We asked Suganya Rajan, research analyst, Environment and Building Technologies Practice for South Asia & Middle East at Frost & Sullivan about district cooling in the Middle East.
1. The report paints a positive picture, but how has the market ‘crash’ in the UAE and elsewhere affected the overall prospects for district cooling?
District cooling, which is predominantly dependant on the construction activities in the UAE and other Gulf states, is facing adverse effects of the global economic slowdown. Slump in the growth rates for district cooling is evident as the fallout of the recession has brought down the market growth rate to about 28% from the stupendous rate of 60% clocked over the last five years. The district cooling market, however, has been pepped up by Saudi Arabian and Qatar economies which have been insulated against the credit crunch. Hence these two markets are emerging as better prospects for district cooling among the Gulf States.
2. Are there any estimates for the potential value of the Saudi DC market?
Saudi Arabian market for district cooling comprises about 10% of the overall GCC market. Saudi Arabia is expected to witness exponential growth in construction activities mainly driven by their geographic size and new economic policies that are trying to reduce the dependence on oil. Saudi Arabia is shielded against the adverse effects of credit crunch; hence the district cooling market is expected to grow above the regional average.
3. Who have you identified as the leading companies in the GCC DC market?
Competition in district cooling is concentrated; few big players have capitalized on early opportunities. Players like Tabreed, Palm District cooling, Emicool, and Empower are the leading companies in the district cooling market in GCC. However, there are many new entrants like City cool, A&T cool etc., mainly in the UAE, are trying to establish themselves in this market.
4. Are those with most of their revenue coming form the UAE vulnerable to a decline in cooling off-take?
Yes, they are certainly vulnerable to a decline in this market growth, but it is definitely not an alarming situation. If they adopt the right strategies they can sustain this slowdown, and when the construction activities are predicted to rebound to its normalcy in 2010 with recession bottoming out, they can make up for this slow growth period. Currently, it is prudent to look at small projects and try diversifying into other geographic locations.
5. Are there any international companies that you expect to see trying to start DC operations in the GCC any time soon?
Though there is a huge untapped market, very few new entrants are moving swiftly to establish themselves and acquire a market share. At this moment, we do not expect international companies entering in the near future. This is mainly due to the difference in market and cultural scenario. Doing business in Middle East is very different from other regions, in terms of ease in starting a business, laws and regulations, transparency in doing business etc. At the end of the day, possessing market knowledge is the mantra for success in this industry.
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