2006 Year in Review

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2006 was marked by major developments in a wide range of sectors, with a particular focus on industry, real estate and tourism, as the government continues to stimulate strong and sustainable economic growth using the twin pillars of privatisation and diversification.

Abu Dhabi owns the lion’s share of the UAE’s vast hydrocarbon wealth accounting for 95% of the country’s oil reserves and 92% of its gas. However, despite its natural wealth as a result of high oil prices, the emirate is successfully moving away from its reliance on the energy sector.

The emphasis on industrial diversification through the establishment of free zones is a prime example of Abu Dhabi’s vision for the future. The Industrial City of Abu Dhabi (ICAD), established by the Higher Corporation for Specialised Economic Zones (ZonesCorp) illustrates the emirate’s ambition to create an attractive investment environment. Investment is also encouraged through a tax free environment and the possibility of 100% foreign ownership in these economic zones.The government hopes that such a combination will help boost foreign direct investment and the recipe seems to be working. As a result of the success of ICAD I and II, there are now plans for ICAD III and ZonesCorp also hopes to establish an industrial zone in Al-Ain.

The aim is to create a low cost manufacturing hub which can fill the void left by the closure of manufacturing plants in Europe and the US due to high cost of production. Abu Dhabi is seeking to create more than 30 industrial clusters in areas such as petrochemicals, automobiles, metals, construction, building materials and food-processing.

Meanwhile, the impetus to diversify away from oil and gas production is also reflected in the plans to build an aluminium smelter and two steel plants in Abu Dhabi. The $6 billion aluminium smelter, which is being jointly developed by Dubai Aluminium Company and Mubadala Development Company, is to be located at Khalifa Port and Industrial Zone in Taweelah. The first phase of the project which will be operational by 2010, will see the annual capacity of 700,000 tonnes rising to 1.4 million tonnes upon completion, making it the largest single site aluminium smelter in the world. Al Ghurair Iron and Steel Company and Abu Dhabi National Company for Building Materials are both setting up steel plants in ICAD I and II respectively.

Driven by legislative changes and the ambition to position the emirate as an up-market tourism destination, the real estate sector also experienced strong growth in 2006. Changes to the property laws which allow for ownership and investment have laid the foundation for a dynamic and competitive real estate sector. In the first half of 2006, the government passed legislation to allow UAE nationals to buy and sell property in the emirate. The government followed this legislation with amendments to the property law regarding non-nationals. Chosen developers can now offer property for sale to non-nationals in designated investment areas. The first of these developments is the Al Raha beach complex being constructed by Aldar Properties. Many analysts see these amendments as critical for sustaining growth in the sector and creating a more attractive climate for investors.

Abu Dhabi has experienced a raft of major announcements in real estate development in the last 18 months. Aldar properties and Sorouh Real Estate are planning the largest projects on Saadiyat Island, Al Raha Beach and Al Reem Island. These three projects alone will cost an estimated $48.5bn. Saadiyat Island, which will be completed by 2018, is projected to be home to 150,000 residents while Al Raha beach will be able to accommodate 120,000 people upon its completion in 2009.

The Shams Abu Dhabi project in Al Reem Island, being developed by Sorouh, will be home to the Gate area whose centrepiece will be the Sky tower. This building, due for completion in 2008, will be the tallest in Abu Dhabi standing at 379 metres. On current rankings, it will also be the 15th tallest in the world.

Other major developments such as the Al Gurm resort, the Central Market project, Danet Abu Dhabi and Mohammed Bin Zayed city will also substantially increase the number of housing units in the capital.

The population of Abu Dhabi is expected to double in the next ten years leading to the demand for between 225,000 and 250,000 new housing units. There are also current concerns over rent prices with analysts estimating the increases for 2006 between 37% and 50%. According to a report by Standard Chartered Bank, this will contribute 7.3 percentage points or over 50% to overall inflation in the UAE in 2006 which stands at 13.8%. However, as more housing units become available, inflation is forecast to drop to 9.6% in 2007 and then 3% in 2008.

Although developments in real estate and industry may be the real engines of economic growth in the emirate, the government is also placing a strong emphasis on the outsourcing and privatisation of services bringing in international expertise to manage a number of initiatives and projects.

The current tendering of contracts for sewage and waste disposal management and infrastructure construction by the Abu Dhabi Water and Electricity Authority is indicative of this trend. Once contracts are awarded, the partial privatisation of all utilities services in the emirate, including the management of power and desalination plants, will be complete. Most analysts in the sector concur that this will lead to greater efficiency and provide the necessary expertise to deal with the greater burden on Abu Dhabi’s infrastructure. The construction of more power plants, managed by international companies, will most likely follow in the near future.

The trend towards privatisation is also evident in the education and health sectors. New legislation has made health insurance compulsory for all expatriates in Abu Dhabi. Many analysts see this as a move to end healthcare subsidies for non-nationals, allowing the cost of improved facilities to be offset by employers and businesses. This trend to outsource services has already brought Imperial College, London and John Hopkins Medicine to the emirate. Likewise, in the education sector, Paris-Sorbonne University has opened its doors in Abu Dhabi as a means of transferring knowledge to the local economy.



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