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Abu Dhabi: Shifting priorities

Key elements of Abu Dhabi's economic diversification programme, including the development of the emirate's manufacturing base, are moving ahead as planned, with the government reiterating its commitment to encourage investment and diversification.

Government officials have confirmed that Abu Dhabi remains dedicated to investing in the diversification of the local economy. In the introduction of the Department of Economic Development 's ( DED ) annual Economic Report of the Emirate of Abu Dhabi, released in mid-November, Nasser Alsowaidi, the chairman of the DED , noted that "the commitment of Abu Dhabi government to continue spending on infrastructure and other development projects in various parts of the emirate has led to the revival of the local economy".

The report revealed that Abu Dhabi's economy expanded by 15.9% in nominal terms in 2010, from Dh535bn ($145.6bn) to Dh620bn ($168.8bn). While oil continues to account for about half of GDP, non-oil activities achieved notable growth, including the manufacturing sector, which increased by 10.8%.

According to Mohamed Omar Abdullah, the undersecretary of the DED , the rise in industrial activities "clearly reflect[s] the efforts exerted by the government of Abu Dhabi to promote this sector as one of the pillars of sustainable development".

The manufacturing base will likely get a boost from the continued development of the Khalifa Industrial Zone Abu Dhabi (KIZAD), a 420-sq-km industrial area that was launched in 2010 and will eventually be integrated with Khalifa Port. By 2030, the zone is expected to account for 15% of the emirate's non-oil GDP, in addition to providing around 100,000 jobs.

"We are making great progress on the project," Khaled Salmeen, the zone's executive vice-president, told OBG earlier in 2011. "KIZAD is an illustration of how serious the government is about the development of Abu Dhabi's industrial offering. It is an integral part of the Abu Dhabi Economic Vision 2030 (the emirate's long-term development plan), as well as being important in achieving sustainable growth for the economy."

As of May 2011, more than 100 firms had applied to set up operations at KIZAD. More recently, in November, Abu Dhabi-based newspaper The National reported that a number of companies were in the "advanced stages of signing lease agreements", adding that the performance of the zone in terms of attracting foreign investors was exceeding projections.

"We set a year-one target [of companies]," Tony Douglas, the CEO of Abu Dhabi Ports Company, which oversees KIZAD, told the newspaper. "We're double our year-one expectation at the moment."

KIZAD is one of three free trade zones (FTZs) in Abu Dhabi. In January 2011, the government granted free-zone status to the properties of Abu Dhabi Airports Company, which will develop zones around Abu Dhabi International, Al Bateen and Al Ain International. The twofour54 free zone, designed as a media centre and home to the regional offices of CNN and the BBC, has been in operation since 2008. Advantages of FTZs in Abu Dhabi include 100% foreign ownership, certain tax exemptions, and discounts on energy and land costs.

The government's move to develop FTZs is in line with its long-term plan to boost the role of the private sector in the economy so that it can become the driver of economic growth in the future. As Alsowaidi told OBG earlier in 2011, "Our strategy is designed to shift the role of the government from provider to regulator, putting the private sector at the heart of our economic development. It is therefore critical that we attract foreign direct investment."

While the emirate's manufacturing sector is moving full speed ahead, however, other sectors are facing some challenges. In late October, the Tourism Development and Investment Company (TDIC), a government-owned entity, announced that it was delaying the opening of three museums that were originally scheduled to launch between 2013 and 2014. The three museums - Abu Dhabi branches of the Louvre and Guggenheim, plus the Zayed National Museum - will eventually be part of an art and culture complex located on Saadiyat Island.

TDIC said in a statement that it had "decided to extend the delivery dates" in light of "the immense magnitude of the work associated with the development of such consequential projects". The company provided no new date for the opening of the museums, but noted that the move will have only a "moderate impact on the delivery timeline of the museums".

The previous week TDIC had announced that it was cancelling a tender for the construction of the Guggenheim museum. In March, several firms had submitted bids for the Dh400m ($109m) project, including the UAE's Al Habtoor-Leighton Group, Saudi Arabia-based Oger, Dubai builder Arabtec, South Korea's Samsung C&T and Egyptian firm Orascom Construction.

Despite these minor delays in the tourism sector, the emirate is continuing to encourage contributions from international investors that could include expertise and technical capacity, in addition to capital, all of which are potentially important factors in helping the emirate shift away from its traditional economic dependence on the hydrocarbons sector and create jobs for its citizens. With significant investor interest in projects such as KIZAD, Abu Dhabi looks set to benefit from increased private sector participation in the economy.

© Oxford Business Group 2012