With a substantial percentage of the world’s oil reserves and a reputation for careful economic and political oversight, Abu Dhabi has become a major regional player in recent years. In 2011 and 2012, despite ongoing political instability in the Middle East and concerns about long-term financial volatility in many Western markets, the emirate’s status continued to grow. This is largely the result of a series of ambitious development initiatives put in place since 1958, when oil was first discovered in Abu Dhabi. Indeed, the booming hydrocarbons industry continues to be the emirate’s primary economic contributor, accounting for 90.6% of government revenues in 2011, according to figures from the Statistics Centre – Abu Dhabi (SCAD).
In an effort to put this income to good use and reduce the emirate’s reliance on hydrocarbons, the government has invested heavily in a number of economic diversification strategies. Most recently, under the Abu Dhabi Economic Vision 2030 initiative, the emirate aims to reduce the oil and gas sector’s contribution to GDP to 36% by 2030, from 58.5% in 2011, according to figures released by SCAD. Other related long-term goals include building a fully-fledged knowledge economy and providing high-quality, comprehensive social services for the growing population.
Still, the emirate faces a number of ongoing challenges. Abu Dhabi’s population is heavily skewed towards younger generations. According to figures from SCAD, more than 50% of the population is under the age of 29. Ensuring this population has access to housing, jobs, education, health care and other social services is a daunting challenge. The political unrest that swept the Middle East and North Africa in 2011 and 2012 has only exacerbated this issue, even if it has not directly affected the emirate. Meeting the diversification targets laid out in Economic Vision 2030 represents another major challenge going forward.
Despite these issues, the emirate’s future looks bright. While ongoing political unrest continues to be a major challenge for many Middle Eastern governments, that is not the case for the UAE. The country has also been the recipient of additional economic activity as businesses and investors from around the broader Middle East seek out politically stable Arab markets, such as the UAE, Saudi Arabia and Qatar.
HISTORY: Modern-day Abu Dhabi and the surrounding area has been a centre for trade and other economic activity for thousands of years. The earliest recorded archaeological evidence discovered in the area dates back to the third millennium BCE.
The Umm An Nar civilisation, for example, was active from roughly 2600 BCE through 2000 BCE in an area that now includes parts of the UAE as well as northern Oman. Named after a small island to the south-east of what is now Abu Dhabi City, the inhabitants of the region at the time were largely traders and fishermen. Archaeologists have also uncovered evidence of an ancient civilisation inland, near the modern city of Al Ain and Jebel Hafeet, the UAE’s second-highest mountain, on the Omani border.
The history of modern-day Abu Dhabi can be traced to the Bani Yas, a nomadic Arab tribe that consolidated power in the region beginning in the late 18th century. In 1793 a section of the tribe migrated from the southern Arabian Desert to today’s Abu Dhabi Island. The Al Nahyan family, which now rules Abu Dhabi, traces its lineage back to this group. Similarly, the Al Maktoum family, which rules Dubai, was also part of the Bani Yas tribe. Primary economic activities during this period included camel herding, date farming and other agricultural pursuits, fishing and pearl diving.
In the early 19th century the British took control of the area, with the overarching goal of protecting their lucrative trade route to India. In the mid-1800s Abu Dhabi, along with the six other emirates (then known as sheikhdoms) and parts of Oman, signed a maritime treaty with the British empire, in effect ceding control to the British in exchange for protection from the Ottoman empire. As a member of the Trucial States, Abu Dhabi was a British protectorate until the 1960s.
In 1968 the UK announced that it would pull out of the Gulf entirely by 1971. Over the next three years Sheikh Zayed bin Sultan Al Nahyan, the leader of the sheikhdom of Abu Dhabi, brought the other emirates together to form the UAE, which became an independent state in early December 1971. The seventh and final emirate, Ras Al Khaimah (RAK), joined shortly thereafter in February 1972. Sheikh Zayed, who became the president of the new country, began the long process of developing and modernising Abu Dhabi and the greater UAE. He is widely credited with transforming Abu Dhabi into a vibrant, modern economic centre. When Sheikh Zayed passed away in 2004, his son, Sheikh Khalifa bin Zayed Al Nahyan, took over where he left off.
