Abu Dhabi: The Capital of Prudence?

Abu Dhabi doesn’t look anything like a pinnacle of prudence. Construction cranes outnumber existing buildings in some parts of the capital of the United Arab Emirates. At the vast Capital Centre building site, just one of dozens scattered around the city, hoardings announce: “23 towers, 7 hotels, 1 world class exhibition centre.” Across the road, the Abu Dhabi National Exhibition Centre, having just hosted the World Future Energy Summit (the so-called Davos of renewable energy), is getting ready for February’s megagathering, the International Defence Exhibition & Conference 2011. Two suspiciously pharaonic projects, the Guggenheim Abu Dhabi and the Louvre Abu Dhabi, are in the works on Abu Dhabi’s Saadiyat Island (“one island, many masterpieces”). As the rest of the world struggles out of the Great Recession, Abu Dhabi’s grand ambitions beg the question: is all this really sensible?

It’s not as wild and crazy as it looks. Abu Dhabi is not Dubai. The two best known of seven emirates have taken very different paths in the 40 years since independence. Dubai is a port that grew into a business hub and financial center – and, like Wall Street or the City of London, was hit hard by the financial crisis of the last three years. Business sagged, construction slowed, rents dropped, expats left, and tourists cooled on the OTT Vegas-style hotels and manufactured beaches. In short order, stories about Dubai’s collapse spread around the world.

Abu Dhabi didn’t completely escape the financial blows, but it was cushioned against them. By oil, for one thing: sitting on over 90 percent of the UAE’s oil, Abu Dhabi possesses 9 percent of world reserves and has benefited from rising oil prices (up more than 20 percent over the past year). With GDP per capita behind only even tinier Luxembourg and another petrostate, Norway, Abu Dhabi has lavished guaranteed incomes-for-life and other extraordinary benefits on its citizens, who make up only 19 percent of the population, the rest being non-Emiratis. As Dubai shrinks, Abu Dhabi’s economy and its population of 1.6 million continue to grow: many expats who work in “AD” commute by car from Dubai, where housing is plentiful and rents lower.

Even though Abu Dhabi’s oil reserves are forecast to last through the century, the ruling Al Nahyan family is pouring billions into the diversification of its economy – from oil- to knowledge-based. The focus on higher education, homegrown entrepreneurs, renewable-energy research, and overseas investment is evident at Masdar, the state-funded renewable energy company. Its units include Masdar Capital, which invests in renewable and clean-tech companies around the world, and Masdar Institute (photo), a research-driven graduate school developed with MIT that offers full scholarships and stipends to national and foreign students. This is not an exercise in charity, says Masdar CEO Sultan Ahmed Al Jaber. “We’re here to make money. Financial sustainability is the number one item on our agenda,” he says, adding what could be, or should be, Abu Dhabi’s motto: “If you’re not financially sustainable, you can’t sustainable in anything else.”