Power shift?

By Ben Thompson, Senior Editor

With Dubai still taking stock after its recent debt restructuring, Abu Dhabi looks set to eclipse its flashier neighbour in attracting investment dollars over the next few years. But does this shift in the balance of power hold deeper implications for the UAE?

As acts of defiance go, the opening of the world's tallest building was some spectacle. Shrugging off its recent debt problems, Dubai threw the biggest party the emirate has seen since the height of the boom in honour of its new icon's inauguration, with a combination of 10,000 fireworks, light beams, choreographed water displays and sound and music effects illuminating the night sky. The extravaganza was watched by thousands of UAE residents crowded onto the Dubai Mall promenade and a further two billion people live on TV. And if the festivities lacked the ostentatious displays of excess witnessed at the unveiling of The Atlantis Hotel back in 2008 – the world's most expensive private party at an estimated $20 million – then given that we're in the middle of a recession the organisers did their best to run them close. Despite the economic climate, the emirate still managed to prove that when it comes to celebrating on a gargantuan scale, there's no-one quite like Dubai.

And yet amidst the revelry and backslapping over completion of the city's latest architectural wonder, one topic inevitably dominated the conversations, gossip columns and discussion board threads in the hours and days following the lavish ceremony: the record-breaking structure's surprise rebrand from the Burj Dubai to the Burj Khalifa. "This is the tallest building ever created by the hand of man," announced Dubai's ruler Sheikh Mohammed Bin Rashid Al Maktoum at the ribbon-cutting ceremony. "This great project deserves to carry the name of a great man. Today I inaugurate Burj Khalifa in recognition of Sheikh Khalifa bin Zayed Al Nahayan."

The gasp of the watching millions was almost audible. Many immediately turned their attentions to the practical implications of the name-change: the cost to souvenir manufacturers and producers of merchandising; the numerous changes that will need to be made to signage, maps and tourist guides around the emirate; and the bill facing the company that reportedly spent more than US$500,000 on Burj Dubai branded uniforms for security and hotel personnel. Others, however, focused on the reasons behind the name change, speculating as to why – at the very moment the emirate should have been celebrating its greatest triumph – it chose to honour the ruler of near-neighbour Abu Dhabi instead in an uncharacteristic display of self-effacement.

And while some saw nothing strange in the desire to acknowledge Sheikh Khalifa, the current president of the UAE, as patron of the tower, many more believed the gesture was linked to the US$10 billion bailout he recently extended to Dubai to help with its debt restructuring. Some even muttered darkly that the handout did, despite official protestations to the contrary, actually have strings attached after all. But whatever the real reason, the symbolism behind the move was undeniable: anyone looking for evidence of Dubai's waning influence and the growing role of Abu Dhabi as the Gulf's real economic powerhouse could see it clearly in the 828-metre tall building towering above them.

A tale of two cities

Dubai's recent problems have been well-documented, particularly in a Western media that has positively revelled in the schadenfreude of seeing the desert dream come crashing down. The city's once buoyant property market is currently blighted by oversupply, yet another 32,000 new homes are expected by the end of 2010; house prices, already down some 60 percent from their 2008 peak, are set to fall a further 10 percent in the next year; and more than 500 construction projects have been suspended or cancelled in the United Arab Emirates alone, with Dubai the most severely affected. According to a leading crane manufacturer, the number of cranes in Dubai has slumped by around 50 percent from peak construction levels and current orders have ground to a halt.

And then came the news that rocked the financial world last November, when Dubai announced it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step to restructuring. It was, says Eckart Woertz of the Gulf Research Council, a "watershed event" in the economic development of the emirate. "Before this, markets had assumed an implicit government guarantee for such companies; now that such guarantee has not materialised, refinancing on international markets will be more expensive or even impossible," he explains. "As Dubai's access to international capital markets has diminished, it will need to rely increasingly on Abu Dhabi as well as making the necessary restructuring moves."

