Tahseen Consulting Analysis on Building a Sustainable Economy in the UAE Cited by the Abu Dhabi Council for Economic Development

Issue 19 2014

Playing a central role in Abu Dhabi’s economic growth

Sustainability

PAGE 08The growing power of renewable energy

PAGE 20 Blueprint for a high-value diversified economy

PAGE 04 Fostering economic, social and cultural development

!$Cover TER192014_final.indd 1 1/15/15 2:24 PM

20 | Feature Economy

Abu Dhabi is building a sustainable economy through national education and high-value, diversifi ed sectors, reports Alicia Buller.

The long game

A mid the glamour of its beach resorts and the bright lights of its successful Formula

One Grand Prix race, Abu Dhabi is mindful of sowing deeper economic seeds for its young generations to come.

With its focus fi rmly fi xed on the long-term game, Abu Dhabi has attracted global admiration for its ambitious and detailed 2030 Economic Vision. In just under two decades, the emirate intends to build a sustainable, highly diversifi ed, value-added economy that provides opportunities for all its citizens and residents.

Naturally rich in oil and gas, Abu Dhabi aims to shift the source of its prosperity away from fi nite natural resources towards a sustainable economy. To this end, the emirate is providing incubative support to a broad spectrum of non-oil industries, including construction, manufacturing, fi nance, retail, wholesale trade and tourism.

Wes Schwalje, COO of government strategy fi rm Tahseen Consulting, comments: “Abu Dhabi’s focus on horizontal and

vertical diversifi cation into capital-intensive, export-oriented sectors suffi ciently balances risk with the uncertainty created by globalisation of knowledge industries.

“Recent declines in global commodity prices further support this relatively cautious approach to diversifi cation and industrial development.”

Through a cumulative set of initiatives, Abu Dubai’s 2030 strategy aims to increase the non-oil share of its economy to at least 60 per cent by 2030.

This is a huge task and will require heavy investment incentives to fast-track the process, especially for industrial zones,” warns Arno Maierbrugger, editor-in-chief at global research fi rm Inside Investor.

He adds that the current slump in oil prices has made it clear to “many Middle Eastern oil-producing countries” that economic diversifi cation is not just a vision but a necessity”.

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The Economic Review | 21

environmental impact of growth and the society as a whole.”

He adds: “I feel that Abu Dhabi is just at the beginning but the targets set are impressive and pioneering.”

FOREIGN DIRECT INVESTMENT

The ability to attract foreign direct investment (FDI) is key to building a sustainable economy; by luring international companies to set up base in the capital and contribute to its non-oil sectors, Abu Dhabi is also able to benefi t from the associated imported talent, skills and techniques which can be absorbed into the national ecosystem and contribute to the local knowledge base.

In an effort to appeal to foreign investors, Abu Dhabi has established a number of special economic zones (SEZs) with additional incentives, as well as upgraded its business-friendly institutions.

The capital now has a total of fi ve SEZs, each of them focusing on a specifi c group of

Despite Maierbrugger’s reservations, all the signs indicate that genuine progress is being made in Abu Dhabi.

Abu Dhabi’s real non-oil GDP grew by 7.4 per cent to Dhs343.7 billion in 2013, up from 5.9 per cent growth the previous year, according to data from Statistics Centre Abu Dhabi (SCAD). In real GDP terms, the data showed the contribution of the non-oil sector to the economy rose to 48.6 per cent last year, up from 47.6 per cent the year before.

Abu Dhabi has taken massive steps to grow its non-oil infrastructure in the last few years, expanding its ports, railways and international airport.

Visitors to the emirate are expected to grow by around 15 per cent during 2014 to attract an average of 3.2 million tourists, according to TRI Hospitality Consulting.

Maierbrugger says: “It’s all about a balance of growth factors and, as far as future generations are concerned, good management of resources, the

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22 | Feature Economy

industries, including logistics (Abu Dhabi Airport), manufacturing (KIZAD), media (twofour54), green technology (Masdar) and financial services (ADGM).

The emirate’s central global positioning and wealth of natural resources, along with its giant new $7.2 billion Khalifa Port, are key factors that will lend strong support to Abu Dhabi’s non-oil ambitions.

