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Abu Dhabi’s economy to shrink in 2026, Fitch says, but sovereign rating remains solid

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WHAT WE’RE TRACKING TODAY

THIS MORNING: UAE (+ Qatar, Kuwait, and Israel) buy USD 8.6 bn of US defense systems + Adnoc lines up AED 200 bn for local contract awards

Good morning, everyone. With still no concrete updates on negotiations between the US and Iran, our Big Story Today takes a look at Abu Dhabi, whose AA sovereign rating was affirmed by Fitch, courtesy of the emirate’s fiscal and external buffers. Despite a solid sovereign rating, fiscal space is expected to tighten as the emirate ramps up both borrowing and spending to prop up its economy in the wake of the war.

Plus: The US greenlit a USD 8.6 bn defense sale agreement to countries in the region, including the UAE, bypassing congressional approval and citing national security interests as justification for their “immediate” sale.

AND- More earnings are out from DFM, Investcorp, and PureHealth, and Adnoc is lining up AED 200 bn in project awards for local manufacturing.

From the Dept. of Good News

Airspace restrictions in place since the start of the war have now been scrapped, state news agency Wam reports.

Fare reset? UAE fares may soften as airspace reopens and capacity returns. Long-haul routes to the US, Canada, and Europe are likely to lag, with redeployed aircraft slow to unwind and pricing not expected to normalize until August.

WEATHER- Temperatures are cooling slightly from the 40°C peak over the weekend, with a high of 38°C in Dubai and Abu Dhabi and lows between 27-28°C.

Watch this space

The UAE is among buyers of a wider USD 8.6 bn military sales agreement from the US to countries in the region, according to a statement from the State Department. Israel and Kuwait are also getting military systems, while Qatar inked two agreements, according to statements from the US State Department.

The UAE’s package is worth USD 147.6 mn, and will see it buy 1.5k advanced precision kill weapon systems, as well as rocket launchers, explosive warheads, and US technical support and services. Qatar is getting the largest sale, with two separate agreements worth around USD 5 bn in total (here and here). Israel is buying USD 992.4 mn worth of advanced precision kill weapon systems, and Kuwait is looking to secure USD 2.5 bn in integrated battle command systems.

In a rush? Sales like these typically need congressional approval. However, the statements read that there was justification for the “immediate sale” due to “national security interests.”

ICYMI- The move comes after the regional war triggered a defense rethink for GCC countries, as USD 20k-100k Iranian drones were costing between USD 3-12 mn to shoot down. Analysts told us the UAE’s current strategy was “unsustainable at scale.” While this US sale points to a quick fix, the UAE is also increasingly looking to localize defense production and own the tech behind counter-drone systems, rather than just buying it.


MANUFACTURING — UAE industrial push shifts into overdrive: Abu Dhabi National Oil Company (Adnoc) is lining up AED 200 bn in project awards between now and 2028, in a move set to deepen local manufacturing and strengthen supply chain resilience, state news agency Wam reports. The awards span upstream and downstream projects.

Adnoc said it is also doubling down on its In-Country Value (ICV) program, pushing “Made in the Emirates” products to the front of procurement and linking contractors with a growing pool of local manufacturers. The National ICV Program redirects procurement spend into the domestic economy, with ICV-certified firms — those prioritizing local sourcing — gaining an edge in tenders and contracts.

The push comes as part of a broader localization drive amid regional disruption. The government recently launched an AED 1 bn national fund to localize more than 5k essential products, while expanding ICV across federal entities, signaling a coordinated effort to scale local industry and reduce import reliance.

PLUS- It was only recently that Adnoc also said it was committing tens of bns of USD to develop its natural gas business in the US via its overseas investment arm, XRG, in a move that would bring more optionality into its portfolio, as the regional energy market continues to face disruption.


TRANSPORT — AED 2.9 bn road build: The first phase of developing a new road between Abu Dhabi’s Saadiyat Island and Khalifa City will come with an AED 2.9 bn price tag, Gulf News reports. The new route will pass through Umm Yifeenah Island, with part of the route already open.


REGULATION — ADGM tightens AML rules further: The ADGM Registration Authority published updates to its anti-money laundering (AML) measures, it said in a statement. The move comes just a few days after it published a consultation paper aiming to align its regime with updates to the UAE’s AML laws and international standards.