THE FEDERAL GOVERNMENT: As the federal seat of the UAE, Abu Dhabi City is home to the country’s national government. Under the constitution of the UAE, which was written jointly by the leaders of Abu Dhabi and Dubai in 1971, each of the seven emirates that make up the UAE – namely Abu Dhabi, Dubai, Sharjah, RAK, Ajman, Fujairah and Umm Al Quwain – retains a considerable amount of autonomy. The federal government, meanwhile, manages key sectors that require national-level direction, such as currency issues and fiscal policy, national security and defence, foreign affairs, immigration, labour relations, communications policy, and education regulation and standards, among others. There is interplay between federal and local oversight organisations in some areas. For example, while an individual emirate might develop a new university or hospital, that facility will be required to meet national quality standards, as well as local benchmarks.
As the original founding members of the UAE, Abu Dhabi and Dubai play a central role at the national level. For instance, due to Sheikh Zayed’s leadership in establishing the UAE in the 1970s, the ruler of Abu Dhabi traditionally also serves as president of the country. Similarly, the ruler of Dubai – currently Sheikh Mohammed bin Rashid Al Maktoum, who has held the position since 2006 – traditionally serves as prime minister and vice-president. At the national level Abu Dhabi is represented by Sheikh Khalifa, who sits on the Supreme Council of Rulers, the central presiding body in the UAE, alongside the rulers of the other six emirates.
ORGANISATION: The government of the UAE has three branches, namely the executive branch, the legislative branch and the judicial branch. The executive branch is made up of the Supreme Council and the Council of Ministers, otherwise known as the cabinet. The latter entity comprises the UAE’s 22 government ministers and is overseen by the prime minister and two deputy prime ministers. The legislative branch is primarily composed of the Federal National Council (FNC), a 40-member body comprising representatives from all seven emirates. Since 2006 an electoral college – a group of prominent citizens appointed by the Supreme Council – has elected half of the members of the FNC, while the other half is appointed by the Supreme Council. The number of FNC representatives from each emirate is determined by size and population. Abu Dhabi and Dubai, as the most populous and largest emirates, each send eight representatives (four nominated by the ruler and four elected), while Sharjah and RAK send six, and the other three emirates each send four.
Recent changes at the FNC are at the heart of the Supreme Council’s latest efforts to boost public participation in government. Until the mid-2000s, all FNC representatives were appointed directly by the ruler of each individual emirate. In 2006 the UAE held its first public elections, with an electoral college of around 6000 Emiratis electing 20 members of the FNC. In September 2011 the second round of elections took place, this time with an expanded electoral college of more than 129,000 individuals – 46% of which were female, a sizeable jump on the 2006 elections, when women were around 18% of the voting body. Similarly, 85 women campaigned for a spot in the FNC in 2011, of 468 candidates in total; at time of print, eight women were serving in the FNC. The elections have simultaneously boosted participation in the political process in the UAE and established a culture of electoral politics for the first time in the country’s history.
The FNC plays an advisory role in the federal government, offering assistance and counsel to Supreme Council members and other decision makers. The government has worked to expand the council’s powers in recent years. In 2008 the Supreme Council introduced a handful of constitutional amendments that extended FNC members’ terms from two years to four years, and increased its remit to include the UAE’s involvement and participation in international agreements and conventions, among other changes. As the Supreme Council continues to work to expand representative government in coming years, more changes are expected.
Finally, the federal judicial branch, which is independent of the other branches of government under constitutional law, is made up of the Federal Supreme Court and the Courts of First Instance. The former, which is composed of five judges, deals with federal laws and disputes, including inter-emirate issues. The latter comprise a network of regional courts and deals with matters such as local issues, laws and disputes.
THE LOCAL GOVERNMENT: Under the constitution, each emirate is allowed a substantial amount of autonomy. For example, the emirates are allowed to acquire individual membership in OPEC, although none of them have opted to do so, instead allowing the federal government to manage the country’s participation in the organisation. When the UAE was founded in 1971, many of the smaller emirates ceded authority over certain areas to the federal government. Since then, however, income growth and higher levels of education throughout the UAE have allowed some of the Northern Emirates to exercise part of this authority on their own. RAK, for example, has successfully introduced a series of ambitious local economic development projects in recent years, and enjoys a steadily growing reputation as a regional destination for investment.
While some of the smaller emirates continue to rely heavily on the federal government for support and services, Abu Dhabi, the wealthiest, largest and most populous emirate, boasts a suite of local government entities of its own. The Executive Council, which is the primary governing body at the emirate level, is chaired by Sheikh Mohammed bin Zayed Al Nahyan, Sheikh Khalifa’s brother, who serves as the crown prince of Abu Dhabi and deputy supreme commander of the UAE’s armed forces. The Executive Council is made up of the heads of key government departments and authorities as well as other members appointed by the ruler, and it serves as the local executive authority of the emirate. A number of subcommittees operate under the Executive Council, including ones dedicated to economic development, social development, and infrastructure and environment. Not all members of these subcommittees are members of the Executive Council. The council holds weekly meetings and closely monitors ongoing local development projects.
