Abu Dhabi Ventures Into Aero-Space Industry Services & The Challenge Of Education.Few could doubt the grandiose ambitions of Abu Dhabi as the once sleepy emirate seeks to reinvent itself. The oil-rich capital of the UAE has already done deals which will see a Louvre and Guggenheim museums grace one island. Another island will host a grand prix race-track and Ferrari theme park. In July 2008 Abu Dhabi chose Farnborough airshow to announce to the world its ambitions in the aerospace industry.
(The UAE's oil export revenues - the bulk in Abu Dhabi - are expected in 2008 to exceed $100 bn, given the rising price of paper WTI. The official selling price of Abu Dhabi crude oil grades from January to June 2008 averaged $108.32/barrel, an increase of 73.6% compared to the same period in 2007. The UAE's oil reserves - the bulk in Abu Dhabi - are estimated to last another 92 years at current production levels and that the country's sustainable crude output capacity could increase by 9.1% to 3.11m b/d by 2013. Oil is being produced at only 18 of the 67 known fields in the UAE).
Etihad, Abu Dhabi's airline, has placed orders for 100 aircraft with options for a further 105, which could eventually be worth $43 bn. And the Abu Dhabi government-owned Mubadala Development Co. (MDC), an increasingly powerful investment vehicle, in mid-2008 announced plans for a facility which will manufacture high-tech aero-space parts for EADS, the parent of Airbus, and a JV with Rolls-Royce to provide engine maintenance services. The question is whether the emirate will deliver on its grand designs.
Officials say the ultimate aim in aviation is for Abu Dhabi to become a "tier one" supplier of parts to the two big manufacturers - Airbus and Boeing - and for the emirate to be an aero-space hub, providing a range of services from maintenance to component production.
The broader strategy is to diversify the oil-dependent economy and create jobs for young emiratis in specific sectors. There are plans for petrochemicals plants, aluminium smelters, steel plants and tourism projects. In effect Abu Dhabi is starting industries from scratch. And its transformation comes after decades during which its leaders tucked away most of the emirate's oil income in the Abu Dhabi Investment Authority (ADIA) - the largest SWF in the Middle East.
The aero-space industry is perhaps the most ambitious element of the strategy. In 2005 Abu Dhabi had plans to set up plants to manufacture auto parts; but that project never got off the ground, proving that money does not guarantee success.
As a sector, aviation is expanding in the Middle East, but Abu Dhabi will be competing with Dubai - which, through Dubai Aerospace Enterprise, has set itself the goal of creating a "global aerospace manufacturing and services corporation" and is ahead in terms of airlines and airports.
Mubadala CEO Waleed Ahmad Mokarrab al-Muhairi was on July 22 quoted as saying: "It's not for me to say whether the world and the pie isn't big enough for two players. I just don't know the answer to that. What I do know is we have a vision. We are executing as rapidly and as methodically as we can to realise that vision, and you are seeing the fruits of that".
Creating high-tech jobs for emiratis is crucial to the plan, but is highly dependent on reforms to the education system and its ability to train engineers. Given the small size of the indigenous population (about 420,000), it will still have to be able to attract skilled foreign labour. The FT on July 22, quoted a local banker as saying: "You start with a very small population and you have to ask how many graduates will be brain surgeons or top engineers. They are going to have to bulk up and attract people to [become] the regional brain hub. Then perhaps they have a chance".
Still, the scale of Etihad's plane orders gives Abu Dhabi some standing with the likes of Airbus. The banker said: "If you are one of the biggest purchasers and you are the new player, you have a much bigger pile of chips. You have to accept they are moving up the ladder; the question is how far they can get".
Mubadala has been building up the aero-space component of its portfolio for two years, and has stakes in Piaggio Aero Industries, an Italian company, and SR Technics based in Zurich. It is also sole owner of Abu Dhabi Aircraft Technologies, a maintenance company which will be involved in the JV with Rolls-Royce.
Muhairi says: MDC diversifies for "very specific" ends. In this case it's about the academic spill-over, it's about the R&D, it's about introducing the type of manufacturing culture we want to have. I think that all has unquantifiable value we would like to introduce into our economy".
Abu Dhabi, he says, takes a long-term view, adding: "We are patient, but we understand that the window of opportunity is not going to be open for ever. So if we're going to do stuff, we should do it sooner rather than later". Because most of the big projects are still in the early implementation stage, it is difficult to gauge which will succeed and which may fall by the wayside. Successful implementation will be the most daunting challenge. The telling time will be the next 24 months because some of these things should begin to show.