The emirate of Abu Dhabi is home to the UAE’s capital, Abu Dhabi City, and has the largest economy of the seven emirates, contributing around 60% to national GDP. The UAE has the world’s fifth-largest proven oil reserves – around 7.2% of the global total – with approximately 96% of those in Abu Dhabi. As the global transition to renewable energy production and consumption gathers momentum, the Abu Dhabi government is placing greater emphasis on developing its non-oil economy and the private sector through a range of strategies and initiatives.
In the years preceding the Covid-19 pandemic the emirate experienced fiscal headwinds, many of which can be traced to hydrocarbons revenue dependence and oil price volatility, leading to the launch of a well-timed and effective stimulus programme. This and other timely fiscal interventions, alongside a robust sovereign asset sheet and strong financial buffers, helped to mitigate the negative impacts of the pandemic on Abu Dhabi’s economy.
Structure & Oversight
The UAE operates as a constitutional federation, with its central government, based in Abu Dhabi City, devolving power to local governments that run each of the seven emirates. The current president of the UAE, Sheikh Mohamed bin Zayed Al Nahyan, was elected by the Federal Supreme Council on May 14, 2022. He is also the ruler of Abu Dhabi and the supreme commander of the country’s military, the UAE armed forces.
The federal government, which is based in Abu Dhabi, oversees matters such as security, foreign policy, communications, fiscal and monetary policies, employment, immigration, air traffic control and education. Authorities such as the Ministry of Finance, the Federal Tax Authority (FTA), the Ministry of Human Resources and Emiratisation (MHRE), and the Ministry of Foreign Affairs and International Cooperation, among others, are therefore influential in formulating and guiding the UAE’s national policy.
At the emirate level, local governments have considerable autonomy in guiding the progress of their own economies. The Abu Dhabi Executive Council assists the ruler of Abu Dhabi in executing emirate-level policy and economic development strategy. Multiple departments and municipalities work under the Abu Dhabi Executive Council to achieve that end. The emirate is divided into three main administrative regions – Abu Dhabi, Al Ain and Al Dhafra – each with its own municipal governing body. Another influential government entity in Abu Dhabi is the National Consultative Council, made up of 60 individuals from the emirate’s main families and tribes.
A significant addition to Abu Dhabi’s governance structure came in 2019, with the formation of the Abu Dhabi Investment Office (ADIO). ADIO is the key government authority for the emirate with regards to investment policy and initiatives, and is therefore central to the government’s efforts to enhance Abu Dhabi’s business environment and attract greater volumes of private and foreign investment.
A number of sovereign wealth funds, including the Abu Dhabi Investment Authority, Mubadala Investment Company and ADQ – the latter two were formed in 2017 and 2018, respectively, to drive diversification – and a host of globally prominent industrial conglomerates such as ADNOC, Emirates Global Aluminium and Emirates Steel Arkan are key contributors to national and emirate-level GDP, economic development and employment. Meanwhile, AD Ports Group and the Khalifa Economic Zones Abu Dhabi Group, which was established in 2022 and operates under AD Ports’ umbrella, are responsible for the operation and oversight of the emirate’s multiple ports and free zones (see Industry & Retail chapter).
Evolving Strategy
Abu Dhabi’s economic progress is being guided by a range of short-, mediumand long-term development strategies that envisage a diversified, knowledge-based economy with reduced dependence on hydrocarbons. By developing high-value industries such as tourism, manufacturing, logistics, health care, education, financial services and telecommunications, the Abu Dhabi government aims to increase the contribution of non-oil sectors to the emirate’s total GDP.
Boosting public-private cooperation is an essential enabler of the Abu Dhabi’s economic goals, and the government is working to improve the emirate’s business environment. Ghadan 21 – or Tomorrow 21 – was a fiscal stimulus package launched by Sheikh Mohamed bin Zayed Al Nahyan in 2019 to help protect the UAE from internal and external shocks. The package’s timely introduction has been credited with steadying the Abu Dhabi economy and enabling it to better cope with the economic stressors brought about by the pandemic by fast-tracking initiatives to support businesses and reduce the cost of living.
