Massive investment of nearly $130 billion will enable Abu Dhabi to attain its economic targets set for its 2008-2012 development plan as the non-oil economy will likely swell by up to 10 per cent, official forecasts showed on Sunday.

By the end of the plan, the non-oil sector could become the dominant component of the emirate’s gross domestic product as it is projected to rise to nearly 53 per cent from around 40 per cent at the start of the blueprint, the Abu Dhabi Department of Economic Development (ADDED) said in its annual report, which is being released in batches this week.

The report said high growth in the non-oil economy would allow the government to realise the targeted average growth of seven per cent in its overall GDP.

“The non-oil economy will be an important contributor to the overall growth of the economy of Abu Dhabi. Similarly, it is expected to match the rates of contribution and achieve growth of 8-10 per cent over the set period of time. It would be supported also by an expected growth of 14-15 per cent by the 10 focus sectors of the Five-year Plan,” the report said.

“While overall growth may be affected significantly by oil revenue, the non-oil sector is expected to continue to contribute to the overall economic growth by an estimated rate of 4-5 per cent, if the oil sector revenues get stable. This will be reflected in that the ratio of non-oil sector to oil sector would be 53:47, compared to 40:60 in 2006; which is consistent with the objectives of the Vision.”

In absolute terms, the non-oil economy is expected to reach $68bn-$77bn by 2012, the report said, adding that the ten focus sectors are expected to play a key role during the five-year plan and beyond.But the report stressed that continued growth in oil sector is essential to achieve the targeted growth rate set in that plan, part of successive five-year development schemes within the emirate’s Vision 2030 long-term strategy.

It showed the oil sector had steadily expanded in the years that preceded the plan because of strong demand and high crude prices before it was jolted by the 2008 global financial distress which sharply depressed world oil demand.

“Assuming that the oil sector would continue to grow over the long term, the non-oil sector will expectedly grow by 8-10 per cent. This will push the overall growth rate targeted in plan close to the levels set by the Vision,” the report said.

“Even in the event of a recession in the oil sector,  with a growth rate of zero during the period 2008-2012 (which is a remote possibility), the anticipated performance of the non-oil economy, would continue to contribute about 4-5 per cent in real GDP growth. In this case, the period following 2012 will expectedly experience a strong growth in oil sector.”

According to ADDED, Abu Dhabi’s economy was expected to pass through a “construction phase” in the early years of the plan" and that the focus sectors will largely lay the groundwork for their operations.

“However, the capital expenditure, estimated at $130bn, will generate a large part of activity in the construction sector. This will lead, construction sector to be the direct propeller of the growth for non-oil economy in the early stages,” it said.

“During the transformation of the economic growth process from the ‘construction phase’ to ‘the operational phase’ in the later years  of the plan, the operations in focus will bypass the impacts of the construction sector, and replace  the less sustainable activities with other more sustainable strategic activities.”

It said this would lead to a sharp growth in the focus sectors of around 14-15 per cent through the development plan. It said growth in focus sectors in the long-term is expected to generate multiple effects, which would largely support the construction sector and generate wider economic growth in the period beyond 2012.

Examples include the tourism and events sector, which achieved a high growth rate of 40 per cent in the period preceding the Five-Year Plan, it said. Growth is expected to continue in this sector, but at a relatively modest rate of about 20 per cent during 2008-2012, it said, adding that key projects, which were established in recent years, would contribute considerably to this growth.

The financial services sector, basic industries and mining, transportation and logistics services, are the three focus sectors, which are expected to significantly contribute to the growth of non-oil GDP, the report noted.  The sectors of plastics industries, and tourism and events, will also be among the major sectors in contribution to economic growth.

“The ten focus sectors in addition to the construction sector may constitute the key driving force for transformation. The focus sectors, in particular, will account for more than 30 per cent of the total growth over the period 2008-2012, while the construction sector will contribute about 15 per cent.”
 
The 10 focus sectors: Tourism and events; transport and logistics services; civil aviation and space industries; basic industries and manufacturing; petrochemical and plastic products; oil and gas services; renewable energy; information technology and communications; media; financial services and insurance (capital markets).