Indeed, as Dubai's star has dimmed it is difficult not to compare it to the powerhouse city-state emerging just to the south. Abu Dhabi accounts for about 60 percent of the national economy of the UAE and ranks amongst the world's richest cities, with GDP per capita amongst the highest in the world. As the world's sixth largest oil producer, it is a major exporter and is linked to many of the largest global economies by trade. Through sovereign wealth funds such as the Abu Dhabi Investment Authority – considered to be the world's largest investment fund – the emirate has multiple strategic overseas investments, and its development of globally recognised projects such as the Masdar Initiative mean Abu Dhabi is becoming ever more dominant on the world stage.

More importantly, the emirate has weathered the recent economic crisis much better than Dubai. "Abu Dhabi remains the wealthier emirate with manageable debt levels compared to its balance sheet," says Alia Moubayed, Senior Economist at Barclays Capital. "It has a very ambitious economic development and investment program, and the 'catching-up' process the emirate is undertaking to build its infrastructure to Dubai's level naturally implies that more project work will be done there. International investments will certainly flow into these ventures given the size of the proposed plans in the industrial and infrastructure sectors."

In fact, the respective health of the two real estate sectors makes for interesting reading. Since Abu Dhabi's real estate market proved more resistant to the overheating that hit others in the region, it has held up well against the global downturn. Moreover, its reputation for a more sustainable style of development has largely prevented the evaporation of investor confidence that has plagued much of the rest of the Gulf. A rising arts and culture scene - based on ambitious collaborations with the Louvre, Guggenheim and other global leaders - is also helping to make the emirate more attractive to foreigners and, with more than half of the population under the age of 30, demand from the youth market should help to keep the commercial real estate segment strong over the coming years. In contrast to Dubai, National Bank of Abu Dhabi expects a shortage of more than 20,000 homes by the end of 2010, with demand rising due to a population increase and limited supply – both of which will further stimulate the construction sector.

Indeed, whereas Dubai is suffering from a chronic surfeit of luxury property, in Abu Dhabi the timing of the slowdown caused developers to reassess their projects and cancel or scale back the more ambitious ones. In many ways, the downturn has been a blessing in disguise. "Most projects have faced some kind of delay as developers take stock of potential defaults from purchasers and experience cash flow issues," confirms David Dudley, director of the Abu Dhabi office at property consultant Jones Lang LaSalle. "The vast majority of announced projects for which construction has not commenced are being put on hold until the market picks up, and the delay or cancellation of these projects means that markets will remain more stable during the current period of suppressed demand."

The sleeping giant

First-time visitors to Abu Dhabi today might find it difficult to imagine the emirate as one of the world's most exciting cities. Unlike Dubai, swathes of the desert remain untouched by urban sprawl and its relatively low-key skyline contains none of the iconic landmarks associated with its brasher, flashier neighbour. Indeed, this is a city that can best be described as a work in progress. Evidence of what the future holds can be seen in the construction work currently underway around the clock, building the foundations for the projects that will transform it into a modern-day metropolis to rival any in the region – or for that matter, the world. 

The driver behind these changes is the Abu Dhabi 2030 Urban Structure Framework Plan, a 25-year programme of urban evolution aimed at building an economically sustainable city that is able to support a population of up to five million residents. Plan 2030 aims to cement Abu Dhabi's identity as the capital of the UAE, but also to make it a global financial, trade and tourism hub. The government has also committed to investing around US$100 billion to developing Abu Dhabi's Western Region, which accounts for 83 percent of the emirate's land mass but currently houses just eight percent of its residents.

Craig Plumb, Head of Research for the MENA region at Jones Lang LaSalle, believes that the emirate is on an upward curve. "Abu Dhabi was probably the fastest growing market last year from a tourism perspective and has big plans to continue this," he says. As such, Plumb expects it to be one of three Gulf economies, along with Saudi Arabia and Qatar, to recover fastest from the impact of the global real estate slowdown.

Key to this development will, of course, be the expansion of its transportation infrastructure – currently undergoing improvements and expansions across all segments to ensure infrastructure keeps pace with strong growth elsewhere – and its construction sector. According to a 2009 report from the Oxford Business Group, while Abu Dhabi did feel the effects of the downturn, overall the emirate remains well protected from the recession thanks to strong internal dynamics and ambitious public infrastructure plans. As with everywhere else in the region, the effects of the slowdown have made project financing more difficult and competition between contractors for existing projects is fiercer; on the flip side, however, the global crisis – coupled with volatile oil prices and falling inflation – has caused materials prices to fall significantly, a boon for well-capitalised builders.

