Abu Dhabi: Real Progress in Achieving a Diversified Economy

Keith Boyfield - November 2012


Abu Dhabi is blessed.  It boasts one of the highest GDP per capita ratings in the world, attributable primarily to its hydrocarbon resources.  Abu Dhabi is one of the seven states that form the United Arab Emirates (UAE), established in 1972 which has grown rich as a result of oil. In 2010, it was responsible for producing over 2.3m barrels per day (bpd)  and the goal is to boost this production level to 3m bpd. As one of the seven states, Abu Dhabi accounts for 95% of the UAE’s oil reserves and 6% of its gas reserves. This is equivalent to 9% of the world’s proven oil reserves (almost 100 bn barrels).

The UAE scores comparatively highly in the latest Economic Freedom of the World’s 2012 Annual Report , notably with respect to freedom to trade internationally, where the Emirates as a group are ranked 16th worldwide (compared with 27th in 2000, see table).  Note also the UAE’s overall improvement, climbing from 39th position worldwide in 2000 to 22nd in 2010.
 

Table: UAE’s Global Ranking in the Economic Freedom of the World 2012 Annual Report: How 2012 compares with 2000.


 


Abu Dhabi has adopted an ambitious economic strategy aimed at diversifying away from its core oil and gas strength. The onus is on building up new value added sectors of the national economy. This strategy is embodied in the Abu Dhabi Economic Vision 2030, issued by the Abu Dhabi Urban Planning Council. The objective of this plan is to ensure that the economy will be sustainable and not dependent on any one source of revenue, namely oil.

By 2030, the target is to increase non-oil sources of income from around 40% to 60% of GDP. As part of this strategy the state has developed the world’s largest sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA), which boasts assets under management of over US$ 875 bn. Together with a growing financial centre, Abu Dhabi has also focused on developing the tertiary economy in the form of its tourist, leisure and retail facilities. Visitors to Abu Dhabi cannot help but be struck  with the  state of the art Formula One motor racing circuit designed as an Arabian version of Monaco. The circuit is built around a modern marina, packed with luxury yachts, and it nestles besides the Yas Viceroy Abu Dhabi Hotel complex with its constantly varying roof illumination. Given its hydro-carbon wealth, the availability of a steady stream of power for electricity is no problem in Abu Dhabi, a stark contrast to that other oil-rich city, Lagos which is subject to a volatile supply.

Abu Dhabi is seeking to create more employment opportunities for its own citizens through improved education and increased private sector employment. A good illustration of this initiative is the newly launched semi-automated container port at Kizad, located between Abu Dhabi and Dubai on a specially constructed artificial island. This is the first such terminal in the region and it will have been built at a total investment cost of US $7.1 bn. When it is completed, the industrial zone will cover 417 sq km and will offer both local and international companies access to one of the world’s most advanced ports. The Khalifa Port handled its first container vessel, the MSC Bari, capable of transporting 14,000 containers, on 1st September 2012.

 

The Abu Dhabi Ports Company (ADPC) was established in 2006 and was awarded the statutory and regulatory power to redevelop the Emirate’s port facilities. The existing port in Abu Dhabi was congested and a new site needed to be identified. One of the main advisers to the ADPC has been the international civil engineering practice, Bechtel, which has built up a strong reputation for being able to deliver complex infrastructure projects in a disciplined manner. Bechtel helped ADPC to develop and incorporate innovative technology to make Khalifa Port one of the most efficient ports in the world. For example, a single operating platform bringing together numerous systems was created for the port operating system, vessel traffic services (which monitors marine traffic) and gate management. The sheer scale of this facility is breathtaking and the potential for developing the port as one of the most advanced trading hubs in the region is considerable. As from the first quarter of 2013, all of the current container handling undertaken by the existing port in Mina Zayed will be transferred to Khalifa.



