MILLIONS FOR INVESTMENT WORLD BANKERS ARE MAKING PILGRIMAGE TO ABU DHABI

Press, Volume CVI, Issue 31080, 8 June 1966, Page 16

MILLIONS FOR INVESTMENT WORLD BANKERS ARE MAKING PILGRIMAGE TO ABU DHABI

by

CHRISTOPHER TUGENDHAT,

, recently in Abu Dhabi)

(Reprinted from the "Financial Time*", London., bp arrangement*

“You are going to the bankers’ Mecca,” I was told before setting out for Abu Dhabi, a desert sheikdom about the size of Wales on the Arabian shore of the Persian Gulf. In the last few months the ruler Sheikh Shakhbut Bin Sultan Alnayahan, has received a constant stream of distinguished visitors from British, American and other banks. Mr Reginald Maudling (Chancellor of the Exchequer in Sir Alec Douglas Home’s Government) has been here for Kleinwort Benson, and there have been representatives from, among others, Samuel Montagu, the Chase Manhattan, the First National City, and the Royal Bank of Canada.

When I stepped out of the venerable D.C.3 which had brought me from Bahrein 1 found it difficult to believe. The airport is just a strip of tarmac laid out in the desert, and there are no roads into the capital, Abu Dhabi Town. You just drive across the sand towards the ruler’s palace and enter the built-up area past the herd of camels which supply his milk. The streets are still unpaved, and many of the inhabitants live in enclosures made of rushes called barasti. There are only about 5000 of them, with perhaps another 15,000 in the Buramai oasis and scattered round the interior.

But despite all the outward signs to the contrary the sheikhdom is already very rich, and will become a good deal richer. Last year the ruler received oil revenues of £loi million, and this year they will rise to about £2sm. In the next few years there will be a further rapid rate of growth. Abt. Dhabi Marine Areas (A.D.M.A.), which is owned two-thirds by British Petroleum and one-third by the Compagnie Francaise des Petroles, is planning to increase the output of its Umm Shaif field to an annual rate of about 5 million tons during the summer, and next year it hopes to bring its large new Zakum field onstream at the rate of over 8 million tons a year. Scope For Increases Meanwhile on land Abu Dhabi Petroleum, subsidiary of Iraq Petroleum, is planning to export 10 million tons this year. Both companies have plenty of scope for further increases, and in addition it is hoped that more oil will be discovered by whichever new company the ruler decides to give the concession areas recently surrendered by A.D.P.C.

It is impossible to make accurate estimates of how much revenue all this will bring the Sheikh. So much depends on the nature of the agreements and the state of the world oil market. But if he is receiving £45 million a year by 1970 nobody will be surprised. All the oil revenues are paid over personally to the ruler. Unlike the heads of several neighbouring States, he disapproves of investing overseas, and likes to have his money where he can see it. This means putting it into an account at one of the

local banks, and the vast bulk of it is on deposit in the Ottoman and Eastern Bank branches, a few hundred yards from the palace. After the palace itself the Eastern Bank building is the most impressive in the town.

The ruler disapproves of delegation in government and prefers to handle everything himself. This applies particularly to money, and all projects have to receive his personal sanction. Getting to see him to discuss these matters is not difficult. From 10.30 to 12.30 in the morning, and for an hour before sunset, he is available to foreigners, and he is always informal and courteous when he receives them. Nevertheless it is not easy to persuade him to part with his money. He has seen how the sudden influx of oil revenues has destroyed the traditional fabric and morality of other Arab states, and he does not want the pattern to be repeated in Abu Dhabi. Also he has been poor for most of his 61 years, since the Abu Dhabi had no other natural resources until oil production began in 1962, and he is not unnaturally suspicious of the swarm of bankers, contractors and dealers who are now swarming into the country. Since the beginning of 1963 less than £2 million has been spent and, apart from a fresh-water pipeline to Buraimi, it has made little impact on the community.

Two Palaces On paper there are several ambitious plans which should ensure that the level of expenditure rises rapidly from now on. Tenders have already been requested for an International Airport and for a causeway to link the town of Abu Dhabi with the mainland. In the summer it is hoped that the ruler will be ready to ask for tenders for the construction of a road network within the capital, and shortly afterwards for a main highway to run from Abu Dhaibi to Buraimai about 94 miles away. So far, however, only one contract has been signed, and that is for two new palaces—one for the ruler himself and the other for his son, Sheikh Sultan. The tottl cost will be over £2 million and the project will be undertaken by the British contractors R. H. Scott with the design work being done by the Egyptian architect Sayed Karim, who has earned an international reputation for his palaces in Saudi Arabia. It is impossible to forecast when the green light will be given for the other projects. Although Abu Dhabi comes under British protection, and Britain is responsible for its defence and foreign affairs, the local political agent has no control over internal matters. Only the ruler can decide, and

he always keeps his plans to himself. All that can be said for certain is that it will be the cost clauses in the proposed contracts that will interest him more than anything else. In Abu Dhabi the Dutch auction has been brought to a fine art, and companies have to be prepared to engage in a sort of price-cutting, leap-frog race. And even that effort may turn out to be in vain. The ruler can change his mind at any moment, as A.E.I. found out when he rejected its £2 million electrification scheme which would have given an additional 4000 kW to Abu Dhabi Town and another 3000 to Buraimi.

Fortunately there are signs that in future this sort of thing may become rarer. In the last few weeks the Beach Hotel, the only one in Abu Dhabi, has been full of oilmen competing to take over the concession areas relinquished by A.D.P.C. To help him con sider the offers the ruler has decided to call in the services of a foreign oil expert, and it is hoped that this will establish a precedent for other things apart from oil.

Plenty To Spare However, even if all the projects now in the drawingboard stage are started, and more brought forward in their wake, the ruler will still have plenty of money to spare for investment outside his country should he decide to change his mind in response to the bankers’ pleas. Once again, accurate estimates are impossible to make, but the population of the country is so small that it is difficult to see how Sheikh Shakhbut could be spending more than £l5 million a year on development by 1970. This will be only onethird of his estimated income, and in addition his personal savings by then should have reached over £lOO million. He will be in a class of his own as a private investor with enormous economic power that will extend far beyond his territorial boundaries. Although the money will be his, the responsibility for advising him on how it should be used, and of defending him against any would-be aggressors, will fall to Britain under the terms of the existing treaty obligations. Events are moving quickly in this part of lhe world, and unless the U.K. Government can decide quickly what sort of investment machinery it wants, and persuade the ruler to accept, the discharge of this responsibility is likely to raise a lot of trouble.

Ominous Signs Meanwhile there are already some ominous signs that Britain may lose out in the development of Abu Dhabi. In international terms the market is still small—last year its total imports amounted to only about £2 million—but already United States, German and Japanese companies are establishing agencies here, and the local merchants are complaining that they cannot persuade British firms to treat the Sheikhdom as a separate market instead of as an annexe to their agencies in Dubai and Bahrain.

The danger inherent in this attitude can be seen by looking out of any office window. Until recently cars could not be used in Abu Dhabi and Land-Rover established a virtual monopoly. There are still far more of them about than anything else, but most of the ruler’s family are driving American cars, and there’ are several Mercedes to be seen, while most of the smaller cars seem to be either German or Japanese. “Apart from Land Rovers they are the only ones that will get you to Buraimi,” I was told.