When Abu Dhabi talks, you should listen
Published by The Straits Times, Singapore on 2004-07-19
ABU DHABI - Not long ago, Sheikh Zayed Bin Sultan Al Nayhan, President of the United Arab Emirates, decided that a major foreign investment of his oil-rich country was going to be in the booming Indian economy, just a three-hour flight to the east from here. With a record US$25 billion expected in oil revenues this year because of rising prices, Abu Dhabi, in fact, has more money than it knows what to do with.
So Sheikh Zayed instructed his factotums to approach Indian officials with an offer of US$2 billion, which would be poured into the Indian Oil and Natural Gas Corporation (ONGC), India's biggest public-sector company. The figure represented a little over 10 percent of what the U.A.E. puts annually into foreign direct investment, mostly in Western countries and Southeast Asia.
The Indians never replied.
That rattled the 86-year-old Sheikh, whose federation of seven emirates has long enjoyed strong ties with India because of some 1.7 million labourers and professionals from the Subcontinent who have helped build the infrastructure of this desert sheikhdom since its founding in 1971. Leaders of the Indian expatriate community here were also upset at what was widely perceived to be insensitivity on the part of the New Delhi bureaucracy.
"The Gulf states don't seem to be on India's radar much," said Mr Ismail Hukkawala, a longtime businessman and banker in Dubai who serves as President of the Indian Business and Professional Council. "India is missing an opportunity to do even more business with the U.A.E. It is a puzzling situation."
It's especially puzzling because the bilateral trade between the two countries is growing without any special effort on the part of India. Only yesterday, Mr Yash Sinha, the Indian Consul General in Dubai, revealed that exports from India to the U.A.E. grew by 47.2 per cent last year, reaching US$4.45 billion in value - up from US$3.02 billion in 2002. With a total turnover of US$6.23 billion in 2003, the U.A.E. has become the second largest bilateral trading for India, after the United States (with whom the figure is around US$10 billion).
India has overtaken its regional competitor China in total trade with the U.A.E. for the first time since the early 1990s. Indian gems, jewellery and textiles are much in demand here, as are machinery, plastics and electronic goods. Most of these Indian imports are re-exported to other Gulf countries such as Saudi Arabia and, more and more to East and North Africa, through economic free zones that the various emirates have established. India's imports from the U.A.E. - in addition to crude oil and natural gas - consist of pearls, gold, metal scrap, and chemicals, totalling US$1.78 billion last year, or double the figure of 2002.
At the same time, according to government statistics released yesterday, India's overall trade with the Middle East in 2003 also grew by 33 percent to US$8.2 billion - up from US$6.2 billion the previous year. But the India-UAE trade surpassed the total trade of India with the Gulf countries and Iran and Iraq put together, said Consul General Sinha. (India's total exports were US$61 billion in 2003.)
Embarrassed Indian officials later explained the rejection of Sheikh Zayed's offer to invest in ONGC as resulting from a government decision not to allow foreign capital into India's public-sector oil companies. Be that as it may, the incident may well have discouraged the U.A.E. from pursuing other ventures in India, which currently gets a paltry US$3 billion in foreign direct investment each year - a sum quite inadequate to finance the country's bold development and poverty-alleviation plans.
The Abu Dhabi sheikhs are known to be shrewd but conservative investors, and they are also said to take rejections unkindly. It was perhaps no coincidence that the U.A.E. government made the new Indian ambassador wait for longer than customary before he was allowed to formally present his credentials.
But where is the U.A.E. - a country of barely four million people, more than half of whom are foreigners - going to invest now that many wealthy Arabs feel unwelcome in the U.S. and Europe in the wake of 9/11?
Abu Dhabi, which produces 2.2 million barrels of oil and some 3.7 billion cubic feet of natural gas a day, can expect its wealth to keep growing over the next two centuries. That's because proven recoverable oil reserves are currently put at 98.2 billion barrels or 9.5 percent of the global crude oil proven reserves. The proven recoverable reserves of natural gas are estimated currently at 5.8 billion cubic meters or 4 percent of the world total. Thus, the U.A.E. possesses the third largest natural gas reserves in the region and the fourth largest in the world.
At the current rate of utilization - and excluding any new discoveries - these reserves will last for more than 150 years. Meanwhile, world demand for both crude oil and natural gas keeps growing, and the U.A.E., a member of the Organisation of Petroleum Exporting Countries (OPEC), will eventually need to raise its production levels. It exports 62 percent of its crude oil to Japan, making it the U.A.E.'s largest customer. Virtually all its gas exports go to Japan, the world's largest buyer of liquefied gas, with the U.A.E. supplying almost one-eighth of Japan's entire requirements,
Formidable though the oil and gas revenues are, they account for only a third of the U.A.E.'s gross domestic product. By diversifying the economy into areas such as financial services, free export zones and light manufacturing, the country is steadily increasing its income. And even considering the ambitious development plans for emirates such as Abu Dhabi and Dubai, the U.A.E. seems to have money to spare; in fact, much of the expenditure on expansion projects now comes from other Arab countries and from Europe. The Japanese and the Chinese are taking stakes in real estate, and in tourism here - so much so that local economists warn of overheating of the economy.
Emerging countries - India included - please take note: It wouldn't be a bad idea to cultivate the U.A.E. if you are looking for investment funds. And perchance if their officials approach you, ignore their inquiries at your own peril.
Senior Writer and Global-Affairs Columnist