The National Consultative Council (NCC), meanwhile, carries out a number of other government functions at the local level, including reviewing legislation and managing Abu Dhabi’s international treaties and trade agreements. The council is made up of 60 members, who are appointed by the ruler. Like the FNC at the federal level, the NCC is expected to continue to gain new powers in the coming years, as the government works to boost participation in public affairs. Finally, individual municipal authorities, made up of leaders from the respective areas, administer the regions of Abu Dhabi City, Al Ain and Al Gharbia.
ECONOMIC DEVELOPMENT STRATEGY: In 2008, after a two-year review process, the emirate’s government launched the Economic Vision 2030 planning document, which serves as a blueprint for Abu Dhabi’s long-term economic development. The plan was put together by a task force of players from both the public and private sectors, and picks up where a handful of previous development programmes left off. Three public entities took the lead in the development process: the Department of Planning and Economy, the Abu Dhabi Council for Economic Development and the General Secretariat of the Executive Council.
Broadly, Economic Vision 2030 aims to diversify the emirate’s economy away from oil income; develop its social and human resources; improve and expand upon the emirate’s infrastructure and transport networks; improve environmental sustainability standards; and optimise government operations.
To meet these targets, the government has identified seven priority development areas: building an effective business environment that is globally integrated; developing a disciplined fiscal policy framework capable of responding to economic cycles; instituting a robust financial and monetary market environment and managing inflation; improving labour market efficiency; developing a resilient national infrastructure with the capacity to handle future economic growth; developing a productive, skilled national workforce; and supporting financial markets to boost private sector financing of development projects. The implementation of Economic Vision 2030 is expected to create numerous opportunities for local and international investors in many sectors. The programme is anticipated to yield a large number of new jobs for Emiratis, principally in knowledge-based, export-oriented sectors.
Diversifying Abu Dhabi’s economy, which remains reliant on hydrocarbons-related income, is a primary area of focus. By 2030, as stated above, the government is working to reduce the hydrocarbons sector’s GDP contribution to 36%. With this in mind, the Economic Vision 2030 document includes a list of non-oil sectors that will benefit from investments made under the programme and are expected to become major GDP contributors. On the regional level, Abu Dhabi aims to become a centre for trade, transport and logistics. Other areas of focus include education, media, financial services, telecoms, chemicals, metals and mining, aviation and defence, hotels and restaurants, pharmaceuticals and biotechnology, and health care equipment. Alongside these new focus areas, the government has continued to work to develop the thriving energy sector, which still has great potential.
Abu Dhabi has already made substantial progress in many of the areas described in the plan since its launch in 2008. As of mid-2012, a number of major infrastructure projects were either in the planning stages or under construction, including a new terminal at Abu Dhabi International Airport, 24 schools, 14 health centres, numerous road projects, a light-rail project and the massive Kizad initiative. Kizad, which includes a free zone and new port and shipping facilities, is expected to contribute 15% of the emirate’s non-oil GDP by 2030.
SOCIAL DEVELOPMENT: The social development component of Economic Vision 2030 has become increasingly important in recent years. While public protests have broken out in numerous countries throughout the Middle East, Abu Dhabi has remained stable, with the UAE’s solid financial position and a series of government investments in housing and other key areas contributing to this. Indeed, according to a February 2012 report in US business magazine Forbes, the UAE boasted the sixth-highest per capita income in the world – behind Qatar and Singapore, among others.
Additionally, the government offers a comprehensive set of social services and other public amenities for residents, including free education, health care and, in many cases, housing. Various government entities are currently in the midst of a handful of major new residential construction projects. In late August 2012, for example, the Abu Dhabi City government granted 1000 residential units to low-income Emiratis as part of the Al Farah City Residential Project, which includes 4857 villas spread over about 12.5m sq metres east of Abu Dhabi International Airport.
Like Saudi Arabia and Qatar – also major oil- and gas-producing nations with relatively high per capita GDPs – the UAE has actually benefitted from the Arab Spring in a variety of ways. Many investors from countries that have been affected by the unrest, such as Egypt and Libya, have moved their investments to more stable economies, including the UAE, according to OBG interviews with financial industry players.
