Ohan Balian 2016 Abu Dhabi Business Opportunities For A Diversified Economy (ENGLISH) Ohan Balian

ABU DHABI BUSINESS OPPORTUNITIES
FOR A DIVERSIFIED ECONOMY
2016
Performance Partnerships Policies

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CONTACTS
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Dr. Ohan S Balian
Chief Economist
o.balian@adcci.gov.ae
+971 2 617 7470
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Foreword
T
he Abu Dhabi economy has made remarkable progress over the past 20
years to diversify into non-oil sectors as identified in the 2030 Economic
Vision. The current share of the non-oil sector is about 50% of GDP and the
government of Abu Dhabi has been at the forefront of initiatives, programs,
and projects to further increase this share to 70% of GDP by 2030 and beyond.
To this end, this report describes the performance of the Abu Dhabi private
sector in 2016 based on existing and new economic performance indicators as
proposed and constructed by international organizations such as the IMF and
worldclass economic consulting companies such as IHS and others which is the
subject matter of Part 1 in this report. Part 2 takes a closer look at the many
incentives and support programs provided to the private sector in the form of
Public-Private Partnerships, investment opportunities for Abu Dhabi companies
in international markets, in addition to opportunities in Abu Dhabis booming real
estate and tourism sectors in an environment of low oil-prices. Part 3 highlights
the main policies which are currently being discussed and formulated in close
consultations with key Abu Dhabi stakeholders, including the private sector, so
that policy-making will not be an afterthought but will be based on concrete
evidence to take the most appropriate policy actions when the need arises
especially in an increasingly globalized and interdependent world. These policies
cover Abu Dhabis short-term industrial strategy, the role of entrepreneurship in
the private SME sector, the effect of reducing domestic subsidies, and the much
talked about impact on private sector economic activity of a Value-Added Tax
in 2018.
I genuinely hope this world-class report conceptualized by the Abu Dhabi
Chamber will be an informed companion to the vibrant Abu Dhabi private sector
to make it the driving force of the Abu Dhabi economy for many years to come.
Mohammed Helal Al-Muhairi

Director General
Abu Dhabi Chamber
May 29, 2016
Table of Contents
Foreword ..................................................................................................... 3
PART 1 : PERFORMANCE ................................................................. 7

Chapter 1 :
Biannual Abu Dhabi Economic Report - January 2016..................8
Chapter 2 :
Biannual Abu Dhabi Economic Report - April 2016....................18
PART 2 : Partnerships..................................................................... 27
Chapter 3 :
Reference Guide for Public Private Partnerships
in Abu Dhabi ................................................................................ 28
Chapter 4 :
Investment Opportunities For Abu Dhabi Companies
in International Markets .............................................................. 36
Chapter 5 :
Digesting Low Oil : Whats next for Abu Dhabis
Real Estate Sector ....................................................................... 46
Chapter 6 :
Tourism and the Private Sector in Abu Dhabi ............................ 55
PART 3 : Policies............................................................................. 63
Chapter 7 :
Industrial Strategy For Abu Dhabi Companies
in International Markets ............................................................. 64
Chapter 8 :
Reference Guide for Fostering Entrepreneurship
in Abu Dhabi ............................................................................... 72
Chapter 9 :
Reference Guide for Energy Subsidies
in Abu Dhabi ............................................................................... 83
Chapter 10 :
Introducting Value-Added Tax in the United Arab Emirates .... 91
2016

PART 1
PERFORMANCE
Part 1 : Performance
Chapter 1
Biannual Abu Dhabi

Economic Report
January 2016
ABU DHABI BUSINESS OPPORTUNITIES FOR A DIVERSIFIED ECONOMY 2016
Biannual Abu Dhabi

Economic Report
Half-decade of high growth
Headline growth in
abu dhabi has
been robust, but
private sector
development has
been uneven
The Emirate of Abu Dhabi has seen a

robust economic performance during
the last several years. The economy
rebounded quickly from the brief downturn
during the global recession, charging
forward at an average speed of 6% in
the five years between 2010 and 2014.
High oil prices, moderate price inflation,
macroeconomic stability, and the global
recovery provided a fertile ground for
Abu Dhabis economy to flourish and
the construction and real estate boom to
resume. (see chart at bottom of page)
The non-oil economy has outpaced the
oil sector with an average half-decade
growth rate of 6.4%. Indeed, non-oil growth
surpassed oil growth by more than two
percentage points in the last two years.
The strength of non-oil was only partly due
economic Performance Index (ePI)

Country
Abu Dhabi
China
Germany
India
Singapore
United States
2008
1.02
0.97
0.89
0.79
1.00
0.84
2009
0.70
1.02
0.83
0.79
0.95
0.77
2010
0.98
1.00
0.90
0.85
1.08
0.80
2011
1.09
0.97
0.92
0.82
1.00
0.79
2012
1.17
0.98
0.91
0.80
0.97
0.83
2013
1.13
0.98
0.91
0.83
1.00
0.87
2014
1.03
0.98
0.94
0.88
0.99
0.89
Notes: The Economic Performance Index (EPI): an Intuitive Indicator for Assessing a Countrys
Economic Performance Dynamics in an Historical Perspective, IMF Working Paper 13/214.
Source: SCAD, IHS, Khramov/Lee (2013) IMF Working Paper 13/214
2016 Abu Dhabi Chamber of Commerce & Industry
to private-sector activities, with the public

sector and especially the so-called shared
sector providing the bulk of momentum.
Uneven private-sector demand
The strong and stable headline growth

rate veils a bumpier path for consumer
spending, investment, and exports, though.
Private-sector consumption in particular
showed high volatility during these boom
years, and even times of recession. A
steep downturn in 2012 was followed by a
modest recovery in 2013, but then again
a mild recession was registered for 2014
(according to data for the entire UAE
economy, of which Abu Dhabis economy
accounts for two-thirds).
Stable government consumption mostly
compensated for that, though. Combined
with investment spending and, at least
until 2013, strong oil exports, government
spending ensured that Abu Dhabis
economy was able to outpace most of
its peers in recent years. In fact, the
government sector, the health industry, and
the social sector were the fastest growing
parts of the economy in the five years to
2014, followed by finance and insurance,
transport, accommodation/food services,
and real estate.
remarkable real estate boom
Real estate has emerged as one of the

top-five sectors of the non-oil economys
sector ranking. Construction, with a high
real GdP 2007 prices, % change

10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
2008
2009
Total GDP
Non-oil GDP
2010
2011
2012
2013
2014
Source: SCAD 2016 Abu Dhabi Chamber of Commerce & Industry
3
9
BADER REPORT | January 2016
Ch1 - Biannual Abu Dhabi Economic Report - January 2016
Narrow manufacturing base
Economic Performance Index (EPI)
Manufacturing, which is important for

diversifying the export base of Abu Dhabi
away from hydrocarbons, has maintained
an almost stable share of the economy of
around 5.5% since 2010. Still, it should be
kept in mind that manufacturing rests mainly
on two pillars only, which are petrochemical
and metals production. Manufacturing of
metals plays a minor role, being dwarfed by
the chemical segment.
1.2
1.0
0.8
Global headwinds
0.6
2008
2009
Abu Dhabi
2010
China
2011
Germany
2012
India
2013
Singapore
2014
United States
Source: SCAD, IHS, Khramov/Lee (2013) IMF Working Paper 13/214 2016 Abu Dhabi Chamber of Commerce & Industry
Abu Dhabi leading Economic

Performance Index (EPI)
Global headwinds
slow down the
economy, but a
recession is not in
the cards
share of private-sector activities, tops the

list, albeit performing not quite as strong as
the rest of the economy. More remarkable
still has been finance and insurance, which
posted a 55% bounce in 2014 following
sizable growth rates the years before,
leapfrogging the sector to second place after
construction.
Clearly, this reflects the ongoing investment
boom in Abu Dhabi and vindicates the
emirates current five-year plan, which has
financial services and insurance as one out of
five strategic sectorswith a particular policy
focus to develop these sectors. Tourism,
transport and logistics, manufacturing, and
media are the other strategic sectors. (see
table 3 below)
6.7%
Production had embarked on a weaker performance

already in the second half of 2014, but output fell
6.7% on the year in the second quarter
Favorable global conditions eventually gave

way to a more challenging climate in 2014
and 2015. The recent weakness of many
emerging markets and the decline in oil
prices to less than USD50 per barrel from a
high of USD115 in June 2014 have spelled
a more difficult global environment for the
emirates businesses to operate in 2015.
The steep fall of oil prices and the key role
of oil production for Abu Dhabis economy
have forced goods exports to decline, trade
balances to weaken, and a more sizable
government deficit to ensue. Still, growth
estimates show Abu Dhabi has still been
growing faster than most of its peers and
certainly faster than the economies of the
G7. (see chart page 5, bottom)
a slowdown, but not a recession
Business results for 2015 have signaled

only a modest slowdown in the first half
of 2015. Early warning signals have been
emerging that point toward a sharper
slowdown in the third quarter. That
slowdown is likely to extend to the rest of
the year and 2016 as well.
The purchasing managers index (PMI)
for the United Arab Emirates still signaled
a solid expansion for the third quarter
(according to Markit), having weakened
from a stellar performance in 2014. New
export orders for United Arab Emirates
have declined in September for the first
time since 2010, while new orders in
general have remained rock solid in the
Strategic sectors of Abu Dhabis five-year plan

Leading
Tourism
Transport and logistics
Manufacturing
Media
Financial services and insurance
Supporting
Power and utilities
Information and communications technology
Construction and real estate
Education
Health care
Source: Abu Dhabi Five-Year Economic Plan 2014-2018
4
10
third quarter, which is perfectly in line

with the overall assessment of a strong
domestic economy being softened
from regional and global markets to an
increasing extent.
Abu Dhabis industry output has been on
a downward trajectory again in the second
quarter of 2015. Production had embarked
on a weaker performance already in
the second half of 2014, but output fell
6.7% on the year in the second quarter,
according to the Statistics Center of Abu
Dhabi (SCAD).
Abu Dhabis petrochemical complex
accounted for more than half of industry
output in the second quarter, while metals
production contributed around 15% and
nonmetallic mineral products another 10%.
Petrochemical output declined moderately
in the second quarter, making it the prime
weakening force for the industry sector as
a whole. The softer global climate has been
reflected here, which will hardly mend in the
short term.
Benchmarking economic
performance
The recent bout of global risks aside, Abu

Dhabis economic performance over the
last decade has been truly remarkable
Furthermore, the economy has grown
more resilient against shocks over time.
A simple but powerful analytical tool puts
that on display.
The concept of the Economic
Performance Index (EPI), which was
developed by two International Monetary
Fund (IMF) staff members (Khramov
and Lee), condenses headline growth,
fiscal stance, price inflation, and the
Sector share
60%
50%
40%
30%
20%
10%
0%
2008
Oil
2009
2010
2011
2012
2013
2014
Non-oil
unemployment rate into but one single time

series index. According to the EPI, Abu
Dhabi has performed better compared with
nearly all of its peers and key industrial
countries as well as major emerging markets
for all but two of the last seven years.
Diversification
strategy made
good progress
abu dhabi leading
The higher the index, the better the

economic performance. For Abu Dhabi, the
index dipped below the mark of 1.00, which
signals normal economic performance,
with all key economic variables being
on target, only in 2009 and 2010 as the
global recession struck. Since then, Abu
Dhabi has recovered remarkably and
outperformed its peers. (see table page 3
and chart top left)
Real GdP growth %

20%
15%
10%
5%
0%
2010
Abu Dhabi
2011
China
Germany
2012
India
2013
Singapore
2014
United States
Source: IHS, SCAD 2016 Abu Dhabi Chamber of Commerce & Industry
5
11
from oil markets or a global recession hits

the country again. However, despite the
weakness of emerging markets, a global
recession is not in the cards at this point.
High, resource-sector driven growth
provides multiple challenges of its own and
creates a potentially massive issue for long
term sustainable economic development.
Abu Dhabi has therefore defined long term
strategic goals to wean Abu Dhabi off its
dependence on oil and strengthen the nonoil economy, including the private sector.
It is here where a more mixed picture has
emerged in recent years, and although
the non-oil economy grew faster than the
oil sector, this was more driven by the
government than the private sector.
Private sector share

60%
50%
40%
30%
20%
10%
0%
2010
Total economy
Private sector is
supported by a
whole range of
initiatives,
especially for
SMes
2011
Non-oil
2012
Source: SCAD/Bain 2016 Abu Dhabi Chamber of Commerce & Industry
India has had similar or higher growth

than Abu Dhabi, but higher price inflation,
higher unemployment, and a weaker
fiscal balance. A weaker fiscal balance
has counted unfavorably for China too
in comparison to Abu Dhabi. Chinas
performance, however, was close to target,
much like Singapores.
The combination of high growth, a stable
monetary environment with moderate price
inflation, and a huge budget surplus has
ensured that favorable performance. With
growth slowing in 2015, and the budget
surplus dwindling, the EPI is bound to
soften for Abu Dhabi, yet it will still remain
above or close to the normal value of
1.00 unless an even more severe shock
Private sectors role

in abu dhabi
Even so, Abu Dhabis private sector has

been fairly resilient in the face of the less
benign global circumstances. Whereas
the UAE as a whole suffered the blow of
a steep recession in 2008/2009 when the
combination of the global financial crisis
and the related oil price fall hit, the UAE as
a whole and Abu Dhabi in particular have
weathered the recent oil price downturn
much better. Softening headline growth is
in the cards, but a recession is apparently
not around the corner.
This is partly because the Emirates
economy 2015 is different from 2008
vintage. As the strategy to diversify the
economy has been implemented step by
step during the last several years, the
economy as a whole stands on a more
solid footing. (see chart page 5, top)
Private sector share 2012

100%
80%
60%
40%
20%
0%
Manufacturing
Transport and logistics
Health care
Education
Financial services and insurance
Media and information and communications technology
Tourism
Construction and real estate
Source: SCAD/Bain 2016 Abu Dhabi Chamber of Commerce & Industry
6
12
29%
Real estate's share in fixed investment

25%
The shared sector, which includes mixed ownership

businesses between the government and private
sector entities, grew by 29% on average between
2010 and 2012.
20%
15%
10%
5%
0%
2010
2014
10%
Non-oil economy grew by 10% on average between

2010 and 2012, whilst the private sector actually
declined by 1% on average.
Private sector
development
softened by
comparably low
wages relative to
the rest of the
economy
Less dependent on oil
Take a look at the structure of the economy

now and then (Bar chart on oil/non-oil
share of the economy, 2008 and 2014).
Oil production still is the most important
generator of income for the Emirate of Abu
Dhabi, but its share in GDP has declined
from 59% in 2008 to 51% in 2014 as growth
in non-oil outpaced the oil sector. Other
sectors have flourished, too, including
those in which private sector activities play
a role. (see chart page 6, top left)
but private sector share declined
Yet the private sectors share of GDP

has declined, according to data from the
Statistics Centre of Abu Dhabi (SCAD).
For the entire economy of Abu Dhabi, the
share of the private sector sagged from
26% down to 18% between 2010 and 2012.
Looking at the non-oil economy only, the
private sectors share dropped from 52%
to 42% at the same time. Moreover, while
the entire non-oil economy grew by 10%
on average between 2010 and 2012, the
private sector actually declined by 1% on
average. The gap to the public sector nonoil economy widened significantly during
these years.
Public sector activity grew solidly during

these years, but the most outstanding
development was registered for the socalled shared sector, which includes
mixed ownership businesses between the
government and private sector entities and
which grew by 29% on average between
2010 and 2012. Foreign-owned business
expanded their share as well, albeit from
a lower level, and registered 27% average
growth. (see bottom chart page 6)
These trends have hardly been reversed
more recently. Private sector activities
are concentrated in but a small number of
branches. Only construction and tourism,
with 62% and 88% of total activities, are
dominated by private sector activities.
Moreover, shared sector activities play the
critical role in financial services, transport
and logistics, media and ICT, and, to a
lesser degree, in manufacturing. That being
said, construction and, in second place,
financial services are the largest sectors as
regards share in GDP.
That being said, shared sector activities
like public-private partnerships (PPP)
can be a smart path to bring in introduce
private sector-activity while distributing
risks and costs between public and private
partners. In any case, a reasonably level
playing field between public and private
companies is critical.
The private sector has hardly been able
to regain a higher share of the economy
in the years since 2012 though. While
Abu Dhabis economy grew by 4.6% on
average in 2013 and 2014, construction
as the most important private sector
edged up a more modest 1.9%. Tourism,
which is best proxied by food services and
accommodation, leaped 10.3% in 2013 but
was all but unchanged in 2014.
Finance sector outperforms
Financial services, by contrast, had a

real bumper performance in both 2013
and 2014. In the latter year, financial
services alone accounted for two thirds
of GDP growth of the entire economy
and accounted for nearly all growth in
the non-oil sector. The Abu Dhabi Global
7
13
Consumer price inflation

15%
12%
9%
6%
3%
0%
2008
2009
2010
2011
2012
2013
2014
August 2015
despite high
overall wage gains,
private sector
consumption lags
headline growth
Market, which is scheduled to open

shortly, will facilitate further financial sector
development and ensure high sector growth.
The bulk share of activities in financial
services are related to the shared sector,
while only 18% of activities were private.
Diversifying the economy away from
hydrocarbons has made progress during the
last several years, yet much of that progress
was driven by the government or state
sector entities.
Many initiatives have supported private
sector development. Small and mediumsized enterprises (SME) have attracted
special focus in Abu Dhabis strategy,
including legal provisions for awarding SME
a certain share of government contracts.
Moreover, SMEs gatherings and training
sessions have been organized by the Abu
Dhabi Chamber of Commerce and Industry
(ADCCI). Other key initiatives included the
Franchising Organization for Abu Dhabi,
and opening representative offices in key
foreign markets.
While broadening the basis for the
economy and diversifying it away from
hydrocarbons indeed, the private sectors
role will continue to deserve special
attention. Part of the effort will have to be
focused on productivity and remuneration in
the private sector.
Private sector productivity

and public sector pay
In terms of jobs, the private sector can claim

a much larger share relative to the public
sector, since nearly two thirds of all jobs are
in the private sector. That share has been
declining between 2010 and 2012, however,
dropping from 68% to 63%.
That points to a large private sector
8
14
workforce, almost all of which is foreign.

Nationals account for only 1% of private
sector jobs. The flipside of the high number
of private sector jobs relative to private
sector GDP is that labor productivity in the
private sector is much lower compared to
the public sector. This is hardly surprising,
since private sector jobs are dominating
primarily in service industries with low value
add, while public sector jobs are in high
value added industries.
Lower wages in the private sector
For example, average compensation per

employee in construction is less than half the
value for the entire economy. In the case of
food services and accommodation, wages
are 10% below Abu Dhabis average.
Tourism, which may be proxied with
food services and accommodation, is one
of the five strategic sectors as defined by
Abu Dhabis five year economic plan. The
other four sectors transport and logistics,
manufacturing, media, and financial services
and insurance have higher-than-average
wages, with the exception of manufacturing.
Investment Geared Toward Real Estate
The private sector has claimed growing
clout in investment spending of the non-oil
economy between 2010 and 2012, but the
share of investment still remained below its
actual share in GDP. Again, this is partly a
legacy of the relatively low capital intensity
of private sector businesses services
usually require much less capital investment
than ventures in heavy industries.
Important structural shifts in Abu Dhabis
investment spending have occurred over
the last five years. The real estate boom
figures prominently, with the sectors share
in fixed investment spending rising from
6.6% in 2010 to 20.7% in 2014, a remarkable

surge. Transport and logistics also clawed
back some share in investment, while
manufacturing and the mining sectors
investment shares declined.
(see chart page 7)
This pattern has likely been maintained
until recently. Real estate development,
driven by robust demand in both residential
and non-residential, and related rental price
trends, has been favorable in the year to
date. Investment in other sectors of the
economy, most notably perhaps in the oil
sectors, is bound to weaken as oil prices are
expected to stay relatively low.
Credit conditions on
a gradual recovery
Lending growth picked up further

momentum through 2014, falling more in line
with other financial and monetary indicators
that reflect improvements in the banking
sector, but should see some moderation
in 2015, given the growth slowdown of the
economy in general.
Deposit growth has accelerated more
markedly than credit growth, leading to
lower loan-to-deposit ratios and interbank
rates, now at historical lows. The one-month
EIBOR interbank rate dropped to 0.39% at
end-2014, compared with 0.46% at end2013 and 0.80% in 2012.
Meanwhile, deleveraging has shown
signs of winding down, with provisioning
of nonperforming loans easing. Lending
+95%
Private sector consumption has seen high volatility

in the last five years, despite solid wage growth
in nearly all major sectors, although total labor
compensation, the key driver of household income,
was nearly double as high in 2014 as in 2009.
conditions should continue to improve, with

banks balance sheets looking healthier, but
should follow a more prudent path in light
of stricter regulatory measures regarding
lending practices.
Weak private consumption
Private sector consumption has seen high

volatility in the last five years, despite solid
wage growth in nearly all major sectors,
although total labor compensation, the key
driver of household income, was nearly
double as high in 2014 as in 2009 (+95%),
while the economy leaped by only 77% in
nominal terms. IHS estimates based on data
from the United Arab Emirates National
Bureau of Statistics show that private
consumption in real terms has barely grown
between 2014 and 2009/2010 after all.
Growth-driving
forces will shift
more toward
strategic sectors
reluctance to spend
Against the background of high real wage

gains, though, the reluctance to spend
on consumption has been mirrored by
Share of non-oil exports

50%
40%
30%
20%
10%
0%
Saudi Arabia
2013
China
India
Qatar
2014
Singapore
Oman
9
15
Abu Dhabi's sectoral leaders and laggards, average growth 2013-2014

35%
TOP FIVE
30%
BOTTOM FIVE
25%
20%
15%
10%
5%
0%
-5%
1
2
3
4
5
Financial and insurance

Human health and social work
Public administration and defense
Transportation and storage
Wholesale and retail trade
6
6
7
7
Total economy
Total non-oil
8
8
9
10
11
12
10
11
12
Real estate
Mining and quarrying (includes crude oil and natural gas)
Professional, scientific, and technical
Construction
Agriculture, forestry, and fishing
high private sector savings rates. The

large capital account deficit has been the
downside of that, signaling that outbound
investment has apparently dwarfed
investment in the Emirate. Furthermore,
expat workers have also likely increased
remittances flows. Even more broad-based
growth could be achieved if those patterns
were weakened or even reversed.
Subsidies push, food dampens

price inflation
Price trends might have played some role

for weak spending, but in general price
inflation has been moderate, accelerating
only recently as subsidies have been
phased out. Consumer inflation in Abu
Dhabi remained elevated during the first
half of the year as price pressures from
the utility subsidy cuts in early 2015
continued to keep overall housing costs
high. Headline inflation has faced added
pressure as the government moved to
eliminate fuel subsidies starting in August.
(see chart page 8)
Monthly price inflation hit 6.1% in that
month, the highest rate in seven years, up
from an annual average of 3.2% in 2014.
However, food price inflation has been
muted given the sharply lower international
food prices, partly compensating for effects
on inflation from the subsidy-phase out.
Non-oil exports leap six-fold
Non-oil exports from the Emirate of Abu

Dhabi have been surging during the last
decade. Within the ten years from 2005, the
10
16
total value of exports grew six-fold. However,

non-oil exports started off a very low base
level compared to the value of oil exports.
Non-oil-shipments are still dwarfed by oil
exports, despite the phenomenal bounce
of the last several years. For every Dirham
of oil that is exported, but six Fils of non-oil
exports are shipped.
The gap in value terms between oil and
non-oil exports still remains. It has narrowed
in 2015 as oil prices are still lower on
average compared to 2014, but it will hardly
close any time soon.
For every Dirham of oil that

is exported, six Fils of non-oil
exports are shipped.
regional neighbors and

large asian markets
Abu Dhabis non-oil exports are strongly

geared toward its neighbors in the Gulf
region, with Saudi Arabia being the largest
recipient of non-oil exports from Abu Dhabi,
accounting for between 27% and 41% of nonoil exports in 2013 and 2014. China, India,
Qatar and Singapore are following with much
smaller shares. (see chart page 9)
The geography of Abu Dhabis trade
routes signals a developed weakness
toward emerging markets and their softening
economies, at least as far as China and
Singapore are concerned, and the impact
of lower oil prices, which will affect the
Gulf region in particular. With the possible
exception of India, exports to regions
which are currently still growing solidly are
relatively rare.
This leaves the non-oil export sector
vulnerable against global economic risks.
Moreover, softening currencies of key
trading partners, especially in East Asia, will

adversely impact on non-oil competitiveness.
A stronger U.S. dollar would further aggravate
the situation. A prolonged weakness of
emerging markets and low oil prices might
therefore have negative repercussions for the
non-oil sector of the Abu Dhabi economy and
manufacturing in particular in the short run.
In the longer run, a softer oil price might
even support diversification of the economy
as wage and price pressures would ease,
though. The international competitiveness
of Abu Dhabis non-oil sectors would benefit
from that.
Outlook for stable albeit

slower growth
Inflationary pressures are likely to remain

moderate given the weaker global
commodity prices, while UAE authorities
are expected to maintain the dirhams
current dollar peg. The Central Bank of the
UAE is expected to follow cues from the
US Federal Reserve over the coming year
regarding tightening monetary policy, which
is likely to commence around late 2015.
Taking a longer view, a combination of
sound economic policy, a stabilization of
oil prices, abundant fiscal and financial
resources, improvements to infrastructure,
and political stability will support the
Emirate of Abu Dhabis and the UAEs
economic risk profile as a whole.
The corporate sector as a whole
made progress over the past year on
debt obligations and deleveraging, while
successful debt issuances have signaled
positive investor sentiment towards
local firms and the countrys economic
prospects. Moreover, the government
has pushed for greater regulatory reform
and legal transparency in recent years,
as well as funneled fiscal resources into
infrastructure and education to boost its
long-term growth prospects.
Strategic sectors bound

to drive growth
The economys expansion will primarily

be driven by the non-oil sectors,
including construction, manufacturing,
transshipment, and financial service
industries. The UAEs liberal and marketoriented economic policies have attracted
a large number of international firms to the
construction and services sectors. Over
the medium term, we expect the inflow
of foreign investment to continue, as it
will shift from Dubai to other major urban
centers such as Abu Dhabi.
Tourist activity has also been influenced
Abu Dhabi top 5 non-oil export

commodities 2014, million AED
Total exports
18,964 m
Base metals and articles of base metals
Plastics, rubber and articles thereof
Machinery, sound recorder, reproducers and parts
Products of the chemical and allied industries
Articles of stone, mica; ceramic products and glass
Rest
by weaker external demand, given Russias

economic troubles and ongoing Eurozone
concerns, but the overall outlook remains
favorable, given the UAEs safe-haven
status and several new attractions for highend cultural tourism. Risks to the economic
outlook continue to revolve around regional
geopolitical developments and global
economic conditions, with the recent swoon
in large emerging markets an added worry
for near-term prospects.
One of the important factors that will
contribute to long-term growth is the
large-volume fiscal resources that are
currently being spent on infrastructure
and education. Both federal and emirate
governments are investing in the expansion
of the countrys roads and the development
of rail transportation.
The modern infrastructure will play
a critical role for the diversification
of the economy and the sustained
development of a strong private sector.
The UAE already has developed a modern
telecommunication system, and it currently
enjoys one of the highest telephone and
Internet usage rates in the Middle East.
11
17
Part 1 : Performance
Chapter 2
Biannual Abu Dhabi

Economic Report
April 2016
18
Biannual Abu Dhabi

Economic Report
72%
of oil prices fell peak to trough
5%
of GDP fiscal deficit
Soft landing for Abu Dhabi amid

heightened global uncertainties
The year 2016 had a rather dismal start.

