London, Asharq Al-Awsat- Last week I mentioned that I was travelling to Abdu Dhabi. It is a lovely time of year to be in Abu Dhabi. This article was partly written there and now I am back in London was completed here. Reflecting on my discussions with Abu Dhabi’s Department of Economic Development (DED) demonstrates how different business in Abu Dhabi seems from that in Europe right now. As the economy picks up following the global financial crisis, Abu Dhabi is making adjustments for a more sustainable future, diversifying from its economic backbone of oil and gas.
When Britain’s Trade Minister Lord Green visited the United Arab Emirates in September, there was talk of London being the ‘eighth Emirate’. The UAE is the UK’s 16th largest export market and trade relationships between the two go back a long way.
One of my friends in DED gave me some interesting facts and figures. 2011 witnessed Abu Dhabi making significant progress towards its long-term goal of economic diversification, with major developments in industry, transport and tourism. Late in the year the government announced that it was reprioritising certain projects. According to the International Institute of Management Development World Competitive Yearbook 2011 Abu Dhabi’s government efficiency has jumped from 22nd place in 2007 to 6th place in 2010. That is spectacular.
There is now a need to develop additional infrastructure if continuing rapid growth is not to be hindered. This will require more participation by the private sector. Abu Dhabi has a history of successful innovation in its approaches to the private sector. The Abu Dhabi Economic Vision 2030 created a long-term roadmap for economic progress for the Emirate through the establishment of a common framework aligning all policies and plans and fully engaging the private sector in their implementation.
The Vision 2030 recognises the potential benefits and contribution to sustainable economic growth that small and medium sized enterprises (SMEs) can bring. Generally in most oil based economies it is likely that most companies will be larger. The opposite is the norm in the majority of G8 economies; and in many of the G20. In the G8 economies SMEs account for a greater proportion of GDP than large enterprises. Developing the SME sector will bring Abu Dhabi in line with its benchmarks, and at the same time reduce the economy’s exposure to risks, encourage innovation and create jobs.
In a world where the leave-it-to-the-government view of Marxism has so spectacularly failed there is a growing number of competing forms of capitalism. An interesting one is the UAE model where the government acts to boost business by playing a private equity role. In Abu Dhabi the Khalifa Fund has been established to help develop local enterprises in Abu Dhabi. It is a venture capital firm specializing in incubation, seed, and start-up investments for small and medium enterprises. The Centre of Business Research at the University of Cambridge is a leader in the field of knowledge-based high tech start ups. It began originally as the Small Business Research Centre, and to this day, the study of smaller enterprises remains a key area of research.
This brings me back to one of one of my favourite topics – pubic private partnerships (PPP). PPP should make a positive contribution to society, and to deliver real benefits to people, to business and to the community more broadly.
Within Abu Dhabi there is growing interest in developing projects and enhancing the private sector capacity through a programme of PPP projects. Abu Dhabi has demonstrated Government willingness to allow private participation in infrastructure.
Establishing a successful and sustainable PPP programme that is able to encourage a robust long-term local private sector supply chain to support PPP projects should contribute to stimulating and encouraging the growth of SMEs – each specific project could offer opportunities for SMEs. There is scope for the UAE and the UK to share knowledge and mutually benefit. After all, the UK is made up of huge numbers of SMEs plus a few world-class giants. It also has the world’s largest and most successful programme of PPPs.
Increasing profitability, improved regulation and higher liquidity have all marked the banking sector in Abu Dhabi. As a result of a combination of high government spending and relatively low exposure to real estate projects, banks in the emirate were less affected by the economic crisis. Meanwhile, non-performing loans are declining and customer deposits are increasing, adding stability to the sector. To make sure this stability is sustainable; the Central Bank has steadily raised the capital adequacy ratio requirements and introduced new debt guidelines for personal loans. These factors are helping financial services in the emirate.
Another pragmatic project is nearing completion. Abu Dhabi is putting the final touches to an oil pipeline that will allow the emirate to bypass the congested Strait of Hormuz, through which about 40% of all sea-borne crude is currently shipped. Completion of the project is viewed as increasingly timely, not only in reducing congestion in the Straits but also as geopolitical tensions with Iran have escalated in recent months.
Now back to the UK, where it is extremely cold.
The British government launched its 27th offshore oil and gas licensing round on Wednesday last week with 2,800 blocks made available to energy explorers. Licence awards in the last round set an all-time high at 190 as high oil prices attracted investment. “This is shaping up to be a very prosperous year for the North Sea as we expect a substantial increase in field approvals,” Energy Minister Charles Hendry said. “With around 20 billion barrels of oil still to be extracted, the UK Continental Shelf has many years of productivity left,” he said.
Commercial extraction of oil on the shores of the North Sea dates back to 1851 although large-scale production only started in the 1970s. Production of North Sea oil peaked in 1999 at nearly 6 million barrels per day. The exploitation of the North Sea oil reserves began just before the 1973 oil crisis, and the climb of international oil prices made the large investments needed for extraction much more attractive.
In Europe progress is slowly happening too. The euro-zone economy seems to have stabilised in January. It is still early days, but in the near term, it could mean the euro zone returns to growth in the first quarter, thereby avoiding recession. Angela Merkel has been in China and there is some movement in China’s possible involvement. Late last week in a joint press conference China’s premier, Wen Jiaboa, said, “China is investigating and evaluating concrete ways in which it can get more deeply involved in solving Europe’s debt crisis via the IMF”.
If you look around carefully there is much good news. It is better to look at the positive things that are going on than to drown in the pool of bad news.
John Davie is a visiting professor at London Metropolitan Business School and chairman of Altra Capital