ECONOMIC DEVELOPMENT - UAE Interact

76 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT77But prosperity is not merely a national issue since the UAE’s growth is inextricablylinked to regional and global conditions and, increasingly, to the existence ofbeneficial trading conditions. Free trade agreements, such as the FTA that hasbeen under negotiation with the United States, are expected to yield benefitsacross a broad front, leading to freer access to key markets while promotingtechnology transfers to the UAE’s private sector, boosting domestic industrialgrowth and hastening further economic diversification, thus helping to broadenthe economy. Such FTAs depend upon synergies in national economic policies.Based on constant prices for 2000, oil and natural gas production output grewby a relatively modest 2.9 per cent (limited by OPEC quotas), reaching Dh93.63billion in 2004, compared to Dh91.03 billion in 2003. However, when viewedat current prices the sector jumped by 33.8 per cent, from Dh92.14 billion toDh123.26 billion, tracking a 33.8 per cent increase in average oil prices in thatperiod. Taking the economy as a whole, the 7.4 per cent increase in GDP, measuredat 2000 constant prices, translated into a 17.8 per cent increase at current prices,with the GDP figure rising to Dh378.76 billion (US$103.2 billion) in 2004, comparedto Dh321.75 billion in 2003.The weighted average oil price in 2004 was US$36.10 per barrel, compared toUS$28.11 in 2003. In line with this, the value of oil exports increased by 34 per cent,from Dh81.2 billion in 2003 to Dh108.8 billion in 2004, while gas exports grewby 19.9 per cent to reach Dh17.2 billion. The export value of petroleum productsincreased by 16.7 per cent, reaching Dh15.2 billion. These increases were majorfactors in improving the overall balance of payments, achieving a surplus ofDh12.8 billion, compared to a surplus of Dh4.73 billion in 2003. The currentaccount balance showed an equally impressive increase, reaching Dh47.51 billionin 2004, compared to Dh27.73 billion in 2003, a 71 per cent rise.Continued development of the non-oil sector (9.4 per cent increase at constantprices and 11.2 per cent increase at current prices), reflects the Government’ssuccessful focus on economic diversification. The sector’s overall contribution toGDP remains high (71.7 per cent at constant prices and 67.4 per cent at currentprices). Whilst its overall role shows a small gain at constant prices, it is notsurprising, considering the sharp rise in oil prices, that there is a small decreasein the non-oil sector’s overall role in GDP when compared to its 2003 level on thebasis of current prices.When measured at constant (2000) prices the manufacturing sector showedthe highest growth rate among the non-oil sectors, rising from Dh39.2 billion in2003 to Dh45 billion in 2004, a 15 per cent increase. This was also reflected bya rise in its overall contribution to GDP from 13 per cent in 2003 to 14 per centin 2004. The manufacturing sector is closely linked to the oil and gas sector sincea key element is liquified gas and petroleum products. Thus the increase in refiningcapacity made a vital contribution to the manufacturing sector.Source: Central Bank of the UAE; Ministry of Planning; Customs Departments of Local GovernmentsSelected Economic IndicatorsPopulation (000) GDP in Current Prices (Dh billion) GDP at Constant 2000 Prices (Dh billion)Real GDP Growth Rate (%) Consumer Price Index (%) Employees (000)Final Consumption (%) Fixed Capital Formation (%) Total Exports & Re-Exports (Dh billiuon)Crude Oil Exports (Dh billion) Total Re-Exports (Dh billion) Total Imports (Dh billion)Trade Balance (Dh billion) Current Account Balance (Dh billion) Capital Account Balance (Dh billion)Balance of Payments Overall (Dh billion) Average Oil Price US$ per barrel) Average AED Exchange Rate (Dh per US$)2003 2004Population (000) 4,041 4,320GDP, in Current Prices, (Dh billion) 321.8 378.8GDP, at constant 1995 prices, (Dh billion) 301.3 323.6Real GDP Growth Rate (%) 11.9 7.4Changes in Consumer Price Index (%) 109.1 114.2Employees (000) 2,334 2,459Nominal Rate of Growth of Final Consumption (%) 10.5 14.1Nominal Rate of Growth of Fixed Capital Formation (%) 17.1 11.1Total Exports & Re-Exports (Dh billion) 1 246.56 303.90Crude Oil Exports (Dh billion) 81.22 108.79Total Re-Exports (Dh billion) 2 86.06 101.78Total Imports (CIF) (Dh billion) 3 191.24 226.18Trade Balance (FOB) (Dh billion) 78.26 104.86Current Account Balance (Dh billion) 27.73 47.51Capital and Financial Account Balance (Dh billion) -19.58 -21.21Balance of Payments Overall (Dh billion) +4.73 +12.83Average Oil Price (US$ Per Barrel) 28.11 36.10Dh Exchange Rate for each US Dollar 4 3.6725 3.6725* Preliminary estimates quoted in Central Bank Statistical Bulletin 23/ 41 Including Exports from Free Zones and Re-Export of Non-Monetary Gold.2 Including Re-Export of Non-Monetary Gold.3 Including Free Zones Imports and Non-Monetary Gold Imports.4 Effective Nov. 1997, the Dh Exchange Rate Has Been Adjusted to Dh3.6725 for Each US Dollar.

78 UNITED ARAB EMIRATES YEARBOOK 2006 ECONOMIC DEVELOPMENT79PUBLIC FINANCE 2004The Consolidated Government Finance AccountREVENUETotal revenues increased by 22.6 per cent in 2004 to Dh94.4 billion, against Dh77 billion in 2003, mainlydue to the increase in oil and gas earnings. Tax revenues (customs duties, other charges and revenues)increased by 31.4 per cent to Dh9.3 billion, compared to Dh7 billion in 2003, forming 9.8 per cent oftotal revenues. Customs revenues also rose by Dh591 million to reach Dh3 billion. Non-tax revenuesincreased by 21.7 per cent to Dh85.2 billion, against Dh70 billion in 2003, forming 90.2 per cent oftotal revenues. This was attributed to a rise of Dh16.6 billion (29.2 per cent) in receipts from oil andgas exports (Dh73.3 billion in 2004 against Dh56.7 billion in 2003). Likewise, profits of shareholdingcompanies rose by 13.2 per cent Dh3.3 billion in 2004, compared to Dh2.9 billion in 2003.EXPENDITUREExpenditure increased in 2004 by Dh3.8 billion (4.2 per cent) to Dh95.3 billion, against Dh91.4 billion in2003. Current expenditure constituted 84 per cent of total expenditure, realising Dh80 billion as opposedto Dh74.3 billion in 2003. Expenditure on salaries and wages rose by Dh325 million (2.1 per cent) toDh15.5 billion. Expenditure on goods and services also increased by Dh459 million to Dh24.3 billion.Expenditure on subsidies and transfers rose by Dh873 million (8.4 per cent) to Dh11.3 billion, and otherunclassified current expenditure increased by Dh4.1 billion (16.4 per cent) to Dh29 billion. Developmentexpenditure decreased by 3 per cent to Dh15.6 billion, against Dh16 billion in 2003. Meanwhile, at–Dh267 million, loans and equity participations declined by 123.2 per cent compared to 2003.THE DEFICITThe deficit narrowed by 94.1 per cent to Dh855 million in 2004, compared to a deficit of Dh14.4billion in 2003. This deficit was financed, in its entirety, by returns on government investments.MONETARY AND CREDIT POLICYDirham Exchange RateDue to its fixed peg to the US dollar, the dirham depreciated as a result of depreciation of the US dollaragainst most major currencies during 2004. Key depreciations were against the euro (9.2 per cent),the pound sterling (10.2 per cent), the Japanese yen (7.3 per cent), the Swiss franc (7.3 per cent) andthe SDR (IMF ‘Special Drawing Right’ basket of currencies) (5.5 per cent). The rate of exchange of thedirham remained unchanged against all GCC currencies at the end of 2004 compared to its rate atthe end of 2003.Dirham Exchange Rate Index(Foreign Currency Units Per Dirham) (2000=100)Currency 2000 2001 2002 2003 2004US Dollar 100.0 100.0 100.0 100.0 100.0Japanese Yen 105.0 123.0 121.8 112.9 104.7Euro 109.4 113.0 106.1 89.5 81.3Pound Sterling 106.3 112.0 106.8 98.7 88.6Swiss Franc 106.4 105.6 98.0 85.0 78.8SDR 104.0 107.8 106.0 98.1 92.7Millions of Dhs100,00080,00060,00040,00020,000TOTAL EXPENDITURETOTAL EXPENDITUREDEFICITTOTAL REVENUEDEFICIT02000 2001 2002 2003 2004Items In millions of Dh 2003* 2004**REVENUE 77,012 94,415Tax Revenue ...................................................................... 7,044 9,255Customs ........................................................................ 2,449 3,040Other ............................................................................ 4,595 6,215Non-Tax Revenue .............................................................. 69,968 85,160Oil and Gas ................................................................... 56,738 73,322Joint Stock Corporations ................................................ 2,935 3,322Other ............................................................................ 10,295 8,516EXPENDITURE 91,433 95,270Current Expenditure ............................................................ 74,253 79,986Salaries and Wages ........................................................ 15,159 15,484Goods and Services ........................................................ 23,801 24,260Subsidies and Transfers .................................................. 10,408 11,281Other Unclassified .......................................................... 24,885 28,961Development Expenditure ................................................... 16,028 15,551Loans and Equity Participation .......................................... 1,152 -267Local ............................................................................. -810 3,154Foreign .......................................................................... 1,962 -3,421Surplus (+) or Deficit (-) ............................................................. - 14,421 - 855Financing ............................................................................. 14,421 855Changes in net Government Deposits with Banks .......... 2,383 -1,574Other1 ........................................................................... 12,038 2,429Source: Central Bank Annual Report 2004 with data drawn from Ministry of Finance and Industry and Local Government Finance Departments*Adjusted data ** Preliminary data 1 Returns of government’s investments.

80 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT 81PUBLIC FINANCE 2003THE BALANCE OF PAYMENTSThe balance of payments achieved an overall surplus of Dh12.8 billion in 2004 compared to asurplus of DH4.7 billion in 2003. Both the trade balance and the current account reflected highersurpluses than in 2003, while the negative balance of the capital and financial account increased by8.3 per cent. Despite an increase by 18.3 per cent in value of total imports (FOB) compared to2003, the surplus in the trade balance rose by 34 per cent in 2004 to reach Dh104.9 billion. Thiswas mainly due to the increase in receipts from hydrocarbon sector exports, other exports and reexports,and accordingly the value of total exports and re-exports increased by 23.3 per cent toDh303.9 billion.The increase in value of hydrocarbon sector exports was attributable to increasedproduction volumes (partially related to increased refining capacity), improved gas productioncapacity and the expansion in production of condensates on the one hand, and to the increasein oil prices and hence prices of gas, condensates and petroleum products, on the other. Theweighted average price of oil rose from US$28.1 a barrel in 2003 to US$36.1 a barrel in 2004(a rise of 28.5 per cent). This, in turn, led to an increase in value of exports of oil (includingcondensates, which are not included in the country’s production quota set by OPEC) from Dh81.2billion in 2003 to Dh108.8 billion in 2004 (34 per cent) and in value of exports of gas by 19.9per cent, compared to 2003, to reach Dh17.2 billion. The value of petroleum products’ exports alsoincreased to Dh15.2 billion in 2004 against Dh13 billion in 2003 (16.7 per cent). The value ofcommodity exports, including the free zones, has continued to rise over the past few years, toreach Dh60.9 billion compared to Dh51.2 billion in 2003 (19.1 per cent). Free-zones’ exportsconstitute 80 per cent of the country’s commodity exports, valued at Dh48 billion in 2004.Moreover, the value of re-exports (including non-monetary gold) also rose from Dh86.1 billion in2003 to Dh101.8 billion in 2004 (18.3 per cent). A substantial portion of this increase reflectsgreater reliance by some GCC countries on the UAE’s seaports for imports, a phenomena that hasreceived a boost from establishment of the GCC Customs Union.On the other hand, the value of total imports FOB (including free-zone imports) increased fromDh168.3 billion to Dh199 billion. This may be attributed to rapid construction and buildingactivity, as well as rising domestic and external demand resulting from population increase andthe need to meet the requirements of re-exports. Imports per capita rose from Dh15,300 in 2003to Dh17,100 in 2004. Data on the structure of imports during 2004 show that consumer, capitaland intermediate goods maintained almost the same shares recorded in 2003, at 60 per cent, 30per cent and 10 per cent of total imports respectively. The geographical distribution of the totalvalue of imports shows that the European countries’ share dropped from 30.1 per cent in 2003to 29.8 per cent in 2004. Asian countries rose slightly to 45 per cent against 44.7 per cent in2003. It is noteworthy that countries in this group maintained the same respective shares as in2003. Meanwhile, the North American share declined from 9.9 per cent in 2003 to 9.6 per centin 2004.The balance of the current account rose by 71.3 per cent in 2004 compared to 2003, to reachDh47.5 billion.Estimates of UAE Balance of Payments (Dh bn)2003 2004*Current Account Balance ........................................................ 27.73 47.51Trade Balance (FOB) ............................................................... 78.26 104.86Total Exports of Hydrocarbon........................................ 108.57 141.18Crude Oil Exports .................................................. 81.22 108.79Petroleum Products Exports .................................... 12.99 15.16Gas Exports ........................................................... 14.36 17.23Total of Non Hydrocarbon Exports ............................... 51.93 60.94Free Zone Exports .................................................. 41.34 47.97Other Exports 1 ..................................................... 10.59 12.97Re-Exports 2 ................................................................ 86.06 101.78Total Exports and Re-Exports (FOB) ........................... 246.56 303.90Total Imports (FOB)..................................................... –168.29 –199.04Total Imports (CIF) ..................................................... –191.24 –226.18Other Imports 3 ..................................................... –147.93 –175.68Free Zone Imports ................................................. –43.31 –50.50Services (NET) ......................................................................... –33.27 –39.72Travel ........................................................................... –9.25 –10.58Transport...................................................................... –1.19 –2.12Government Services.................................................... 0.11 0.12Freight and Insurance................................................... –22.95 –27.14Investment Income (NET) ......................................................... –0.14 0.93Banking System 4 ......................................................... 1.66 2.72Private Non-Banks........................................................ 0.28 0.30Enterprises of Public Sector .......................................... 7.16 13.91Foreign Hydrocarbon Companies in UAE....................... –9.24 –16.00Transfers (NET) ........................................................................ –17.12 –18.57Public Transfers....................................................... –1.00 –1.50Workers Transfers ................................................... –16.12 –17.07Capital and Financial Account ............................................... –19.58 –21.21Capital Account 5 ......................................................... — —Financial Account ......................................................... –19.58 –21.21Enterprise of Private Sector..................................... 19.44 39.80Direct Investment............................................... 11.99 27.00Outward........................................................ –3.64 –3.70Inward .......................................................... 15.63 30.70Portfolio Investment........................................... — 7.35Banks................................................................ 1.05 –2.56Securities ...................................................... –6.55 0.40Other Investment .......................................... 7.60 –2.96Private Non-Banks ............................................. 6.40 8.01Enterprises of Public Sector..................................... –39.02 –61.01Net Errors and Omissions ......................................................... –3.42 –13.47Overall Balance: Surplus (+) or Deficit (-) .............................. +4.73 +12.83Change in Reserves (- indicates an increase).......................... –4.73 –12.83Net Foreign Assets with Central Bank ........................... –4.59 –12.97Reserve Position with I.M.F. .......................................... –0.14 0.141 Including estimates of exports from all emirates.2 Including re-exports of non-monetary gold.3 Including imports of non-monetary gold.4 Central Bank and all banks.5 Data not available at time of compilation.* Preliminary Estimates Source: Central Bank Statistical Bulletin Vol. 25 No. 1.

82 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT 83Selected Monetary and Banking Indicators* (Dh mn)INDICATOR 2003 2004 2005...................................................... (March)Central Bank of UAE......................Total Assets/Liabilities................. 54,502 67,639 70,656Foreign Assets and Gold Holdings 54,221 67,389 70,395Currency issued .............................. 15,969 18,492 19,045Liquidity Indicators*Money Supply (M1) .................... 58,262 80,818 94,236Private Domestic Liquidity (M2) .. 200,600 248,406 264,944Overall Domestic Liquidity (M3) .. 250,942 310,830 322,455Banks 1*Total Assets/Liabilities................. 366,908 450,020 497,472Foreign Assets ............................ 111,727 126,381 133,539Foreign/Total Assets (%)............. 30.5 28.1 26.8Foreign Liabilities ....................... 30,294 42,391 52,342Foreign/Total Liabilities (%) ........ 8.3 9.4 10.5Deposits 2* ..................................... 237,557 297,180 309,448Residents 2 .................................. 226,338 283,627 293,730Non-residents............................. 11,219 13,553 15,718Bank Credit (Net) 3 ......................... 192,675 255,599 288,043Residents ................................... 164,922 217,185 249,700Non-Residents............................ 27,753 38,414 38,343National Banks and Branches 4 .... 367 383 396Head Offices................................... 21 21 21Branches ........................................ 346 362 375Foreign Banks and Branches 5 ...... 112 112 112Head Offices................................... 25 25 25Branches ........................................ 87 87 87Number of Workers in UAE Banks 6 17,229 19,288 20,092Dh Millions1. Including the Restricted Licence Bank until 31/5/2003 4. Including Pay Offices2. Excluding Inter-Bank Deposits 5. Including a Pay Office3. Excluding Loans to Banks and Provisions 6. Excluding Auxiliary Staff* Including Deposits of UAE Residents Booked in Overseas Branches (Including Offshore Units) and Subsidiaries of National Banks Abroad.Source: Central Bank Statistical Bulletin Vol 25, No. 1360,000320,000280,000240,000200,000160,000120,00080,00040,0000Money Supply & Domestic Liquidity2003 2004 2005 (March)Currency with the PublicM1M2M3Millions of Dhs200,000150,000100,00050,0000Foreign Assets2004 2005 (March)Total Foreign AssetsNet Foreign AssetsEconomic Summary2003 2004*Population (000) .............................................................................. 4,041 4,320Workers (000) ................................................................................ 2,334 2,459GDP in current prices (billion Dh) .................................................... 321.7 378.8GDP Non Oil Sectors (billion Dh) .................................................... 229.6 255.5GDP At Constant 2000 Prices (billion Dh) ....................................... 301.3 323.6Per Capita GDP................................................................................ 74.6 74.9Gross Fixed Capital Formation (billion Dh) ...................................... 63.1 65.2Final Consumption Expenditure (billion Dh) .................................... 188.7 201.2Commodity Exports (billion Dh) ...................................................... 241.8 269.0Commodity Imports (billion Dh) ...................................................... 190.9 213.0Current Surplus Merchandise (billion Dh) ........................................ 51.0 56.0Inflation Rate (%) .......................................................................... 3.1 3.0*Preliminary Data Source: Ministry of Planning Report 2004.Economic Projections*(per cent unless otherwise indicated) 2005* 2006*Real GDP growth............................................................................. 6.8 6.4Oil production (‘000 b/d).................................................................. 2,462 2,525Crude oil exports (US$ m)................................................................ 34,923 31,678Consumer price inflation (av)............................................................ 3.3 3.0Deposit rate..................................................................................... 3.4 4.7Government balance (per cent of GDP)............................................. -0.5 -4.5Exports of goods fob (US$ bn).......................................................... 83.4 81.7Imports of goods fob (US$ bn).......................................................... 54.2 59.0Current-account balance (US$ bn).................................................... 14.8 8.3Current-account balance (per cent of GDP)....................................... 15.4 9.1External debt (year-end; US$ bn)...................................................... 28.4 30.5Exchange rate Dh:US$ (av)............................................................... 3.67 3.67*Source: Economist Intelligence Unit and Abu Dhabi Chamber Of Commerce & Industry - Information Centre.*predicted

84UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT85Other sectors grew by varying amounts and more or less kept pace with theoverall increase in GDP. The real estate and business services sector was the newrising star in economic terms, growing by 14.1 per cent (from Dh23.3 billion in2003 to Dh26.5 billion in 2004). Not surprisingly, restaurants and hotels werein a close finish for top pegging in the growth stakes, increasing by 12.2 per cent(from Dh5.7 billion in 2003 to Dh6.4 billion in 2004). The financial corporationsector also put in impressive growth, increasing by 11.2 per cent (from Dh18.9billion in 2003 to Dh21.1 billion in 2004). Other rising sectors were electricity, gasand water, which grew by 11 per cent (from Dh5.8 billion in 2003 to Dh6.4 billionin 2004); the transport, storage and communications sector, by 10.1 per cent(from Dh21.1 billion in 2003 to Dh23.3 billion in 2004); the agriculture, livestockand fishery sector, by 9.6 per cent (from Dh8.9 billion in 2003 to Dh9.8 billion in2004), and of course the construction sector, which rose by 6.6 per cent, fromDh23.8 billion in 2003 to Dh25.4 billion in 2004, ranking it the sixth largest sector,after: 1. oil and gas, 2. manufacturing, 3. wholesale, retail and repair, 4. governmentservices and 5. real estate and business services.POPULATIONThe UAE’s population is rising at a rate of around 6.9 per cent, reaching 4,320,000in 2004 compared to 4,041,000 in 2003. With output growth increasing at aslightly faster pace than population, GDP per capita (at constant 2000 prices)increased in 2004 to Dh74,900 against Dh74,600 in 2003. By the end of 2005there were almost five million people living in the UAE. A strong economy,healthy social development and political stability have supported a steady risein population, making the UAE one of the fastest growing nations on earth.Additional factors supporting this growth include the influx of foreign workers,a sharp drop in infant mortality and a comparatively higher birth rate.The new census (see chapter on Social Development), which will be completedby the end of 2005, will provide the Government with more accurate figures onwhich to base future socio-economic planning.The UAE’s diversification programme has focused on a number of key areas,including aviation, port facilities, tourism, finance and telecommunications. Ithas also vigorously pursued various trade and investment agreements, bothwithin the Gulf region and with the rest of the world. Free-trade zones, whereforeign companies are allowed 100 per cent ownership, have also encouragedinward investment. The country’s strong transportation and communicationsinfrastructure has provided a basis for creating one of the world’s key trade andtrans-shipment hubs.Buoyancy in industries such as tourism, construction, aviation and servicescontinue to fuel the UAE’s economy and several reports issue at the end of thefirst half of 2005 predicted growth rates for the year. A July report predicted agrowth rate of 5.9 per cent for the year with inflation forecast to reach a highof 3 per cent and to stabilise thereafter. This inflation spiral was attributed to aweakness of the US dollar along with high liquidity and low interest rates in UAE’smarkets. The UAE Government, concerned about inflation, is particularly aware ofits impact on lower and middle income groups and salaried consumers. It is seenas a problem that needs to be quickly solved in order to maintain market stabilityand to avoid a lending crisis in which consumers borrow more to spend more.As trading and business conditions remained positive for the UAE, forecasts ofgrowth rates (and inflation) were revised upwards in the third quarter. A report byfinancial analysts EFG-Hermes, issued on 31 August 2005, predicted an expansionrate of 6.6 per cent in 2005, compared to 7.4 per cent in 2004, but suggestedthat this will slow to 3.6 per cent in 2006. Meanwhile, consumer price inflationwas expected to surpass 6 per cent in 2005, up from 4.6 per cent in 2004, asrobust domestic demand continued to fuel inflationary pressures, particularlyin the real estate sector.Another economic think-tank, Business Monitor International, issued a report inAugust 2005 stating that the UAE’s real GDP would grow 6.2 per cent in 2005,fuelled by record oil prices, but would slow to 4.3 per cent in 2006 and 3.9 per centin 2007 as oil prices ease.THE ECONOMY IN 2005A report by the World Bank (Economic Developments and Prospects for the MiddleEast and North Africa, 2005) highlighted the UAE’s ‘marked success’ in reducingits dependence on oil. The UAE’s non-oil exports were 52.3 per cent of the totalin the five years from 2000 to 2004 compared to 31.9 per cent in the 1970s and29.5 per cent in the 1980s. ‘Greater diversification enables an oil exporter tomore readily mitigate some of the negative effects of oil price decline’, thereport’s authors remind us. With recent oil price trends up rather than down,the economy has received a double boost, not just from extraordinary growthin the non-oil sector but also from higher than budgeted oil revenues.ECONOMIC OUTLOOK FOR 2006At the time of writing this edition of the UAE Yearbook (third quarter of 2005),official government reports provide provisional figures for 2004 and preliminaryestimates for 2005 but do not generally go beyond that. A number of economic‘think-tanks’, however, make forward predictions using information currentlyavailable. Whilst these may prove imprecise as a result of unforeseen circumstances,they are interesting in so far as they calculate how present performance andeconomic decisions are likely to impact on future growth. In mid-2005 theEconomist Intelligence Unit (EIU) issued a report that predicted a continuedstrong economic performance for 2005/06.