Anxiety gripped global markets and
concerns spread that the global recovery
might stall and eventually revert. Among
other risks, what spooked the markets was
the renewed decline in the price of oil, which
was probably too fast and too steep for
the markets liking. With observers unable
to fully digest the ripple effects across
industries and countries at the same time,
uncertainty mounted quickly.
Amid that turmoil, Abu Dhabis economy
held remarkably steady during the final
quarter of 2015 and in 2016 to date. The
growth slowdown, which was apparent
during 2015, has continued, but a recession
is not in the cards at this stage. This
assumption holds despite tightening lending
standards and the governments drive to
curtail spending, phase out subsidies, and
rein in the inflated budget deficit.
The current situation is both a challenge
and an opportunity. For the government,
it is a challenge to wean its revenue base
from oil; for the private sector, it is an
opportunity to prove it has acquired enough
momentum to pick up the slack and ensure
sustained growth.
Chart 1: Abu Dhabi government's hydrocarbon revenue

400
50
300
40
250
200
150
30
100
Percentage of GDP
Billion UAE dirham
350
50
0
2013
Billion UAE dirham Percentage of GDP
2014
2015
20
Source: IMF 2016 Abu Dhabi Chamber of Commerce & Industry
Low oil prices blast a hole in Abu

Dhabis trade and government
accounts
From a monthly high of USD113 in

December 2013, the average monthly price
(Murban) for Abu Dhabi oil production
sagged to USD63 in December 2014 and hit
bottom at USD31 in January 2016. Peak to
trough, prices fell 72%, which blew a huge
hole through the Abu Dhabi National Oil
Company (ADNOC)s revenue stream, Abu
Dhabis export account, and, eventually,
government revenues.
Abu Dhabis private sector is not affected
in a direct sense, but certainly the influence
of lower oil revenues is cascading through
the entire economy. The energy sector
shock waves are strongly felt in the private
sector, too, not least by those sectors that
supply the oil industry. However, as our
analysis suggests, that link is relatively weak
for the overall Abu Dhabi outlook and the
private sector.
In its most recent country report, the
International Monetary Fund (IMF) projected
Abu Dhabis total hydrocarbon revenues,
which were estimated at AED396.3 billion or
42% of GDP in 2013, to drop to a bit more
than half that value in 2015 (see chart 1).
Obviously, that decline deals a massive blow
to government finances and an economy with
half its GDP dependent on hydrocarbons.
As a result of the oil price plunge, the fiscal
balance is estimated to have swung from
a surplus of 7% of GDP in 2014 to a deficit
close to 5% of GDP in 2015 (see chart 2).
This trajectory includes ADNOC dividends
and investment income from the Abu Dhabi
Investment Authority (ADIA). Even with
the latest stabilization of global oil prices,
a deficit ratio of similar size is expected for
2016.
However, without the price effect, GDP
in volume terms actually expanded for the
hydrocarbon sector. Effectively, then, the
question is to what extent the monetary loss,
primarily a loss for the governments vault,
eventually affects the rest of the economy.
In other words, it involves to what extent
the government and ADNOC would adjust
operating and capital expenditures as a
result of the lower oil price.
3
19
BADER REPORT | April 2016
Ch2 - Biannual Abu Dhabi Economic Report - April 2016
The dependency of Abu Dhabis

employment on the oil sector can be
analyzed in the same way. The number
of jobs in actual oil production is relatively
low, because oil is a highly capital-intensive
business, with a comparatively low head
count of employees. The same inputoutput table shows that for every AED2.5 of
reduced labor income in the energy sector,
an incremental AED0.9 of labor income is
lost in local supplier industries and the rest of
the economy. Thus, the labor-income link is
comparatively stronger than the link between
the oil sector and the rest of the economy if
only output effects are considered.
Chart 2: Abu Dhabi's government budget balance

15
Percentage of GDP
12
9
6
3
0
2013
2014
-3
-6
2015
Every AED100
oil output impacts
on AED5 non-oil
output
Linkages between Abu Dhabis oil

and nonoil sectors
An input-output table, based on a typical

net oil-exporting country from the Gulf
Cooperation Council (GCC) and adjusted
with Abu Dhabis own industry data, shows
that for every AED100 of crude oil output
lost, an incremental AED5 of production
or services is lost in the nonoil part of the
economy, including the private sector.
This ratio is based on oil output volumes
abstracting from actual price trends.
Nevertheless, it gives some indication of the
supply-chain dependencies on oil within the
Abu Dhabi economy. For example, given that
oil production accounts for about 50% of the
Abu Dhabi economy, just 5% of the other half
or around 2.5% of the entire economy, will
be affected if ADNOC decides to pass on oil
price changes to suppliers.
Economic Performance Index update

In the first issue of the Biannual Abu Dhabi
Economic Report (BADER), we introduced
the concept of the Economic Performance
Index (EPI). With the results and data for
2015 now having been published in most
countries, we have carried the EPI forward
to 2015, using IHS estimates wherever
official results have not been published
yet (such as the GDP for Abu Dhabi). The
EPI is a synthesized indicator, with factors
including economic growth, price inflation,
fiscal balance, and unemployment.
Abu Dhabi lost the lead position it held in
the last EPI update. Given the extent of the
oil price decline and related drop in export
revenue as well as government revenue, this
step back is hardly surprising. In fact, Abu
Dhabi ranks lower on the EPI because of its
much weaker fiscal position, which swung
from a strong surplus to a high deficit, and
consumer price inflation, which accelerated
on rising expenses for housing. Economic
growth, in what can be inferred from
Chart 3: Economic performance index
Abu Dhabi
1.2
China
1.0
Germany
India
0.8
Singapore
0.6
2008
2009
2010
2011
2012
2013
2014
2015
United States
Source: SCAD, IHS, Khramov/Lee (2013) IMF Working Paper 13/214 2016 Abu Dhabi Chamber of Commerce & Industry
4
20
provisional estimates, decelerated in 2015,

while the unemployment rate has likely held
steady between 3% and 4% (see chart 3).
Abu Dhabis GDP growth has been fairly
high on average, albeit volatile, from year
to year in the recent past. The postcrisis
recovery peaked at 9.3% in 2011, slackened
subsequently, and rebounded to 5.2% in
2013. For 2014 (the latest year for which an
official estimate is available), growth sagged
to 4.0%. IHS estimates a further slowdown
to close to 3.03.5% in 2015 and a rate
within 2.252.75% in 2016 (see chart 4).
Some might say the slowdown bears
evidence of a persistent, strong dependency
on hydrocarbons for the Abu Dhabi economy,
and economic diversification and privatesector development lack the momentum
needed to sustain growth. This argument
might be half-true: oil and gas still account
for around half of the economy, and oil
production actually grew significantly in
2015, supporting headline GDP growth and
offsetting part of the slowdown in the nonoil
economy. However, oil output will increase
only modestly in 2016 (if it does anything),
making the nonoil economy the key growthdriving part.
Economic diversification undeniably has
made good progress. Consider the fall of
the oil price in 2008 and in 2014 until now.
Although the latest price decline went even
deeper compared with the 2008 descent,
the economy is merely slowing down at
present, whereas a steep, albeit short,
recession followed in 2009. True, global
circumstances are different, but the link
between oil prices and growth in Abu Dhabi
is clearly weaker now, a softening in which
private-sector development played an
important role.
Private consumer spending stays

on track
Consumer spending is the most important

demand component of an economy almost
everywhere. For the economy of the
United Arab Emirates, consumer spending
accounted for 56% of GDP in 2014, which is
lower compared with the peak from 10 years
ago (70%), but an increase from 2013 when
the consumption ratio had bottomed out
at just 52% of GDP. About six-sevenths of
consumer spending is related to the private
sector, households, and corporations.
Abu Dhabis economy accounts for
almost exactly two-thirds of the United Arab
Emirates GDP. The share of consumer
spending in the economy is higher compared
with the total UAE economy, since, thanks
to the real estate binge in Dubai, the UAE
Chart 4: Real GDP growth

20%
15%
10%
5%
0%
2010
2011
Abu Dhabi
China
2012
2013
Germany
India
2014
2015
Singapore
United States
Source: IHS, SCAD 2016 Abu Dhabi Chamber of Commerce & Industry
Chart 5: Consumer price inflation for Abu Dhabi
14.9% 0.8% 3.1% 1.9% 1.1% 1.3% 3.2% 5.4%

2008
2009
2010
2011
2012
2013
2014
2015
economy as a whole is more skewed towards

investment than Abu Dhabi alone. A slightly
higher ratio of consumer spending to GDP
of around 60% is reasonable to assume for
Abu Dhabi (in the absence of a full demandside breakdown of GDP). To date, a GDP
breakdown according to goods categories is
not published for Abu Dhabi.
In times like these, a stronger reliance
on private-sector consumer spending is
generally helpful to ensure a soft landing of
the economy. The private sectors consumer
spending is usually less volatile than
investment.
56%
of GDP is consumer spending
Public spending: Under pressure

to cut
The public sectors share of consumption is

but a fraction of total consumption. About
a seventh of total consumer spending, or
8% of GDP, is related to the government.
The governments expenses on all sorts
of consumer goods, but also publicsector spending on wages is included in
this position. While explicit government
consumption is a relatively small number,
5
21
Chart 6: Consumer price index and components for Abu Dhabi, 2007 = 100
Housing price index
150
Consumer price index
120
Transportation price index
Ja
n2
0
Fe 14
b2
Ma 014
r2
0
Ap 14
r2
Ma 014
y2
0
Ju 14
n2
0
Ju 14
l2
Au 014
g2
Se 014
p2
0
Oc 14
t2
No 014
v2
De 014
c2
0
Ja 14
n2
0
Fe 15
b2
Ma 015
r2
0
Ap 15
r2
Ma 015
y2
0
Ju 15
n2
0
Ju 15
l2
Au 015
g2
Se 015
p2
0
Oc 15
t2
No 015
v2
De 015
c2
0
Ja 15
n2
01
6
90
5%
fiscal policy in general, including implicit

subsidies and the introduction of taxes, has
obviously a much broader reach.
The fall in oil revenues has forced Abu
Dhabi authorities to curtail discretionary
spending and bring forward reform measures.
The UAE has stepped out in front of its fellow
GCC members in addressing politically
sensitive energy subsidies. The government
of the UAE lifted gasoline prices in August
2015 to reduce implicit subsidies, which is
benefiting Abu Dhabis government finances,
the largest stakeholder for the UAE budget.
Water tariffs were introduced for UAE
national residents, and water and electricity
tariffs were lifted for expatriate residents.
Another, even more important decision
was taken by GCC member governments in
February as they agreed to introduce a valueadded tax (VAT) beginning with a rate of 5%.
VAT rate introduction
Chart 7: Abu Dhabi's investment ratio

30%
25%
20%
15%
10%
5%
0%
2007
2008
2009
2010
2011
2012
2013
2014
6
22
The UAE pledged to introduce the tax by

2018, while other GCC members will follow in
2019. These measures cut into households
purchasing power and tend to reduce
consumer spending and related growth, but
are unavoidable to cushion the effect of low
oil prices on government accounts.
Subsidy cuts fuel price inflation
Higher utility tariffs were the key driving

force behind the leap of consumer price
inflation to 5.4% on average in 2015, the
highest rate in the current decade. Housing
costs, which include utility expenses, even
bounced 11.9%, while transport costs, which
include transport fuel, were all but flat.
Interestingly, the increase of retail gasoline
prices in August was only temporary as the
subsequent decline of the oil price led to a
drop in retail gasoline prices, which all but
offset the regulatory price hike (see charts 5
and 6).
Still, price inflation was accelerating and
was running clearly above the comfort
zone of an economy in slowdown mode.
Persistently high inflation at the 2015 level
would certainly hurt the private sectors
growth potential in the near term. A
deceleration of price inflation is already
under way, though, as most recent results
for December 2015 and January 2016
suggest. This diagnosis is supported by the
purchasing managers index (PMI) survey,
as the related output price index, input
prices, and wage costs have remained
muted at the beginning of 2016.
while oil prices and the strong

dollar dampen it
The current strength of the US dollar plays
Chart 8: Lending and loan demand Q4 2015/Q1 2016

8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-0.5 -3.6
5
-3.6
-3.9 -2.7
-6
5.4
-5.9 -4.1
Change of loan demand in the UAE

compared with previous quarter*
Expected change of loan demand in the

UAE for the next quarter*
*Net balance of respondents
in favor of UAE monetary authorities to trim

price inflation, and it supports the private
sectors purchasing power as it keeps a lid
on import prices. The downside of the strong
dollar is the loss of competitiveness, which
confronts the Abu Dhabi manufacturing
sector relative to its peers in Europe and
most emerging markets.
A bumpy road ahead for investment

Fixed investment has been the second-most
important component of domestic demand,
accounting for almost a quarter of GDP in
the UAE as a whole during the last several
years since the global recession. For Abu
Dhabi alone, investment has been less
important with a GDP share of 1516%. It
reflects the less important role of real estate
and construction in Abu Dhabi compared
with Dubai (see chart 7).
While growth momentum from real estate
investment was not quite as strong in Abu
Dhabi during the last several years while
the commodities boom lasted, the weaker
link between investment in real estate and
growth will now work in Abu Dhabis favor
and ensure a smoother growth slowdown.
The private sector played the key role as
three-fifths of investment spending came
from there.
As growth is slowing and concerns
around the near-term outlook mount, the
slack will affect investment spending most
as lending standards are tightened, capital
expenditures are curtailed, and vacancies
in real estate likely increase. Measures to
stabilize investment spending in the private
sector might be advisable.
With oil production such a capitalintensive business, capital spending will be
Mining and quarrying

Manufacturing
Electricity, gas, and water
Construction
Property development
1.8
6.8
Retail and wholesale trade
-4.1
4.1
Transport, storage, and communications
-4.5
3.6
Financial institutions (excl. banks)
-4.2
0.9
Others
Source: Central Bank of the United Arab Emirates 2016 Abu Dhabi Chamber of Commerce & Industry
curtailed as the flow of credit and funds in

general will ebb. Moreover, banks, mindful
about rising risks for other businesses, will
impose closer control of credit risks and
tighten lending standards.
Share of non-oil
goods exports
more than tripled
Lending standards are tightened

gradually
The Credit Sentiment Survey from the

Central Bank of the United Arab Emirates
revealed a declining appetite among
lenders and borrowers for credit in the final
quarter. The survey signaled that credit
conditions tightened especially for smalland medium-sized enterprises, many of
which are operating in the private sector
of the economy. Other anecdotal evidence
confirms such behavior on behalf of most
banks (see chart 8).
It is not a credit crunch or anything close.
In the Credit Sentiment Survey, the majority
of respondents even indicated they expect
lending to slightly reaccelerate in the first
quarter of 2016, although credit standards
would be increased further as risk aversion
persisted.
Oil export revenues drop by more

than half
The oil price decline blasted a huge hole

in Abu Dhabis external accounts, too.
Exports of oil, gas, and oil products, which
accounted for 93% of all goods exports
in 2013, dropped from AED490 billion to
AED309 billion between 2013 and 2014,
and preliminary estimates signal a further
decline to around AED215 billion in 2015
(see chart 9). Meanwhile, the share of nonoil
goods among exports (excluding re-exports)
increased from 3% in 2013 to close to 10%
7
23
Chart 9: Abu Dhabi's oil export revenues

Billion UAE dirham
2013
490
2014
309
2015
215
Source: SCAD, IHS 2016 Abu Dhabi Chamber of Commerce & Industry
Chart 10: Share of Abu Dhabi's nonoil exports in 2014

60%
1
2
3
4
5
6
50%
40%
30%
Arab countries
Asia (excluding Arab countries)
European Union
Africa (excluding Arab countries)
North America
Other regions
20%
10%
0%
in 2015. Abu Dhabis massive trade surplus,

which equaled 45% of GDP in 2013, had
deflated to 26% by 2014.
Most recent data for Abu Dhabis nonoil
trade show Arab countries have been the
prime destinations for nonoil exports. Of
all nonoil exports, 51% went to other Arab
countries. The rest of Asia (excluding Arab
countries) is ranked second among global
regions, while the European Union places a
distant third (see chart 10).
Many Arab countries, including
neighboring countries Oman and Saudi
Arabia, have pegged their currencies to the
US dollar. Therefore, the dollars exchangerate movements would hardly, or perhaps
only indirectly, influence the competitiveness
of exports from Abu Dhabi.
Local manufacturers and

competition from abroad
The impact of exchange-rate movements

is different for local producers in Abu
Dhabi who compete against imports. Arab
countries account for less than a fifth of
imports, while non-Arab Asia and the
European Union are leading the pack with
8
24
more than a quarter of all imports each.

While these products have cheapened with
the dollars appreciation (and therefore
helped to contain price inflation), local
producers are the target of a stronger
assault from foreign competition as a
result.
Exchange-rate volatility has played
a role for Abu Dhabis growing tourism
industry, too. The strength of the dollar and
dirham has inhibited growth in the number
of visitors and revenue from tourism and
related spending. For example, as the euro
cheapened, Chinese tourists have been
spending more on luxury brands in Europe,
likely at the expense of shopping malls in
the GCC. Russian tourism, meanwhile, has
dropped considerably as the ruble faltered,
but the share of Russian tourists was always
in the single-digit-percent range and not
hugely important for Abu Dhabi anyway.
Moderate growth ahead for Abu

Dhabis private sector
Economic growth, both regarding the

economy as a whole and the private sector,
will moderate further in 2016. Oil production
remained high through 2015 as Abu Dhabi
and other Gulf OPEC members (importantly,
Saudi Arabia) have opted to protect market
share amid the latest oil price slide. This
strategy will eventually bear out as prices
stabilize and edge back from the lows seen
at the beginning of 2016.
While Abu Dhabi will keep near-term
production elevated, even as prices remain
weak, output growth will be modest in
2016, providing less of a lift to headline
GDP. Strong oil-sector growth (in real
terms) helped offset the slowdown in nonoil
activity and the private sector in 2015, but
that will no longer be the case in 2016.
For the UAE as a whole, high-frequency
indicators softened through 2015, but have
held up well when considering the dive in oil
prices. In fact, the headline PMI for the UAE
signaled continued expansion, even as it
dropped to a four-year low in January before
bouncing back somewhat in February.
Tourism, around nine tenths of which
is driven by private sector activity (see
chart 11), remains vulnerable to weaker
external demand amid strong US dollar and
Eurozone concerns, as well as regional
instability. Other sectors exposed to more
moderate growth include manufacturing,
real estate, construction, trade, and
transportation. Nonoil GDP growth will
remain soft at close to the headline GDP
growth rate of 2.53.0% in 2016.
Inflation softens again, but risks

loom beyond 2016
Inflation will trend lower in 2016, despite

subsidy cuts. Fuel prices are likely to face
further downward pressure as oil continues
to slump. The UAE Ministry of Energy
announced that domestic gasoline (petrol)
and diesel prices dropped further in February
2016, which signals continued deflation for
transportation prices. Headline inflation
will decelerate in the next several months
before price pressures begin to strengthen
during the latter half of 2016 as global oil and
commodity prices stabilize and recover.
Consumer price inflation could even
reaccelerate in 2017, with housing as the
chief driving factor, increasingly followed
by food and transportation. Fuel prices will
adjust higher as global oil prices firm in
2017, while rebounding nonoil commodity
prices will lead to higher costs for food,
among other goods and services, as well.
Potential stimulus from Iran deal
In 2016, the UAE might benefit from the lifting

of sanctions against Iran as envisioned under
the nuclear agreement with the P5+1 (Russia,
China, France, the United Kingdom, and the
United States, plus Germany). The lifting of
sanctions on the Islamic Republic should
provide some impetus for stronger growth in
the UAEs trade and tourism sectors more
immediately; growth for financial services
will arrive more cautiously, since Iran will
remain subject to other restrictions linked to
its foreign policy, alleged support of terrorism,
and human rights record.
Abu Dhabis fiscal and external balances
will remain under stress in 2016. The current
account for the entire UAE will post only a
very small surplus in 2016, but that will widen
again to around 5% of GDP, assuming oil
prices recover to close to USD50/barrel.
Further fiscal trimming in the cards
Oil typically accounted for more than 60%

of total government revenues in the past;
however, that share will drop to just below
40% of GDP in 2016, assuming a price of
Brent oil at around USD38/barrel. Further
cuts to nonessential capital spending will
be needed, while spending pressures in
general will remain centered on salaries and
social support, leaving the overall reduction
in government expenditures rather modest
when compared with the revenue losses.
Thanks to the countrys robust financial
buffers, supported by ADIAs assets and
investment income, Abu Dhabi is expected
to adjust to the low oil price environment
reasonably well. Further out, fiscal
Chart 11: Private sector share, 2012
31% Manufacturing
37% Health care
19% Financial services and insurance
88% Tourism
25% Transport and logistics
42% Education
14% Media and information and
62% Construction and real estate
communications technology
Source: SCAD, Abu Dhabi Chamber of Commerce and Industry (ADCCI) 2016 Abu Dhabi Chamber of Commerce & Industry
Chart 12: Abu Dhabi top 5 nonoil export commodities 2014

Million UAE dirham
Base metals and articles of base metals
Plastics, rubber, and articles thereof
Machinery, sound recorder, reproducers, and parts
Products of the chemical and allied industries
Articles of stone, mica; ceramic products and glass
Rest
Source: SCAD
adjustment measures adopted will ensure

the break-even price of oil for Abu Dhabis
government budget and the global market
price will converge again; the IMF estimated
a break-even price of around USD60 for the
next couple of years, with a declining trend.
9,052
6,710
850
369
310
1,674
Total exports
18,964
60%
Oil revenues in government budget
Introducing VAT in the GCC
Many pundits regard the introduction of the

value-added tax as a key challenge for the
private sector. It is hard to deny the VAT will
weaken the competitiveness of Abu Dhabis
key private-sector businesses; however, the
tax will ensure a more stable government
revenue base, which will be beneficial for
economic stability in general and the private
sector in particular in the longer term.
The introduction of the VAT rate might
even trigger a brief sales boom ahead of the
event as sales are brought forward. There
will be a downturn afterwards, of course, but
that demand fluctuation might well coincide
with a more balanced global oil market. In
any case, the benefit of the rather long lead
time for the actual implementation of the
new tax will ensure the private sector has
enough time to prepare; negative growth
effects will therefore be modest.
9
25
2016

