Abu Dhabi, the emirate that bailed out Dubai in 2009, set out to avoid the pitfalls suffered by its Gulf neighbour with a decades-long plan to replace oil revenue with industry and tourism as drivers of growth.
Now those plans need to be scaled back as companies behind some of the sheikhdom’s biggest developments cut jobs and postpone projects, said Ghassan Chehayeb, associate director of research at Dubai-based Exotix. Delays include beachfront apartments, the first office building that makes more energy than it uses and branches of the Louvre and Guggenheim museums.
“Abu Dhabi has to face the economic realities,” Chehayeb said. The emirate’s plan “was a little too ambitious and they’re realizing now that many of those projects might not make as much economic sense as they initially thought.”
Abu Dhabi, the United Arab Emirates capital and the holder of 7 percent of the world’s oil reserves, plans to invest $500bn in industry, tourism and culture to increase non-oil revenue to 64 percent of the economy from 41 percent from 2005 to 2007.
In Dubai, debt-fuelled property speculation drove up prices and spurred development until the global credit crunch in 2008 caused the market to crash.
The government of Abu Dhabi hasn’t announced any changes to the development blueprint, called Vision 2030, since it was first published in 2008. The emirate’s Urban Planning Council wouldn’t say whether the plan is still on track when contacted by Bloomberg.
Aldar Properties, Abu Dhabi’s biggest developer, plans to cut its workforce by 24 percent as it focuses on existing projects and properties that generate steady income, the company said this week. Government-owned Tourism Development & Investment said on Oct 29 that it would delay the completion of the Zayed National Museum as well as branches of the Louvre and Guggenhem due to the “magnitude of work.”
TDIC, which also develops hotels, cut its 2011 budget by 28 percent to AED13.4bn ($3.6bn), according the prospectus for a $3bn bond sale in July. The sale was postponed.
Masdar, a $22bn state-owned renewable energy company, shelved plans for a 100,000 sq m headquarters building that would produce more energy than it uses, it said in September. A year earlier, the company scaled back the zero-carbon ambition for its purpose-built city and delayed the city’s first phase by two years to 2015.
“They are downscaling to reality,” said Saud Masud, an analyst at Dubai-based Rasmala Investment Bank. “You don’t have ample liquidity today to finish projects. Abu Dhabi as a sovereign state is solvent, but there is a liquidity problem in sectors like real estate.”
While Dubai took a more high-profile approach to its growth, constructing the world’s tallest building and palm tree- shaped islands, its more conservative neighbor developed beaches and seaside promenades and used natural and manmade islands to serve as centers for culture and entertainment.
Both markets have been hurt by a drop in private investment in the region that has persisted since the global economic slump. For Abu Dhabi, that meant the state taking on a bigger share of development financing.