• Sustainability
    • Sustainable Supply Chain

Reshoring Boosts MENAT manufacturing

  • Article

The region’s manufacturing sector is growing rapidly as sustainability drives the reshoring of supply chains.

Bringing manufacturing closer to the markets in which products are sold is one way to make supply chains more sustainable. Such reshoring seeks to reverse the decades-long trend in which materials, goods and commodities were sourced from anywhere in the world, only based on price and quality. Reshoring’s sustainability credentials also depend on where the raw materials are sourced from, the efficiency of the local manufacturing company.

A full picture of sustainability comes from understanding the total emissions that come from the production of raw materials as well as the transportation of these products from extended supply chains that encircle the globe. According to a recent EU report,1 maritime shipping carries 90% of global commerce and contributes 3% of global emissions. The same report notes that this could rise to 10%-13% in coming decades without further action.

Manufacturing in the Middle East

Reshoring is a boost to the Middle East, North African and Turkish (MENAT)’s manufacturing sector, especially as regional companies that have extensive global supply chains seek to bring them back closer to serve the fast-growing home markets in the region, such as Saudi Arabia, Egypt and Turkey. These manufacturing hubs are also much closer to the European markets.

There is also a technology driver to this trend – specifically the rise of robotics and automation - which is also linked to costs. "A lot of what drove offshoring in the first place was people and specifically the cost of labour," says Kyle Boag, Regional Head of Global Payments Solutions, MENAT, at HSBC Bank Middle East in Dubai. "Companies moved factories offshore to markets where it was cheaper to produce the goods. But the more we move to robotics, the human component of the cost of manufacturing starts to reduce. In that scenario do companies need to move their factories from the US to China or Southeast Asia? They do not. At the same time, one of the main costs involved in robotics is the cost of power and the Middle East has cheap sources of power that can drive robotics. The way that we think about reshoring and supply chains will change but not necessarily because of the factors that drove it in the first place."

Government Support

Governments in the region are recognising this opportunity and have put different programmes in place to encourage and support the growth of manufacturing in the region. "We have seen and will continue to see reshoring among our regional clients, and it is still gaining momentum," says Siju Nair, Country Head of International Subsidiary Banking, UAE, at HSBC in Dubai. "There is a strong focus by the UAE government on manufacturing and they would like to double its contribution to GDP by 2030."

The ‘Make it in the Emirates’ programme sits under the auspices of the UAE’s Ministry of Industry and Advanced Technology. The purpose of the programme is to boost the nation's industrial capacity. It notes: ‘The strategy stems from an integrated vision of the Ministry to develop the UAE industrial sector, increase its in-country value (ICV), establish the UAE as a global hub for future industries, build the reputation of UAE industrial products through the promotion of exports to global markets and create quality job opportunities in the industrial sector.’2

The programme has had great success so far. In 2022 175 factories were supported by the programme, bringing the running total of factories supported since the programme’s inception to 275. Some 300 products have been identified for production in the UAE. Companies invested some AED53 billion in the economy in 2022 a 25% increase on 2021.3

Automation and Robotics

One of the key supporting pillars of the programme is to use advanced automation and robotics in the new factories that are being built. This is what is being called the Fourth Industrial Revolution.

One company that has taken advantage of the opportunity and established a new facility in the UAE is Schneider Electric. "With the focus on sustainability and building energy and water-efficient factories, we are fully supportive of these initiatives and are proud to partner with MoIAT to make the UAE the home of the factories of the future," said Ahmed Khashan, President, Gulf Countries at Schneider Electric.4

Another company that is increasing the sustainability of its manufacturing capabilities in the region is Arcelik from Türkiye. Its refrigerator manufacturing plant in Eskişehir was recently recognised by the World Economic Forum (WEF), for its application of Fourth Industrial Revolution technologies.5 From a sustainability perspective, the upgraded factory has reduced carbon emissions by 14 % thanks to digital solutions, while Autonomous Mobile Robots (AMRs) have replaced forklifts and automate the material distribution system, resulting in a further 7 % reduction in carbon emissions.

According to Deyana Cherneva, Regional Head of Global Trade Finance, MENAT, at HSBC in Dubai "there is strong ambition among corporates to put [sustainable supply chain] policies in place within the next two years". This is evidenced by the results of a recent survey of 68 corporate treasurers in the UAE undertaken by HSBC. This showed that while only a quarter of the respondents had sustainable supply chains policies (a lower figure than other countries), more than half expected to have installed them in coming years.HSBC can help local, regional, and multinational companies as they look to reconfigure their supply chains to make them more sustainable and to connect with suppliers that best match their needs.

"Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. Find out more: https://www.hsbc.com/who-we-are/our-climate-strategy"

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