PART 2
PARTNERSHIPS
27
Part 2 : Partnerships
Chapter 3
Reference Guide for

Public Private Partnerships
in Abu Dhabi
January 2016
28
Executive summary
At first glance, public-private partnerships (P3s) are
can potentially play a role in promoting the private
a smart way for governments to hit several birds
sector. This can be especially true in the context of
with one stone: support innovative technologies and
the resource-rich Middle Eastern economies with a
increase efficiency, foster the private-sector role
dominant public sector that has latent antagonism
and overcome market entry barriers, and finally
toward the private sector over level playing fields
and by no means least of allhelp governments to
and market entry barriers. A set of key rules,
overcome fiscal constraints. Having been conceived
which are explained in the policy brief, is critically
in its modern form several decades ago, P3s have
important for successful P3s, though. These
therefore attracted attention from Middle Eastern
include a strong legal framework, pragmatism,
governments in recent years. The recent past
and flexibility on both sides and the critical and
signals that they are not as straightforward to
honest assessment of the economic and financial
implement as many had hoped. In fact, P3s are
feasibility of a P3 format relative to other formats
not particularly good at saving fiscal expenses, but
and ownership structures.
Context and importance of the

problem
P3s have attracted particular attention as a policy

tool in Abu Dhabi recently. They are regarded
as potent instruments to nurture private-sector
participation and overcome potential financing
shortages. However, to forestall potential policy
failure, it is important to take key rules about the
implementation and execution of P3s into account.
This policy brief explains the historical and regional
context and the key rules to follow for a successful
P3 project.
P3s as vehicles for large-scale projects tend to have
their own business cycles. There have been recent
boom times, but also times of stagnation or even
recession. Likewise, proponents of the idea have
sometimes been overoptimistic, while skeptics
dismissed the idea as too complex or even as a
waste of public resources for private gain.
Partnerships or joint ventures between governments

in the Abu Dhabi and private sector companies have
a long history
The concept has been particularly attractive for
governments that have sought additional resources
to develop large-scale projects with long lead times
or long amortization periods. Often, the concept has
also been thought of as a tool to nurture privatesector activities in areas public-sector players
usually dominated.
At least three factors have contributed to the rise of
P3s for public infrastructure and facilities, especially
since the 1980s, as alternatives for project delivery
and finance:
Liberalization and privatization of public services

with the ostensible goal of increasing efficiency
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29
Policy Brief
Ch3 - Reference Guide for Public Private Partnerships in Abu Dhabi - January 2016
Reference Guide for Public Private Partnerships in Abu Dhabi
Desire to diversify economies away from natural

resources
in asset management and service delivery by
applying market mechanisms;
The lack of up-front public funding for capital
construction and renovation; and
Demand by pension funds and other financial
management companies for long-term, incomegenerating investments.
For the Middle East region and Abu Dhabi,
the concept of P3s is relatively new. However,
partnerships or joint ventures between governments
in the Middle East and private-sector companies have
a long history with regard to oil and gas production; in
fact, the emergence of the industry in the countries of
the Gulf Cooperation Council (GCC) was founded on
a partnership between governments and the private
sector. Outside oil and gas, though, the complex
legal framework, which is needed for P3s, combined
with prevailing budget surpluses did not entice
policymakers to more openly embrace P3s.
The desire to diversify economies away from
natural resources has changed the situation. Closer
cooperation between the public and the private
sector has been driven by two key motivating factors.
First, P3s can introduce products, processes,
technologies, and innovation through private-sector
participation, which the public sector alone would
not be capable of introducing and administering.
Second, P3s can be a smart approach to overcome
antagonism between potential competitors from the
public sector on the one hand and the private sector
on the other. With that, P3s can support not only
private-sector participation in the economy, but also
help to diversify the economy.
Moreover, with hydrocarbon revenues dwindling,
GCC governments have been incentivized to look for
alternative ways to finance projects and share risks.
Their interest has accelerated legislation processes
in several countries, such as Kuwait, Qatar, Oman,
4
30
and the emirate of Dubai, to either upgrade existing

rules or devise legal systems to govern P3s.
Agencies to administer P3s have been created.
The government usually identifies and defines
requirements for infrastructure, while the private
sectors role focuses on turning ideas and plans into
reality. This has been the case for centuries. In that
broadest sense, nearly all government infrastructure
and facilities construction projects could be labelled
as P3s. P3s in a modern sense, though, expand the
private sectors role beyond the mere execution of
a project. P3s tilt the balance in terms of ownership,
risk-taking, and financing toward the private sector.
A narrower and more practicable definition of P3s
(according to the World Bank) is the following:
A long term contractual arrangement between a
public entity or authority and a private entity for
providing a public asset or service in which the
private party bears significant risk and management
responsibility.
P3s can be controversial in that they may involve
private-sector provision of services considered by
some to be public goods. In other words, citizens
are often outraged that goods or services, whose
provision is regarded as (nearly) universally
available, are provided by private-sector players,
with prices based on profit maximization rather than
the ability to pay or the needs of the consumers
using those goods or services.
Many of these issues can be overcome, however,
by developing P3s that align the objectives of
the public sector, private owners and operators,
stakeholders, and financiers. This alignment
involves implementing the right P3 procurement,
contract, project delivery, funding, and finance
strategies to fit the requirements of a given project.
January 2016
Critique of policy options
Simply, P3s facilitate a more efficient way to plan,

finance, and execute projects in some areas,
especially in the infrastructure segment, where the
government lacks the ability to pick the most efficient
technology and to carry out the project at least cost,
as well as the ability or willingness to take all risk on
its shoulders. P3s thus offer an important tool for
Abu Dhabis public agencies and authorities charged
with delivering public assets and services.
A 2008 US Government Accountability Office
study outlined in detail the various advantages
and detractors or trade-offs of employing P3s for
infrastructure investment. From the private sectors
perspective, P3s can generate long-term, stable,
and potentially high returns on investment.
From the public sectors perspective, key advantages
and trade-offs are highlighted in Table 1.
A good P3 program will align the private entitys
market-driven goals and objectives to maximize
the advantages and minimize trade-offs towards
the public goals and objectives. The public goals
and objectives of a given project or service will
vary. Fortunately, there is a wide range of P3
types that varies based on the amount of rights,
risks, and responsibilities transferred to the private
partner. Table 2 illustrates this range of methods in
approximate increasing order of scope transferred
Controversies on P3s need to be addressed headon and in a smart way
to the private entity.

Several key elements must be considered in
structuring the optimal P3 for a given project:
Integration: Generally speaking, integrating

more tasks in a P3 provides the private entity with
financial incentives for life-cycle-cost minimization.
The public-sector yields greater control over the
asset or service to achieve these savings.
Finance and funding sources: More private
participation in finance and the securing of
funding more directly from users (e.g., tolls
and user fees) inject greater market discipline
in investment decision-making and operating
efficiencies.
Risk: There are numerous risks in the
development and operation of a public asset
or service*4. Many are more easily controlled
by either the public or private party. For some
risks, such as various types of risk related to
commercial performance, control will be less
clear or fragmented and should be factored into
the optimal P3 structure.
Table 1
Advantages
Trade-offs and related challenge for policymakers
A source of up-front finance for new construction or monetization of

existing assets to finance improvements
Potentially higher costs and price charges to government, users, and

the public depending on market conditions and contract design
Transfer of various types of risks whose costs can be better managed

by the private sector
Loss of public control over an asset or service for a period of time

establish legal system that governs
Injecting a more entrepreneurial spirit, such as openness for new

technologies and innovation, in project and life-cycle management
Transfers of risks whose nature is unclear at the point of decisionmakingfinding the right balance for sharing risks and rewards from
changing circumstances, market conditions, and technologies.
Improving asset efficiency and investment decision-making by

introducing market mechanisms (e.g., introducing pricing)
Potential abuse of market power, equity, and coordination of public and

private objectivesestablish rules to ensure quality of service
Sources: IHS and US Government Accountability Office (GAO), 2008; the latters report on highway P3s offers a detailed assessment of the benefits and trade-offs:
http://www.gao.gov/assets/280/272041.pdf
2016 IHS
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31
Policy Brief
What happens if? is an important question to ask
Policy recommendations
The following five general policy recommendations

can be distilled:
P3 should be part of Abu Dhabis development

toolbox.
P3s serve project success as to better execute,

save costs, and share risks with private-sector
players, but not under all circumstances.
P3s should not be used with the (sole) purpose of
finding alternative funding for projects initiated by
the government.
P3s should also not be used for the (sole)
purpose of nurturing private-sector activities and
entrepreneurship.
Successful P3s require a careful and politically
smart selection of suitable projects, buy-in, and
ownership of the project on behalf of key publicand private-sector stakeholders.

The first steps toward a successful P3
framework include creating the authority for P3s
and developing internal expertise to identify
opportunities and tender, negotiate, and manage
the projects. From a more practical perspective,
the Brookings Institution has analyzed nine factors
leading to successful P3 programs*5:
Create a strong legal framework at the state (or

appropriate national or metropolitan) level
Prioritize projects based on quantifiable public goals

Pick politically smart projects
Understand what the private sector needs
Find the right revenue stream
Create a clear and transparent process
Build an empowered team (i.e., with the skills
and expertise to competently procure and
administer P3s)
Table 2
P3 method
Funding
Features and variants
Operations & Maintenance (O&M) Government
Financing
Fixed fee
Can have performance payments and

bonuses
Design-Build (DB)
Government
Fixed fee
Shifts design & construction risk

Design-build with warranty shifts risks into
operations phase
Construction Manager at Risk is a variant
between DB and traditional procurement
Design-Build-Operate-Maintain
(DBOM)
Government
Typically, availability and/or

performance payments
Shifts operating risks to support life-cycle

cost management
Other variants: Build-Operate-Transfer
(BOT) and Build-Transfer-Operate (BTO)
Can shift some commercial risk by tying
funding to user fees
Design-Build-Finance-OperateMaintain (DBFOM)
Public, Private, or Mixed User fees (direct or subsidized), User-fee and demand-based subsidies (e.g.,
availability, and/ or performance
shadow tolls) shift some or all commercial
payments
risk
Design-Build-Finance (DBF) is a variant
shifting finance risk but not long-term O&M
Concession/ Long-Term Lease
Private
User fees (typically direct)
Sources: US Department of Transportation*1, US Transportation Research Board*2, Barchan Foundation*3
6
32
Private partner essentially assumes

temporary ownership of the asset
User-fee remuneration shifts significant
commercial risks to the private sector
2016 IHS
January 2016
Actively engage with stakeholders

Monitor and learn from the partnership
Not all policy recommendations that apply to
modern Western economies apply in the same
way to resource-rich Middle Eastern economies.
Circumstances, the role of the public sector, and
the relationship between the public and the private
sector are certainly different in several aspects.
Therefore, and since governments in GCC countries,
and Abu Dhabi in particular, are looking for ways to
promote private-sector activity, P3s offer a viable
way to accomplish that in the special circumstances
of the region. Still, promoting private-sector activity
cannot be the sole purpose; P3s should also be
financially and economically more attractive than
other options. A critical and honest assessment
of the P3 option relative to other options should
therefore be part of the decision-making process.
Appendix
Value for money as a concept
to assess P3 feasibility
At the P3 project level, Value for Money (VfM) is a

key concept and analytical framework. Her Majestys
Treasury (HMT) has rigorously employed this concept
and analytical tool as part of the United Kingdoms
extensive Private Finance Initiative (PFI). HMT
defines VfM as the optimum combination of wholeof-life costs and quality (or fitness for purpose) of the
good or service to meet the users requirement. VfM
is generally calculated by the sponsoring agency (or
specialized P3 unit) by estimating the whole-life costs
of a project under a P3 method and comparing these
with estimates for the public sector (referred to as
the Public Sector Comparator, or PSC). A project
estimated to offer savings over the PSC suggests a
potentially viable P3*6.
Case studies
Successful large-scale P3 projects in the GCC

and the broader Middle East region are relatively
rare. One landmark project has been the Prince
Mohammad bin Abdulaziz International Airport in
Value for money as a concept to decide on whether

to use P3 or not
Medina, Saudi Arabia. A Turkish-Saudi consortium

carried out the project on time (by June 2015) and
within budget constraints.
Other projects, such as the Mafraq Ghuweifat
Highway in Abu Dhabi or the Abu Dhabi Airport
Midfield Terminal Complex, were originally conceived
on a P3 basis, but were turned later into a more
traditional form related to engineering, procurement,
and construction (EPC) contracts, which usually
focus on the construction phase of the project and
do not include long-term services and operational
costs covering the entire life cycle of a project.
There are numerous examples of P3s throughout
the world that have efficiently delivered highquality projects, with numerous public benefits and
reasonable returns to private investors.
Virginia Interstate 495 express

lanes
One example, which worked particularly well, was

the building of express lanes in the US state of
Virginia on the Washington, DC, beltways 14-mile
stretch between the I-95 interchange and the Dulles
access/toll road.
Alleviating traffic along this corridor in the traditional
manner by building new lanes would have been
expensive, politically toxic, and require the state to
relocate at least 350 private residences. After nearly
20 years of intermittent planning work, the Virginia
Department of Transportation (VDOT) received an
unsolicited proposal to create special dynamically
tolled lanes along the highway from Fluor Daniel, a
large private-sector construction firm.
The proposed high-occupancy/toll (HOT)
lanes would incorporate both new monitoring
technologies and advanced price-setting algorithms
7
33
Policy Brief
that maximize traffic flow and revenue, while

reducing congestion. Tolls would vary depending
on real-time congestion conditions (i.e., drivers pay
higher tolls when the road is heavily congested, and
vice versa). Furthermore, they would not require
the expansion of the existing highway as the lanes
would be added to the center median.
VDOT maintains a dedicated internal P3 unit, the
Office of Transportation Public-Private Partnerships
(OTP3). Under the guidance of OTP3, Virginia
was able to develop a P3 with Fluor to launch the
managed-lane project in November 2012.
In this case, VDOT used its robust P3 process to
shift the planning and design risk of developing a
complex and creative traffic project to the private
sector, while gaining the ability to use a traffic
management model that was beyond its internal
expertise and technical capacity. Early on, revenue
from the HOT lanes has not met projections, but
because of the P3 structure, the state gained a
technologically advanced system that delivered a
50% increase in capacity along the corridor without
bearing the demand risk for revenue shortfalls.
*3 Researchers at MIT developed a twodimensional tool for conceptualizing the relative

degrees of public versus private responsibilities
integration and sources of finance and funding,
respectively. Summaries of this research and
international case studies can be found here:
http://www.barchanfoundation.com/
*4 Infrastructure Australia provides a detailed guide
on the types of risk in infrastructure P3s http://
infrastructureaustralia.gov.au/policy-publications/
public-private-partnerships/national-ppp-policyguidelines.aspx
*5 The Brookings Institution publication Private
Capital, Public Good outlines best practices,
and can be found here: http://www.brookings.
edu/research/reports2/2014/12/17-infrastructurepublic-private-partnerships-sabol-puentes
*6
Her Majestys Treasury publishes guidance
for evaluating P3s and calculating VfM, such
as: (https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/252858/
vfm_assessmentguidance061006opt.pdf)
(Content adapted from The Brookings Institution

publication Private Capital, Public Good edited by
Patrick Sabol and Robert Puentes, December 2014.
The pdf file can be found here: http://www.brookings.
edu/research/reports2/2014/12/17-infrastructurepublic-private-partnerships-sabol-puentes)
Sources consulted or
recommended
*1 The US Department of Transportations Office

of Innovative Program Delivery has outlined the
various task combinations, which are generally
applicable to all types of P3 projects
(https://www.fhwa.dot.gov/ipd/p3/defined/)
*2 The Transportation Research Board (TRB) of the
US National Academies has published detailed
analysis on the various types of P3s, and the rights,
responsibilities, and risks therein: http://onlinepubs.
trb.org/onlinepubs/nchrp/nchrp_syn_391.pdf
January 2016
34
35
Chapter 4
Investment Opportunities
For Abu Dhabi International
Markets
January 2016
36
Low oil, strong dollar, and

global industries
2014
$93
2015
$49
As companies scramble to adjust

operating plans, investments are being
shelved widely, and new opportunities are
emerging. The energy sector is primarily
affected but is not alone. Industries
adjacent to the energy sector and, in fact,
entire supply chains factor into the new
reality and reshape the sectoral landscape
and the economy. The process started less
than a year ago and is currently well under
way. (see table 1)
The adjustment process must be put
in context with the underlying currents of
global and regional growth patterns. Many
forces are at work. The damage inflicted by
the Great Recession still impairs the global
economy and financial system even while
they attempt to regain full health. Policy
responses, including fiscal austerity and
monetary expansion, are relevant.
Global industry recovery is still

weak and fraught with risks
The problem is most severe in the case

of advanced economies real estate,
construction, banking, and household
sectors. In some countries, these sectors
will need several more years to regain their
precrisis vitality. Some goods-producing
sectors will also need years to regain full
health. (see table 2)
Table 2: Industry output CAGR*

*Compound annual growth rate, world economy
1995-2007
3.7%
4.3%
8.9%
4.8%
5.4%
2.4%
2.3%
3.4%
3.5%
9.1%
2.0%
3.7%
Sector
Manufacturing
Iron & Steel
Electronics (Computers
& Communications)
Medical & Measuring
Equipment
Pharma
(Drugs & Medicines)
Media and Entertainment
Construction
2011-2015
2.5%
2.7%
4.2%
3.3%
3.5%
1.7%
2.5%
2.6%
Medical & Healthcare
3.5%
Information &
Communications Technology 4.3%
Refined Petroleum
Products
1.6%
Chemicals (excl. Pharma)
3.2%
Transportation,
Logistics & Wholesale
Source: IHS World Industry Service

Table 1: World industry annual output growth

12%
9%
6%
3%
0%
-3%
-6%
-9%
-15%
2005-Q1
2005-Q2
2005-Q3
2005-Q4
2006-Q1
2006-Q2
2006-Q3
2006-Q4
2007-Q1
2007-Q2
2007-Q3
2007-Q4
2008-Q1
2008-Q2
2008-Q3
2008-Q4
2009-Q1
2009-Q2
2009-Q3
2009-Q4
2010-Q1
2010-Q2
2010-Q3
2010-Q4
2011-Q1
2011-Q2
2011-Q3
2011-Q4
2012-Q1
2012-Q2
2012-Q3
2012-Q4
2013-Q1
2013-Q2
2013-Q3
2013-Q4
2014-Q1
2014-Q2
2014-Q3
2014-Q4
2015-Q1
2015-Q2
-12%
Source: IHS 2016 Abu Dhabi Chamber of Commerce & Industry
3
37
Sectoral Report
Ch4 - Investment Opportunities For Abu Dhabi Companies in International Markets - January 2016
For Abu Dhabi Companies in International Markets
Table 3: US dollar rates and oil price
Oil price (USD/barrel) USD/EUR USD/JPY USD/CNY
120
2015-D215
2015-D190
2015-D165
2015-D140
2015-D115
2014-D90
2015-D65
2015-D40
2015-D15
0
2014-D251
$0
2014D226
20
2014-D201
$20
2015D176
40
2014-D151
$40
2014-D126
60
2014-D101
$60
2014-D76
80
2014-D51
100
$80
2014-D26
$100
2014-D1
Crude oil price (WTI)
$120
For example, despite its impressive

V-shaped rebound after the recession,
global manufacturing still has huge excess
capacity in some sectors (e.g., automobiles,
steel, and aluminum). Recent growth has
been weaker compared with the long-term
historical average. In the case of the steel
and automobile sectors, the problems
are structural, and remedying them will
require major reform, restructuring, and the
retirement of less-efficient plants.
Table 4: MSCI sector rankings

Industry groups
Retailing
Software & services
Consumer durables & apparel
Diversified financials
Insurance
Media
Healthcare equipment & services
Food, beverage, & tobacco
Consumer services
Banks
Commercial & professional services
Capital goods
Pharmaceuticals, biotechnology, & life sciences
Semiconductors & semiconductor equipment
Telecommunication services
Automobiles & components
Household & personal products
Technology hardware & equipment
Food & staples retailing
Transportation
Real estate
Energy
Materials
Utilities
Index, 1 January
2015 = 100
122.9
121.7
110.0
108.3
108.0
107.6
107.5
107.3
106.7
105.6
104.6
104.3
102.5
101.1
100.9
100.8
100.7
100.3
96.8
96.6
94.5
91.4
90.9
90.7
Source: Morgan Stanley, IHS
2016 IHS
4
38
Momentum in other sectors has

slackened, too. Its not just the old heavy
industries, which are suffering from
structural problems. The growth pace in
electronics manufacturing has more than
halved in the last five years compared
to the historic average before the Great
Recession. (see table 3)
Growth in the services sector, which
represents nearly two-thirds of the global
economy, has generally lagged that of
industry because the finances of advanced
economies household sectors have been
under pressure from high unemployment,
weak income growth, and tight consumer
credit. As a result, investor confidence indices
are still well below their precrisis peaks, and
the corporate sector is very cautious about
spending and payroll expansion.
The housing nightmare
A renewed housing downturn remains the

global economys worst nightmare. During
the past three years, real estate markets
in many emerging markets have boomed
(e.g., those of the Philippines, Hong Kong,
Singapore, Taiwan, China, India, Turkey, and
Brazil). In many cases, though, monetary
tightening has stabilized prices and, in some
cases, reversed the price increases recently.
Meanwhile, real estate markets in some
developed economies (such as Spains)
have remained under downward pressure
since the Great Recession. (see table 4)
The pressure on real estate is reflected by
asset market currents as real estate stocks
displayed a relatively weak performance in
the year to date. The related MSCI world
index is down 5.5% from the beginning of
the year, with only commodity stocks and
utilities performing still weaker. Notably,
consumer-related industries can be found
at the high-performing end of the stock
January 2016
Table 5: IHS World Material Price Index (exchange-traded commodities, January 2002 = 100)
8
7
6
5
4
3
2
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
performance spectrum, reflecting improved

household purchasing power, chiefly in oilimporting countries.
In any case, because house prices in
many countries were vastly overpriced,
there is a significant risk that prices could
undergo another correction over the

coming years, particularly if the world
economy does not reaccelerate or central
banks tighten their monetary policy rapidly.
A protracted, synchronous housing crash
could further weaken the global economy
Table 6: Growth opportunity and sector size: World sectors compared
Growth (CAGR, real) in 201417
Relative sector sales level in 2014

Large
More than USD $2,320 bn
Medium
USD $875 to $2,320 bn
Fair
USD $412 to $875 bn
Small
Less than USD $412 bn
High
More than
3.5%
Textiles & apparel;

Communications; Banking
& related financial; Business
services
Basic industrial chemicals;

Pharma: drugs & medicines;
Mineral-based prod. (ex.
glass); Nonferrous metals;
Wire, cables & batteries;
Semiconductors, CBs, &
LCDs; Parts for motor
vehicles; Computing &
related services
Synthetic fibers; Glass &

glass products; Electric
motors & generators;
Electric distribution &
control; Receivers, players,
sound systems; Optical &
photographic equipment;
Railroads & equipment;
Motorcycles, bicycles,
transport. equip.; Recycling
Synthetic resins;
Transmitters, routers,
telephony; Medical &
measuring equipment;
Aircraft & spacecraft;
Jewelry, toys, musical,
sporting; Air transport
Medium
2.6% to 3.5%
Agriculture; Food products;

Motor vehicles;
Construction; Wholesale
trade; Hotels & restaurants;
Land transport; Education;
Health and social services
Mining of metals & stone;

Specialty chemicals (ex.
pharma); Plastic products;
Other general industry
machinery; Supporting
transport services; Leasing
of machinery & equipment;
Recreational, cultural, &
sporting
Watches & clocks; Pipeline

transport
Beverages; Wood products

(ex. furniture); Rubber
products; Structural metal
products; Domestic
appliances; Furniture;
Water transport; Research
& development
Low
Less than
2.6%
Oil & gas mining; Refined

petroleum & related; Iron &
steel; Electricity, gas, &
steam; Retail trade - total;
Public Admin. & Defense
Paper & pulp; Metal coating

& related services;
Sanitation, trade
organizations
Uranium mining; Tobacco

products; Printing & related
services; Reproduction of
recorded media; Fertilizers;
Engines & turbines; Lifting
& handling equipment;
Agricultural machinery;
Machine tools; Metallurgy,
machinery, & casting;
Mining & construction
machinery; Shipbuilding;
Water supply
Coal mining; Publishing;

Other special industrial
machinery; Computers &
office machinery; Post &
courier services
World total in 2014:
USD $114 trillion

Sector size: USD $7-$10,159 bn
Growth rates: -1.1%-5.7% (nominal)
5
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Sectoral Report
Table 7: Growth opportunity and sector size by country: private non-agricultural business
Growth (CAGR, real) in 201417
Relative sector sales level in 2014

Large
More than USD $1,320 bn
Medium
USD $512 to $1,320 bn
Fair
USD $273 to $512 bn
Small
Less than USD $273 bn
High
More than
3.6%
China; India; Indonesia
Poland; Malaysia; Nigeria
Slovak Republic;
Bangladesh; Sri Lanka;
Jordan; Qatar; Panama;
Uruguay; Cameroon;
Kenya; Morocco;
Zimbabwe
Czech Republic; Ireland;

Romania; Philippines;
Pakistan; Vietnam; Egypt
Medium
2.4% to 3.6%
Mexico; United States;

Spain; United Kingdom;
South Korea
Sweden; Turkey;
Singapore; Thailand;
Taiwan; Emirates (UAE);
Israel
Hungary; Bulgaria;
Bahrain; Bolivia; Costa
Rica; Ecuador; Honduras
Hong Kong; New

Zealand; Iran; Kuwait;
Peru
Low
Less than
2.4%
Canada; France; Germany;

Italy; Netherlands;
Switzerland; Russia;
Australia; Japan; Brazil
Austria; Belgium;
Denmark; Norway; Saudi
Arabia; Argentina;
Colombia
Ukraine; Jamaica
Finland; Greece;
Portugal; Chile;
Venezuela
World total in 2014:
Sector size: USD $22-$28,126 bn

