Threats to the $175 billion Abu Dubai investment boom

There is no doubt that Abu Dhabi is in earnest in promoting economic expansion, albeit rather late in comparison to its neighbors in Doha and Dubai. The government has a $175 billion spending program for the next five years to transform the city through extravagant modern architecture and industrial investments.

Chairman of the Department of Planning & Economy, Sheikh Hamed bin Zayed al-Nahyan told the MEED conference that the government was making a shift towards public/private partnership and privatization, and highlighted the main spending priorities.

Abu Dhabi Tourism Authority is leading an integrated strategy to boost tourism with the expansion of Etihad Airways, the building of the new international airport and the creation of new hotels by the promotion of new entities such as the Tourism Development and Investment Company to develop Sadiyaat Island.

Social infrastructure

At the same time, Abu Dhabi has formed an Education Council to equip its people for the challenges ahead; and the Health Authority is to be expanded with foreign partners like the John Hopkins Hospital and compulsory private health insurance.

Sheikh Hamed also pointed to the $100 billion market capitalization of the Abu Dhabi Securities Market, which even after the recent crash compares to just $3 billion when it was launched in November 2000. The ADSM will clearly have a key role in growing the financial services sector to support economic expansion.

But Sheikh Hamed noted that oil and gas will remain the pillar of the Abu Dhabi economy and that investment will continue to be high in this sector. In addition, investment will be directed into associated industrial projects which can benefit from the very low cost of energy in Abu Dhabi, the city's core competitive advantage.

There will be investment in a steel complex, a petrochemicals plant at Ruwais and new aluminium production facilities to capture around 10 per cent of the global aluminum market. Shiekh Hamed said these industrial projects would represent an investment total of $20 billion while $150 billion will be spent on construction projects over the next five years.

Speakers from the real estate giants Sorouh and Aldar outlined their major developments, some of which are already starting to emerge from the ground and others that are now in the planning phase.

Late developer

Yet Abu Dhabi has been slow to mobilize itself for action during the oil boom of the early 21st century and will now have to deal with the huge inflation of costs that is challenging Middle East construction today, and the very real shortages of construction capacity. That will almost inevitably mean cost and time overruns that are already becoming evident in Dubai and Doha.

However, bankers appearing at the conference were under no illusion that Abu Dhabi would achieve its objectives. For after five years of booming energy prices the emirate has the $175 billion available in cash if necessary, and is believed to have actually had more than twice this amount saved in foreign investments before the present boom.

This therefore makes Abu Dhabi an exceptionally stable place to do business, particularly as even the private/public partnerships are underpinned by government shareholdings. But the new generation of young leaders looks well up to the challenge and has a clear vision of its objectives.