Figures released at MEED’s Abu Dhabi conference this week showed that Abu Dhabi, the largest and richest of the seven emirates that make up the UAE, had gross domestic product (GDP) of more than $100bn in 2007. Growth was 17 per cent and per capita GDP, at more than $70,000, was the second highest in the Middle East after Qatar.
It is likely that Abu Dhabi’s economy has grown at least another 10 per cent in 2008, although it will go into reverse next year due to the sharp fall in oil prices since July. But there is no fear of insolvency. Government savings, mostly in the Abu Dhabi Investment Authority (ADIA), now amount to close to $1 trillion.
With 10 per cent of the world’s proven reserves and production in the summer hitting 2.5 million barrels a day (b/d), Abu Dhabi sits at the oil world’s top table. Its long-term strategy, Vision 2030, which was published last year, is a declaration that the emirate is seeking a role in the global economy that extends well beyond the oil market.
Vision 2030 calls for Abu Dhabi to diversify by concentrating on areas where it has advantages, mainly in energy, industries requiring large volumes of gas and logistics. It also calls for the private sector and the market, not the government, to drive the economy forward.
These goals have been targeted by other oil-based oil economies. Abu Dhabi has learned from their mistakes and sought the best advice. Its strategy has been carefully studied. It amounts to the most ambitious and coherent long-term development plan the world has ever seen.
Abu Dhabi is now telling the world that it is the Middle Eastern force to watch. At the end of September, the Abu Dhabi United Group completed the takeover of Manchester City Football Club. Barclays Bank shareholders will be asked on 24 November to approve a plan for Sheikh Mansour Bin Zayed, UAE minister of presidential affairs, to acquire up to 16 per cent of the bank through a capital-raising programme to deal with the consequences of the credit crunch.
Both deals spoke volumes about Abu Dhabi’s rising self-confidence. The Abu Dhabi Investment Authority (ADIA), one of the world’s largest institutional investors, was founded in 1976 but has always resisted taking prominent shareholding positions in the companies it has invested in. The Manchester City and Barclays deals could hardly be more eye-catching. More are bound to come.
Abu Dhabi’s wealth will, in turn, have political implications. UK Prime Minister Gordon Brown visited the city at the end of October to ask Abu Dhabi to contribute to a new International Monetary Fund (IMF) facility to help countries damaged by the credit crunch. It is likely to co-operate, but it will expect to be consulted about how its money is used. The UAE, party to the stumbling Annapolis peace process, can also anticipate being engaged more frequently in issues affecting the Middle East.
Abu Dhabi’s rising international profile has domestic echoes. The credit crunch, which originated in the US real estate market, has slashed the value of property across the world. Parts of the UAE that sold land to finance development will now have to deal with the fact that their creditworthiness has been seriously impaired.
Abu Dhabi, too, will suffer the impact of the slump in property prices, but the economy is underpinned by huge savings and vast reserves of oil and gas. These will now be put to work in larger measure on UAE domestic investments. And, as Abu Dhabi takes over more of the responsibility for ensuring the federation’s infrastructure is up to scratch, questions are likely to be asked about projects that appear to replicate each other. Guided by Abu Dhabi, a new era of UAE-wide economic planning is set to begin.
This was reflected in the announcement on 12 October by UAE president and Abu Dhabi ruler Sheikh Khalifa bin Zayed that the government would guarantee all deposits and savings with local banks.
The guarantee, implicitly underwritten by Abu Dhabi’s wealth, was subsequently extended to international banks with major operations in the UAE. The federation, at last, has a banker of last resort.
Since then, the government has pumped more than AED 20,000m ($5,333m) into the financial system in the form of short-term deposits to help banks lend. Confidence is growing that the UAE will escape the global economic slowdown largely unscathed.
These initiatives highlight the growing role of the federal government. It is poised to further support initiatives to help advance the dream that inspired the creation of the UAE in December 1971. The future is rich with possibilities for the people of the federation and its friends. But the key is Abu Dhabi, whose rise, long forecast, is now clearly visible.