For much of the world, the United Arab Emirates brings one picture to mind: Dubai, with its business model of explosive growth in this oil-rich part of the world. That growth produced a housing bubble that finally burst last year, sending investors scurrying for cover and laid-off workers scurrying for the airport.
But there are six other emirates in the UAE — perhaps none as important as the capital, Abu Dhabi, where the real oil wealth resides.
Development in Abu Dhabi has been restrained and orderly by Persian Gulf standards, and, thanks to heavy public spending, the special traffic lanes reserved for construction vehicles are every bit as crowded as they were before the global financial crisis hit.
Not that Abu Dhabi is immune to high-profile projects. In addition to outposts of the Louvre and Guggenheim museums, a Formula One racetrack is being built. Still, there are far fewer signs of the reckless pursuit of luxury and excess that marked Dubai's property boom. Since the downturn, Abu Dhabi has emerged as the potential savior of its glitzy, overextended neighbor.
Amid continued gloomy reports on the health of the global economy, Persian Gulf states continue to pour their oil wealth into infrastructure projects, keeping public sector construction afloat while private developers scramble to consolidate and cut costs. With oil prices hovering near $70 a barrel, Gulf states are in a relatively strong position to weather the downturn, but analysts warn that things are likely to get worse before they get better.
Tom Healy, an Irishman who now heads the Abu Dhabi stock exchange, says investors have absorbed last year's painful lesson that Gulf states are not immune to the global downturn.
In Abu Dhabi, Healy says, parts of the banking sector and private residential developers are suffering, but, by and large, the emirate's economy is chugging along.
"The vast majority of construction in Abu Dhabi is infrastructure, or government-run projects," he says. "The funds are there, they're continuing to build, and that's proceeding as normal. So the economy in Abu Dhabi is not exactly in the rude good health it was in before the crisis, but the crisis is not as obvious here as it is everywhere else."
Positive Fundamentals
On the floor of the Abu Dhabi exchange, investors keep one eye on their computer screens and the other on the two big boards tracking the day's trading. On this day, the lead economic story would be the latest sign of retrenchment among UAE mega-developers. The giant Emaar Properties is in talks to merge with three companies owned by another behemoth, Dubai Holding. Dubai's banks are also bracing for a wave of foreclosures as more workers are laid off.
Beyond the troubles in Dubai, though, economists still see positive fundamentals that may help the Gulf states ride out the crisis in better shape than many other economies.
Mary Nicola at Standard Chartered Bank says with oil trading in the range of $60-$70 a barrel, Gulf states have a new margin of comfort as they plow record levels of public spending into the economy to counter the private sector downturn.
"They had all initially budgeted for oil prices to be around $30-$45 a barrel. They are very conservative, but they also ... accounted for a deficit," she says. "However, now that oil prices have increased, we are likely still to see a deficit, given the fact that spending has increased and they are the largest, highest budgets in history, as of this year."
But Healy warns that the lesson of 2008 — that the UAE is not immune to global economic pressures — will be even more important to keep in mind this year.
"I think probably the biggest worry here would be the same as you'd experience in Europe, which would be that the markets would recover far too quickly and too strongly now, only to hit another dip later on in the year," he says. "I think there's another dip or two around before we finally come through this, and I think that anybody who thinks any one country can pull ahead of the other would be unfortunately naive."
In the meantime, frustrated drivers have another reason to complain. With rents still on the rise in Abu Dhabi, more and more workers are keeping their jobs there and moving to Dubai, where property prices are down at least 50 percent. The new commuters are adding that much more pain to the endless Emirati traffic jam.
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