Abu Dhabi: The real powerhouse of the United Arab Emirates

A few short years ago, the most glamorous place to be in the United Arab Emirates was Dubai.

The world’s media was obsessed with the surging economy created as the emirate moved away from dependence on its dwindling oil reserves and diversified into tourism and finance.

The results were spectacular with real estate going through the roof and people flocking from all around the world to get a slice of the good life.

However in recent months as the economy crashed, it was revealed that Dubai’s economic miracle, which had mostly been financed on borrowings, was an illusion.

Dubai was in need of a bailout and as expected, neighbouring emirate Abu Dhabi stepped in.

There are many similarities between the neighbours. Abu Dhabi, the capital of the UAE and its second largest city, has also been diversifying in recent years, investing substantially in industry, tourism, real estate and retail.

Like Dubai, the population of Emiratis (UAE local people) is far outnumbered by the number of expats, and it has also been an attractive place for people on the rise to make their fortune.

Why then has Abu Dhabi not been rocked as badly by the global recession as its neighbour?

The answer, as always in the Middle East, lies with oil, not just its discovery and resultant economic benefits but how the wealth has been invested ahead of the inevitable day when it runs out.

As far as Abu Dhabi goes, it’s always had an enormous advantage over its neighbours thanks to stroke of geological luck which has it sitting on top of 95% of the oil and 92% of the gas in the United Arab Emirates. All up Abu Dhabi has control of 9% of the worlds total oil resources.

Obviously in a country with a small population like Abu Dhabi, there was always going to be plenty left over after the populations’ need for healthcare, education and employment were taken care of.

So in 1976, Abu Dhabi established the Abu Dhabi Investment Authority (ADIA), which invested the country’s huge surpluses across a wide range of low risk investments.

The idea of investing in anything other than gold or short-term credit was regarded at the time as rather unorthodox.

But 30 years down the track the fund, reputed to be the world’s largest sovereign wealth fund, is estimated to be worth anywhere between $500 billion and $700 billion dollars, with some people placing it as high as $1 trillion at one time, although with the fund suspected of taking huge losses of $125 billion or more in 2008, that’s now unlikely.

Exact figures for ADIA are thin on the ground. The Abu Dhabi government has always been rather circumspect about revealing any information, which is why there are only estimates of ADIA’s performance.

In fact this low-key approach seems to suit the Abu Dhabi government.

Although regarded as relatively liberal, Abu Dhabi still adheres to traditional values and is still quite conservative. It was only in 2004, with the death of ruler Sheikh Zayed bin Sultan al Nahyan, that Abu Dhabi really began the push to diversify.

The leadership of the country was taken over by two of Nahyan’s sons, Sheikh Khalifa and Sheikh Mohammed, both highly educated and savvy businessmen.

The pair launched an ambitious, fast moving programme of development that seemed to take its cues from Dubai’s successes but without some of that country’s more dazzling excesses.

Abu Dhabi launched its own airline, Etihad Airways, which has expanded rapidly, despite some critics concerns that there wasn’t enough room for both Etihad and Dubai’s carrier Emirates. It plans to have the world’s largest and most modern fleet.

It also reformed property laws, allowing foreigners to buy land and leaving the way clear for a boom in real estate.

It built an outrageous structure to get the world’s attention, in this case the $3 billion dollar Emirates Palace hotel.

But unlike Dubai, which seemed to specialise in developing attention-getting but possibly tacky projects like The World, a series of man made island shaped like a map of the earth, Abu Dhabi stopped there and came up with more graceful propositions.

The country is developing a cultural destination on Saadiyat Island. By 2013, it’s planned that the island will be home to a branch of The Louvre, a new Guggenheim Museum and a performing arts centre.

The country is also building Masdar City, designed to be a sustainable zero carbon, zero waste city. They have also looked to other Arab countries for investment and tourism rather than just relying on the Western world.

There’s no doubt that Abu Dhabi, like every country, has been affected by the recession. Nowhere is a paradise and everywhere has its problems.

And granted it has had a huge advantage in its oil wealth, something not bestowed on too many nations.

However, the way you play is just as important as the hand you’re dealt, and Abu Dhabi’s sensible stewardship of its wealth seems to be paying dividends.

Ultimately, Abu Dhabi’s reputation as the big hitter of the UAE, briefly eclipsed by the smoke and mirrors act of Dubai, is back in play.

By Jo Blick