Abu Dhabi outlines plan to cut oil dependency

Abu Dhabi outlines plan to cut oil dependency
Abu Dhabi, the oil-rich capital of the seven-state United Arab Emirates, is targeting an annual economic growth rate of 7 per cent over the next six years as it strives to diversify away from hydrocarbons.

From 2015 onwards economic growth will slow to an annual 6 per cent, and by 2030 the small but wealthy emirate expects to have quintupled gross domestic product, according to a government economic programme released on Wednesday.

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Abu Dhabi, which holds 8 per cent of the world’s crude oil reserves, plans to invest its petroleum revenue into diversifying its economy, and hopes to boost non-oil trade to 50 per cent of total exports by 2028.

“The aim is for the emirate to take its place among the most successful economies of the world by 2030,” the Abu Dhabi Economic Vision 2030 report said. “Within overall growth and as part of efforts to diversify, Abu Dhabi will seek to foster non-oil [GDP growth] at a higher rate than that of the oil sector.”
Though oil prices have collapsed since the summer, Abu Dhabi has saved billions in an offshore sovereign wealth fund, which – despite likely large financial losses – holds at least $280bn, double the emirate’s estimated 2008 GDP, according to Moody’s, the credit agency.
“The government is working to diversify the domestic economy away from hydrocarbons by encouraging the development of the private sector and slimming the size of the public sector,” Moody’s noted in a report published in December. Nevertheless, the most populous emirate in the UAE is feeling the pinch of declining oil revenue and the credit crunch.

If oil prices average about $55 a barrel this year the UAE’s oil revenues are expected to halve from last year to $48.8bn in 2009, according to research by National Bank of Abu Dhabi. Abu Dhabi controls some 95 per cent of the UAE’s oil reserves. About $300bn of real estate and infrastructure projects are either underway or planned, but some experts say the credit crunch will slow progress on many developments. The non-oil part of Abu Dhabi’s economy expanded about 8 per cent in real terms in 2007, but “this can be expected to slow this year and next given the adverse effects of the global financial crisis,” Moody’s said in December.

The rest of the UAE – led by the previously booming metropolis of Dubai – may be even harder hit by the credit crunch. The UAE does not announce quarterly GDP growth figures, so if the country does enter two consecutive quarters of negative growth, it may not be declared.
To support economic growth and diversification, Abu Dhabi plans to “adopt both a fiscal policy that is responsive to economic cycles and a safe monetary and financial system with manageable levels of inflation,” the report stated.

By Robin Wigglesworth in Abu Dhabi
source:The Financial Times Limited

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