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Prudent Abu Dhabi adjusts development strategy
Prestige property projects reviewed, some put on hold; Abu Dhabi responding to weaker market, global uncertainty; But retrenchment different from Dubai crisis; Government remains very strong financially; Strategy change may please international investors
November 10, 2011 4:07 by Reuters
When Abu Dhabi announced that it would delay establishing local branches of the Louvre and Guggenheim museums, it was an important signal of the emirate’s economic strategy as well as its cultural priorities.
“Due to the immense magnitude of the work associated with the development of such consequential projects, the company has decided to extend the delivery dates,” the government-owned Tourism Development and Investment Co said last month.
The company gave no new dates for opening the museums, which were originally scheduled to start operating between 2013 and 2014 as part of a $27 billion art and culture development on Abu Dhabi’s Saadiyat Island.
But the message was clear: getting the projects right and ensuring public demand for them would be given precedence over rushing them out quickly to gain prestige.
Across the oil-rich state, which accounts for more than half of the United Arab Emirates’ economy, government-backed real estate, commercial and tourism projects, many conceived during the boom years of 2003-2008, are under review and in some cases being delayed or put on hold.
This is happening under economic pressure; large parts of the real estate market are weak, and the shaky state of the global economy threatens demand for Abu Dhabi’s property and tourism sectors. Average residential property prices in the emirate sank 7 percent in the third quarter of this year from the previous quarter, and are down 49 percent from their peak in 2008, according to consultants Jones Lang LaSalle.
But Abu Dhabi’s retrenchment is different from the panicky restructuring which was forced on neighbouring emirate Dubai by a property crash and recession in 2009. Abu Dhabi will not need a bailout and has plenty of money to continue promoting projects; it is merely shifting its priorities away from some high-end developments for which demand has weakened and towards housing and welfare projects for the mass of its citizens.
Abu Dhabi originally wanted to do too much, too soon and has now realised that strategy is not feasible, said Abdelkhaleq Abdullah, professor of political science at Emirates University.
“A review of what is going on is very positive — it is timely and it is a matter of being more prudent. Slow is good, slow is beautiful.”
Gauging the extent of Abu Dhabi’s retrenchment is difficult because the government is secretive about some aspects of economic policy and does not regularly release detailed data on its spending. But on the level of individual companies, a pattern is emerging.
Abu Dhabi’s government-owned investment fund, Mubadala, is reviewing its multi-billion dollar Mina Zayed Watefront project, whose centerpiece was to be the MGM Grand Abu Dhabi, comprising hotels and an entertainment complex. Mubadala first announced the project in 2007, and in 2008 formed a joint venture with MGM Mirage Hospitality to develop it.
“The project is still being reviewed and any material developments will be announced in due course,” Mubadala said in an email to Reuters.
Late last year, Mubadala put on hold planned construction of a stadium in Abu Dhabi with capacity for some 50,000 people, citing “proprietary decisions of the government”.
Indebted developer Aldar Properties announced in late October that it was cutting nearly a quarter of its staff and scaling back some of its operations. The builder of the Yas Marina Formula One circuit received a $5.2 billion rescue package from the Abu Dhabi government earlier this year.
A report from Citibank, citing data from the Middle East Economic Digest, estimated Abu Dhabi had put on hold some $75 billion worth of projects since April 2010, of which…(CONTINUED TO NEXT PAGE)