For 20 years, the Umm al-Nar refinery was the first sign on the journey from Dubai to Abu Dhabi that you were approaching the Maqta Channel and Abu Dhabi Island.

The refinery was a fitting landmark for an emirate in which the oil and gas sector plays such a dominant role. With the sixth-largest proven oil reserves in the world and a production capacity of 2.2 million barrels a day of oil, the hydrocarbons sector remains the bedrock of Abu Dhabi’s economy.

But over the past five years, the government has been keen to develop new sectors and diversify its economy. The result has been high-profile tourism projects such as Yas Island and Al-Raha Beach, which have replaced Umm al-Nar as the landmarks on the easterly approach to Abu Dhabi.

Diversification policy

Tourism is key to the emirate’s economic diversification policy. Billions of dollars have been invested in hotels, airports, sports stadiums, museums, roads, bridges, railways and marketing campaigns that Abu Dhabi hopes will make it a world-leading holiday destination.

“Tourism is an essential part of the 2030 economic plan for Abu Dhabi,” says Mubarak al-Muhairi, director general of the Abu Dhabi Tourism Authority (Adta). “It is part of the policy agenda for the government of Abu Dhabi, as it is looked at as a way of diversification, and that is definitely the biggest reason for opening up the tourism potential of the emirate.”

Between 2004 and 2008, Abu Dhabi’s hotel guest numbers increased by 57 per cent to 1.5 million, and Adta forecasts a further increase to 2.3 million by 2012.

In 2007, tourism accounted for 8.6 per cent of Abu Dhabi’s non-oil GDP, up from 7.1 per cent in 2005. It also accounted for 108,000 jobs in 2007, 10 per cent of non-oil employment, up from 7.8 per cent in 2005.

There are two other major reasons for further developing the tourism sector. The first is to create opportunities for the Abu Dhabi business community. Tourism, like any other new sector, needs investment in physical infrastructure, operating companies and suppliers.

“The government wants to create opportunities for the private sector,” says Al-Muhairi. “There are plenty of opportunities, whether investing in hotels, which are big investments, or smaller opportunities for travel agents and suppliers. So it really brings a lot of opportunities for business.”

The second reason is image. As a destination with global appeal, Abu Dhabi will also raise its profile after being eclipsed by its neighbour Dubai and its world-renowned beach hotels in recent years. “It is a means of promoting the image of Abu Dhabi,” says Al-Muhairi. “It is marketing and promotion, not just of the facilities, but the essence of this place and its values.”

Abu Dhabi began developing its tourism sector with two key initiatives: the creation of an Abu Dhabi-based airline, Etihad Airways, in 2003, and the establishment of Adta and its development subsidiary, Tourism Development & Investment Company (TDIC).

Etihad has enjoyed considerable success in six years of operating. The airline carried more than 6 million passengers in 2008, compared with 340,000 in its first full year of operations in 2004, and plans to sustain this growth with new aeroplanes and routes. Abu Dhabi Airports Company (Adac) has recorded strong growth since 2004, with passenger traffic increasing by more than 70 per cent over four years to 9 million in 2008.

Adac plans to tender a contract to build the $6.8bn midfield terminal at Abu Dhabi International airport by the end of 2009. Once completed, it will be the airport’s third terminal after the AED1bn ($272m) Etihad terminal became fully operational in April, increasing capacity from 7 million to 12 million.

Adta and TDIC were formed in 2004 and 2006 respectively. Adta oversees the promotion of Abu Dhabi as a destination, with offices in major cities such as Paris, London, Frankfurt, Sydney and Shanghai. It also sets the regulations that govern the tourism sector in Abu Dhabi. For example, this year it has introduced a system for rating hotels. Under the programme, all hotels and hotel apartments have been classified, with hotels categorised on a scale of one star to five stars, and hotel apartments as deluxe, superior or standard.

The authority also co-ordinates with other government departments and entities involved in delivering the tourism objectives set out in the government’s Vision 2030 strategy. Other stakeholders include Adac, Etihad Airways, the Department of Municipalities and the Western Region Development Council, which do not develop hotels or tourism projects directly but provide the infrastructure that supports these projects.