The Abu Dhabi Department of Economic Development (ADDED) stated in November 2022 that the government of Abu Dhabi was close to finalising and launching a new long-term economic strategy. With the global economic landscape having shifted considerably since the creation of the Abu Dhabi Economic Vision 2030, an updated development blueprint is seen necessary to guide further progress towards the emirate’s development goals.
While the strategy had yet to be unveiled as of September 2023, the Abu Dhabi Industrial Strategy released in July 2022, the implementation of which is set to be guided by ADDED, offers insight into the strategic direction that the emirate is expected to adopt in the coming years (see Industry & Retail chapter). Its six programmes, which focus on the circular economy, Industry 4.0 technologies, talent development, ecosystem enablement, the fortification of local supply chains and the development of value chains, are anticipated to receive a cumulative public investment of Dh10bn ($2.7bn).
Among the key end goals of the strategy are doubling the emirate’s manufacturing industry to Dh172bn ($46.8bn) and increasing export value by 143% by 2031. The government of Abu Dhabi is targeting the expansion of the chemicals, machinery, electrical goods, electronics, transport, food processing and pharmaceutical production segments, all of which are industries that present significant opportunities for private investors.
Business Environment
In order to finance economic expansion and diversification plans, Abu Dhabi is working with the private sector and organisations such as the Abu Dhabi Chamber of Commerce and Industry to improve the local business environment through updates and amendments to key laws and regulations (see Trade & Investment chapter).
At the federal level, there have been a number of notable regulatory changes for international investors in recent years, including sweeping changes made to both company ownership laws – the UAE now allows for 100% foreign ownership outside of its free zones – and visa legislation (see analysis).
PPP Laws
In September 2022 the UAE government announced that a new law to govern public-private partnerships (PPPs) was set to be implemented at the federal level. The legislation will focus on attracting additional private investment in emirates other than Abu Dhabi and Dubai – both of which already operate robust PPP regulatory frameworks at the individual emirate level. As of September 2023 the new federal PPP law had yet to be implemented.
Two important PPP-related laws were announced by the Abu Dhabi government in 2019. The first, Abu Dhabi Law No. 1 of 2019 concerning the establishment of ADIO, places it as the key government entity in the emirate with regards to attracting foreign investment and PPP implementation and regulation. The second, Abu Dhabi Law No. 2 concerning the regulation of PPPs in Abu Dhabi (Abu Dhabi PPP Law), ratified the specific requirements and conditions relating to PPPs. In February 2020 ADIO stated its intention to enter into infrastructure PPPs with a procurement value of around $2.7bn, with a strong flow of projects tendered and launched since then.
ADIO’s “Partnership Projects Guidebook”, updated in April 2022 and available at investinabudhabi.ae, outlines in depth the specific criteria that PPP proposals must meet to be considered for implementation. The brochure details the need for pitching entities to display evidence of a project’s value for money, gauged by a range of parameters; similar projects successfully implemented throughout the region; a project’s revenue-generating potential; its long-term partnership and contract potential; strong market and sector demand for the project; and relevant technical and financial data. While ADIO has thus far focused on general infrastructure projects, there have been calls from relevant bodies for additional public-private cooperation and partnership in emerging, rapidly developing areas of the economy such as artificial intelligence and cybersecurity.
Taxes
Governments across the GCC are working to vary their revenue streams as part of ongoing economic diversification plans. The UAE, for its part, introduced a 5% value-added tax (VAT) in 2018, which applies to most goods and services. This was followed by the January 2022 announcement that corporate tax would be introduced across the country.
The new tax, which took effect on June 1, 2023, was implemented by the FTA and will apply to all corporate and commercial entities regardless of their status. A business must register for VAT if its taxable supplies and imports exceed Dh375,000 ($102,000) per annum. It is optional for businesses whose supplies and imports exceed Dh187,500 ($51,000).
