Abu Dhabi right to act cautiously

Abu Dhabi's wealth has been built on its abundant natural resources. As its neighbour Dubai invested in tall buildings, the development of a financial services sector and ever more outlandish real estate schemes, Abu Dhabi focused on long-term growth.

Oil and gas, not construction and equities, have left the emirate in an enviable financial position after several years of budget surpluses, and now it is repaying the favour by investing heavily in the sector.

Better yet, although Abu Dhabi has announced a series of ambitious multi-billion-dollar hydrocarbon schemes, it has also had the patience not to pay for them at the top of the market.

The emirate's investment programme over the past few years has been conservative compared with other oil-rich states. But the excitement of the boom years is in the past and Abu Dhabi still has money to burn even after bailing out Dubai in February.

MEED estimates the emirate will award more than $27bn worth of oil and gas contracts by mid-2010. If it had awarded the same contracts during the boom, Abu Dhabi could have spent as much as $10bn more because prices were so much more expensive thanks to inflated commodity and labour costs.

By awarding the contracts at the bottom of the market, Abu Dhabi is likely to attract contractors seeking refuge from the austerity of the oil and gas industry in other parts of the world. All the new contracts will give a welcome boost to the local service economy.

With hindsight, Abu Dhabi's state-owned oil and gas companies have benefited greatly from the downturn. Whether by luck or design, these companies did not succumb to the excesses of the boom.

The lesson Abu Dhabi provides has come a little too late for this recession, but it is worth bearing in mind for the future.