Emirates have to build confidence

Abu Dhabi's successful issue of $3bn worth of sovereign bonds could mark the turning of a corner in the UAE's recent economic history. The sovereign paper, issued in April through separate five-year and 10-year tranches as part of a $10bn programme of debt issuance by the emirate, was clearly well received by investors.

A roadshow taken to the US and Europe in April generated interest in the Abu Dhabi bond issue, with bankers close to the deal pointing out that the investors offered more than double the $3bn the emirate was seeking to raise.

The success of the sovereign debt issue is clear evidence of international capital returning to the UAE markets. The unequivocal nature of Abu Dhabi's economic support for Dubai - as demonstrated by the Central Bank of the UAE's purchase in February of $10bn worth of Dubai government bonds - means market perceptions are also beginning to turn around in Dubai's favour.

In a sign that investment spending is on the increase in the UAE, Dubai-based Abraaj Capital is reported to be in talks to buy at least 15 per cent of ports operator DP World. The news is an important indicator that private investors, as well as governments, are prepared to spend money on UAE companies.

The pain of the correction in Dubai's economy, as spectacularly demonstrated in its real estate crash, will continue this year. But it has also been necessary to take the emirate and the UAE on to the next stage of economic maturity.

The UAE is the Gulf's most open economy, and its economic policymakers will come under close scrutiny over the next 12 months to see if the cautious return of international capital to the UAE can develop into a solid economic recovery.