This softening of construction costs has also changed the nature of the market to a certain extent. While oil and materials prices were high, developers were largely compelled to build luxury developments in order to keep profit margins healthy. Now that costs have come down, however, developments with a lower price tag are increasingly getting the green light, clearing the way for much-needed activity in the middle and lower-income segments. Overall, the real estate market is undersupplied and affordable housing developments such as Al Reef Villas, the first in the segment to come online in 2009, could make major strides in closing the supply gap.

The government too is keeping contractors busy with a raft of infrastructure projects planned in line with its broader goals and backed by stable energy (and therefore cash) reserves. Key projects such as Masdar – the world's first zero-carbon city – Saadiyat Island and Yas Island and are expected to keep developers and contractors busy over the next few years, and while 2010 will likely post some challenges for the sector as uncertainty in the global market remains, it also presents significant opportunities in Abu Dhabi, where fundamentals remain strong.

Taking centre stage

As a result, Abu Dhabi is now in pole position to assume a dominant role in the affairs of the region, and its recent bailout of Dubai suggests it is now ready to flex its financial muscle. "From the market viewpoint, Abu Dhabi is now in the driver's seat, and all eyes are watching to see how it and the UAE Central Bank will manage the fallout from recent events," asserts Moubayed. "Abu Dhabi's bailout indicates that the management of Dubai's debt crisis, and the adjustments to its growth model, will be part and parcel of the reconfiguration of power-sharing arrangements among the different emirates and the wider process of strengthening the UAE federation."

In fact, many commentators feel that Abu Dhabi will use Dubai's recent debt standstill as an opportunity to push its own agenda of greater centralisation of the UAE. "Abu Dhabi's support for Dubai in the current financial crisis is selective and not unconditional," explains Woertz. "It has shown that it is ready to practice tough love and force a restructuring of Dubai's business entities that are currently not viable or might not fit into its own and the UAE's overall development plans. Speculation about trade-offs is increasingly shifting from rumoured secret buyout arrangements that are impossible to verify to a power shift to Abu Dhabi within the federal structure of the UAE." Woertz thinnks the payoffs for Abu Dhabi's bailout might be political rather than financial. "Abu Dhabi could demand a strengthening of federal authority, while Dubai would need to relinquish certain sovereign rights, such as control of customs, which so far remains on the level of individual emirates," he says.

A more tightly knit federation would have other benefits, too. For one thing, the UAE needs increasing unification of policies and standards for its ambitious development drive. It also needs substantially improved statistics – which so far are often not available in a timely, complete and consistent fashion. Like elsewhere, there will need to be more regulation of capital markets, while a unification of the stock markets in Dubai and Abu Dhabi could strengthen the position of the UAE as a niche player in international capital markets. Meanwhile, urban development is increasingly intertwined with people living in one emirate and working in the other and coordinated planning will be required, especially in the field of transport networks and railroads – a point echoed by Moubayed. "Greater federation will also be reflected in growing support for countrywide integrated infrastructure networks that will constitute a non-negligible part of project works across the UAE, such as the recently announced national railway system," she says.

Not over yet

It's clear that in the next few years we can expect to see considerable changes in the way the UAE is run, with Abu Dhabi – always the traditional heart of the country but often eclipsed by the brighter lights of Dubai in recent years – taking the lead. But even so, Abu Dhabi will need a strong Dubai if it is to make a success of its centralisation efforts. And many in the industry, while conceding the emirate faces significant challenges, believe it is too soon to start writing Dubai off just yet. "There is a real need to get back to basics, for sure" asserts MAG Group Chief Executive Officer Mohammed Nimer. "We need to focus on solid market fundamentals as opposed to sentiment – that's the true path to recovery." But despite recent setbacks, he maintains that Dubai is still an icon for business. "Among the reasons for optimism are the fact that the city has the best infrastructure in the UAE and remains the primary hub between East and West," he explains. "Dubai also has the most diverse financial sector in the region, as well as being a focus for tourism and retail. Furthermore, the benefits that Dubai offers in terms of free zones and 100 percent ownership for foreign companies should not be discounted. For example, the Jebel Ali Free Zone is now playing host to some 6000 firms."

