International Intelligence: Abu Dhabi

While Dubai is the most well known of the seven Emirates that make up the United Arab Emirates, it is neither the largest nor the richest. That honour lies with Abu Dhabi, which comprises 87% of the UAE’s land area and contains 95% of its oil reserves. Abu Dhabi is the nation’s capital and its economic powerhouse.

The UAE is a relatively new country. It was founded in 1971, and has seen phenomenal growth over the past 40 years. Official figures gave the population of the UAE as 8.26 million in 2010 – 30 times the 280,000 residents present when the nation was founded. However, this exponential growth rate has had significant consequences for the population dynamics; only 950,000 people, or 11.5%, are Emirati.

The starting point for growth in the UAE was the vision of Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai. Starting in 1985 with the establishment of Emirates Airlines and the creation of Jebel Ali Free Trade Zone, Sheikh Mohammed has invested oil and gas revenues to diversify the economy, and other Emirates have followed suit.

Boom and bust
The growth of tourism in the UAE has been impressive. Dubai’s International Airport is now the fourth busiest international airport in the world and there are plans to double its capacity by 2020. Abu Dhabi’s airport is also expanding with an initial target capacity of 27 million passengers.

The Emirate took a more conservative approach to development than Dubai, only opening up property ownership to expatriates in 2005 and establishing the Urban Planning Council in an attempt to curb developer excesses. As a result, the pace of development was somewhat slower in Abu Dhabi, and the global economic crash did not hit the capital as hard as it did Dubai.

Depreciating assets
The legacy of an overzealous development boom in Dubai includes unfinished buildings, bankrupt developers, debt-laden property owners, and a series of unsolved legal dispute. It will take years for supply and demand to balance.

By contrast, Abu Dhabi’s slower rate of development has left the capital on a more sound footing – though with the UAE having one of the highest levels of energy use per capita, there remain concerns about the sustainability of the region’s development model.

But there are developments that are addressing these issues. Masdar in Abu Dhabi is aiming to become the world’s first carbon-neutral city. The UAE was one of the first oil-producing nations to sign up to the Kyoto Protocol, and Abu Dhabi’s Estidama framework is a model for sustainability initiatives in the region. Development opportunities remain in strong locations for projects that address market opportunities.

Importantly, the fundamentals that led to the boom in the UAE remain: as a global air hub, the UAE is well positioned with two-thirds of the world’s population within eight hours’ flying time; as an internationally focused regional business base it is second to none; and it is perhaps the most cosmopolitan country in the world, with people from a reported 185 nationalities living and working there.

A benefit of the downturn is that many real-estate speculators have gone, and values are becoming more realistic. As demand for hotel rooms and flights declined following the economic crash, these became less expensive, which has served to reinvigorate tourism. A recent Mastercard study revealed that Dubai is now the world’s ninth most visited city, with almost 8 million tourists anticipated in 2011 – a 17% increase from 2010.

Times may be tough, but the vision that built the UAE over the past 40 years is not diminished. All it will take is some economic rain for the development desert to start to bloom again.

David Camp is director of economics at Aecom.

Source: BDonline