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Abu Dhabi economy steams ahead with diversification

posted on 06/08/2004: 1812 views

The Emirate of Abu Dhabi is pressing ahead with its ambitious plans to diversify its economic base and sources of income away from dependence of volatile oil and gas revenues.

Apart from the emirate's plans to set up five industrial zones and the world's largest complex for service companies in the onshore and offshore oil and gas business, the creation in May of the Higher Corporation for Specialised Economic Zones (HCSEZ) by H.H. Sheikh Khalifa bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, was the latest step in a series of major measures to promote diversification.

The new Corporation, headed by the Chairman of the Abu Dhabi Economy Department, Sheikh Hamed bin Zayed Al Nahyan, aims to provide an integrated infrastructure, a suitable business environment and professional services through establishing and managing special zones in Abu Dhabi. The objective is to make the Emirate an attractive place for local and international investment. Other objectives include the promotion of local industries and the creation of appropriate opportunities to attract and train UAE nationals so that they may play an active role in business in the Zones.

The Corporation will also seek to develop and encourage small, medium and specialized industries and will encourage the private sector to become involved in the management of the zones. This will be done, in part, through the commissioning of feasibility studies and investment in the appropriate electronic and IT infrastructure.

Over the next year the Government of Abu Dhabi also plans to privatize a number of state-owned companies. This is being handled through a newly-established public joint stock company, General Holding Company, GHC, which has taken over the industrial holdings of the General Industries Corporation, which is being wound up. GHC was established by Resolution No 5 for 2004 issued by H.H. Sheikh Khalifa Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces.

According to its Chairman, Sheikh Hamed bin Zayed, "The legal and organisational framework for taking over the companies of GIC by the new GHC is in place and in line with the privatisation process launched by the Abu Dhabi government, which includes partially or wholly selling some of its assets and factories owned by GIC." 'We will gradually sell stakes in public utilities to the private sector as part of the emirate's strategy to forge a public-private partnership and stimulate local financial markets,' he says. This process is expected to take place during the rest of 2004 and in 2005.

The companies to be privatised include fodder, cement, steel and pipe plants and flour mills. "The aim of selling these factories partially or fully and transferring their ownership to the private sector ultimately leads to the creation of a partnership between the public and the private sector by selling shares to UAE nationals," Sheikh Hamed say.

The privatization will also strengthen the local stock markets, as the newly-privatised firms obtain listings. International bank HSBC has been appointed financial consultant for the privatization process while Abu Dhabi Investment Co (Adic) will act as marketing consultant. Simmons & Simmons are the international legal advisors and Hadif Al Daheri & Partners will be local legal advisors.

Phase one of the privatisation process will be launched next month, when an initial public offering (IPO) will be made of the first company, the Emirates Foodstuff & Mineral Water Co.

Shares will be offered to UAE nationals and a number of local institutions selected by the Abu Dhabi Government. Besides helping to strengthen the non-oil industrial sector of the local economy, the privatization programme is also expected to attract local capital currently invested overseas, while, as the industrial sector expands, more job opportunities for UAE nationals will be created.

To complement other moves designed to stimulate non-oil sector of the local economy, the Department of Economy is Abu Dhabi is taking a number of other steps. One of the creation of a Dh 2.9 million electronic database, that will include information on all aspects of the local economy, and will also streamline the registration and licensing process for local and foreign investors. The Department is also to issue two annual directories, on local tourism and on other industry.

According to the Department's Director, Mohammed Al Qubaisi, the industrial directory will promote investment, explain procedures for investors, clarify the procedures for issuance of commercial licence, streamline cooperation with government departments and provide quality service to them. Tourism already contributes 15 per cent of the country's non-oil-and- gas income, the second highest percentage in the Gulf, and is also an important sector for future growth.

While the Department of Economy is now clearly looking to the future, significant results have already been achieved in terms of rationalizing and stimulating Abu Dhabi's non-oil industry.

According to official figures, investment in the recently-established Abu Dhabi Industrial City, at Mussafah, has now risen to Dh 5.5 billion (US $ 1.36 billion) with over 30,000 workers and 355 companies. Of these, 36 are in the petrochemicals sector, 28 in foodstuffs, 15 in garments and textiles, 58 in fibreglass, 75 in construction materials, 23 in computers and equipment assembling and 81 in metal industries. The ADIC, initially 14 sq. km. is now being expanded by another 10 sq. km.

Overall, the Economy Department expects local and foreign investors to invest at least US $ 10 billion (Dh 36.7 billion) into the five industrial zones, excluding sums related to the privatization of the industries formerly owned by the General Industries Corporation. One particular focus of interest, not surprisingly, is the oilfield supply sector, with a major dedicated complex being planned. Nearly 530 companies in Abu Dhabi already active in this field in various ways, with turnover of over US $ 1 billion a year. If the special zone takes off, however, serving not only Abu Dhabi but the whole of the region.

In order to attract the necessary foreign investment, the Abu

Dhabi Government is planning to revise local economic and investment legislation to ensure that it complies with the requirements of the World trade Organisation, WTO.

Salim bin Mohammed Al Dahiri, Under Secretary of the Department of Economy, notes that: 'we want the new investment and economic legislations to be compatible with the new world economic order. In this respect, the DoE is giving priority to expanding the private sector by increasing its role in domestic development and finding a real partnership between this sector and the government.