The main change: Firms won’t be able to issue bearer shares, which are typically harder to trace and can be issued to anonymous holders who hold only a physical certificate rather than registering their holdings.

ALSO- The changes include clarified roles and obligations for trustees, tighter controls on what trusts and foundations can do if they are classified as nonprofit within the framework, and updated timelines for certain deadlines and filings.


ENERGY — UAE exits another oil alliance: The UAE has officially withdrawn from the Organization of Arab Petroleum Exporting Countries (Oapec), according to a statement. The move follows the Emirates’ surprise exit from Opec and Opec+ late last month.

Oapec? The Kuwait-headquartered alliance was founded in 1968 to foster cooperation between Arab oil-producing nations, focusing on technical research, joint ventures, and regional energy policy. The organization does not play a role in setting global oil prices and production quotas. The UAE was not a founding member.


COMPANIES — IFFCO faces emergency liquidation: Lenders led by HSBC Holdings Plc are reportedly seeking court intervention to seize control of food and agri-business company IFFCO Group from its current owners, the Financial Times reports. The company — burdened with USD 2 bn of debt — now faces provisional liquidation, whereby an appointed liquidator — FTI Consulting — can temporarily take control of the company and preserve its financial position.

IFFCO has been embroiled in monthslong restructuring talks and disputes between its main shareholders. The crisis in the Strait of Hormuz exacerbated the company’s troubles by crippling critical food import channels.

Happening today

Make it in the Emirates kicks off today and runs through Thursday, 7 May at the Adnec Center Abu Dhabi, putting the UAE’s industrial push front and center as policymakers and corporates look to turn pipeline ideas into concrete agreements.

The big story abroad

US forces will begin guiding vessels stranded in the Gulf through the Strait of Hormuz today, President Donald Trump said. With many of these ships running low on provisions, Trump characterized the effort, which he is calling “Project Freedom,” as a “humanitarian gesture,” but offered few concrete details on what this would entail.

Where do US-Iran peace talks stand? Tehran is currently reviewing Washington’s response to its latest peace proposal, a 14-point framework reportedly designed to end hostilities and lift the naval blockade on the Islamic Republic.

Making waves in the business press is US retailer Gamestop, whose CEO Ryan Cohen aims to make an unsolicited bid to acquire eBay for some USD 56 bn. Cohen revealed that GameStop has acquired around 5% of the e-commerce player and is proposing a buyout at USD 125 per share. The proposal, consisting of stock and liquid funds, represents a 20% premium over eBay’s Friday closing price.

Also, are blockbuster comedies back? The Devil Wears Prada 2 raked in USD 233 mn at the box office over its opening weekend, the highest figure for a traditional comedy in 11 years.

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Market watch

The UAE’s Opec exit could eventually translate into cheaper, more flexible crude for importers like India, as Abu Dhabi breaks away from Opec quotas — opening the door to more competitive supply agreements once disruptions clear, according to experts speaking to Fortune India.

The country is planning to ramp up its capacity to 5 mn bbl / d by next year, up from around 4.8 mn bbl / d currently.

ALSO- Opec+ decided to raise output in June in their first meeting since the UAE’s exit, with the remaining seven Opec+ producers agreeing to increase production by 188k bbl / d, partially unwinding the voluntary cuts announced in April 2023, according to a statement. The 188k bbl / d increase marks a step down from May’s 206k bbl / d hike, and could reflect the alliance’s new math after the UAE formally exited Opec and Opec+ on 1 May.

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THE BIG STORY TODAY

Abu Dhabi set to spend, borrow more this year, with the economy likely to shrink

Fitch Ratings has affirmed Abu Dhabi’s AA sovereign rating with a stable outlook, pointing to strong fiscal and external buffers even as the emirate heads into a period of higher spending and borrowing amid regional tensions, according to a press release.

More spending, more borrowing: Fitch expects government spending to rise as Abu Dhabi steps up support for key government-related entities (GREs) — particularly in logistics — in light of the war, with broader programs likely to follow to support the non-oil economy. That will feed into higher debt, which is projected to rise to 25.3% of GDP this year from 19.5% in 2025, though it remains well below peer medians.