86UNITED ARAB EMIRATES YEARBOOK 2006The EIU predicted that the UAE economy would expand at an average annualrate of around 6.5 per cent in real terms during the 2005/06 period. This wasexpected to be driven by industrial growth, both in the oil sector where rises inproduction rates and prices of oil should play significant roles and, moreespecially, in the non-oil industrial sector where investment in manufacturingand heavier industrial projects (focused mainly on energy-intensive sectors suchas petrochemicals and metals) is likely to bring new capacity on-stream. At thesame time, competitiveness of UAE exports was being bolstered by the weaknessof the US dollar, further adding to growth-rate expectations. The EIU predictedthat domestic and foreign investment in new projects would remain strong, ‘whilecapital spending on real estate and infrastructure schemes (including new roadsand high-profile programmes such as the proposed Dubai Light Railway) will alsostay high’. The service sector was expected to attract significant investment, stronglyinfluenced by growth in tourism, which has already shown impressive potentialdespite regional uncertainties. Population increase should continue to underpinstrong domestic demand, as will the public and private sector salary increases.Overall performance in 2006 will continue to be linked to oil prices and the‘feel good’ factor will remain with spending expected to rise rapidly over theforecast period, fuelled in part by a general increase in salaries, together with risesin capital expenditure. Total spending is expected to grow by an annual average ofaround 10 per cent over the 2005/06 period.LOOKING FURTHER AHEADIn recent years, the UAE economy has, to a marked extent, become less dependenton oil and gas. Thus, according to Central Bank figures, the contribution of thenon-oil sector to GDP has risen from 54 per cent in 1990 to 71 per cent in 2004.While the continued upturn in oil prices has affected this ratio in recent years,the actual value of the non-oil sector continues to show impressive growth, and itis clear that the UAE has achieved considerable success in diversifying its sourcesof income.Diversification of the UAE’s economy will continue to play a vital role inmaintaining growth and stabilising the impact of oil production or price fluctuations.Continued efforts will be made to attract foreign direct investment, and indicationsare that these efforts will continue to bear fruit, becoming increasingly significantcontributors to economic growth. Dubai, in particular, will concentrate ondiversification in order to offset its dwindling oil income. Abu Dhabi’s focus onindustrial growth will also show positive results. This will not, of course, makeoil and gas unimportant, since the revenues they provide are, and will remain,the basic source for the financing of the national economy and for funding thenecessary infrastructure in other sectors.

88UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT89Abu Dhabi, blessed with over 90 per cent of oil and natural gas reserves inthe UAE, is likely to maintain its focus on upstream hydrocarbon resources anddownstream industrial projects, especially in the petrochemicals sector. It is likelyto continue to exert the greatest influence over the Federation’s public financesand to remain at the forefront of the privatisation process.Manufacturing industry will play an increasingly important role in the nationaleconomy in future. Among reasons for this are the existing availability of basicessentials such as infrastructure and communications, as well as the availabilityof resources to fund the acquisition of the appropriate technology. Moreover, inother sectors, there are limited opportunities for investment.Abu Dhabi Securities MarketNumber of Traded Shares Value of Traded Shares Number of Executed Deals2003 2004 2003 2004 2003 2004Banking Sector 96,535,497 368,808,694 1,633,280,694 7,341,902,392 11,891 32,570Services Sector 24,118,397 129,592,613 1,392,174,040 6,022,297,000 9,355 29,010Industry Sector 102,599,755 416,509,340 264,692,912 1,699,893,486 2,677 17,854Hotels Sector 2,388,776 2,120,720 256,458,801 290,961,845 492 709Insurance Sector 9,559,250 30,126,167 140,356,655 988,600,943 1,019 3,203Total 235,201,675 947,156,864 3,686,963,102 16,343,637,666 25,434 83,346FINANCIAL SECTORThe World Bank’s ‘financial governance effectiveness table’ places the UAE at thetop of Middle Eastern countries with a score of 86.1 per cent, followed by Omanwith 79.3 per cent, Qatar with 78.4 per cent, Bahrain with 75.5 per cent and SaudiArabia with 55.3 per cent. The World Bank defines governance as ‘the set oftraditions and institutions by which authority in a country is exercised’. The highera jurisdiction scores, the better its governance ranking.Confidence in financial regulation in the UAE has helped to spur growth in thecountry’s young but extremely active stock markets. Further development tookplace in 2005, maintaining the unprecedented growth rate of the local investmentmarket that has the been the pattern since the establishment of Abu DhabiSecurities Market, together with Dubai Financial and International Financial Markets.The most recent addition to the financial sector is the groundbreaking DubaiInternational Financial Exchange (DIFX), which opened its doors in September2005 and is accessible to investors worldwide.Banks 44.9%Services 36.8%Industry 10.4%Hotels 1.8%Insurance 6.1%Dubai Financial MarketNumber of Traded Shares Value of Traded Shares Number of Executed Deals2003 2004 2003 2004 2003 2004Banking Sector 28,628,301 94,735,965 1,240,244,799 6,651,049,458 5,368 19,705Services Sector 274,975,888 4,706,278,948 2,330,160,204 40,562,880,120 17,157 175,861Insurance Sector 321,185 4,647,700 6,775,238 155,662,487 96 857Investment Sector 22,310,687 316,457,014 194,310,877 3,084,228,618 2,655 19,551Total 326,236,061 5,122,119,587 3,771,491,118 50,453,820,682 25,276 215,934ABU DHABI SECURITIES MARKETAbu Dhabi Securities Market (ADSM) (www.adsm.co.ae) recorded marked growthin all performance indicators during 2004. Trading volume increased by 343per cent, the number of traded shares rose by 303 per cent and the number ofexecuted deals by 228 per cent, compared to 2003. The number and marketcapitalisation of listed companies have also increased.Trading volume reached Dh16.34 billion, up from Dh3.69 billion at the end of2003. The banking sector ranked first, forming 44.9 per cent of the market’s totaltrading volume. The services sector ranked second with a ratio of 36.8 per cent,followed by the industry sector with a ratio of 10.4 per cent and the insurance sectorwith a ratio of 6 per cent and, finally, the hotels sector with a ratio of 1.8 per cent.The ADSM price index reached 3070.9 points at the end of 2004, an increase of74.8 per cent. Price increases were led by the industry (92.9 per cent increase), andBanks 13.2%Services 80.4%Investment 6.1%Insurance 0.3%

90UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT91followed by banking (86.9 per cent), services (67.5 per cent), insurance (55.3per cent) and the hotels sector (48.2 per cent).In addition to its main trading floor in Abu Dhabi City, Abu Dhabi SecuritiesMarket also operates trading floors in Sharjah and Ra’s al-Khaimah and has plansto open a branch in Fujairah.In June 2005 ADSM launched a short messaging service (SMS) providing investorswith confirmation of their buying and selling orders when they are executed bythe clearing house. The SMS gives details of the number of shares traded and theprices at which the deals are executed.DUBAI FINANCIAL AND INTERNATIONAL FINANCIAL MARKETSThere was a marked increase in trading volume in 2004, with the total valuereaching Dh50.45, compared to Dh3.77 billion at the end of 2003. In terms ofsectoral contribution to trading volume, the services sector ranked first with a ratioof 80.4 per cent of the total by the end of 2004. The banking sector ranked second(13.2 per cent), followed by the investment sector (6.1 per cent) and the insurancesector (0.3 per cent). The local stock market in Dubai (DFM) (www.dfm.ae) had31 companies listed in mid-2005.In June 2005, the Dubai Financial Services Authority (DFSA), the independentregulator of the Dubai International Financial Centre (DIFC), announced three newmodules of rules relating to the functioning of the Dubai International FinancialExchange (DIFX) which was launched in late 2005. The Securities moduleintroduced regulatory rules for the offering of securities in or from the DIFC,and spelled out the regulatory role of DFSA in the listing process. These have beenvital steps towards creating a fully functioning capital market in Dubai, operatingunder world-class regulatory standards.Dubai International Financial Exchange (DIFX), which was officially launched on26 September 2005, is the region’s first cross-border stock exchange. Both regionaland foreign companies are listed. DIFX has set itself the aim of becoming theleading international stock exchange located between Western Europe and EastAsia. Its standards will be comparable with those of leading international stockexchanges in New York, London and Hong Kong. It will deal in equities, bonds,funds, Islamic products, index products and derivatives. DIFX is located in theDubai International Financial Centre (DIFC), a financial free zone which openedfor business in 2004.There are many aspects to the role the Central Bank plays in supporting thenational economy of the United Arab Emirates. In addition to acting as bankerto other banking institutions operating in the country, it is also the banker andfinancial adviser to the government. Central Bank assets grew by Dh13.14billion in 2004, to reach Dh67.64 billion, a 24.1 per cent increase on the assetsheld at the end of 2003. Its profit rose to Dh801.9 million in 2004, comparedto Dh559.2 million in 2003, a 43.4 per cent rise in profit.There were 21 locally-incorporated banks registered in the UAE in 2004, whileforeign banks operating in the company had 25 head offices and 87 branches. Inall, there were 50 representative offices of foreign banks at the end of 2004.BANKINGIt is the responsibility of the Central Bank, the country’s regulatory authority, toformulate and implement the UAE’s banking, credit and monetary policy in orderto support the UAE’s economic policy objectives, including price stability, andto guarantee the value and stability of the UAE dirham and its free convertibilityinto all currencies.Banks Operating in the CountryThe aggregated balance sheet of banks operating in the country grew by Dh83.11billion (22.7 per cent) to Dh450.02 billion at the end of 2004, up from Dh366.91billion at the end of 2003. Cash and deposits with the Central Bank increased byDh11.23 billion (41.2 per cent) to Dh38.52 billion at the end of 2004. Net foreignassets of banks reached Dh83.99 billion at the end of 2004, recording an increaseof Dh2.56 billion (3.1 per cent). Credit extended by banks operating in the countryincreased by Dh60.71 billion (26.9 per cent) to Dh286.72 billion, against anincrease by Dh35.12 billion (18.4 per cent) recorded in 2003. Growth in this itemat the end of 2004 had mainly occurred in credit extended to residents, whichrose by Dh50.05 billion (25.4 per cent) to reach Dh246.95 billion. Credit extendedto non-residents also rose by 36.6 per cent to Dh39.77 billion.Increase in credit to residents mainly occurred in loans, advances and overdrafts,which rose by Dh47.63 billion (26.4 per cent). The bulk of this increase went toindustrial and trading enterprises, which accounted for 59.2 per cent of total loans,advances and overdrafts.The increase in receipts at the end of 2004 mainly occurred in residents’deposits, which rose by Dh57.29 billion (25.3 per cent). Non-residents depositsalso increased by Dh2.33 billion (20.8 per cent). Meanwhile, government depositsconstituted 18.3 per cent, and public sector and other deposits constituted 8.2per cent and 4.1 per cent respectively.Excluding government deposits and commercial prepayments, total depositsclassified according to type reflected an increase in current deposits by Dh25.57billion (44.2 per cent). Deposits in local currency increased by Dh30.75 billion(22.8 per cent), while deposits in foreign currency rose by Dh16.04 billion (27.3per cent).An analysis of banks’ capital position at the end of 2004 shows that the total ofcapital and reserves accounts reached Dh52.46 billion, an increase of Dh8.01 billion(18 per cent) compared to the end of 2003.

92 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT93Business Competitiveness RankingWORLD ECONOMIC FORUM: GROWTH COMPETITIVENESS INDEX1401301201101009080706050403020100Finland0FranceAustriaSwedenSingaporeSouth AfricaCzech Rep.NorwayIndiaKorea, RepGrowth and Competitiveness RankingsGhanaBrazilKuwaitQatarUnited Arab EmiratesSri LankaKenyaPakistanBahrainThe great strides that have taken place in economic growth in the UAE and thecompetitiveness on which it depends in an increasingly-globalised world have beenrecognised in the 2005 World Economic Forum Report. In formulating the range offactors that go into explaining the evolution of growth in a country, the Reportidentifies ‘three pillars’: the quality of the macroeconomic environment, the stateof the country’s public institutions and the level of its technological readiness. TheGrowth Competitive Index (GCI) uses a combination of hard data – e.g. universityenrolment rates, inflation performance, the state of the public finances, the natureof the regulatory environment, the level of penetration of new technologies, suchas mobile telephones and the Internet, and less quantifiable data such as judicialindependence and government efficiency. These various factors are brought togetherunder different subindexes, each capturing a different aspect of the growth process(e.g. the importance of contract and law, the stability of the macroeconomicenvironment) and are aggregated to give an overall competitiveness score.The 2005 GCI Index ranks the UAE eighteenth in the world with a high score of4.99, (the United Kingdom, for instance is in thirteenth place and Germany infifteenth) and at the top of the list of the Gulf Cooperation Council (GCC) countries(Qatar is nineteenth, Kuwait thirty-third and Bahrain thirty-seventh). According tothe Report, the UAE is ’going through a particularly good phase. Terms-of-tradeEgyptZimbabweCameroonNigeriaPeruBulgariaAlgeriaBeninKyrzyg Rep.MoldavaBoliviaAlbaniaHonduras20 40 60 80 100 120Growth Competitiveness Rankinggains have boosted growth rates and reinforced already high levels of confidencein the business community, resulting from ongoing institutional modernizationand improvements in macroeconomic management.’ The Report also commentsfavourably on the fact that the Government has made good use of the revenuefrom higher oil prices ‘to reduce debt, to invest and to save’.The Business Competitiveness Index (BCI) specifically measures two areas that arecritical to the microeconomic business environment: the sophistication of companyoperations and strategy and the quality of the national business environment,especially in relation to the transparency of the environment, the level of bureaucracyand the strength of the financial markets. The BCI ranks the UAE at thirty-third,again high up in the list of developing countries and topping the list of GCC countries.It is thirty-sixth in the company operations and Strategy ranking and thirty-thirdin quality of the national business environment ranking. The Technology Index (TI)ranks the UAE thirty-third on a world scale, again the highest-ranked GCC countrywith Qatar at fortieth, Bahrain at forty-first and Kuwait at forty-eighth. TI measuresInternet access to schools, frequency of interruptions, government priority in ICT,personal computer and Internet users per capita. At company level, technologicalabsorption has been among the most advanced and public access to the Internethas grown rapidly and is one of the highest in the region.

94UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT95THE BUSINESS ENVIRONMENTFollowing years of success in promoting diversification of the UAE’s economy andcreating numerous opportunities for private investment in UAE-based businesses,leading government officials and finance experts are the first to admit that there isstill considerable scope for investment growth, both through encouragement ofprivate national investment in the UAE and through further attraction of foreigndirect investment (FDI). The latter climbed five-fold in the three years from 2000to 2004, reversing the trend of the 1990s. In 2004, about US$9 billion (Dh33billion) of FDI flowed into the country, and the IMF projected inflows of US$10.3billion for 2005. But it is also clear that business opportunities and incentivesby themselves are not enough to promote investment. Attention has, therefore,been focused on creating an even more positive business environment that adoptsbest practice methods and appropriate legal frameworks and is transparent.Much progress has already been made in this regard. The World Bank hasidentified the UAE as one of the least cumbersome countries in which to set upa new business. According to a recent report, the World Bank stated that only29 days is needed to set up a new business in the UAE, whereas the averageperiod for the Middle East and North Africa (MENA) region is 60 days. The reportestimates the cost of setting up a new business (as a percentage of gross percapita national income) in the UAE at 24.4 per cent compared to the MENAaverage of 76.1 per cent. Again, at ten procedures for setting up a new business,the UAE is also lower than the MENA average of 12.The Washington-based Heritage Foundation’s Economic Freedom Index for2005, published annually in the Wallstreet Journal, ranked the UAE the highestin the Arab world, with a score of 2.68 out of 5.00, and lists it in the ‘mostly free’category. It ranked in the top third of the 161 countries assessed.Foreign investment has, to some extent, been affected by legislation thatprohibited non-nationals owning more than 49 per cent of registered enterprises.However, 100 per cent ownership by non-nationals is permitted in free zones andexpatriate ownership of real estate, pioneered in Dubai, is now possible, undercertain circumstances, in other emirates, including Abu Dhabi.The Emirate of Abu Dhabi has made further progress with its long-term strategyto diversify its economic base and reduce its dependence on volatile oil and gasrevenues. Creation of the Higher Corporation for Specialised Economic Zones(HCSEZ) was a major step in a series of measures to promote diversification. Thenew corporation aims to provide an integrated infrastructure, a suitable businessenvironment and professional services through establishing and managing specialzones in Abu Dhabi. The objective is to make the emirate an attractive place forlocal and international investment. Other objectives include the promotion of localindustries and the creation of appropriate opportunities to attract and train UAEnationals so that they may play an active role in business development. Thecorporation will also seek to develop and encourage small, medium and specialisedindustries and will encourage the private sector to become involved in themanagement of the zones. This will be done, in part, through the commissioning offeasibility studies and investment in the appropriate electronic and IT infrastructure.Investment in the UAE’s industrial sector increased by 44.3 per cent in 2004to nearly Dh6.3 billion, compared to Dh4.3 billion in 2003. Industrial zones andindustrial cities are transforming the face of the UAE’s manufacturing and industrialbase. The success of projects such as Abu Dhabi’s new Industrial City is fuellingexpansion plans that are often implemented almost as soon as the initial projectsare completed. Consideration has been given to doubling or tripling the area ofthe Industrial City, which presently covers about 24 square kilometres and hasattracted Dh6 billion in terms of investment. Meanwhile, smaller enterprisesare not being forgotten and a special SME unit has been established to promotesuch operations. The Department of Economy and Planning’s licensing systemshave been simplified to streamline registration procedures, and it is now possibleto secure trade licences through the department’s website and an SMS servicethat informs customers when their documents are ready.The Abu Dhabi government is also privatising a number of state-ownedcompanies. This is being handled through the General Holding Company (GHC),which has taken over the industrial holdings of the General Industries Corporation,which has been wound up. Resolution No. 5 for 2004 provided the legal andorganisational framework for the take-over. The new body is undertaking saleof stakes in public utilities to the private sector as part of the emirate’s strategyto forge a public-private partnership and stimulate local financial markets. Thecompanies to be privatised include fodder, cement, steel and pipe plants andflour mills. The privatisation programme has already had a positive impact onthe local stock markets as the newly privatised firms obtain listings.Industrial development is continuing throughout the UAE. The master plan forDubai Industrial City was completed in mid-2005. The new ‘city’ will promotegrowth of the sector through clustering of industrial activities, establishment ofa dedicated industrial growth fund, an international engineering academy, adedicated logistics zone and a commercial area that will extend along the EmiratesRoad. Additionally, residential communities and retail developments with high risetowers, boardwalks, a canal, piers and promenades will enhance this development.One particular focus of interest, not surprisingly, is the oilfield supply sectorwhere a major dedicated complex is planned. Nearly 530 companies in Abu Dhabiare already active in this sector in various ways, with annual turnover of overUS$1 billion. In order to attract the necessary foreign investment, the Abu Dhabi

96 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT 97Free Zones and Commercial ClustersFOLLOWING ON FROM the development and steady expansion of the UAE's first free-trade zone at Jebel Ali, andthe success of other specialised zones that provide attractive facilities for both national and internationalinvestors, it has been clearly demonstrated that the free-zone formula is an effective magnet for inwardinvestment, bringing jobs, expertise and a significant boost to the national economy. The basic recipe (100%foreign ownership, corporate tax holidays, no personal taxes, freedom to repatriate capital and profits, noimport duties or currency restrictions) differs only slightly among the various zones whose comparative assetsare based more upon individual locations, facilities, areas of specialisation and, last but not least,establishment and operating costs. A list of current free zones and their main areas of activity is given below.JEBEL ALI FREE ZONEMajor Dubai base for warehousing and regional distribution by multinationalcompanies. Features manufacturing, trading and services companies includingmany global leaders.DUBAI AIRPORT FREE ZONEHigh tech, IT products, luxury items, jewellery, light industries, aviation industryrelated businesses.DUBAI INTERNET CITYPart of Dubai Technology and Media Free Zone (TECOM). Information technologyand telecommunications centre. Internet related businesses.DUBAI MEDIA CITYPart of TECOM. Market segments include publishing, broadcasting, film productionand post-production, media and marketing services, specialised media services,business and information services, music, new media and multimedia/Internet,leisure and entertainment, media support service and providers, business supportand consultancy services.DUBAI METALS & COMMODITIES CENTREGold, diamond and commodities trading, gold refining, manufacture of goldjewellery, gold trading, diamond exchange.GOLD & DIAMOND PARKDubai located retail and wholesale manufacture and trade in gold and diamondjewellery.KNOWLEDGE VILLAGEPart of TECOM in Dubai. Education and training hub, eLearningcontent/systems/service providers, international academic institutes andprogrammes, academic services and support providers, professional trainingcentres, management development centres, research and development centres,innovation centres, training and education freelancers.HAMRIYAH FREE ZONEMajor industrial zone in Sharjah serving companies involved in general industrialdevelopment, manufacturing, processing and assembling.SHARJAH AIRPORT INTERNATIONAL FREE ZONEImport of raw materials, manufacturing, processing, assembling, packaging andexporting the finished product. General trading and associated services.AJMAN FREE ZONEGeneral trading, professional services, industrial production.AHMED BIN RASHED FREE ZONELocated in Umm al-Qaiwain, catering for companies involved in general trading,management and consultancy services, light industrial production.RA’S AL-KHAIMAH FREE TRADE ZONEEnvironmentally friendly projects in the service, manufacturing and industrial sectors,with high emphasis placed on attracting technology oriented enterprises. Zone splitinto business, technology and industrial centres.FUJAIRAH FREE ZONEGeneral trading (import, export & re-export of agreed and specified commodities),manufacturing, warehousing.DUBAI HEALTH CARE CITYHealthcare industries and services. Healthcare professionals and service providers.DUBAI CARS & AUTOMOTIVE ZONERe-exporting used cars.DUBAI AID CITYLocal, regional and international, relief aid community donors, relief aid suppliersand organisations within the humanitarian value chain.DUBAI TECHNO PARKDubai located Technology Park. Key areas to include desalination, oil and gas,biotechnology, pharmaceuticals, agrotech and material science, university researchand technical services, engineering and R&D projects.DUBAI AUTO PARTS CITYAutomobile spare parts companies. Tyres, auto batteries, and accessories.DUBAI TEXTILE CITYTextile industry companies.HEAVY EQUIPMENT AND TRUCKS FREE ZONEA Dubai located zone dealing in re-exports of trucks and heavy equipment.DUBAI FLOWER CENTRE FREE ZONEHorticulture industry, global trade in flowers and perishables.DUBAI CARPET FREE ZONEHandmade carpet companies.DUBAI OUTSOURCE ZONEWill provide comprehensive infrastructure and environment for outsourcing firms toservice worldwide market.