 

Sustainability

One of the impressive aspects of this major infrastructure facility is the way in which  Bechtel managed the design and build of an award-winning US$240 million, eight-kilometre long, environmental protection breakwater to safeguard the Ras Ghanada coral reef, during both port construction and operation. Bechtel also implemented Abu Dhabi’s new ‘Estidama’  sustainability regulations which surpass many similar standards worldwide. This is the first large project in the UAE to do so. Ironically, it turns out that few knew of the coral reef, which turns out to be one of the largest in the Gulf, and is situated close to the new port. Besides some retired pearl fishermen, citizens were largely unaware of the environmental jewel offshore.
 

Douglas Martin, Bechtel’s  Environmental Manager at the Khalifa  Port & Industrial Zone project, observes that Abu Dhabi has set new international benchmark standards with respect to its management and custody of the  environment.   Considerable research was undertaken to conserve and monitor the health of the coral reef, notably with the support of the National Coral Reef Institute (NCRI) in Florida, which conducts evaluation three times a year. The breakwater has fulfilled its role with the coral reef intact and the marine life as diverse as ever.

 

Kizad

The investment creating Kizad is a key component of Abu Dhabi’s Economic Vision 2030. This strategy is aimed at developing certain major manufacturing industries along with a range of service industries.  The main manufacturing focus is on aluminium, steel, machine tools, pharmaceuticals, food, healthcare equipment and paper, print and packaging – all goods in that are in strong demand throughout the Gulf. In the case of aluminium, for example, investment is being channelled into aluminium to meet mounting demand in the Middle East market from the aerospace, transport and construction sectors. Accordingly, Abu Dhabi is expanding its Emal smelter, which will rank as the largest single site smelter in the world. A variety of downstream activities including rolling mills, extrusions, castings, forgings and other products aimed at the construction, transport and engineering sectors, are being actively developed. The ADPC is confident that this cluster of downstream producers and service suppliers, underpinned by low utility costs, will spur business and operational efficiencies.

  

Future Prospects & Challenges

There is also an onus to develop service industries particularly media and entertainment in Abu Dhabi. Twofour54 is a tax-free media and entertainment free zone that facilitates the development of Arabic media and entertainment content in the region. The company works with businesses in television, radio, film, publishing, online, mobile, music, gaming and animation to create local content and grow the Arab media industry. The name twofour54  refers to the geographic co-ordinates of Abu Dhabi - 24°north by 54°east – and the operation is spread across two busy campuses.

Another major focus of investment has been in the airport, which achieved over a 30% growth in passenger numbers in 2009. There are now ambitious plans to develop a rail link to the new port at Khalifa port and on to Dubai. Two external threats cast a shadow of risk over the prospects for the new port: the controversy surrounding Iran’s current political leadership and maritime piracy. Iran’s investment in a nuclear programme continues to alarm other nations across the globe, notably the USA and Israel. The former recently stepped up its naval presence in the Gulf with a carrier strike group led by the USS John C  Stennis . US navy personnel in the region now total 5,500, leaving aside the fifth fleet headquarters in Bahrain.  This powerful presence should hopefully encourage moves to maintain peace and order in the Gulf region. Any overt military activity, on the other hand, will inevitably have a disruptive effect on trade and economic growth.

However, on a more positive note, incidents of maritime piracy off the coast of the Horn of Africa have declined dramatically. Indeed, in the first six months of 2012 compared with the corresponding period last year there was a 60% reduction in piracy activity with the number of reported incidents down from 163 incidents to 69. This welcome trend is a reflection of the commitment by the world’s navies to tackle this problem. Around  three dozen warships from the Royal Navy, the US Navy, the EU countries, NATO, Russia, China and India currently patrol the more than one million square miles of sea off the Horn of Africa. This naval presence is complemented by support and intelligence from specialist firms such as the London-based QuinSec, which brings valuable expertise to bear on minimising the risks associated with maritime piracy. The recent expulsion of Al Queda- linked rebels in Somalia by Kenyan forces, part of an African Union taskforce, has further stabilised the political situation in Somalia, which in turn should restore law and order in a region previously characterised by its lack of governance.

The prospects for the Gulf economies, notably Abu Dhabi, are highly encouraging, so long as certain exogenous factors, notably the political conflict over Iran’s alleged military programme, can be resolved peacefully.