Greater inflows: Foreign direct investment is becoming more diverse in terms of both sources and destinations

A number of reasons combine to make Abu Dhabi an attractive location for foreign direct investment (FDI), the most obvious of which is the emirate’s sustained positive economic performance. Indeed, Abu Dhabi’s real GDP grew at a compound rate of 5.6% between 2001 and 2012, according to the Abu Dhabi Department of Economic Development (ADDED), the body responsible for developing and proposing the emirate’s economic and commercial policy. The results of this growth are visible to any visitor in the form of rapidly expanding commercial and leisure infrastructure, such as the central business district presently taking shape on Al Maryah Island and the annual Formula 1 race at the capital’s Yas Marina Circuit, as well as a non-citizen population attracted by Abu Dhabi’s many employment opportunities, which has grown from 631,000 in 2005 to 1.2m in 2012.

Creating Interest

The infrastructural gains that the emirate’s economic growth have enabled have in themselves become a selling point for Abu Dhabi when it comes to attracting FDI. Its regional and international connectivity is being enhanced by a major expansion of the Abu Dhabi International Airport, increased capacity at Al Taweelah port, and the Etihad Railway project. These developments amplify the effect of the emirate’s central location between Europe, Africa and Asia and its position within five hours of 25% of the world’s population, according to ADDED. The emirate benefits from both economic and political stability, showing a strong resilience to economic crises from the global credit crisis of late 2008 to the more recent difficulties in the eurozone, a capacity that has earned it sovereign ratings of “AA” from Standard & Poor’s and “AA2” from Moody’s, with stable outlooks. Finally, Abu Dhabi is a pleasant place to live; recognised as one of the safest cities in the world, it is also enhancing its cultural infrastructure with developments such as the Louvre Abu Dhabi and Guggenheim museums and adding to its Formula 1 success by pursuing further large-scale tournaments in golf and tennis.

The Development Strategy 

Attracting FDI is a central part of the Abu Dhabi Economic Vision 2030 strategy by which the emirate’s long-term economic development is being orchestrated. The second of the strategy’s three pillars calls for growth in the enterprise base, part of which involves the attraction of FDI to leading-edge technology sectors.

In the first years following the strategy’s publication, attention was focused on the question of foreign ownership of companies in Abu Dhabi, which is currently limited to 49%. This stricture was viewed as a disincentive to FDI in some sectors, and many observers saw the solution in a new Companies Law that would remove it for some segments of the economy. While that law has yet to be promulgated, the issue has been sidestepped by Abu Dhabi’s decision to more fully adopt the free zone model, which it first deployed in 2007 with the creation of the twofour54 media zone (see overview). While other free zones have followed, such as Abu Dhabi Airport Business City, Khalifa Industrial Zone Abu Dhabi and Masdar City, the announcement in April 2013 that a new financial free zone, Abu Dhabi Global Market, is to be established on Al Maryah Island promises to greatly enhance the chances that the emirate will realise its FDI ambition.

Financial Sector

 The site of the new financial free zone is already home to a new 114-ha mixed-use financial, retail, residential leisure and commercial development, and, when converted to a free zone, will have its own regulatory structure and legal system – a model that has been successfully implemented elsewhere in the region. The other incentives, meanwhile, are likely to be similar to those available in the emirate’s existing zones, which include 100% profit repatriation and 100% foreign ownership (see Capital Markets chapter).

However, while the new financial zone’s development represents an important part of the emirate’s FDI strategy, Abu Dhabi continues to advertise its non-zone jurisdiction as a desirable destination for investment, pointing out that 0% corporation tax and 0% income tax is standard across the emirate. To this end, ADDED has established an international economic promotion programme, which participates in international conferences and exhibitions, and brings together key Abu Dhabi stakeholders in investment forums. ADDED has also developed collateral tools to support the programme, such as an investment promotion website and the Abu Dhabi investor’s guide and a promotional video.

The sectors identified by ADDED as central to its FDI strategy are aerospace, education, financial services, health care, ICT, industry, media, oil and gas, petrochemicals, tourism and logistics. The broad scope of ADDED’s FDI ambitions chime with the emirate’s overarching strategy to diversify its economy away from an historical reliance on hydrocarbons.

Greater Activity

The available data concerning FDI to Abu Dhabi suggests that its strategy is paying dividends. According to the most recent information from the Statistics Centre - Abu Dhabi (SCAD), FDI into the emirate during 2011 reached Dh52.2bn ($14.2bn), which represented an increase of 7.8% over the previous year. The single largest contributor to this total, with inward flows of Dh22bn ($6bn), was the real estate sector. However, an important signifier of Abu Dhabi’s ability to attract FDI to productive sectors of the economy was the fact that manufacturing was the second-largest contributor to the emirate’s FDI intake, and grew by 26.5% over the previous year. The traditionally prominent FDI areas of electricity, gas and water activities, meanwhile, contributed Dh6.4bn ($1.7bn) in 2011, which represented 12.3% of the total for the year.

Diverse Recipients

Looking at FDI in terms of growth rates, the health sector recorded the fastest expansion, reaching Dh193m ($52.5m) in 2011, to show a growth rate of 589.3% over the Dh28m ($7.6m) of 2010. The construction sector showed the second-largest increase, posting a 31.9% expansion from its Dh3bn ($816.6m) total of 2010 to reach Dh4bn ($1.1bn), followed by restaurants and hotels, which attracted Dh9bn ($2.4bn) in 2011 compared to Dh7bn ($1.9bn) in 2010, for a growth rate of 28.6%.

The increasing spread of FDI through a wide range of economic activities is an encouraging trend as far as Abu Dhabi’s economic planners are concerned, and one that is continuing to take place. An examination of the larger projects undertaken in Abu Dhabi by foreign investors over the past year demonstrates the diversity of inward investment. Sizeable projects in 2013 saw FDI directed at traditional destinations, such as the $530.5m spent by Shell on hydrocarbons extraction activity and a $15.1m investment in business services in the financial sector by Citibank. However, large quantities of foreign capital also moved into areas such as aerospace (a $27.5m investment by Bahrain-based Global Aviation Services), tourism ($178.6m from Thailand’s Oak Hotels and Resorts), IT services ($6.8m from Germany’s SAP), industrial machinery ($5.6m from Oklahoma-based TD Williamson) and textiles ($4.1m from Spain’s Pablosky), according to ADDED. Continuing to attract this diverse range of investments will be key for achieving the government’s long-term economic goals.