Growth rates: -5.3%-8.1% (nominal)
USD $132 trillion

and unleash powerful, self-feeding

deflationary pressure for several years.
Given the weakness of banking systems in
many countries around the world, a housing
crash could trigger a renewed financial crisis
and further damage the world economy.
The unraveling of the supercycle
37.5%
is the percentage
point by which the IHS
Materials Price Index
(MPI) is below its
year-earlier level
Against this backdrop of global economic

currents, the unraveling of the commodity
supercycle combined with Chinas
weakness and a stronger US dollar has
added new dimensions to the global
economic and industrial (dis-)order. During
the last 20-odd years, the surge of demand
from emerging markets, first of all from
China, had driven prices for all key industry
commodities to new heights, but that surge
crashed as growth in many emerging
markets slackened and inflated production
capacity mattered suddenly. (see table 5)
The bottom is nigh?
The downturn might not have reached its

nadir quite yet. Industrial commodity prices
continue to slide. The IHS Materials Price
Index (MPI) is now 37.5% below its yearearlier level and 54.5% below the high
reached at the end of 2013. In real terms,
the MPI now matches the level reached in
the first quarter of 2009, during the Great
Recession. In many cases, prices are now
below IHS estimates of average global cash
operating costs.
6
40
Current price levels are pressuring

commodity producers. Real prices are close
to where they were in late 2008, a sign
that commodity prices may be nearing a
bottom. Although the trough could be near,
a recovery of prices in the near term is by no
means guaranteed.
Near-term outlook builds some

confidence
Against that background, and with results for

first-half 2015 taken into account, the new
reality of low oil can be reflected in industry
forecasts with some confidence. The sector
overview for 201417 displays industries
according to size (horizontal line) and
growth performance (vertical line).
(see tabel 6)
High-growth sectors on the global scale
are primarily sectors that are relatively far
down the supply chain and close to the
end consumer, such as textiles, media,
electric and electronic products, but also
services industries like communications
and banking. Furthermore, sectors that
enjoy direct benefits from lower oil prices,
such as basic chemicals, are ranked as
high performers, too.
High and low performers in the age

of low oil
Low performers are found among mining
industries, reflecting the weakness of
mining commodity prices. Suppliers for
January 2016
mining sectors, including machinery and

equipment makers, are affected by that
weakness. Moreover, industries that are
confronted with structural challenges like
global excess capacities in steel are barely
growing in the near term as demand growth
will not be able to catch up with actual
production capacity.
China, particularly, has this problem,
where excess capacities are visible
in segments supplying construction
works. As the investment boom in China
slackens, high-flying expectations for
construction demand are no longer
realistic. Still, China remains among the
high performers in the country ranking.
(see table 7)
Overall economic growth has clearly
been slowing down as the investment bias
of Chinas growth model is toned down in
favor of more emphasis on consumption.
In fact, resilient consumer spending,
irrespective of recent volatility in local
financial markets, will offset much of the
slack from investment and construction.
Distilling the impact of low oil
How strong has been the impact of low oil in

this environment? Oil prices moved quickly,
yet industries have taken more time to adjust.
Commodity markets are apparently resetting
to lower expectations. These revised
expectations are evident in investment flows
of exchange-traded funds and hedge funds,
which have been retreating from commodities
as an asset class.
Table 8: World ranking low oil price vs. baseline, 2017
496
400
200
0
-756
Output change basis points

A
Capex change basis points

G
-200
-400
-600
-800
-1000
-1200
A
B
C
D
E
F
G
H
Social & personal services

Hotels and restaurants
Mining
Real estate & business services
Manufacturing
Utilities
Financial intermediation
I
J
K
L
M
N
O
Transport, storage, communication

Education
Private household services
Healthcare services
Agriculture
Construction
Public administration & defense
Source: IHS World Industry Service 2016 Abu Dhabi Chamber of Commerce & Industry
To quantify the impact of persistently

low oil prices, IHS developed an industry
scenario that assumes a further decline
of oil prices. A difference of USD30 per
barrel to the IHS baseline forecast on
average for 2017 is the core assumption
behind the scenario.
Oil prices at USD30 less per barrel
$30
is the USD cost

difference per barrel
of oil by 2017
Broadly speaking, the industries that

fare best under these circumstances are
those driven by consumer spending. The
sectors that produce capital equipment for
nonenergy-related industries also perform
relatively well in such a scenario. Global
Table 9: Top and bottom performers low oil price vs. baseline
*Incremental output change 2017 (percent basis points)
1: North America*
*includes Mexico
Top three sectors

58 Utilities
55 Social & personal services
48 Manufacturing
Bottom three sectors
27 Agriculture
12 Public administration & defense
-169 Mining
2: Western Europe
Top three sectors
66 Hotels and restaurants
55 Private household services
53 Financial intermediation
20 Healthcare services
13 Public administration & defense
-90 Mining
3: Middle East
4: Asia Pacific
Top three sectors

406 Mining
-87 Agriculture
-127 Transport, storage, communication
Top three sectors

57 Private household services
49 Transport, storage, communication
46 Education

-286 Private household services
-374 Public administration & defense
-386 Construction

34 Mining
32 Healthcare services
28 Agriculture
7
41
Sectoral Report
Table 10: Construction, glass, & cement output change; regional performance low oil price
vs. baseline 2017 (percent basis points)
22
Total output
173
-709
47
Asia-Pacific
47
Western Europe
30
North America, incl. Mexico
26
Eastern Europe & CIS
Africa -20
Latin & Central America, excl. Mexico
Middle East
-400
World total
-49
-372
-350
-300
-250
-200
-150
-100
-50
50
70%+
of chemical production
costs are derived from
feedstock and energy
mining, including oil, is still increasing

output as producers scramble to retain
market share, but at the same time, capital
expenditure (capex) is curtailed. Capacity
reduction as a result of weaker capex will
kick in only toward the end of the decade.
(see table 8)
The regions of the world most influenced
by changes in energy prices are those
where production of oil and gas are a much
larger share of the local economy and
government revenues. With low oil prices,
members of OPEC located in the Middle
East, Africa, and Latin America suffer from a
decline in revenues and government funds.
The results are contracting government
spending and falling business investments.
(see table 9)
Impact on oil output
In the short term, a few of the larger and

lower-cost producers of energy will be able to
increase their output of oil and gas volumes,
to partially make up for decline in price.
Nevertheless, the impact on oil revenues
from changing oil prices will outweigh the
smaller movement in output volumes.
Over the medium- and longer-term time
periods, even the low-cost producers of oil
and gas will adjust production downward as
energy prices remain below expectations.
Many energy-producing countries also
have large sectors in agriculture and
chemicals, both of which benefit from lower
prices of fuel and feedstock.
8
42
A deeper dive on global construction

Low oil prices provide both an opportunity
and a drag for the construction industry.
For net oil-importing countries, reduced
spending on fuels transfers to more
spending power for consumers and
increased profits for corporation. The result
is intensified nonresidential construction
activity and increased spending on home
construction and improvements.
However, there is also construction
activity within oil exploration, production,
and distribution, which exerts a drag on the
construction industry when oil prices are low.
In some producing countries, oil revenues
are used to subsidize construction of
housing, and dependence of the economy on
energy can be such that reduced oil prices
hold back overall economic activity, limiting
nonresidential construction. (see table 10)
Net benefit from low oil
Oil-consuming nations have a larger share of

global economic activity than oil producers,
so the net impact on the construction
industry is slightly positive. The construction
industry of the United States is linked to
housing and commercial construction far
more than to energy. Global construction
spending grows faster in a low oil price world
compared with the baseline. Exchange-rate
variations appear to have hardly any impact
on construction sector performance. There
is very little trade in construction services;
virtually all of the supply is domestic.
January 2016
Table 11: Chemicals output change 2017; regional performance low oil price vs. baseline 2017
(percent basis points)
Total output
219
-106
43
43
Asia-Pacific
41
Western Europe
39
13
Africa
13 Latin & Central America, excl. Mexico
Middle East
-120
World total
38
-106
-100
-80
-60
-40
-20
20
40
60
The boost given to consumers will improve

housing activity, as well as commercial
structures where consumers spend, such
as retail, hotels, and restaurants. The net
positive impact of low energy prices on the
US economy will create more jobs, which
also results in construction investment.
The Asia-Pacific region in general, and
China in particular, will see construction
sectors benefit from low oil prices. In Chinas
case, it will help to mitigate but surely not
offset the slowdown of the investment boom.
Europe also benefits from a low oil scenario,
but the existing slack in the regions real
estate market translates into less of an
advantage compared with the United States.
Low-priced oil cuts operating costs

for chemical producers
Low-priced oil has caused a dramatic

swing in the marginal cost and competitive
positioning for many chemical producers
across the globe. Feedstock and energy
equate to about 7080% of chemical
production costs. In a low oil price
environment, chemical output will rise, in line
with overall gains to economic growth.
Low oil prices lead to a deflationary impact
on chemicals prices in the short term,
though. Since most producers lack pricing
power, consumers will take full advantage
of declining prices and abundant supply.
The effect of lower prices will likely offset
higher output and, therefore, lead to weaker
nominal sales and capital investment overall,
particularly in the short term.

Chemical producers are price takers,
fiercely fighting over market share, while
value-added specialty manufacturers
competing on innovation should be relatively
insulated irrespective of high or low oil
prices. (see table 11)
Given the presence of chemicals in our
daily lives, demand growth generally moves
in step with the broader economy. As such,
IHS expects chemical consumption to
outperform in oil-importing countries and
underperform in oil-exporting countries
when oil prices are low and vice versa when
oil prices become more expensive.
2.2%
is the Chemical share

in world GDP
but leaves some producers

struggling with a weaker
competitive edge
A flattening global cost curve in a low oil price

environment is positive news for European
and East Asian naphtha crackers struggling
against the onslaught of new supply
originating in the United States, Middle East,
and Chinese western provinces.
When crude prices were in the USD100/
barrel (bbl) range, North Americas natural
gas liquidsbased ethylene producers had
a feedstock advantage of about USD1,000/
metric ton over naphtha-based producers
in Asia, according to estimates by IHS
Chemical. With oil closer to USD50/bbl, the
advantage has been reduced to USD500
600/metric ton.
Some North American projects may not
9
43
Sectoral Report
Table 12: Motor vehicles output change 2017; regional performance low oil price vs.
baseline 2017 (percent basis points)
38
Total output
278
-264
66
59
42
38
19
Africa
Asia-Pacific
Western Europe
17 Latin & Central America, excl. Mexico
Middle East
-300
World total
-264
-250
-200
-150
-100
-50
50
100
11%
is the Transport &

logistics share in
world GDP
be as compelling or reliable as they once

were in a low oil price environment. The
incentive is growing to postpone investment
decisions or even cancel some projects.
In contrast, chemical manufacturers in
these same swing markets will invest more
aggressively when oil prices bounce back.
If oil prices recovered faster, chemical
sector output prices expanded faster and
margins appear healthier with an increasing
portion of global production riding on
the back of unconventional feedstock
strategies, including US shale gas and
Chinese coal-to-olefins, which are price
independent of oil. Crackers using ethane
feedstock will be able to piggyback on the
upward movement in oil, pocketing higher
margins in the process.
Transport benefits from lower

operating costs and higher demand
The transportation industries are also major

beneficiaries of low oil prices. There is a direct
cost benefit from lower fuel prices. Fuel costs
are the largest percentage of operational
expenses in transportation. Transportation
will also see a significant impact on its output
from consumer and business spending
changes, from a volume perspective.
In a low oil price scenario, the portion of
the transportation sector that serves the
midstream part of the energy supply chain
will see a downturn in volumes due to the
lower supply from the marginal suppliers.
Transport of oil and gasmainly via
10
44
pipelines, rail, and water-based shipping

should see a decline in operations, even
though the cost of fuel falls and the total
transportation sector is lifted overall.
Energy savings are lifting endconsumer demand
The motor vehicles sector, which includes

trucks, trailers, and buses, in addition to
passenger vehicles, will mainly benefit from
low oil prices via the oil price impact on
consumer and business spending.
A lower cost for fuel leaves more money
for buyers to spend, in particular those
customers with high incomes or big budgets.
In such times, consumers are also more
inclined to buy more vehicleslarger,
heavier, and less-fuel-efficient, but also
more profitable.
Countries that are large producers of oil
see a negative (or positive) consequence
from a low (or high) price of oil. Big hits to
their oil revenues and their economy result
in less spending on motor vehicles. Major
oil-consuming countries, or those where the
oil sector is not such a dominant feature,
will see a net benefit to the motor vehicle
industry from low fuel prices. (see table 12)
Capital expenditures by the motor vehicle
industry respond to the changing levels of
output and expected profitability among the
alternative scenarios on oil prices. Higher
demand for motor vehicles under the low oil
price scenarios drives the capital spending
higher during the next three years. With
January 2016
Tourism
Transport & Logistics
higher oil prices, capital spending will

increase at a slower pace.
A strong US dollar, placed alongside the
low price of oil, also has an impact on the
individual countries. This effect benefits
capital spending by the industry outside the
United States, such as in Europe and Asia.
Latin and Central America see particularly
strong increases in real capital spending
with low oil prices and further ramping-up if
the US dollar remains strong.
With the motor vehicle industrys long
supply chain, changes in output can also
translate into sizeable impacts on the
supplying sectors. Major adjustments in
the output of motor vehicles can have a
strong influence on the output of metals,
electronics, machine tools, and other
industrial machinery.
Investment location driven by

currency movements
A strong US dollar has the impact of

moving the growth of production from
one geographic region to another, in line
with the country currencys standing in
relation to the US dollar. Up to 30% of the
machinery produced in the United States
can be designated for export so currency
fluctuations have a profound influence on
the industry. A stronger US dollar will give
a competitive advantage to European and
Asian manufacturers. They will see their
global market share improve not only in
machinery, but in primary and fabricated
metals as well.
The impact of low oil is difficult to distill
from global industry currents, especially
given the strengthening of the US dollar
against most major currencies of both
developed and emerging economies.
The US economy and economies whose
currencies are pegged to the US dollar, such
as the United Arab Emirates and Abu Dhabi,
are confronted with a competitiveness
challenge in terms of costs relative to many
economies in Europe and Asia.
Manufacturing
Media
Financial Services
The bigger picture and Asias race

up the value-added ladder
Other, particularly longer-term trends matter,

too. Asias manufacturing landscape is
undergoing important changes, with both
regional and global implications. As China
moves up the value-added chain, partly
by necessity because of rising incomes
and labor costs that have eroded its
competitiveness in low-cost industries, it will
compete more directly with current trading
partners within the region and globally for
investment and market share.
Whereas it presents a risk for countries
such as Korea, Japan, Malaysia, and
Singapore, given the increasing competition,
new opportunities arise for lower-cost
countries such as the South and Southeast
Asian economies of Vietnam, Cambodia,
Indonesia, and India. These countries
have the potential to benefit not only from
improved market share as China exits some
low-end industries, but also from increased
investment and outsourcing from the
countries now more directly threatened by
Chinese competition. There is compelling
evidence that this phenomenon is already
taking place, with countries such as Korea
and Japan sharply boosting investments in
the markets of the Association of Southeast
Asian Nations in recent years.
30%
share of machinery
produced in the United
States designated for
export
11
45
Sectoral Report
Digesting Low Oil: Whats next for Abu Dhabis Real Estate Sector
Chapter 5
Digesting Low Oil:

Whats next for Abu Dhabis
Real Estate Sector
March 2016
46
A force for private sector growth
1.3%
Average population growth
rate in the UAE 2015-25
Construction and real estate to a great

degree led the rapid development of the
private sector in the United Arab Emirates
(UAE) overall and in Abu Dhabi. With the
exception of tourism perhaps, there is not
another sector with the same importance.
Real estate accounted for more than
one-fifth of total fixed investment in 2014
(including energy). Governing authorities
have recognized the sectors critical role as
it was short-listed as one of five supporting
strategic sectors within Abu Dhabis current
five-year plan.
The expectation of strong, sustained
economic growth in Abu Dhabi during
the next few years has obviously buoyed
real estate development in the emirate
and stimulated investment into the sector.
Property prices have quickly recovered
from the brief spell of weakness during
the financial crisis in 2008/09. Office rents
(grade-A shell and core office space,
according to real estate consultancy Knight
Frank) have hardly changed since 2011/12
and stabilized at around AED1,250 per
square meter.
Demographics, including the inflow of
expatriate workers, have played a favorable
role, too. The resident population of the UAE
grew sharply between 2002 and 2010, at
an average annual rate of 11.2%. Although
average population growth during 201525
is expected to slow to just 1.3% annually,
according to the United Nations population
forecast, the still-rising number of residents
and the increased living standards and high
income levels signal robust demand for
residential property in general.
However, the decline in the price of oil
has kindled concerns that a new spell of
weakness is in the offing, begging the
question to what extent the new global
reality of low oil prices has already impacted
Abu Dhabis real estate sector.
Falling oil revenues are a concern,
but other factors have led to increased
headwinds for real estate in Abu Dhabi,
too. As the dirham was forced to follow the
path of the appreciating US dollar since
late 2014, real estate prices in Abu Dhabi
increased in terms of euro, rouble, and
many other currencies not pegged to the US
dollar. Moreover, second- and third-round
effects impacted developers as tourism from
such countries and related retail shopping
lost traction, reducing demand for retail
space in return.
The most recent spell of US dollar
weakness may therefore be regarded even
as a hopeful sign for Abu Dhabi, as is the
recent stabilization of the price of oil, albeit

at a low level. It might inject a critical dose
of reassurance for Abu Dhabi and the wider
region.
This report will review key projects, price
trends, and other sectoral developments.
The diagnosis is still fraught with
uncertainties since hard data are often
lacking, but it seems safe to conclude that
new patterns are already emerging for real
estate development in Abu Dhabi. It is not a
radical break, but a more gradual shift.
Recent market trends
Given the drop of the oil price, Abu Dhabis

real estate market has proven remarkably
resilient to date, although a certain
slowdown is apparent. However, real estate
prices have surely not fallen off a cliff similar
to 2008/09, when the global financial crisis
hit (and oil prices were even higher than
they were at the beginning of 2016).
Hard data on real estate market trends
for Abu Dhabi for the last several months
are scarce. Anecdotal evidence from
real estate companies reports, such
as Knight Frank or Jones Lang Lasalle
Incorporated, indicates that the commercial
segment has suffered softening interest
from international investors, but both
rent and property prices in the market for
commercial real estate have held broadly
steady until year-end 2015.
In fact, office rents had never really
bounced back strongly after the steep
decline during the financial crisis. Therefore,
exuberances in the price level, if existent,
are much less serious than they were eight
years ago.
Rents for residential property bottomed
out in 2012 and 2013, commencing a shortlived ascent, which eventually flattened out
in 2015. Residential rents even backtracked
slightly on average, which was mostly
because of apartments, while rents for more
spacious villas even edged up slightly. A
move toward higher-quality property has
been apparent, which has been visible
in other market segments, too, including
commercial real estate (see chart 1).
Office supply, which approached 3.3
million square meters in Abu Dhabi in
2015, according to Jones Lang Lasalle
Incorporated, is expected to increase by
another 300,000 square meters in 2016,
even with weaker global conditions taken
into account. The vacancy rate, which
peaked at nearly 35% in 2013 but has
trended lower since, was barely higher than
25% in 2015.
Market segments for retail, residential,
2016 Abu Dhabi Chamber
3
47
Sectoral Report
Ch5 - Digesting Low Oil : Whats next for Abu Dhabis Real Estate Sector - March 2016
All residential index number
Villa index number
2012M7
Apartment index number
2011M7
Chart 1: Abu Dhabi residential property price index (January 2009=100)

120
100
80
60
2015M11
2015M9
2015M7
2015M5
2015M3
2015M1
2014M9
2014M11
2014M7
2014M5
2014M3
2014M1
2013M11
2013M9
2013M7
2013M5
2013M3
2013M1
2012M11
2012M9
2012M5
2012M3
2012M1
2011M9
2011M11
2011M5
2011M3
2011M1
2010M11
2010M9
40
Source: REIDIN 2016 Abu Dhabi Chamber of Commerce & Industry
AED
1,250
Average office rent per
square meter in 2015
and hotel real estate display similar supply

growth rates, with available space steadily
increasing. In fact, while hotel real estate
leaped by nearly one-third between 2012
and 2015, expansion rates for retail,
residential, and office space have been
similarly steady, albeit a little less high.
Although vacancies have already
decreased quite a bit in the last two years,
steady growth of real estate supply rests
on the expectation of similar demand
expansion. The low oil price might not have
a direct impact on Abu Dhabis real estate,
mainly because the real estate sector has
developed into a stronghold of the private
sector, but indirectly there are several
transmission channels that will influence
real estate demand in 2016 and beyond.
Demand for real estate by sector might
provide some indication of how strong
Abu Dhabis new real estate law

A new law regulating the real estate sector came into
effect 1 January 2016. Following a long drafting and
consultation process, the set of rules establishes
new supervising authorities and clarifies regulating
powers and licensing. Key points of the new law
include:
The Abu Dhabi Department of Municipal Affairs
will be in charge of overseeing the development
of the real estate sector in Abu Dhabi; it will be
the main supervising and regulating authority
Clarification of various business activities,
4
48
such as the role of the master developer,

subdeveloper, brokers, appraisers, and
surveyors, and when and which kind of license
is required for related activities
All developers will have to enroll in the real
estate development register
Establishment and clarification of rules for
selling units off-plan
Establishment of rules for creating owners
associations.
Source: Knight Frank
the link between oil prices and real estate

in Abu Dhabi actually is. In the second
half of 2015, real estate demand came
predominantly from two sectors of the
economy: engineering and construction and
general trading. The government and the oil
and gas industrydemand from which will
be most severely affected by low oil prices
accounted for only 6% and 8%, respectively,
of real estate demand (see chart 2).
This example signals a relatively weak
direct link, but ripple effects from the oil
and gas sector and the government surely
matter for demand of the entire economy.
Moreover, expectations from external
investors play a role, too. With a lag, the
real estate market might therefore soften,
although a sharp downturn like in 2008/09 is
not very likely at this point.
Banks and real estate
Banks have played a key role for financing

real estate in Abu Dhabi and the UAE in
general. The ratio of bank lending to GDP
has surged quickly during the recovery
following the global financial meltdown in
2008/09. The respective ratio of bank loans
for construction and real estate rose even
faster, although with an intermittent pattern
(see chart 3).
Foreign investors have also acquired a
big stake in Abu Dhabis real estate market.
Real estate accounted for more than onequarter of the entire stock of foreign direct
investment in Abu Dhabi in 2014. It was
the single largest recipient sector of direct
March 2016
Chart 2: Real estate demand by

sector, H2 2015
Chart 3: Real estate lending to total lending for the UAE

20%
15%
10%
6%
8%
21%
4%
14%
12%
1%
3%
20%
11%
A Government
B Oil and gas
C Engineering & construction
D
E
G
H
I
Financial
Professional
Leisure and hospitality
Technology
Real estate
5%
J General trading
K Other
0%
Source: Knight Frank 2016 Abu Dhabi Chamber of Commerce & Industry
investment inflows by far (see chart 4).

The exposure to the real estate market
and construction is obviously fanning
risks for the banking sector and foreign
investors now that markets are adjusting to
the new era of low oil prices. The question
is when and how banks and investors will
react to changing circumstances and how
expectations are adjusted.
Unlike 2008, the banking sectors stability
is not at risk at the moment since overall
capital buffers are expected to remain well
above local regulatory requirements, with

large banks likely to continue issuing longerterm subordinated debt and Islamic bonds
that qualify as Tier 1 capital to prepare for
Basel III implementation and lock in stilllow international borrowing rates. Lingering
risks to sector stability are largely qualitative
in nature, mainly the related-party lending
risks and corporate governance concerns
associated with the governments extensive
ownership of local banks and major
industrial conglomerates.
25%
Share of real estate in
foreign direct investment
Chart 4: Total stock of foreign direct investment by economic

activity, 2014, million AED
Real estate
Manufacturing
Financial institutions and insurance
Electricity, gas, and water supply; waste management
Construction
Other
5,000
10,000
15,000
20,000
25,000
Source: Statistics Center Abu Dhabi 2016 Abu Dhabi Chamber of Commerce & Industry
5
49
Sectoral Report
Chart 5: Lending and loan demand Q4 2015/Q12016

-0.5 -3.6
-3.6
5
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-3.9 -2.7
-6 5.4
-5.9 -4.1
1.8 6.8
-4.1 4.1
Change of loan demand in the UAE
compared with previous quarter*
Expected change of loan demand in the

UAE for the next quarter*
*Net balance of respondents
Share of real estate in

foreign direct investment
Most recent results from banks signal

that the market is already absorbing
the shock and adjusting to the new
circumstances, albeit gradually. The latest
credit sentiment survey from the Central
Bank of the UAE revealed a softening
demand for loans in general. Loan demand
for all sorts of residential housing loans,
though, which had started to fall already
earlier in the year, sagged further in the
final quarter of 2015. A modest rebound
of overall credit demand is expected in
the first quarter of 2016, but at the same
time, lending conditions are expected to be
tightened further (see chart 5).
Real estate lending is apparently cooling
off in Abu Dhabi, as can be expected given
Chart 6: Real estate lending (million AED)
Electricity, gas, and water

Construction
Property development
Retail and wholesale trade
Transport, storage, and communications
Financial institutions (excl. banks)
Others
new global and regional circumstances. A

sharp downturn, though, is not in the cards
for the near term. This is plainly evident from
actual lending results for the final quarter of
2015. In fact, total credit to real estate and
construction for the entire UAE increased
even further, which in some way contradicts
the findings from the central banks credit
survey. Before long, though, actual lending
will most likely slow as well (see chart 6).
Banks in Abu Dhabi have already
commenced putting the brakes on real
estate lending. In the case of First Gulf
Bank and Abu Dhabi Commercial Bank, the
two most important local banks, the ratio of
real estate lending to total lendingwhich
peaked in 2012 and 2013has been on
a downward slope for the last two years
without signs of bottoming out until the third
quarter of 2015 (see chart 7).
Government plans for real estate

development
250,000
200,000
150,000
100,000
50,000
0
50
3.6
0.9
Manufacturing
25%
-4.5
-4.2
Given its overall role in the economy, the

government of Abu Dhabi is the most critical
player for the real estate sector, even though
its actual share of real estate demand has
been comparably low. The governments
ambitious development projects are pivotal
not only for Abu Dhabis economy as a
whole, but also for the real estate sector.
The UAE is set to spend more than
US90 billion on development projects and
works between 2013 and 2017. Railway
development plans account for nearly onequarter of that, while the expansion of the
Abu Dhabi International Airport, which is
currently under way, will cost an estimated
USD6.8 billion. In late 2014, a USD32-billion
expansion of Dubais Al Maktoum was
announced, increasing its capacity to more
than 120 million people.
March 2016
Chart 7: Real estate credit to total credit in %