Rates will be levied on a company’s net profit and will be charged as follows: 0% on taxable income not exceeding Dh375,000 ($102,000); 9% on taxable income exceeding Dh375,000 ($102,000); and 15% for large multinationals that meet specific criteria. Payments are to be made once per financial year and there will be no instalment regime (see Tax chapter).
Population & Workforce
According to World Bank data, the UAE had a population of around 9.4m in 2021, with a total labour force of 6.4m. Labour force participation between the ages of 15 to 64 rose in 2019, from 82.9% to 83.4%, before dipping to 82.5% in 2019-21. While the World Bank has yet to publish a UAE population figure for 2022, it states that the national labour force expanded to 6.6m in 2022. Female workforce participation dipped from 20.1% in 2020 to 17.7% in 2021 before recovering to 18.3% in 2022. This trajectory reflects the prioritisation of social and economic inclusiveness in the development strategies of the UAE and the broader GCC region (see Profile chapter).
The population of the Abu Dhabi metropolitan area rose from around 1.5m in 2021 to nearly 1.6m in 2023, according to estimates from the World Population Review. The emirate’s total population is believed to be around 3m, though official data from Statistics Centre – Abu Dhabi (SCAD) ends in 2016, when it measured the population at 2.9m. SCAD has more recent data available on workforce participation in Abu Dhabi, which demonstrates an increase from 77.4% in 2020 to 78.8% in 2021.
Boosting participation in the workforce is a strategic priority for both the federal and emirate-level governments. The National Employment Strategy 2031, launched in 2018 by the MHRE, seeks to increase the participation of UAE nationals in the public and private workforce to some 610,000 by 2031. Growing the number of female employees in the country is core to the success of the strategy. More broadly, the UAE government aims to enhance the local talent pool and raise the number of citizens employed in priority sectors such as energy, transport and storage, tourism and ICT.
The federal government’s aim to diversify the economy, transforming it into one driven by knowledge and technology, includes a strong focus on developing specialist areas of the country’s talent pool, including those related to artificial intelligence, space, digital transactions, and advanced sciences and research (see Education & Research chapter).
To aid progress towards the goals laid out in the National Employment Strategy 2031, the UAE government launched its Nafis scheme in September 2021, with the goal of creating 75,000 private sector jobs for UAE nationals by 2025. The programme is composed of 11 initiatives through which career assistance, salary and pension subsidies, and various other support measures are offered to Emiratis.
In a notable development for business owners, in 2022 the UAE government brought into force a law mandating Emiratisation targets for companies with a workforce of 50 or more persons. At launch, the law required that those companies expand the presence of UAE nationals in skilled or knowledge-based roles in their workforce by a rate of 2% annually to reach a total figure of 10% UAE nationals by the end of 2026. Amendments to those rules were implemented in the first quarter of 2023, with half of the 2% annual target to be achieved within the first half of the year. Under the new guidelines, workforces of 50 or more must be 3% Emirati by June 2023 and 4% Emirati by the end of the year. Fines are being issued to non-compliant companies, with penalties totalling Dh400m ($108.9m) in 2022.
During the first quarter of 2023 around 10,500 UAE nationals joined the country’s private sector workforce, an 11% increase over the corresponding period of 2022, which brought the total number of UAE nationals employed in the private sector to 66,000, spread across some 16,000 companies. The highest growth was recorded in the manufacturing and construction industries, which both saw expansion of 14% year-on-year (y-o-y), closely followed by commerce and repair services, with 13% growth. Business services and financial brokerage also registered notable growth, of 10% and 4%, respectively.
Performance & Size
The UAE’s GDP expanded by nearly 7.6% in 2022, doubling the growth rate experienced the previous year. Post-pandemic reinvigoration and a sustained spike in global energy prices were key drivers of that improvement. The federal government has set the target of doubling GDP by 2031. In order to achieve that goal, the UAE’s economy must undergo a compound annual growth rate of 7% through to the target year.
