How is Abu Dhabi diversifying its economy?

Having declared its independence from the UK in 1971 as part of the federation of the UAE, the emirate of Abu Dhabi has significantly raised its political and economic profile in the intervening years, both regionally and internationally. While the emirate is home to the world’s sixth-largest proven oil reserves, financial buffers have helped it diversify and yield steady non-oil revenue. This has largely taken the form of expanding domestic industries, from aviation to renewable energy, enabling the emirate to weather a prolonged period of reduced oil prices and fiscal austerity that has put pressure on growth.

Centred on the Abu Dhabi Economic Vision 2030, a wide-ranging economic development strategy launched in 2008 to reduce dependence on oil and gas and foster a knowledge-based economy, the emirate has made important strides towards securing its growth plans amid global and regional risk, and ensuring wealth for future generations. Successive five-year plans within the framework of the Abu Dhabi Economic Vision 2030 aim to assure the achievement of the emirate’s goals.

History

Archaeological evidence on the coastal plain and in the Al Hajjar Mountains suggests that the area known today as Abu Dhabi has been inhabited continuously for the last 5000 years, with recent findings on Marawah Island pointing to evidence of settlements as far back as 8000 years.

The emirate’s modern history can be traced to the Bani Yas, a nomadic Bedouin tribe that settled around the Liwa Oasis in Al Ain prior to the 1600s. In 1761 members of the Bani Yas tribe first travelled to the island of Abu Dhabi, according to legend, in pursuit of a gazelle. This is the source of the emirate’s name, which means “father of the gazelle”. After finding freshwater, settlers began establishing permanent residences on the island. At first, the Al Nahyan family, which headed the Bani Yas tribe, remained in the Liwa Oasis, but in 1793 they moved to Abu Dhabi and began the construction of the round fort that currently forms part of Qasr Al Hosn, signalling the move of the seat of local government.

Due to the region’s favourable position along trade routes between Europe, the Levant and Asia, the area has been an important centre for commerce since Roman times. For most of the emirate’s history, the local population made its living from a seasonal combination of harvesting dates from oases in the interior, and pearling in the shallow seas and lagoons off the coast. British records from the 19th century suggest that pearl divers from this part of the world were so skilled that some travelled as far as Sri Lanka to go pearling once the season in the Gulf was over. Indeed, the settlement thrived on the back of the pearl trade during the late 1800s.

In 1892 the town’s ruler, Sheikh Zayed bin Khalifa Al Nahyan, signed an agreement ceding control over certain matters to the British, who wanted to preserve their trade route to India, in exchange for protection from the Ottoman Empire. This would see the emirate join the Trucial States and become a British protectorate. Following the death of Sheikh Zayed bin Khalifa in 1909 and the collapse of the region’s pearling industry, caused in large part by the rapid growth of freshwater pearl cultivation in Japan, the emirate’s prosperity declined.

However, the discovery of oil elsewhere in the region in the 1930s would change Abu Dhabi’s fortunes significantly. The first oil concession in the emirate was granted in 1939 but – partly as a result of the Second World War – drilling did not start until 1950, with the first commercial discovery occurring at the end of that decade.

Transformation

The 1960s was a critical period in the emirate’s modern history, when the quiet desert city began its transformation into a prosperous, modern society. In 1962 the emirate started exporting oil, and in 1967 it joined the Organisation of the Petroleum Exporting Countries, becoming its ninth member. That year also saw Sheikh Zayed bin Sultan Al Nahyan ascend as ruler of Abu Dhabi. In 1968 – following the announcement by the UK of their intention to withdraw its forces east of what is now Yemen in 1971, including the Gulf – Sheikh Zayed invited the rulers of five neighbouring Trucial States to join him to create a new nation. On December 2, 1971 the emirates of Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain and Fujairah came together to form the UAE, with Sheikh Zayed elected by his fellow rulers as the country’s president and Abu Dhabi City declared its capital. The federation was completed with the inclusion of a seventh emirate, Ras Al Khaimah, on February 10, 1972.

Sheikh Zayed subsequently began to develop and modernise Abu Dhabi and the greater UAE, pursuing an expansive programme of infrastructure development, including schools, housing and hospitals, and establishing public services. The process of economic and social transformation would see the UAE become one of most modern and prosperous countries in the region. When Sheikh Zayed passed away in 2004, his son, Sheikh Khalifa bin Zayed Al Nahyan, succeeded him as president of the UAE and ruler of Abu Dhabi.

