Early moves to modify expectations

17 May 1996

IN his memoirs, local businessman Mohammed al-Fahim tells the tale of a foreign head of state who stopped over for a day in the 1970s. On being seen off at the airport, he turned to President Sheikh Zayed Bin Sultan al-Nahyan with a blunt enquiry: 'Where is my cheque?' he demanded. An hour of negotiation ensued, Al-Fahim recalls, until it was agreed that the visitor would depart, leaving one of his ministers to pick up the payment.* Much has changed in Abu Dhabi and the UAE during the past 20 years. The economy has prospered and diversified; the federal structure has matured. Billions of dollars have poured into public projects and economic development has transformed the landscape beyond recognition.

Yet, some things never change, and the procession of dignitaries through Abu Dhabi airport continues unabated. The arrival of some is testimony to the UAE's political stature in a turbulent region, a steadfast ally of the west and a leading member of OPEC and the GCC. Others - like the head of state in Al-Fahim's story - are drawn to the UAE as a rich state which, unlike its Gulf neighbours, is still in a position to help its friends with grants and soft loans. There are also those drawn by the prospect of winning business in a dynamic market.

And there is still much on offer. This summer Abu Dhabi National Oil Company (ADNOC) will launch a five-year, $5,000 million investment programme to expand and upgrade both its downstream oil industry and its upstream gas handling capacity.

In Dubai, a $300 million expansion of the international airport is being tendered and further contracts will be let on the Chicago Beach resort development. In Sharjah, designs are nearing completion on the Dh 400 million tower and exhibition complex; in the northern emirates, awards are expected on the Dh 570 million project to create an electricity distribution grid on the west coast.

The long list testifies to the continuing buoyancy of the economy and the ability of Abu Dhabi and Dubai, the two wealthiest emirates, to keep investing in capital schemes at an impressive level. In 1995, gross domestic product (GDP) rose by 6.6 per cent to Dh 144,000 million, fuelled by an 8.8 per cent increase in oil activity and a 5.5 per cent expansion of the non-oil sector. For the first time, non-oil activity accounted for more than 66 per cent of GDP. According to the Planning Ministry, similar growth rates can be expected this year

Firm figures

The figures underscore the UAE's economic soundness and help to explain why economic reform is not a burning issue, as it is elsewhere in the region. Nevertheless, officials acknowledge that some adjustments are required. The population is growing by 3 per cent a year and to maintain living standards the economy will have to expand even more vigorously. Indeed, the same Planning Ministry says in its forecast that, even with 5.5 per cent growth in 1996, per capita national income will drop by 3 per cent to Dh 48,600.

The authorities are attempting to keep a tight rein on expenditure. Even in Abu Dhabi, where 1.9 million barrels a day (b/d) of oil production means the emirate has a larger annual budget than the entire UAE, there is evidence of improved financial controls. It is a similar story in Dubai. Money is available, but only for projects which enhance the infrastructure or deliver a clear financial return.

The authorities are also attempting to reduce the cost of their major construction projects. One tactic is to break up larger schemes into several separate contracts. This gives them greater leverage and helps ensure that public works contracts are not monopolised by a few companies. Says one international contractor, 'There is still a lot of new project work around, but it is the size of contracts that concerns us. The Dubai airport expansion is a good example. It sounds impressive - a $300 million project. But when you consider that it will be broken up into 20 or so separate contracts, you soon realise that the prize is not so great.' With no oil to speak of, the northern emirates rely heavily on federal funds. But as the federal budget remains frozen, the poorer emirates are looking at alternative ways of meeting their development needs. Ajman, the second smallest emirate in the federation, is setting the pace for privately-financed infrastructure projects.

A joint venture of the US' Black & Veatch and the local KEO International Consultants has signed a memorandum of understanding for a build-operate wastewater network, to cover the entire emirate. A similar agreement has been struck with the UK's National Power and the local Bin Sofan Trading Establishment for a power and desalination plant.

Attracting investment

As the Ajman experiment suggests, each emirate is keen to attract international investors. Governments see foreign technical and marketing skills as the key to expanding employment and investment opportunities for their citizens Joint stock companies have recently been established with foreign partners - in Abu Dhabi for a new ship yard, and in Ras al-Khaimah for an estimated Dh 500 million grassroots cement project. In Fujairah, local and international investors have formed a new company to build a $75 million tank farm. In Shaijah, the US' Amoco has drawn up plans to supply the emirate with gas via a 500-kilometre pipeline from central Oman.

Alongside the foreign investment drive, there is a parallel effort to develop local resources. In sectors such as tourism, local companies need little inducement to invest at home. 'We are looking to concentrate on the local market as we feel that the return in the UAE is now higher than elsewhere,' chairman of Abu Dhabi National Hotels Company (ADNHC) Khalifa Nasser al-Manssory said in mid-April. To reverse the perennial flow of capital out of the UAE, a formal stock exchange is due to be established by early 1997.

At the same time, family visa rules for expatriates have been tightened to try and reduce the numbers of foreign dependants. From mid-1996, only those workers who earn, with accommodation allowances, more than Dh 4,000 a month will be eligible to bring their dependants into the country. The ruling will affect nationals from the Indian subcontinent the most, but even expatriate Arabs, who typically earn considerably more than Dh 4,000 a month, report some difficulties in renewing their visas.

The authorities are keen to bring more nationals into the workforce, but are reluctant to use coercion. The federal government decided in April not to enforce a quota system in the banking sector, but many expatriates in government departments and parastatal organisations feel their days may be numbered. Emirates Telecommunications Corporation (Etisalat) recently announced that it wants to have nationals occupying 85-90 per cent of all senior positions by 2000, up from 71 per cent at present - and 48 per cent in the lower ranks, up from the current 20 per cent.

Etisalat will still require qualified and experienced expatriates and it faces some very real obstacles in meeting its target. 'We have nationals who are not ready to put in the effort needed and who do not want to wear the overalls and go out into the field,' one senior official says. Up to 40 per cent of those who start the Etisalat technician training programme never finish the course.

That experience eloquently expresses the dilemma that the UAE faces. The country has withstood many of the economic shocks that have hit the Gulf over the past six years, thanks to oil production of 2.16 million b/d and a thriving non-oil sector. Without a pressing need to economise, the wide range of privileges and benefits available to citizens has been maintained. Yet, the bullish performance merely enhances expectations among the younger generation. Many assume that they will enjoy similar success to businessman Al-Fahim, who literally rose from rags to riches to control a Dh 700 million empire. For the rising generation, reality may be rather more prosaic.

*From Rags to Riches: A Story of Abu Dhabi, Mohammed al-Fahim, London, 1995

Exchange rate: $1 = Dh 3.673

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