How Abu Dhabi Get So Rich
Why Is Abu Dhabi The Richest Emirate In The World?
Abu Dhabi is the capital and the richest of the UAE. It makes up 87% of the total area of the UAE.
Abu Dhabi accounts for two-thirds of UAE’s Total GDP.
When most people think of the rich emirate in the UAE, what comes to mind is Dubai, the most luxurious emirate. But Dubai is not as rich as Abu Dhabi. Dubai’s GDP is only half of Abu Dhabi’s GDP.
This underrated emirate controls the destination of the whole UAE because of its influence as the richest economy.
Abu Dhabi GDP per capita is 96.000 dollars, one of the highest in the world.
So how did Abu Dhabi get so rich?
Blessed with Oil and Natural Gas
Today, Abu Dhabi has become a global economic power. But a few decades ago, this desert city was poor, and its economy relied on the pearl industry.
Before the discovery of oil and natural gas, The Abu Dhabi economy during the 1900s relied on the pearl industry. But that industry will decline after a few decades because of Japanese dominance in the pearl industry.
The great depression of the 1930s also affected Abu Dhabi and its pearl industry. The few remaining customers it had were also gone because of the great depression. Abu Dhabi was facing difficulties and economic challenges.
On March 3, 1938, Saudi Arabia discovered oil in their land. It was one of the largest oil reserves in the world.
It gives some hope to Abu Dhabi that maybe they will also discover oil in their lands which seem unlikely at the time. So in 1939, Abu Dhabi ruler shaikh Shakhbut started authorizing foreign companies to find oil in their lands.
In the 1940s, world war two put oil exploration on hold. The discovery process was further made difficult by a large sand storm throughout Abu Dhabi.
Oil companies were not that sure about finding oil in Abu Dhabi. But still, they kept looking.
In 1951, some traces of oil and gas were discovered at a depth of 10000 ft in Murban 1 well.
Engineers were motivated, so they continued drilling deeper and deeper.in 12000 ft, They would discover sour gas, which is poisonous and flammable. one of the engineers had died when sour gas burst out from pipes.
In 1958, After 20 years of effort and hard work by petroleum engineers. Abu Dhabi finally discovered oil in their land at Umm Shaif field.
In the 1960s, Abu Dhabi would start exporting large amounts of its oil to other economies. At that time, they didn’t know that oil and gas revenues would make them the richest emirate in UAE.
Abu Dhabi ruler Shaikh Shakhbut was reluctant to spend the money because he thought oil revenues won’t last forever. So at that time, Shaikh Shakhbut spent a small amount of money on development and saved most of it.
In 1966, Shaikh Shakhbut was retired and replaced by his younger brother Shaikh Zayed. The new ruler thought that oil would completely revolutionize Abu Dhabi.
Unlike his brother, Shaikh Zayed thought oil revenue won’t go away anytime soon. He started building a seawall on the north side to protect the city from future damage.
The new ruler started investing in electricity, water, and a central sewage system. Then Shaikh Zayed focused his attention on building modern infrastructure and housing projects.
After Britain left the Persian Gulf in 1971, Shaikh Zayed would become a main driving force in the formation of the UAE and Abu Dhabi become the capital city of the UAE. So Abu Dhabi rulers will have power over not just Abu Dhabi but also all of the UAE.
Abu Dhabi’s Sovereign Wealth Fund
“We must not rely on oil alone as the main source of our national income. We have to diversify the sources of our revenue and construct economic projects that will ensure a free, stable, and dignified life for the people.” — Shaikh Zayed
Shaikh Zayed knew that oil revenue won’t last forever. So he has to find a way to preserve their wealth and reduce their addiction to oil.
So in 1967, he created a financial investment board responsible for investing excess amounts of oil revenues around the world.
Now, this was a big move because in the past and several countries today invest only in gold and bonds. But Abu Dhabi’s investment fund would invest in various asset classes.
But this investment fund didn’t last long. Shaikh Zayed realized they needed to create an investment fund that would be distant from the government to invest effectively.
So he created a new fund called Abu Dhabi investment authority (ADIA). Shaikh Zayed transferred the responsibility of investing the money to this organization which would remain distant from the government. So this is how the Abu Dhabi sovereign wealth fund got started.
Today, This sovereign wealth fund invests in many asset classes such as private equity, Common stocks, fixed income, real estate, and hedge funds.
Abu Dhabi didn’t want to take cash out from its sovereign wealth fund anytime soon. They have a bigger goal of reducing their dependence on oil and gas through their sovereign wealth fund.
The reason for reducing their dependence on oil is that in the future, oil demand will go down, which would reduce the income for the Abu Dhabi government and slow down its economic growth.
Abu Dhabi has recently shifted from an oil-based to tourism and service-based economy. There are several large projects, and the development of new luxury hotels, parks, and extravagant mansions is taking place to attract tourism.
Conclusion
Today, Abu Dhabi has two (ADIA and Mubadala) sovereign wealth funds, which combined are worth around 900 Billion dollars.
Abu Dhabi has 90% of all the oil reserves in the UAE. It has been saving tons of money from excess oil revenues since 1976. It made Abu Dhabi the most powerful and richest economy in the UAE.
Abu Dhabi is the perfect example of how being blessed with natural resources can make countries one of the wealthiest economies on the planet.
About the Creator
Arsalan Haroon
Writer┃SEO Expert┃Investor
Comments (1)
Such a small nation yet so much wealth, great article.