The Report: Abu Dhabi 2017

Economy

Economies around the Gulf region have faced a challenging economic environment since the second half of 2014, but a more optimistic outlook for international oil prices in 2017 has offered some welcome relief. The process of fiscal reform that the oil price decline precipitated is, however, set to continue. The restructuring of Abu Dhabi’s public finances has taken into account the federal government’s decision to reduce subsides, as well as the introduction of new fees and taxes by the emirate, and their affects have been felt by nationals and expatriates alike. In the meantime, Abu Dhabi’s ambitious plans to broaden the range of economic activity in the emirate have been granted greater clarity with the publication of the latest iteration of its development strategy in 2016.

This chapter contains interviews with Ali Majed Al Mansoori, Chairman, Abu Dhabi Department of Economic Development; Khaldoon Khalifa Al Mubarak, CEO, Mubadala Investment Company; and Liam Fox, UK Secretary of State for International Trade.

Trade & Investment

Abu Dhabi has long been associated with buy-side investment activity, thanks largely to its success in transforming fiscal surpluses into global investments aimed at ensuring future economic security. However, after two full years of lower oil prices, Abu Dhabi’s attractiveness as a destination for inward investment has become more pertinent, with the government seeing boosting foreign direct investment (FDI) inflows as a useful means of mitigating its spending cuts. The same pressures highlight the importance of diversifying the emirate’s export basket, which is dominated by oil and related products. The UAE’s strong performance in indexes such as the World Economic Forum’s “Global Enabling Trade Report” illustrates Abu Dhabi’s capacity to boost its non-oil export activity, and realising this potential is now a strategic imperative.

This chapter contains interviews with Mohamed Thani Murshed Al Rumaithi, Chairman, Abu Dhabi Chamber of Commerce and Industry; and Ahmed Al Sayegh, Chairman, Abu Dhabi Global Market.

Banking

Despite undergoing a profitability squeeze in 2016, Abu Dhabi’s banking sector nonetheless demonstrated its ability to expand its asset base during a period of difficult economic conditions. A recovery in deposit growth means that liquidity concerns have abated, while the stabilisation of oil prices and continued expansion of the non-oil economy brought cheer at the outset of 2017. The sector also appears to be on the brink of a long-anticipated phase of consolidation, in which a number of its biggest names are contemplating joining forces and reshaping the local market.

This chapter contains an interview with Khalifa Mohammed Al Kindi, Chairman, Central Bank of the UAE.

Capital Markets

Despite the headwinds of low oil prices and recent regional political turbulence, Abu Dhabi’s stock exchange put in a relatively strong performance in 2016, with the main index posting a 5% gain for the year. A sizeable sovereign bond sale also injected life into the emirate’s nascent debt market, reviving a yield curve that had been interrupted by a seven-year absence of sovereign issuances. The emergence of Abu Dhabi’s new financial free zone, meanwhile, has opened up a range of possibilities for the future expansion of the emirate’s capital markets, both in terms of financial support services and core investment and trading activity.

Islamic Financial Services

Abu Dhabi’s sharia-compliant finance sector, traditionally led by its Islamic banking industry, has expanded to include an increasing array of activities in areas such as insurance offerings and asset management. An environment of low oil prices has put pressure on margins in 2016 but, with nearly a quarter of assets in the UAE held by sharia-compliant institutions, the industry is firmly entrenched and well positioned to take advantage of growth opportunities as they arise.

This chapter contains an interview with Tirad Al Mahmoud, CEO, Abu Dhabi Islamic Bank.

Insurance

As the first emirate in the UAE to roll out mandatory health coverage, Abu Dhabi’s insurance sector has benefitted from over a decade of strong growth in both the life and general lines, with the UAE home to the region’s largest and most mature insurance market. Still, 2015 was a difficult year for the industry, as underwriters struggled with prevailing low global oil prices, increasing market competition, and sweeping regulatory reforms requiring many to realign internal process and restructure operations to meet rising national standards. Although the sector returned to profitability in 2016, strong competition continues to weigh on loss and retention ratios. Insurers are set to remain profitable in 2017, as mandatory health schemes continue to expand, while technical capacity and underwriting performance should continue to improve under the recent reforms’ rolling deadlines.