Khalifa Industrial Zone Abu Dhabi (KIZAD), the port’s accompanying 418-square-kilometre industrial zone, has done a roaring trade since its launch in 2010. Proving to be a key pillar in the emirate’s sustainable economy drive, KIZAD is now home to two anchor firms, rasil Foods (South America’s largest food processing company) and Emirates Aluminum (Emal), as well as over 50 investors with various plants under construction.

According to ‘The Report: Abu Dhabi 2013’ from research firm xford usiness Group ( G), large-scale anchor industries, such as the Emal smelter, the Emirates Steel plants and the

ourouge facilities, should help to facilitate the development of “downstream” segments.

Abu Dhabi Global Market (ADGM), the emirate’s upcoming financial zone, set to open in 201 , will also be an important addition to the emirate’s economic landscape.

Maierbrugger says The financial

services industry in Abu Dhabi certainly offers potential, but it needs to position itself against Dubai. The means to accelerate this sector lie in the adoption of Islamic finance and asset management, as well as offshore wealth management services on the scale of, say, Singapore.”

GREAT MINDS

Another facet of creating a sustainable economy is the cultivation of a exible and highly skilled workforce. For the last few years, Abu Dhabi has been busy signing up some of the world’s leading education institutions, such as INSEAD, New York University and Paris-Sorbonne University, as well as boosting the standard of its own educational establishments and introducing vocational college-to-job schemes for Emiratis.

Abdullah Saad Al Khanbashi, former chancellor of the UAE

niversity, told G, This entire country is moving at a fast pace economically. As a result, it is imperative to produce graduates that meet the needs of the present and future job market.”

Tahseen Consulting’s Schwalje does note however that some caution must be applied to depending entirely on the formation of a “knowledge economy” – it’s not a cure – particularly when many countries around the world

Abu Dhabi Global Market

(ADGM), the emirate’s

upcoming financial zone, set to open in

2015, will also be an important

addition to the emirate’s

economic landscape.

Abu Dhabi ‘s Industry and Business Stats (2013)

79,5483,706,785

306,937

785,076Total number of

business licenses (new & renewed)

Production of petrochemicals products (metric tons)

Domestic sales of petrochemicals products (metric tons)

Motor vehicles licensed in Abu Dhabi

13U.A.E A.D.

SOURCE: Statistics Centre Abu DhabiInfographics: Tarak Parekh

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The Economic Review | 23

have been pursuing similar strategies for decades.

“A key question is whether Arab economic development strategies based on the transition to knowledge economies have sufficiently taken into account the changing economic environment where knowledge is becoming cheaper and commoditised by emerging economies,” he says.

Schwalje explains that, “In many of the countries which the Abu Dhabi Economic Vision 2030 benchmarked, more education, more innovation, and policy and institutional reform have not necessarily led to higher levels of national well-being. For example, economic policy in Ireland has not ultimately produced high skills, high wage jobs for youth or adequately addressed socioeconomic development challenges.

“In fact, Ireland’s economic policies have led to record high youth unemployment and numerous social challenges for the country’s youth. Cases like Ireland suggest that a regional discussion on whether the economic prescription of the transition to knowledge-based economies remains the right course.”

Schwalje ultimately suggests that Abu Dhabi would be wise to broaden its current benchmarking strategy to define its economic

sustainability programme to include two types of countries: countries which generate a significant portion of their GDP from oil exports and countries which have economies that are reliant upon workforces imported from abroad.

He says: “Normative economic policy should not just be drawn from rich, developed countries which have purportedly transitioned to knowledge-based economies but also incorporate developing country peer benchmarks in South America, Asia, and Africa.”

ENTREPRENEURSHIP

Another crucial pillar of a sustainable economic policy is the creation of small and medium enterprises (SMEs). The Abu Dhabi government is actively encouraging students to start their own SMEs through a range of programmes, including Akourn and Flat6Labs Abu Dhabi. On a wider level, the emirate is promoting SME development through its million-dollar Khalifa Fund for Enterprise Development and a raft of grassroots initiatives.