Moubayed agrees. "Dubai has many strengths that will help it recover," she asserts. "It possesses a state-of-the-art infrastructure and is able to attract a skilled and productive labour force from around the world given its open societal model. It is by the far the most advanced trade hub in the region, offering high quality transport and logistics services between East and West, and has also forged a strong brand for itself as both a tourist destination and a financial centre. One must also not forget Dubai's fast-growing economic and financial relations with the rest of the Gulf and MENA economies, as well as Asia's emerging economic powers (notably India and China), which will open opportunities that Dubai can and will harness in the medium-term. Most importantly, Dubai's position within the UAE and the support it gathers from Abu Dhabi constitute, in my view, a critical factor that will help Dubai slowly recover as it goes through its restructuring process."

She maintains that Abu Dhabi has a stake in ensuring that Dubai's exit strategy from its current woes be as smooth as possible in order that it contributes to a reduction in risk premiums across the UAE as a whole. And Abu Dhabi's rulers would be wise to learn the lessons - both good and bad – from the Dubai experience if the emirate truly has aspirations of building sustainable and successful growth. For one thing, the crisis confirmed the critical need for greater transparency and accountability in the conduct of business and government affairs, and stronger corporate governance rules and mechanisms for their implementation. "Such rules would have avoided excessive leverage across many Dubai Inc. entities, and allowed for a better pricing of risk," suggest Moubayed. "By the same token, the recent episode brings to the fore the importance of having solid and well-tested insolvency frameworks and legal and institutional mechanisms to protect creditors' rights. It also highlights the need to improve the regulatory framework governing real estate markets, in order to curb speculative flows that may be conducive to an asset bubble."

Channelling resources to develop sectors that are less vulnerable to cyclical downturns and global turmoil is something else that Abu Dhabi will need to consider, inasmuch as it needs to devise a clear strategy for fiscal and debt management and build a track record of implementation that will earn greater credibility amongst investors and creditors.

Where next for the UAE?

So despite the global economic crisis and Dubai's recent debt troubles, there are signs of optimism for the UAE. Dubai-based market intelligence firm Proleads sees some 3398 civil building projects worth $1.35 trillion still active in the Gulf region, 853 of them in the UAE alone with a total project value of $661.4 billion. And while a significant portion of the region's major projects have been cancelled or placed on hold, market analysis shows that nearly 75 percent of all announced projects in the region are still progressing. "Projects are always put on hold, even during boom times, but from our cash flow projections for the industry, we see the UAE construction market beginning to stabilise at current levels and showing some signs of recovery during 2010," says Emil Rademeyer, Director of Proleads. "There is still a lot of liquidity in the market in this region, and it's one of the few places in the world – like Brazil and China – where this is still the case. As a construction player, you need to be in places like this."

Rademeyer's view is supported by a recent report from HSBC that suggests business sentiment in the region over the last three quarters is becoming more confident (although it remained a long way below the exuberant mood of 2007 and early 2008). "If I were to characterise the mood of the region's business people, I would say they are cautiously realistic," confirms Simon Vaughan Johnson, HSBC's head of commercial banking for the MENA region. "2009 was a difficult year for the GCC economies, but there is a feeling that 2010 will be a year of improvement, tempered by a realism of expectation."

The ability of cities in the Middle East to thrive in the decades ahead and accommodate urban growth issues such as demographic and population shifts, the globalisation of capital markets, the provision of adequate housing and infrastructure, technology changes, environmental preservation and land conservation will be a key determinant for success. And as the new decade dawns, it is Abu Dhabi rather than Dubai that is showing the way forward.

Transport in Abu Dhabi

April 2009 saw the Department of Transport's unveiling of the Surface Transport Master Plan (STMP), which looks forward to the year 2030. Given rapid population growth – which averaged 6-7 percent between 2005 and 2008 – the emirate is eager to support the next wave of urban development.