Energy

In common with other major energy companies, lower hydrocarbons prices have prompted authorities to carry out streamlining and efficiencies in Abu Dhabi’s energy sector. Against a backdrop of reorganisation and reform, production from the emirate’s oil and gas fields reached record levels in 2016. Currently, Abu Dhabi National Oil Company produces some 3m barrels of oil and 9.8bn standard cu feet per day of raw gas. Looking ahead, ADNOC’s strategy is to improve profitability and sustainability upstream while increasing value downstream. It also plans to triple the emirate’s output of petrochemicals by 2025. In the broader energy sphere, Abu Dhabi remains committed to making long-term investments in innovation and development of renewable energy and carbon capture technologies.

This chapter contains an interview with Sultan Al Jaber, UAE Minister of State; and Group CEO, Abu Dhabi National Oil Company.

Utilities

With widespread coverage of potable water, wastewater and electricity networks, Abu Dhabi maintains utility services that are on a par, if not better than, many countries in Europe and North America. At the same time, the emirate’s government has been committed for many years to boosting power and water infrastructure further, with 2017 seeing some of the world’s most advanced projects in these spheres. At the same time, utilities development is also being carried out within the framework of the Abu Dhabi Economic Vision 2030, which includes clear environmental and sustainability goals. While many of Abu Dhabi’s power and water projects and facilities are famed for their size, future expansion is based on quality and innovation, giving the emirate a place at the forefront of technological and scientific development in the utilities field.

This chapter contains interviews with Sheikh Abdulla bin Mohammed Al Hamed, Chairman, Regulation and Supervision Bureau; and Mohamed Al Hammadi, CEO, Emirates Nuclear Energy Corporation.

Security, Aerospace & Defence

The security, aerospace and defence sectors have risen to become an important component of Abu Dhabi’s economic diversification strategy, with activities gaining momentum in recent years. In the aerospace segment, 2016 saw major contracts for new original equipment manufacturing (OEM) and maintenance, repair and overhaul projects signed, which should support the emirate’s ongoing transformation into a knowledge-based economy. Aerospace development dovetailed with growth in the UAE’s burgeoning space programme, which will see it launch a probe to Mars in 2020, setting the stage for commercialisation and additional private investment on the back of a newly unveiled Space Policy. Development of a robust defence manufacturing base is also progressing well, following the launch of new armoured vehicle and protective equipment ventures.

This chapter contains an interview with Khalifa Al Romaithi, Chairman, UAE Space Agency.

Transport

The transport sector in Abu Dhabi is gearing up for further progression, with a new strategy taking the emirate towards a smarter future for its airports, highways and harbours. Developments in the region are linking the emirate ever closer to its neighbours, with transport systems transforming the Gulf into a more integrated, multi-modal corridor, and Abu Dhabi into an increasingly vital hub in the global transport, warehousing and trans-shipment web.

This chapter contains interviews with Abdullah Belhaif Al Nuaimi, Minister of Infrastructure Development and Chairman, Federal Transport Authority; Awaidha Murshed Al Marar, Chairman, Department of Municipal Affairs and Transport; and Mohamed Juma Al Shamisi, CEO, Abu Dhabi Ports.

Real Estate & Construction

Abu Dhabi’s office, residential and retail markets, long buoyed by undersupply, now face the opposite challenge, with a host of large-scale new completions coming on-line in recent years. This weighed heavily on sales prices and rental rates in 2016, although bright spots remain in the mid-market residential segment, as well as in prime up-and-coming neighbourhoods and commercial districts. In addition renewed demand for more affordable housing in Abu Dhabi has strained rents in the high-end residential sector with developers now shifting their strategies to include new mid-market developments. This has enabled double-digit returns on rental yields for some, making the mid-market segment a bright spot in an otherwise subdued residential market.

This chapter contains an interview with Mohamed Khalifa Al Mubarak, CEO, Aldar.

Industry

Encompassing everything from petrochemicals to food processing and aerospace to automotive parts, Abu Dhabi’s industrial sector has branched out significantly in recent years. Guided by the Abu Dhabi Economic Vision 2030 and its 2016 update, the Abu Dhabi Plan, along with its own sector-specific development strategy, industry is now at a key turning point, as it begins to implement the next stage of its development. The year 2017 will see the public unveiling of a new 2016-20 plan for industry, which promises to increase the focus on private-sector development, furthering the integration of the major corporations of Abu Dhabi’s industrial world with the raft of micro-, small and medium- sized enterprises that form the backbone of manufacturing – and employment – in the emirate.