However, Schwalje warns that caution must be exercised when designing entrepreneurial support initiatives.

“Many countries have geared their entrepreneurship policy interventions around international studies such

16.8M

20,903

150

12Passenger’s using Emirates Airports

Fixed broadband subscribers per 100 inhabitants

Permits Issued in Abu Dhabi

Hotel Establishments

HOTEL HOTEL HOTEL HOTEL HOTEL HOTEL

AED 15,610 MCompensation of employees of manufacturing activity (million AED)

197Mobile cellular subscribers per 100 inhabitants

On a wider level, the emirate is promoting SME development through its million-dollar Khalifa Fund for Enterprise Development and a raft of grassroots initiatives.

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24 | Feature Economy

as the Global Entrepreneurship Monitor, Ease of Doing Business Index, and Global Entrepreneurship and Development Index. While these frameworks are useful, they may not ade uately capture the difficulties faced in the UAE.

“Much more qualitative research of existing entrepreneurs is required to advance this dialogue further. This dialogue must not be confined to emirate-level challenges but be broadened to involve country-level policy interventions. The focus must be on UAE-wide policy interventions that are consistent across all emirates rather than emirate-level interventions that create a different playing field across the country.”

At the launch of the Abu Dhabi Centre for Economic Growth in March this year, Sultan bin Saeed Al Mansouri, UAE Minister of Economy, underlined the importance of SMEs.

He said: “Taking the UAE as an example, small and medium-sized businesses represent 92 per cent of the trade sector and contribute 60

per cent to our country’s GDP. SMEs are also responsible for 86 per cent of private sector employment”.

Al Mansouri added: “The UAE leadership historically views human development as key. It is a crucial precursor to economic growth and development.”

But how can Abu Dhabi truly measure whether its sustainable economy policies are working? Schwalje is doubtful as to whether a disparate range of objective measures can really provide a coherent overall picture of national wellbeing and progress.

He explains: “It will be essential for the UAE to complement outcome-based objective indicators of national progress with subjective wellbeing data that measure wellbeing across a variety of other dimensions such as education, health, income and wealth, and the environment.

“This will require the regular collection of nationwide data from large and representative samples to provide a coherent overall picture of wellbeing,” he adds. ◆

Crude Oil Production (Thousands Barrels)

818,

330

2,24

2

825,

291

2,26

1

948,

200

996,

928

2,59

1

2,73

12013 2012 2010 2005

Volume Daily AverageSOURCE: Abu Dhabi National Oil Company-ADNOCNote: Production excludes condensates

The UAE leadership historically

views human development as key. It is a

crucial precursor to economic growth and

development.

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Welcome | 25

Cover by Charlie Banalo

The Economic Review is a quarterly publication issued by the Abu Dhabi Council for Economic Development.

Chief Editor Dr. Hadi Al Taie

Production Dima Al Bawardi

Abu Dhabi Council for Economic Development is a statutory body, established in May 2006, to facilitate economic diversification and growth through creating greater understanding, cooperation and engagement between the public and private sectors of the Emirate of Abu Dhabi.

Abu Dhabi Council for Economic DevelopmentPO Box 44484, Abu Dhabi, UAET: +971 2 418 9999, F: +971 2 418 9988, E: [email protected]: www.adced.ae @ADCED_TER

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© Copyright Abu Dhabi Council for Economic Development

Reproduction, copying or extraction by any means of the whole or part of this publication must not be undertaken without the written permission of the Abu Dhabi Council for Economic Development.

The views expressed in this publication are not necessarily those of the Abu Dhabi Council for Economic Development.

Special thanks to:

Suhail Al Mazrouei, UAE Minister of Energy; Sultan Ahmad Al Jaber, UAE Minister of State and Chairman of Masdar; Sultan Al Dhaheri, Acting Executive Director Tourism TCA Abu Dhabi; Khaled Awad, Founder Grenea; Bassem Halabi, Business Development Director Metito; Engi Jaber, Sustainability Manager Dewan; Arno Maierbrugger, Editor-in-Chief Inside Investor; Ahmed Nada, Vice President Middle East First Solar; Wes Schwalje, COO Tahseen Consulting

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