Collaborative effort

“A nation is not one single entity or one sector,” says Al-Muhairi. “It is really a collaboration of tens of government departments working together. In the past three years, we in Abu Dhabi have started working towards one vision and one set of strategic objectives.”

TDIC develops the infrastructure Abu Dhabi needs to develop its tourism potential. Its largest scheme is the $27bn Saadiyat Island (see feature, page 8), which it launched in 2006.

Along with Saadiyat, TDIC is developing the Qasr al-Sarab hotel and Desert Island projects in the Western Region (see feature, page 12) and is partnering with local investors to deliver hotels across Abu Dhabi such as the Shangri-la resort, the Bridgeway, Bab al-Bahr, Park Rotana and Al-Bateen Wharf.

It is also playing a pivotal role in developing basic infrastructure that will support the Abu Dhabi economy in general, such as Saadiyat Bridge, the Saadiyat-Shahama Freeway and Hudayriat Bridge.

TDIC’s role in developing hotels is crucial because Abu Dhabi desperately needs new hotels if it is to remain competitive as a destination for holidaymakers and business travellers. In 2009, developers in Abu Dhabi will deliver 5,000 hotel rooms. The emirate currently has 13,000 hotel rooms, which by the end of 2012 will have grown to 24,000.

“Abu Dhabi’s hotel rates are some of the highest in the world, but I think that will come down this year because of the hotel rooms we are delivering,” says Al-Muhairi.

“New hotels will ease the scenario where demand and supply is not balanced, and that will help conference and exhibition organisers who have been meeting their promises, but over the past two years have been suffering from the lack of rooms available.”

More hotels will mean cheaper rates. “It will bring options for visitors and will play a role in creating more competition between hotels and promoting the destination,” says Al-Muhairi.

More hotels will be completed in 2010 and beyond as three-to-four-year construction projects are completed. “You can’t realise it in full in year one or year two because it has a lot to do with construction and the delivery of projects on the ground, and we have yet to receive those products,” says Al-Muhairi.

With an increase in hotel room supply, Adta hopes tourists will visit the emirate’s planned major attractions. Aside from government projects such as Saadiyat Island, by far the largest and most high-profile of these is Aldar Properties’ $40bn Yas Island, which hosted the inaugural Abu Dhabi Grand Prix on 1 November.

In addition to the race circuit, the developer has finished seven hotels with a total of 2,245 rooms, and is building a Ferrari theme park, shopping mall, marina and golf course.

The event, like the Grand Prix in Bahrain, will give Abu Dhabi global media exposure at a time when other destinations are struggling to attract visitors. According to data from the UN World Tourism Organisation on 140 destination countries, international tourist arrivals worldwide fell by 7 per cent in the period January to July 2009, compared with the same period last year.

Abu Dhabi’s performance has been more robust than that of most cities so far this year, matching the results achieved in 2008. “It is difficult everywhere in the world, including Abu Dhabi,” says Al-Muhairi. “But when it comes to the tourism sector, we still see it growing, and hotels are experiencing very healthy occupancy rates. For the first seven months of this year, there was 79 per cent occupancy, and that is higher than many other destinations in this region and the world.

“Hotels income in the first seven months went up 7 per cent compared with 2008, and the number of hotel guests was sustained at about the same level as last year. It is less by 0.4 per cent, just a fraction.”

Although the key indicators remain mostly positive, Adta has been forced to revise its targets. Before the economic crisis, Abu Dhabi was one of the fastest-growing tourism destinations in the world, and although it is still expecting strong growth, it is unlikely to return to the rates experienced before 2008.

“After the crisis we modified our targets for 2012 from 2.7 million hotel guests a year to 2.3 million, and changed our 2009 target to remain the same as 2008,” says Al-Muhairi.

These targets are still ambitious – in just three years, Abu Dhabi needs to attract 53 per cent more visitors.

Oil will make these plans possible. The economic crisis has stalled tourism developments in other Gulf markets, but backed by its oil revenues, Abu Dhabi has been able to continue investing in new projects, and this, together with events such as the Grand Prix and further growth of Etihad Airways, which also receive financial support from the government, means Adta could well hit its targets for 2012 and beyond.