50
Abu Dhabi Commercial Bank
First Gulf Bank
40
30
20
10
Q3
15
20
Q4
14
Q4
13
20
20
20
Q4
12
Q4
20
11
Q4
10
20
Q4
20
09
Q3
20
15
Q4
20
14
Q4
20
13
Q4
12
20
Q4
11
20
10
20
20
09
Q4
Q4
Source: First Gulf Bank, Abu Dhabi Commercial Bank 2016 Abu Dhabi Chamber of Commerce & Industry
Other construction projects under

way in the UAE include city and island
developments. Masdar City is a key
development project city in Abu Dhabi,
with a focus on renewable energy. Other
developments such as Saadiyat Island
(USD27 billion), which is expected to be
completed in 2020, include a number of
attractions, hotels, and residential units. An
overview of key real estate development and
construction projects is available at the end
of the report.
The federal government and individual
emirates continue to invest heavily in the
countrys infrastructure, with expenditure of
more than USD300 billion expected between
2014 and 2030. Population and economic
growth are the major drivers of the building
program that is seeing the upgrade and
construction of new routes, especially in and
around Dubai and Abu Dhabi.
Market outlook
Unless the oil price bounces back vigorously,

an unlikely prospect at this point, the
government of Abu Dhabi will be forced

to economize financial resources further,
curtailing spending. Part of that will affect the
projects listed above, but also importantly will
be to what extent the standard of living can
be maintained and increased further given
the new circumstances.
The latest available data from Abu Dhabis
real estate market show that the market is
heading more for a soft landing rather than a
harsh, sudden confrontation with new realities.
Market players, such as banks and foreign
investors, have already begun adjusting their
expectations. Given the dynamism that is
still inherent in Abu Dhabis nonoil economy,
momentum is still enough to ensure a more
gradual decision to a sustained, albeit slower
growth path for the sector.
Property prices and rents might eventually
adjust as vacancies increase, but price
levels and rents are not comparable with
the period leading up to the financial crisis
of 2008/09. Therefore, while there is some
room for adjustment, a dramatic change is
not in the offing.
2013
The year that the share of

real estate lending declined
Table 1: New Abu Dhabi projects to be awarded in 2016

Project name
Musanada - roads, infrastructure,
and public realm for sector W52 - 2
Musanada - K9 Security Search
Building in Al Hafar (P171-T/
BPS/772/189/15)
Abu Dhabi business hub - Phase 3 :
six warehouses and mosques
Gasco- Habshan NGL recovery
ADCO - BAB CDS : Installation of
new flow suction tank (FST-805)
DM Healthcare - 150-bed medcare
hospital (Maqta Bridge)
*N.P.V = Net project value ($m)
City
Industry
Sector
Abu Dhabi
Transport
Infrastructure
Abu Dhabi
Construction
Public
Abu Dhabi
Construction
Abu Dhabi
N.P.V
Project status M.C.A
M.C.C
25
Main contract bid 18/07/2016
12/12/2017
Government
facility
12
26/12/2017
Commercial
Offices
70
25/09/2018
Gas
Upstream
Gas extraction 1,000
FEED
19/12/2016
15/09/2020
Abu Dhabi
Oil
Storage
Oil tank
19/11/2018
Abu Dhabi
Construction
Healthcare
Hospital, clinic 100
Design
31/10/2018
*M.C.A = Main contract award
*M.C.C = Main contract completion
Subsector
Road,
interchange
27
10/10/2016
Source: MEED
2016 IHS
7
51
Sectoral Report
Table 2: Overview of major real estate projects in Abu Dhabi

Date
28/01/2016
11/01/2016
Project
Meera Shams
West Yas Villas
City
Abu Dhabi
Abu Dhabi
Location
Reem Island
West Yas
Remitter
Aldar Properties
Aldar Properties
Contractor
To be awarded
Dubais Arabtec Construction
Net project value (USD m)

N.A.
545
11/01/2016
Park View
Abu Dhabi
Saadiyat Island
Bloom Holding
Gulf Foundation
N.A.
13/12/2015
Noor Al Ahli Hospital
Abu Dhabi
Al Ain
N.A.
Commodore Contracting Company
40
03/11/2015
Horizon Towers
Abu Dhabi
Reem Island
Tamouh Investments
N.A.
163
09/08/2015
05/05/2015
23/04/2015
Marina Bloom
Warner Bros theme park
Mamsha Al Saadiyat
Abu Dhabi
Abu Dhabi
Abu Dhabi
Marina
Yas Island
Saadiyat Island
Bloom Holding
Louis Berger
TDIC
Al Shafar General Contracting

Six Construct
Local Nael & Harmal Hydroexport
133
544
136
22/04/2015
Mayan
Abu Dhabi
Yas Island
Aldar Properties
N.A.
N.A.
22/04/2015
Al Falah community mall
Abu Dhabi
Al Falah
Aldar Properties
N.A.
N.A.
07/04/2015
Hydra Avenue
Abu Dhabi
Reem Island
Aldar Properties
N.A.
N.A.
23/03/2015
05/03/2015
Al Merief
Al Maryah Central retail complex
Abu Dhabi
Abu Dhabi
Khalifa City
Al Maryah Island
Aldar Properties
Gulf Related
N.A.
To be awarded
N.A.
409
10/02/2015
Jumeirah Saadiyat Island

Resort
Abu Dhabi
Saadiyat Island
TDIC
N.A.
234
22/11/2014
29/10/2014
Four Seasons hotel

Tameer Towers
Abu Dhabi
Abu Dhabi
Al Maryah Island
Reem Island
Mubadala
Tameer Holding
Al Futtaim Carillion
N.A.
198
1900
22/10/2014
Al Reef Villas
Abu Dhabi
Al Reef
Manazel
N.A.
272
15/09/2014
Reem Mall
Abu Dhabi
Reem Island
Al Farwaniya Property
Developments
To be awarded
517
31/07/2014
Expansion of Ferrari World

Abu Dhabi
Abu Dhabi
Yas Island
The local theme parks
Six Construct
68
04/06/2014
26/05/2014
Saadiyat Island Beach Resort

Four-star hotel
Abu Dhabi
Abu Dhabi
Saadiyat Island
Sir Bani Yas Island
TDIC
TDIC
Ghantoot Group
N.A.
234
N.A.
06/05/2014
Hilton Resort
Abu Dhabi
Saadiyat Island
Bin Otaiba Investment Group
N.A.
217
21/04/2014
Al Hadeel
Abu Dhabi
Al Raha Beach
Aldar Properties
Al Faras
N.A.
21/04/2014
Ansam development
Abu Dhabi
Yas Island
Aldar Properties
N.A.
N.A.
21/04/2014
19/11/2013
Nareel Island
Gate Towers
Abu Dhabi
Abu Dhabi
Al Bateen
Reem Island
Aldar Properties
Aldar Properties
N.A.
N.A.
18/11/2013
Al Ghayathi Housing
Abu Dhabi
Al Ghayathi
Musanada
N.A.
Arabian Construction Company,
Orascom and Sendai Eversendai
Engineering Group
N.A.
26/07/2013
Al Maryah development
Abu Dhabi
Al Maryah Island
Farglory
N.A.
1000
10/07/2013
Al Saadiyat Villa
Abu Dhabi
Saadiyat Island
Al Jaber
480
26/02/2013
Mixed-use development
Abu Dhabi
Abu Dhabi Island
Saadiyat Development &

Investment Company
SSPD
N.A.
N.A.
13/08/2012
Fairmont Hotel
Abu Dhabi
Saraya
Aabar Properties
N.A.
N.A.
22/05/2012
Mixed-use projects
Abu Dhabi
Al Ain
Bam
N.A.
12/05/2011
Yas Mall
Abu Dhabi
Yas Island
Sorouh Real Estate and

Australias Bovis Lendlease
Aldar Properties
Six Construct
544
12/04/2011
Al Bateen Park
Abu Dhabi
Al Bateen
Aldar Properties
Seidco
N.A.
8
52
394
March 2016
Contract completion
N.A.
End-2017
April 2016
May 2017
March 2017
September 2016
N.A.
September 2015
November 2015
2017
N.A.
N.A.
2018
End-2017
Early 2017
N.A.
N.A.
2018
End-2017
End-2017
N.A.
2018
Early 2017
2017
Early 2017
End-2013
End-2014
June 2017
2016
N.A.
N.A.
N.A.
November 2014
2013
Note:
The project involves the construction of two midrise residential towers that are about 25 stories tall. Each tower will have 204 apartments.
Arabtec Construction will build 1,017 villas at the West Yas residential development.
The residential building will include a total of 234 residential units ranging from studios to two-bedroom apartments, while the 188-key
hotel apartment building will feature studios and one- and two-bedroom apartments.
The project, Noor Al Ahli Hospital, has an 18-month delivery time and when finished will have a built-up area of 33,000 square meters.
The contractor is already at the mobilization stage.
Horizon Towers are part of Tamouhs 144-acre mixed-use City of Lights development, which will consist of 60 residential and commercial
towers. It also has Paragon Bay Mall on Reem Island under construction, with more than 24,000 square meters of retail space.
The development includes a five-star hotel, 57 apartments, and waterfront retail areas. Al Shafar began initial construction work in April
2014. The project is expected to be completed by the third quarter of 2016.
The project involves building indoor and outdoor areas for 19 themed rides. The indoor rides will be housed in a large steel-frame structure.
The Mamsha Al Saadiyat, a residential project that is part of the Saadiyat Island master plan, consists of five clusters and will feature nine
low-rise buildings, including apartments and townhouses.
The project is a waterfront development that offers studios, one-, two-, three-, and four-bedroom apartments, and beachfront villas. The
first launch sales of the Mayan residences were on 15 November 2015.
Aldar Properties is set to build the new 31,000-square-meter community mall in the Al Falah community close to Abu Dhabis International
Airport that has just been approved by the Urban Planning Council.
Hydra Avenue will consist of six towers in two main clusters with 2,292 apartments and 39 townhouses. They will feature swimming pools,
gyms, saunas, a track and field, boardwalk, supermarket, dining outlets, and other shops. The first phrase of three towers was completed
in 8 April 2015.
The developer said that it had sold all 281 of the plots, which are only eligible to be sold to emirates in one week via off-market sales.
The project involves building a 170,000-square-meter retail center and two towers. The first tower will be a residential tower with serviced
apartments. The second will be a hotel with 200330 rooms. When complete, the mall will be one of the biggest in the UAE and the
largest in central Abu Dhabi.
Dubais Jumeirah Group has signed an agreement with Sheikh Surour bin Mohammed al-Nahyan, who owns Sheikh Suroor Projects
Department, to operate a luxury resort in Abu Dhabi called Jumeirah Saadiyat Island Resort. The resort will comprise 294 guest rooms
including spa suites, presidential suites, and private high-end villas. It will also include three restaurants, shops, and beach and pool areas.
With 190 rooms and 125 apartments, the Abu Dhabi Four Seasons will be the Canadian companys second property in the UAE.
The overall project was originally designed with six towers between the sea and the central park area of the Shams Abu Dhabi
development on Reem Island. The main buildings are a 74-floor, 300-meter-high office tower in the commercial area, a 21-floor hotel and
apartment tower, two 50-floor residential towers, and two 30-floor residential towers. The total built-up area is 915,000 square meters.
The project contains 860 detached villas of two and three bedrooms with large gardens and is located at what is considered the
pioneering future pivot of real estate developments.
The project involves the construction and completion of a large-scale regional retail mall located in the Najmat district of Reem Island. The
mall will have three retail levels with 400 retail units. It will also have 6,250 car parking spaces. Once completed, the mall will have
550,000 square meters of built-up area with 190,000 square meters of gross lettable area.
The expansion plans involve building seven new rides that will increase the capacity of the park by 40%, together with new entertainment
areas and expanded retail and food and beverage areas. The rides will be supplied and installed by specialist contractors. One of the new
record-breaking roller coasters, Flying Aces, is set to be unveiled on 24 February 2016. The theme park aims to complete the whole
expansion by the end of 2017.
The resort complex will have a low-rise 295-room hotel and 11 luxury villas, along with meeting rooms and a spa.
The contract entails building a three-to-four-star hotel on a 110,000-square-meter beachfront plot under a 30-year land lease. The
minimum acceptable bid for leasing the land will be AED1 million (USD272,000) a year.
The company is developing the 366-room property spread over 91,000 square meters owned by Bin Otaiba Investment Group, with an
estimated cost of AED800 million.
Hadeel will occupy a site next to Aldars existing Al Bandar project. It is a 57,000-square-meter building on a 10,000-square-meter plot
that will have 233 apartments and eight townhouses.
The project is currently the only residential development on Yas Island that is available for sale to expatriates. The development features four
Andalusian-style apartment buildings comprising 500 apartments overlooking the Yas Links golf course and the Yas Island waterfront.
The development, Nareel Island, consists of two islands, each comprising 143 waterfront villa plots for UAE nationals to build bespoke homes.
The project includes the worlds highest penthouse bridge structure, bringing the building to a total height of 245 meters. The bridge contains
21 penthouses, all of which comprise at least 4,000 square feet, with most containing their own private swimming pools and gardens.
Source:
2- Meera Shams Reem Island
1-West Yas Villas
3- Park View
The 181-villa development was handed over to concerned authorities in March 2014. Phase II of the project, a further 605 villas, were to
be delivered by the end of 2014.
Three of the towers will contain 435 new apartments, while the fourth will have 180 hotel rooms. There will also be 42,000 square meters
of offices and serviced apartments.
The luxury villa complex on Saadiyat Island will stretch along almost 7 kilometers of waterfront. Al Jaber Building, a subsidiary of the Abu
Dhabi-based Al Jaber Group, will build 462 villas on an area of about 1.5 million square meters.
The project involves building a 25-story residential tower and a 22-level serviced apartment building with a total built-up area of about
123,000 square meters.
Known as the Fairmont Hotel and Serviced Apartments, the scheme involves building a 39-story tower that includes 563 guest rooms, 144
serviced apartment units, 105 other apartments, 13 food and beverage outlets, a ballroom and conference rooms, a swimming pool, and
sports facilities. There will be underground and ground-level parking for 1,300 vehicles. The total built-up area of the project will be
160,000 square meters.
The project features a 25,000-seat football stadium, a sports center, a hotel, a commercial center, and residential buildings in Al Ain.
32- Al Ghayathi Housing
The project involved the construction of the Yas mall, northeast and northwest decked car parks, infrastructure, and associated roads.
The project also involved hard and soft landscaping works. The grand opening of the mall was on 19 November 2014.
The new residential community comprises 272 two-to-four-bedroom apartments as well as 75 villas and 12 three-bedroom penthouse
apartments, which were delivered to families in February 2013.
14- Yas Mall
4 - Noor Al Ahli Hospital

6- Horizon Towers
7- Marina Bloom
8- Warner Bros theme park
9- Mamsha Al Saadiyat
10 - Mayan
20- Al Falah community mall
21- Hydra Avenue
22- Al Merief
5- Al Maryah Central retail
11- Jumeirah Saadiyat Island
Resort
24- Four Seasons hotel
12- Tameer Towers
25- Al Reef Villas
13- Reem Mall
15- Expansion of Ferrari World
Abu Dhabi
26- Saadiyat Island Beach Resort
16- Four-star hotel
23- Hilton Resort
17- Al Hadeel
18- Ansam development
19- Nareel Island
27- Gate Towers
34- Al Maryah development

31- Al Saadiyat Villa
33- Mixed-use development
30- Fairmont Hotel
29- Mixed-use projects
28- Al Bateen Park

Source: MEED
2016 IHS
53
Sectoral Report
Tourism and the Private Sector in Abu Dhabi
Chapter 6
Tourism and the Private Sector

in Abu Dhabi
April 2016
54
Tourism in focus
2.0 m
Tourist arrivals in Abu Dhabi
The development of the tourism sector

has figured high on Abu Dhabis strategic
agenda for many years, but the sectors
development has not been able to emulate
Dubais success on the same scale.
Operating on a comparatively narrow base,
tourism in Abu Dhabi has recently been the
subject of closer focus from private-sector
developers and the government.
Several high-profile events and
development projects signal that Abu
Dhabi authorities are serious about
developing the country into a world-class
tourist destinationone of the key flagship
projects, the Louvre Abu Dhabi, will open in
the second half of 2016.
In Abu Dhabi Vision 2030, Abu Dhabis
Supreme Council declared that tourism was
among a number of sectors that will steer
the economy away from its dependence on
oil. The sector has also been shortlisted with
four other sectorstransport and logistics,
manufacturing, media, and financial services
and insuranceas strategic in the current
five-year plan.
Thus, the tourism business plays a critical
role in the economys diversification as well
as in private-sector development. Already,
the private sector accounts for nearly 90%
of tourism activities in Abu Dhabi, putting
the private sector in the lead position in
developing tourism in the country.
In the global list of tourist hot spots, Abu
Dhabi still occupies a relatively low rank.
The list of international tourist arrivalsled
by France, with more than 80.0 million
arrivals (up from 78.0 million in 2013), and
the United States, with 75.0 million in 2014
(up from 70.0 million in 2013)has Dubai
in 12th place, with 10.5 million arrivals
(for 2013), ahead of Mecca (7.5 million),
according to the World Trade Organizations

Tourism Barometer. Abu Dhabi is in 88th
place, with nearly 2.0 million arrivals in 2013.
The target for 2030 is eight million
visitors per year. This is ambitious but not
unreasonable for Abu Dhabis tourism
industry, given Dubais success and current
plans for a number of high-profile projects.
Growing fast from a narrow base
An analysis from the World Travel and

Tourism Council estimated tourisms direct
contribution to headline GDP in the United
Arab Emirates (UAE) at close to 5.5% of
GDP in 2014. Factoring in supplying sectors,
the total contribution ends up at more than
8.0% of GDP. However, this includes Dubais
thriving tourism sector (see charts 1 and 2).
For Abu Dhabi alone, the tourism sectors
size compared with the rest of the Abu
Dhabi economy is somewhat smaller. The
sectors direct contribution accounts for
about 1% of GDP, or around 2% of the
nonoil economy, if accommodation and food
services combined with arts and recreation
services are taken as a proxy for tourism.
If tourism-related transport services are
included, the share of total GDP might
increase to around 2% (see chart 3).
That being said, tourisms GDP
contribution for the UAE as a whole is
already close to the world average of nearly
10% and among the highest in the countries
of the Gulf Cooperation Council (GCC),
thanks largely to Dubais tourism activities.
Tourist arrivals have been nearly as high
as in Saudi Arabia, with about a fifth of the
total 12.4 million arrivals registered for the
UAE coming to Abu Dhabi. In terms of visitor
spending, Dubai accounted for about five
times as much revenue as Abu Dhabi in
2015 (see chart 4).
Chart 1: Total tourism contribution to GDP in 2014

25%
20%
15%
10%
5%
0%
World
UAE
Saudi Arabia
Qatar
Jordan
UK
Germany
Australia
USA
Canada
Source: World Travel and Tourism Council, World Bank 2016 Abu Dhabi Chamber of Commerce & Industry
3
55
Sectoral Report
Sectoral Report
Ch6 - Tourism and the Private Sector in Abu Dhabi - April 2016
Tourism and the

Tourism
Privateand
Sector
the Private
in Abu Dhabi
Sector in Abu Dhabi
Leisure travel spending within a country, billions of 2014 US dollars (real prices)
800
700
600
500
400
300
200
100
0
$3,850.2 bn
$1,123.2 m
UAE*
Saudi Arabia
Qatar
Jordan
UK
Germany
2005-2007
USA
Canada
201014 (see chart 5).
Weak patch
2012-2014
1.27%
1.28%
Note: Tourism-related activities from the GDP-classification are accommodation and food, arts, recreation, and other service activities
Chart 4: International visitor spending in 2015

(billions of US dollars)
$11.7 bn
$2.2 bn
Dubai
Australia
Source: World Travel and Tourism Council, World Bank 2016 Abu Dhabi Chamber of Commerce & Industry
Chart 3: Percentage share of tourism-related

activities in Abu Dhabi's GDP
Abu Dhabi
Source: Tourism and Cultural Authority Abu Dhabi, Dubai Department of Tourism and Commerce Marketing
Despite the relatively small size

compared with Dubai, tourism business
activities in Abu Dhabi grew fast in the last
decade. The sectors gross value added
leaped by 10.4% on average each year in
56
80
70
60
50
40
30
20
10
0
World total
*Tourist arrivals only in Dubai and Abu Dhabi
Tourist arrivals in 2013 (millions)
USD millions
USD billions
Chart 2: Key tourism indicators by country
More recently, though, the boom in tourism

activities in Abu Dhabi has slackened as
gross value added dropped 5.6% in 2014;
data for 2015 have not yet been published.
However, while food and accommodation
was essentially unchanged from 2013, the
decline was driven by services related to
arts and recreation. Stagnation and even a
further modest decline in 2015 have been in
the cards, although, in the absence of hard
data for 2015 at this point, estimates are
difficult to confirm.
The recent weakness is hardly a major
surprise, given the oil-price slide and the
related effects on Abu Dhabis neighbors,
who still provide the largest share of visitors.
Global and regional economic trends have
also disadvantaged Abu Dhabis tourism
industry. Since fourth-quarter 2014, the
US dollars strength against the euro and
most major emerging-market currencies,
including the Chinese yuan and in particular
the Russian rouble, made vacationing in
Abu Dhabi more expensive for tourists from
Europe and most Asian countries.
Who is coming
The largest source country for tourists in

Abu Dhabi is the UAE, with nearly 1.4 million
visitors in 2015. That is more than one-third
of all tourist visitors who were registered by
the Tourism and Cultural Authority of Abu
Dhabi in 2015.
India leads the other countries, with
280,000 visitors or a share of 7%, while
the United Kingdom and China follow.
Most remarkably perhaps, tourist flows
from virtually all major countries, with the
exception of Germany, posted double-
April 2016
digit growth rates from 2014, despite weak

growth in emerging markets, the decline in
oil prices, and the strength of the US dollar
and the dirham, respectively. One may
safely conclude that, given more benign
global circumstances, tourist flows would
have grown even faster (see chart 6).
However, tourist flows from Russia were
cut in half in 2015 compared with 2014,
signaling that the roubles weakness and the
Russian recession have had major effects.
Still, Russian tourists have not played a key
role for Abu Dhabi in the past, with Russia
ranking 20th among top source countries
for Abu Dhabi tourists in 2014a significant
contrast with Dubai, where the share of
Russian tourists was more significant.
Arrivals at Abu Dhabi International Airport,
which marked a new record in passenger
traffic at 23 million combined arrivals and
departures in 2015, also provide clues
about the geographical origin of Abu Dhabi
visitors. Travelers from GCC countries are
much less strongly represented for obvious
reasons, but arrivals from outside the GCC
signal that non-Arab Asia is playing a critical
role, with more than 4 million passengers in
2014, almost exactly double the 2010 figure.
Traveler numbers from Europe have grown
as fast, accounting for more than 2.3 million
arrivals in 2014 (see chart 7).
Lodging supply and demand
Hotels have mushroomed in the UAEand

certainly in Abu Dhabiin recent years to
accommodate the swelling flow of business
and leisure travelers. In 2010, 116 hotel
establishments were registered in Abu
Dhabithat count jumped to 168 in 2015.
The number of hotel guests, meanwhile,
more than doubled to 4.1 million. The guest
count grew nearly 20% on average during
the last five years, with the surge continuing
unabated in 2015 (see chart 8).
Abu Dhabi attracted a diverse range
of international recognized hoteliers. For
example, a local private developer, Bin
Otaiba investment Group, is in partnership
with the Hilton group to operate a
resort. This partnership appears to be a
common business model for Abu Dhabi,
where investments are funded by both
government-related entities and/or local
private investors, and the hotels are
operated by high-profile brands. Other
key brand names operating in Abu Dhabi
include Grand Hyatt, Four Seasons, Edition,
Fairmont, Biltmore, and Hard Rock Hotel.
Hotels across all major classification
categories have been developed, although
the luxury segment predominates. However,
Chart 5: Tourism-related activities in Abu Dhabi, real

gross value added percent change
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
2006
2007
2008
2009
2010
2011
2012
2013
2014
Note: Tourism-related activities from the GDP-classification are accommodation and food, arts, recreation, and other service activities
Chart 6: Top source of tourists

in Abu Dhabi in 2015
1: UAE
2: India
3: UK
4: China
5: United States
6: Philippines
7: Germany
8: Saudi Arabia
9: Egypt
10: Jordan
1500,000
Guests
1200,000
23 m
900,000
600,000
Passengers at Abu Dhabi

airport in 2015
300,000
0
10
1
2
3
4
5
6
7
8
9
Share Percent change from previous year
10
50%
40%
30%
20%
10%
0%
Source: Abu Dhabi Tourism and Cultural Authority

more related projects are in the pipeline or

under constructionthe oil-price decline
and the weaker outlook notwithstanding.
Current projects include Grand Hyatt and
Hard Rock Hotel, which will be critical for
the luxury segments performance.
Clearly, expectations are still geared
toward continued tourism growth in Abu
Dhabi, but business travel is increasingly a
focus. Fierce price competition, however,
has already dragged down average room
5
57
Sectoral Report
Sectoral Report
Tourism and the

Tourism
Privateand
Sector
the Private
in Abu Dhabi
Sector in Abu Dhabi
Chart 7: Arrivals at Abu Dhabi International Airport

5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
GCC countries
Other Arab countries
Non-Arab Asia
Europe
North America
2011 2012 2013 2014
Guests (millions)
5.0
4.0
3.0
2.0
1.0
2010
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
Number of hotels
200
150
100
50
0
2010
Source: Abu Dhabi Tourism and Cultural Authority 2016 Abu Dhabi Chamber of Commerce & Industry
Chart 9: Average hotel occupancy rate in Abu Dhabi