Road congestion extracts a heavy toll on Abu Dhabi's economy in both urban and rural areas and, as a result, the government is prioritising projects like the widening of the Mafraq-Ghweifat highway, the corridor from Abu Dhabi to the western border with Saudi Arabia. Within the capital, the Department of Transport hopes that the introduction of the urban public transit system will take a significant number of vehicles off the road. In a style typical of the emirate, the STMP calls for environmentally friendly public transport.

As air traffic steadily increases, so has the capacity of the Abu Dhabi International Airport and other airports overseen by the Abu Dhabi Airports Company (ADAC). The emirate's main airport, unlike other major international hubs, has not seen a decrease in passenger traffic over the past few years and the government is investing accordingly: about half of the planned $6.8bn worth of expansions have already been completed.

Major changes are afoot at the emirate's ports as well. Under the auspices of the Abu Dhabi Ports Company (ADPC) and the Department of Transport, the emirate is preparing to shift operations at the main port at Mina Zayed to the massive Khalifa Port in the new industrial area at Taweelah currently under development.

Finally, in a first for the UAE, the federal government created an inter-emirate transport network in March 2009, setting in motion a long-discussed plan to connect all seven emirates via rail. The $3bn railway project will eventually connect with the larger 1940-km rail development that aims to connect all six countries of the GCC. As of mid-2009 Abu Dhabi seemed undeterred by the global credit crisis and was pushing ahead with its wide-scope development plan, ensuring that the emirate will be able to more efficiently handle future growth and a larger population.

[Source: Oxford Business Group]

SAADIYAT ISLAND
Developer: TDIC
Date for completion: 2018

Located just 500 metres off the mainland, Saadiyat Island is set to transform Abu Dhabi into one of the cultural capitals of the world. It will feature two of the world's most prestigious cultural landmarks, the Guggenheim Abu Dhabi and the Louvre Abu Dhabi. The latter has been designed by the Pritzker prize-winning architect Jean Nouvel and will be located at the heart of Saadiyat Island's Cultural district. Even more spectacular in design, and the centrepiece of the District, will be the Guggenheim Abu Dhabi, which has been designed by Frank Gehry. It is made up of several conical-shaped buildings and incorporates a twist on the UAE''s traditional cooling wind towers. The Guggenheim will feature 13,000 square metres of permanent and temporary exhibition space and will be the largest museum in the cultural district. Extensive work has gone into creating a sustainable infrastructure for Saadiyat Island, which includes a storm water drainage system, sewerage systems, electrical grid stations and a water supply and reservoir systems. This will support not only the millions of visitors that are expected to visit the island every year, but also the 160,000 residents that will live there permanently.

The island will be split into six districts; Al Marina, featuring berthing for 1000 boats; the Cultural District with museums and galleries; Saadiyat Park, a mainly residential area with waterfront villas and apartments; Saadiyat Beach, a tourist area with nine kilometres of natural beaches and a golf course designed by Gary Player; South Beach, a family beach resort; and The Wetlands, which will feature a championship golf course and parkland. In total, the project will cost a massive US$27 billion to build and it is expected to attract 1.5 million visitors a year by the time it is completed in 2018.

YAS ISLAND
Developer: Aldar Properties
Date for completion: 2014

While Saadiyat Island has been designed to be the cultural heart of the emirate, Yas Island will be its entertainment hub. The 25 square kilometre development off the coast of Abu Dhabi will be a key part of the government's strategy to build its tourism industry. Its main attraction will be Yas Marina Circuit racing track which will play host to the inaugural F1 Etihad Airways Abu Dhabi Grand Prix on November 1. The track will wind its way around Yas Island's landscape and has been designed by Hermann Tike who created Shanghai's main racing circuit. In keeping with the racing theme, Ferrari World Abu Dhabi will be the world's largest indoor theme park and is housed in a building covering 200,000 square metres with a roof designed to look like the body shell of a Ferrari GT car. The island will also host the Warner Bros. Theme Park, which will feature attractions based on Looney Tunes, Hanna-Barbera and DC Comic characters. Meanwhile Yas Island Water Park, for which no completion date has yet been set, will boast aqua themed rides.

