Paint market knocked by ongoing dispruption of Arab spring

Polymer Paint Colour Journal, January 2013

Over the past two years, the disturbances in the Middle East and North Africa (MENA) have had a negative impact on the construction and paint sectors, as Paul Cochrane in Beirut reports 

 

The uprisings in the Middle East and North Africa (MENA) over the past two years have had a negative impact on the construction and paint sectors, throwing a proverbial spanner in the works when the region was striving to come out of recession. Only the more affluent Gulf Cooperation Council (GCC) countries are witnessing more steady demand, but numerous projects are still on hold due to regional instability.

“Just when you thought there was liberation, instability started creeping in all over again,” said Sunil Gurdur, General Manager of Al Gurg Leigh Paints in the United Arab Emirates (UAE), which manufacturers its own brand, Oasis, and under licence from ICI/Akzo Nobel Coatings. “I feel that the recession is not over, we are still in the throws of it, and any upward movement is due to a fallout from the Arab Spring, such as Dubai benefiting in a warped way (such as from capital and businessmen fleeing to the Emirate from conflict zones). But we can't really say there is a maintainable growth track as demand is sporadic and erratic. It is different to find a pattern.”

Bassem Bizri, general manager of Chemipaint, which has facilities in the UAE and Lebanon, has also noted a similar trend. “In the UAE, the Arab Spring has really affected sales. We didn't think it would, especially (the only rich emirate of) Abu Dhabi, but it has been more affected by the Arab Spring than the international financial crisis,” he said.

Part of the Gulf states' response to the uprisings has been to invest heavily in infrastructure and related projects to create jobs and bolster economic growth. As of August, 2012, the value of construction projects in the GCC was estimated at USD$1.68 trillion, according to online project tracker BNC Network. However, nearly 43 percent of the total projects, or USD$723.61 billion, are on hold, according to the report.

“There are new tenders but nowhere near the amount of projects it was hoped would happen,” said Bizri. With the region in the midst of political and economic uncertainty, governments, real estate developers – private as well as those connected to the state – and consumers are, in the words of Bizri, “sitting on their wallets to see what happens.” Indeed, according to the IMF, real GDP growth in the MENA is likely to slow to about 1.25 percent in 2012 and rebound moderately in 2013.

While demand for specialized and intumscent paint is holding up due to new energy projects underway in the oil rich region and the continuous need for maintenance – Saudi Arabia's national oil company Aramco spends some $26.6 million a year on specialized paints – it is demand for decorative paints that has taken a beating due to the slowdown in residential real estate projects.

“When it comes to decorative paint, all companies are fighting for smaller slices of the pie,” said Gurdur. “The volumes are still largely there, but what has happened is that prices have been reduced to be more competitive – and contractors are asking for the same prices quoted in contracts in 2008 - so while this has generated more volume, it doesn't signify growth.”

Elsewhere in the region, countries are either struggling with the aftermath of the uprisings, like Libya, Tunisia and Egypt, or are being affected by the ongoing conflict in Syria, like Jordan and Lebanon. Egypt for instance is a big paint market, for not only domestic sales but also for export to North Africa and the rest of the continent. However, ongoing instability is affecting sales. “It is a supposed to be a good market, but the situation in Egypt is not good; hotels are empty, tourism is down, and the financial situation is drastic,” said Bizri. That said, projects are underway, with some USD$1.6 billion allocated by the Egyptian government in the 2011-2012 budget for the National Social Housing Project.

“Syria was a good customer but because of the revolution business has stopped, as it has in Yemen, where we used to supply huge quantities,” said Abdullah Maghrabi, business development engineer at Al Jazeera Paints in Saudi Arabia. “I think the uprisings have stopped a lot of business in some countries, although it has expanded in others.”

Indeed, the Saudi market, which accounts for 63 percent of the Middle East's (including Israel) 1.8 million tonne paint market in 2011, according to UK-based researchers IRL, is one of the few booming markets, primarily due to a USD$131 billion government stimulus package, with half focused on housing to cater to a population growing at 2 percent per year and expected to reach 30 million by 2013. Kuwait's NBK Capital estimates show Saudi Arabia awarded construction contracts worth USD$89 billion from July last year until June 2012.

“Saudi Arabia is booming, and between every project there is another project,” said Maghrabi. “It is the number one market, and even if all companies are operating with full capacity they can't meet demand.”

Al Jazeera produces some 240,000 tonnes per year and has cornered nearly a quarter of the kingdom's market. Sales of decorative paints reached USD$186.6 million last year, according to Maghrabi, and the company's revenue forecasts for 2012 exceed 2011. To meet surging demand in the kingdom, Al Jazeera is expanding its capacity to 800,000 tonnes per year.

Other companies are expanding to meet projected growth in the near future, and for an anticipated surge in demand once the situation in post-uprising countries settles down and reconstruction begins. Norway's Jotun paint for instance is to invest USD$136 million over the next three years to upgrade plants and build new production facilities in the Middle East.

The development of the sector is equally occurring through the establishment of a Colour Academy in Beirut through a partnership between Lebanon's ALLCHEM, Sweden's Natural Colour System (NCS) and America's Xrite. “The MENA paint sector is following Europe, so a hub to educate people about colour and paint for the region was needed. Why education? The need for higher education to improve the sector, more value added and better production as well as sales,” said Hadia Minkara, general manager of ALLCHEM. “We chose Beirut as Lebanon is a hub for the whole region, whereas being based in say the UAE would be more focused on the Gulf market.”

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