80%
70%
60%
50%
40%
30%
20%
10%
0%
6
58
2010
2011
Others
revenue, although the luxury segment

has seen strong incremental capacity
growth and the revenue per available room
(RevPAR) was relatively stable between
2011 and 2015, and the average occupancy
rate increased almost steadily and hit 75%
in 2015 (see chart 9).
Average room revenue declined steadily
from AED490 in 2011 to AED438 in 2015.
Adding more capacity to the market
will certainly exacerbate price pressure
unless the guest counts recent growth is
maintained (see chart 10).
Chart 8: Key indicators of hotel establishments
Africa
2012
2013
2014
2015
Lodging preferences
The focus on the luxury category reflects

demand; close to half of the travelers from
the UAE, Europe, and North America stay
at a luxury five-star hotel. Indeed, demand
for five-star rooms grew across the board in
2014. In the recent past, one-third of visitors
from non-Arab Asia and Africa lodged
in that category, while the bulk share of
travelers from those regions preferred threeor four-star hotels or hotel apartments (see
charts 11 and 12).
Visitors from Asia and the UAE are
shifting more toward the luxury segment,
posting growth rates for five-star rooms of
10% and 7%, respectively. Price effects
might play a role here as lower costs induce
travelers to upgrade to the luxury segment.
Travel infrastructure
High-quality infrastructure is critical to ensure

sufficient capacity to cater the surging
number of travelers. Etihad Airways has
strongly contributed to drive tourism growth
from that perspective. The UAE flag carrier,
which started operations only a little more
than a decade ago, has a goal of expanding
its network to 160 worldwide destinations by
April 2016
Chart 10: Average room revenues and revenues

per available room in Abu Dhabi
600
500
UAE dirham
2025. Abu Dhabi tourism will certainly benefit

from a broadened source of travelers.
As business has grown at Etihad Airways,
the Abu Dhabi International Airport (AUH)
has morphed into one of the worlds leading
airports in terms of passenger traffic
expansion, ranking fourth after Bangkoks
Don Mueang, Istanbuls Sabiha Gokcen,
and Zhengzhou airport in China. The
Midfield Terminal at Abu Dhabi International
Airport, which is currently targeted for
opening on National Day 2017, will be able
to receive 30 million passengers per year.
In addition to air transportation, a new
cruise ship terminal at Mina Zayed was
opened in January 2016 and is expected to
welcome 220,000 passengers during the
year, underscoring the ambition to develop
Abu Dhabi as a landmark for cruise ship
tourism in the Arabian Gulf. Aligning with
this vision, the regions first cruise beach
stopover at Sir Bani Yas Island, which is now
being developed, will help diversify shore
excursion opportunities.
Beneath leisure tourism, Abu Dhabi is
also actively promoting the emirates lodging
facilities for business travel. The Abu
Dhabi Convention Bureau, a subsidiary of
the Tourism and Cultural Authority, takes
an active role in shaping the emirate as a
business travel destination. Those initiatives
have produced tangible results, bringing
Abu Dhabi into the top-100 busiest cities for
global meeting destinations, according to
the International Congress and Convention
Associations rankings. According to the
Tourism and Cultural Authority and Abu
Dhabi National Exhibition Centre (ADNEC),
the economic impact of business events is
estimated to be AED5.1 billion by 2020, with
an average 7% increase annually.
400
300
200
2010
2011
2012
2013
Average room revenues RevPAR*
2014
2015
*Average revenue per available room
Tourist attractions
A number of high-profile tourist and leisure

attraction have opened their gates or are
currently being developed and built in Abu
Dhabi. Ferrari World on Yas Island opened
in 2010. At that time, actual demand did not
quite match the relatively high expectations
and capacity. The theme park has been
consolidated since and established itself as a
key item and a world-class tourist attraction.
The most important projects currently are
the three main districts being developed on
Saadiyat Island. Conceived more than a
decade ago, with the project kicking off in
2007, Saadiyat Island will be host to a beach
district, a cultural district, and a marina.
The 27-square-kilometer area is being
developed based on a master plan, with key
elements including a combination of living
(residential villas and apartments), worldclass cultural events (Guggenheim, Louvre,
Zayed National Museum), and world-class
tourism (two five-star beach hotels already
5.1 bn
AED: Economic impact of
business events by 2020
Chart 11: Type of hotel class booked by nationality, 2014

50%
40%
30%
20%
10%
0%
UAE
GCC
Other Arab
countries
Asia
Five-star Four-star Three-star or less Hotel apartments
Australia and
Asia Pacific
Africa
Europe
North and
South America
Not mentioned
Source: Abu Dhabi Tourism and Cultural Authority, SCAD 2016 Abu Dhabi Chamber of Commerce & Industry
7
59
Sectoral Report
Sectoral Report
Tourism and the

Tourism
Privateand
Sector
the Private
in Abu Dhabi
Sector in Abu Dhabi
Chart 12: Change of number of stays by hotel class 2014 from 2013
Country
Five-star
Four-star
Three-star or less Hotel apartments
UAE
GCC
Other Arab countries
Asia
Australia and Asia Pacific
Africa
Europe
North and South America
Not mentioned
Total
10%
4%
3%
7%
0%
1%
3%
1%
4%
6%
-2%
-3%
0%
-2%
-6%
-2%
-5%
-6%
5%
-3%
-5%
2%
1%
-1%
8%
1%
3%
3%
-7%
-1%
-3%
-3%
-3%
-4%
-1%
0%
0%
2%
-2%
-2%
Source: Abu Dhabi Tourism and Cultural Authority, SCAD
142
Number of countries for

which UAE eased visa
procedures during 2010-14
in place, a golf club, shopping).

A whole range of other tourist attractions
is now in place (see table 1), which are
scattered across the country. The Abu
Dhabi Tourism and Culture Authority has
developed a zoning strategy to facilitate
a better overview and access to all the
different facilities and to encourage tourists
to visit more facilities and eventually
lengthen their overall stay in the country.
This zoning strategy divides Abu Dhabi into
several distinctive tourism areas, with each
catering to different needs of visitors.
Facilitating travel, reducing barriers

The UAE improved visa procedures
for 142 countries during 201014. For
example, further to the memorandum of
understanding signed between China and
the UAE in 2012, holders of diplomatic,
service, and special passports benefit from
the mutual exemption of visas to enter both
countries.
Development with regard to Chinese
tourist travel into Abu Dhabi is particular
2016 IHS
encouraging. Although China accounted for

just 4% of travelers to Abu Dhabi in 2015,
the guest count leaped 166% and 47% in
2014 and 2015, respectively.
Apparently, the potential for luring Chinese
tourists to Abu Dhabi has hardly been
exhausted. Chinese travelers, meanwhile,
spent on average one-and-a-half days in
Abu Dhabi, the shortest stay among all major
visitor nations. Travelers from the United
States, the United Kingdom, and Germany,
by contrast, usually stayed an average of
more than four days (see chart 13).
The Welcome Chinese program, in
partnership with the China Tourism
Academy, was rolled out in February 2015.
Key elements of the program included the
availability of Mandarin-speaking staff and
acceptance of Chinas UnionPay bank cards
at hotels, malls, and tourist attractions.
Chinese tourists have been targeted
specifically because they seem to be the
largest potential source of tourists from
around the world. More than 13% of all
tourism expenditures in 2014 came from
Chart 13: Average length of stay in Abu Dhabi by country of origin, 2015
Number of days
5
4
3
2
1
0
UAE
India
UK
China
USA
Philippines
Germany
Saudi Arabia
Egypt
Jordan
8
60
April 2016
Market outlook
Tourism in Abu Dhabi, like any other global

tourist destination, will above all depend on
what visitors are able and prepared to spend.
With global growth stagnating and growth in
emerging markets, especially China, slowing,
the outlook could be brighter.
Moreover, since the UAE and other GCC
countries are still the largest source of
tourist origins by far, oil-price trends will play
a critical role for the outlook of Abu Dhabis
tourism industry and whether the recent
weak patch will continue and morph into
15%
12%
150
9%
100
6%
50
3%
il
az
Br
a
str
ali
ly
Ita
Au
ad
ce
Ca
n
Fr
an
sia
Ru
s
Un
it
ed
Ki
ng
do
rm
an
es
Ge
at
St
ed
Ch
in
0%
Un
it
Abu Dhabis foreign direct investment

(FDI) inflows equaled AED81 billion in
2014, following three years of double-digit
growth, with real estate and business
services claiming the biggest share (34%),
followed by manufacturing (16%). However,
genuine FDI in the hotels and restaurants
sector is tinyless than 0.1% of all direct
investment inflows. Government-related
entities and local investors predominate,
with most transactions being carried out
off-market.
The UAE is highly rated in terms of
economic freedom and ease of doing
business, ranking second and first in the
Middle East region, respectively, according
to the World Bank. In matters such as
safety and security, hygiene, international
openness, transportation infrastructure,
and culture resources, which are particular
relevant for the tourism industry, the UAE
leads the Middle East region and ranks
24th on the global Travel and Tourism
Competitiveness Index in 2015, according
to the World Economic Forum.
200
Market share
Investment flows
Chart 14: International tourism expenditure in 2014
USD billions
travelers from China, a share that grew

quickly in the last several years, overtaking
the United States and Germany as the
leading tourist nation (see chart 14).
Source: UNWTO 2016 Abu Dhabi Chamber of Commerce & Industry
long-term stagnation and decline.

That looks unlikely at this point, unless
the oil price stays very low for an extended
time. On the demand side of the tourism
market, visitors from GCC countries will
trim and manage expenses more closely
as those economies are adjusting to the
new environment of low oil prices. Other
countries, including emerging markets such
as China and India, might pick up some of
the slack.
With more tourism attractions in the
pipeline, Abu Dhabi will climb steadily to a
more attractive international tourism spot.
This holds particularly for travelers from
non-Arab Asia, where substantial growth
can be seen in the near term. A strong US
dollar and dirham (or, conversely, a weak
Chinese yuan and Indian rupee) might
dampen that trend, but are unlikely to bring
it to a halt.
Apart from that, high-profile events,
including the Formula One Abu Dhabi
Grand Prix and 2019 Asian Football Cup,
will also draw more visitors from around
the globe and also entice private investors
to engage more in the tourism business in
Abu Dhabi.
24th
UAEs rank in the Global

Travel and Tourism
Competitiveness Index
Table 1: Key tourism development projects in Abu Dhabi by region

Saadiyat
Al Maryah Island
Yas Island
Distinctiveness
A master development with global

offerings
A 24-hour business, leisure, and

entertainment hub
Major tourist attractions
Beach club, golf course
The Galleria, Global Market Square
Major tourist attractions under

development
Louvre Abu Dhabi, Zayed National

Museum, Guggenheim Abu Dhabi
Four Seasons Hotel, Al-Maryah Central

Retail
Examples of private-sector engagement
The Collection, St. Regis, Park Hyatt,

Rotana, Hilton, LVMH, St. Regis, leading
world cosmetic and wellness healthcare
provider (TBA)
Rosewood, Four Seasons
Named the worlds leading tourism

development project
Ferrari World, Yas Mall, beach, golf
course, F1 circuit, Yas Waterworld
Warner Brothers theme park, integrated
destination resort, expansion of Ferrari
World
Ferrari, Warner Brothers, Viceroy,
Rotana, Radisson Blu, IHG, Cipriani S.A.,
Aldar Properties, Sky Management,
Camper & Nicholsons, IKEA, ACE, Geant
Source: Abu Dhabi Tourism and Cultural Authority
2016 IHS
9
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62
2016

PART 3
POLICIES
63
Part 3 : Policies
Chapter 7
Industrial Strategy For Abu Dhabi

in International Markets
February 2016
64
Executive summary
2%
The total manufacturing

grew on average
Exchange rate
headwinds
challenge local
producers
In the era of decarbonization and low oil

prices, diversification of the economy is
essential for an oil-dependent economy
like Abu Dhabi to sustain long-term growth
and success. This aim is clearly spelled
out in the Economic Vision 2030 for Abu
Dhabi and is further refined in its five-year
plans and industrial strategies. Currently,
an update of the industrial strategy is being
discussed, with the initiative spearheaded by
the Department of Economic Development.
Strong and sustained performance of the
industrial sectorbasically manufacturing
is critical. The Vision 2030 recognized
this need, with five of seven global focus
sectors belonging, for the most part,
to the manufacturing sector, including:
petrochemicals; metals; aviation, aerospace,
and defense; pharmaceuticals; and
healthcare equipment.
Manufacturing performance
Tailwinds and headwinds
The performance of Abu Dhabis

manufacturing sector has been solid during
the last 10 years, despite violent swings of
sector growth during and after the global
financial crisis of 2008/09. Average growth
of sectoral gross value added slightly
higher than 2% can be regarded as a
solid achievement if compared with major
industrialized countries (see Chart 1). Given
the challenges in the oil sector, though, that
rate is still too low to accomplish the overall
goal of diversification of the economy amid
a sustained increase of income. Abu Dhabis

manufacturing sector needs to shift into
higher gear (see chart 1).
International competitiveness is critical for
that. In the last half-decade, manufacturing
in Abu Dhabi benefited from the fixed rate
of the dirham to the US dollar because the
latter was relatively weak against other
major currencies. That tailwind changed
direction, though. The appreciation of the
US dollar against the euro, but also against
several emerging-market currencies,
since the second half of 2014 put Abu
Dhabis manufacturing sector at a cost
disadvantage, which is a serious challenge
if the dollars strength persists longer term
(see chart 2).
However, Abu Dhabis manufacturing
subsectors will be affected differently by such
challenges. Supply chains, local availability
of inputs, and proximity of downstream
markets matter as much as the ability of the
subsectors to adjust quickly to changing
circumstances. A more in-depth view on
manufacturing is warranted therefore.
Manufacturing sectors,
subclusters, and Vision 2030
Abu Dhabis Vision 2030 has prioritized

seven global focus sectors and a further
five sectors with the regional focus label.
Five sectors from the global focus group
are related to manufacturing, whereas five
sectors with regional focus are more related
to services. Altogether, these 12 sectors
Chart 1: Manufacturing sector growth

20%
Total growth 2006-14
19.20%
15%
10%
5%
0%
-5%
-10%
2006
2007
2008
2009
2010
2011
2012
2013
2014
3
65
Sectoral Report
Ch7 - Industrial Strategy For Abu Dhabi Companies in International Markets - February 2016
Chart 2: Exchange rate index (foreign currency per 1 dirham, Jan. 2014=100)
Euro Yuan (China) Rupee (India) Yen (Japan)
130
125
Exchange Rate Index
120
115
110
105
100
95
2015M11
2015M10
2015M9
2015M8
2015M7
2015M6
2015M5
2015M4
2015M3
2015M2
2015M1
2014M12
2014M11
2014M10
2014M9
2014M8
2014M7
2014M6
2014M5
2014M4
2014M3
2014M2
2014M1
90
12
sectors form the core

industries for Abu Dhabis
Vision 2030
Attractiveness
4
66
form the core industries that, according

to the Vision 2030, will drive Abu Dhabis
diversification and facilitate strong and
sustained growth (see chart 3).
A further breakdown of sectors is
needed, though, to make the vision
operational. A careful, methodological
selection process has therefore been
conducted within the Department of
Developments Technical Committee
for Abu Dhabis industrial strategy.
Subsectors have been identified based on
either attractiveness, in terms of growth
opportunities for the Abu Dhabi economy,
or feasibility, as regards downstream
markets, cluster synergies, capabilities,
and competitiveness.
Attractiveness of a subsector is defined
from five key criteria, which have been
synthesized from the five key goals of
the Abu Dhabi Economic Vision 2030
and the criteria upon which the previous
industrial strategy was based. The latter
Sector selection
Feasibility
criteria were public-sector cost, sustainable

growth, environment, skilled jobs and
Emiratization, and small and mediumsized enterprise (SME) and private-sector
development. Abu Dhabi still pursues the
goals of the Vision 2030 with the same
determination, and now we assess how the
emirate could reprioritize them relative to
each other (see chart 4).
Higher value-added activity
This goals priority ranking is considered

to be modestly lifted. Abu Dhabis high
living standards and increasing labor costs
warrant a strategy that caters to the needs
of industries that produce high added value
to sustain current living standards. More
recently, the appreciation of the US dollar
and, concurrently, the dirham has reinforced
this point.
Economic diversification
Diversifications priority, currently still

ranking highest, is proposed to be toned
down. Although the hydrocarbon sector still
accounts for nearly half of the economy,
the Abu Dhabi government can reasonably
claim that economic diversification has
made good progress in the last several
years. Moreover, the low oil price in itself
will force the share of oil in the economy
downboth through market forces as
oil production will be less attractive and
through GDP calculation itself, since a lower
price of oil shrinks the oil sectors nominal
weight in GDP.
February 2016
Chart 3: Abu Dhabi Economic

Vision 2030
Global focus sectors
Energy oil & gas
Petrochemicals
Metals
Aviation, aerospace, & defense
Pharmaceuticals, biotechnology, life sciences
Tourism
Healthcare equipment & services
Regional focus sectors
Transportation, trade, & logistics
Education
Media
Financial services
Telecommunication services
Source: Abu Dhabi Economic Vision 2030
Sustainable energy consumption
Having been low on the priority list, this

goals priority is proposed to be lifted right
up to the top of the ranking. Indeed, in the
era of decarbonization and global warming,
reducing energy intensity of businesses has
become ever more important.
Skilled Emirati employment
Supporting employment for skilled Emirati

nationals is proposed to remain high on
the priority list, with only a slight downward
adjustment. Clearly, high value-added
production and services need a highly
skilled labor force. Abu Dhabis high wage
level for nationals can only be preserved by
high value-added jobs.
rapidly deteriorating under the impact of low

oil prices. However, a fast-growing market
with high living standards and strong net
investment inflows will almost inevitably have
a relatively weak trade balance as imports
for both investment and consumption will
outpace the export sector. The US economy
is a good example for that.
The synthesis of the five criteria of the
previous strategy and the five overall goals
of the Economic Vision 2030 are five new
industrial goals for Abu Dhabi, as proposed
by the Technical Committee. For each of
these five goals, several metrics have been
put on the table to measure progress toward
accomplishment (see table 5).
Diversification: Diversification of industry
base, export geographies, and firm type
Jobs: Create jobs for Emirati nationals
Economic growth: Growth driven by higher
productivity and exports
Sustainability: Resource usage of sectors
in question
Trade balance: How the sector influences
the trade balance
Exchange rate
headwinds
challenge local
producers
Feasibility of a subsector is defined along

four main criteria, all of which tie in with the
long-term viability of a companys or sectors
business operations. The two main criteria
from the previous industrial strategy, market
attractiveness and competitive advantages,
are enhanced and complemented by criteria
as derived from economist and researcher
Michael Porters standard diamond
framework to assess a firms business
strategy (see table 6).
Market attractiveness: Size, stability, and
growth outlook for a sector
Strength of cluster: Importance and local
abundance of clusters for the sector in
Abu Dhabi
Chart 4: Leading and supporting sectors from the

five-year plan 20142018
Strategic sectors Leading
Improved trade balance
Improvement of Abu Dhabis trade balance is

a goal that was relatively low-ranking already
in the previous strategy. It is proposed to
be toned down further, if only slightly. This
seems counterintuitive at first glance, given
that Abu Dhabis trade balance currently is
Strategic sectors Supporting
Tourism
Power & utilities
Transport & logistics
Information & communications technologies
Manufacturing
Construction & real estate
Media
Education
Financial services & insurance
Healthcare
Source: Abu Dhabi Five Year-Plan 2014-2018 2016 Abu Dhabi Chamber of Commerce & Industry
5
67
Sectoral Report
Table 5: Determinants for attractiveness of a subsector

Industrial goal
Metric to measure
accomplishment
Diversification
Jobs
Economic growth
Sustainability
Trade balance
Oil price correlation
Wages growth
Output per worker
Energy intensity
UAE imports share
SME share
Average wages
Exports
Environmental
sustainability
UAE exports share

rank
Export market
diversification
Emiratization
potential
Productivity growth
Import growth
Exports growth
Import intensity
Source: Department of Economic Development
Table 6: Determinants for feasibility of a subsector

Industrial goal
Specific metric
Market attractiveness
Strength of cluster
Capabilities
Cost competitiveness
Global market size
Current sector strength
Revealed comparative
advantage (regional/
ranked)
Global export share
Stability
UAE export share of GCC
Downstream positioning
UAE export share rank
Growth
UAE export share
Product diversity
Labor cost
GCC competitiveness
Availability of inputs
Anchor alignment
Source: Department of Economic Development
Capability: Determining comparative
advantages of Abu Dhabi as a production

location
Cost competitiveness: Comparison of all
key factor inputs for a sector between Abu
Dhabi and other locations
Widening the
focus on supply
chains and
clustering
Objectives from both a national

perspective for Abu Dhabi but also from the
viewpoint of individual companies have been
targeted with this approach. Subsectors
have been provisionally identified, which
carry either high/low attractiveness and
high/low feasibility (see chart 7).
Supply-chain linksBroadening
the sector focus
The deep dive into the industry structure of

an economy and the resulting narrow focus
on individual subsectors of manufacturing
tend to eclipse the network character of
a modern economy, though. Given the
existence of multiple supply-chain links
between sectors, and related possible
synergies that go beyond the geographical
clustering of companies within one and the
same subsector, the Technical Committee
6
68
moved further to identify related benefits.

If sector A requires a similar set of skills, or
a similar set of inputs like sector B, it might
be worthwhile to develop both alongside
each other. The committee thus categorized
all subsectors in a bunch of sector clusters
(see chart 8).
Already, Abu Dhabi is producing goods
for most of these sector clusters. Several
different construction supplies like metal
windows, structural steel, fiberglass, and
even prefabricated buildings are produced
locally; the metals industry is churning out
steel rods, ferro-alloys, and roll forming
metal; aerospace manufacturers are
producing complex products like titanium
inboard wing spars; other examples pertain
to manufacturing firms in defense, ship
building, chemicals, plastics, and pharma,
among others.
The Technical Committee has identified
adjacent sectors and potential aspirational
products for these sector clusters. For
example, since polypropylene and
polyethylene are already produced locally,
facilitating local production of finished
February 2016
Chart 7: Proposed sector selection for Abu Dhabi's industrial strategy update
HIGH feasibility / HIGH attractiveness
Structural metal products
Forging, pressing of metal, etc.
Aerospace and related machinery
Medical and dental instruments
Ships and floating structures
Military fighting vehicles
Measuring and testing equipment

Pumps and compressors, etc.
Paints, varnishes, and coatings
Cocoa, chocolate, and sugar
Weapons and ammunition
Soft drinks and bottled water
HIGH feasibility / LOW attractiveness

Refined petroleum products
Soap and detergents, etc.
Basic precious metals
Other chemical products
Basic chemicals
Plastics and synthetic rubber
Plastic products
Glass and glass products
Cement, lime, and plaster
Fertilizers and nitrogen comps.

Concrete and cement
Cutting and shaping of stone
Nonmetallic mineral products
Special-purpose machinery
Corrugated paper products
Processing and preserving of
fruits and vegetables
Other electric wires and cables
Other transport equipment
The challenge to spot

sectors which are both
high-growth and
sustainable
LOW feasibility / HIGH attractiveness

Structural metal products
Forging, pressing of metal, etc.
Aerospace and related machinery
Medical and dental instruments
Ships and floating structures
Military fighting vehicles
Measuring and testing equipment

Pumps and compressors, etc.
Cocoa, chocolate, and sugar
Weapons and ammunition
Soft drinks and bottled water
LOW feasibility / LOW attractiveness

Veneer sheet and wood panels
Builders' carpentry and joinery
Car and truck bodies
Rubber tires and tubes
Other electrical equipment
Watches and clocks
Other wood and cork products
Motor vehicle parts
Wearing apparel
Clay building materials
Refectory products
Motorcycles
Locomotives and rolling stock
Batteries and accumulators
Ovens and furnaces
Downstream aluminum extrusion
Bicycle and other carriages
Power-driven hand tools
Electromedical equipment
Metal forming machinery/tools
Treatment and coating of metals
Steam generators
Furniture
Pulp, paper, and paperboard
Optical/photographic equipment
Cutlery and hand tools
Meat processing/preserving
Computer/peripheral equipment
Magnetic and optical media
Nonferrous metals casting
Fabricated metal products
Fish processing/preserving
Grain mill products
Musical instruments
Domestic appliances
Printing
Sports goods
Man-made fibers
Dairy products
Games and toys
Textile articles
Food processing machinery
Source: Department of Economic Development 2016 Abu Dhabi Chamber of Commerce & Industry
plastic products could be a logical next step. Such

considerations give some indication of possible
synergies and economies of scale and scope, yet
to gauge the feasibility of a business strategy the
Porter framework is more appropriate.
Subcluster performance and key

challenges
Market performance has been solid during the last

five years for most of the subclusters considered,
although not overwhelming. Supercharged, highgrowth markets are hard to spot. A small number
of clusters, including food and beverages, medical
equipment, and ship building, have either a relatively
small global market or are dominated by local and
regional preferences, which makes it difficult to
realize economies of scale.

