Multiplier effect seeds UAE’s next growth loop
Efforts made to diversify the economy have been successful and have had a positive overall impact on the economy. What is best about it is that the benefits are not limited to any one activity
In the last few decades, the UAE has reshaped itself. An economy once characterised by its oil is now creating a different kind of economic growth — one in which revenue and productivity are driven by industries, innovation and technology, not determined by natural resources.
The figures speak for themselves. According to the World Trade Organisation nonhydrocarbon sectors lead economic growth in the UAE today, with manufacturing contributing 9 per cent and services 57 per cent compared to 34 per cent.
More recently, the Executive Council of Dubai announced that industrial GDP in the emirate grew 3.4 per cent since the implementation of the Dubai Industrial Strategy in January 2017. The results are clear; efforts made to diversify the economy have been successful and have had a positive impact on the economy through the multiplier effect.
The multiplier effect is one of the best known principles in economics. It is the virtuous circle in which new income creates more spending, which then creates even more new income in the economy.
A simple way to understand the multiplier effect is to think about how growing companies require more employees. Each new job means another person in the UAE is spending their wages on housing, education and in our malls. Realtors, schools and retailers then need to hire more people themselves, and the virtuous circle continues.
How much individuals spend might be measured in thousands of dirhams per month, but companies’ spending can be much more substantial. Emirates Global Aluminium, for example, spends almost Dh4 billion each year on goods and services from the UAE supply chain.
According to economist Enrico Moretti, most sectors have a multiplier effect, but he contends that “the innovation sector” has the largest multiplier of all. The message is clear. Integrate technology into your business plan, and your impact on the economy will grow. It is also good for business, as we’ve found at EGA.
Twenty-five years ago, we began developing our own technology. Since then our research and development has focused on continually improving the aluminium smelting process, reducing the amount of electricity consumed per tonne of aluminium produced and saving costs. The latest generation of our technology has more than double the productivity of EGA’s original D18 technology.
We have used our own technology in every smelter expansion at EGA since the 1990s, and retrofitted all of our older plants. Globally-competitive, home-grown technology has underpinned our growth, allowing us to become one of the world’s leading “premium aluminium” producers.
For sure, EGA’s growth has played a part in fuelling the expansion of other industries in the UAE from construction, to trucking and catering. Last year alone we exported over 2.2 million tonnes of aluminium, contributing to the growth of the UAE’s ports and shipping industries.
There are also now 26 downstream companies in the UAE making products from our metal, consuming about 10 per cent of our production. Each of them needs buildings, utilities, transportation, accounting, lawyers and a myriad of other goods and services. And they need employees.
The UAE’s aluminium sector as a whole employs around 30,000 people, making it one of the largest employers among the UAE’s energy efficient industries.
But developing technology right here in the UAE allows us to make an outsize contribution to the national economy through the multiplier effect.
In recent years, EGA has even started to rethink some aspects of the business in order to create new types of growth. As a result, we contribute further to the multiplier effect.
We now also invest in R&D that creates new demand. One example is spent pot lining, a by-product of our industrial process. We provide spent pot lining to the cement industry to use as feedstock.
That reduces cement companies’ energy requirements and raw materials expenses, and we are no longer saddled with the burden of storing the by-product at our facilities.
Encouraged by the progress we’ve made with spent pot lining, we have also entered into research programmes to determine whether another by-product of our industry can be turned into soil. In association with The University of Queensland in Australia, we will spend three years investigating whether bauxite residue can be combined with agricultural and domestic wastes to create a soil for greening and other uses.
Innovative success will create new economic activity and the multiplier effect goes on. Imagine how much more will be gained as the government implements its plan to spend Dh300 billion on the knowledgebased economy and more businesses earmark funds for innovation. The effect on the economy will be widespread. The multiplier effect means that we will all benefit.