Demographics

Abu Dhabi’s population was 2.91m in mid-2016, according to the latest data available from the “Statistical Yearbook of Abu Dhabi 2020” published by Statistics Centre - Abu Dhabi (SCAD). Nationals made up approximately 19% of the population, with expatriates – primarily foreign workers – accounting for the remaining 81%. As with many countries in the region, the UAE’s youth population has grown rapidly in recent years, with over one-third of Emiratis below the age of 25.

Language

Arabic is the official language of the UAE, but English is commonly used. Most road signs and restaurant menus are provided in both English and Arabic. In addition, Tagalog, Bengali, Hindi and Urdu are all widely spoken. The official language of all government communication is Arabic, and most legal documents must be written or translated into Arabic before being submitted to government agencies.

Religion

Islam is the official religion of the UAE and has a wide-ranging impact on many areas of daily life in the country. The legal system, for example, is based on a combination of certain precepts of sharia law and international legal standards. Islam also plays a significant role in local culture, having a clear influence on art, music, the calendar and general behaviour. As is customary in many Muslim countries, during the month of Ramadan the pace of life slows. Many restaurants close during the day, and working hours change. As a sign of respect to those fasting, non-Muslims should refrain from eating and drinking in public during Ramadan.

The Sunni tradition is the dominant form of Islam in the UAE and is practised by most Emiratis. However, Abu Dhabi’s cosmopolitan population includes adherents of a number of other religions, such as Christianity and Hinduism, and the emirate is home to a variety of houses of worship. The constitution of the UAE guarantees freedom of religion in accordance with established traditions and local customs.

Climate

Like much of the Gulf region, Abu Dhabi has a hot desert climate, which is characterised by clear blue skies year-round and very little rainfall. Maximum daytime temperatures in January, the coolest month, hover around 26°C and fall to about 15°C at night, whereas summer temperatures from June to August regularly exceed 40°C. Rain is rare for much of the year, but occasionally falls during the winter months of December to March.

Topography & Geography

Although it is mostly flat, the emirate is also covered by vast sand dunes; the tallest, Tel Moreeb, is over 300 metres high. To the east are the Al Hajjar Mountains, whose highest point, Jebel Hafeet (1249 metres), is located south of the oasis town of Al Ain on the Omani border. Abu Dhabi’s coastline features over 200 islands, and mangrove forests cover hundreds of hectares along the coast. These forests and islands are important for local wildlife. The emirate of Abu Dhabi occupies about 80% of the UAE’s total territory, and is itself divided into three separate regions: Abu Dhabi City; Al Ain (the Eastern Region), which borders Oman; and Al Dhafra, which shares a long frontier with Saudi Arabia to the south and west.

Abu Dhabi City

Located off the mainland on a number of islands, Abu Dhabi City is the capital of both the emirate and the UAE. Of the emirate’s 2016 population of 2.91m, Abu Dhabi City was home to 1.81m, or 62.1% of the total. The city is also the most densely populated part of the emirate, with 164 people per sq km in 2016, compared to the emirate-wide figure of about 49 people per sq km.

Al Dhafra

Al Dhafra covers 60% of Abu Dhabi’s area and has substantial natural resources. It possesses 90% of the emirate’s hydrocarbons reserves, which in turn account for around 90% of the UAE’s total reserves. The oil and gas sector is the main driver of the region’s economy. The vast Al Hosn gas project, the Barakah Nuclear Energy Plant, the Bab sour gas project and the expansion of the Ruwais oil refinery complex are some of the region’s largescale developments. Their size makes them not only important on a local level, but also significant contributors to growth and economic development in the country as a whole (see Economy chapter).

The region’s largest cities – Dalma, Sila, Ghayathi, Ruwais, Madinat Zayed, Mirfa and Liwa – are home to the majority of its residents. Al Dhafra also has a substantial Bedouin population. According to SCAD, Al Dhafra’s population was 334,000 as of 2016, giving it a population density of 9.5 people per sq km.

Al Ain

The emirate’s Eastern Region, Al Ain, although smaller in area than Al Dhafra, was home to 766,900 people as of mid-2016, with most of them living in Al Ain City, which is the emirate’s second-largest city. The region had a population density of 57 people per sq km that year. Al Ain’s location in the foothills of the Al Hajjar Mountains gives it a more moderate climate than the humid coastal plain, and historically made it a crossroads of trade routes between what is now Oman and the present-day UAE.

