Bloomberg News

Abu Dhabi’s Spending on Soccer, Skyscrapers Masks Slower Times

September 21, 2011

Sept. 22 (Bloomberg) -- Ramy Kaddourah got the keys to his apartment in Abu Dhabi’s Raha Beach development two years late as the boom in the United Arab Emirates capital started to wane.

“Everyone got really excited about the plans to build up Abu Dhabi, then out of nowhere everything came to a stop,” said Kaddourah, 31, who runs a local private hospital and invests in property to rent. “If this can happen here, I don’t want to imagine what’s happening in the rest of the world.”

Abu Dhabi internationally is the oil-rich emirate spending billions of petrodollars on English soccer team Manchester City, the iconic Chrysler Building in New York and London’s Gatwick Airport. Yet that image is masking pressure at home as the government supports its six neighboring emirates while financing a $500 billion development plan.

In a year that saw uprisings in almost a dozen Arab countries, citizens in the U.A.E. will head to the polls for only the second time in the country’s 40-year history on Sept. 24 to choose members of a council that will advise the sheikhs in control. In the background are deteriorating infrastructure and rising unemployment in the northern emirates and an end to the breakneck investment in Dubai and Abu Dhabi.

“We’re starting to see chinks in the armor,” Christopher Davidson, author of “Power and Politics in the Persian Gulf Monarchies.” “The bottom line is they can’t keep distributing the wealth to an ever-growing, ever-developing population.”

Property Market

Rents in Abu Dhabi have fallen 40 percent since the market’s peak as many foreigners left, leaving a number of properties without tenants, according to estimates from real- estate broker Jones Lang LaSalle.

Abu Dhabi’s ADX Real Estate Index, made up of the shares of three local developers, is down 39 percent this year. Aldar Properties PJSC, the biggest, was the first company in the U.A.E. to receive a junk rating from Moody’s Investors Service. Last month, the company reported a second-quarter profit that missed analysts’ estimates following a year-earlier loss.

The election, for the Federal National Council, will allow voters to select half the members of the country’s advisory council. About 15 percent of the country’s citizens are entitled to vote, based on membership in an electoral college.

The U.A.E., a de facto monarchy, is run by a president and vice president who inherit their posts. The rulers of each of the seven emirates together comprise the Supreme Council, the highest lawmaking body in the federal government.

‘Way Behind’

“In so many ways the U.A.E. is modern and sophisticated and yet this is an example of one area where we are way behind,” said Abdulkhaleq Abdullah, a professor of politics at the United Arab Emirates University in Abu Dhabi. “Now with the Arab Spring taking place, they know they have to do something about it. The question is, what?”

Economic statistics are hard to come by in the U.A.E. The country’s government doesn’t publish official statistics on unemployment, income per capita or details on budgetary spending. Calls and e-mails to the Abu Dhabi government for comment were not immediately returned.

The 2009 unemployment rate among U.A.E. nationals was as high as 20.6 percent in Fujairah, one of the northern emirates, above the national average of 14 percent, according to the latest survey from the Labor Ministry.

Power Cuts

Fujeirah, Ras Al Khaimah and Sharjah, the largest of the northern emirates, continue to endure power cuts.

Emirates National Oil Co., a Dubai-based refiner and gasoline retailer, shut filling points in the northern emirate of Sharjah in June after running short of fuel at service stations. Stations in Dubai remained open.

“Some of our citizens are living in houses that are falling apart, some are neglected health wise, our education system needs improvement and we have high unemployment,” said Fatema Hadroom, 37, a financial controller at Schlumberger Ltd., the world largest oilfield-services company, a candidate in the election. “The government knows we have problems. They see it and they want to do something about it.”

If elected, Hadroom would represent Ras Al Khaimah, where per capita income is 45 times less than Abu Dhabi.

In the capital, new hotels and residential clusters continue to pop up across Yas Island, site of the emirate’s Formula One raceway and Ferrari World theme park. On Saadiyat Island, or Island of Happiness, high profile projects such as the Louvre and Guggenheim museums are on track to open in 2014.

Manchester City

Abu Dhabi royal Sheikh Mansour bin Zayed Al Nahyan spent 210 million pounds in 2008 to take over Manchester City, allowing the English club to spend more than any other in European soccer on players.

Two hours down the road in Ras Al Khaimah, located 60 miles (97 kilometers) from Iran on the strategic Strait of Hormuz, hotels and malls are running on generators.

“We are definitely a burden for Abu Dhabi,” said Youssuf Al Naimi, chairman of the chamber of commerce of Ras Al Khaimah. “But it’s in Abu Dhabi’s best interest to help. If we succeed, the country benefits; if any of us fail, the country suffers.”

On June 14, the federal government said it would allocate 7 billion dirhams ($1.9 billion) of its budget to housing loans for citizens, a measure aimed at maintaining “social stability,” state-run Emirates News Agency reported. In March, the government announced a 5.7 billion-dirham package to fund water and infrastructure projects in the northern emirates.

‘Difficult Times’

“Abu Dhabi has paid and continues to pay a lot of money to Dubai,” said Ghanem Nuseibeh, founder of London-based Cornerstone Global Associates. “Now all the emirates expect that support will continue through these difficult times. Abu Dhabi will have to pay the bill.”

While the U.A.E. has been spared the violent civil unrest seen across the region, the government has taken steps to cap dissidence. Activists circulated an online petition in April demanding that seats on the Federal National Council be opened to universal elections. Five of the activists were arrested.

Kaddourah, the hospital manager, had planned to move into one of his new investment properties, though was forced to find a home elsewhere when the development was delayed.

“The property just finished now,” Kaddourah said in an interview. “What’s worse, I’ve had it listed on the market since 2007 and haven’t received a single inquiry. Not one.” At least two of his other properties are more than a year overdue with no sign of completion. “Talk to any investor in Abu Dhabi and they’ll tell you the same story,” he said.

--With assistance from Anthony Dipaola in Dubai and Tariq Panja in London. Editors: Rodney Jefferson, John Simpson

To contact the reporter on this story: Vivian Salama in Abu Dhabi at vsalama@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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