The tourism industry has also benefitted, as visitors – particularly those from other countries in the Middle East – have sought out safe, accessible destinations. In 2012 both Abu Dhabi and Dubai were popular destinations during the Islamic month of Ramadan, for example, when many Muslims in the Gulf take time off from work to travel abroad.
Strengthening the government’s commitment to social development is a key component of Economic Vision 2030. Improving the quality of education in Abu Dhabi has been a central government focus for decades. According to a recent SCAD study, the emirate currently boasts one of the lowest illiteracy rates in the Arab world. Only 7.5% of Abu Dhabi’s population was illiterate in 2011. This compares to an average illiteracy rate of about 35% for the Arab world as a whole in the same year, according to figures from the Arab League Educational, Cultural and Scientific Organisation.
AN ENVIRONMENTAL FOCUS: In addition to the economic and social targets laid out in Economic Vision 2030, the plan includes goals designed to ensure the emirate continues to improve upon its environmental sustainability practices. Abu Dhabi has earned a reputation as an international centre for green building and cutting-edge sustainable development, largely due to the massive Masdar City project, a 6-sq-km city that will rely entirely on renewable energy sources, giving it a carbon-neutral footprint. Masdar City, which is set to be completed between 2020 and 2025 at a cost of around $19bn, is expected to eventually house some 40,000 people. While the project was launched in 2006, well before Economic Vision 2030 was introduced, it encapsulates the commitment to green innovation. Masdar City is just one part of the broader Masdar initiative, which also encompassed a university (the Masdar Institute of Science and Technology), renewable energy funds and the development of new energy technologies, among other things (see Energy chapter).
Another key part of the government’s focus on environmental issues is the UAE’s recent move towards nuclear power. In 2008 the government published a policy for the evaluation and potential development of peaceful nuclear power. Plans were subsequently announced to install a network of nuclear power plants to meet rising energy demand and reduce reliance on hydrocarbons. In general, nuclear power is considered to be a substantially cleaner energy source than oil and other fossil fuels. As of mid-July 2012, construction was under way on the first of four civil nuclear power plants, which will be located in Abu Dhabi near the border with Saudi Arabia. Developed in cooperation with the International Atomic Energy Agency, the first plant is expected to begin producing energy in 2017.
FUNDING FUTURE STABILITY: Abu Dhabi’s government oversees two sovereign wealth funds (SWF) and numerous government capital investment vehicles, which together represent one of the largest pools of government investment in the world. The Abu Dhabi Investment Authority (ADIA), the emirate’s largest SWF, was founded in 1976 for the purpose of investing on behalf of the emirate. Though ADIA has never released the actual value of its assets, estimates range around $500bn. According to the SWF Institute, a US-based organisation that studies government investment strategies, the fund was valued at around $627bn in early 2012, which would make it the world’s single largest public investment portfolio. Abu Dhabi’s other SWF is the Abu Dhabi Investment Council, while its government capital investment vehicles include the International Petroleum Investment Company and Mubadala Development Company. These are invested in numerous sectors around the world, and have played a major role in the emirate’s rapid expansion over the past four decades.
FOREIGN RELATIONS & TRADE: Abu Dhabi’s growing international reputation is closely related to its rapidly expanding profile as a key trade partner of many of the world’s largest economies, with much of this trade centred on the sale of oil and related products. According to the most recent statistics available from SCAD, hydrocarbons and related products accounted for 94% of total exports in 2011.
Major importers of Emirati crude include Japan, which purchased 35.6% of the total oil exports from Abu Dhabi in 2011 as well as South Korea, Thailand and India. The Netherlands, meanwhile, imported almost 17% of refined oil products in 2011. Japan also purchases a substantial amount of refined oil products, in addition to the majority of its natural gas exports.
While oil exports continue to grow, Abu Dhabi has also posted rapidly expanding non-oil exports in recent years, in line with the economic diversification plans laid out in Economic Vision 2030. In 2011, according to SCAD, the top purchasers of non-oil products from Abu Dhabi were Canada, with some 23.1% of the total; Saudi Arabia with 17.9%; and Brazil, with about 14.5%. The three largest non-oil export categories in 2011 were transport vehicles, which made up almost 40% of total non-oil exports; base metals and articles of base metals, with 22% of the total; and rubber and plastic products with 21.2% (see Economy chapter). After playing a major role in raising its profile in the past, Abu Dhabi’s trade activities are expected to be central to the emirate’s relationships abroad in the years ahead.
Countries: United Arab Emirates
Topics: Getting Started