Strong buffers are still keeping the emirate comfortable: Abu Dhabi’s balance sheet continues to anchor the rating, with sovereign net foreign assets estimated at around 291% of GDP — among the highest globally — alongside what Fitch describes as “very strong fiscal and external metrics.”

It’s all about oil: The rating affirmation also reflects “the resilience of oil export revenue during the Iran war,” helping offset near-term disruption. The UAE managed to get some of its oil out despite the blockade due to the Habshan-Fujairah pipeline. The pipeline has a capacity for about half of its production, or 1.8 mn bbl / d.

REMEMBER- The UAE is gearing up for even more oil revenues as it looks to boost its capacity and export freely without Opec’s restrictions. A production hike to 5 mn bbl / d — up from about 3.4 mn bbl / d before the war — could add some USD 40 bn in annual gross oil revenue, analysts estimate. The country is also expected to ramp up spending across upstream capacity, drilling, and export infrastructure.

On the downside: Fiscal space is tightening. Fitch expects the budget surplus to narrow to 3.0% of GDP in 2026 from 6.5% last year, with a small deficit emerging when excluding investment income — the first since 2020.

AND- Risks are stacking up: The agency flags “significant risks of a renewed flare-up,” including potential disruption to oil and gas exports or a prolonged closure of the Strait of Hormuz. These are scenarios that could weigh on growth, fiscal balances, and the broader credit profile.

The bigger concern? The non-oil economy. A “more lasting and structural deterioration in the regional security environment would challenge economic diversification” and hit confidence-sensitive sectors, even as GRE-led investment continues to anchor activity. The emirate’s high reliance on the oil sector is what is holding it back from a higher rating at the moment.

The UAE government is already acting to support the economy through a renewed localization and supply chain resilience push. The government launched a AED 1 bn industrial fund to support vital industries like pharma, food, and industrials, while a federal tourism package is also in the works as authorities look to cushion a sector under pressure.

Growth is taking a hit: Fitch expects Abu Dhabi’s economy to contract by around 1% in 2026, with both oil and non-oil activity under pressure before a gradual recovery.

Still, resilience holds for now: Higher oil prices and alternative export routes are helping keep revenues broadly in line with pre-war expectations, supporting the stable outlook despite the uncertain backdrop.

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EARNINGS WATCH

DFM, Investcorp, PureHealth’s earnings are in

DFM powers through regional tensions on trading boom

Dubai Financial Market (DFM) kicked off 2026 on a strong note despite the regional backdrop, with net income after tax rising 39.8% y-o-y to AED 177.7 mn in 1Q, according to its financials (pdf). Revenue climbed 35.7% to AED 253.1 mn, backed by “growing depth, liquidity, and international relevance of the market,” Chairman Helal Al Marri said in a separate earnings release (pdf).

Average daily trading value jumped 56% to AED 1.03 bn, while total traded value rose 48% to AED 61 bn. Momentum held through most of the quarter, even as the DFM General Index closed 10.1% lower, pointing to liquidity and participation driving activity.

Investcorp Capital weathers cost squeeze as co-investments carry income

Abu Dhabi-based Investcorp Capital reported a mixed set of 3Q FY 2026 results, with higher financing costs weighing on the bottom line. Net income fell 15% y-o-y to USD 35 mn, even as gross operating income rose 4% to USD 72 mn, according to its earnings release (pdf), with the decline driven by higher interest expenses linked to increased drawdowns on its revolving credit facility.

Co-investments pick up the slack: Revenue from co-investment activities rose 30% y-o-y to USD 35 mn, supported by stronger performance across private equity, structured portfolios, and strategic capital investments. CEO Sana Khater pointed to a “resilient and well-diversified platform,” helping sustain income despite a tougher funding environment.

Dividends: Investcorp Capital remains on track to deliver its FY 2026 dividend target of 8% on opening NAV, despite near-term earnings pressure.

PureHealth earnings dip as unified purchasing program pressure bites

ADX-listed healthcare player PureHealth saw earnings come under pressure at the start of 2026 on the back of regulatory changes, with net income after tax falling 17.9% y-o-y to AED 414.9 mn in 1Q, according to its financials (pdf) and earnings release. Revenue rose 10.4% to AED 7.3 bn, supported by strong demand and geographic diversification.

