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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
…91 percent are in the real estate and construction sectors.
Government officials insist the decisions made by Mubadala, Tourism Development and Investment Co and other companies are independent ones made on a case-by-case basis by the firms.
“These are positive decisions and are being made on their own merits. It is not a crisis — the world has changed and it is ludicrous to carry on at the breakneck speed of three years ago,” said one official familiar with the matter, declining to be named because he was not authorised to speak publicly on development strategy.
Another, senior Abu Dhabi government official said, “A review doesn’t mean slowing or cancelling projects. It is a pragmatic approach in a changing world.
“We have seen changes that impact all of us and there are international partners for many of these projects. You have to be patient.”
At the same time, some parts of Abu Dhabi’s development strategy are proceeding without change or have been accelerated. One is the construction of middle income housing for its citizens, part of a Gulf-wide trend to improve social welfare after political unrest elsewhere in the Arab world; initiatives launched by the government this year include building 7,500 new homes for nationals in the emirate and 500 new villas for Emirati families on Yas Island.
“The government has continued in its projects, for example the infrastructure projects, the education projects, the health care, all of those are ongoing,” Fahad al-Raqbani, Director General of the Abu Dhabi Council for Economic Development, an economic policy advisory council, told Reuters.
“In fact, there is an increase in the budget for specific sectors, namely for the housing, health care and education.”
Raqbani said Abu Dhabi’s ambitious plan to diversify its economy, which envisages lifting the non-oil share of gross domestic product to 64 percent in 2030 from roughly 50 percent now by developing sectors such as tourism, financial services and even aerospace, remained on track. “The best way to protect your economy is by having a diversified economy, not solely focused on a single sector,” he said.
Abu Dhabi’s new priorities may hurt its real estate and construction sectors in the immediate term. Citibank forecasts a nominal decline of 5 percent in construction this year and flat activity in real estate. In the longer term, however, fewer big government-backed projects could rekindle private sector demand by making the property market more price-competitive.
“While the steps being made by Abu Dhabi government to consolidate projects and government entities and re-prioritise investment are having a short-term negative impact on the market, these moves are highly positive for the medium term market outlook,” said David Dudley, head of Jones Lang LaSalle’s Abu Dhabi office.
“The market is taking a short-term hit for longer-term benefit.”
Barring an extended plunge in global oil prices, which is not happening despite the weakness of the world economy, Abu Dhabi’s overall growth looks solid. Real GDP growth is estimated at about 4.5 percent this year and in the same area next year, Mohamed Omar Abdulla, Undersecretary at the emirate’s Department of Economic Development, told Reuters last month.
Dubai’s retrenchment has been seen by markets as underlining its financial weakness; companies in the emirate are still restructuring tens of billions of dollars of debt. But because of Abu Dhabi’s massive financial resources, its own change of strategy may be received positively and ultimately encourage international investors to cut the premium which they demand for buying Abu Dhabi debt, which is partly the result of the secrecy surrounding its accounts.
Abu Dhabi, which has contributed at least $10 billion to bailing out Dubai, may conceivably be required to provide more money in coming years. But this burden would be small compared to the size of Abu Dhabi’s sovereign wealth fund, estimated at…(CONTINUED TO NEXT PAGE)