Al Ain means “the spring” in Arabic, but the area is also known as the “Garden City” because of its location among natural oases and its ancient irrigation system. As the setting for some of the emirate’s most fertile land, Al Ain has a substantial number of farms and is considered Abu Dhabi’s agricultural capital. According to SCAD, the region had the majority of the emirate’s livestock in 2019, including 256,782 camels, 42,467 cattle, and 1.9m sheep and goats, as well as most of its plant holdings by area. Other industries are beginning to take hold as well, most notably aerospace and aviation. This is seen most prominently in the Nibras Al Ain Aerospace Park, which is hoped to create 10,000 jobs by 2030. The region also has a well-developed education sector and is a popular tourism destination, with a particular focus on the cultural and ecotourism segments.

Federal Government

As per the 1971 constitution, the UAE operates as a federation of seven emirates, each of which has a high level of political and economic autonomy. The federal government, based in Abu Dhabi City, has three branches: executive, legislative and judicial. The current president of the UAE is Sheikh Khalifa, who is also the ruler of Abu Dhabi and the commander of the UAE’s military. The ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, is the UAE’s vice-president and prime minister. The Supreme Council of Rulers, made up of the hereditary rulers of each of the seven emirates, is the UAE’s highest national policy-making body.

The Council of Ministers, also known as the UAE Cabinet, is the executive branch of government. It is presided over by Sheikh Mohammed bin Rashid in his capacity as vice-president and prime minister, and comprises the nation’s ministers responsible for internal and external affairs. Appointments to the Cabinet announced in October 2017 included six new ministers, three of whom are female.

The Cabinet consists of 32 ministers, and many of the new cohort work in highly specialised areas, such as the minister of state for artificial intelligence and the minister of state for advanced sciences. The federal government oversees a range of issues, including security and foreign policy, communications, fiscal and monetary policy, immigration, air traffic control and education. Aside from these matters, the emirates have considerable power over their own affairs. The legislative branch of government consists of the Federal National Council (FNC). Of its 40 members, 20 are chosen by the rulers of the seven emirates – their allocation depending on the size of the emirate’s population – and the remaining 20 by an electoral college of eligible voters, totalling roughly 225,000 Emirati nationals. The most recent elections to appoint FNC members were held in October 2019. Prior to this election, in June 2019 the electoral rules governing the FNC underwent reform to ensure that 50% of all appointed and elected representatives are women. As a result, the FNC became the most gender-equal legislative body in the Arab world. Meanwhile, the judicial branch hosts the Federal Supreme Court and Courts of First Instance. The legal system operates both sharia and civil courts, and all judges are appointed directly by the president. In 2017 Sheikh Mansour bin Zayed Al Nahyan, deputy prime minister and minister of presidential affairs, announced the establishment of special courts for expatriates and non-Muslims to handle disputes related to inheritance, divorce and child custody. The new court system will hear cases under the legal framework of the claimant’s own country or religion. This and the recent introduction of remote communication technologies (e-trials) in civil proceedings are designed to streamline case loads going forward. Similarly, in September 2018 Abu Dhabi established a specialised labour court for labour cases and disputes.

Local Government

Abu Dhabi has used its autonomy to pursue a series of economic diversification programmes, in addition to social and cultural development initiatives, under the direction of the Abu Dhabi Executive Council, the executive branch of the emirate’s government. The Abu Dhabi Executive Council comprises 19 members, many of whom represent a segment of government such as health or education. The members assist and advise the chairman, Sheikh Mohamed bin Zayed Al Nahyan, on matters relating to services and performance. In addition to his role as chairman of the council, Sheikh Mohamed bin Zayed Al Nahyan is the crown prince of Abu Dhabi, as well as the deputy supreme commander of the UAE armed forces. The Abu Dhabi Executive Council sets the general policy of the emirate, its development plans, and its laws and decrees. It is also responsible for both approving and monitoring government-backed projects, and providing oversight for government operations as a whole. The implementation of policy initiatives is overseen by various departments and entities, nearly all of which are accountable to the council.