The only major subcluster that has had a truly
meager growth performance recently is defense,
where fiscal austerity has dampened state sector
spending and led to flat growth for the five-year
time frame between 2009 and 2014. Moreover,
with persistently low oil prices, more spending cuts
may be envisaged for the Middle Eastern region,
darkening the defense market outlook.
The size and performance of the overall
market matter, yet market share is what counts
for the individual firm. For the market share, cost
competitiveness and customer satisfaction are
essential.
On the one hand, a high-income country is
disadvantaged in this regard. That disadvantage is
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69
Sectoral Report
Chart 8: Potential subclusters

Basic metals
Plastics
Refined petroleum & chemicals
Medical equipment
Aerospace
Defense
Industrial equipment
Construction materials
Food & beverage
Ship building
Special-purpose machinery
16
Communication equipment
Advanced electronic systems & instruments
Electronic components
subclusters for Abu Dhabis

next industrial strategy
Pharmaceuticals
Other transport
Source: Department of Economic Development 2016 Abu Dhabi Chamber of Commerce & Industry
Labor costs are a

problem, but other
cost factors matter
as well
amplified by the recent appreciation of the

dollar and the dirham. However, as long
as other Gulf Cooperation Council (GCC)
member countries do not de-peg their
currencies from the dollar, the latter hardly
counts in Abu Dhabis neighborhood and for
the most important trading partners in terms
of nonoil exports. Yet competition from
elsewhere in the world counts.
Factors other than wages influence
costs, of course. For many industries, local
availability of supplies is critical. Many
high-tech hubs and industry agglomerations
dwell on the proximity of supplies. For
several subclusters local inputs are already
available in Abu Dhabi, which is the case
for basic metals, the petrochemical industry,
industry equipment (such as steel and
aluminum), special-purpose machinery,
and ship building. Other clusters, such as
plastics or pharma, suffer from high labor
costs in particular or some lack of locally
available supplies.
Cluster benefits stretch beyond nearby
availability of supplies, though. The
chemical and pharmaceutical sector
provides a good example of the impact of
clustering (also known as co-location) and
as a job machine for other sectors. Typically,
for an industrialized economy, for every 100
jobs in the chemical sector, 200 jobs in the
rest of the economy are created.
Clustering and agglomeration
The agglomeration of chemical companies

can spur cost savings and competitiveness
in other ways, too. In the case of Germany,
many leading regions for chemicals
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70
production are also hubs for plastics

manufacturing and for the oil and gas
industry.
The benefits of co-location occur for
a number of reasons. First, clustering
increases the productivity of firms.
Second, cluster participants and their
customers share knowledge that drives
innovation. Third, clustering encourages
entrepreneurism.
For the chemicals industry, the co-location
of firms is especially advantageous:
Materials integration in which by-products
from one process become the raw
materials for other processes, reducing
chemical waste and decreasing the
additional costs associated with externally
purchased raw materials; the case of the
chlorine supply chain exemplifies this
integration.
Shared infrastructure, which reduces
costs through economies of scale in waste
treatment, incineration, and the provision
of steam and other utilities.
Logistics integration, which reduces
costs, efforts, and risks in the transport,
handling, and storage of materials.
Greater expertise and more efficient
processes in areas such as R&D; process
engineering; logistics; and environmental,
health, and safety monitoring and
performance.
Development of the subclusters in the
Technical Committees focus has the
benefit of a strong alignment with sector
structures and clusters already existing in
February 2016
Tourism
Transport & Logistics
Manufacturing
Media
Financial Services
Abu Dhabi and the United Arab Emirates. Refined

petrochemicals, metals, aerospace, defense, and
ship building are all cases in point.
Breeding new industries from scratch is probably
more challenging. Pharmaceuticals and industrial
equipment (unlike medical equipment, which
have adjacency to nearby subclusters) have only
low alignment with existing industry structures,
while electronic components and communication
equipment are moderately linked.
Close alignment with existing structures is
beneficial for both new ventures and established
business. In fact, the competitiveness of existing
structures will be reinforced, at least as long as the
new businesses are more complementary toward
existing firms rather than competitive.
Reinforcement of existing structures, though,
hardly leads to a more diversified economy.
Because of their alignment with existing structures,
most of the subclusters receive relatively low
marks on the diversification score. However, those
low marks may be discounted if diversification is
primarily understood as weaning the economy off its
dependence on hydrocarbons.
Market outlook, Vision 2030, and a new

industrial strategy
Putting the focus on reinforcing existing strengths

and structures might be a promising strategy against
the background of low oil, a strong dollar, and weak
emerging-market growth. However, branching
out to new sectors and subclusters or developing
business for which capacities currently barely exist
locally might be a serious challenge. Continued
focus on sectors like basic metals, petrochemicals,
aerospace, defense, and food and beverages might
therefore be advisable.
For some sectors, which are particularly exposed
to global competition and where local production
may easily be substituted by imports, some form
of temporary protective measures in the face of an
ever-stronger US dollar might also be considered.
The competitive edge of local production against
competitors from European or Asian markets may
otherwise erode too fast.
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Part 3 : Policies
Chapter 8
Reference Guide for Fostering

Entrepreneurship in Abu Dhabi
February 2016
72
Executive summary
Entrepreneurship and diversification of the
is far from reaching world leaders such as the United
economy are two sides of the same coin. Thriving
States, Canada, and Australia, and uneven results
entrepreneurs are essential for Abu Dhabis growth
for key characteristics signal room for improvement.
outlook and welfare. Abu Dhabi leaders have
The most important bottlenecks that slow down
recognized this link and embarked on a broad range
development for Abu Dhabis entrepreneurs are
of initiatives to develop and foster entrepreneurship.
relatively weak technology absorption, start-up skills,
Entrepreneurial culture is characterized by a
and risk acceptance by the society. According to the
multitude of factors, although not all are developed
GEDI survey, policy measures to mend bottlenecks
with similar quality and quantity. A survey by the
are essential for the further improvement of Abu
Global Entrepreneurship and Development Institute
Dhabis entrepreneurial culture.
(GEDI)based on data from the United Arab

Emiratesreveals that the local entrepreneurial
culture is on par with most European nations, but it

problem
Entrepreneurs are the heroes of the modern market

economy. Policymakers around the world court
them, prestigious prizes are awarded to successful
entrepreneurs, and policy strategies are devised to
lure them and facilitate their business.
Joseph Alois Schumpeter, the Austrian-born
Harvard economist, regarded entrepreneurs
as individuals who exploit market opportunity
through technical and/or organizational innovation.
Peter Drucker, the late American management
guru/economist, also Austrian-born, said
entrepreneurship is about taking risks. Successful
policies are about enabling entrepreneurs to grab
opportunities and take risks.
For Abu Dhabi, like any other country, a thriving
entrepreneurial culture is essential. Fortunately,
2015
was branded as the Year of Innovation in the UAE

Abu Dhabi has already been a leader among Gulf
Cooperation Council (GCC) countries in this respect.
Entrepreneurial culture and values have become
recurring themes for the political process, business
institutions, academia, and other educational
institutes. Abu Dhabi University launched an
innovation and entrepreneurship center in 2010.
Fostering entrepreneurship is a key condition
for a vibrant, fast-growing, and high-income
economy. Diversification, shrinking dependence on
hydrocarbon resources, and sustained long-term
economic growth are hardly possible without a
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Policy Brief
Ch8 - Reference Guide for Fostering Entrepreneurship in Abu Dhabi - March 2016
Reference Guide for Fostering Entrepreneurship in Abu Dhabi
is the average number of days taken to

register a business in the UAE
thriving entrepreneurial culture.
The United Arab Emirates (UAE) government has
recognized the importance of entrepreneurship
and has been actively promoting entrepreneurial
initiatives. The Khalifa Fund is a key source of
funding for start-ups, while institutions like the Abu
Dhabi Chamber of Commerce and Industry have
played a pivotal role from the private sector. The year
2015 was branded as the Year of Innovation in the
UAE, kicking off many related activities and events.
Administrative hurdles to set up a business are
low in the UAE. According to the World Banks
Doing Business in the Arab World 2014, the
UAE performed quite well on that count: average
registration time is just eight days for a business.
Costs for these procedures equal 6.4% of income
per capita, which is competitive compared with
European countries. Paid-in minimum capital
was abolished in 2010. This released liquidity
for growing a business, but also reduced safety
cushions for tougher times.
Facilitating the formation of high-growth startups also calls for reliable contract enforcement
schemes and solid procedures for resolving
insolvency. The UAE could improve in those
categories. UAE ranks 96th for investor protection
in the World Bank survey listing (e.g. Saudi Arabia
ranks 22), 100th in enforcing contracts, and 101st in
resolving insolvency.
The actual performance of entrepreneurs in
contemporary Abu Dhabi is difficult to assess,
though. There is simply a lack of hard data. Data
from the Statistics Center-Abu Dhabi (SCAD)
4
74
for small and medium-sized enterprises (SME)

provide only a crude proxy for start-ups and their
performance. (see charts 1 and 2)
SME apparently play a more modest role for the
economy of Abu Dhabi when compared with their
counterparts in Western market economies. Micro,
small, and medium-sized enterprises accounted
for slightly less than a quarter of all employees in
Abu Dhabi in 2013, according to SCAD. In terms
of production and gross value added, the share is
even lower, just above 10%.
For a typical Western market economy, the
employment share is around 5060%. Part of the
discrepancy is down to different statistics, because
SCAD has a much narrower definition of SME than
the Organisation for Economic Co-operation and
Development (OECD). Excluding medium-sized
enterprises, OECD data are better comparable, but
this still leaves a gap of around 10% for the SME
share between Abu Dhabi and a typical Western
market economy. In the case of Germany, micro
and small enterprises alone account for around
40% of employment.
Still, Abu Dhabis track record of SME development
is impressive, especially when taking the legacy
of the hydrocarbon dependency into account. For
entrepreneurs, the playing field has rough patches,
though. There is room for improvement in several
policy areas critical for entrepreneurial ideas. How
can Abu Dhabis entrepreneurial playing field and
related policies be measured and evaluated, though?
The Global Entrepreneurship Index, or GEI,
developed by the GEDI in Washington D.C., is
generally accepted as an analytical system for
the fertility of an economy toward entrepreneurial
activities. GEI defines so-called entrepreneurial
ecosystems, for which measurable, specific
characteristics are defined. The GEI does not have
data for Abu Dhabi alone, but published survey
results for the UAE may serve as a good proxy.
(see table 1)
February 2016
Chart 1: Distribution of employees by firm size and sector 2013 in %
Micro enterprises
Small enterprises
Medium enterprises
Large enterprises
4%
10.5%
9.5%
75%
G
B
E
C
A
B
C
F
G
14.2%
5.9%
43.7%
17.1%
19.1%
13.7%
B 15.5%
C 39.3%
G 31.5%
13.0%
B 18.5%
C 44.1%
G 24.4%
9.9%
47.5%
9.6%
6.9%
26.1%
A
B
D
E
G
Industry key
Manufacturing
Accommodation and food service
Construction
Administrative service and support
Other services
Other activities
Source: SCAD
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Policy Brief
Chart 2: Distribution of GDP by firm size and sector 2013 in %
Micro enterprises
Small enterprises
Medium enterprises
Large enterprises
0.7%
2.6%
6.9%
89.8%
G
F
C
E
F
G
H
F
E
B
C
E
F
H
9.6%
38.5%
9.6%
12.3%
30.0%
42.4%
10.9%
10.4%
7.9%
28.4%
50.8%
C 18.6%
D 5.3%
H 25.3%
A
60.0%
B 10.0%
D 6.4%
H 23.6%
A
Industry key
Mining & quarrying
Real estate
Other services
Construction
Financial and insurance
Professional, scientific and technical
Other activities
Source: SCAD
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February 2016
19th
Table 1
Country
GEI
GEI rank
United States
86.2
Canada
79.5
Australia
78.0
Denmark
76.0
Sweden
75.9
Taiwan
69.7
Iceland
68.9
Switzerland
67.8
United Kingdom
67.7
France
66.4
10
Singapore
66.0
11
Ireland
65.6
12
Netherlands
65.4
13
Germany
64.6
14
Austria
62.9
15
Chile
62.1
16
Belgium
62.1
17
Finland
61.8
18
United Arab Emirates
61.4
19
Norway
61.1
20
Israel
57.4
21
Estonia
57.3
22
Luxembourg
57.2
23
Qatar
56.7
24
Lithuania
54.8
25
Source: GEDI 2016
is where the UAE currently rank in the Global

Entrepreneurship Index
a country scores relative to the international
benchmark. The closer a value is to the center, the
further away it is from the benchmark.
The GEI results signal that the UAE has a high
level of entrepreneurial aspirations in the economy,
such as early-stage innovation by entrepreneurs,
penetration of foreign markets, rapid accumulation
of staff, and availability of venture capital. The
results signal that both hiring of new personnel and
the availability of risk capital for entrepreneurs is at
or close to the international benchmark.
However, the UAE is lagging behind the international
benchmark with regard to most categories for
entrepreneurial attitude and ability. Technology
absorption, recognizing start-up opportunities, and
competition issues have a comparably low score
2016 IHS
The UAE currently ranks 19th in the overall world

GEI table. With that, the UAE leads the GCC and
in fact the entire Middle East region. The UAE is
still a good deal behind world leaders such as the
United States, Canada, Australia, and Denmark, but
scores similar to most European countries. This is a
remarkable and commendable result.
The breakdown into key entrepreneurial
characteristics reveals an uneven picture, though.
The GEI is based on 14 individual characteristics,
which are tied to the entrepreneurial aspirations,
entrepreneurial attitude, and entrepreneurial ability
of a society. (see chart 3)
Chart 4 shows these 14 characteristics and their
values for the UAE. The chart displays how close
Chart 3: Categorizing characteristics

of entrepreneurial systems
Aspirations
Product innovation, process

innovation, high growth,
internationalization, risk capital
Abilities
Opportunity start-up, technology

absorption, human capital, competition
Attitudes
Opportunity perception, start-up skills,

risk acceptance, networking, cultural
support
Source: GEDI 2016
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Policy Brief
Chart 4: Pillar-level comparison of UAE's entrepreneurial ecosystem

A
N
1.0
0.8
C
0.6
0.4
0.2
G
H
Chart key
Opportunity perception
United States
Denmark
Singapore
Cultural support
Competition
Internationalization
Startup skills
Risk acceptance
Opportunity startup
Product innovation
Risk capital
Technology absorption
Process innovation
Networking
Human capital
High growth
Source: GEDI 2016
to the international benchmark regarding abilities,

whereas the availability of human capital is a strong
positive for the UAE.
Attitudes are slow to develop with respect
to spotting and, in particular, thriving on
entrepreneurial opportunities; risk acceptance, often
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78
correlated with the acceptance of a society toward

failure as well as legal and contractual procedures
for bankruptcies, is also perceived as subpar to
the benchmark. Networking and cultural support,
reflecting the emergence of networking events in the
recent past, are comparably strong. (see chart 4)
February 2016
The philosophy behind the GEI concept and related

research by the GEDI team suggest that the best
ecosystem for entrepreneurs is one with even
pillars, a well-balanced system of components.
Therefore, an ecosystem with some highly developed
characteristics but low scores on others might be
inferior to a system that is more evenly balanced,
albeit without high marks for selected characteristics.
This matters for choosing the right policy strategy.
The overall objective for policymakers is to optimize

the entrepreneurial ecosystem. Based on the GEI
philosophy, this basically means picking measures
to better balance the pillars of the entrepreneurial
ecosystem and eliminate critical bottlenecks.
The GEI system is able to signal how critical a
bottleneck currently is. Chart 5 quantifies that
bottleneck, the lag between the UAE and the
desired index level of a component, and how
quickly an improvement of the overall GEI score
can be achieved. In technical terms, the chart
describes how much more effort policymakers must
direct toward specific components of the start-up
ecosystem to trigger an increase of the overall GEI
score by 10 points.
Evenly balanced is better than high marks for some
For example, the chart signals that an increase of

27% of resources on the technology absorption pillar
will lead to an increase of the overall GEI score by
10 points. Of course, this system simplifies matters,
and reality is much more complex. However, it
gives a good indication of where to look for critical
bottlenecks and how to target entrepreneurial policy
strategies.
Chart 5 shows that, for the case of the UAE, the
most important bottlenecks to tackle are technology
absorption, start-up skills, and risk acceptance.
Process innovation and competition follow with less
critical catch-up potential. All other pillars are already
well-developed and deserve less policy attention.
Technology absorption tries to capture the extent to
which an economys businesses keep up with the
modern knowledge economy and information and
communication technologies, reflected by the number
of businesses in technology sectors, and a countrys
capacity for firm-level technology absorption.
Chart 5: Critical bottlenecks and policy impact

Pillar scores from worst to best
Technology absorption
Start-up skills
Risk acceptance
Process innovation
Competition
Opportunity start-up
Opportunity perception
Internationalization
Networking
Cultural support
Product innovation
Risk capital
Human capital
High growth
Percentage of total new effort for a 10 point improvement in GEI score
0.36
0.36
0.40
0.46
0.53
0.63
0.66
0.74
0.76
0.79
0.87
0.99
1.00
1.00
27%
27%
23%
16%
6%
0%
0%
0%
0%
0%
0%
0%
0%
0%
Source: GEDI 2016
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Policy Brief
Process innovations capabilities are an important

bottleneck too
Start-up skills of an entrepreneur are crucial for

creating sustainable, potentially fast-growing, and
technology-driven firms.
Risk acceptance is not only represented by the
individuals aversion to set up high-risk start-ups,
but also by the institutional settings of availability
and reliability of corporate financial information,
legal protection of creditors, and institutional support
of intercompany transactions.
A less urgent but by no means less important
bottleneck are process innovations, i.e. applying
and/or creating new technologies. Future fields for
start-up policy measures may be opportunity startups whose entrepreneurs are believed to be better
prepared, to have superior skills, and to earn more;
and opportunity perception alluding to the share of
a population that can identify good opportunities to
start a business, the size of a countrys domestic
market, and the level of urbanization.
According to the GEI, the following policy

recommendations can be distilled:
Policy measures should involve education. Tertiary
education is particularly important as it determines
a persons specialization and professional
orientation. It affects the individual dimensions
of technology absorption, start-up skills, process
innovation, and start-up and opportunity
perceptions. In a way, this actually confirms that
Abu Dhabi is already on the right track.
Procedures for resolving insolvency are important

for the personal risk of the entrepreneur when
the venture turns out to be less successful. They
are equally crucial for investors. However, in the
UAE, the efficiency is relatively low as insolvency
proceedings take on average 3.2 years, which
is almost double the average of the OECD highincome countries. That can still be improved.
Improving these regulations will strengthen
the position of an entrepreneur, balance the
components of the entrepreneurial ecosystem, and
thereby boost entrepreneurial activities. Flanking
major efforts in tertiary education could create a
start-up climate in the UAE that has the potential to
shift entrepreneurial activities to innovative highgrowth fields.
recommended
cs, Z.J., Szerb, L., Autio, E., 2015, The Global

Entrepreneurship Index 2016, The Global
Entrepreneurship and Development Institute,
Washington D.C.
Doing Business 2016, Measuring Regulatory
Quality and Efficiency, World Bank.
Doing Business, Doing Business in the Arab
World 2014, World Bank.
Erolu, O., M. Piak, Entrepreneurship, National
Culture and Turkey, International Journal of
Business and Social Science Vol. 2 No. 16;
September 2011.
Singer, S., J.E. Amoros, D. Moska, Global
Entrepreneurship Monitor: 2014 Global Report,
Global Entrepreneurship Research Association
(GERA).
Further policy actions may focus on legal rules and

regulations, and if necessary, amend them in a way
to foster well-functioning inter-firm and investorfirm relations and thereby favor a dynamic start-up
ecosystem.
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February 2016
81
Part 3 : Policies
Chapter 9
Reference Guide for Energy

Subsidies in Abu Dhabi
March 2016
82
Executive summary
Abu Dhabi has been a leader of subsidy reform
growth. Total energy subsidies for the United Arab
among Gulf Cooperation Council (GCC) countries.
Emirates (UAE) equaled 6.5% of GDP, with natural
Energy prices are closer to production costs
gas accounting for the bulk share. Higher prices for
compared with most of Abu Dhabis peers in the
natural gas would likely be affordable, even though
region. However, energy-subsidy reform remains
higher gas costs would feed through on electricity
high on the agenda because the ballooning
costs to some extent. Higher electricity prices for
deficit begs a lower fiscal burden from subsidies.
residents are likely affordable if accompanied by
Meanwhile, maintaining energy affordability for
mitigating measures, while prices for industrial
residents, commercial users, and industry is a valid
consumers are already relatively high in comparison
policy goal, too. Finding the right balance between
with Abu Dhabis regional peers yet still competitive
fiscal requirements, affordability, conservation, and
on a global scale.
the preservation of competitiveness is critical for

reform success and both sustained and sustainable

problem
Energy subsidies have been a focal point of policy

reform in Abu Dhabi in recent years. The prime
motivation to use subsidies usually is to reduce
the market price of a commodity for the consumer.
This is one of the shortest definitions for a subsidy,
regardless of whether it is an explicit subsidy
(e.g., a payment to the producer or the consumer)
or an implicit subsidy (such as a mandate for a
government-owned commodity producer to sell
below market prices). Any activity or decision that
leads to a reduction of a price below market level
may be regarded as a subsidy.
The motivation to subsidize energy usually depends
on which consumer group policy intends to support.
In the case of residential households, the prime
motivation is to make energy more affordable as
it is a basic service and prerequisite to enjoy the
benefits of other household goods and amenities of

modern life.
In the case of commercial, and especially industrial
consumers, energy costs can be a critical factor
of competitiveness. In fact, energy is a key
production factor for several industries, such as
steel, chemicals, paper, and of course, the mining
industry. For firms in these industries, energy costs
are a key factor influencing boardroom decisionmaking on large-scale investment plans.
Subsidies also have drawbacks, though, and they
are contentious for two primary reasons. First, since
subsidies lower the actual price paid by consumers,
subsidies encourage higher-than-normal demand
for a commodity. This can lead to inefficient
utilization and a waste of natural resources. Second,
subsidies have an impact on government budgets.
Most explicit subsidies increase government
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Policy Brief
Ch9 - Reference Guide for Energy Subsidies in Abu Dhabi - March 2016
Reference Guide for Energy Subsidies in Abu Dhabi
4%
While total post-tax energy subsidies have been

relatively low for the UAE at just above 6.5% of
GDP in 2015 (compared with 8.9% for Oman or
13.2% for Saudi Arabia) and have been reduced
in recent years, on a per capita basis, the UAEs
post-tax subsidies rank fifth highest in the Middle
Eastern subsidy league, surpassed only by Qatar,
Saudi Arabia, Kuwait, and Bahrain.
Gas subsidies account for four out of every

100 dirhams of average income
spending, while most implicit subsidies dampen
revenues.
Fiscal aspects of subsidy reform have gathered
more attention recently, in Abu Dhabi and
elsewhere in the GCC. It is particularly relevant for
countries with a large and swelling budget deficit
and a high ratio of subsidies to GDP. (see chart 1)
The oil-producing countries of the Middle East
face a window of opportunity to pare down these
drawbacks, given todays era of low oil prices,
global commitments to decreasing greenhouse
gas emissions, and increasing natural-resource
constraints. This opportunity is particularly relevant
for Abu Dhabi, which has committed to both
sustained and sustainable growth while spending a
significant share of its annual budget on fossil-fuel
energy subsidies.
Subsidies for natural gas have the highest financial

impact by far, accounting for USD1,900 on a per
capita basis. In other words, 4 out of every 100
dirhams of the average Emirati income would be
curtailed if gas subsidies were abandoned. (see
charts 2 and 3)
In a recent paper, Boersma and Griffiths report a
30% decline, or USD12.6 billion, of total energy
subsidies between 2013 and 2015 based on
calculations from the National Bank of Dubai
(NBD). Based on the data, the subsidy ratio to
GDP was reduced to slightly less than 3% of GDP
at the same time, which is less than half of the
International Monetary Fund (IMF) estimate.
A leader in subsidy reform among Middle Eastern
countries, the UAE has electricity prices that are
Chart 1: Energy Subsidies in the MENA Region

2015 Fiscal Balance as a percent of GDP
Qatar
0
Jordan
Kuwait
10
15
20
25
Iran
30
Lebanon
-5
Bahrain
-10
Saudi Arabia
Oman
-15
Bubble-size= post-tax
subsidies in US$
billions (nominal)
Iraq
-20
Yemen
-25
Post-tax subsidies as a percent of GDP

Source: IMF, IHS
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March 2016
among the highest of the GCC, although rates

vary considerably between Emiratis and foreign
residents. Electricity prices in Abu Dhabi are lower
on average compared with Dubai, but are still
higher compared with Oman, Qatar, Saudi Arabia,
Bahrain, and Kuwait. Electricity prices for nationals
are less than one-third of the price for expatriates,
though. Moreover, while tariffs for expatriates
were lifted at the beginning of 2015, they were left
unchanged for nationals. UAE energy prices are
still significantly below those in the United States
and Europe and do not always cover production or
opportunity costs.
For industrial consumers, the average price level is
highly competitive compared with that on a global
basis, although in Abu Dhabi, household electricity
prices (for national residents at least) are lower
compared with industrial consumers. This is the
opposite of the price structure in Europe, where
industry users pay a much lower price on average
than residential households.
Further, despite the major electricity, water, and
gasoline subsidy-reform measures made in 2015
in Abu Dhabi, subsidies for natural gas amount to
roughly 50% of all subsidies in the UAE and have
Abu Dhabi industry prices competitive globally,

though above GCC levels
not yet been addressed. Part of the subsidy effect

on electricity comes from cheap natural gas, which
is used as a feedstock for electricity generation.
Gas is priced far below global market levels, partly
because gas is regarded as being a mere byproduct of oil production.
In times of weakening fiscal revenues and
ballooning deficits, subsidy reform is obviously
ranking higher among governments priorities,
with Kuwait, Bahrain, Saudi Arabia, Oman, and
others all commencing activity to pare down energy
subsidies in 2015. With continued low oil prices and
an increasingly competitive economic environment,
phasing out fossil-fuel energy subsidies will no
doubt continue to be an option for the UAE and
Abu Dhabi to increase revenues and pare down
spending.
There is no one policy or mitigation approach

that serves as a best practice for energy-subsidy
11.23
10.32
8.90
7.78
6.57
6.37
13.23
30
26.01
Chart 2: Total energy subsidies % of GDP, 2015
Bahrain
Lebanon
Oman
Kuwait
UAE
Qatar
25
20
15
10
5
0
Iran
Saudi Arabia
Source: IMF
5
85
Policy Brief
may be harder to achieve in tandem, at least in the

short term.
Tiered pricing incentivizes consumers to save energy

reform, and the success of subsidy-reform policies or
initiatives cannot be measured entirely by the nearterm difference in energy prices or overall demand
pre- and post-reform. Rather, successful subsidy
reductions can only be evaluated relative to the
underlying goals of reform, which include not only
the countrys economic prosperity, but also longterm social well-being and environmental health.
To truly measure the impact of reform, results
must be monitored over time and distilled from
other confounding variables (e.g., climate, season,
macroeconomic situation, public awareness
of environmental issues, etc.), which influence
consumers overall energy demand as well as
the price elasticity of demand, or the percentage
decrease in demand associated with each percent
of price increase.
For example, while the dual goals of decreasing
national budget deficits and reducing carbon
emissions can be achieved simultaneously by
lowering fossil-fuel energy subsidies, others, such
as reducing government spending while improving
the overall well-being of low-income households,
Among the menu of policy options used by other

countries, a few general factors stand out for their
ability to contribute to the overall success of a
subsidy-reduction program. These include:
Comprehensive and well-planned

communications campaigns: By utilizing
multiple communication channels and choosing
messages that resonate with local stakeholders,
governments can avoid much-feared public
backlash, or, worse, violent protests or social
uprisings. By including information on the amount
of subsidy and a comparison with the national
average on customers energy bills, the smart
bills required by the Abu Dhabi Regulation
and Supervision Bureau (RSB) in 2012 took a
first step toward educating residents about the
actual cost of electricity. Meanwhile, in previous
subsidy-reform efforts undertaken in both Dubai
and Abu Dhabi, the government organized
extensive information campaigns explaining
the new tariff changes and played to residents
concerns about the value of sustainability and
resource conservation.
Investment in technology, infrastructure, or
Chart 3: Post-Tax Subsidies in the UAE

