The UAE economy has dominated the region’s headlines over the past couple of years. Not always for the right reasons.

But the crisis has also had positive effects. Economic and commercial ties between the emirates have been reinforced under Abu Dhabi’s financial protection.

Abu Dhabi GDP by industry sector 
  % share
Oil & Gas  65
Manufacturing 9
Other 9
Construction 5
Banking/finance 5
Government services 4
Real estate/services 4
Source: Samba

More importantly, the crisis has not deflected the UAE from persevering with its ambitious long-term economic diversification strategy.

In 2007, Abu Dhabi unveiled its Abu Dhabi Vision 2030, a programme that seeks the transformation of the emirate’s economic base by building a sustainable, diversified, high value-added economy by 2030.

Dubai GDP by industry sector 
  % share
Trade services 38
Real estate/services 15
Manufacturing 14
Other 13
Construction 10
Banking/finance 8
Oil & gas 2
Source: Samba

Non-oil revenues in the UAE

Crucially, that future UAE economy will be less dependent on hydrocarbons. Under the plan, Abu Dhabi, an oil superpower, has set itself a target of generating 64 per cent of its gross domestic product (GDP) from the non-oil sector by 2030.

Much of the damage inflicted on the UAE by the financial crisis has now been absorbed, putting the country’s economic recovery on a firmer foundation. NCB Capital forecasts that the UAE will record headline GDP growth of 2 per cent in 2010. The IMF is even more upbeat, forecasting growth of 2.4 per cent for 2010, rising to 3.2 per cent next year.

In line with UAE’s federal character, Dubai is also pushing its own strategic plan. Dubai 2015 is designed to engineer an 11 per cent annual growth in GDP to $108bn from $37.4bn now, creating 882,000 new jobs and taking total employment up to 1.73 million by 2015.

UAE main economic indicators
  2008 2009 2010f 2011f
Nominal GDP ($bn) 261 218 238.4 256.1
Real GDP (% change) 54.8 47.2 51.5 54
Inflation (%) 12.3 1.6 1.8 3
Hydrocarbon exports ($bn) 108.3 59.5 74.7 91
Current account balance ($bn) 28.2 -4.5 14.4 24
External debt ($bn) 160 165 167 180
Fiscal balance (AEDbn) 304.7 15.1 50.3 69.8
Fiscal balance (% GDP) 30.4 1.9 5.8 7.4
e=Estimate; f=Forecast. Source: Samba

Despite Abu Dhabi’s increasing focus on diversifying its economy, the emirate’s economic strategists are acutely conscious of the need to develop and maintain the oil and gas sector. Earlier this year, the emirate announced it would proceed with a $30bn investment programme involving the development of its hydrocarbon sector until 2014. 

The Abu Dhabi government is well placed to support the entities, such as Mubadala Development Corporation, which are active in diversifying the economy. With private finance avenues opened up, UK construction, design, consulting and advisory services companies will be making a beeline for Abu Dhabi.

Abu Dhabi boasts a longer track record than Dubai in delivering privately financed projects. Abu Dhabi Water & Electricity Authority has supported one of the most successful independent water and power project programmes in the region.

The emirate is also deploying the PPP model to develop universities and the $2.7bn redevelopment of the Mafraq-Ghweifat highway.

Under its long-term diversification plan, Abu Dhabi wants to strengthen its credentials as an industrial hub, focusing on key energy-intensive industries like aluminium, steel and petrochemicals. It wants the industrial sector to double its current contribution from 12 per cent to 25 per cent of GDP. The aim is to create an integrated supply chain from wellhead to export terminal, allowing new industries to provide the raw materials for conversion industries, while helping the creation of small and medium enterprises. In petrochemicals, the Abu Dhabi National Chemicals Company (Chemaweyaat) is backing a new 10 million tonne-a-year petrochemicals complex at Taweelah, to be known as Tacaamol, due on stream in 2014. This will feed into the new Abu Dhabi Polymers Park, a planned plastics conversion facility.

The UAE: A knowledge economy

The authorities are serious about creating a modern knowledge economy. In September 2010, Abu Dhabi government-owned Advanced Technology Investment Company announced plans to invest up to $7bn building the Middle East’s first semi-conductor manufacturing facility.

Logistics, for long a strong suit in the UAE, is another sector that is destined to attract increased investment. The UAE’s logistics market is expected to be worth more than $10bn by 2015, up from $6.4bn in 2009, according to UK consultancy Frost & Sullivan.

A number of major transport projects are either in the planning stages or already under way. In Abu Dhabi, the $7bn Abu Dhabi International airport is under construction and the new Khalifa Port and Industrial Zone is being built at Taweelah. But the $11bn Union Railway is the scheme that could exert a transformative impact on trade.

The 1,500-kilometre UAE-wide railway will connect all the major industrial and population centres in the UAE, and the UAE with Saudi Arabia and Oman. Union Rail opened the bidding on the first rail packages for the link in September 2010.

Dubai’s plan seeks to integrate the operations of government entities, focusing on economic and social development, infrastructure, land and environment, security, justice and safety and public sector excellence. It will direct investment towards core industries such as trade, tourism, transport and manufacture.

“With real estate flat on its back, the nuts and bolts of Dubai’s infrastructure are now capturing investor attention,” says Tristan Cooper, head analyst for Middle East Sovereigns at Moody’s Middle East.

But Dubai Inc entities still face significant refinancing requirements and Dubai’s state-backed entities have proved they are still able to access the capital market. In April this year, Dubai Electricity and Water Authority raised a $1bn five-year bond that was 11 times oversubscribed. Other Dubai entities are ready to tap the international debt capital market, with Emaar Properties announcing that it is looking to raise $375m from a bond sale.

The Dubai government is currently preparing a public-private partnership (PPP) law, as it seeks to find new ways to support infrastructure development without resorting to the public purse. This will involve a much greater role for the private sector and Dubai’s plans will open up significant opportunities for UK developers, consultants, law firms and technical and financial advisers.

Before the financial crisis blew across the region, the emirates’ economic planners could have afforded themselves the luxury of a more relaxed implementation programme for their long-term diversification efforts. The removal of that comfort blanket has served to accentuate their strategic importance. The UAE has no option now but to create a more sustainable economy, built on firm foundations, that makes the most of each emirate’s resources and talent pool and integrates them more closely. The resulting project pipeline will bring huge opportunities for UK companies.