No development in the UAE is complete without a mall, and Yas Mall, featuring three department stores and 500 luxury units, will break the mould in terms of its cutting edge design and the international brands it aims to attract. It will cover an area of 296,000 square metres and will feature a car park with 16,000 spaces and several triple-level stores. In terms of accommodation, both residents and tourists will be well catered for. Residential villas and apartments will be built alongside the island's various waterways and canals, including at the top-end, duplex waterfront apartments on the banks of the Yas Lagoon. Yas Hotel will be the island's flagship hotel and will be joined by several branded hotels along the Northern Crescent and Beachfront Esplanade. In all, there will be over 2500 guest rooms. In terms of its transport infrastructure, the developers are planning to include a public transport system and a 10 lane highway connecting Yas Island to both Abu Dhabi and Dubai which will reduce the drive time to the capital city to just 10 minutes. The environmental impact of such a road network, will, the developers hope, be offset by the green initiatives taking place on the island, including the monitoring of the effects of the development on local waterways and the planting of 80,000 mangroves on the western shores of the island, adjacent to the island's links golf course.

AL RAHA BEACH
Developer: Aldar Properties
Date for completion: 2019

Al Raha Beach has been dubbed the new gateway to Abu Dhabi. It will be a waterfront city and home to the emirate's new World Trade Centre building, residential areas and a central business district. The island will accommodate 120,000 residents and, in a bid to encourage foreign investment, will be one of the first designated areas where non-nationals can invest in leasehold property in Abu Dhabi. Al Raha will be split into four distinct districts: Al Zeina, Khor Al Raha, Al Seef and Al Dana. Al Zeina is described by the developers as the 'garden city' and will be located at the island's quieter eastern end. Villas and apartments will front a beach and the community will feature a retail arcade, shops and cafes. Khor Al Raha, at the eastern mouth of Al Raha Beach's Grand Canal, will have restricted public access and cars there will be kept to a minimum. Buildings will be tiered from three to 14 floors and will have sea views. Al Bandar will be an island set around a marina with moorings for resident's boats.

For those wanting to live in a livelier area, Al Seef will feature a vibrant residential, commercial and hotel district. Three islands offshore will provide facilities for watersports. Meanwhile Al Dana, formed around a circular marina, will be built as a series of semi-circular zones that will increase in height. Al Dana's marina will also be the main transit stop for water transport. There will be several other districts within the development, including the cultural district, Al Shaleela, which will feature galleries and art studios as well a media museum. Al Razeen, the "Arabian Water District" will be made up of secluded villas on an island parallel to Al Shaleel and will be connected to the mainland by a series of waterways and bridges. A sophisticated public transport network will be developed to ferry people around Al Raha Beach, including a light rail system with 14 stops, a bus service, catamarans, ferries and water taxis. Road traffic will be minimised with the central boulevard roads, leading straight into underground parking areas for each precinct. Although it is a short distance from Yas and Saadiyat Islands, there will be plenty of entertainment on Al Raha itself, including a 300,000-square metre shopping and exhibition centre, two marinas and several parkland golf courses.

AL REEM ISLAND
Developers: Sorouh Real Estate, Reem Investments, Tamouh
Date for completion:  TBC

Al Reem is a natural island 600 metres off the coast of Abu Dhabi. Once developers have completed their US$30 billion project, however, it will be a very different place. The island is currently being jointly developed by Sorouh Real Eastate, Reem Investments and Tamouh, each of whom has staked their claim to one of the emirate's most ambitious real estate projects. Over 22,000 residential units are to be built on the island, which will be connected to the mainland by two or three bridges. The island has been designed to cater to a permanent population of residents rather than as a tourist attraction and will feature schools, medical clinics, shopping malls, restaurants, as well as hotels and a 27-hole golf course. The centrepiece of the island will be Shams Abu Dhabi, which is being developed by Sorouh Real Estate, owner of 20 percent of the development.