Subsidies per capita by product, USD
Subsidies by product, US$ billion
6.99
730.0
0.52
54.29
18.22
1,901.53
3.23
337.03
Petroleum Coal Natural gas Electricity
6
86
Source: IMF
March 2016
programs that increase energy efficiency:

Any number of measures to improve energy
efficiency (e.g., improved public-transportation
networks, appliance standards, timedifferentiated pricing, smart meters, etc.) can both
decrease consumers burden from energy price
increases while meeting governments emissionsreduction and fiscal-spending objectives. The
tiered pricing system introduced by the Dubai
Electricity and Water Authority (DEWA) in 2008
provides one such example: with costs rising
in accordance with usage levels, the system
rewards the most efficient users. The RSBs 2010
smart-meter pilot program, which has installed
400 smart meters in volunteers homes to monitor
and better understand energy-consumption
patterns, provides another example.
Carefully designed, complementary
mitigation approaches: By determining who the
energy price increases will impact most and how,
subsidy-reform efforts can include measures
to compensate adversely affected households
for the financial impact they will experience. In
countries such as India, Brazil, and Iran, targeted
cash transfers to the countrys poorest were
chosen as a direct and visible way to offset
the burden of higher energy prices, but other
countries have considered and/or implemented
a range of mitigation options, from coordinating
increases in fuel prices with improvements in
public transport to providing technical assistance
to vulnerable industries or businesses.
Meanwhile, although some tactics such as dual
pricing based on socioeconomic class have
proven challenging for national governments to
implement successfully (because of the high costs
of administration, management, and enforcement
in identifying the correct recipients and preventing
illegal sales through black markets), they have
worked thus far in the UAE, perhaps because of the
countrys unique demographics.
In both Dubai and Abu Dhabi, electricity prices for
residential expatriates have increased, while prices
100%
is the percentage total electricity prices were

lifted by Abu Dhabi
stayed the same for UAE nationals. Similarly, while
also more complicated than a blanket price hike,
Abu Dhabi has successfully implemented sectorspecific electricity price reforms: following the
2015 reforms, electricity subsidies for government
entities were removed, a 7% price increase was
introduced for commercial and industrial users
under 1 megawatt (MW), and industrial customers
using more than 1 MW experienced a 100%
increase during summer peak hours.
Phasing out subsidies has the potential to support

Abu Dhabis dual policy goals of sustained and
sustainable economic growth in principle. Although
Abu Dhabi has been a leader in subsidy reform
among the GCC, a further reduction of subsidies
seems affordable for virtually all consumer groups
and could be achieved without affecting Abu
Dhabis economic competitiveness.
However, as Abu Dhabi considers its path
forward, it should acknowledge there is no overall
best practice to follow as nowhere else has
a similar geopolitical context, natural-resource
base, economic status, industrial portfolio, and
demographic composition. Rather, policymakers
must articulate the goals of subsidy reform up front
and understand that achieving these goals will
require tradeoffs.
Based on successful subsidy-reform efforts in other
parts of the world and approaches used historically
in the UAE, as Abu Dhabi continues its efforts to
reform energy pricing, four considerations should
remain at the forefront:
7
87
Policy Brief
Chart 4: Electricity costs in the GCC

25
Residential
Commercial
Industrial
20
15
10
Kuwait
EU
average
Bahrain
Qatar
Saudi
Arabia
UAE
Oman
Dubai
Abu
Dhabi
Kuwait
EU
average
Bahrain
Qatar
Saudi
Arabia
Oman
UAE
Dubai
Abu
Dhabi
Kuwait
EU
average
Bahrain
Qatar
Saudi
Arabia
UAE
Oman
Dubai
Abu
Dhabi
Source: Boersma, Tim and Griffiths, Steve (2016)
The messages and channels used to

communicate with residents regarding the
necessity and value of changes to energy pricing
The timing, frequency, magnitude, and sequencing
of subsidy reductions
Infrastructure, technologies, or standards that can
be used to improve energy efficiency while helping
businesses and residents to maintain economic
performance and lifestyle
Mitigation approaches that protect the regions
most vulnerable households and industries
Specifically, if energy prices are ultimately going to
reflect production costs and global market rates, Abu
Dhabi will need to continue to educate nationals and
expatriate residents alike regarding the true costs of
energy production, value of resource conservation,
and risks of climate change. The government will
want to take advantage of periods when energy
prices are low and reforms can be justified in a
logical and rational manner. The increase of motor
fuel prices in July 2015 is a case in point as fuel
prices dropped again on lower oil after a short-lived
bounce. Further, by introducing measures to improve
energy efficiency among energy-intensive industries,
nationals, and low-income households, Abu Dhabi
can simultaneously decrease energy-subsidy
expenditures, reduce greenhouse gas emissions,
and support the regions populace as it adapts to a
carbon and resource-constrained world.
8
88
recommended
Boersma, Tim and Griffiths, Steve (2016),

Reforming Energy Subsidies: Initial Lessons from
the United Arab Emirates. Brookings Institution &
Masdar Institute. Available at:
http://www.brookings.edu/~/media/research/files/
papers/2016/01/reforming-energy-subsidiesuae/brookings_masdar_reforming _energy _
subsidies_uae_final.pdf
Coady, David, Parry, Ian, Sears, Louis, and
Baoping, Shang (2015), How Large Are Global
Energy Subsidies? IMF Working Paper No. 105,
Washington DC. Available at: https://www.imf.org/
external/pubs/ft/wp/2015/wp15105.pdf
Whitley, Shelagh and van der Burg, Laurie (2015),
Fossil Fuel Subsidy Reform: From Rhetoric to
Reality. New Climate Economy, London and
Washington, DC. Overseas Development Institute.
Available at: http://newclimateeconomy.report/
misc/working-papers
Arab Future Energy Index: Energy Efficiency,
Regional Center for Renewable Energy and
Energy Efficiency (RCREEE), 2015. Available
at: http://www.rcreee.org/sites/default/files/afex_
ee_2015_engish_web_0.pdf
March 2016
89
Part 3 : Policies
Chapter 10
Introducing Value-Added Tax

in the United Arab Emirates
April 2016
90
Executive summary
The Supreme Council of the United Arab Emirates
is a serious concern for the private sector. However,
resolved to introduce a value-added tax with a
a carefully crafted communication strategy will help
tax rate of 5% by January 2018. The new tax will
the public and the corporate sector to understand
broaden the governments revenue base and reduce
the new tax. The relatively long lead time suggests
the dependence on oil, which is a prerequisite for
that households and companies should be able
sustainable finances. The new tax will also provide
to prepare for the introduction of the tax and thus
for a transparent and reasonably fair system to
mitigate negative effects. That having been said,
finance the government budget. At the same time
the government and monetary authorities still
the new tax will trim households purchasing power
should safeguard the introduction with contingency
and potentially reduce the countrys attractiveness
measures to avoid second-round effects on price
for tourists. Moreover, survey evidence suggests that
inflation or an ill-timed dampener for demand in
some small-and-medium-sized enterprises might be
times of weak growth.
particular adversely affected by the new tax, which
Context and importance

of the problem
With oil prices at their lowest in years, the need

to develop alternative sources of revenues have
become a top priority for Gulf Cooperation Council
(GCC) countries, where state budgets depend
primarily on hydrocarbon revenues. Meanwhile,
global financial-market uncertainty and political
transitions throughout the Middle East make a
reconsideration of national public finance all the
more necessary.
Recognizing the importance of economic reform,
including finding new sources of revenue that could
offset growing fiscal deficits and public debts, in
December 2015, representatives of the six GCC
countries agreed in Riyadh on key issues regarding
the implementation of a value-added tax (VAT) in
the region.
150
Number of countries with VAT implemented

Implemented in approximately 150 countries
worldwide and in every nonUS OECD country, a
VAT system requires businesses to pay taxes on the
difference between their total sales and the cost of
their purchases of inputs. That difference between
the sellers purchased price and the retail price
represents the value added to a specific product or
service by each firm in the value chain. VATs differ
from retail sales taxes in that they are typically
collected at each stage of production and serve as
an overall consumption tax.
3
91
Ch10 - Introduction Value-Added Tax in the United Arab Emirates - April 2016
Policy Brief
Introducing Value-Added Tax in the United Arab Emirates
While the GCC framework agreement on the

implementation of a VAT is not expected until June
2016, the six GCC countries, including the United
Arab Emirates (UAE), were left to develop their
individual plans for implementation beginning in 2018.
In the UAE, where there is federal income-tax
legislation for general business, Minister of State for
Financial Affairs Obaid Humaid Al Tayer announced
in February that a 5% VAT will be go into effect on 1
January 2018.
This rate falls on the lowest end of the spectrum
for OECD countries where, as of 2015, the rates
spanned from 8.0% (Japan) to 27.0% (Hungary) and
had an average rate across all OECD countries of
18.7% (see table1).
The VAT will create a critical foundation for a nonoil
tax system that will be less subject to both oil-price
movements and production declines, define clearer
roles and responsibilities for both the government
and its citizens, and provide tools that can enable
efficiency, equity, and long-term economic stability.
The following pages summarize these benefits
as well as the challengesassociated with the
introduction of a VAT.

A new source of revenue
True to its intention, a VAT provides an opportunity

for diversifying the fiscal revenue base and has the
potential to raise substantial revenue, which could
then be used to support essential investments in
infrastructure, healthcare, and education, as well
as targeted social assistance for poor or vulnerable
populations.
A key metric for estimating VAT revenue is the socalled yield ratio. The VAT yield ratio is defined as
a percent share of GDP that can be raised for each
percentage-point rise in the VAT tax rate. Usually,
the yield ratio is given without considering costs of
policies intended to compensate households for
purchasing power lost in the VATs introduction.
Table 1: Standard VAT rates for OECD

countries, 2015
Country
VAT rate
Australia
10
Austria
20
Belgium
21
Canada
Chile
19
Czech Republic
21
Denmark
25
Estonia
20
Finland
24
France
20
Germany
19
Greece
23
Hungary
27
Iceland
24
Ireland
23
Israel
18
Italy
22
Japan
Korea
10
Luxembourg
17
Mexico
16
Netherlands
21
New Zealand
15
Norway
25
Poland
23
Portugal
23
Slovak Republic
20
Slovenia
22
Spain
21
Sweden
25
Switzerland
Turkey
18
United Kingdom
20
Source: OECD
2016 IHS
The yield ratio varies wildly across countries,

reflecting the efficacy of the tax administration and
degree of tax avoidance. A low yield ratio of 0.21
for Mexico or a high ratio of 0.58 in New Zealand
means that for each percentage-point increase
in the VAT rate, tax revenue equal to 0.21% and
0.58%, respectively, is generated.
In the UAE, provisional estimates showed the
April 2016
92
tax could raise up to USD6.5 billion by 2019

equivalent to 1.5% of UAE GDP. This would be
similar to the yield ratio estimated for the Brookings
Hamilton Projects proposal for a VAT in the United
States, which estimated that a VAT of 5%, when
paired with subsidies to offset the regressive effects,
could raise about 1% of GDP per year.
Among non-US OECD members in 2009, the VAT
raised 6.4% of GDP in revenue and accounted for
19.2% of revenue raised at all levels of government.
Efficient, easy to administer

In the most common implementation of the VAT,
producers are taxed based on their total output, then
receive credit for taxes they have paid on purchases
to other firms. By offering a tax credit in addition to
the tax liability, this system encourages compliance.
Moreover, as a lump-sum tax on existing wealth
(rather than income), these consumption taxes can
be designed to eliminate household distortions in
economic choices and allow revenue to be earned
regardless of the point of sale (e.g., retail location,
online order, etc.).
While the current UAE plan to exempt a number of
food, health, transportation, education, and other
social service items will affect how efficiently the
tax can be administered, the more broadly the VAT
is applied uniformly on all goods and services,
the less it will distort relative prices among
consumption goods.
In OECD countries VAT has raised 6.4% of

GDP in revenue and accounted for 19.2% of
government revenue
and projections. To this latter point, professor of
economics at New York University Abu Dhabi,
Christian Haefke, explains, Through VAT,
policymakers will have much better ways of
measuring economic activity because they will have
more real-time insights into economic activity.
Notably, a VAT does not necessarily hurt tourists
across the board and for all goods purchased in the
UAE, since many countries offer the option to rebate
the VAT on exports at the border. Meanwhile, by
taxing imports at the VAT rate, a country can ensure
an even playing field across imported and domestic
consumption goods.
VAT: regressive or proportional?

Despite their consistent rate across products
and services, VATs are not always viewed
as progressive and, in fact, might be seen as
regressive if the tax burden is measured as a share
of current household income. Alternatively, the tax
is considered proportional if it is instead evaluated
based on the amount households are taxed as a
percentage of their current level of consumption, or
with respect to the percentage of lifetime income
spent on consumption.
By implementing transparent and nonnegotiable tax

systems, governments have the opportunity to more
clearly define the relationship between the citizen and
the stateand demonstrate the roles that each play
in maintaining its well-being and future prosperity.
Moreover, the potentially regressive nature of the

tax, which could hurt disadvantaged populations
such as the elderly, youth, unemployed, or low-wage
earners, can be counteracted either by exemptions
to critical goods and services or through cash
transfers, rebates, or income-tax credits that offset
the damage from the VAT.
By broadly publicizing its 5% VAT, the UAE will

not only prevent perceptions of unfairness due
to corruption but can also introduce a more
accurate and regular line item in public reports
or communications regarding fiscal revenues
For example, in the Hamilton Projects proposal for

a VAT in the United States, the 5% VAT would be
paired with a cash payment of about USD450 per
adult and about USD200 per child to offset the
cost to low-income families. In this proposal, the
A fair and transparent system
5
93
Policy Brief
Policy Brief
Introducing Value-Added
IntroducingTax
Value-Added
in the United
TaxArab
in the
Emirates
Chart 1: Tax revenue by category in selected MENA countries (percent of nonoil GDP)
>46%
15%
Property
Trade
10%
Corporate income
Personal income
Excise
5%
VAT
Goods and services
0%
Bahrain
Egypt
Jordan
Oman
Kuwait
Qatar
Saudi Arabia*
Note: Owing to discrepancies between the latest data point across categories or incomplete information, components may not add up to the total
*Does not include revenue from zakat
Brookings Institutions William G. Gale and Urban

Institutes Benjamin H. Harris estimate that this
cash payment would be the equivalent of annually
refunding each two-parent, two-child household the
VAT paid on the first USD26,000 of consumption.
The UAE proposal for a VAT, which would share
the burden among all who benefit from the
purchase of goods and services beyond essentials,
can be viewed as more progressive than the
personal income-tax systems implemented in other
parts of the Middle East, which have low top-tier
rates for the highest income earners (and taxes
on capital gains or other nonwage earnings are
excluded). Compared with corporate income taxes,
VATs are much less likely to discourage business
formation or growth (see chart 1).
Other reasons for caution

Some further downsides should be acknowledged
and either mitigated or monitored closely.
The first is inflationthe creation of an add-on VAT
will create upward pressure on prices, which could
further exacerbate price increases resulting from
the UAE utility subsidy cuts that began in 2015. It is
currently difficult to foresee with enough certainty
how high price inflation will be at the point when
the VAT is implemented. It may or may not be an
6
94
Tunisia
UAE
ill-timed step. If it exacerbates price pressures too

much, countervailing policies should be considered
as an option (see chart 2).
The second is the perception that it will threaten (or
at least dampen) economic competitiveness and the
corresponding growth it drives. A widespread concern
is that the VAT could make the Gulf less attractive for
foreign companies. In their proposal for a 5% VAT
in the United States, the authors acknowledge that
theory and evidence suggest that the compliance
burden would likely fall more heavilyas a
percentage of saleson smaller businesses.
In fact, one 2010 survey conducted by Intuit in the
United Kingdom found that more than one-third of
small business owners (39%) were absorbing the
additional cost of the VAT increase, rather than
passing it on to their customers. This signals that
the VAT might hurt the private sector in particular.
However, 67% of small businesses that responded
to the UK survey stated that the VAT increase did not
affect their business, indicating that the tax may be
less harmful to competitiveness than critics claim.
As Abu Dhabi fleshes out its plans for the

implementation of the VAT in 2018, there are several
considerations it might keep in mind:
April 2016
Chart 2: Consumer price inflation for Abu Dhabi
14.9% 0.8% 3.1% 1.9% 1.1% 1.3% 3.2% 5.4%

2008
2009
2010
2011
2012
2013
2014
2015
Education: helping the public

understand the purpose of the VAT
and the importance of compliance
For a populace that has not been exposed previously
to state taxes, a carefully crafted communication
strategy will be essential to making sure that citizens
and residents understand the nature and cost of
public services provided using tax receipts and the
necessary steps required for VAT compliance and
effective policy implementation. The communications
will need to include everything from how, when, and
where the tax will be applied; to how the VAT will
advance equity, close the fiscal gap, and contribute
to necessary improvements in health, education,
and social services; to how to file for a credit or
rebate. In communications about all these topics,
transparency will be key, as well as understanding
which messages resonate with stakeholders and the
appropriate channels for communication.
Timing
While the introduction of a VAT in the UAE is
currently planned for 2018, it should be carefully
timed so as to not derail the regions economic
growth path, especially in a scenario where the
UAEs growth momentum slackens more severely
as a result of low oil prices and cascading effects.
Moreover, policymakers must closely guard against
ballooning price inflation in order to avoid harmful
100
Number of food items which are currently planned

to be exempt from VAT
second-round effects on consumer prices.
Keep tax base broad; avoid further

complexity
Since an all-encompassing tax prevents consumers
from trying to substitute between tax-exempt and
taxable purchasesand policymakers from trying to
determine the necessities of the populations they
are trying to protectthe more goods and services
that are subject to the VAT, the greater the expected
efficiency. While the GCC countries have already
agreed to exempt health, education, bicycles, social
services, and 100 food items from the VAT, as the
UAE develops its own plans for the VAT rollout in
2018, it can avoid adding additional exemptions
or preferential tax rates, since these would create
further complexity, thereby limiting VAT efficiency
and perceived fairness. As mentioned previously,
providing tax credits, refunds, or cash transfers
can be an alternative to preferential tax policies
and ultimately have the same effects on vulnerable
7
95
Policy Brief
Introducing Value-Added Tax in the United Arab Emirates
Appendix: MENA: VAT main exemptions under current laws

Country
VAT rate
Algeria
Bread, milk, certain pharmaceutical products, newspapers, periodicals, books, sports materials produced in
Algeria and acquired by the national sports federation
Egypt (applies only to general

sales tax)
Restaurant foods (outside hotels), books and magazines, local dairy products, pasta and bread, meat and
fish, domestic fruits and vegetables, baked sweets
Jordan
Bread; wheat; olive oil; construction steel bars; fuel derivatives; vehicles; medicines and medical supplies;
valuable metals (gold-made jewelry, diamonds, precious stones); electricity; water; education; construction
and real-estate activities; mobile phone subscriptions; financial intermediation and insurance
Iran
Unprocessed agricultural products, flour, bread, meat, sugar, rice, cereals, soya, milk, cheese, vegetable oil,
baby food, books and notebooks, medical products and services, education services, pet food
Lebanon
Medical services, education, agricultural farm supplies, all raw food, bread, flour, meat, fish, yogurts, rice,
sugar, salt, vegetable oil, books, magazines, newspapers, gas for household use
Mauritania
Medical services, basic foodstuffs, including bread, meats, vegetables, etc.
Morocco
Basic foodstuffs and items for which prices are regulated; newspapers, periodicals, books, and educational
audio-visual products
Tunisia
Basic foodstuffs such as bread, milk, flour, etc., and items for which prices are regulated; pharmaceutical
products; newspapers, periodicals, books and educational materials
Yemen
Books, newspapers, periodicals, medical services, transportation of individuals
Source: IMF
2016 IHS
Transparency, education and timing are critical for

successful implementation
populations or targeted business types.
Consider VAT in relation to broader

system of public finance
Last, at a time when well-designed fiscal policy is
critical, the VAT should not be seen as a cure-all
for the regions public finance concerns. Already on
the lowest end of the VAT spectrum among OECD
countries, a VAT may be just one of several tools the
UAE ultimately employs to balance its budget and
create a fair and enduring system of public finance.
recommended
Gale, William G. and Harris, Benjamin H., 15

Ways to Rethink the Federal Budget -- Proposal
10: Creating an American Value-Added Tax, The
Hamilton Project, Brookings Institution, February
2013.
Jewell, Andrew, Mansour, Mario, Mitra, Pritha, and
Sdralevich, Carlo, IMF Staff Discussion Note: Fair
8
96
Taxation in the Middle East and Northern Africa,

International Monetary Fund, September 2015.
Adam Bouyamourn, Introduction of VAT in UAE
and Gulf region likely to hit economic growth,
The National, http://www.thenational.ae/business/
economy/introduction-of-vat-in-uae-and-gulfregion-likely-to-hit-economic-growth, retrieved 26
February 2016
Babu Das Augustine, UAE to implement 5
per cent VAT from January 2018, Gulf News,
http://gulfnews.com/news/uae/government/
uae-to-implement-5-per-cent-vat-fromjanuary-2018-1.1678703, retrieved 15 March 2016
Vicky Kapur, UAE confirms no income tax
yet, but 5% VAT is coming, Emirates 24/7,
http://www.emirates247.com/business/uaeconfirms-no-income-tax-yet-but-5-vat-iscoming-2016-02-25-1.622208, retrieved 25
February 2016
UAE said to implement 5% VAT from Jan
1, 2018, Arabianbusiness.com, http://www.
arabianbusiness.com/uae-said-implement-5vat-from-jan-1-2018-622778.html, retrieved 24
February 2016
April 2016
97
98

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ABU DHABI BUSINESS OPPORTUNITIES

FOR A DIVERSIFIED ECONOMY

Performance Partnerships Policies

COPYRIGHT NOTICE AND DISCLAIMER

Printed in the United Arab Emirates

Mohammed Helal Al-Muhairi

PART 1 : PERFORMANCE ................................................................. 7

ABU DHABI BUSINESS OPPORTUNITIES

Biannual Abu Dhabi

ABU DHABI BUSINESS OPPORTUNITIES FOR A DIVERSIFIED ECONOMY 2016

Biannual Abu Dhabi

The Emirate of Abu Dhabi has seen a

economic Performance Index (ePI)

2016 Abu Dhabi Chamber of Commerce & Industry

to private-sector activities, with the public

Uneven private-sector demand

The strong and stable headline growth

remarkable real estate boom

Real estate has emerged as one of the

real GdP 2007 prices, % change

Source: SCAD 2016 Abu Dhabi Chamber of Commerce & Industry

2016 Abu Dhabi Chamber of Commerce & Industry

ABU DHABI BUSINESS OPPORTUNITIES FOR A DIVERSIFIED ECONOMY 2016

BADER REPORT | January 2016

Ch1 - Biannual Abu Dhabi Economic Report - January 2016

Narrow manufacturing base

Economic Performance Index (EPI)

Manufacturing, which is important for

Abu Dhabi leading Economic

share of private-sector activities, tops the

Production had embarked on a weaker performance

Favorable global conditions eventually gave

a slowdown, but not a recession

Business results for 2015 have signaled

Strategic sectors of Abu Dhabis five-year plan

2016 Abu Dhabi Chamber of Commerce & Industry

2016 Abu Dhabi Chamber of Commerce & Industry

ABU DHABI BUSINESS OPPORTUNITIES FOR A DIVERSIFIED ECONOMY 2016

third quarter, which is perfectly in line

The recent bout of global risks aside, Abu

unemployment rate into but one single time

abu dhabi leading

The higher the index, the better the

Real GdP growth %

2016 Abu Dhabi Chamber of Commerce & Industry

ABU DHABI BUSINESS OPPORTUNITIES FOR A DIVERSIFIED ECONOMY 2016

BADER REPORT | January 2016

Ch1 - Biannual Abu Dhabi Economic Report - January 2016

from oil markets or a global recession hits

Private sector share

Source: SCAD/Bain 2016 Abu Dhabi Chamber of Commerce & Industry

India has had similar or higher growth

Private sectors role

Even so, Abu Dhabis private sector has

Private sector share 2012

Transport and logistics

Financial services and insurance

Media and information and communications technology

Construction and real estate

Source: SCAD/Bain 2016 Abu Dhabi Chamber of Commerce & Industry

2016 Abu Dhabi Chamber of Commerce & Industry

ABU DHABI BUSINESS OPPORTUNITIES FOR A DIVERSIFIED ECONOMY 2016

Real estate's share in fixed investment