98 UNITED ARAB EMIRATES YEARBOOK 2006government is in the process of revising local commercial and investment legislationto ensure that it complies with the requirements of the World Trade Organisation.Chambers of Commerce such as the Abu Dhabi Chamber of Commerce andIndustry (ADCCI) provide a host of other services to business people in the UAE,including libraries, information centres, business centres, legal services divisions,commercial conciliation and arbitration centres, business women’s councils andtraining institutes. The ADCCI has played a vital role in business growth in the UAE.Membership is on a steady climb with the total at the end of June 2005 reaching49,253, of which 32,994 were in the commercial category; 14,214 professional;1713 vocational and 332 involved with industry.But business growth is no longer focused exclusively on developments withinthe country. Whilst the Emirates have for many years invested a substantial portionof their wealth in international stock markets they have recently taken a moreproactive stance, investing not just their money, but also their management skillsand experience gained in one of the world’s fastest growing economies, to extendactivities of UAE-based companies beyond the shores of Arabia. In December2004 Dubai Port Authority purchased CSX Corp.’s Hong Kong internationalcontainer terminal business for US$1.15 billion. In June 2005 Etisalat, bought a26 per cent management stake in Pakistan Telecommunication Co. (PTC.KA).In July 2005 Jumeirah, a hotel unit of the Dubai government which operates eighthotels, including two in London and Dubai’s iconic Burj Al Arab, announced plansto spend Dh90 million to launch its new brand name that will target the luxuryhotel market presently served by companies such as Four Seasons Hotels Inc. (FS)and Singapore-listed Mandarin Oriental International (M04.SG). Jumeirah was alsoawarded the prestigious contract for management of the new Dubai Towers – Doha.The contract forms part of Jumeirah’s expansion strategy. Similar expansion hasoccurred in the oil industry with strategic purchases of exploration rights, operatingoil and gas companies, refineries and distribution networks.FREE ZONESFollowing on from the development and steady expansion of the UAE’s first freetradezone at Jebel Ali, and the success of other specialised zones that provideattractive facilities for both national and international investors, it has been clearlyestablished that the free-zone formula is an effective magnet for inward investment,bringing jobs, expertise and a significant boost to the national economy. The basicrecipe (100 per cent foreign ownership, corporate tax holidays, no personal taxes,freedom to repatriate capital and profits, no import duties or currency restrictions)differs only slightly among the various zones whose comparative advantages arebased more upon individual locations, facilities, areas of specialisation and, last butnot least, establishment and operating costs.

100 UNITED ARAB EMIRATES YEARBOOK 2006The free zones are key elements of the diversification, industrialisation anddevelopment strategy of each emirate. They have played positive roles in promotingforeign direct investment (FDI). There are more than 3000 companies in thevarious free zones across the country, with an estimated investment of aroundDh15 billion. Multinational corporations rank UAE relatively high in the West Asianand Arab region as an FDI destination. However, the majority of the units in thefree zones are not manufacturing establishments. Although the dominating activityin the free zones is warehousing rather than manufacturing, operations takingplace in the warehouses located within free zones often add value by preparingmerchandise for its final markets. Such activities include re-packaging, re-labelling,sub-assembly, bar-coding, quality control, palletisation and unitisation.E- AND M- MARKETINGThe UAE has the largest number of per capita Internet users in the entire Gulf.The country registered 72 per cent growth in its domain registration in 2004over 2003. Indeed, its domain appendage ‘.ae’ is now increasingly popular.Meanwhile, many companies based in the UAE use the global domain nameregistrations of .com or .net.In addition to a highly active Internet usage, the UAE has one of the highestmobile phone penetrations in the AGCC region and it is still growing. In June2005 Etisalat announced that its UAE mobile network user total had crossed thefour million mark, giving it one of the highest mobile phone penetration rates inthe world. M-commerce (commerce via mobile phones) has an enormous potentialfor B2C (retail) because such wireless connectivity requires less investment and thecosts for connectivity via SMS are particularly low.Considering the significant focus the UAE Government and private enterpriseshave given to promotion of modern technology in administration and businessdevelopment, it is not surprising that the country has taken the lead in certainaspects of online marketing. The leading e-commerce, business-to-business (B2B)web-marketing and auctioning company in the Middle East is UAE-based awardwinningwebsite www.tejari.com.Tejari is a B2B marketplace that allows companies to buy and sell goods andservices online. Through Tejari, buyers can find, compare and procure productsand services from the familiarity and convenience of their desktop Internetbrowser. Suppliers can list their products and services and sell them throughonline catalogues or auctions.In 2004, Tejari reported that total value of transactions recorded through theonline marketplace since its launch has reached more than US$1 billion. Thecompany’s CEO, Sheikha Lubna Al Qasimi, who is also Minister of Economy andPlanning, has been widely recognised as one of the region’s most influentialbusiness leaders. Currently Tejari has well over 2500 trading partners from all

102UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT103different sectors, including automotive, healthcare, construction, IT, food andbeverage, and tourism. Use of the Internet among procurement agencies is rapidlyincreasing with 17 per cent of organisations within the Gulf Cooperation Council(GCC) states engaged in online procurement. The average GCC resident purchasesUS$1068 worth of goods and services online annually, compared to per capitapurchase figures of US$1314 in the United States of America, US$1072 in the UK,and US$875 in Germany.Other active e-marketing operations are www.UAEmall.com, which is especiallypopular for buying and selling second-hand cars and works by introducing buyersand sellers rather than direct selling, and a number of share-trading providerssuch as EMAAR Financial Services, which has teamed up with Amlak FinancePJSC to deliver the UAE’s first online real-time, e-trading and mobile phone-basedtrading service.INDUSTRIAL DEVELOPMENTThe UAE’s main industrial manufacturing activities, apart from the oil and gassector which is covered elsewhere, are in construction, aluminium, chemicals andplastics, metals and heavy equipment, ceramics, clothing and textiles, and food.As already indicated, each emirate in the UAE has taken steps to nurture thedevelopment of these (and other) non-oil industries, both in terms of providingattractive structures and support mechanisms and through development ofimproved facilities such as industrial zones, business parks and vital energy andtransport networks.The UAE Government has also been working to establish major new free-tradeagreements with a number of countries. Negotiations for such an agreement withthe United States were actively under way in mid-2005. The UAE is keen that FTAsshould enhance economic competitiveness on the basis of free and fair trade.MANUFACTURINGThe UAE’s manufacturing sector contributes roughly 14 per cent to GDP and is thelargest non-oil economic sector in the country. Growth in manufacturing has beenimpressive, showing a 15 per cent increase in 2004, reaching Dh45 billion. Theimpetus for growth has come from an increase in population and demand forconsumer goods on the one hand, and expansion of the free zones and foreigndirect investment in the country on the other hand. In 2004 there were 3036manufacturing establishments registered with the Ministry of Finance and Industry,compared to 2795 in 2003. Indeed, the manufacturing sector now accounts forroughly one-fifth of the entire non-oil economy. Not only is local manufacturingcatering to increasing demand from the domestic non-oil economy, but it is alsoestablishing a foothold in international export markets.The current trend in UAE manufacturing, particularly in the free zones, is tomove up the supply chain, focusing on less labour-intensive and high valueaddedactivities in the manufacturing process – even if it means that the coremanufacturing process may be outside the country. One example is the case ofthe garment industry, which because of its labour intensity, is losing marketshare to lower cost locations in the region. However, as garment manufacturing inUAE declines, the country is using its experience, expertise and specialisationin the industry to move higher up in the garment supply chain, specialising inreplenishment trade for the European and American markets, as a large regionalwarehouse where value-addition activities take place and as a ‘showroom’ forforeign manufacturers. A similar situation has arisen in Hong Kong, whichshowcases and markets goods made in mainland China, a pattern that is nowbeing emulated in Dubai.The structure of the manufacturing sector in UAE has not changed significantlyin the last decade, with the possible exception of the decline of the garmentindustry. Total manufacturing employment grew at an average of 8.7 per centin 2004 over 2003. The wood and furniture sector labour force led the way witha 15.3 per cent expansion, followed by non-metallic mineral products with a13.8 per cent growth, whilst food and beverages increased by 10.9 per cent. Asdiscussed above, the only sector to show a decline in employment figures was thetextile industry. By far the largest sector, in terms of both value and employees, isthe metal products and machinery sector, which employed 58,334 people in2004, a growth of 10.2 per cent over 2003 figures.REORGANISATION OF ABU DHABI GOVERNMENTA new legislative framework for government organisation in Abu Dhabi was putin place in December 2004. Law No. 10 of 2004 amended the provisions of LawNo. 1 of 1974. Changes included the merger of the Departments of Purchasing andCustoms into the Department of Finance; the Departments of Public Works, Al AinMunicipality and Town Planning together with Abu Dhabi Municipality and TownPlanning and Agriculture and Animal Resources in Al Ain were all merged into asingle Department of Municipalities and Agriculture for the whole emirate; and theDepartments of Planning and Economy were joined into a single Department ofPlanning and Economy which was placed under the chairmanship of HH SheikhHamed bin Zayed Al Nahyan.ABU DHABI DEPARTMENT OF PLANNING AND ECONOMYThe Abu Dhabi Department of Planning and Economy is actively promotingpartnership between the public and private sectors in Abu Dhabi. The emirate hasadopted a balanced development strategy that involves updating legislative andlegal parameters, providing business facilities and promoting investment services,

104UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT105for both local and foreign investors. Prior to its merger, the Department of Economyoversaw the formation of GHC, which is responsible for privatisation of companiesthat previously came under the aegis of the General Industries Corporation (GIC).GENERAL HOLDING COMPANY (GHC)GHC is a new public joint stock company that has taken over factories and plantspreviously owned by the General Industries Corporation (GIC). It aims to fully orpartially privatise these companies. The enacting legislation was Decree No. 5for 2004. The aim of the privatisation programme is to strengthen partnershipbetween the public and the private sector by selling shares to UAE nationals. It isalso stimulating the UAE stock market. One of the first steps was the initial publicoffering (IPO) for the Emirates Foodstuff & Mineral Water Company.In collaboration with other government bodies like the UAE Offsets Group andthe Mubadala Development Company, it is also looking at new areas for economicdiversification. Among these are the development of the Industrial City of AbuDhabi (ICAD) at Mussafah and also drawing up of a tourism strategy for Abu Dhabi.MAJOR INDUSTRIESClusters of industrial projects have been created throughout the UAE at primelocations such as the Industrial City of Abu Dhabi (ICAD), Jebel Ali Free Zone andHamriyah Free Zone. ICAD is located 30 kilometres from the centre of Abu DhabiCity and 25 kilometres from Abu Dhabi International Airport. Its range ofservices include a ‘one-stop-shop’ for issue of industrial licences; provision ofsuitable development sites for factories; issue of custom exemption for goods,equipment and machines imported by the factories and solving all obstaclesfacing industrial projects.ICAD has shown very rapid recent growth with 355 major manufacturingcompanies employing more than 30,000 workers established there. The cityprovides all basic services and facilities for a wide range of industrial activities.Of over 350 manufacturing units operating in ICAD, 23 per cent are engaged inmetallic industries, 21 per cent in construction materials, 16 per cent in fibreglassprojects, 10 per cent in the petrochemical sector, 8 per cent in foodstuffmanufacture, 6.5 per cent in computers and equipment assembling, and 4 per centin garments and textiles.Certain heavy industries of strategic importance are being developed at ICAD.One that will have considerable regional significance is that of steel manufacturing.In early September 2005 the Abu Dhabi government signed a preliminaryagreement with Danielli, an Italian company, with a view to reaching finalagreement for construction of a steel manufacturing complex expected to cost inexcess of Dh2 billion (US$545 million). Once completed, it will be the largest ofits kind in the UAE. The new steel complex will also house the GHC steel factorywith the addition of two new steel rolling lines and an integrated steel millcomprising two units for direct reduction and smelting. With a production capacityof around 2 million tonnes a year, the complex is set to meet market demand of4 million tonnes per year and post an annual growth of about 15 per cent.Dubai has dramatically stepped up its own drive to attract capital and to expandits manufacturing base to gradually replace its dwindling earnings from oil exports.But, despite its industrial base, Dubai is not a major manufacturer. The vast majorityof goods passing through its ports are in transit. The emirate’s economic focus hasbeen on development of trade, tourism, communication and finance. Its largestindustrial manufacturing venture is Dubai Aluminium Company (Dubal), whichhas been going through an almost continuous expansion programme over the pastfew years. This operation has also spawned other connected industries such asEmiroll, which is being set up to manufacture sheet aluminium. Dubai Dry Docksis the emirate’s largest service company with four large dry docks, one of which isthe largest of its kind in the world. A Jebel Ali based ship-repair facility adds to theattractiveness of Dubai as a strategically-placed maritime centre.Sharjah’s manufacturing sector continues to focus on textiles and light industriesand has been involved in modern industrial development for over three decades,since it started to earn revenues from oil exports. Its deep-water harbours atPort Khaled in the Gulf and Khor Fakkan on the East Coast, together with itsinternational airport, provide integrated communication and transport solutions insupport of companies operating there. Industrial development is concentratedin two designated areas, Sharjah Airport International Free Zone (SAIFZ) set up in1996 and the Hamriyah Free Zone (HFZ) created in 1998. On the large industryside, Sharjah has a cement factory that utilises gas from the onshore Saja’a field,and two plants that manufacture steel pipes.The Northern Emirates have continued their investment in agriculture, ceramics,cement and maritime industries, with an increasing emphasis on creating thenecessary infrastructure for tourism, in particular in Fujairah and Ra’s al-Khaimah.The Ra’s al-Khaimah government recently set up a Dh1 billion technology andindustrial fund that will be dedicated to promoting industry and technology inthe emirate through joint ventures between businesses in Ra’s al-Khaimah andoutside specialised organisations. One of the first projects to gain funding was theGeorge Mason University, RAK Campus.THE UAE OFFSETS GROUP (UOG)The UAE Offsets Group was established in 1992 to implement the UAE OffsetsProgramme and to act as a conduit between international contractors and the localprivate sector for the creation of commercially-viable, profitable and sustainable

106UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT107joint ventures. It is now playing a pivotal role as a think-tank for setting up jointventures. To date, the UOG has implemented over 25 successful ventures with acombined paid-up capital of Dh5 billion (US$1.3 billion). It has also created fourjoint stock companies with thousands of citizens as shareholders, bringing intechnical expertise and know-how for establishment of new business venturesranging from ship building, aircraft leasing and fish farming to district cooling,agriculture, waste management and energy.The group is a commercially-driven entity that focuses on both the macro- andmicroeconomic aspects of the UAE’s economy to identify and implement profitableand sustainable businesses. The programme requires defence contractors tofulfil offset obligations by setting up joint ventures in the UAE in partnership withlocal businesses.UOG plays the role of a conduit between the joint venture partners. Offsetsventures should yield profits of up to 60 per cent of a contract’s value over a periodof several years – the typical duration of an offset obligation is seven years – toearn offset credits that are evaluated at several milestones during the life of eachoffset project. The performance of the joint ventures is closely monitored byUOG and, if defence contractors fail to fulfil obligations, they are required to payliquidated damages of 8.5 per cent on the unfulfilled portion of the obligation.For defence contractors with small obligations, UOG has set up the Alfiah Fund.The fund is an investment vehicle for defence contractors who can invest in itrather than setting up independent offsets projects and get credits based on thefund’s performance. The Alfiah Fund, managed by the First Gulf Bank (FGB), iscapitalised at US$10 million and seeks to maximise returns from a diversifiedportfolio of investments in civilian ventures under the UAE Offsets Programme.Initial investments of the fund in a single project range from US$500,000 toUS$3.5 million.desalination plants and industries in the UAE and Oman. Natural gas from Qatar’sNorth Field will pass through Dolphin’s giant gas processing plant at Ras Laffan.The plant will strip out valuable commercial by-products and the resulting drygas will be transported by pipeline to Abu Dhabi via Dolphin’s 370-kilometreexport pipeline. Gas is scheduled to be on-stream in the fourth quarter of 2006.Other Mubadala investments in the energy field during 2005 included expansionof the oil and gas global portfolio of its wholly-owned subsidiary, Liwa EnergyLimited. An agreement for development of the Mukhaizna heavy oil field inOman is an example of Mubadala’s interest in regional energy projects. The currentproduction of the field is approximately 10,000 barrels per day. Liwa Energyand their partners in the project expect to invest over US$2 billion to implementa large-scale steam flood to increase production from the field to 150,000 barrelsper day within the next few years.Another venture for Mubadala in Oman is its agreement to work with OmanOil Company to develop the Salalah Methanol Project. Subject to final sanction,the project will entail the development, construction and operation of a 3000metric ton per day state-of-the-art methanol plant, using natural gas suppliedby Ministry of Oil and Gas through Oman Gas Company, as feedstock.Liwa, in partnership with Occidental Petroleum and Woodside Petroleum, hasalso obtained oil concessions in Libya.Mubadala’s business interests include, among others, shareholdings in ‘districtcooling’ company, Tabreed; property company, Aldar Properties; shipping company,Eships (formerly CCU); ship-builder, Abu Dhabi Ship Building Company (ADSB);aviation and pilot training company, Horizon; UAE University Development andManagement Project in Al Ain; Imperial College London Diabetes Centre in AbuDhabi; IT company, Injazat Data Systems; and automobile companies, LeasePlanand Ferrari.MUBADALA DEVELOPMENT COMPANY AND ITS PROJECTSREAL ESTATE, PROPERTY DEVELOPMENT AND SERVICESMubadala Development, an investment company wholly owned by the Abu Dhabigovernment, was established under Emiri decree No. 12 of 2002. It has a mandateto form new companies or to acquire stakes in existing companies in the UAEor abroad and to focus on generating sustainable economic benefits for Abu DhabiEmirate through partnerships with local, regional and international investors.The company invests in a wide range of sectors, including energy, utilities, realestate, public-private partnerships, and basic industries and services, in order todiversify and further develop the economy of Abu Dhabi.Dolphin Energy, owned 51 per cent by Mubadala, is reviewed elsewhere in thischapter. Its Dolphin Gas Project, the first cross-border natural gas network inthe GCC, will supply energy for current and future power generation and waterReal Estate is a rapidly growing business in the UAE with new residential andcommercial units being constructed at a pace that seems to only just keep upwith surging demand, both from prospective occupiers and investors. The sectoris expected to see the total value of developments rise to more than US$50 billionby the year 2010. It is a highly competitive field in which the key words among allthe major companies have been quality, reliability and value for money. Some ofthe biggest operators are Aldar in Abu Dhabi (a Mubadala company) and Nakheeland EMAAR, both based in Dubai.A new property law for Abu Dhabi, issued in August 2005, paved the way for theproperty market in Abu Dhabi to attract new investment. Under the new law,foreigners can own property in investment areas in Abu Dhabi under a 99-year

108UNITED ARAB EMIRATES YEARBOOK 2006land title agreement or a renewable 50-year surface ownership deal. The firstinvestment areas to be so designated were Al Raha Beach and Al Reem Island. UAEcompanies are responsible for construction and development of properties in thetwo areas in coordination with the Department of Municipalities and Agriculture.The new properties will be offered for sale to the general public. Further resolutionsdesignating other areas in the emirate as investment areas are expected.Other emirates have been putting their own property laws in order and areensuring that ownership of properties by local people is properly registered.Coinciding with the announcements in Abu Dhabi, Ra’s al-Khaimah issued aresolution on documentation and title registration in the emirate. It stipulatedstandards for documentation of ownership, including old mud houses and farms,and stated that mountains and wadis are considered public property whileundeveloped land shall not be owned unless papers proving the ownership areproduced. It also provided for surveying and mapping of all lands where privateownership is established.Discussions are also under way on a federal property law that would introducestandardisation regarding property ownership issues throughout the UAE.Meanwhile, the property developers themselves have been in a process of almostvertical growth. Aldar Properties’ initial public offering attracted record interestand was over-subscribed nearly 448 times! Official trading of Aldar shares on theADSM started at 10.30 a.m. on 5 April 2005. Aldar shares par value was Dh1per share on listing, but the value soon rose and they were being traded at overDh10 in June 2005. Aldar has an impressive property portfolio, including majordevelopments and redevelopments. As outlined above, three projects ofinternational standing for Abu Dhabi have already been announced, the 45,000-square-metre Central Market redevelopment, the extensive Al Raha Beach gatewaydevelopment, and the Imperial College London Diabetes Centre building.Nakheel is one of the leading companies in Dubai’s property sector. Thecompany, whose Arabic name refers to the date-palm tree and its fruits, isinvolved in the construction of iconic mega-projects such as the Jumeirah, JebelAli and Deira ‘Palms’; ‘The World’; ‘Jewel of the Palm’; ‘The Jumeirah Islands’;‘Jumeirah Lake Towers’; ‘Jumeirah Village’; ‘The Gardens’; ‘Ibn Battuta ShoppingMall’; ‘International City’; ‘The Lost City’; ‘Discovery Gardens’; ‘Dubai DesignCentre’; and ‘Dubai Waterfront’.EMAAR Properties is a Public Joint Stock Company (PJSC) listed on the DubaiFinancial Market. In July 2005 EMAAR held an extraordinary general meeting atwhich it announced a second quarter profit of Dh1.2 billion and won shareholderapproval to raise its capital through a rights issue and also to raise the limit offoreign ownership to 49 per cent. The new 1:1 rights share issue was set at Dh5,with each share of face value of Dh1 and carrying a further Dh4 as premium, to

110UNITED ARAB EMIRATES YEARBOOK 2006be paid in four instalments over a year. A month earlier, in June, it handed over its10,000th home since it began allotments in November 2002. With this, EMAAReffectively maintained an average monthly ratio of more than 322 deliveries for 31months, excluding more than 1000 rental units. At an average of Dh1 million perunit, this translates to Dh10 billion worth of properties at current prices, makingEMAAR the largest property developer in the Middle East and North Africa (Mena)region. By the end of 2005 EMAAR will have handed over an additional 5000 to6000 units, tripling monthly deliveries to 1000 units for the second half of 2005.EMAAR is also the company behind the tallest building in the world, BurjDubai Tower, which is under construction. Financed by a syndicate of three UAEbanks, Mashreqbank, Emirates Bank International and Abu Dhabi CommercialBank, the project is expected to cost Dh3.2 billion (US$869m). Due for completionby the end of 2008, the Burj Dubai Tower will be the centrepiece of the 500-acre,US$8 billion ‘Downtown Dubai’ development.One of the UAE’s trading conglomerates, Al Futtaim, also has a real estate armthat was originally established to manage its own property portfolio but whichnow offers a wide range of services from selection of site and feasibility studiesto construction and property management. Al Futtaim is also responsible fordevelopment of Dubai Festival City, which is claimed to be the Middle East’slargest privately-funded, mixed-use development and is scheduled for opening inSeptember 2006. Located on the banks of Dubai Creek, it is being constructedby Al-Futtaim Carillion.CLIMATE CONTROL FOR BUILDINGSDistrict cooling is widely used throughout the UAE and around the world, pipingchilled water from a centralised plant to a range of residential, commercial andgovernment buildings. Landlords are attracted to the maintenance-free, economicand environmentally friendly cooling benefits of the technology, while clients enjoyreduced ambient noise and better temperature control in their homes, making itthe perfect solution for all cooling requirements. The energy savings could be upto 50 per cent of the total that consumers spend on traditional air-conditioners.During the summer months, air-conditioning requires up to 70 per cent of the totalenergy produced. One tonne of chilled water cools up to 20–25 square metres.The business of cooling buildings in the UAE is increasingly featuring theinnovative local company, Tabreed that specialises in low cost and highlyefficient cooling systems. Tabreed announced revenues of Dh242 million for itsfiscal 2004, a 28 per cent increase over the previous year. Net profit advanced by35 per cent to Dh31.5 million, compared to Dh23.4 million in 2003. The companyposted a gross profit of Dh91.3 million for the year, up from Dh62.4 million in2003. At the year-end, Tabreed’s total assets were Dh1.66 billion, representingan increase of 33 per cent over 2003.