The UAE dirham is among the world’s most stable currencies. As is the case with a number of GCC currencies, the dirham is pegged to the US dollar, a fact that has, alongside recent appreciation of the dirham, enabled the UAE to maintain relatively low inflation. Average inflation in the UAE during 2022 was 4.8%, compared to a global average of 8.8%, and the Central Bank of the UAE announced in April 2023 that it expected to see average inflation of 3.2% that year, with the rate softening further to 2.8% in 2024.
Abu Dhabi’s GDP has fluctuated in recent years, with SCAD data showing that after registering growth of 1.7% in 2018, real GDP contracted by 1.5% in 2019 to Dh1.06trn ($289.3bn). The stresses of the pandemic saw the emirate’s GDP shrink by 7.7% to Dh980.6bn ($266.9bn) in 2020 before 2021 saw a rebound, with 3.4% growth, bringing the emirate’s total GDP to Dh1.01trn ($276.1bn).
Considerable effort is being put towards developing the emirate’s non-oil GDP. In 2018 that metric underwent a 2% contraction before growth of 0.2% in 2019 brought the total to Dh539.1bn ($146.7bn). During the pandemic non-oil GDP varied more significantly than total GDP, declining by around 11.5% to Dh477.2bn ($129.9bn) in 2020 before registering a rebound of 7.2% in 2021 to reach Dh511.5bn ($139.2bn). For the years comprising the period 2018-21 non-oil GDP accounted for 49.8%, 50.7%, 48.7% and 50.4% of total GDP, respectively.
Moving into 2022, total GDP for the emirate registered quarter-on-quarter growth of 1.1%, 5.6% and 1.1% in the first, second and third quarters of 2022, respectively. Non-oil GDP, for its part, posted quarter-on-quarter growth of 2.6%, 2.3% and 0.7% in the first three quarters of 2022, respectively, with non-oil GDP accounting for an average of around 50.3% of Abu Dhabi’s total GDP year to date. Total GDP averaged 10.5% y-o-y growth across the first three quarters of 2022 while non-oil GDP expanded by an average of 10.4% y-o-y.
For 2022 as a whole, GDP expanded by approximately 9.3% to more than Dh1.1trn ($299.4bn), with non-oil GDP, which was up 8.4% for the year, accounting for 50% of that figure. This made Abu Dhabi the fastest-growing economy in MENA for the period, reflecting the agility displayed by the government in implementing strategies and laws designed to stimulate targeted growth. The five fastest-growing sectors in the emirate in 2022 were real estate (17.1%), human health and social work activities (16.6%), administrative and support services (14.8%), accommodation and food service activities (11.9%), and wholesale and retail trade (11.6%).
Fiscal Budget & Foreign Trade
The UAE’s federal budget for the period 2023-26 was unveiled in October 2022. The Cabinet estimates that total expenditure of Dh252bn ($68.6bn) for the four-year period will be marginally outweighed by revenue of around Dh258bn ($70.2bn).
The 2023 federal budget is based on Dh63.1bn ($17.2bn) in estimated expenditure and Dh63.6bn ($17.3bn) in projected revenue. If these figures prove to be accurate for the year, it would result in an 11% increase in government revenue, while expenditure would have risen by around 3.9%.
Key sector allocations will see Dh24.8bn ($6.8bn), equal to 39.3% of total expenditure, directed towards social developments such as education and health care initiatives. Government affairs will receive the second-highest allocation – at Dh23.9bn ($6.5bn), or 38% of the total – while infrastructure development and financial investments will receive Dh2.4bn ($653.3m) and Dh2.1bn ($571.6m), respectively.
Abu Dhabi’s sovereign credit rating of “AA/A-1+” with a stable outlook awarded by international credit ratings agency Standard & Poor’s (S&P) Global is the highest in the Gulf region. S&P Global’s rating is based on the strength of the emirate’s asset sheet, whose value is equal to 250% of its GDP. The security that brings has enabled the government to insulate its economy against the various global economic shocks experienced in recent years, while at the same time the emirate has benefitted from the marked and sustained increases in global energy prices.
