Europe Reports

Decorative Paint Demand Grows in Middle East’s Gulf States

By Sean Milmo, Europe Correspondent | December 19, 2011

Fueled by oil revenues, government sponsored projects help grow paint demand.

Sales in Europe’s decorative paints market have been sluggish this year and are likely to show an even slower pace of growth in 2012.

Meanwhile in the Gulf area of the Middle East—close to Europe’s doorstep—the decorative paints sector is flourishing in the wake of high oil prices, which soared by around 50 percent between late 2010 and the spring of this year.

Demand for decorative paints in the Gulf states of Saudi Arabia, Kuwait, Qatar, Bahrain, United Arab Emirates (UAE) and Oman tends to be heavily influenced by the rises in government revenue from oil and gas exports. This is because a high proportion of sales come from projects, including housing schemes, which are financed by governments.

As a result sales of decorative paints have in some Gulf countries been rising at double-digit rates. 

Although there have been short periods of sharp fluctuations in demand, the decorative paint market in the oil and gas rich Gulf has returned fairly constant increases in demand for many years.

As a result it has offered opportunities for buoyant revenues and profits for the decorative paints businesses of some European coatings companies, which among the foreign players in the Gulf have tended to be the most active in it.

In particular it has been a chance for Jotun of Norway and Hempel of Denmark, two Scandinavian coating producers, which have a relatively small share in the total European decorative paints market, to establish a strong presence in the Gulf and other parts of the Middle East.

Jotun first established a physical presence in the Middle East in 1964 with the building of a decorative coatings plant in Libya. Eleven years later it entered the Gulf market with the construction of a plant in Dubai in the UAE.

Hempel, which earlier this year considerably expanded its European decorative paints business with the takeover of Crown Paints of the UK, has been producing and selling decorative coatings in the Gulf for 40 years.

Jotun now claims to be market leader in the Gulf decorative sector with a share of around 25 percent, while Hempel is also among the leaders. Among the other international players in the Gulf area are AkzoNobel, PPG Industries and Asian Paints of India.

The Middle East market with its relatively fast growth rates and preponderance of large construction projects, usually financed by the public sector, has given international paint companies the opportunity to use the region for the development of new decorative products.

“We cooperate closely with our company colleagues in the decorative paints market in Europe,” said Mohamad Baitie, Middle East regional brand manager for decorative paints at Hempel. “They take and adapt products we have developed while we take paints they have developed as well.”

Jotun in fact runs out of its Middle East headquarters in Dubai two European operations in Turkey, usually classified in the paints sector as being part of Southeast Europe and Spain.

“We have a marketing and development hub at Dubai which covers 17 countries including Turkey, Spain and all MENA countries so they get marketing support from our Dubai headquarters,” said Erik Aaberg, Jotun’s manager responsible for the company’s decorative paints businesses in the Middle East, Southeast Asia and the Far East.

Decorative paints demand in Saudi Arabia, with a population around 25 million and a GDP growth rate this year of around seven percent, will rise by around 20 percent in 2011, making it one of the fastest growing decorative markets not only in the Middle East but in the wider area covering southern and Southeast Europe. It is also by far the biggest decorative paints market in the Gulf.

Earlier this year in response to the political upheavals in Tunisia, Libya, Egypt and neighbouring Yemen, dubbed the Arab Spring, the government of Saudi Arabia pumped an additional $130 billion into the domestic economy to boost public sector wages and benefits for the unemployed. For the construction industry and suppliers like paint companies the big benefit of the package was extra money for building 500,000 low-and-medium cost housing. 

In addition the country is attracting a high inflow of foreign capital, which in 2010 alone amounted to $40 billion. Some of this external investment goes into the building of hotels and commercial buildings.

In neighbouring Abu Dhabi, the largest and by the far the biggest oil and gas producer of the emirates in the UAE, the residential housing supply is poised to increase by 35 percent of the current stock in 2011-13, according to local real estate analysts.

In Dubai, the UAE’s other large emirate, the existing housing stock is set to rise by around 20 percent as the emirate, which is the Gulf’s commercial and financial center, recovers from the collapse of a property boom around two years ago.

However the decorative paints market as a whole in the UAE has been growing relatively slowly this year because of a decline in the number of public sector and commercial construction projects. Throughout the Gulf big construction schemes, like hospitals, schools, universities, sports complexes, as well as offices, large hotels and other commercial buildings, make up a key part of the decorative paints sector, accounting for as much as 20-40 percent of total sales.

With its big rise in public expenditure, Saudi Arabia’s large projects market is flourishing with big sums being channelled into the building of healthcare and educational facilities.

Qatar is preparing to host the 2022 World Cup, soccer’s premier tournament, which with the Olympic Game’s is the world’s largest sporting event. Already the planning and design of five stadiums has started, with coating companies vying to be included in the list of ‘specifiers’ or qualified suppliers for the schemes.

“The high number of large projects is what makes the Middle East decorative paints market different from most other regional markets, particularly Europe where they are becoming comparatively uncommon,” said Baite.

Bidding for coatings contracts in public sector and commercial schemes requires paints companies to form dedicated teams. These include networks of staff and agents around the world because of the high number of big projects in the Gulf, which are designed by international architects and built by international building contractors.

“You have to work long-term on these projects which means being in contact with architects and contractors long before the projects are actually announced,” said Aaberg.

Companies like Jotun and Hempel are well positioned to win the paints contracts for mega projects in the Gulf because they also have strong protective coatings businesses.

“It is essential to have a competence in protective coatings, as well in decorative paints, to win these contracts because of the need for coatings to cover materials like concrete, steel and aluminium,” said Aaberg.

Jotun expects a 10 percent rise in volume sales of decorative paints in the Middle East this year. Relatively high growth will continue into 2012 as well. The region’s decorative paints sector  is expected to gain renewed momentum when Iraq starts using revenues from its huge oil and gas reserves to rebuild the country. The Gulf region is likely to maintain its reputation for consistent growth in decorative coatings for many years to come.