe
• China
• India
• Middle East
• Southeast Asia
• US
• West Europe
• China
• US
• West Europe
• China
• Middle East
• Southeast Asia
• India• US
• West Europe
• Middle East
Regional Downstream Industry Competitiveness
Scale
• Middle East
• Southeast Asia
While Middle East lags in downstream industry competitiveness,
region is among the leaders in chemical industry competitiveness
A healthy Middle East Industry in combination with appropriate
mechanism and policies can enable downstream industry to flourish.
ImpactLow High
High
Low
Domestic or Export
Market
Chemical
Industry
Downstream
Industries
Advantaged
Feedstock
Specialized
Talent
Tailored
Infrastructure
Access to
Capital
Specialized
Talent
Tailored
Infrastructure
Domestic
Market
Research &
Innovation
Advantaged
Feedstock
Factor GCC Position Asia Position
Attract Investors
Key Challenge
• Feedstock commitment
Ease of Doing Business• Consistent and clear policy framework
• One Stop Shop offering
Services• Low cost plug and play operating model
• “Capital-Intensive” shared services (power, ETP,
Warehousing, Logistics etc.)
Infrastructure • World class ports
• Efficient port operations
Serve Markets • Demand from domestic market
• Skilled workforce availability
Incentives• Enhanced incentives like tax holidays, Cash aid,
bonded warehouse facility, etc. based on industry
type and strategic fit
Partially Meets Meets Exceeds World Class
Key Challenges for Downstream Sector in GCC
• Opportunities and Advantages
• Critical Factors – Development of
Downstream Industry
• Structural Challenges –
Development of Downstream
Industry
• Lessons Learned
Agenda
• Nations with leading downstream industries, leverage one or more competitive advantages i.e.,
typically home market demand or a key factor condition
• Region has advantaged feedstock but no mechanism to pass such advantage to the downstream
industry
• Government policies, incentives and agreements that reduce trade barriers, encourage human
capital development, and attract foreign investment help domestic industries thrive
• Government has a wide variety of levers that can influence the success or failure of the industry at a
national level
• Downstream OEM and converter markets arise from innovation and market forces or are identified,
developed and nurtured through the actions of government
• Downstream industry has major multiplier effect on GDP and jobs
• a continual interaction between the industry and the government is vital in developing in a competitive
downstream industry and higher multiplier effect.
Understanding the development of downstream industries
in other countries, provides valuable lessons for the region
Thank youwww.gpca.org.ae