Enormous oil revenues and a far-sighted government have powered Abu Dhabi’s economy for 40 years. But as the UAE heads into its fifth decade, it is time for private enterprise to lead the way.
Forty years ago the newly founded United Arab Emirates hit the ground running. With coffers full of oil cash and very little in the way of infrastructure, the nation’s capital Abu Dhabi, was in a hurry to catch up with the Western world. Over the last four decades hundreds of billions of dollars have been spent developing roads, ports, IT systems, modern utilities, higher education facilities and sophisticated banking and legal systems. Now, with the first stage of development almost complete, government leaders are looking at private enterprise to play its part in diversifying and advancing the economy. But is private industry ready to take up the offer?
“Since the creation of the UAE, the government has been putting the right platform in place in terms of infrastructure and legislation, as well as developing people and entrepreneurial skills and mindsets,” Fahad Al Raqbani, director general of the Abu Dhabi Council for Economic Development, told INSEAD’s Global Business Leaders Conference in Abu Dhabi recently.
“All of this is for the private sector. At the end of the day, the UAE’s competitiveness is not just derived from what the Government can do. We will achieve our targets when we see that the private sector is strong enough to support the government.”
Strength in diversity
The groundwork for change has been laid out right down to what areas the private sector should enter and where. In line with its Economic Vision 2030 statement, which aims to expand growth outside the city and reduce the oil share of the Emirate’s GDP to less than 40 percent, the Abu Dhabi government is offering incentives to stimulate sectors such as technology, aerospace, ICT, renewable energy, basic industries, and petrochemicals. Leading by example it has set up its US$10 billion chemicals manufacturing centre at Al Gharbia in the remote western region and is developing an aerospace cluster near the city of Al Ain near the Omani border.
“We want the private sector come in too,” Al Raqbani says. “That’s what we’re trying to push them towards by having the right incentives and platforms like the Khalifa Port’s KIZAD project.”
Attracting foreign investment
KIZAD, the Emirate’s ambitious AED 24.5 billion Khalifa Industrial Zone Abu Dhabi, is offering international investors the chance to hold 100 percent ownership in an industrial property for the first time. The 420km2 area – about two-thirds the size of Singapore – on the border with Dubai provides land, warehouses, offices and other facilities for industrial use.
“KIZAD’s role is as an enabler,” Khaled Salmeen Al Kawari, executive vice president of Industrial Zones at the Abu Dhabi Ports Company (ADPC), which manages KIZAD told INSEAD Knowledge on the sides of the conference.
By providing access to such infrastructure, cheaper water and electricity rates as well as tax exemptions, it is focused on attracting foreign investment into the region.
After an extensive international market-research campaign KIZAD is promoting itself in India, China, South Korea, the U.K., the U.S. and Germany and is looking to enter partnerships with private companies to manage and operate many of the project’s services.
Local SME and private sector growth is being encouraged by entities such as the Khalifa Fund, and the Abu Dhabi Council of Economic Development (ADCED) offering funding assistance and training, and the government has invested in universities and higher learning institutes to train and encourage young Emiratis to look for jobs in non-government corporations.
“We want to change the mindset of (Emirati) people,” Al Raqbani says. “They shouldn’t think, ‘when I graduate I’m going to work for the government because this is the safest and most stable environment’.”
But challenges remain and it’s not just the Emirati mindset that needs changing. Sean Angle, head of finance and projects at DLA Piper Middle East, says many international investors needed to rethink the way they do business. “Potential investors come into the Middle East region and see incredibly modern, sophisticated infrastructure and an incredibly modern, sophisticated environment, and then when something doesn’t happen the way they want it to happen the toys get thrown out of the cot,” Angle says. “They say, ‘this isn’t how we do it in New York or London’. They start to pick holes in what they see.”
Double bottom line
Another difficulty many potential investors from the West have is in accepting the “double bottom line”, or the blend of economic and social returns that governments in emerging nations expect from companies doing business there.
“It’s a constant battle particularly when advising foreign sponsors,” says Angle, who has 20 years of experience in the Middle East. “When you help build a country you have to have that double bottom line blend, and you have to embrace it.”
Once an international business has made the decision to move into the Middle East, Abu Dhabi faces the challenge of wooing it away from countries with similar economies offering similar incentives. The neighbouring Gulf nations of Qatar, Saudi Arabia and Kuwait are all trying to diversify and attract private investment.
Al Kawari says this competition and increasing coordination between the Gulf Cooperation Council (GCC) countries is benefiting industries with interests spread across the region.
Infrastructure and transport services are becoming closer as the countries mature. GCC nations have unified their customs services in terms of exemptions and excise, and are in the process of removing the customs borders between member nations.
“Definitely there is healthy competition, but at the same time we push each other to improve to attract investors,” he says.
INSEAD’s Global Business Leaders Conference was held in Abu Dhabi October 23, 2011.