This chapter contains an interview with Saeed Ghumran Al Remeithi, CEO, Emirates Steel.

Al Dhafra

The region of Al Dhafra encompasses approximately 35,250 sq km and accounts for 60% of the total landmass of the emirate of Abu Dhabi. The region is bound by a 350-km northern coastline and lies between Saudi Arabia to the west and south, Al Ain to the east and the Abu Dhabi region in the north-east. Al Dhafra is mostly desert and lies on the edge of the Arabian Peninsula’s Empty Quarter (Rub Al Khali), the world’s largest uninterrupted mass of sand. As a result, Al Dhafra, despite being the largest of Abu Dhabi’s regions, is the most sparsely populated. Al Dhafra’s economy is underpinned by its hydrocarbons industry; the region is home to around 90% of Abu Dhabi’s total oil reserves.

This chapter contains an interview with Sheikh Hamdan bin Zayed Al Nahyan, Ruler’s Representative in the Al Dhafra Region.

Education

With the UAE’s 2021 Golden Jubilee celebrations just four years away, the education sector in Abu Dhabi is closing in on achievement targets that will be used as key performance indicators of national transformation. Launched in 2010, the UAE’s Vision 2021 set a challenge to create a competitive knowledge economy and a first-rate education system that is ranked among the best in the world by international indices. While these targets may serve as useful reference points for educators, those administering the education sector in Abu Dhabi also have broader aspirations to ensure that the emirate’s growing numbers of classrooms, lecture theatres and laboratories nurture the skills, aptitudes and attitudes that today’s pupils and students will need in tomorrow’s world.

This chapter contains an interview with Ahmad Belhoul Al Falasi, Minister of State for Higher Education.

Health

Helped in part by some significant examples of international investment, the health care sector in Abu Dhabi has made huge strides over the last four decades. Based on these foundations, the agencies responsible for planning future provision in the emirate are currently focused on improving, reshaping and expanding the services offered to its residents and citizens, and balancing the resources provided by both the public and private sectors. In 2015, 52% of all inpatient care and 31% of outpatient cases were dealt with in government-owned hospitals, while the remaining care was provided by the private sector, which has seen its role increase since 2011, when government hospitals handled 65% of all inpatients and 40% of outpatients. Health officials in Abu Dhabi are anticipating significant private sector investment, as 10 new hospitals are currently under construction in the emirate alone.

This chapter contains an interview with Professor Maha Barakat, Director-General, Health Authority - Abu Dhabi.

Tourism & Culture

These are dynamic times for the emirate’s tourism and culture sectors, as Abu Dhabi’s traditional portfolio of business travel and luxury vacations widens to include a whole new range of offerings. Sports, arts and entertainment are all now arriving centre stage for the emirate, as Abu Dhabi also makes its mark on the international cruise industry, while boosting its hotel collection and global interconnectivity. Tourism and culture have been privileged with key positions in the emirate’s long-term development plans, being seen as ways to boost diversification in the economy and establish new jobs and investment opportunities. These developments are rolling out at a time of increased regional and international economic and political uncertainty. Local authorities are striving to carve out a readily identifiable niche in an increasingly crowded regional market. However, with a firm strategy already in place, the signs are that Abu Dhabi is making a strong impression in both the global travel industry and the international creative and cultural sector.

This chapter contains interviews with Noura Al Kaabi, Chairwoman, Abu Dhabi National Exhibitions Company; and Saif Saeed Ghobash, Director-General, Abu Dhabi Tourism & Culture Authority.

Environment

Climate change, dwindling natural resources, pressure on ecosystems from urban expansion, pollution and waste management are all global challenges that are having an impact in Abu Dhabi, whose delicate environment is characterised by extremes of temperature and landscape. Over the last few decades, extraordinary economic and population growth has increased the pressure on this ecosphere, which has long been of concern for the emirate’s rulers. Protecting the environment has been woven into the fabric of Abu Dhabi’s development plans. Sustainability and optimal use of resources are seen as vital to the future well-being of its citizens and the ecosphere. Authorities have crafted a host of programmes and agencies to further the sustainability agenda, while efforts to promote the environment have become pillars of emirate policy. All of this has profound implications for the emirate’s future, and affords lessons for the region and the world.