Shams will be a self-contained city in its own right, home to 45,000 residents and designed around canals and parks. At the heart of Shams will be Central Park, which, as its name suggests, will be modelled on the New York version and will feature a theatre district, waterside restaurants and shops. At the entrance to Shams will be the Gate District that will be made up of eight skyscrapers for both residents and businesses and a luxury shopping mall. The Shams project is expected to cost US$6.9 billion in total and will occupy 25 percent of the island. The residential areas will account for 90 percent of the project while the remaining 10 percent will be used for commercial and recreational areas. It will contain 100 skyscrapers, 22,000 residential units and a one million square-metre park. Other developments will include the 83-storey Sky Tower and the five million square-metre Abu Dhabi Towers. The first phase of Shams is expected to be completed later this year.

GCC construction

Elsewhere in the region, Saudi Arabia has 847 active projects valued at $417.9 billion, while Kuwait is moving forward with 160 projects worth $142.8 billion. In Qatar, 186 projects valued at some $48.2 billion are on track, and Bahrain currently has 232 active projects worth $40.3 billion. Oman's 116 projects are valued at $38.5 billion in total.

[Source: Proleads]

The way forward for Dubai

The current restructuring process within Dubai Inc. is a great opportunity for the emirate to look back at its past achievements and reassess its strategy moving forward, believes Alia Moubayed of Barclays Capital.

"Dubai needs to reconfigure its sources of growth by focusing on its own comparative advantages and embracing a different financing model," she explains. "Excessive reliance on leverage, and speculative/rent-seeking activities in the real estate sector will not be sustainable, nor can they generate the productivity gains necessary to support a healthy economic growth trajectory in the long-term. Limiting the sources of growth to sectors that are highly vulnerable to cyclical downturns is a risky proposition."

Moubayed feels Dubai is best placed to capitalise on its logistics infrastructure. "With access to a talented pool of capital and the ability to develop high value-added productive sector activities, the emirate should further integrate into international supply chain production and distribution networks, as we saw Asian countries do in the 1990s," she continues.

In addition to this strategic rethink, an easing of restrictions aimed at improving the quality and availability of information that financial markets need to operate efficiently is a must. "Greater transparency in the conduct of business and government affairs and better disclosure both at the level of the public and the private sector is essential," she says. "In particular, improved frameworks for setting and implementing fiscal and debt management policies, bankruptcy laws, and an efficient judicial system able to deal with business disputes are reform elements investors will be looking for. The ongoing restructuring process offers the opportunity to accelerate such reforms, and is a first test that will be critical for shaping markets' perception of risk in Dubai and anchoring expectations for the recovery path over the longer-term."

Abu Dhabi: addressing the challenges

Given the rapid pace of change from a new country to a world-class city within just 60 years, Abu Dhabi will inevitably face challenges.

● Quickly transforming the economy: Abu Dhabi's current strength is derived from its oil and gas based economy. To achieve genuine economic diversification into other high growth sectors will take time and will require major transformation of the city's population, skills base and business clusters

● Improving transparency: Establishing a legal framework and a business environment comparable to other developed economies. Progress is being made but there is continued work to be done to establish a legal regime that will sustain high levels of foreign investment

● Achieving balanced population growth: Abu Dhabi's population is small with a comparatively low proportion of UAE nationals and a large, relatively transient expatriate population. Abu Dhabi needs to continue to attract and retain the best talent to fuel its economic growth whilst managing social integration

● Enhancing city competitiveness: While Abu Dhabi has major advantages including a low-tax environment, a strategic location and an emerging quality lifestyle offer, it needs to continue to develop its global marketing initiatives to attract foreign investment. At the same time, it needs to ensure lower costs for the occupiers of real estate

● Complementing Dubai: Whilst Abu Dhabi has some significant strengths relative to Dubai, the ultimate success will come from the two emirates converging to become the dominant force, as the MENA region increases its global significance

● Controlling land release: It takes longer to develop and diversify the economy and grow the population than to construct new real estate developments. Inevitably this leads to a short-term imbalance of demand and supply which needs to be actively managed to keep prices competitive whilst avoiding damaging boom-bust real estate cycles