By Claire Ferris-Lay
Oil-rich capital may be redirecting cash to poorer northern emirates, say analysts
Abu Dhabi’s move to rein in spending on major infrastructure projects could be a sign the city is redirecting funds to bolster the revamp of the UAE’s poorer northern emirates, analysts said.
The oil-rich capital has pledged to spend $1.6bn in Ras Al Khaimah, Sharjah, Ajman, Fujairah and Umm al-Quwain, in a bid to close the wealth gap with richer emirates Dubai and Abu Dhabi.
Abu Dhabi, home to most of the UAE’s oil resources, may be pruning back project spending in the wake of the Arab Spring protests, to avoid fuelling tensions in the poorer north.
“I think to some extent we can see some of the cuts within Abu Dhabi as being partly reduction of some of the spending on expat staff and projects….and partly a redirection of spending a little bit more towards nationals,” said Rachel Ziemba, senior economist, Roubini Global Economics.
“Spending on the northern emirates is probably one of the few places where government spending is likely to increase over the next 12 months. The few political strains we’ve seen within the UAE have come from the northern emirates where economic opportunities are lower and you have started to see the sense of disparity of opportunity within the UAE.”
At least nine Abu Dhabi-controlled companies have seen top managers exit this year, including investment vehicle Mubadala and developer Aldar, under a government-wide review.
TDIC, Abu Dhabi’s tourism arm, said on Oct 29 that it would delay the completion of the Zayed National Museum and 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 in September, and said this month it had cut nine percent of jobs.
The UAE has so far avoided the political unrest sweeping across the Arab world but protests calling for regional governments to address the widening gap between the rich and poor have put increasing pressure on the Gulf state to address the poorer emirates.
International ratings agency Standard & Poors on Tuesday reaffirmed Abu Dhabi’s AA/A-1+ credit rating.
“The exceptional strength of the government's net asset position provides a buffer to counter the negative impact of oil price volatility on economic growth and government revenues, as well as on the external account,” said the agency.
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The northern emirates are heavily reliant on oil-rich Abu Dhabi but regularly suffer from utilities blackouts during the hot summer months. A recent petrol crisis that forced 82 filling stations across the northern emirates to halt operations for a month earlier this year added to the tensions.
UAE President Khalifa bin Zayed Al Nahyan in March ordered a $1.6bn investment to improve infrastructure in the less developed emirates. Plans are also underway for an oil refinery and 100km pipeline in Fujairah, as well as a 60km water pipeline for Umm Al Quwain.
Residents in the northern emirates are becoming increasing aware of the disparity between the emirates, said Theodore Karasik, director of research and development at the Institute for Near East and Gulf Military Analysis.
“They want to be treated on the same level as other emirates and not economic backwaters. But given the global economic crisis and new pursuits in the north, the northern emirates are beginning to step forward,” he said.
“The Federal Centre is giving more monies to the northern emirates to begin to plug infrastructure and social gaps; these efforts take time,” he added.
Economic disparities in the UAE could threaten the development of the Gulf state, a UN Development Programme (UNDP) report found in August.
“The economic development model of the UAE is not unified and this calls for rethinking of the federal development paradigm,” Elissar Sarrouh, UNDP resident representative said.
“One of the focus areas of UNDP in the UAE is bridging the regional disparities gap and focus on sustainable human development and poverty reduction in the northern emirates.”