"For this purpose, we are planning to present a series of important projects to the private sector with a minimum government participation. We want to reassure private investors that the government will have only a small shareholding in these projects," he said. "There is no intention of monopolising or having a controlling stake in any project to be presented in the coming period. These ventures have been prepared and designed for the private sector. The DoE's role will be confined to legislative and procedural functions.

Another initiative expected to assist local and international business is the launching by the Abu Dhabi Chamber of Commerce and Industry of an interactive trade map with online access. Launched in collaboration with International Trade Centre (ITC) with a view to rationalise the UAE's imports and promote exports, the trade map is expected to promote UAE exports by increasing the competitiveness of the national products in the local, regional and international markets. Under the agreement with the ITC, the trade map will be managed from Geneva but will be linked to the Chamber website, with access available for members.

The main objective of the trade mapping was to promote non-oil exports of the UAE with the ultimate aim of progressive reduction of dependence on oil exports. The trade map would have information on more than 90 per cent of the world trade flows, covering 180 countries and 5,000 products Local importers and exporters will be able to use the map to examine the performance and dynamics of any country's export market for any product. The new initiatives being taken by the Department of Economy, with the active participation of the Chamber of Commerce and Industry, should help in a very significant manner to promote the diversification and further growth of the local economy.

The process is already under way, judging by recent figures issued by the UAE Ministry of Finance and Industry and by the Abu Dhabi Department of Planning. According to the Ministry of Finance and Industry, total industrial investment in the UAE last year was Dh43.62 billion with Abu Dhabi's investment being Dh15.61 billion.

The Gross Domestic Product (GDP) of Abu Dhabi stood at over Dh 166.5 billion last year as compared to Dh 148.7 billion in 2002, an increase of 12 per cent. The GDP of the UAE as a whole grew over the same period by 12.3 per cent to Dh 293 billion last year from Dh 261 billion in 2002.

A recent report by the Abu Dhabi Planning Department indicated that the GDP of Abu Dhabi has increased every year during the period from 1998 to 2003, with the exception of 2001, when there was a slump in oil prices.

The Abu Dhabi GDP, except for oil and gas sectors, has grown by 6.8 per cent to reach about Dh 88.8 billion," the report noted. High oil prices in 2003 led to a spectacular growth in the services and commodity sectors.

Over the past five years, the commodity sector of GDP rose 14.4 per cent to reach Dh 117.2 billion in 2003, manufacturing industries 11.6 per cent to Dh 20.4 billion, agriculture, livestock and fishery 9.9 per cent to Dh 6.4 billion, water and electricity 7.6 per cent to 3.3 billion, and construction 3 per cent to Dh 9.3 billion. The services sectors rose 6.1 per cent to Dh 49.4 billion while government services sector achieved a growth of 9.5 per cent to Dh 17.1 billion, real estate and business services 3 per cent to Dh 8.7 billion,wholesale/retail trade and maintenance 3.3 per cent to Dh 7.9 billion.

The contribution to GDP of the financial and insurance enterprises went up 10.8 per cent to Dh 7.3 billion, transport, communications and storage up 6.2 per cent to Dh 6.5 billion, social and private services up 5.8 per cent to Dh 1.8 billion, restaurants and hotels up 7.3 per cent to Dh 1.6 billion and the household sector up 2.7 per cent to Dh 690 million.

According to the Planning Department report, Abu Dhabi's exports rose by an annual average of 16.1 per cent over the period from 1998- 2003, reaching approximately Dh 96.3 billion in 2003 compared to Dh 45.6 billion in 1998. Over the same period, imports rose by 7.1 per cent, from Dh 26.4 billion to Dh 28.7 billion.

As a result, the favourable balance of trade increased at an average annual rate of 21.1 per cent, up from Dh 27 billion in 1998 to around Dh 70 billion in 2003. Annual fixed capital formation rose at an annual rate of 2.3 per cent to reach Dh 32.5 billion in 2003.

The population of Abu Dhabi Emirate was estimated by the Planning Department to be 1,251.000 at the end of 2003, with an annual average increase of 4.5 per cent since 1998.The workforce rose by 6 per cent a year over the same period, from 566,000 in 1998 to 758,000 in 2003. Estimated cost of the development budget in Abu Dhabi stood at Dh 55.2 billion by the end of 2003.

'Approved contracts totalled Dh 28.2 billion while annual allocations were Dh 11.1 billion, according to Planning Department director Butti Al Qubaisi. Of this amount, 53.7 per cent went to the Abu Dhabi Municipality and Town Planning Department, 26.5 per cent to the Abu Dhabi Public Works Department, 11.7 per cent to Al Ain Municipality and Town Planning Department, about one per cent to the Court of the Ruler's Representative in the Eastern Region of Abu Dhabi and 1.2 per cent to Al Ain Agriculture and Animal Wealth Department. Dh 229 million (2.06 per cent) were deposited at the general reserve and Dh 277 million (2.5 per cent) were given to direct projects.

Actual expenditure of the development budget reached Dh 9.7 billion in 2003, compared to Dh 7.8 billion for 2002. Allocations for 2003 rose to Dh 11.1 billion from Dh 8.4 billion for 2002. The transport, communications and storage sectors came in the first place in terms of expenditure, Dh 2.2 billion of the allocations of Dh 3.7 billion. The real estate sector spent Dh 1.7 billion out of allocations of Dh 2.5 billion. Social services and agriculture and forestry sectors spent Dh 1.4 billion and Dh1.3 billion. (The Emirates News Agency, WAM)


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