Arab Petroleum Investments Corporation (APICORP) reported the petrochemical investments in the Mena region determinants, drivers and risks to growth.
1. Contrary to what some economists would argue, the petrochemical industry has remained a critical link of the hydrocarbon supply chain. This is particularly the case in the MENA region, for not only the industry depends directly on upstream feedstock for its operations but it is also starting to integrate with the refinery link or be part of cluster developments involving adjacent hydrocarbon processes.
This hydrocarbon link and proximity are important to consider when analyzing changing investment conditions in the industry and evaluating the driving and restraining forces in its business environment.
2. With such a perspective in mind, this commentary aims to provide insight into the determinants of investment in the industry and the resulting medium-term investment outlook.1 It focuses on the key drivers of growth and the associated uncertainties and risks. The investment outlook covers the dominant primary industry portion that manufactures base chemicals (olefins and aromatics) and nitrogen fertilizers (ammonia and urea). However, for the sake of clarity and illustration, emphasis is put on ethylene - the industry's key building block in the region – as the main indicator of growth.
Determinants of investment 3. MENA hydrocarbon producers have consistently identified value-adding as an important determinant of investment in the petrochemical industry as it diversifies and stimulates economic growth, promotes direct and indirect job creation and enhances current account balances through import substitution or export.
However, while the availability of feedstock at low prices has given the region a major competitive advantage over other producing areas, empirical evidence both through over-time and in cross-section analyses has shown that the pace of development (measured through ethylene capacity) has been uneven.
Government's vision and commitment and the strategies and business models adopted by their champions – the national companies in charge of developing the industry - have dictated today's achievements.