Rags to riches, lessons from the past

In his brilliant book 'From Rags to Riches, the story of Abu Dhabi', Mohammed Al-Fahim outlines much of the early history of the UAE. And he explains the nature of the first great oil boom in 1973 which followed the Arab-Israeli war and Arab oil embargo.

'No sooner was the brief war over than the oil began to flow again and we found ourselves in a tidal wave, awash with money. The income of the government soared with the increased oil revenues, the majority of which were funneled right back into the economy.

'Land prices skyrocketed to unheard-of levels, even by today's standards, and the price of goods, materials and services went through the roof.'

However, this massive boom was soon over. 'By 1976 the well had run dry. The demand on our financial resources was much greater than even our vast oil wealth could sustain. We found ourselves out of money and in a recession, from boom to bust in only a few short years.

'Of course, we had never experienced anything like a recession before. Businesses were left with their goods stranded at the port or at the airport because there were no funds available to clear them through customs. Major projects were left unfinished because of a lack of capital.'

This recession of the late 1970s lasted two-and-a-half years until the last half of 1980 when the Iran-Iraq war broke out, and oil prices again headed upwards, filling the national coffers. Sheikh Zayed introduced a generous compensation scheme for Abu Dhabians that injected spending into the UAE economy and set it booming again.

By 1982 the collapse of the Kuwait stock market and lower oil prices once more brought an abrupt end to a wave of oil-driven prosperity, and the mid-1980s were a tough time for many UAE businesses, in particular the local banks which went through a wave of consolidation.

For those who think prosperity is forever, Mohammed Al-Fahim's story is well worth reading this summer. Times are very good now in the Oil States, at least from an economic perspective. But nothing lasts forever and economic cycles can be shorter than expected.

It is to be hoped that the lessons of the past have been learned, and certainly the UAE is a far more financially solid, diversified and better organized country than it was in the early days of the federation. But over-optimism and a tendency to loose sight of reality is a human characteristic that no system has ever managed to keep in check.