With the launch of a series of initiatives to support growth in the non-oil sector, Abu Dhabi is reinforcing its efforts to diversify the economy away from hydrocarbons.
In late June the Abu Dhabi government announced it had created a Dh4bn ($1.1bn) fund to boost research and development (R&D) in the emirate. The fund will provide rebates to companies that invest in R&D and launch new business ventures, with the aim of incentivising greater levels of innovation. This will be accompanied by measures designed to support business growth, such as the implementation of energy discounts for industrial producers, and an increase in funding to small and medium-sized enterprises (SMEs). The creation of the SME Credit Guarantee will see the government underwrite up to 75% of loans taken out by local small businesses.
Ahmed Al Balooshi, the executive director of the Industrial Development Bureau of the Abu Dhabi Department of Economic Development, said in July that the government would also launch a new industrial fund by the end of the year, with the goal of stimulating further growth in manufacturing and industry. Speaking at the 2019 Global Manufacturing and Industrialisation Summit in Yekaterinburg, Russia, Al Balooshi said the emirate was looking to develop sectors such as aerospace, defence and automotive, and that the new measures would also include support for SMEs.
Tourism targeted for expansion
Growth in the tourism sector is similarly being encouraged, primarily via a Dh600m ($163.4m) fund aimed at attracting investment in the entertainment and business segments. Launched by the Department of Culture and Tourism – Abu Dhabi on July 30, the initiative will finance projects in the events industry, and officials expect the plan will generate Dh1.6bn ($435.7m) for the local economy. The fund builds on recent moves to augment the emirate’s appeal as a tourist destination, which include the opening of the Louvre Abu Dhabi in November 2017 and the UAE’s hosting of the 2019 Asian Football Confederation Asian Cup, with venues located in Abu Dhabi and elsewhere.
Private sector at heart of diversification
Measures aimed at supporting business growth fall under broader government efforts to diversify the economy away from a reliance on hydrocarbons. Launched in September last year, the $50bn Ghadan (“Tomorrow”) 2021 programme consists of 50 separate initiatives based on four foundations: business and investment, society, knowledge and innovation, and lifestyle. The three-year programme highlights the importance of boosting the private sector’s participation in the broader economy, with the government looking to increase its contribution to GDP from 32% to 37% over the period. This approach seeks to insulate the economy against swings in the price of oil, such as when prices fell from more than $100 a barrel in 2014 to around $30 in 2016. By investing in alternative industries and encouraging private sector growth, the emirate hopes to reduce the oil sector’s contribution to GDP from 51.6%, as recorded in the first quarter of this year, to 36% by 2030.
Oil still drives growth
The emirate’s GDP expanded by 5.7% year-on-year (y-o-y) in the first quarter of 2019, according to Statistics Centre – Abu Dhabi, a notable improvement from flat growth in the first quarter of 2018. The positive performance nonetheless highlights the ongoing importance of hydrocarbons to Abu Dhabi’s economy, as well as the challenges the emirate faces in rebalancing its economy towards a more non-oil-oriented model. The first quarter growth was largely driven by a 12.8% y-o-y spike in oil GDP, while non-oil GDP decreased by 0.9%.
SOURCE: www.oxfordbusinessgroup.com