Mubadala remains an agent for local economic development and diversification, while pursuing a global vision

The expansion of the UAE’s non-oil sector over the past 10 years has been one of the major economic success stories to emerge from the country. A number of factors have combined to bring this about, nearly all of them a direct result of government policy. The nation’s openness as a business destination, the resulting expansion of the workforce and expatriate population, a carefully managed financial system, and a clear, long-term development strategy for the country have all helped the non-oil sector to overtake hydrocarbons as the main contributor to real GDP growth in most years of the past decade.

At the local level, Abu Dhabi’s efforts have chimed with those of the wider federation. The overarching ambition for the emirate, as laid out in the Abu Dhabi Economic Vision 2030 strategy, is to diversify away from a reliance on oil wealth in order to establish a secure society and a dynamic, open economy. The strategy posits numerous routes to this goal, from establishing a transparent regulatory environment to developing high-quality education, health care and infrastructure assets. Social development of this scale is, of course, a long-term undertaking, and Abu Dhabi’s hydrocarbons wealth means that it is not compelled to rush towards its ultimate objective.

According to the 2014 BP “Statistical Review of World Energy”, the UAE’s proven oil and gas reserves amount to around 138bn barrels of oil equivalent, which would last for nearly 90 years at the current rate of production, with the overwhelming majority of the reserves falling within the jurisdiction of Abu Dhabi. Nevertheless, falling oil prices in late 2014 served as a reminder of the importance of broadening the emirate’s economic base and have thrown into sharp relief the work of one of Abu Dhabi’s principal agents of economic change.

Mandate

Mubadala Development Company was established in 2002 by the government of Abu Dhabi to act as a principal mechanism for the economic diversification of the emirate. It differs from more traditional sovereign wealth funds (SWFs), such as the Abu Dhabi Investment Authority (ADIA), in that rather than relying solely on surplus oil revenues to invest on behalf of the government, it is partially selffunding. While its total assets of Dh223.3bn ($60.78bn) as of the first half of 2014 are not as large as ADIA’s $733bn (as estimated by the SWF Institute), its impact on the domestic economy is widely felt.

This is because, unlike traditional SWFs that tend to invest in financial instruments – often passively tracking indexed funds – Mubadala has been granted a more muscular mandate. Mubadala is an active investor in a range of sectors both at home and abroad, targeting strong financial returns as well as those investments that can help to drive the development of new industries and social infrastructure in line with local priorities.

At Home

For more than a decade Mubadala has been channelling resources and expertise into a wide range of sectors such as: health care, including the landmark Cleveland Clinic Abu Dhabi, which is set to begin accepting patients in 2015; metals and mining, with Emirates Aluminium now part of Emirates Global Aluminium; ICT, including Yahsat, which is now planning to launch its third satellite; real estate and infrastructure, where Mubadala is playing a part in signature developments such as Al Maryah Island and Zayed Sports City; aerospace, where Strata has become a manufacturer of components for the world’s leading aircraft manufacturers and the Advanced Military Maintenance, Repair and Overhaul Centre (AMMROC) has been providing specialised MRO solutions for the UAE military since 2010; oil and gas, including Dolphin Energy, Mubadala Petroleum and Emirates LNG; utilities, with Tabreed, the national cooling company; educational infrastructure, with investments including the development of Paris-Sorbonne University Abu Dhabi, Zayed University and UAE University; semiconductors, through GLOBALFOUNDRIES; logistics and transport, such as Abu Dhabi Terminals; renewables, including Masdar; and financial services. Such is the scope of Mubadala’s involvement in the domestic economy that it is impossible to measure its impact in purely monetary terms. In terms of human capital, Mubadala has created more than 15,000 jobs in the UAE.

Activities Abroad

Today, Mubadala employs over 30,000 people across the group worldwide. While its focus on the local economy remains, an increase in global investment activity is one of the more interesting aspects of its recent strategy, often with direct links or vertical integration with Abu Dhabi’s local development priorities.

In order drive the next phase of growth at home and abroad, Mubadala has established its organisational structure around four main global business platforms: technology and industry; aerospace and engineering services; energy; and emerging sectors (incorporating health care, real estate and infrastructure, and capital investments). As with all of its activities, partnerships with top-tier companies and institutions such as GE, Airbus, Boeing, Trafigura, Siemens, the Carlyle Group, Rolls-Royce, Shell, Total and Lockheed Martin remain at the heart of Mubadala’s investment approach.

Bottom Line

Mubadala’s revenue for the first half of 2014 reached Dh16bn ($4.36bn), of which nearly half was derived from sales at GLOBALFOUNDRIES, the world’s first full-service semiconductor foundry, which has manufacturing operations in Dresden, Germany; Malta, New York; and Singapore.

According to Mubadala’s half-year 2014 report, the second-largest contributor to revenues during the same period was aerospace and engineering services, followed by energy. The 8.1% year-on-year rise in revenue in the first half of 2014 underwrote an increase in profits to Dh1.3bn ($353.86m), from Dh1.1bn ($299.42m) in the same period of 2013.

Mubadala’s robust financial performance and widely distributed asset base have delivered continued approval from the ratings agencies, with Moody’s granting its long-term credit “Aa2”, and Standard & Poor’s and Fitch both granting it “AA”. In turn, this has ensured that Mubadala’s global medium-term note bond programme, which it started in 1999, continues to attract the interest of international investors. In 2014 the company successfully repaid Dh4.6bn ($1.25bn) worth of maturing bonds and issued Dh2.7bn ($734.94m) of eight-year bonds, thereby usefully extending its debt maturity profile and further diversifying its funding base.

Noteworthy Developments

In early 2014 GLOBALFOUNDRIES announced a $10bn investment plan for its Malta, New York facility, aimed at building on the strategic production partnership that it had signed with Samsung to deliver the next generation of semiconductor chips.

In the industrial sector, Emirates Global Aluminium was officially incorporated, while the last cell in the new 444-cell potline of EMAL Phase III was energised, thereby making it the longest potline in the global aluminium industry, at 1.7 km. In the aerospace sector, Al Ain-based Strata became a Tier 1 supplier to Boeing after delivering its first shipment of composite ribs for the 777 aircraft.

In renewables, Masdar announced that it would take a 35% stake in the planned 402-MW Dudgeon offshore wind farm in the UK, adding to its stake in the major London Array wind farm. As well as plans to develop a 50-MW wind farm in Oman, Masdar also announced the inauguration of GE’s Ecomagination Centre in Masdar City, dedicated to developing innovative solutions and the “greenprint” for future cities. In the health care sector, meanwhile, Healthpoint, a fully integrated, primary care and multi-specialty hospital located at Zayed Sports City, opened the doors to its inpatient facilities.

The latter half of 2014 saw a number of other significant developments. In August Moody’s upgraded Mubadala’s long-term issuer rating from “Aa2” to “Aa3”, which brings the company in line with the Abu Dhabi sovereign rating, while in September Yahsat announced details of a partnership with Orbital Science Corporation and Arianespace to launch its third satellite into orbit from French Guiana. September also saw Masdar provide half of the funding for the University of Manchester’s $93.43m Graphene Engineering Innovation Centre.

Two months later, in November 2014, Mubadala Petroleum announced that production commenced at its operated Manora oilfield in the northern Gulf of Thailand with production expected to reach a peak rate of approximately 15,000 barrels per day.

Mubadala’s strategic approach will continue to include international investments that strengthen the global integration and diversity of its portfolio, which in turn enhances Abu Dhabi’s commercial position in markets and sectors that are central to the economic diversification effort. Given the successes so far, Mubadala is set to continue supporting sustainable economic development in Abu Dhabi.