Doing Business

The UAE performs favourably in the “Doing Business” global ranking issued annually by the World Bank, which rates countries on how welcoming they are for businesses by examining their operating environment. The UAE was 16th out of 190 countries and territories in the 2020 edition, down from 11th in 2019 but up from 21st in 2018, outperforming all other countries in the region by a considerable margin for the sixth year in a row. The next-highest-ranked country in the Middle East was Bahrain (43rd), followed by Saudi Arabia (62nd).

The UAE was in the top 10 for three of the 10 factors that contribute to a country’s rating, ranking 1st for getting electricity, 3rd for dealing with construction permits and 9th for enforcing contracts. The report highlighted the country’s successful efforts to make starting a business less expensive by reducing fees, protect minority investors from conflicts of interest, speed up the process of obtaining construction permits and reduce export times by digitising certificates of origin. The rankings suggest that the insolvency framework may need some improvement, however, as it scored 49.3 out of 100.

Stimulus Package

In June 2018 Abu Dhabi’s crown prince, Sheikh Mohamed bin Zayed Al Nahyan, announced plans to introduce a Dh50bn ($13.6bn) stimulus package for the emirate over a three-year period, aimed at improving the ease of doing business and extending economic benefits to Emiratis and residents. The package seeks to liberalise the business environment, and create a more competitive landscape for both local and international investors. Its measures consist of issuing workfrom-home licences; reviewing building regulations for private and commercial projects to reduce costs for developers; expediting the time the public sector takes to pay private contractors, and reviewing fines that can accumulate as a result of slow or non-payment; nurturing partnership between the public and private sector to accelerate projects; issuing dual licences for firms operating in free zones so they are able to compete for government tenders; promoting ecotourism opportunities; and establishing the Abu Dhabi Accelerators and Advanced Industries Council, also known as Ghadan, to identify technologies and investments to boost the economy in the future.

Ensuring Stability

February 2020 marked the one-year anniversary of the launch of Ghadan 21, or Tomorrow 21, a blueprint for economic growth in the emirate. In that time more than 50 initiatives were rolled out as part of the package, many of which are aimed at supporting local start-ups and small and medium-sized enterprises (SMEs). For example, Dh1bn ($272.2m) has been invested in agricultural technology, Dh60m ($16.3m) has been allocated to supporting innovation-focused businesses and a Dh535m ($145.6m) Ventures Fund was established to fund later-stage companies. Ghadan 21 also helped issue 6000 new housing loans, open 12 new schools and launch 300 projects to improve public spaces.

These initiatives and others are expected to create at least 10,000 jobs for Emiratis in the public and private sectors through to 2021, encourage a support ecosystem for SMEs to boost their competitiveness, and accelerate private sector participation in the growth of the economy. Under the original declaration, government agencies were given 90 days to create an execution plan for the package, with the Abu Dhabi Executive Council’s Executive Committee supervising its implementation. In March 2020 the Abu Dhabi Executive Council announced a new 16-point stimulus package under Ghadan 21 in an effort to ensure economic stability amid the global impact of the Covid-19 pandemic. The initiatives include electricity and water subsidies for citizens and businesses, an allocation of Dh3bn ($816.6m) to the credit guarantee scheme for SMEs, and a suspension of tourism and municipality fees.

Economic Vision 2030

The emirate’s efforts to reduce its reliance on hydrocarbons were given a major impetus in 2008 with the publication of the Abu Dhabi Economic Vision 2030 by the General Secretariat of the Executive Council, the Abu Dhabi Council for Economic Development and the Abu Dhabi Department of Economic Development (then the Department of Planning and Economy).

To support the Abu Dhabi Economic Vision 2030, in 2016 a new five-year strategy known as the Abu Dhabi Plan was launched. This blueprint outlined shorter-term goals, including creating an effective private sector that provides business opportunities.

With these plans as a guide, the government intends to develop a diversified, sustainable economy that is integrated into global markets. Creating new sources of income and developing industries that are part of a knowledge-based economy are particular focal points, especially in high-value-added, non-oil sectors like tourism, manufacturing, logistics, health care, education, financial services and telecoms. While working to reach all of the emirate’s goals requires a concerted effort by both private and public entities, private sector funding and foreign direct investment will continue to play an important role in this process as the main drivers of economic growth. According to the Abu Dhabi Economic Vision 2030, non-hydrocarbons sectors of the economy, including petrochemicals, are projected to account for 64% of the emirate’s GDP by 2030, while oil and gas activities would contribute the remaining 36%.