112UNITED ARAB EMIRATES YEARBOOK 2006Tabreed presently has district cooling operations in three countries (UAE, Qatar,Bahrain) and is planning further expansion in the GCC region. The company’smajor financial activity in 2005 was completing a Dh500 million rights issue.CEMENT AND BRICKSA new cement factory with a planned annual production capacity of 1 milliontonnes began construction in Ra’s al-Khaimah in 2005. Given the pace ofdevelopment in the country and the demand for building materials, the marketfor cement is expected to rise by 10 to 15 per cent annually to a total of around23 million tonnes per annum within the next five years. Pioneer Cement Industryis developing the new factory in the Al Ghail area.Meanwhile, the Ra’s al-Khaimah Investment Authority is promoting establishmentof a bricks factory at a cost of US$100 million (Dh368 million). The project formspart of the emirate’s ten-year development programme.CERAMICSRAK Ceramics’ latest facility in the UAE is the world’s largest single ceramicproducts plant. The company invested Dh735 million (US$200 million) to boostits combined annual capacity to 100 million square metres of ceramic tiles. It nowaccounts for 5 per cent of the total world production of ceramic tiles. It has alsoformed a new company, in which it will take a 50 per cent stake, to produce 15million pieces of ceramic tableware per year.The capacity of the main Ra’s al-Khaimah plant has been raised from 120,000square metres of ceramic tiles per day and 7000 pieces of sanitary ware to200,000 square metres of ceramic tiles and 9000 pieces of sanitary ware. Thecompany is also setting up a plant in Kakinada, in India at an investment of US$60million (Dh221 million).The company’s UAE factories are located 20 kilometres south of Ra’s al-KhaimahCity, along the highway to Dubai. The company operates from its UAE base.but it has also established an extensive international network of factories. In2005 it announced a new joint venture with the world’s largest producer of adhesivesubstances and ceramic fixing grouts, Laticrete International. The new company,Laticrete RAK Co LLC, whose factory is located in Ra’s al-Khaimah, will produce100,000 tons of adhesive material and ceramic fixing grouts. In June 2005 itopened MC-8, a new high-tech ceramics manufacturing facility which is RAKCeramics’ ninth unit in the emirate. It will have a production capacity in excessof 35,000 square metres of high quality granite ceramic tiles per day.TEXTILES AND CLOTHINGAt its peak, the UAE had 200 factories and exported almost Dh1 billion worth ofgarments. Overall 246 companies were involved in this sector in 2004, employing

114UNITED ARAB EMIRATES YEARBOOK 200632,481 employees or 14 per cent of the workforce. According to industry sources,more than 75 per cent of the garment-manufacturing establishments have nowclosed. Although labour-intensive garment manufacturing per se is clearly in astate of rapid decline in the UAE, the country is developing related aspects ofthe business, becoming a prime choice for regional offices of larger garmentexporting firms, inventory holding warehouses as well as trans-shipments.Apart from the manufacturers, there are still four weaving and spinning factories,and about 30 factories engaged in the production of textile furniture accessories,bed sheets, pillows etc., and more than 100 textile ancillary establishments. Thisexperience, expertise and specialisation in the industry is being harnessed to movehigher up in the garment supply chain.PHARMACEUTICALSThe UAE’s pharmaceutical industry is worth over Dh1 billion per year. At presentthe industry is heavily dependent on imports to meet customer demand, but agrowing manufacturing sector is also gaining strength. Only about 7 per cent ofimported pharmaceuticals are re-exported. The national market for pharmaceuticalshas been steadily increasing, partly in line with growing population and also relatedto improving standards of living. Regional demand also shows an upward trend.Pharmaceutical imports account for about 1 per cent of the UAE’s total import bill.Almost 90 per cent of the imported pharmaceuticals are in the form of medications,with the remainder being medical materials such as adhesives, dressings, vaccinesetc. The largest category of imported medicines fall in the general category (almost75 per cent), after which antibiotics form the single largest clearly definablecategory. Exports are largely within the MENA region, with Yemen being thelargest buyer, followed by Sudan, Lebanon, Egypt, Bahrain and Iran. The top tenbuying countries account for almost 95 per cent of the exports.A major pharmaceutical company headquartered in the UAE is Ra’s al-Khaimah’sJulphar, whose sales exceed Dh500 million across 40 countries and four continents.The Julphar group owns six pharmaceutical plants, four in the Emirates, onein Ecuador and one in Germany. It also controls a Gulf-wide infrastructure ofdistribution and warehousing, pharmacy management, a printing and packaginghouse, a plastic dosing cup and aluminium pilfer-proof cap manufacturing unit,an environment-controlled transportation fleet and other service support units.ALUMINIUMAbu Dhabi Water and Electricity Authority (ADWEA) recently acquired a 40 per centstake in a new 325-kilotonne aluminium smelter to be built on the Batinah coastof Oman, at Sohar. It is in partnership in the project with Oman Oil Companyand the multinational aluminium company, Alcan. The project is expected tocommence production in 2008.

116UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT117Dubal is the largest single-site aluminium smelter in the region and the largestsingle non-oil contributor to Dubai’s economy. The company’s pure grade metalis sold to customers across the world, from Japan and the Pacific Rim, to the US,Europe and the Middle East. The company is implementing a ten-year growthplan that involves boosting production and strengthening its position by strategicinvestments in overseas projects. Demand for aluminium itself has been growingat a rate of 4 to 5 per cent per annum.Dubal produced 683,000 tonnes of high grade aluminium in 2004 (90 per centof capacity), an increase of 40 per cent against 2003 and sold 743,000 tonnes, anall time record. Meanwhile, Dubal’s unit cost of production is the lowest among the20 largest aluminium producers in the world. In May 2005 Dubal commissionedits new Potline-7 expansion ahead of schedule and under budget. The expansionincreased Dubal’s production by 74,000 tonnes to an unprecedented total outputlevel of over 761,000 tonnes per annum.In August 2005 Dubal commissioned a new ingot casting machine, the Dh100million Casthouse-3 unit, the first of its kind in the region. This has a capacity toproduce 80,000 tonnes per year of hot metal in different alloys that meet individualrequirements of customers in Asia, Europe and North America. Dubal has alsoreserved an option on two more such casting machines. The casting processplays a critical role in aluminium production by converting molten aluminium tosaleable product. Dubal’s casting system is a combination of continuous and batchprocesses and operates 24 hours a day with a variety of more than 200 differentproducts and a total annual casting capability of over 1 million metric tonnes.Also in August 2005, Dubal announced a massive capacity expansion projectcosting over Dh1 billion (US$284 million) that will make the UAE a majorpowerhouse in the global aluminium industry. The latest expansion project isadding an additional annual capacity of 100,000 tonnes of hot metal, raising itstotal hot metal production capacity from 761,000 to 861,000 tonnes per year.This project is phase one of a three-phased expansion plan that forms part ofDubal’s long-term strategy. Environmental protection remains a key area of focusfor Dubal and a state-of-the-art fume treatment system costing Dh110 million(US$30 million) will be installed as part of this expansion, which is scheduled forcompletion by the fourth quarter of 2006. The project will add 128 cells moreto the recently completed Potline-7, bringing the total to 248 cells. Plans arealso afoot to add another 36 cells to Potline-9, which was completed in 2003,once again bringing the total cells for this Potline to 248. Dubal also announcedthat it would award over 40 per cent of this project to local contractors; a move thatwas expected to boost job creation and benefit the local economy, strengtheningthe manufacturing base of the country.The company is already one of the world’s largest smelter plants and is exportingprimary aluminium products to almost 50 countries. In early March 2005 Dubalentered into a provisional agreement to set up a Dh3.67 billion joint venture to builda combination bauxite mining and alumina refinery in India’s Orissa state inpartnership with Larsen & Toubro, one of India’s leading diversified engineeringand construction conglomerates. In April 2005 Dubal and Global Alumina ProductsCorporation (Global Alumina) entered into a Memorandum of Understanding (MoU)under which, if all conditions are met, Dubal will make a substantial investment inGlobalAlumina.CABLE MANUFACTUREDucab, set up in 1979, is jointly owned by the governments of Abu Dhabi and Dubaiand produces mainly low-to-medium voltage power cables and auxiliary products.It is the leading manufacturer of high quality power cables in the Middle East andis involved in supplying electrical cables for the UAE’s electricity grid, as well asexporting to other regional and global markets. The company has maintained anaverage annual sales growth of 15 per cent since 1981 and recently expanded itsbusiness by entering into new export markets in Iran, India, Jordan and Tanzaniawith major projects and distribution agreements.Ducab’s sales revenues increased by 30 per cent in 2004 to Dh687 million. Totalorders reached Dh719 million, a rise of 45 per cent over 2003. Ducab’s specialisedfire-resistant cable, developed for Delhi Metro, has become its latest flagshipproduct. In 2005 it was awarded a contract with the UAE Federal Electricity andWater Authority (FEWA), worth Dh36 million, for supplying FEWA with 33kV singlecore cables for its expanding power grid network in the Northern Emirates. Ducabwill supply 450 kilometres of single core copper, 500-square-millimetre cablesduring the year.Ducab has opened a second production plant in Abu Dhabi, built at a cost ofDh125 million. The 25,000 tonne capacity plant in the Industrial City of Abu Dhabiwill increase the company’s production capacity to 65,000 tonnes per annum. Tokeep pace with the growth in demand for cables, due to the ongoing developmentand construction activities in the region, the company has been considering settingup a third manufacturing unit outside the UAE or forging joint ventures with foreignpartners. Ducab cables are manufactured in compliance with international qualitystandards such as the British Standards (BS) and International ElectrotechnicalCommission (IEC).GOLD AND JEWELLERYThe UAE’s gold consumption increased from 88 tonnes in 2003 to 96 tonnes in2004. In 2004 Dubai imported 503 tonnes and re-exported 260 tonnes, makingit the world’s second largest re-distributor of bullion. It has taken the lead inpromoting the industry and has recently established a number of special centresassociated with gold and jewellery. The Dubai Metals and Commodities Centre

118UNITED ARAB EMIRATES YEARBOOK 2006(DMCC) integrates the refining, manufacturing and trading of gold in Dubai, as wellas introducing the trading of other precious metals such as platinum, palladiumand silver. Gold consumption further increased by 15 per cent in the first half of2005, compared to the same period of 2004, ranking the country the fifth largestconsumer of gold in the world.Retail sales of gold in Dubai reached Dh5.5 billion in 2004. Dubai has morethan 850 jewellery retail outlets and 100 jewellery manufacturers. A recent studyindicates that 95 per cent of Dubai’s tourists purchase gold and jewellery duringtheir visit.In May 2005 the DMCC introduced the Dubai Gold Receipt (DGR), a financingproduct for gold traders. The DGR is an electronic vault receipt system that providesa means for the gold trade to access additional lines of finance. The web-basedsystem provides members with secure, real-time access to the various forms ofgold bars, scrap, coins and jewellery stored in DMCC approved premises. TheDGR’s are negotiable instruments and can be endorsed by way of transfer toanother trader or pledged and endorsed by way of security to participating banksin order to obtain financing.The jewellery trade in the UAE is not, however, built on gold alone. The Emiratesis also the world’s fastest-growing diamond market with the Arab world’s firstbourse for the diamond industry – the Dubai Diamond Exchange (DDE). The latteris an effective promotional tool for the diamond trade in the UAE. DDE is theonly diamond exchange from the Middle East region to become a member of theWorld Federation of Diamond Bourses (WFDB), which was established in 1947.In early 2005 DDE held a tender for rough diamonds totalling US$15 millionin value. Thirty companies including a number of high profile buyers and industryleaders from overseas participated in the tender and 90 per cent of the goodswere sold. DMCC registered member Global Diamond Tenders, in association withBrinks and ABN AMRO, conducted the tender, which took place on the tradingfloor of the Exchange’s temporary premises in Business Avenue.MARITIME INDUSTRIESAbu Dhabi Ship Building (ADSB)ADSB is a Public Joint Stock Company (PJSC), 50 per cent of which is owned bymore than 14,000 individual UAE nationals and 50 per cent by the Abu Dhabigovernment. Set up in 1996 and listed on the Abu Dhabi Securities Market (ADSM),ADSB has a paid-up capital of Dh175.2 million (US$47.7 million) divided into17,520,000 shares. It operates a modern, world-class shipyard facility that includesa ship lift and land-level transfer system capable of handling vessels up to 2000tons in weight and 85 metres in length. In the past eight years, ADSB has builtmore than 70 new vessels. The company also performs approximately 150 shiprepair/refit jobs per year. Based at Industrial City of Abu Dhabi (ICAD) in the

120UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT121Mussafah district, ADSB is the only shipbuilding facility in the Arabian Gulf withthe capability to build and repair sophisticated naval and commercial vessels. It isbuilding an increasing number of naval vessels for the UAE Navy and commercialboats for a wide range of clients in the shipping and related industries.In February 2005 ADSB signed a contract with the Omani Ministry of Defencefor the construction of a 64-metre naval landing craft for the Royal Navy of Oman.The vessel has been designed locally and contains a number of special featuresto satisfy the customer’s operational requirements. This is the first naval newconstructioncontract awarded to ADSB from outside the UAE.ADSB’s facilities for manufacture, repair and upgrade of naval and commercialvessels have been greatly enhanced by new high-tech composite workshops.The new facility provides ADSB access to the important ‘Military and CommercialComposite Vessel’ market that exists within the region. Its new 4400-square-metremoulding workshop for advanced composite vessels was completed in May 2005.These new workshops are sized for the construction of vessels up to 50 metresin length.ADSB will deliver the first of four naval vessels that constitute the US$500 million(Dh1.83 billion) Baynunah contract to the UAE Navy in 2008. The other threevessels forming part of this order will be ready at approximately six-month intervalsfollowing the first.The non-military side of ADSB’s shipbuilding and repair business has also beenexpanding at a rapid pace, and it now completes more than 150 commercial shiprepair jobs each year. The company is competing for commercial contracts fromoperators of tugboats, barges and support vessels for the oil and gas industry,including the Abu Dhabi National Oil Company (ADNOC) and its subsidiaries. Agrowing number of local companies are showing interest in ADSB for their repair,refit and new building programmes.ADSB’s total revenue for the first half of 2005 exceeded Dh20 million, while netprofit for the period reached Dh10.6 million, demonstrating growth of 9.5 per centcompared to the first six months of 2004.Maritime City’. Boats made in the UAE tend to benefit from highly skilled labour andrelatively low operating costs. Six large manufacturers dominate the UAE’s boatbuildingmarket and more than 500 luxury yachts are in operation in the country.Gulf Craft, the UAE-based builder of leisure boats and luxury yachts, had aboutDh100 million in sales in 2004. The company has a good export market and isinvesting Dh80 million in two new shipyards in the UAE – one of which will beginconstruction in 2006 within Dubai Maritime City.Emirates Ship Investment Company (EShips)Emirates Ship Investment Company LLC (Eships) is the new name for CombinedCargo UAE LLC (CCU). The original company was established in 1996 as a shipinvestment company based in Abu Dhabi. Eships currently has three shareholders:Oman & Emirates Investment Holding Company has a 34.22 per cent stake, whilstAbu Dhabi Investment Company and Mubadala Development Company each havea 32.89 per cent stake.Eships’ fleet profile has changed considerably and is growing at a fast pace.The company still operates trans-shipment vessels and bulk carriers, but therehas been a drive towards small IMO II/III products tankers and the company ismoving into the LNG sector. Eships plans to become a major regional shippingcarrier with a strong presence in the Arabian Gulf, Indian Ocean, South Asia, andSoutheast Asia. It intends to be operating at least ten bulk carriers, 20 tankers andfour LNG carriers by 2010.The company has consistently turned a profit since it was established in 1996.In 2005 Eships had a consolidated balance sheet with assets in the region ofUS$76 million. Net income in 2004 was around US$19.8 million from revenuesof close to US$46 million. In comparison, revenues in 2003 totalled some US$28million, with a net profit of just over US$6 million.The company’s strategy now is to invest in Panamax and Capesize tonnage,either through chartering in vessels or direct ownership, depending on the market.In mid-2005 Eships began its foray into the Panamax market by chartering theJapanese-controlled, 76,000-dwt new-building bulk carrier Penda Bulker.Other Shipbuilding CompaniesDubai Drydocks is investing Dh165 million in a new shipbuilding venture calledSafina. The latter will be located next to the Dubai Maritime City and will be ableto build small, medium to large vessels. Dubai Drydocks has already built 43vessels. It recently won a contract from ENOC to build four bunkering tankers,valued at US$40 million (Dh144 million), its largest order so far.Boat-BuildingThe region’s boat-building industry is experiencing strong growth, fuelled by thedevelopment of marinas and massive waterfront housing developments such as‘The Palm’ islands, ‘The World’, ‘Dubai Waterfront’, the ‘Waves’, and ‘DubaiAbu Dhabi National Tanker Company (ADNATCO)ADNATCO is a wholly-owned subsidiary of Abu Dhabi National Oil Company. Inmid-2005 it announced a fleet renewal programme. At that stage ADNATCOowned and operated a fleet of five product tankers, a molten sulphur carrierand two RoRo (roll-on/roll-off) vessels. In 2002, ADNATCO started its RoRobusiness after signing a deal with Abu Dhabi-based petrochemical companyBorouge to transport polyethyelene to Mina Zayed and Jebel Ali in Dubai.Dubai Port AuthorityIn 2004, the Dubai Ports Authority (DPA) posted a record growth of almost 25per cent in the total number of containers handled at Port Rashid and Jebel Ali

122UNITED ARAB EMIRATES YEARBOOK 2006Port. Since the establishment of the DPA in 1991, it has demonstrated consistentand steady growth. In 2004 DPA accommodated 6.42 million TEUs (twenty-footequivalent units, a standard shipping container) and was ranked as the tenthlargest port in the world. In mid-2005 DPA announced that it had achieved a 22per cent increase in container traffic in the first half of the year compared to thesame period in 2004, continuing its progressive performance in port operations.Loading and discharging of forest products grew by 9 per cent, foodstuff increasedby 21 per cent, metals increased by 8 per cent and petroleum products grew by23 per cent compared to 2004. DPA handled a total of 3,631,108 TEUs and 7651vessels of all types in the first six months of 2005. Container vessels made up3279 of the total vessels, marking a 34 per cent increase over 2004.Expanding its port management agreements has been a key plank in DPA growthstrategy and in July 2005 The Abu Dhabi Seaport Department and Dubai PortsAuthority (DPA) executed a Management Services Agreement for the operationof Mina Zayed. Under the terms of the agreement, DPA took over the day-todaymanagement of operations of Mina Zayed, which is being integrated intothe global DPA network and now being marketed jointly with other ports such asJebel Ali and Mina Rashid. This strategic alliance enables the UAE to furthercompete at the regional and international levels, making a positive contributionto the national economy.In May 2005 Dubai Ports International (DPI) took charge, under a 30-yearconcession, of the Port of Fujairah’s container terminal, which is now known asDPA (Dubai Ports Authority)-Fujairah Terminal. DPI is spending around Dh568million (US$155 million) to develop and operate the terminal. While DPI willoperate the container terminal, all non-containerised cargo, such as general cargo,oil, aggregate and project cargo, will continue to be handled by the Port of Fujairah.The agreement between the Fujairah Port Authority and DPI also includes anoption to mutually extend the concession by a further 20 years, potentially takingthe contract through to 2055. DPI also has contracts for operating five internationalports: Jeddah in Saudi Arabia, Djibouti, Vizag and Kochi in India and Constanzain Romania.In late 2004 DPI acquired CSX World Terminals a leading international terminaldeveloper and operator headquartered in the United States, with operations in Asia,Europe, Australia and Latin America. This transaction makes Dubai Ports, whichincludes DPI and DPA (Dubai Ports Authority), the sixth largest global ports operator.Dubai Maritime CityDubai Maritime City, which is being designed as a multidimensional centre forthe global maritime community, will accommodate up to 5000 companies inoffices and workshops. A range of clustered facilities currently scattered aroundDubai and the region will be housed in the new city.

124UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT125Six areas of maritime activity will be catered for: marine services, productmarketing, management, research and education, recreation, ship design andmanufacturing. Ship repair and maintenance services will also be headquarteredwithin the zone and marine management services ranging from cargo, vesseland life insurance agencies to legal businesses specialising in consultation, legaladvice and marine domain lawyers are also expected to set up offices.BunkeringThe UAE now ranks among the top locations in the world for bunkering. Fujairahhas overtaken Rotterdam to become the second-largest bunkering centre in theworld behind Singapore, which remains the world’s largest bunkering centre with acapacity of 19 million tonnes of fuel oil a year. Fujairah supplies 12 million tonnesof fuel oil a year, worth US$2.5 billion (Dh9.17 billion). This, in turn, has spawneda healthy growth in the ship supply business. Around 40 companies operate in thisfield in the Emirates as a whole, with an annual turnover of around US$300 million.OIL AND GASThe sharp rise in oil prices in 2004 brought to an end a decade of relativestability when prices mostly remained in the US$20 to US$28 per barrel range(with the exception of 1998 when a sharp downturn took place). The sudden pricejump was the result of an increase in demand rather than any disruption orrestriction in supplies. China is the most important contributor to the rise in worlddemand for oil. Its imports of crude oil almost doubled between 2002 and 2004.While each emirate takes responsibility for exploitation of its hydrocarbonreserves, with Abu Dhabi playing by far the largest role in this regard, the role ofthe Federal Government has been re-organised, with a new Ministry of Energycombining the former roles of the Ministry of Petroleum & Minerals and theMinistry of Electricity & Water. In January 2005 HH Sheikh Khalifa bin Zayed AlNahyan, President of the UAE, passed a law transferring the ownership of theshares and funds of National Petroleum Construction Company (NPCC) formAbu Dhabi National Oil Company (ADNOC) to the General Holding Corporation(GHC) in order to pave the way for its eventual privatisation and transformationinto a national joint stock company.Average 2004 prices were more than US$10 above the 2003 average (US$28.39in 2003 cf. US$38.87 in 2004). Oil prices continued to rise in 2005, with LowerZakum (39˚) exceeding US$57 per barrel in August. Year-to-date average at midyear(2005) was US$46.71 per barrel, with strong indications that the overallaverage price for 2005 would exceed that figure. In fact, global oil prices touchedUS$70 per barrel in September 2005. Oil revenues loosely tracked the price rises,depending also on production rates.With both price and production rates rising in 2004, revenues showed a markedincrease. A surge in world demand and requests to OPEC from the internationalcommunity to raise production levels resulted in the UAE’s production quota,allocated by OPEC, being adjusted five times during the year. Two reductions inthe first part of the year were followed by three increases, resulting in an averagequota, over the whole of 2004, of 2,189,000 barrels per day (b/d). In actual factit exceeded this level by 164,700 b/d.The UAE is capable of producing more oil than its OPEC quotas allow. Whilstit is true that reserves in Dubai and Sharjah have declined significantly, AbuDhabi, with 94.3 per cent of the UAE’s total oil and gas reserves, has significantadditional production capacity, which amounted to 500,000 b/d in 2004. This figureis being increased as a result of the huge investments that have been made in theindustry over the past five years. Abu Dhabi National Oil Company (ADNOC) hasinvested around US$10 billion on an expansion programme that plans to raiseproduction capacity to 3 million b/d in 2006 and 3.7 million b/d by 2010.OPEC’s five largest oil producers, the UAE, Saudi Arabia, Kuwait, Iraq and Iran,control more than 60 per cent of global oil reserves and produced 19.6 millionbarrels per day (mb/d) in 2004. The supply/demand balance for 2005, based onOPEC mid-year projections, indicated an expected average global oil demand of83.66 mb/d. With non-OPEC sources averaging 54.76 mb/d, this left OPEC tosupply the balance of 28.90 mb/d. As supplies from the UAE and other major OPECproducers stabilise at somewhat higher than the 2005 rate, supported by strongreserves, other sources are likely to become more seriously depleted. It is againstthis background that the UAE has committed to major developments in its oil andgas production and supply facilities.Notwithstanding major progress in its long-standing programme of diversificationaimed at reducing dependence on finite oil and gas resources, the UAE’s oil andgas sector continues to occupy prime status in the country’s economic profile –a fact bolstered by confirmed hydrocarbon reserves standing at 97.8 billion barrelsof oil and 213.5 trillion cubic feet of natural gas. Based on current knowledge,the UAE’s oil reserves, account for 9.6 per cent of the world’s total oil reserves,estimated at 1016.8 billion barrels (US Dept. of Energy, based on oil industryfigures). These figures rank the UAE in fifth place in terms of the size of its oilreserves (excluding Canadian oil-sands) and fourth with respect to its natural gasreserves. It has been suggested by oil experts that there could be approximatelydouble the presently discovered reserves in deeper layers, where drilling has, so far,not taken place. By far the greatest portion of the UAE’s oil reserves are locatedin Abu Dhabi Emirate with 92.2 billion barrels, followed by Dubai with 4 billionbarrels, Sharjah with 1.5 billion and Ra’s al-Khaimah with 100 million. Natural gasreserves are also concentrated in Abu Dhabi, which has 198.5 trillion cubic feet,

126UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT127followed by Sharjah with 10.7 trillion cubic feet, Dubai with 4.1 trillion cubic feetand Ra’s al-Khaimah with 1.2 trillion cubic feet.OIL PRODUCTION AND CRUDE RESERVESCrude oil production ceilings are set by OPEC members at regular conferences.The UAE’s output of crude oil in 2004 rose in response to increased OPEC quotasthat averaged 2.19 m/bd during the year. Oil industry figures published by OPECindicate that the average production level during the year reached 2.36 mb/d,up from around 2 mb/d in 2003. Abu Dhabi alone produced 1.96 mb/d, comparedto 1.9 mb/d in 2003 and 1.69 mb/d in 2002. At these levels Abu Dhabi had aspare capacity of 500,000 b/d. Recognising the importance of being able to meetdemand surges at short notice, Abu Dhabi has continued to focus on increasing itsproduction capabilities. The target has been to reach around 3 mb/d in 2006 and3.7 mb/d by 2010.Abu DhabiThe Emirate of Abu Dhabi, with proven crude oil reserves estimated at 92.2 billionbarrels, has 94.3 per cent of the UAE’s total reserves and 9 per cent of the provenworld oil reserves (1016.8 billion barrels). At the current rate of pumping AbuDhabi’s oil reserves will last for 129 years. Its largest oilfield, Upper Zakum, containsan estimated 50 billion barrels of reserves in-situ, with estimated recoverablereserves around 16 to 20 billion barrels (using extensive water injection).In terms of production capacity, Abu Dhabi’s land-based and marine facilitiesare roughly equal. Onshore production capacity in 2004 averaged 1.2 mb/d whilstoffshore capacity stood at 1.25 mb/d. Actual production levels have, however,been higher in recent years from the onshore fields run by ADCO, which exceededoffshore production by ADMA-OPCO, ZADCO and the other companies. In 2004for example, ADCO produced around 1.15 mb/d whereas offshore productionran at around 805,000 b/d. The latter figure was made up by 380,000 b/d fromADMA-OPCO, 375,000 b/d from ZADCO and 50,000 b/d spread between the fourother offshore fields (Mubarraz/Neewat al-Ghalan, Umm al-Anbar, Al Bunduq andAbu al-Bukhoosh). The three main operators, ADCO, ADMA-OPCO and ZADCO, allhave ADNOC as their major shareholder. They each have expansion projectsunder way. ADCO will boost its capacity from 1.2 mb/d to 1.4 mb/d; ZADCO istaking the production capacity of the Upper Zakum field from 550,000 b/d to750,000 b/d and ADMA-OPCO is raising the sustained capacity of the UmmShaif and Lower Zakum fields to 600,000 b/d, which is presently regarded as peakcapacity of the complex rather than a sustainable level. Meanwhile, ADCO alsoproduced 130,000 b/d of 57.5° API condensate (0.11 per cent sulphur) from theThamama formation of the Bab field, which started up in 1996. Two additional gasprojects were completed in 2001, at Bab and Asab, boosting condensate productionto 210,000 b/d (130,000 b/d at Bab and 80,000 b/d at Asab) and two other projectsdue to be completed in 2008 should raise ADCO’s condensate production toaround 355,000 b/d. Condensate production is not counted in OPEC quotas.Abu Dhabi Company for Onshore Oil Operations (ADCO) thus generates morethan half of Abu Dhabi’s oil production, and it is one of the ten largest operatingoil companies in the world and the largest crude oil producer in the southernArabian Gulf. As noted above, ADCO is engaged in a major expansion projectthat will add nearly 400,000 barrels per day to its production capacity. Theseinclude raising capacity of four fields in north-eastern Abu Dhabi (Al Dabbiya,Jarn Yaphour, Rumaitha and Shanayel) from 10,000 b/d to 110,000 b/d; bringingthe small Huwaila field on line at an initial rate of 10,000 b/d; raising the BuHasa field’s capacity by 180,000 b/d and that of the Bab field by 100,000 b/d.Offshore, ADMA-OPCO’s two fields, Umm Shaif and Lower Zakum, are close tooptimum capacity. The Lower Zakum field has 321 wells tapping into fiveproductive zones spread over 1270 square kilometres, whilst Umm Shaif has268 wells spread over its 360 square kilometres of seabed. The plan here involvesbringing sustainable capacities up to their theoretical maximum capacities. This isbeing done, both through drilling of new production and injection wells, and byexpansion of gas injection facilities. The Umm Shaif Crestal Gas Injection Project,due for completion in 2006, is a key part of this programme and involvesinstallation of a 600-million-cubic-feet per day (cf/d) gas injection system. Gas fromthe Khuff reservoir is being re-injected into the Arab C and D reservoirs to boostoil production. A similar gas injection project, completed in 2004, is also drawinggas from the Umm Shaif Khuff reservoir and boosting production of Lower Zakum.In September 2005 a company in which Abu Dhabi’s International PetroleumInvestment Company (IPIC) has a significant shareholding, OMV, was grantedstakes in five new oil and gas exploration blocks in Britain’s North Sea. OMV areoperators and partners with UK firm Dana Petroleum in part of Block 204/14b,and are also partners with ChevronTexaco, the operators, and Norway’s Statoil andDenmark’s DONG in Blocks 212/30, 213/16 and 213/17 and in part of Block 205/2.OMV, one of the largest oil and gas firms in Central Europe, with extensive oilexploration interests overseas, are also partners with IPIC in Borealis, part-ownersof the Borouge petrochemical complex at Ruwais.DubaiDubai’s proven oil reserves as of 1 January 2005 were officially estimated at 4billion barrels, but the recoverable portion may be less than half this figure, withindustry sources (American Association of Petroleum Geologists) estimating themat 1.6 to 2 billion barrels. Almost all of the emirate’s oil reserves are located inthe original concession area of the Dubai Petroleum Company (DPC), whose fouroffshore fields (Fateh, Southwest Fateh, Falah and Rashid) account for its entireoutput of crude oil and associated gas. Whilst oil output has generally declined

000b/d128 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT 129Source: OPEC Statistical Bulletin Source: OPEC Statistical BulletinUAEUAEOPECWORLD PROVEN CRUDE OILUAEUAEWORLD PROVENOPECRESERVESRESERVESRESERVESRESERVESRESERVESRESERVESAS %AS % OF WORLDAS %NATURALOFTOTALOPECRESERVESWorld Proven Crude Oil and Gas Reserves by RegionOIL (million barrels)BYOF WORLDTOTALTOTALREGIONNATURAL GAS (billion standard cu m)AS %AS %OFTOTALOPECAS % OF WORLDOF WORLDBYGAS RESERVESTOTALTOTALREGIONNorth America 26,191Latin America 118,952Eastern Europe 91,467Western Europe 17,391Middle East 739,135Africa 111,645Asia and Pacific 39,229Total 1,144,010OPEC 896,659OPEC% 78.4UAE 97,800UAE/World% 8.5%UAE/OPEC% 10.9%North America 6,956Latin America 7,859Eastern Europe 57,511Western Europe 6,303Middle East 72,896Africa 14,298Asia and Pacific 15,894Total 181,717OPEC 89,240OPEC% 49.1UAE 6,060UAE/World% 3.3%UAE/OPEC% 6.79%UAE Crude Oil PricesAverage Crude Oil Prices 1999 2000 2001 2002 2003 2004Murban 17.97 27.73 24.15 24.88 28.37 36.80Lower Zakum 17.99 27.78 24.19 24.90 28.39 38.87Umm Shaif 17.74 27.53 23.91 24.68 28.14 36.56Upper Zakum 17.10 26.40 22.98 24.12 27.53 34.20Dubai platts 17.21 26.15 22.81 23.81 26.79 33.59Crude Oil Exports by Destination(in thousands of barrels per day) 2000 2001 2002 2003 2004*North America................................................... 1.3 19.6 10.0 7.0 5.0United States..................................................... 1.3 19.6 10.0 7.0 4.7Latin America..................................................... – – – – –Eastern Europe.................................................. – – – – –Western Europe................................................. 1.3 6.1 3.0 – –France............................................................... 0.1 5.1 – – –Germany............................................................ – – – – –Italy................................................................... – – – – –Netherlands....................................................... 1.2 – – – –United Kingdom................................................ – – – – –Middle East....................................................... – – – – –Africa................................................................ 34.3 37.0 26.0 28.0 30.0Asia and Pacific*............................................... 1,778.0 1,724.0 1,575.0 2,013.0 2,137.0*of which Japan:............................................ 1,065.8 1,066.8 1,182.8 1,224.0 1,047.7Unspecified....................................................... – – – – –Total World 1,814.9 1,786.7 1,614.0 2,048.0 2,172.0Source: OPEC Annual Statistical Bulletin 200430002500200015001000500Source: EIAUAE Oil Production and Consumption 1980–2004PRODUCTIONNET EXPORTSCONSUMPTION01980 1985 1990 1995 2000 2004

130 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT 131Cumulative Crude Oil Production (000s b/d)Abu Dhabi Oil Fields and ConcessionsYear Daily Cumulative %change Year Daily Cumulative % changeAverage in daily av Average in daily av1962 14.2 5,183 1984 1,069.0 8,979,037 -7.01963 48.2 22,776 239.4 1985 1,009.1 9,347,375 -5.61964 186.6 91,145 287.6 1986 1,128.6 9,759,296 11.8Source: OPEC Statistical BulletinSource: OPEC Statistical BulletinOPEC Production Quotas for UAE (000s b/d)Thousands of barrels per day1965 282.2 194,148 51.1 1987 1,242.3 10,212,731 10.11966 260.0 325,548 27.6 1988 1,323.5 10,697,122 6.51967 382.1 465,014 6.1 1989 1,593.0 11,278,568 20.41968 496.6 646,770 30.0 1990 1,762.6 11,921,927 10.61969 627.8 875,917 26.4 1991 2,027.4 12,661,931 15.01970 779.6 1,160,471 24.2 1992 2,235.7 13,480,186 10.31971 1,059.5 1,547,188 35.9 1993 2,159.3 14,268,325 -3.41972 1,202.7 1,987,377 13.5 1994 2,166.5 15,059,110 0.31973 1,532.6 2,546,776 27.4 1995 2,148.0 15,843,130 -0.91974 1,678.6 3,159,465 9.5 1996 2,161.3 16,634,166 0.61975 1,663.8 3,766,752 -0.9 1997 2,160.7 17,422,821 _1976 1,936.4 4,475,475 16.4 1998 2,244.1 18,241,918 3.91977 1,998.7 5,205,004 3.2 1999 2,048.8 18,989,730 -8.71978 1,830.5 5,873,137 -8.4 2000 2,174.7 19,785,670 6.11979 1,830.7 6,541,339 _ 2001 2,115.2 20,557,718 -2.71980 1,701.9 7,164,231 -7.0 2002 1,900.3 21,251,327 -10.21981 1,502.3 7,712,570 -11.7 2003 2,248.0 22,071,847 18.31982 1,248.8 8,168,382 -16.9 2004 2,343.6 22,929,605 4.31983 1,149.0 8,587,775 -8.025002000150010005000Feb-01 Apr-01 Sep-01 Dec-02 Nov-03 Apr-04 Jul-04 Aug-04 Nov-04 Mar-052,201 2,113 2,025 1,894 2,138 2,051 2,225 2,269 2,356 2,400Source: OPEC Statistical Bulletin; Arab Oil & Gas Directory; Abu Dhabi Dept. of Planning Source: Arab Oil Journal. Note: Boundaries are only indicative.Abu Dhabi Oil Production and Exports250020001500100050001992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Onshore 991 900 920 950 975 960 900 820 1,015 935 850 1,155 1,150Offshore 1,009 1,000 886 838 925 990 1,012 870 975 900 840 745 805TOTAL 2,000 1,900 1,806 1,788 1,900 1,950 1,912 1,690 1,990 1,835 1,690 1,900 1,955Exports 1,795 1,650 1,614 1,573 1,665 1,685 1,675 1,460 1,770 1,615 1,450 1,670 1,720

132UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT133over recent years, a programme of field development (entailing the drilling of infillwells, horizontal production wells and water injectors) has raised its reserveproductionratio and 2004 was the first time in recent years that production wasactually up on the previous year’s figures. DPC has installed water and gas injectionfacilities on a large scale to maximise recovery rates, and all the associated gasproduced at its four fields is now re-injected into oil reservoirs. Condensate isalso produced from the wholly government-owned onshore Margham field. Thecalculation on how long Dubai can keep its oil wells flowing depends on which setof figures one adopts for recoverable reserves. According to the French ComitéProfessionnel du Pétrole, Dubai produced 340,000 b/d in 2003 and 350,000 b/din 2004. This analysis indicates that it has a reserve-production ratio of 31.3 years.While oil revenues have played an important part in Dubai’s development,the emirate has followed a vigorous strategy of reducing its dependence onhydrocarbons. The sector accounted for 6.7 per cent of GDP in 2004 comparedto 24 per cent ten years previously or 50 per cent 20 years ago, in 1985. Dubai’sgovernment expects the figure to reach less than 1 per cent by 2010.SharjahSharjah’s oil reserves are put at 1.5 billion barrels of crude oil and condensate.The three onshore gas and condensate fields account for the bulk of the emirate’shydrocarbon reserves, since the Mubarak field contains less than 50 million barrelsof oil and 1500 billion cubic feet of associated gas.The emirate’s hydrocarbon production has been in decline since the mid-1990s.Following a similar trend to that in Dubai, production in 2004 was actually upon the 2003 figure. Crude and condensate combined production was 48,000 b/din 2004 compared to 46,500 in 2003. Liquids production in 2004 was made upof about 6000 b/d of crude and 12,000 b/d of condensate from the offshoreMubarak field and 30,000 b/d of condensate from the onshore Saja’a field.Sharjah passes on 20 per cent of its revenues from Mubarak to Umm al-Qaiwainand 10 per cent to Ajman.and also holds exploration licences in the emirates of Sharjah, Ajman and Ummal-Qaiwain, has been reassessing a small offshore tract known as B structure,where a non-commercial find was made in the 1970s. Novus Petroleum, owned byan Indonesian conglomerate, was assigned exploration rights to the onshore Hagilacreage, in the northern part of Ra’s al-Khaimah, in 2002. Following completion ofa 2D seismic survey in 2003, the company has recently announced plans to drillan exploration well into a zone that is thought to contain gas-bearing structures.Umm al-QaiwainAt the present time, Umm al-Qaiwain’s sole interest in oil production remains its20 per cent share of the revenues derived from the offshore Mubarak field inSharjah, part of which lies under its territorial waters.EXPLORATION AND FIELD DEVELOPMENTAbu DhabiOil and gas exploration in Abu Dhabi is primarily carried out by companies withinthe ADNOC group. While most of this is undertaken by operating companiesADCO, ADMA-OPCO and ZADCO, ADNOC also has its own ‘sole risk’ programme.The exploration programme, which began in 1950, has already yielded hugereserves of oil, and the research emphasis has now shifted from finding newfields to a more thorough examination of existing known reserves, along withsome high-tech exploration of deep oil and gas prospects. The aim is to maximisethe output of each structure through improvements in extraction methods andexpansion programmes. It is predicted that efforts currently under way, involvingan investment of over US$10 billion, will raise the UAE’s sustainable crude outputcapacity from around 2.5 mb/d at the beginning of 2004 to 3 mb/d in 2006 and3.7 mb/d by 2010. The long awaited development programme planned for UpperZakum requires a very high level of technical expertise as a result of the lowreservoir pressure and porous rocks. Introduction of an additional technical partner,in the form of ExxonMobil, provided a boost to the project.Ra’s al-KhaimahRa’s al-Khaimah’s liquid hydrocarbon reserves have been estimated at 100 millionbarrels of crude and condensate, but its only production consists of 700 b/d ofcondensate from the Saleh field.There has been a recent surge of exploration activity in Ra’s al-Khaimah withthree companies active in this field. In 1996 the Ra’s al-Khaimah Oil and GasCompany was granted exploration licences for most of the emirate’s land andseabed (with the exception of the area around the Baih field or B structure). Itsfirst well, spudded in December 1997, went down as far as 17,850 feet butproved to be dry. Meanwhile, Atlantis Holdings, which was taken over by ChinaNational Chemicals Import and Export Corporation (Sinochem) in February 2003ADCOThe Company operates and produces oil mainly from five fields Asab, Bab, Bu Hasa,Sahil and Shah. These fields are linked to the storage and shipping facilities locatedat Jebel Dhanna, where tankers load crude oil for export to markets in various partsof the world. Oil production comes also from three other oil fields: Al Dabb’iya,Rumaitha and Shanayel.ADCO is continuing its programme of exploration to search for new reserves tooffset annual production and maintain reserve levels. Current exploration/appraisaltechniques are primarily based on the extensive use of 3D seismic surveys prior towildcat, appraisal and development drilling. These have recently included a 3Dsurvey of the Qusahwira/Mender and Zarrara/Mashhur areas for the appraisal of

134 135DOLPHIN ENERGYBy the third quarter of 2005, Dolphin Energy had taken substantial strides in theconstruction, marketing and financing of the Dolphin Gas Project, which isdue for completion by the end of 2006.This strategic energy initiative involves the production of natural gas fromQatar’s North Field, its processing at a dedicated plant in Qatar’s Ras LaffanIndustrial City – and transportation of the dry gas by subsea export pipelineacross joint UAE-Qatari waters to Abu Dhabi. On completion, some 2 billionstandard cubic feet of gas daily (scf/d) will be supplied through the exportpipeline to UAE and Omani markets.Following the award of major EPC contracts for its gas processing plant,offshore platforms and pipelaying in early 2004, Dolphin awarded its lastsubstantial EPC contract to the Technip/Al Jaber consortium in November2004 – for the gas receiving facilities at Al Taweelah, Abu Dhabi.Construction has progressed on the twin offshore platforms for Dolphin’sproduction wells in the North Field and also onshore facilities at the gas processingplant. 440,000 tons of pipe required for the export pipeline and other sealineshave been supplied from Japan, and pipelaying began in the fourth quarter.In 2005, two long-term gas sales agreements were signed, one with Dubai SupplyAuthority (DUSUP) and a further one with Oman. The new contracts follow earliergas sales agreements with Abu Dhabi Water and Electricity Authority (ADWEA),and Union Water and Electricity Company (UWEC).These four agreements are each of 25 years’ duration, and they will ensure thatsufficient gas flows through the export pipeline to achieve its initial maximumthroughput. A further short-term agreement has been signed in 2005 to supplyRa’s al-Khaimah with gas for a two-year period.Dolphin Energy continues to receive an average of 135 million cubic feet a day(mcf/d) of Omani gas, which it supplies to UWEC in Fujairah. Oman Oil Company(OOC) is supplying the gas for up to five years through Al Ain, via a link created byDolphin Energy with OOC’s Fahud-Sohar pipeline. The gas is being transportedfrom Al Ain to Fujairah to UWEC’s 656 MW power generation and 100 milliongallons a day (mg/d) plant through Dolphin Energy’s 182-kilometre, 24-inchpipeline, commissioned in January 2004.Dubai-based Emirates General Petroleum Corporation (Emarat) is responsible forthe operations and maintenance of this pipeline. Dolphin’s long-term gas suppliesfrom Qatar will be made available to Oman in subsequent years, once gas startsflowing from Qatar to the UAE.Dolphin Energy finalised the second stage of its financing in mid-2005. Thecompany agreed a conventional lending facility of US$2.45 billion in July with20 international and regional financial institutions, and signed an Islamic financingagreement in September for a further US$1 billion with 14 institutions. TheUS$3.45 billion financing arrangements have enabled Dolphin to repay the originalbridging loan of USS$1.36 billion, arranged in 2004 with a consortium of 16local, regional and international banks.Dolphin Energy is owned 51 per cent by Mubadala Development Company,which is itself wholly-owned by the Abu Dhabi government. Total of France andOccidental Petroleum (Oxy) of the US own 24.5 per cent each.

136UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT137known structures and exploration purposes to find new reserves and a 3D surveyof the Bab field to improve reservoir characterisation and help optimise developmentschemes. The main focus on future exploration/ appraisal is in the south-eastportion of ADCO’s concession and undeveloped reservoirs overlying/ underlying orproximate to reservoirs currently on-stream.ADCO is currently undertaking expansion projects to add some 400,000 b/dto its sustainable crude oil production capacity. These include expansion of theonshore Bab field (adding 100,000 b/d of facilities) to achieve a sustainable capacityof 350,000 b/d by early 2005 and full field development of four north-easternfields (Al Dabb’iya, Jarn Yaphour, Rumaitha, Shanayel) to increase their capacityfrom 10,000 b/d to 110,000 b/d. The work is scheduled for completion in the firstquarter of 2006 and will provide sustainable capacity of 70,000 b/d at the AlDabb’iya and Jarn Yaphour fields and 40,000 b/d at the Rumaitha/Shanayel fields.Work planned to be completed in February 2006 at the Bu Hasa field, to replaceageing production facilities and enhance pressure maintenance schemes, involvesgas and water injection facilities with a capacity of 150 million standard cubicfeet/day of gas and 120,000 barrels water per day. It is expanding capacity of theBu Hasa field by 180,000 b/d, from 550,000 b/d to 730,000 b/d.Work on Huwaila, located 30 kilometres south of the Bu Hasa field, began inAugust 2003. The field’s Shuaiba Unit H reservoir enters production in 2006 ata designed rate of 10,000 b/d. Additional wells are due to be drilled in 2007.This is an innovative development using multiphase pumps to deliver the fluids(oil/water and gas) to Bu Hasa where they are separated and processed. Thesecond phase of development of the Sahil field will also add 20,000 b/d capacityby 2008. Development work at the Asab field, aimed at boosting production by30,000 b/d, has also been progressing. Water injection facilities at the field havebeen renovated by Veco Engineering, which also holds a contract for maintenanceof 1311 wells at various fields operated by ADCO.The recently completed work undertaken to increase capacity of the Bab fieldfrom 250,000 b/d to 350,000 b/d involved installation of two new processingtrains, two-phase and three-phase gas/oil separator plants, a new central degassingstation and associated pipelines. Meanwhile, gas injection at the field was increasedby 120,000 cf/d, from 280 million cf/d to 400 million cf/d.Abu Dhabi already applies the most up-to-date production and drilling technologyat its oilfields. Both water and gas injection are in wide use at older fields tosustain reservoir pressure and maintain flow rates. Moreover, operators are drillinga growing number of horizontal wells to improve well productivity and boostrecovery rates. Many of these, particularly in the Rumaitha and Al Dabb’iya fields,are drilled as clusters from a relatively small area and the wells deviated to theirtarget zones to minimise the surface footprint. This reduces field congestion andcontributes to ADNOC Group’s environmental protection programme.Abu Dhabi’s operating companies have acquired considerable expertise indirectional drilling methods and utilise short, medium and long radius drillingtechniques in conjunction with both oriented and conventional coring. The longesthorizontal hole drilled in Abu Dhabi was an 1830-metre section drilled by ADCO.Whilst the prime responsibility for gas field development and production inAbu Dhabi is that of GASCO and ADGAS (see section on gas below), ADCO also hassome involvement in development of gas fields and undertakes production andprocessing of gas on behalf of ADNOC. Gas is presently recovered from the Asaband Bab fields. Bab presently yields around 3 billion cf/d of gas, whilst Asabproduces 826 million cf/d, bringing onshore gas production managed by ADCOto around 4 billion cf/d. Meanwhile, ADCO is tackling increasing corrosion atits onshore fields. In February 2004 it awarded a US$50 million contract to aconsortium specialising in this area. They are tasked with providing cathodicprotection for approximately 1500 wells and are scheduled to complete the workin 2007/08.ADMA-OPCOThe Abu Dhabi Marine Operating Company (ADMA-OPCO) is the second biggestoil producer in the UAE after ADCO. The two companies account for more than80 per cent of Abu Dhabi’s total crude oil production. ADMA-OPCO is responsiblefor development and operation of the Umm Shaif and Lower Zakum offshore fields.With an area of 360 square kilometres, Umm Shaif has 268 producing wells andis located about 140 kilometres north-west of Abu Dhabi City. The Lower Zakumfield, covering 1270 square kilometres, has 321 wells tapping into five productivezones. It currently produces 220,000 b/d, making it one of the largest offshoreoil fields in the world. Water injection is used to maintain pressure in the reservoir.Lower Zakum and Umm Shaif have rated capacities of 320,000 b/d and280,000 b/d respectively, but their sustainable capacities are considered to beapproximately 240,000 b/d and 220,000 b/d respectively. The company currentlyproduces around 420,000 b/d of oil that is obtained via multiple wells tappinginto the productive zones. Current plans are to raise their sustainable capacitiesto levels that were previously regarded as their maximum levels. This is beingachieved through drilling of new production and injection wells and construction ofprocessing and compression facilities to extract gas from the field’s Khuff reservoirand re-inject it into the Arab C and D oil reservoirs. Scheduled for completion in2006, the project will double the gas injection capacity of the Umm Shaif field.ADMA-OPCO commissioned a 1500-square-kilometre seismic survey of theseabed in the Zakum field. The aim was to boost productivity of both parts of theZakum structure through enhanced reservoir definition. In addition, the surveycould provide the baseline for a future time-lapse 3D reservoir monitoringprogramme. Current development of the Zakum field is utilising this data.

138UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT139Zakum Development Company (ZADCO)ZADCO was established in 1977 to develop and operate the Upper Zakum field, oneof the largest oil fields in the world, on behalf of ADNOC and Japan Oil DevelopmentCompany (JODCO). Besides Upper Zakum, the company also operates the Ummal-Dalkh and Satah fields. Upper Zakum, Abu Dhabi’s largest oil field with anestimated reserve of 50 billion barrels of oil, is of considerable significance inrelation to Abu Dhabi’s intention, supported by a US$10 billion investment,to increase its oil production capacity from a level of 2.5 mb/d in early 2004 tobetween 2.85 and 3 mb/d in 2006 and 3.7 mb/d by 2010. Upper Zakum’sproduction capacity is set to increase from its present level of 550,000 b/d to750,000 b/d by 2006/07. Oil and associated gas from all three fields are piped toZirku Island for final processing, storage and shipping. Facilities on Zirku arebeing upgraded. Debottlenecking has increased their efficiency and raised capacityfrom 600,000 b/d to 800,000 b/d, thus enabling them to handle the plannedincrease in ZADCO’s production.Despite the large size of the Upper Zakum field (50 billion barrels of crude oil inplace), relatively low pressure and poor porosity of the rock has restricted recoveryrates. Large-scale use of water injection as well as gas injection has been employedto counter these difficulties. Using gas to inject into oil bearing reservoirs, increasingthe pressure and enhancing flow rates is clearly more feasible in the UAE than incountries lacking the UAE’s vast reserves of natural gas and oil in close proximity.Abu Dhabi Oil Company (ADOC)ADOC, owned by a consortium of Japanese oil companies, operates three offshoreoil fields, Mubarraz, Umm al-Anbar (referred to as AR) and Neewat al-Ghalan(referred to as GA), located 60 to 100 kilometres west of the coast of Abu DhabiCity. Sweet gas has been injected to AR and GA fields for enhanced oil recoverysince the start of production. Concurrently, 10 million standard cubic feet perday (mmscf/d) of sour and acid gas, extracted via a gas-sweetening unit, wasflared at AR site terminal until 2000. However, ADNOC environmental regulationsmeant that such flaring was no longer acceptable and an alternative solutionwas required. The option selected was to inject the sour gas previously flared intoexisting oil reservoirs.The sour gas injection facilities include two parallel compression trains, each of20 mmscf/d, and a common sour gas dehydration unit of 40 mmscf/d capacity.Currently, the sour and acid gas separated at AR site terminal is being injectedinto the oil reservoirs of AR and GA fields on a continuous basis. Injection of thesour gas has significantly enhanced oil recovery from the AR and GA fields.In parallel to the sour gas injection project, ADOC has implemented a secondproject known as the zero gas-flaring project. This recovers sour gas flared atMubarraz Offshore and Mubarraz Island for injection into the oil reservoirs of ARand GA fields via the sour gas injection facilities. The zero gas-flaring project wascompleted in April 2001 and the continuous gas injection from both Mubarrazoffshore and Mubarraz Island continues. As a result of the combined efforts withboth the sour gas injection and zero gas flaring projects, almost all the sour gasproduced from ADOC’s oil fields is now being recovered and injected into the oilreservoirs of AR and GA fields.The Mubarraz, West Mubarraz and Neewat al-Ghalan fields presently producearound 31,000 to 32,000 b/d of crude oil.Al Bunduq Oil Company (BOC)The Al Bunduq field straddles the maritime border between Abu Dhabi and Qatar.In May 1969, Abu Dhabi and Qatar agreed to share revenues accruing from thefield’s oil production on an equal basis. Al Bunduq produces approximately 12,000to 15,000 b/d for Abu Dhabi.Total Abu al-Bukhoosh Oil Company (TBK)Total Abu al-Bukhoosh Oil Company was set up to develop the Abu al-Bukhooshfield discovered by ADMA-OPCO in 1969. The field now yields around 25,000 b/dof crude.DubaiDubai has installed enhanced recovery systems and other facilities to maximiseflow rates at its oilfields in a bid to slow the decline in production. Furtherdevelopment work is taking place at the Margham gas field to stem the fall ingas/condensate output there. Dubai Petroleum Company (DPC), by far the largestproducing venture in the emirate, has drilled infill wells and horizontal productionwells to boost recovery at four main oilfields, Fateh, Southwest Fateh, Rashidand Falah, which are all located offshore. There have been some impressivesuccesses, for example the tripling of production at Falah D from 10,000 b/d to30,000 b/d following horizontal drilling at the site. Faced with limited resourceswithin its own territory, Dubai has also been looking elsewhere for opportunitiesin oil exploration and development. One such venture is that of Dragon Oil (anIrish-registered company in which Emirates National Oil Company (ENOC) has a51 per cent shareholding), which has an interest in oil production in Turkmenistan,where its production reached around 20,500 b/d by the end of 2004, up from13,217 b/d in 2003 and 10,383 b/d in 2002. It expects production at these facilitiesto reach 40,000 b/d by 2008/09.SharjahSharjah’s main hydrocarbon production is in natural gas and the emirate’s onlyoil field is the offshore Mubarak field, which has been in production since 1974.A steady decline in production at this field led Crescent Petroleum to embark on asecondary development programme that entailed drilling more wells, including

140 UNITED ARAB EMIRATES YEARBOOK 2006some horizontal wells, tapping into the Thamama formation and development ofa new gas processing platform to handle Thamama gas. The platform is equippedfor condensate separation and stabilisation, together with gas dehydration andcompression. The secondary development programme has had a positive impacton Sharjah’s oil production, which is reported to have reached 48,000 b/d in2004. This was made up of 6000 b/d crude oil and 12,000 b/d of condensatesfrom the offshore Mubarak field and 30,000 b/d of condensate from the onshoreSaja’a field, Moveyeid and the Kahaif fields.Ra’s al-KhaimahThree companies are currently engaged in oil exploration in Ra’s al-Khaimah.They are the US-based Ra’s al-Khaimah Oil and Gas Company, Chinese-ownedAtlantis Holdings, and the Indonesian registered company, Novus Petroleum.The newcomer on the block is Novus, which has a 100 per cent interest in the600-square-kilometre onshore Hagil tract. Following completion of a 2D seismicsurvey, Novus indicated that it would drill a deep exploratory well in mid-2005.This is expected to yield gas rather than oil.FujairahNaftogaz Middle East, a UAE-Ukrainian consortium formed by NaftoGaz Ukrainyand Al Jazira Enterprise for Project Development and Trading, plans to invest up toUS$600 million in exploration for oil and gas reserves in Fujairah. The companysigned an exploration concession agreement in early 2005 for the whole of theonshore and offshore areas of Fujairah, with the first seismic work due to takeplace in late 2005. Under the terms of the concession agreement, Naftogaz MiddleEast will acquire previous seismic data obtained in Fujairah, as well as data on anunsuccessful well drilled in the Bay of Dibba over a decade ago. Initial targets areexpected to be onshore to the west of the Hajar Mountains, in the Habhab area,not far from Sharjah’s successful onshore gas and condensate fields at Saja’a,Moveyeid and Kahaif. Studies will also be carried out offshore. The agreement isfor a 30-year term, with initial seismic studies due to be completed within two anda half years. Any eventual output will be shared by the emirate and the contractors.AjmanDespite discovery of the small Zora field, which straddles the border betweenAjman and Sharjah, and signing of a production-sharing agreement for developmentof the field, work had not commenced on this by mid-2005.Umm al-QaiwainAtlantis Holdings, owned by China’s Sinochem, has the right to explore the wholeof Umm al-Qaiwain’s onshore and offshore territory for oil and gas reserves. It hascarried out both an onshore 3D seismic survey and some offshore exploratorydrilling. Whilst results of the latter have not been released, the company didOutput of Refined Products by type (1,000 b/d)% change2000 2001 2002 2003 2004 04/03TOTAL 315.3 309.5 424.7 430.2 439.8 2.2Gasoline 29.6 na 31.2 35.0 40.7 16.3Kerosene 84.7 na 107.0 118.5 117.0 -1.3Distillates 79.7 na 95.6 94.2 96.9 2.9Residuals 36.9 na 31.1 21.4 23.5 9.8Others 84.4 na 159.7 161.1 161.7 0.4Source: OPEC Annual Statistical Bulletin 2004

Refinery capacity 000b/d142 UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT 143commission a study for possible construction of an onshore gas processing plantwith a capacity of 150 million cf/d. Plans for a pipeline to link into the UAE’sdeveloping gas network have, however, been put on hold.800UAE Refinery CapacityOIL REFINING AND BUNKERINGRefining capacity in the UAE is being boosted to 1.14 mb/d in 2006, from 708,000b/d in 2004. The installation of two world-class condensate splitters at the Ruwaisrefinery have more than doubled Abu Dhabi’s refining capacity to over 500,000bp/d. In addition, Emirates National Oil Company’s (ENOC) refinery added torefined production capacity in 2004 with its 120,000 b/d condensate processingplant at Jebel Ali Free Zone.Abu DhabiAbu Dhabi Oil Refining Company (Takreer) operates the emirate’s two refineriesat Ruwais and Umm al-Nar, which had capacities in 2004 of 420,000 b/d and88,000 b/d respectively. Takreer signed an agreement in May 2005 with DodsalLtd for the execution of a Dh1.47 billion project to link its two refineries. Theproject will optimise inter-refinery operations between Umm alNar and Ruwaisand will help to address the increased product requirements at the Abu DhabiInternational Airport and Al Ain. The US$399 million project is scheduled forcompletion by the end of 2007.The Ruwais plant includes two 140,000 b/d condensate processing trains, whichcame on-stream in 2000, tripling its capacity from 126,000 b/d to 420,000 b/dand increasing Abu Dhabi’s total refining capacity from 211,000 b/d to 508,000 b/d.Light products produced at Ruwais are mainly exported to Japan and India, whilefuel oil produced there is sold locally and used for domestic power generation.Unleaded gasoline (ULG) units have been installed at both refineries. The Ruwaisfacility has also installed a low-sulphur gas-oil (LSGO) plant and expanded itshydrocracker. The other new units are central environmental protection facilities(BeeAT) for the processing and storage of toxic waste, a 300,000 tons/year (t/y)base oil refinery (BOR), and additional sulphur loading facilities in the port ofRuwais. This ambitious development programme at Ruwais is being undertakenin a series of stages.Meanwhile, Takreer’s condensate plant at Ruwais, initially comprising two140,000 b/d units, is being increased to 360,000 b/d by 2006. This is being donein order to process the extra 135,000 b/d of condensate that will be producedby the expanded onshore Asab field when developments there are completed.The increased capacity has been achieved by debottlenecking the existing splittersto increase their effective capacity by 30 per cent.Abu Dhabi already produces lubricants at the two oil refineries, as well as ata 30,000 tonnes per year (t/y) lube-oil blending plant that started up in the late700600500400300200UAE REFINERY CAPACITY (000b/d)1000Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Capacity 192.5 205 205 211 246 291 291 411 420 491.3 491.3 510.0 708OPEC Basket Prices 2 January 2001 – 2 September 2005Price per barrel (US$)6258New basket begins June 165450464238Price band suspended January 30343026Price band2218142.1.012.3.012.5.012.7.012.9.012.11.012.1.012.1.022.3.022.7.022.9.022.11.022.1.03Source: EIA/OPEC News Agency (official OPEC news source)2.3.032.5.032.7.032.9.032.11.032.1.042.3.042.5.042.7.042.9.042.11.042.1.052.3.052.5.052.7.052.9.05

144UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT1451980s and a 4000 t/y grease plant in Umm al-Nar. The Ruwais BOR provides afurther boost to Abu Dhabi’s lubricants production, from 50,000 t/y to 90,000 t/yby 2005/06.In late 2003, Takreer commenced work on its central Environment ProtectionFacility for the UAE (BeeAT), awarding an EPIC (engineering, procurement,installation and commissioning) contract worth US$47.4 million. The new facilitywill comprise several waste treatment units and is scheduled for completion inmid-2006. Its task will be to safely receive, manage, treat and dispose of wastegenerated by ADNOC and its group of companies.Abu Dhabi also has direct interests in refining and distribution ventures outsideof the UAE. It owns equity in six refineries, with a total capacity of 642,500 b/d,and service station networks totalling 2800 outlets in various countries. Theseinterests are held and managed by the government’s foreign investment arm, theInternational Petroleum Investment Company (IPIC).A bulk oil products storage facility, established at Hamriyah in April 2001, wasdeveloped by National Oil Storage Company (NOSCO): a 50–50 joint venturebetween two Sharjah-based companies, Gulf Energy and Union Energy. It comprisessix storage tanks, two of 10,000 tons, two of 6000 tons and two of 5000 tons,for holding diesel oil, fuel oil and bitumen.FujairahFujairah has capitalised on its strategic location on the Gulf of Oman by providingoil storage and bunkering services to shipping. These comprise eight 11,500-tontanks and three 40,000-ton tanks. In addition, a separate and larger storage andblending facility is owned and operated by a consortium that includes EmiratesNational Oil Company (ENOC). Fujairah Port is the world’s second largest shiprefuelling centre and has the third largest container terminal in the UAE.OIL EXPORTSDubaiWhilst Dubai does not have any crude oil refining facilities, it does possess a120,000 b/d condensate refinery that began operations in 1999. It wasdeveloped by government-owned Emirates National Oil Company (ENOC) at acost of Dh1.3 billion and consists of two 60,000 b/d trains, one for sweet andone for sour condensate. The plant produces a large proportion of the LPG, jetfuel, gas oil and bunker fuel consumed in Dubai, as well as exporting some66,000 b/d of naphtha. ENOC is upgrading the refinery to enable it to operateat full capacity and produce gasoline and naphtha with very low sulphurcontent. This work is scheduled for completion in 2007.Several oil-reprocessing and lube-oil blending plants are situated at Jebel Ali,including a lube-oil blending and packaging plant that can produce 60,000 t/yof lubricants, and its output is marketed throughout the Gulf region as well as inthe UAE. An oil-processing plant for producing gasoline additives and conditioningproducts has been developed by Ducham, a subsidiary of Abu Dhabi-based StarEnergy Corporation. This has a capacity of 20,000 b/d of unleaded gasoline, 360ton/day (t/d) of aromatics and 240 t/d of raffinate. Gadgil Western Corporation(GWC) runs a fuel-oil reprocessing plant with a capacity of 275,000 t/y. France’sTotal has licensed ENOC to use its Jebel Ali based lube-oil blending plant to produce5 million litres/year of lubricants, with a possible increase to 6.5 million litres/yearat some future date.SharjahFal Oil operates a lubricants plant in Sharjah that started in 1979 and producesa variety of products for automotive, marine and industrial use. It was theemirate’s second lube-oil blending plant, following that developed in 1976 bySharjah National Lube Oil Company (Sharlu).Central Bank figures indicate that the UAE earned Dh108.79 billion from oil sales,Dh15.16 billion from exported petroleum products and Dh17.23 billion fromexports of natural gas in 2004. Total oil and gas exports thus reached a record levelof Dh141.18 billion, which was Dh32.61 billion more than the previous year.The increased revenues led the Federal Government to produce a balanced budgetfor 2005, the first time it had done so since 1981.Abu DhabiAbu Dhabi increased its oil production in 2004 by around 55,000 b/d, to around1.72 mb/d. Japan remained its chief customer and the UAE also retained its positionas Japan’s main crude oil supplier for most of 2004, accounting for about aquarter of Japan’s total crude oil imports. Abu Dhabi sends more than half itscrude oil to Japan. Most of Abu Dhabi’s crude oil exports, comprising four grades ofcrude, Murban (39° API), Lower Zakum (39° API), Umm Shaif (37° API) and UpperZakum (33° API), are sold to the Far East. After Japan, the main importers areTaiwan, Thailand, India, Pakistan, Sri Lanka and Bangladesh.Abu Dhabi’s condensate exports continued to rise in 2004, reaching almost400,000 b/d. These exports have no effect on the amount of crude that theemirate can export, since condensate is not covered by OPEC’s oil productionquota arrangements.Abu Dhabi’s refined products, above those used in the local market, are exportedby ADNOC Distribution (ADNOC-FOD), which sells oil products and lubricants bothto the Far East and to Arab and African countries. India is the leading exportmarket for Abu Dhabi’s refined products, absorbing over half its gas-oil exportsas well as substantial volumes of kerosene and LPG. Japan now accounts for aboutone-third of the emirate’s refined product exports, down from 50 per cent in1993, but remains the largest market for naphtha.

146UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT147DubaiDubai exports all the crude oil it produces, mostly to the Far East. Dubai crude(31° API) is mainly sold on the spot market, and, despite its very limited volume,serves as a price marker for some other Gulf producers. In 2004 the price averagedUS$33.5/b, as against US$26.85/b in 2003.GASThe UAE’s natural gas reserves of 213.5 trillion cubic feet (tcf) are the world’sfourth largest after Russia, Iran, and Qatar. The largest reserves of 198.5 tcf(approximately 93 per cent of the UAE total) are located in Abu Dhabi, with therest shared by other emirates. Current gas reserves are projected to last forabout 150 to 170 years at present rates of production. Gross production by AbuDhabi rose to approximately 65 billion cubic metres (6.3 billion cubic feet/day) in2004. Onshore gas fields accounted for about 4.8 billion cubic feet/day (cf/d),whilst offshore fields contributed around 1.4 billion cf/d. The non-associatedKhuff gas reservoirs beneath the Umm Shaif and Abu al-Bukhoosh oil fields inAbu Dhabi rank among the world’s largest. A project to boost gas productionfrom these fields was completed in 2004.Development of gas production also increases exports of condensates, whichare not subject to OPEC quotas. Abu Dhabi Gas Industries Ltd (GASCO) handlesassociated gas from ADCO’s onshore crude production and processes it throughthree NGL extraction plants at Bab, Bu Hasa and Asab. Offshore, the Abu Dhabi GasLiquefaction Company (ADGAS) handles associated and non-associated gas fromoffshore fields at its plant on Das Island. The bulk of the output is sold to Japan.In addition to the growing volume of gas that is re-injected into oil fields (over1 billion cf/d in 2004), the country’s power stations, desalination plants and otherindustrial projects depend on burning gas, rather than oil, driving gas consumptionto 4.5 billion cf/d in 2004, a figure that is expected to soar to 5 billion cf/d by2007. At present consumption rates, 71.4 per cent of gross gas production isconsumed within the country. This does not include the figure of around 1.5 billioncf/d that is re-injected into oilfields as part of the production boosting measures.The UAE has been an exporter of natural gas since 1977. Rapid growth inproduction follows a development programme involving three separate projectsto enhance recovery of associated and non-associated Khuff gas from onshorereservoirs. Gross (marketed) natural gas production in 2004 has been estimated at49.2 billion cubic metres (cu m). Liquified natural gas (LNG) exports totalled 7.6billion cu m while exports of natural gas liquids (NGLs) reached 13.6 billion cu m.SUPPLY NETWORKSIf further confirmation was needed that the UAE sees gas and not oil as the answerto its future energy needs, construction of a new project for natural gas distributionthroughout Abu Dhabi should persuade any doubters that this is indeed the wayforward. The new pipeline network will deliver clean burning natural gas forcommercial and residential purposes. The estimated Dh1billion initiative comeson the back of increased natural gas availability as several development andexpansion projects are under way. In the first phase, the natural gas distributionnetwork will cover 120,000 commercial and residential users in Abu Dhabi, AlAin and one or two nearby towns. ADNOC Distribution, a subsidiary of ADNOC,is overseeing the project.Industry sources and government officials share the view that Abu Dhabi willhave an abundance of natural gas once major expansions come on-stream. Theonshore gas development projects 2 and 3, Bu Hasa, Bab and others are all beingexpanded, making more natural gas available. To this can be added the supply ofQatari gas under the mega Dolphin gas initiative that will come on-stream in 2006.On 29 May 2005 the foundation stone for the Dolphin Energy’s gas processingplant in Ras Laffan was laid by Qatari Crown Prince Sheikh Tamim bin HamadAl Thani. The new plant, to be built at a total cost of US$1.6 billion, will supplyabout 2.5 bcf/d of gas.Even the UAE’s cars are likely to switch to gas as a fuel in the future. ADNOCDistribution has been engaged in a pilot project for use of natural gas by taxis inAbu Dhabi. Initially 48 taxis in the capital have been fitted to run on gas insteadof gasoline. The natural gas filling station is near Mina (Port) Zayed. Future plansinclude the use of natural gas by all taxis in Abu Dhabi, Al Ain and nearby areas.Abu DhabiAbu Dhabi government is sole owner of all natural gas resources on its territory,both onshore and offshore, whether in associated or non-associated form. TheAbu Dhabi National Oil Company (ADNOC) is responsible for developing andmarketing these resources on the government’s behalf and is authorised to formpartnerships with foreign companies for that purpose, so long as it retains at leasta 51 per cent interest in any venture. Abu Dhabi’s proven natural gas reserves wereestimated at 198.5 trillion cubic feet (tcf)) on 1 January 2005, representing around93 per cent of the UAE’s total gas reserves of 213.5 tcf. Meanwhile, Abu Dhabi’sgross gas production reached 65 billion cubic metres (bcm) (6.3 billion cf/d) in2004, comprising about 4.9 billion cf/d from onshore fields and 1.4 billion cf/dfrom offshore fields.The impressive production figures are the result of a sustained developmentprogramme involving the second and third onshore gas development projects(OGD-2 at the Bab field and AGD-1 at the Asab field). These are operated by theAbu Dhabi Gas Company (GASCO), which also operates the massive gas processingplant at Habshan, built in 1983 to process associated gas from the Thamama Creservoir of the Bab oilfield, and which today also processes non-associated gasfrom the Thamama B, D and F reservoirs and Thamama units 6 and 7 at Bab.

148UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT149GASCOGASCO operates a number of gas processing plants, dealing with both onshoreand offshore gas. They are briefly described below.The Habshan-Bab Gas Complex, the first ADNOC gas processing plant atHabshan, was built in 1983 at Bab oil and gas field, to process sour gas fromThamama-C reservoir wells. The plant went through several expansion projects(OGD-I in 1996; OGD-II in 2001), thereby increasing its gas processing capacityrates to make it one of the largest gas processing plants in the world. The Habshanplant currently has a total of eight gas processing trains and two gas injectiontrains with a feed gas capacity of 3300 mmscf/d. The plant produces network gas,natural gas liquids (NGL), condensate and sulphur.The Bab Plant is located across the road from ADCO Crude Degassing Plant,five kilometres from the Habshan plant. This single train NGL extraction plant wasstarted up in 1981; it was de-bottlenecked to increase its capacity up to 150mmscf/d in 1989. Due to the immediate proximity of the two plants, Habshan andBab were grouped into one single entity in charge of operating the entire Habshan-Bab Gas Complex in 2002.The Bu Hasa NGL extraction plant has two trains with a total processing capacityof 540 mmscf/d. It receives associated gas from the neighbouring Bu Hasa oil fieldoperated by ADCO. It produces NGL and lean gas.The Asab NGL Plant, located next to the ADCO operated Asab oil field, 190kilometres south of Abu Dhabi City, is an NGL extraction plant that processes thegas associated with oil production. Since its start-up in 1981, it has been in fulloperation and is at the beginning of the NGL pipeline system that runs to the GASCONGL fractionation plant at Ruwais. It has a feed gas capacity of 300 mmscf/d.The Asab Gas Plant (AGP) started in 2001 to process condensate rich gas. It is agas cycling plant encompassing two parallel processing trains, with a total capacityof 825 mmscf/d. Condensate is extracted from the feed-gas and transferred to theTakreer Ruwais refinery.The Ruwais NGL Fractionation Plant is located in the Ruwais Industrial Area.It receives NGL from the other GASCO Plants as well as from the neighbouringTakreer Refinery. The Plant can process 7.2 million tonnes of NGL per year andconsists of two fractionation trains, storage tanks and a loading jetty for exportingLiquefied Petroleum Gases (LPG) and Pentane plus. Since November 2001, theRuwais plant also delivers ethane to the neighbouring Borouge petrochemical plantto be used in the production of ethylene.Over the recent years several major projects have been completed by GASCO.These include Ruwais Digital Control System (2001), Asab Gas DevelopmentPhase I (2001), Ruwais Upgrading Project (2001), Maqta-Jebel Ali Gas pipelineproject (2002), Onshore Gas Development Phase II (2002), Buhasa IntegratedControl System (2005), and the Habshan Ethane Recovery Maximization (2005).IraqVenezuelaAlgeriaNigeriaUnited StatesUnited Arab EmiratesSaudi ArabiaQatarIranRussiaSource: Oil & Gas Journal, Vol. 102, No. 47million standard cu m50,00045,00040,00035,00030,00025,00020,00015,00010,0005,00002000 2001 2002 2003 2004*Source: OPEC Annual Statistical Bulletin 2004Natural Gas Reserves by Country, 2005Natural Gas Production in UAE, 2000–2004Marketed productionReinjectionShrinkageFlaring2000 2001 2002 2003 2004* % change 04/03Gross production 50,530 59,020 63,830 64,000 65,430 2.2Marketed production 38,380 39,360 43,390 44,800 45,800 2.2Reinjection 7,500 14,600 15,200 13,760 14,060 2.2Shrinkage 3,360 4,370 4,770 4,830 4,940 2.3Flaring 1,290 690 470 610 630 3.3

150UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT151Projects costing in excess of US$4 billion are under execution and due forcompletion progressively during the years 2007/08. Salient features of some ofthese major projects are highlighted below.(i) The Offshore Gas Development Phase III (OGD – III) Project is designed toprocess 1306 mmscf/d of condensate rich gas (Thamama ‘F’) at Habshan andto produce 11,800 t/d NGL (including 3400 t/d ethane) and 130,000 b/dcondensate. Residue gas will be re-injected back into the reservoir for pressuremaintenance purposes (gas cycling).Main facilities will include two trains each of inlet separation, condensatestabilisation, gas treatment and NGL recovery units. The project will also includeinstallation of a gas re-injection system and a separate NGL pipeline from Habshanto Ruwais, apart from various utilities and offsite facilities.The EPC Contract for OGD III Project was awarded to M/S Bechtel (UK) inDecember 2004 and the work is expected to be completed by April 2008.(ii) The third NGL train at Ruwais is designed to process an additional 24,400 t/dof NGL produced from OGD-III, AGD-II and other projects and to produce about6400 t/d of raw ethane for transfer to the petrochemical plant at Ruwais (Borouge),6000 t/d each of propane and butane and 5800 t/d of pentane plus products.The project essentially comprises a new NGL fractionation train and new storagetanks for propane, butane and pentane-plus together with some new jetty andancilliary facilities. An EPC contract was awarded to M/S Snamprogetti (Italy) inMarch 2005 and is due for completion by May 2008.(iii) The Asab Gas Development – Phase II (AGD-II) is designed to recover6400 t/d of NGL from the sour condensate rich gas from the existing Asab GasPlant (AGP). Residue gas will be re-injected back into the reservoir for pressuremaintenance purposes (gas cycling).Main facilities include two trains each of gas treatment and NGL recovery units,apart from a new NGL pipeline from Asab to Habshan and the required utilitiesand offsite facilities. An EPC contract was awarded to Bechtel in July 2005 and isdue for completion by September 2008. This is the last of the five major projectswithin the overall scheme of onshore gas development initiated by ANDOC.(iv) The Habshan Gas Complex Expansion involves installation of an additionalgas processing train at Habshan (capacity up to 360 mmscf/d), to process additionalnon-associated or associated gas, in particular from the ADCO crude oil expansionproject at Bab. It will also process high-pressure gas from Buhasa to achieveoperational flexibility between Buhasa and Habshan. It includes increasing thegas injection capacity at Habshan from 1100 mmscf/d to 1525 mmscf/d and theinstallation of an additional pair of sulphur recovery units (SRU).(v) The Offshore Associated Gas Project (OAG) envisages transporting the excessoffshore associated from Das Island through a 200-kilometre-long, 24-inch diameteroffshore / onshore pipeline and to process it at Habshan. It will establish a strategiclink between the offshore and onshore facilities.Pre-FEED study for the project was completed by M/S Fluor (USA) in September2004. The Front-End Engineering and Design (FEED) contract was awarded toFluor (UK) in February 2005 and was scheduled for completion by November2005. EPC implementation of the project is planned to be achieved by the secondquarter of 2008.Other GASCO projects include upgrading of facilities at Buhasa, an Asab andBab integrated control system, and the Ruwais GUP power interconnection.ADGASOffshore gas development is also of crucial importance to Abu Dhabi’s economy,with current work being focused on increasing efficiency with regard to extractionrates. Most of the gas produced offshore is supplied to the Abu Dhabi GasLiquefaction Company’s (ADGAS) liquefaction plant on Das Island. In December2004 ADGAS contracted with German company Siemens to modernise and expandthe power supply system at its liquefaction plant.From the outset all the ADGAS plant’s LNG and most of its LPG were purchasedby Tokyo Electric Power Company (TEPCO) under a 20-year contract that tookeffect in 1977 and provided for TEPCO to lift 2 million t/y of LNG and 500,000 t/yof LPG. In 1990 the company decided to more than double the capacity of its plantto 5.4 million t/y of LNG, 1.7 million t/y of LPG and 535,000 t/y of pentane-plus. Theexpansion entailed the installation in 1994 of a third liquefaction train with acapacity of 2.3 million t/y of LNG and 250,000 t/y of LPG. Like the original units,the third liquefaction train has consistently operated in excess of its design capacity.The plant’s LNG capacity was further increased in August 2001, when ADGAScompleted the revamp of the propane compressor serving its third liquefactiontrain, boosting its production capacity from 320 tons/hour to 380 tons/hour.In early 2002, the company signed a FEED contract with the Chiyoda Corporationfor an additional LPG train with a capacity of approximately 1 million t/y. Shortlyafterwards, in October 2002, ADGAS signed an agreement with BP Gas MarketingCompany for the supply of up to 750,000 t/y of LNG. The contract runs to theend of 2005, and could be extended to the end of 2007, depending on BP’srequirements. Whilst TEPCO remains ADGAS’s major customer, marketingdevelopment has considerably broadened the client base in recent years. Inaddition to the sales to BP mentioned above, the company has sold its gas productsto European, American and Asian clients.One major offshore gas development project completed in the latter part of 2004entailed further development of the Khuff gas reservoirs under the Abu al-Bukhoosh(ABK) field, 45 kilometres north-west of Das Island. It provides for the volume

152UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT153of gas recovered from the ABK Khuff reservoir to be increased from 320 mmscf/dto 540 mmscf/d, thus providing a welcome boost to offshore gas production.Looking to the future, plans are now being laid for a major gas pipeline fromUmm Shaif, offshore, to Habshan, onshore, to link Abu Dhabi’s gas productioninto a single network. The project is being undertaken by GASCO.DubaiDubai’s gas demand is growing by 10 to 15 per cent per year. Consumption in 2004averaged 850 mmscf/d (not counting gas used for re-injection of oil reservoirs). Peaksummer demand can reach 1.6 billion cf/d. Dubai’s proven natural gas reserveswere estimated at 4.1 tcf as at 1 January 2005. The only domestic source of naturalgas for end-users is the onshore Margham field, since all the associated gasproduced at the offshore oilfields is now re-injected. Margham’s gas production hasbeen declining for some years. After averaging 330 mmscf/d in 2000, down from350 mmscf/d in 1999 and 380 mmscf/d in 1998, production was reported to berunning at less than 200 mmscf/d in early 2004, plus 15,000 b/d of condensate.Dubai depends heavily upon imported gas to meet its energy needs. Its powerstations, desalination plants and factories could not operate without natural gasas an energy source, and plans are under way to ensure that future needs are metby ambitious and innovative projects, such as the Dolphin Energy gas pipelinenetwork linking Qatar, Abu Dhabi, Dubai, Fujairah and Oman. At present, Dubai isimporting 300 mmscf/d from Sharjah and approximately 900 mmscf/d from AbuDhabi. In early May 2005, Dolphin Energy Limited announced the signature of agas sales agreement with the Dubai Supply Authority (DUSUP), to deliver futuresupplies of Dolphin gas from Qatar to DUSUP in Jebel Ali, from 2007. Theagreement with DUSUP provides for the supply of up to 700 mmscf/d of Dolphinnatural gas from Qatar for a period of 25 years. This agreement highlights DolphinEnergy’s commitment to meet the future requirements of the UAE energy sector.SharjahFollowing the national trend, gas consumption is increasing more rapidly than oilconsumption in Sharjah. The emirate produced 600–650 mmscf/d of natural gasin 2004, down from around 1 billion cf/d in 1997/98. In order to help meet thelocal demand for gas, a second processing plant has been under construction atSaja’a. This will mainly draw feedstock from the Mubarak field where Crescent isinstalling a new riser platform. This Northern Emirates Gas Supply Project, initiatedin 2004 by Crescent Petroleum with the approval of the Sharjah Government,was opened by Saja’a Gas Private Ltd, (SajGas) in September 2005. The US$90million plant is supporting the utilities industry for power generation in Sharjahand the Northern Emirates.Sharjah’s natural gas reserves are estimated at 10,700 billion cubic feet. Ifdevelopment goes ahead, the new Zora gas field should provide a small boostto production. As noted above, Sharjah has been exporting natural gas to Dubaisince 1986 and presently supplies its neighbour with around 300 mmscf/d.Sharjah LPG Company (SHALCO) operates a gas processing plant in Saja’a whereit handles output of the BP-operated onshore Saja’a and Moveyeid fields. It wasoriginally designed to process up to 440 mmscf/d of natural gas for the productionof 230,000 t/y of propane, 170,000 t/y of butane and 220,000 t/y of condensate.The plant’s capacity was increased to 700–800 mmscf/d in 1994 to enable it tohandle gas from the Kahaif field as well. The propane and butane produced bySHALCO are marketed by Itochu and the condensate by BP. Condensate iscarried by a 32-kilometre, 12-inch pipeline to Al Hamriyah on the coast, where BPhas its own jetty capable of accommodating tankers of up to 83,000 deadweight tonnage (dwt). The terminal includes two storage tanks with a combinedcapacity of 110,000 cubic metres. The bulk of the condensate is shipped toJapan, although small quantities are exported to Western Europe and NorthAmerica. The condensate has low sulphur content (0.01 per cent) and a naphthayield of almost 80 per cent. BP also exports much of the natural gas it produces,although most is supplied to industrial and household consumers within theemirate. The SHALCO plant deserves special recognition for the fact that itrecently broke a world record for LPG recovery, achieving 99.75 per cent recoveryof propane and 100 per cent recovery of butane and condensate.As noted above a second processing plant was opened in late 2005. This newSajGas project has a capacity of 600 mmscf/d via two trains that producemarketable gas, and 350 tons/day of sulphur. Gas from the plant is being fedinto a transmission network being built by Union Gas Transmission Company(UGTC) in order to supply gas to power stations, industrial plants and other endusers in Sharjah and the Northern Emirates. This is in addition to the existingSEWA network that delivers gas to 100,000 households and 500 industrial premisesin and around Sharjah City.A new compressed natural gas (CNG) plant has been established in the HamriyahFree Zone by a company called Compressed Gas Technology (CGT). The plantis producing CNG both for the local market and for export. CGT also designs andassembles CNG filling stations and its first local station opened at Dasman inJuly 2005.A major new private-sector regional gas company, Dana Gas, was launchedfrom Sharjah in the summer of 2005. The core founders of the new companyare Crescent Petroleum and the shareholders of Saja’a Gas Ltd and United GasTransmissions Company, in particular the Sharjah government, the Bank ofSharjah, and prominent shareholders from across the GCC. These core founderswere joined by institutional investors and individuals from all over the Gulf. Thenew company is capitalised at Dh6 billion, with 65 per cent retained by the

154UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT155founders, and 35 per cent offered to the public through an IPO. Dana Gas is the firstprivate-sector gas resource company in the region to be publicly listed, and plans tofocus on the growing natural gas business in the Gulf and beyond. It will start withsubstantial assets in the gas chain, including established business interests in gassupply, transportation, processing, and marketing, and with revenues andprofitability expected from the company’s first year of operations. There areplans to expand the business into related projects throughout the Gulf region,including into the upstream exploration and production of natural gas, anddownstream into gas-related industries and petrochemicals.Ra’s al-KhaimahRa’s al-Khaimah is reported to have natural gas reserves of 1.2 trillion cubic feet.Following a number of years in which the Saleh field produced limited quantitiesof both oil and gas, the field switched to production of just condensate (currentlyproducing 700 b/d). The LPG plant at Khor Khwair in Ra’s al-Khaimah now getsits feedstock from the offshore Bukha field in Oman. An Australian company, NovusPetroleum, began exploration work in the second half of 2003, completing a150-kilometre 2D seismic survey. Novus is hoping that it will discover wet gason its 600-square-kilometre onshore tract.The Ra’s al-Khaimah government signed an agreement in October 2004 withDEL for supply of 40 mmscf/d of natural gas. Initially supplies are reachingRa’s al-Khaimah from Oman, but this will switch to Qatari gas when that comeson-stream.FujairahFujairah has no gas production facilities of its own, but its requirements for theQidfa desalination plant are met by the Dolphin project that is supplying gas viaDEL pipelines.AjmanA petroleum production sharing agreement was signed between Sharjah andAjman in early July 2002 to jointly develop the Zora field, a gas reservoir locatedaround 40 kilometres off the two coasts. Chinese-owned Crescent Petroleum andAtlantis, which hold the concessions from the two respective governments, werealso signatories to the agreement. Production is to be shared equally between theparties concerned but by mid-2005 development had not commenced.Umm al-QaiwainSinochem, owners of Atlantis Holdings, who hold the offshore concession forUmm al-Qaiwain, are continuing to evaluate options for the development of gasreserves identified in the UAQ3 well. Recoverable reserves are estimated at upto 500 billion cubic feet of gas and 5 million barrels of condensates.PETROCHEMICALS AND FERTILISERSAbu DhabiAbu Dhabi has several major petrochemical and fertiliser industrial complexes,the Ruwais Fertiliser Industries Company (Fertil), the Abu Dhabi Polymers Company(Borouge), and Abu Dhabi Fertiliser Industries Company (Adfert). Fertil wasestablished to utilise lean gas supplied from onshore fields at Bab, Asab andThamama C to produce fertilisers and market them locally and internationally.It brought its existing nitrogenous fertiliser plant in Ruwais on-stream in April 1984.This consists of a 1050 t/d ammonia plant and a 1500 t/d urea plant, but they haveoperated at over 130 per cent of capacity in recent years (1310 t/d of ammonia and1850 t/d of urea). The emirate is planning to grow this sector, both as a result ofexisting facilities expansion and through establishment of new projects that willproduce derivatives such as melamine, polyethylene (PE), polypropylene, polyvinylchloride (PVC), vinyl chloride monomer (VCM), linear alpha olefins and aromatics.Adfert commenced production from a plant situated in Mussafah in June 1998.This plant can produce up to 200,000 t/y of water-soluble and granular compoundfertilisers. It also produces liquid and suspension fertilisers.Borouge’s petrochemical complex in Ruwais cost an estimated US$1.2 billionto develop and includes a 600,000 t/y ethane cracker that supplies ethylenefeedstock to two 225,000 t/y polyethylene units. Borouge produces up to 580,000tonnes of Borstar bimodal high-, medium-, and linear low-density polyethyleneper year. Combining good processability with excellent mechanical properties,Borouge Borstar products are stronger, lighter, environmentally friendly and moremalleable than conventional polyethylene, resulting in material savings of up to30 per cent.Notwithstanding its excellent results to date, Borouge has significant expansionplans. It is planning to develop a larger petrochemical complex with annualproduction capacities of 1.4 million tons of ethylene, 540,000 tons of polyethyleneand 800,000 tons of polypropylene.In addition to promoting its own polyethylene products, Borouge also overseesthe distribution and marketing of Borealis’s entire range of polyolefins in theMiddle East and Asia Pacific. These products include polyethylene for extrusioncoating, moulding, and wire and cable, as well as polypropylene for film, moulding,hot water pipes and engineering applications.Borouge was originally established by ADNOC (which held 60 per cent) andBorealis (in which the Abu Dhabi government also held a stake). Changes to thisshareholding structure were initiated in 2005 when the International PetroleumInvestment Company (IPIC), wholly owned by the Abu Dhabi government, signeda purchase agreement to take complete control of Borealis by purchasing theremaining 40 per cent stake held by Statoil. IPIC is mandated to participate as

156UNITED ARAB EMIRATES YEARBOOK 2006equity investor in energy and energy-related projects and companies outside theEmirate of Abu Dhabi, and current investments include substantial stakes inHyundai Oilbank Company in South Korea, Gulf Energy Maritime in Dubai, CEPSAin Spain, Pak-Arab Refinery Ltd, Pak-Arab Fertilizers Ltd in Pakistan and SUMED inEgypt. The acquisition of the Borealis stake was the third addition to its portfolio in2005, following its purchase of a 50 per cent holding in AMI Melamine InternationalGmbH and 20 per cent in the Oman Polypropylene Project in Oman.DubaiDubai’s first fertiliser plant, a joint venture between Kemira Agro Øy of Finland(49 per cent) and the local firm Union Agricultural Group (51 per cent), can produce6000 t/y of water-soluble compound fertilisers. A second fertiliser plant developedby the same group, and called the Kemira Emirates Fertiliser Company (KEFCO),produces around 60,000 t/y of phosphate and nitrogenous fertilisers, and wasbrought on-stream in 2001 in the Jebel Ali Free Zone.A much larger plant (developed by Spic Fertilisers and Chemicals) with a capacityto produce 600,000 t/y of ammonia and 440,000 t/y of granular urea came onstreamin mid-2005. The plant is being supplied with 40,000 million btu/day ofnatural gas feedstock by Dubai Supply Authority (Dusup) and exports all its outputto India. Spic Fertilisers and Chemicals signed a separate agreement with DEL inMarch 2004, also for supply of Qatari gas.Meanwhile, a 500,000 t/y Methyl Tertiary Butyl Ether (MTBE) plant, established in1995, utilises the butane isomerisation process of Lummus, the Catofindehydrogenation process, and CD MTBE synthesis technology for convertingbutane into MTBE.TOURISMPlans, laid in the late 1980s and early 1990s, to create an entirely new tourismindustry have exceeded expectations. Tourism is now worth more to Dubai thanits income from oil. Abu Dhabi has also invested in developing a tourism industryand has announced a number of ambitious projects in this field. All the otheremirates consider tourism as an important factor in their future growth andprosperity. With the wisdom of hindsight, all of this makes sense. The UAE haswarm shallow seas, rich in marine life, long fine sand beaches perfect for sunbathingand relaxation, a climate that delights for much of the year and theresources to mitigate against the discomfort of excessive heat through innovativeconstruction and cooling projects. It is the ‘right flying distance’ from some ofthe world’s most populous markets, from the Middle East and Western Asia toEurope, and it has excellent airports and seaports. Its natural and cultural heritageis rich and varied and its people are educated, friendly and hospitable. It is a long-

158UNITED ARAB EMIRATES YEARBOOK 2006standing melting pot of cultures where foreigners feel at ease. Emiratis have alwayswelcomed visitors: it is not the nature, but the scale of things that has changed.Tourism growth in the Emirates has impressed and perhaps surprised manyanalysts and commentators. The country is leading the whole region in developingtop-class tourism facilities and attracting visitors: 11,922 new rooms are due tobecome available between 2005 and 2008 (with 9628 in Dubai alone). Abu Dhabi’ssupply of new luxury hotels includes the landmark Kempinski-operated EmiratesPalace Hotel and Conference Centre, while Fujairah’s four confirmed hoteldevelopments include the five-star Kempinski Fujairah Resort and the RobinsonClub. Dubai’s first major offshore tourism development, The Palm, Jumeirah, willhave 30 to 40 hotels when it is completed. Nine of these were already confirmedby mid-2005. The other ‘Palms’ will also create numerous sites for hotels. Aconcentration of land-based hotels along the Sheikh Zayed Road/Al Barsha roadincludes at least 12 future projects that will add 2948 rooms. Among these is thefive-star, 250-room Armani Hotel in the Burj Dubai development, due to open in2008, and the five-star, 400-room Kempinski Hotel in the Mall of the Emirates,due to open in November 2005. Meanwhile, new developments on Dubai’sJumeirah coast involve at least seven hotel and resort developments and thecoastline north of Dubai Creek is also receiving attention with six confirmed hotelsand resorts.Good planning has been the key to growth of tourism in the UAE. It is not justabout building hotel rooms but about creating multi-faceted attractions, providingworld-class infrastructure and ensuring that the very elements that attract visitorsare respected and protected. All this requires coordination and management. Eachemirate has its own dedicated tourism development authority or department. Inrecent years these have grown in size and capability.Dubai’s growth manager in the hotel and tourism sector is Dubai Tourism andCommerce Marketing Department (DTCM), which oversees the licensing of hotels,hotel apartments, tour operators, and tour guides, and promotes and marketsDubai through a network of 14 Overseas Representation (OR) offices. DTCM hasplayed a key role in achieving the impressive figure of 5.42 million guests at372 hotels and hotel apartments in 2004. The UK is the largest source marketof visitors to Dubai with 605,240 people travelling there from the UK in 2004,a 32 per cent increase from 458,451 in 2003. Other important non-Arab marketsfor UAE tourism are Germany, France, Italy and China. DTCM also managesheritage sites and the region’s first and only dedicated cruise terminal. The3300-square-metre facility is the world’s first ISO-certified cruise terminal operatedby a government tourism department. It was expected to receive 16 cruise shipsin 2005 and experience a 33 per cent increase in cruise tourists over the 8000arrivals in 2004.

