Raising capital: The sovereign strategy
The UAE’s sovereign wealth funds drive economic growth
At the core of the UAE’s economic transformation are its sovereign wealth funds (SWFs), state-owned investment entities that play a pivotal role in driving long-term growth.
The UAE’s first SWF, the Abu Dhabi Investment Authority (Adia), was established in 1976 to preserve wealth by investing surplus oil revenues globally into low-risk assets such as bonds and equities.
Within a decade, Adia diversified its global portfolio into classes such as real estate and infrastructure, which began generating steady returns, laying a foundation that the UAE could rely on in the long term.
Presently, with assets estimated at $993bn, Adia ranks among the largest central SWFs globally and directs nearly a quarter of its portfolio into emerging markets.
In the 2000s, the UAE’s investment strategy evolved, making way for more SWFs such as Mubadala Investment Company and Investment Corporation of Dubai (ICD), followed later by Abu Dhabi Developmental Holding Company (ADQ). These new-generation SWFs were created to take on a more active role in shaping the local economy by taking majority or full ownership of domestic companies in key sectors to support national development goals.
These twin SWF strategies complement each other, helping countries achieve both financial security and long-term growth in their economies and people.
Among the more recent SWFs, Mubadala became a cornerstone of Abu Dhabi’s diversification strategy by founding or acquiring companies in key sectors. For example, it established Masdar, a global leader in renewable energy, and Strata Manufacturing, which supplies composite aerospace parts and components to companies such as Airbus and Boeing.
Similarly, ICD focused on managing key assets in Dubai, such as Emirates airline, to boost international connectivity and trade, Dubai World Trade Centre, to promote Dubai as an exhibitions centre, and more recently the local contractor Alec as part of a drive to create a national champion in the construction sector.
ADQ, the newest of the UAE’s SWFs, has created economic clusters to act as catalysts for national development. Through its investments, such as Etihad Airways, Etihad Rail and AD Ports in the transportation space, real estate developer Modon, life sciences firm Arcera, and food and drinks producer Agthia, it helps local companies to expand domestically and internationally.
Today, the UAE leads the GCC in SWF assets under management (AUM), which are projected to reach $2.2tn by the end of 2024, with Abu Dhabi alone accounting for $1.6tn.
With economic growth came the creation of thousands of jobs across various sectors. For example, ICD’s Emirates Group, comprising Emirates airline and Dnata, boasts a total workforce of over 112,000 employees, making it one of the largest employers in the UAE, while ADQ’s group companies employ more than 77,000 people.
Perhaps more importantly, the growth of these companies provides opportunities for Emiratis and has a positive social impact on female empowerment and gender equality in the workplace. The best example of this is arguably Mubadala’s Strata, which employs over 600 people, 87% of whom are Emirati women.
Wealth funds are also leading the charge in advancing sustainability in the region.
For instance, ADQ manages a comprehensive portfolio of assets across the energy and utilities value chain focused on renewable and alternative energy.
For instance, it owns Emirates Nuclear Energy Corporation (Enec), which oversees the development and operation of nuclear energy plants in the UAE. The Barakah nuclear energy plant, under Enec’s management, has achieved full operational status, supplying up to 25% of the country’s power needs with zero carbon emissions.
This focus extends to sustainable projects such as Etihad Rail, which is taking millions of containers off the roads and onto much greener freight trains.
On a more global scale, Mubadala-backed Masdar has developed and partnered in projects in more than 40 countries across six continents, with a combined capacity exceeding 31.5GW, the majority of which are solar or wind powered.
These projects contribute to reducing carbon dioxide emissions by approximately 14 million tonnes a year.
SWFs have also been instrumental in stabilising the UAE’s economy during global downturns, such as the 2008 financial crisis and the Covid-19 pandemic, by serving as economic buffers and strategic investors.
Funds such as Mubadala injected liquidity into key sectors such as healthcare and logistics, ensuring the continuity of critical services. The partnership of Mubadala-owned G42, an artificial intelligence (AI) and cloud computing firm, and Chinese pharmaceutical company Sinopharm secured access to inoculations by bringing vaccine production to the UAE.
SWFs are also increasingly focusing on making the UAE a global leader and hub for AI and technology to ensure future economic resilience and growth, with investments in the like of data centre pioneer, Khazna, healthcare technology and life sciences company M42, and Space42, now one of the world’s largest geospatial technology firms.
The SWFs still play a role in more established sectors in the UAE. In line with the government’s strategy to reduce oil dependency and promote a non-hydrocarbon-based economy, they have invested and helped to diversify the activities of key market players such as Modon, Emsteel (previously known as Emirates Steel Arkan) and Ducab.
In Ducab’s case, ADQ has helped the company diversify into new product lines and expand its global presence. For Emsteel, it has consolidated its output and enhanced its product range, while it has spearheaded Modon’s role in taking on the $30bn-plus Ras El-Hekma development in Egypt.
The latter is perhaps the best example of how SWFs are also increasingly acting as the UAE’s investment arm in other countries by boosting diplomatic ties and increasing bilateral trade.
Further examples include ADQ’s pledge to invest €4bn ($4.3bn) in Greece during a visit by the Greek prime minister to Abu Dhabi in 2022, and an agreement earlier this year for the SWF to invest $5bn in infrastructure projects in Jordan, including a new 360-kilometre-long railway to be developed by Etihad Rail linking the kingdom’s potash and phosphate mines with the Port of Aqaba.
In summary, the UAE’s SWFs have been instrumental in transforming the nation’s economy, blending wealth preservation with strategic investments that drive diversification and sustainability.
From stabilising the economy during crises to pioneering renewable energy and creating thousands of jobs, these funds have cemented the UAE’s position as a global economic leader.
As they continue to evolve, these wealth funds remain key to shaping a resilient and forward-looking economy, ensuring long-term prosperity for future generations.
