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Emirates TravelUnited Arab Emirates / Abu Dhabi
 

Abu Dhabi

Capital in the Capital
Abu Dhabi is sometimes viewed as the more reserved sibling state to neighboring Dubai, the glittering playground for the rich and the very rich. But the two emirates have different philosophies regarding economic development. Both have strengths and weaknesses.

Abu Dhabi the state and Abu Dhabi the city within the state are the capitals of the UAE and the state, respectively. With 860,000 people, Abu Dhabi is the second largest city in the UAE, behind the municipality of Dubai, which has a population of 1.24 million. In terms of natural resources, Abu Dhabi holds 90% of the oil reserves in the UAE. Because of that, it has not been faced with the urgency to expand its economy as diversely as Dubai, which sits on top of only about 8% of the UAE’s oil reserves.

While business leaders in Abu Dhabi would like for the city to develop to the point where it would be mentioned alongside Singapore and Tokyo as a world capital, the approach in Abu Dhabi is different from that in Dubai. While Dubai set out to be the glittering jewel on the Persian Gulf, Abu Dhabi has a more reserved population and wants to also expand its economy through manufacturing rather than depending so heavily on tourism.

{IMAGE1} Educational and economic policy changes in Abu Dhabi over the last five years were made with the goal of creating a culture of innovation, with skilled human capital to drive that innovation. The objectives are not re-creating manufacturing of established industries, but developing manufacturing of products that are predicted to grow in importance in the 21st century.

{IMAGE2} But Abu Dhabi does have its own attractions for tourists – specifically Arab tourists. One of the first projects of the “new” Abu Dhabi was its own international air carrier, Etihad Airways, which carried over three million passengers in 2008, double what it carried in 2005. As for a landmark, the $3 billion Emirates Palace hotel with rooms going for $1,000 per night is the city’s answer to Dubai’s Burj Al Arab.

When in 2005 citizens were finally allowed to sell land and in some places foreigners were allowed to hold 99-year leaseholds, Abu Dhabi real estate boomed overnight. The Aldar Properties private property development company sold all of its $400,000 units in 45 minutes. But there is a caution here, a feeling that the city wants to avoid some of the problems that have begun to crop up in Dubai: overworked infrastructure, crime, and prostitution.

{IMAGE3}Within the Gulf Cooperation Council (GCC), Abu Dhabi is planning many new business and construction projects. Even so, non-GCC companies and investors are only able to own long leasehold interests in designated Investment Zones within the UAE. Dubai has more than 20 such zones, while Abu Dhabi has only three.

This difference in the two approaches to development is evident in the two cities’ property ads. In Dubai, they feature happy westerners cavorting on the beaches, while in Abu Dhabi they show Arab families wearing traditional dress. But Abu Dhabi does not plan to skimp on cachet. It has sparkling new hotels, marinas and golf courses for the well-to-do, and a cultural district designed by world renowned architects like Frank Gehry. It will also feature branches of the Louvre, the Guggenheim, and a campus of New York University – a first for a major U.S. research university outside the U.S.

{IMAGE4}As a result of its more measured approach to economic development, the worldwide economic downturn of 2008 has affected Abu Dhabi less than it has Dubai. Abu Dhabi’s extensive oil reserves make a firmer foundation for future economic growth and also make the pace of that growth less urgent. Dubai had to branch out extensively and rapidly since it didn’t have the oil reserves to fall back on.

The second and third quarters of 2009 are likely to include further softening of commercial rents in Abu Dhabi. But the city isn’t heavily overbuilt, so the downward pressure should not be crushing. Nevertheless, the economy may dictate that some planned projects be cancelled. By the end of 2010, if some confidence has returned to world markets, Abu Dhabi should have an easier time recovering than world cities that were hit harder by the 2008-2009 world recession.

{IMAGE5}In fact, an Abu Dhabi investment fund recently surprised some auto industry analysts by buying a 9.1% stake in Daimler AG, the world’s second largest maker of luxury cars. This gives Daimler an advantage over cash starved automobile manufacturers who spent 2008 watching markets shrink like socks in hot water.

The investment by Aabar Investments PJSC raised €1.95, the equivalent of $2.66 billion US. It will be used to develop fuel saving technology such as battery powered cars.

Abu Dhabi doesn’t mind that its neighbor Dubai spends more time in the international spotlight. The goals of the two emirates are somewhat different, though both are strongly committed to diversifying their economies beyond a dependence on oil. Dubai had to do this earlier on due to its relatively small proportion of oil reserves. Abu Dhabi hopes to learn some lessons from Dubai to help it come into its own as a world economic power with fewer growing pains.

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