Oil savings will be needed on the home front

It is not only the British who are hoping to get a piece of the Gulf's oil windfall.

Gordon Brown, the British prime minister, is not the only one with his eyes on the Gulf oil windfall, hoping to see some of the savings from a decade of high oil prices used to solidify a creaking financial system. Some have even suggested that US car makers - who have asked Congress for a slice of the American bank bailout billions - might benefit from the largesse of Gulf oil exporters on account of their central role in the petroleum food chain.

But judging by the mounting evidence of the shortage of capital in the Emirates, it now looks like savings from Abu Dhabi's natural endowment might be needed closer to home. With the decision to inject Dh120 billion (US$32.68bn) into the banking sector and now the creation of a major state bank from the assets of the country's largest home-finance companies, Abu Dhabi is clearly arming the Federal Government with new powers, and access to capital, to fill the void left by the implosion of global capital markets.

This interventionism may have been prompted by an emergency situation in Amlak, the largest Islamic home-finance firm, whose decision to freeze lending would have caused enormous damage to an already fragile property market. Now it will be interesting to see whether the emergency response will turn into a longer-term policy to channel more sovereign resources for use at home. Such a policy might bear much more than just financial fruit.

The authorities have yet to specify how much money will be pumped into the new Emirates Development Bank, and which sectors and types of loans would be made available. Indeed, the Government is still assessing the potential needs of property developers exposed to widening defaults by buyers and scarce financing from other sources. But if its remit extends beyond property into industry and finance, there are also several large debt refinancings coming due in the next few months that could come under its consideration.

Dubai entities, both public and private, had $11bn of loans maturing in the fourth quarter of this year and another $5bn next year, according to Fitch, the credit rating agency. Abu Dhabi has about $8bn to refinance next year. The borrowers, such as Dubai International Financial Centre, Borse Dubai and Dolphin Energy, are closely associated with the respective "brands" of Dubai and Abu Dhabi and will undoubtedly be able to fall back on their shareholders in Government if no other credit is available.

But across industrial, financial and property sectors throughout the seven emirates, there may be other borrowers who could benefit from a stronger federal financial structure. Many of these companies have good business models and are simply running short of cash due to a systemic failure of the credit markets, at home and abroad. The Abu Dhabi Water and Electricity Authority is a case in point. It was forced to resort to expensive short-term bridging loans this month to finance a major power station that is central to the country's power needs.

Further down the road, a federal nuclear power programme will require tens of billions of dollars in financing. Abu Dhabi has already begun to use its considerable oil savings to shore up the federal economy. The efforts to create a federal framework through which to channel these funds could also reflect a desire to see a more unified national approach to development. The global crisis presents an opportunity for Abu Dhabi to take a lead in co-operation across the Emirates to prioritise projects, and the country will emerge as a more interdependent and stronger federation.

Instead of "Dubai Strategic Plan 2015" on the one hand, and "Plan Abu Dhabi 2030" on the other, perhaps we should look forward to a "Plan Emirates" that incorporates all seven emirates into a more balanced development plan. [e-mail]