This chapter contains an interview with Razan Khalifa Al Mubarak, Secretary-General, Environment Agency - Abu Dhabi.

ICT

High mobile uptake, leading smartphone penetration, and rapid expansion of wireless broadband and fibre-optic infrastructure have driven the UAE to the forefront of regional telecoms development. Although mobile tariffs are comparatively high and international volatility has affected operator profits, a recent series of consumer-friendly reforms should help control consumer charges while supporting growth. The Telecommunications Regulatory Authority has rolled out several consumer-friendly changes aimed at boosting competition, with a long-awaited infrastructure-sharing deal between the two mobile operators making significant progress in 2016. Meanwhile, the emirate’s IT sector has shown promising growth over the previous decade, bolstered by rising levels of mobile broadband service offerings, smartphone penetration and internet usage. ICT development is a critical priority for the emirate and the UAE, as reflected in both national and emirate-level, long-term economic development strategies, which have significantly expanded e-government offerings and cybersecurity initiatives in recent years.

Media

The media sector in Abu Dhabi looks set for continued growth as ongoing efforts to attract major international companies to twofour54, the emirate’s dedicated media free zone, continue to bear fruit. Expansion efforts are underpinned by the rollout of the physical infrastructure required to support the sustainable growth of the sector, as well as the numerous initiatives in place to foster the emergence of a local talent base. Meanwhile, the international partnerships forged by media players in recent years will ensure that the aims outlined in the Abu Dhabi Plan to cement the emirate’s reputation as a prominent media hub in the region are met. Looking ahead, the continued migration of media away from print towards online resources has resulted in a corresponding shift in advertising revenue streams, and although the MENA region has historically lagged behind in this regard, the GGC is now looking forward to a significant growth in digital advertisement spend.

This chapter contains an interview with Maryam AlMheiri, CEO, twofour54.

Retail

Driven by healthy population growth, world-leading income per capita, and steady demand for high-end retail space, Abu Dhabi’s retail industry has undergone years of strong expansion, leading to an influx of new project completions between 2013 and 2015. The industry, like many others, is beginning to feel the pains of reduced economic expansion, as lower global oil prices and the strengthening US dollar are expected to impact spending and tourism growth in the coming years. At the same time, two large-scale “super-regional” malls, on Al Maryah Island and Al Reem Island, are slated to open in 2018, intensifying competition and weighing on retail rents. Increased competition has nonetheless spurred innovation in the sector. Developers are increasingly linking retail developments to tourist attractions and residential complexes, and have sought to incorporate long-term urban planning considerations such as creating free public spaces and community centres. The grocery segment meanwhile is set to kick-start growth in the UAE’s nascent e-commerce industry, offering new opportunities for investment and expansion.

Agriculture & Food Security

As a rising population continues to put upward pressure on demand for food, Abu Dhabi’s authorities are pursuing various initiatives to promote domestic production, both as a means of economic diversification and to further bolster food security, with various bodies responsible for the agricultural sector being established over the last 10 years. Although innovative solutions have increasingly started to come on-line in Abu Dhabi, particularly regarding water, the emirate’s desert climate presents significant barriers to large-scale agricultural expansion. As such, the bulk of the emirate’s foodstuffs continue to be sourced from abroad, with various strategic investments in recent years focused on diversifying Abu Dhabi’s international supply streams. Meanwhile, at home, investments in stockholding capacity are aiming to mitigate the short-term impact of potential disruptions to international supply, and a fast-growing agri-food and food-processing segment looks set to position the emirate as a leading regional player.

Tax

This chapter contains an overview of the tax framework in which local and foreign investors operate in Abu Dhabi, as well as a look at the value-added tax system being developed across the GCC, a rundown of the social security contributions required for local staff and an outline of the double taxation treaties in place or on the way. This chapter contains a viewpoint from Dean Kern, Middle East Tax and Legal Services Leader, PwC.

Legal Framework

This chapter contains an overview of the legal framework in which local and foreign investors operate in Abu Dhabi including the key highlights of the basic legislative guidelines, a review of the main points for setting up a business and an outline of the free zones and other incentives on offer.

The Guide

The guide contains listings of some of the leading hotels and resorts in Abu Dhabi and contacts for important government offices and services. It also contains useful tips and information for first-time or regular and business and leisure visitors alike.

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