Abu Dhabi will spend US$1 trillion (Dh3.67tn) on major infrastructure, property and manufacturing projects, the Minister of Economy said. The unprecedented infrastructure spending comes as the emirate speeds up its economic diversification plans in response to the global financial crisis, with projects valued at more than $100 billion under way.
"The planned investments to be implemented through public and private partnerships in infrastructure, real estate and manufacturing sectors over the medium term are expected to reach $1tn," Sultan al Mansouri said in a speech at the Abu Dhabi Outlook Summit yesterday. "This will lead to extraordinary demand for building materials and technological innovations, thus boosting the economy further." Abu Dhabi holds about 8 per cent of the world's oil and is already ploughing billions of dollars in oil revenues into such projects as the $40bn Yas Island development, which hosted the Formula One Grand Prix on Sunday.
Other major projects planned include the $10bn Shah sour gas project and the Chemaweyaat chemicals cluster, one of the world's largest petrochemical investments. Investment in infrastructure and manufacturing are central to the country's plans to diversify its economy away from a reliance on oil. Economists also see infrastructure spending as a key part of reviving economic growth from a downturn by creating jobs, lowering the cost of running businesses and attracting foreign investment.
Saudi Arabia announced plans this year to spend $400bn on infrastructure projects in the next five years. Such projects in the UAE will account for 17.5 per cent of the Dh43.6bn budget for next year announced by the Ministry of Finance last week. On the sidelines of the summit, Mr al Mansouri said the country's economy was "definitely" on the path to recovery from the global economic downturn. He repeated a forecast that growth this year would reach 1.3 per cent, but declined to give an outlook for next year. GDP for next year would hinge on oil prices and the health of the global economy, including levels of trade.
Mr al Mansouri's comments follow renewed fears about the sustainability of the international recovery, fuelled by predictions from some analysts that unemployment figures could continue to rise, increasing the risk of a double-dip recession. Regionally, concerns persist that a correction in oil prices due to stuttering global demand could provide a setback to Gulf economies. "The price of oil needs to stabilise at current levels for economies to recover and fiscal and external balances to improve," said Tim Fox, the chief economist at Emirates NBD.
"On a global level, I am worried that markets might have run too far too fast, and that could carry a risk for the UAE." Mr al Mansouri said sectors such as aviation, which had experienced 10 per cent growth this year, were leading the UAE's recovery. He said people had been encouraged to travel to the country for business and leisure through reductions in the cost of hotel and services. Mr al Mansouri said average inflation for the year so far was between about 2.6 per cent and 2.9 per cent, but his expectation for inflation across the entire year was between 2.5 per cent and 3 per cent.
He said the Government hoped to guard against a repeat of previous years before the financial crisis, when inflation reached double-digit levels as the country experienced soaring prices for food and property. Omar bin Sulaiman, the deputy chairman of the Central Bank, said last week that GDP growth could exceed 4.5 per cent next year. An IMF official last week forecast the economy would contract by 0.5 per cent this year, then grow by 3 per cent next year.