Non-oil trade has also expanded significantly, with the emirate’s trade surplus from non-oil merchandise registering a growth rate of 45% in 2021 to reach Dh23.5bn ($6.4bn). The total non-oil trade value increased to Dh225bn ($61.2bn, up 12% on the year (see Trade & Investment chapter).
Investment
The UAE ranked first in the Arab world and 16th globally in terms of its ability to attract foreign direct investment (FDI) in 2022, according to the UN Conference on Trade and Development’s “World Investment Report 2023”. FDI inflows rose by 10%, reaching $22.7bn in 2022. FDI outflows, meanwhile, were up 10.1% to $24.8bn, placing the country 15th in that dimension of the global ranking.
The UAE government has set the target of becoming one of the top-10 global FDI destinations. To guide progress towards this goal, in July 2022 the federal government launched the NextGen FDI initiative, which includes an incentive package that is designed to attract 300 of the world’s top technology firms that focus on advanced technology applications to invest and do business across a wide range of sectors in the UAE (see ICT chapter).
Total foreign investment stock in Abu Dhabi grew by 187% during the 2013-21 period, reaching Dh693bn ($188.6bn) in 2020 and Dh758bn ($206.3bn) in 2021, and equating to a 9.4% growth rate in2021 The top-three sectors in terms of their contribution to this total were financial and insurance services, with Dh402bn ($109.4bn); public administration and defence, with Dh154bn ($41.9bn); followed by transport and storage with Dh41bn ($11.2bn).
The same nine-year period saw total stock of foreign investment classed as FDI in Abu Dhabi increase by 45% from around Dh72bn ($19.6bn) in 2013 to Dh104bn ($28.3bn) in 2021. The top-three contributing sectors to the 2021 total carry a different profile than that of total foreign investment stock, with the real estate; mining and quarrying (including oil and gas); and electricity, gas, water supply and waste-management segments accounting for Dh33bn ($9bn), Dh21bn ($5.7bn) and Dh13bn ($3.5bn), of the total, respectively. The health and social care sector achieved the highest annual growth in FDI of all sectors in 2021, at a rate of 1231%, followed by the ICT and financial and insurance services sectors, which registered growth of 245% and 72%, respectively, during the year.
ADIO’s musataha concept provides a framework through which private investors – foreign and local – can obtain real property rights in Abu Dhabi, enabling them to own, develop, lease, mortgage or sell plots of land, whether owned by the government or a third party, for a period of up to 50 years. The programme’s terms and conditions were revised in 2020 to offer increased flexibility and an improved pricing model for private entities looking to establish or expand their presence in the emirate.
According to the ADIO website, as of September 2023 there were 22 musataha projects in Abu Dhabi across four sectors of the economy. The projects spanned schools, community sport and recreation facilities, automobile service and wash centres, and community markets and shopping centres, carrying a combined value of Dh870m ($236.8m).
Outlook
Bolstered by its robust sovereign asset sheet and forward-thinking policy formulation at both the federal and the emirate level, Abu Dhabi’s economy is benefitting from an upward growth trajectory in the post-pandemic era. That trend looks likely to continue in light of the emirate’s increasingly open and attractive business environment.
While achieving sustained growth in foreign investment in the manufacturing industry – which is among the areas of the economy targeted to drive diversification – remains a priority, overall growth in FDI, the launch of the emirate’s new industrial strategy and the Abu Dhabi government’s track record of successful strategy implementation suggests that greater inflows can ultimately be stimulated.
Although the Emiratisation requirements in place represent an important hurdle for local and foreign investors in some sectors, the emirate’s continued focus on future-ready human capital development (see Education & Research chapter) should serve to enhance Abu Dhabi’s reputation as a fertile business and investment environment moving forwards.
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