160UNITED ARAB EMIRATES YEARBOOK 2006Overall, Dubai earned Dh6.2 billion from hotel revenues in 2004, a 37 per centincrease over the previous year. Every aspect of the industry was in a state of rapidgrowth. Guest nights grew by 22.2 per cent with over 15.2 million guest nights,while the average length of stay jumped 12.3 per cent to 2.80 days. Hotel-roominventory went up by 2.3 per cent to 26,154 against 25,571 in 2003. Hotelapartments totalled 7277 with an 8.7 per cent increase in occupancy levels.The average occupancy levels in Dubai hotels in 2004 was 81 per cent, as against72.4 per cent in the year 2003.Much of the growth has been in business travel, often associated with majormeetings, exhibitions and conventions. The Dubai Convention Bureau (DCB), setup to tap into the Meetings, Incentive, Conferences and Exhibitions (MICE) market,has been successful in attracting huge events, including the fortieth World Congressof the International Advertising Association (IAA) (March 2006), the 2008 WorldCongress of World Association of Cooks Societies (WACS) and FIATA Congress.Dubai International Airport is a barometer for growth of transport and tourismin the UAE. Records continued to be broken in 2005 with the first half of the yearregistering 11,837,271 passenger movements through the airport, 13.7 per centmore than the same period in 2004. Major development projects are helping tounderpin tourism growth. Whether it is modern airports, excellent roads or hugeindoor facilities for shopping and leisure, the UAE is becoming famous for thecreation of award-winning schemes that provide people with what they need toenjoy themselves in a healthy and fulfilling way.By no means all such projects are situated in Dubai, although there is no doubtthat Dubai has taken the lead in tourism development, not just within the UAEbut within the entire region. Tourism in Abu Dhabi has also been boosted by anumber of major improvements and developments. Branding of Al Ain as ‘TheGarden City’, development of hotels such as the Mercure Grand sitting atopJebel Hafit and the world’s second seven-star hotel, the new Emirates PalaceHotel, together with The Fairmont Abu Dhabi Resort and Villas, both situatedon Abu Dhabi’s attractive waterfront, are among the most recent aspects of asteadily improving tourism profile for the Emirate of Abu Dhabi.Completion of Abu Dhabi’s new Dh21 billion airport is likely to bring anunprecedented boom in tourism. The project is upgrading the capacity of theairport to 50 million passengers in the long term, with the first phase scheduledfor completion by 2010. The new facilities will be capable of receiving jumbojets carrying over 530 passengers. Meanwhile, new attractions are being created.In June 2005 the UAE President, Sheikh Khalifa bin Zayed Al Nahyan, passed alaw transferring ownership of Sadiyat Island to Abu Dhabi Tourism Authority(ADTA). He also authorised creation of a development and tourism investmentcompany to be owned by ADTA. The company is an independent corporate bodyassigned to run tourism investment areas.

162UNITED ARAB EMIRATES YEARBOOK 2006ADTA is regulating the emirate’s tourism sector, developing its infrastructure,improving its profile, and marketing it across the globe. It has identified WesternEurope as its primary target market, particularly the UK and Germany. Abu Dhabi’splan is to add 20,000 more hotel rooms by 2015, bringing the total to around27,500 rooms. The emirate is expecting to host 240,000 business tourists a yearby 2015, against a figure of around 40,000 recorded in 2004. The target for leisuretourists has been fixed at three million against current arrivals of 835,000.The strategy appears to be working well on all fronts. Abu Dhabi National Hotels(ADNH) announced a 47 per cent increase in profits to Dh106.6 million for the firstquarter of 2005, compared to Dh72.7 million for the same period in 2004. As withthe huge contribution that Emirates airline has made to UAE tourism, particularlyfocused on Dubai, the establishment of Etihad Airways has already played avaluable role in promoting visitor numbers to Abu Dhabi. Emirates Palace, locationfor the 2005 GCC Heads of State summit, deserves special mention. It is a mostimpressive hotel whose sandy coloured structure occupies a magnificent part ofAbu Dhabi’s beachfront, its majestic marble walls and ornamented domes visiblefrom afar. Built at a cost of around Dh1.8 billion (US$490 million), the hotel hasnearly 440 rooms and suites, 12 restaurants and other entertainment facilitiesand houses the Middle East’s largest auditorium with space for 1200 people.The capital city is thus building on its natural attributes to attract more visitorsand to make the experience of living in the city more enjoyable. It already hasmagnificent golf courses, many international brand city hotels with beach andresort facilities, new shopping malls, heritage centres and the benefit of an islandlocation with acres of beach.But in terms of huge tourism projects there is little to challenge the sheer scaleof Dubailand, Dubai’s ‘ultimate leisure destination’. It has already expanded byat least 50 per cent in terms of land usage, project value and scope of workfrom the original plan, and will now spread across 279 million square metres,attracting an investment of Dh35 billion when completed. The project will bedeveloped in four phases extending until 2020. Once completed, it will house300,000 residents and cater to more than 200,000 visitors daily. The project wasoriginally conceptualised by the Dubai Development and Investment Authorityand developed by the Dubai Tourism Development Company (DTDC). It waslater brought under Dubai Holding. DTDC has been replaced by Dubailand LLC,which will manage the entire complex, requiring 50,000 project staff.The task of creating world-class attractions in Dubai has taken its plannersaround the globe. Acquisitions of key companies has been one of its policies. In2005 Dubai International Capital purchased the Tussaud’s Group, the largestoperator of visitor attractions in Europe. It is likely that the Tussaud’s Group willhave a strong involvement in creating Dubailand as a world-class tourism attraction.

164UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT165The UAE’s natural attributes form a key part of tourism development strategythroughout the Emirates. Ecotourism is one of many niche markets receivingattention in 2005. The UAE aims to attract birdwatchers, scientists, researchers andstudents to visit areas of special natural beauty and interest, such as the Ra’s al-KhorWildlife Sanctuary located at the head of Dubai Creek. Three watchtowers havebeen provided close to a feeding ground for large numbers of flamingos, otherwading birds and a host of migratory species. Other sanctuaries have been createdin various parts of the country.Each emirate has its own attractions. Sharjah has built a reputation for its culturalpreservation and its special interest in education, the arts and heritage. Projectssuch as authentic building and souq preservations, a large number of museumsand galleries, together with its special Natural History Museum, Desert Park andArabian Wildlife Centre have drawn on natural assets and created a unique seriesof experiences that visitors can enjoy, regardless of where they are staying withinthe UAE. In addition, Sharjah has recently strengthened efforts to promote tourism.Part of the emirate’s attraction is its shopping facilities, with six major shoppingmalls, including four souqs.Ra’s al-Khaimah is planning new hotels and two or three new golf courses.One of these, ‘The Cove’, will be on more than 50 acres of beachfront property,including 134 Nubian style furnished residences. Its target markets are especiallyItaly, Germany, Switzerland and the UK. Many of the new projects are beingdeveloped near the new Emirates Highway which is cutting travel time betweenDubai and Ra’s al-Khaimah to 45 minutes.Ajman has four hotels with more than 565 rooms, while Umm al-Qaiwain hasareas of special scientific and historic interest.Fujairah, situated on the UAE’s East Coast, has a number of special attractions,including wonderful beaches. The first international hotel to open on the EastCoast in over two decades is award-winning Le Meridien Al Aqah Beach Resortwhich has been very successful in generating renewed interest in Fujairah andis a catalyst for further development of the sector. On weekends, the resort has100 per cent occupancy. Agreements were recently signed with local and foreigninvestors for the construction of a further five hotels in the same area.Future investments in tourist projects are likely to be significant, throughout theUAE. Abu Dhabi alone plans to spend at least Dh40 billion between 2005 and 2015.AGRICULTUREThe agriculture, fisheries and livestock sector contributed 2.6 per cent to GDPin 2004 with a value of Dh10.1 billion. The UAE exports dates to Japan, Indonesiaand Malaysia, while flowers are sent to other GCC countries, Lebanon, Australia,Britain and Japanese markets. Thousands of hectares of palm trees, woodlandsand green belts have been planted in the country. Date-palm cultivation plays akey role in turning large portions of the desert into green oases. Over 40 milliondate palms, of which 16 million line the roads, have been planted in the UAE.It is a surprising fact that a country known for its vast desert, exceptionally lowand unpredictable rainfall and, at times, searing heat, can also sustain a vibrantagricultural sector. Whilst the huge growth in food production since the early 1970shas been correctly attributed to the leadership, much of it by personal exampleof the late Sheikh Zayed, cultivation of a few key plants, raising of livestock andfishing have been essential survival skills of people living in this extremely aridregion for millennia. Small-scale farming based upon exploitation of undergroundwater resources began in desert oases and mountain valleys at least 5000 yearsago, but the lack of rainfall made large scale agriculture impossible. Today, Emiratisstill have a strong connection with the earth, whether that encompasses the sandsof the Empty Quarter or the isolated patches of fertile soil that form their oases.In the early days of Sheikh Zayed’s drive towards self-sufficiency in certain fooditems, agricultural advisers were discouraging and highly sceptical. But SheikhZayed, refusing to be discouraged, took a multi-pronged approach that would notaccept failure as an option. Water, of course, was at the core of this effort and heestablished a major programme of groundwater exploration as well as rehabilitationof ancient falaj irrigation and distribution channels. Later, he put money earnedfrom oil into building dams and desalination plants. But water was not all that ittook. The Ministry of Agriculture set about establishing experimental farms to testa wide range of crops and growing systems, and Emiratis were given land to createtheir own farms with substantial government assistance. When we look at themassive achievements of this sector it is important to understand that it has notcome about by chance, or without a serious effort by both government and people.Today, despite rapid population growth, the UAE is 100 per cent self-sufficientin dates and fish and grows 58 per cent of its vegetable needs. Meat and poultryproduction provide 31 per cent and 17 per cent respectively of requirements.The country produces 83 per cent of its daily consumption of fresh milk and 39per cent of national demand for eggs.Modern irrigation techniques and water from deep artesian aquifers and fromdesalination has made it possible for large areas to be cultivated. There are nowmore than 100,000 hectares of cultivated land, producing a range of crops, includingsalad vegetables, potatoes, fruit and fodder, as well as flowers, grown mainly forexport to Europe. In traditional mountain farms, production of tropical fruits likepapaya, citrus and tobacco continues. The Government supports agriculture throughpreparation of land for farms which are distributed free to citizens, and follows thisup with a free agricultural extension service. Farmers are also offered a guaranteedprice for produce and subsidised machinery and fertilisers.

166UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT167A healthy export market has been developed for many items that are grownin the country. To give an idea of the scale of production, emphasising just howfar this sector has travelled since the 1960s when Sheikh Zayed took spade tohand in an effort to galvanise his people into rescuing ancient falaj systemsaround Al Ain, we can look at recent figures from the Al Ain Department ofAgriculture and Livestock (AADAL), now part of the Department of Municipalitiesand Agriculture. They recorded 12,000 farms in Al Ain, 1943 green houses and29,990 operating wells. These farms employed 2608 workers including 623nationals, 529 Arabs and 1456 other nationalities. They exported 63,390 tonnesof vegetables worth Dh126,893 in 2004 following an increase in the crop areathrough drip irrigation to 450.72 hectares. AADAL also recorded exports of 843.77tonnes of rodos fodder from its five projects – Al Dhahra, Al Kerayyah, Al Arad,Al Oja and Wahat Al Sahraa – to various GCC destinations. Meanwhile, the Al AinDepartment of Municipalities and Agriculture (ADMA) distributed cheques worthDh262.53 million to local date producers for the 32,281 tonnes of dates that itprocured during 2004. AADAL also established 16 veterinary clinics, in additionto mobile clinics in remote areas, and opened an abattoir in Al Khazna area.New methods of agriculture are constantly under review in the Emirates. The UAEis especially interested in new agricultural techniques that can boost yields withoutadversely affecting the environment and human health. Organic agriculture, asubject of growing interest worldwide, is being encouraged. In line with efforts tobolster availability of pesticide-free crops, the Ministry of Agriculture and Fisherieshas encouraged the use of organic fertilisers and over 32,000 tonnes has beendistributed to local farmers in the last three years. Also, the use of more than 80varieties of pesticides has been banned and biocontrol of pests such as the palmweevil is being developed.Education in agriculture has reached a high level in the UAE. The Universityof Sharjah recently launched a College of Agriculture, Food and EnvironmentSciences in conjunction with the University of Arizona, USA. The final decision togo ahead with the college was made after months of research to determine whetherthere would be a strong market for graduates wishing to study plant, animal andfood production under UAE conditions. The University of Arizona was selectedbecause of its well-earned reputation in the States, the distinction it enjoys inthe field of desert farming and the similarities in climatic conditions betweenArizona and the UAE. The College of Agriculture, Foods and Environment willaward BSc degrees across three areas including botany, zoology and agriculturalprojects management. Bio-technology will be a fundamental component of thestudy, which will also focus on more practical skills. Students will thus gaintheoretical and practical skills needed to enable them to participate in productionand development plans in the country.Formal research into agricultural matters is carried out by a number of bodies,both national and international. The EAD (formerly known as ERWDA) and theInternational Centre for Biosaline Agriculture (ICBA) recently agreed to carry outa comprehensive soil survey of Abu Dhabi Emirate. A high priority is beinggiven to the development of a Soil Master Plan, delineating arable lands as wellidentifying other substrates. The ultimate goal of the soil survey is to ensure thatland-use in the Emirate of Abu Dhabi is sustainable. Identification of thedifferent land uses will be jointly determined by a technical committee whichincludes the members from the Ministry of Agriculture and Fisheries, theMunicipalities and Agriculture Department, UAE University, the Planning andEconomic Department, and ADNOC. The project will be completed in twophases. In the first phase, soils will be surveyed at the emirate level at a scaleof 1:100,000 using soil survey norms and standards of the United StatesDepartment of Agriculture-Natural Resources Conservation Service to generate,soil, thematic, suitability, salinity, and current land-use maps. From the resultsof this phase, areas with the highest potential for irrigated agriculture expansionin the emirate will be identified. In phase two, these areas will be surveyed atscale of 1:25,000. A Soil Information System will be designed for the storage,processing, retrieval and management of soil-related information. The soilsurvey information will be used by various groups of users, for example, theagricultural farming community, land-use planners, officials, decision makers,engineers, and environmental impact assessors, to select sites for specific uses.Conservationists and specialists in recreation, wildlife management, wastedisposal, and pollution control will also use the soil information to help themunderstand, protect, and enhance the environment.Over the course of the last year, however, increasing attention has also been paidto the impact of water extraction for irrigation on the subterranean aquifers, aswell as to the economic sustainability of the whole afforestation and agricultureprogramme. Several hundred water wells in Abu Dhabi were shut-in during theyear, with water supplies being replaced from desalinated water, while the viabilityof large scale fodder production is also being re-assessed. The objective is to ensurethat while the planting programme continues, it is done only where it can bejustified on economic and environmental grounds.In April 2005 the late Sheikh Zayed bin Sultan Al Nahyan was honoured by theUnited Nations as a ‘Champion of the Earth’ for his commitment to the protectionand conservation of the environment and endangered wildlife. It was an accoladethat was deeply appreciated by Sheikh Zayed’s immediate family and by the UAEGovernment and people, for it encapsulated one of the guiding mission’s of SheikhZayed’s life and celebrated his success in achieving many difficult goals in thefields of agriculture and environment.

168UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT169FISHERIESMarine and fisheries resources have always occupied an important place in theUAE and still do so today. Apart from supporting a traditional way of life that canbe traced back to the earliest known archaeological sites in the region some 7500years ago, these resources still provide an important source of income, food andrecreational opportunity for many residents. Typical of the global trend, and inresponse to a growing demand for fishery and marine products, the last threedecades have seen increased use of marine resources in the UAE. During thisperiod, the traditional commercial fishing sector has substantially invested inmodern fishing fleets, while a growing tourism industry has led to an increase inthe use of fisheries and marine resources for recreation.All this has inevitably led to concern regarding the sustainability of the use ofthe fisheries resources. In particular, questions pertaining to depletion of thefish stocks, habitat degradation, and over-fishing have been raised and fisherymanagement strategies are being put in place (see section on Environment andWildlife). A recently-completed report undertaken by EAD (previously ERWDA),in Abu Dhabi, in association with the UAE Ministry of Agriculture and Fisheriesand Australian/New Zealand consultants has highlighted some of these issues,including a catastrophic decline in some stocks of commercial fish species.Some of the key outputs of the marine resources survey, on which the reportwas based include information on species identification, a catalogue of all speciescaptured, and statistics such as length/frequency data and catch rates for thekey species. This work was carried out from a research vessel that traversed thecoastal waters of the UAE undertaking habitat mapping and sampling.A variety of fish are caught in the UAE, including sharks and rays, catfish,lizardfish, flatheads, groupers, jacks, mojarras/silver-biddies, angelfish, grunts,parrotfish, wrasses, rabbitfish, barracudas, ponyfish, snappers, threadfin bream,emperors, seabream, goatfish, turbots, flounders and tonguesoles. A combinationof over-exploitation and degradation of the environment has been a major causeof the overall decline in fish stocks in the area. Environmental degradationincludes temporary or permanent elimination of important nursery areas byland reclamation in coastal areas, and increased marine pollution by dischargeof liquid and solid wastes into the marine environment.The dhow-based fishery, responsible for the majority of commercial fishing inUAE waters, comprises mostly small commercial operations. Wooden dhowsare usually about 12 to 20 metres in length, powered by 150 to 300 horsepowerinboard diesel engines. Dhows typically fish with baited basket traps (gargour,plural garagir), trawls, hook and line and trolling lines. Drift nets used to be adominant fishing method, especially for large pelagic species. These nets, knownas al-hayali, are now banned by law, except in tightly-regulated circumstances.Trap fishing using garagir is the most common fishing method, with over 80 percent of landed fish caught in these traps. Formerly made from interwoven palmfronds, the traps are now manufactured from galvanised steel wire of 1 to 1.5millimetres thickness, imported from the Far East. Garagir are usually made asdome-shaped traps with a base diameter of between 1 to 3 metres supported byreinforced steel bars and a funnel-like entrance. These traps are usually set inthe afternoon and the fish are retrieved after three or four days in the earlymorning. A variety of baits are used inside the traps, including green algae, grounddry fish, dead fish and bread. They mostly comprise groupers (hamour), emperors(shaeri) and grunts together with snappers, sea bream, parrotfish and rabbitfish.Gillnets (al-liekh) are often set on the seabed. They catch a variety of fish,including grunts, sea bream, emperors, goatfish, rabbitfish, pomfrets and others.Fishing by hook and line (hadaq) is specifically used for the capture of groupers,cobias, jacks/trevallies, grunts, emperors, sea bream and Spanish mackerel. Longlines(manshalla), which may have 10 to 20 extra smaller lines and hooks, aresometimes used. These are good for catching requiem sharks and groupers.Apart from gillnets, two other types of fishing nets are used. Beach seines (yaroof)can be up to 40 metres or more in length. One end of the seine is moved rapidlyfrom the shore in a wide arc in an effort to surround fish, both ends of the seinethen being pulled to shore. Fishing by this method remains fairly common onthe UAE’s East Coast, and can be seen, for example, at Fujairah and Dibba, thefishermen often being accompanied by large flocks of feeding gulls and terns.Speedboats with outboard motors and four-wheel drive vehicles are used todayto pull these seine nets to the shore, but traditionally this was done by a largegroup of men. This method was especially good at catching mojarras/silver-biddies,flathead mullets and rabbitfish. Many other fish are also caught, including smallneedlefish and jacks/trevallies.The bell-shaped cast net (salieya), which has small weights around its base tomake it sink, is also used at times of year when fish such as the Indian oilsardine and flathead mullets are abundant in shallow inshore waters.Fixed shore traps or hadrah were traditionally built by driving a row of palmfronds and wooden stakes but are now made with steel or iron poles and wiremesh or nylon netting. In the UAE, these traps are used during the summermonths, to catch the blackspot snapper, needlefish, jacks/trevallies, sea bream,mullets, barracuda and rabbitfish and, occasionally, other bottom species.Recreational fishing in the region is growing rapidly and is largely carried outfrom small motorboats operating relatively close to shore. A licensing system forall recreational fishing, whether from boats or from the shore, was introduced inthe Emirate of Abu Dhabi in 2002, as a by-law under Federal Law No. 23 for 1999on Exploitation, Protection and Development of Marine Bio-Resources. The licencesfor recreational fishing allow only two methods, handline and rod and reel. All

170UNITED ARAB EMIRATES YEARBOOK 2006fishermen over the age of 18 must obtain a licence, valid either for a year or fora week, although children can continue to fish in the company of a licence holder.Recently, a new licence category, the traditional fishing licence to cater for nationalfishermen who do not fall under either commercial or recreational fishing categories,was introduced. Competent authorities in each emirate are responsible for licensing.In Abu Dhabi, licences for both commercial and recreational fishing are issued byEAD, with an upper limit of 1000 being set on commercial licences.In April 2000, a regulation stipulating that no fishing boat is allowed to sailwithout the owner or a national or GCC captain on board, as provided for in FederalLaw No. 23 of 1999, was introduced. Fishing boats are now only permitted tosail if their national or GCC owner or captain is aboard. The Frontier and CoastGuard patrols stop any boat that violates this rule. Article 26 of the law banned theuse of fixed or drifting hayali fishing nets in Abu Dhabi waters. Each fishing boatformerly carried 20 to 50 drift nets, which often caught and drowned endangeredspecies such as dugong, dolphins and turtles. The nets also damaged commercialfish stocks, catching fish that were not brought to market or fish of no commercialuse. Problems still remain, however, such as the removal of fins from sharks forlucrative trade with the Far East. This has decimated the shark population of theArabian Gulf in recent years.AQUACULTUREThe focal point of aquaculture in the UAE is the Marine Resources Research Centre(MRRC) of the Ministry of Agriculture and Fisheries, based in Umm al-Qaiwain.Founded in 1978 under the terms of a technical cooperation programme betweenthe UAE and Japan, it began operations in 1984, and has succeeded in developinga suitable technology for growing rabbitfish from induced spawned eggs tomarketable-size fish. Work has also been carried out on shrimp-farming, both atUmm al-Qaiwain and on Abu al-Abyadh Island in Abu Dhabi.In 1999, the International Fish Farming Company (ASMAK) was set up underthe UAE Offsets Programme, with a total capital of Dh300 million. The companyspecialises in fish- and shrimp-farming and has 31,000 investors and shareholdersfrom different emirates. Its projects include the Middle East’s largest commercialhatchery for finfish, in Umm al-Qaiwain, and other facilities at Dibba in Fujairahand in Ra’s al-Khaimah, the latter two having a combined capacity of 3200 tonnesof fish. One of the objectives of the company, which also operates in Oman andKuwait, is to replace wild-caught fish, thus reducing the pressure on fish stocks.Fish-farming is likely to be developed further in the future and both ASMAK andthe MRRC at Umm al-Qaiwain are active in promoting the industry.