Abu Dhabi: Abu Dhabi’s real GDP (gross domestic product) could push its way back to higher growth on increased oil production and a revival in investments, according to S&P Global Ratings. Growth is expected to average 2.5 per cent through 2019-22, the agency said, while affirming a AA/Stable/A-1+ credit rating on Abu Dhabi.
“The exceptional strength of the government’s net asset position provides a buffer to counteract the effect of oil price swings on economic growth, government revenue, and the external account, as well as increasing geopolitical uncertainty in the Gulf region,” S&P said in a report.
Oil production increased in the first five months of the year relative to the full-year 2018 average, despite continued production limits set by the “Opec plus Russia” agreement.
“We assume Abu Dhabi National Oil Company [Adnoc] will gradually increase production, in line with its target to increase capacity to 4 million barrels per day [bpd] by 2020 and 5 million bpd by 2030, from 3.1 million bpd currently,” S&P said.
“Adnoc also has a five-year investment plan of Dh485 billion in upstream, midstream and downstream segments. Of this, Dh165 billion will be targeted for downstream, including the expansion of the Ruwais complex with a third refinery, which will expand capacity by 600,000 bpd to reach 1.5 million bpd by 2025.”
Abu Dhabi currently derives 50 per cent of its real GDP and more than 90 per cent of central government revenue from the hydrocarbon sector, including oil taxes and royalties, plus dividends from Adnoc. The rating agency also expects the government will moderately increase spending to support a revival in growth.
In early June 2018, the Abu Dhabi government announced a stimulus package of Dh50 billion for the next three years to encourage foreign investment and improve the business environment. Recently announced measures include offering permanent residency to select expatriates, allowing 100 per cent foreign ownership in certain sectors like real estate, and reducing the costs of business licenses.
Geopolitical risks surrounding rising tensions with Iran, as well as the ongoing trade blockade on Qatar by the UAE, Saudi Arabia, Bahrain, and other regional countries, remain issues of concern, S&P says. It adds this will have a limited impact on Abu Dhabi’s domestic economy in the near term.