Abu Dhabi making a classic error in cutting back public spending now
Posted on 24 November 2011 with 2 comments from readers
Build your infrastructure during a boom and it will cost a lot of money. Build it during a global economic downturn and you will get the best prices and the choice of contractors.
That is the mistake the Government of Abu Dhabi is making now in postponing the start of work on the museum island among other recent cut backs such as axing staff levels at The National newspaper and even its Etihad airline did not turn up to the Dubai Airshow this month. Austerity is the new watchword.
Aldar’s collapse
Of course you could argue to the contrary and say that Abu Dhabi continued with its open check book for far too long until things got out of hand. The $5 billion bailout of Aldar Properties this year appears to have been the wake-up call for the emirate whose airport expansion is still on schedule.
Elsewhere contractors are complaining that they are not being paid and the standstill is reminiscent of the ’sudden stop’ that hit Dubai during the global financial crisis three years ago.
Local businessman Khaled Al Habtoor, one of Dubai’s richest businessmen wrote an opinion piece recently in the Gulf News gently reminding the sheikhs of Abu Dhabi of the benefits to the national economy of maintaining expenditure on infrastructure development in more troubled economic times.
Not that 2011 has been that tough for Abu Dhabi with a record year for oil revenues of more than $100 billion. That is what makes the change of heart on spending plans even more hard to fathom. It is not as though the money is not there, this is a policy review.
Policy review
Perhaps it is time to review the 2030 growth plan of the city. Maybe the $15 billion plus on the museum island might be better spent on downstream oil and gas projects with more obvious economic return.
But does everything have to be brought to a grinding halt? Construction prices are unlikely to ever be better and the continuity of the planned expansion of the UAE economy does require the government to spend more when the global economy is weak and not less.
Otherwise foreign investors will most likely conclude that Abu Dhabi’s recent economic plans have been the uncommercial fantasy of an emirate with more money than it knows how to sensibly invest and stick with neighboring Dubai where commercially realistic objectives still underpin most projects.
2 Comments posted by readers:
If Abu Dhabi doesn’t cut its public expenditure, it might end up with an embarrassingly “good” GDP. As it is, its reduction in public expenditure will show a fall in GDP, if I’m not mistaken.
Just appeared in the Daily Telegraph is a criticism of the most recent UK GDP of 0.5%: “the increase was driven by government spending and companies building up stocks”.
Nothing to do with national trade output or manufacturing productivity! Just government using tax payers money and holders of UK bonds cash to give the appearance that the total economic activity of UK plc is actually growing.
Just watch the GDP figure when the government runs out of loans-for-debt currency, when Britain follows Germany in not being able to sell it bonds properly.
Then, we’ll know we’re in Depression and that the GDP figure is a blown-up balloon made to look like “old Mr Growth”.
Abu Dhabi’s decision to stall all these ridiculous projects looks increasingly prudent and correct regardless of where construction cost levels are. They are starting to figure out that their projections for tourist and visitor numbers are fantasy. The demand just isn’t there. Many extremely expensive lessons have been learnt from Yas Island and it’s numerous “White elephants.” You can’t spend your way to prosperity and growth. They need to invest in wealth producing products and practices.