Its domestic division came under pressure, but activity held up: UAE Care revenue fell 13% y-o-y to AED 2.7 bn due to the Unified Purchasing Program (UPP) taking effect, though underlying activity remained solid, with outpatient volumes up 3%, inpatient volumes up 10%, and occupancy rising to 76%. The Cover (ins.) vertical saw revenue rise 9% to AED 2.0 bn on higher premiums and a growing member base.

What’s the UPP? Rolled out in May 2025 (pdf), Abu Dhabi’s UPP centralizes drug procurement and standardizes reimbursement across government-backed ins. schemes. In practice, that means tighter pricing and less margin flexibility, weighing on pharma-related revenues even as volumes hold up.

International growth doing the heavy lifting: Revenue from the group’s international Care portfolio surged 60% y-o-y to AED 2.5 bn, driven by contributions from Hellenic Healthcare Group — where it acquired a 60% stake last year — and steady growth at Circle Health in the UK, acquired in 2024. Management pointed to the “growing momentum” of its global platform, increasingly underpinning diversification and scale.

Looking ahead: The group plans to continue expanding capacity, scaling its international footprint, and investing in AI and digital infrastructure to support long-term growth.

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A MESSAGE FROM MASHREQ

Explainability as a foundation of AI governance

The more financial institutions rely on AI, the more they need to answer a basic question: how did the system reach that conclusion? That is what makes explainability central to responsible AI deployment in financial services, where systems influence financial outcomes, regulatory reporting, and customer decisions. Before entering production, models must be understood, reconstructed, and justified.

That requirement carries directly into how models are designed. At Mashreq, governance documentation, validation records, feature impact analysis, and auditable decision trails are developed alongside each model, ensuring that material outcomes can be traced from input to decision.

With this level of traceability in place, regulatory review becomes more structured. Supervisory processes can assess not only technical performance, but alignment with defined risk parameters through transparent documentation and validation.

The same traceability supports day-to-day operations. Frontline teams require outputs that translate into structured reasoning rather than abstract scores. Systems therefore surface contributing factors and decision logic that relationship managers and analysts can interpret and communicate.

Once decisions reach the customer, clarity takes a different form. Explanations focus on relevant decision drivers, using transparent, actionable language without unnecessary technical complexity.

At an institutional level, explainability becomes part of how systems are governed. It informs model selection, workflow design, monitoring standards, and approval pathways. Across regulated environments, transparency is a requirement rather than an add-on. Sustainable AI adoption depends not only on performance, but on the ability to demonstrate how outcomes were reached.

Xi Liang, Head of AI, Mashreq

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MOVES

Aramex’s new CEO assumes his role

Aramex names new group CEO: Amadou Diallo (LinkedIn) has assumed the position of group CEO, after he was tapped earlier in November for the position. Diallo — who succeeds Nicolas Sibuet (LinkedIn) — brings more than 30 years of logistics and transportation experience, most recently serving as CEO for the Middle East and Africa at DHL Global Forwarding.

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ALSO ON OUR RADAR

Rokos comes to ADGM + UAE gifting platform eyes Saudi expansion

Another int’l name comes to ADGM

Rokos opens up in Abu Dhabi: UK-based investment firm Rokos Capital Management opened a new office in ADGM after securing financial services permission, the financial center said in a statement. The Abu Dhabi office adds to Rokos’ existing presence in New York, London, and Singapore.

A vote of confidence: “Abu Dhabi’s position as a destination of choice for global investors” was behind the move, ADGM Chief Market Development Officer Arvind Ramamurthy said. Despite the regional war, firms have still been coming to ADGM, with both Bain Capital and Hillhouse opening offices in the hub last month.

UAE’s Udora eyes Saudi expansion

UAE-based gifting startup Udora is targeting Saudi Arabia next, after securing USD 10 mn in a private funding round, according to a press release. It’s planning its Saudi entry for 3Q this year, hoping to tap into the growing e-commerce market in the Kingdom. Funds will also be used to expand its range of product offerings and better integrate AI use into its operations.

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PLANET FINANCE

Bypassing US protectionism

US protectionism is pushing the rest of the world to rewire trade — and the USD 22 tn EU-Mercosur agreement makes that shift concrete. The agreement between the European Union and Mercosur went live provisionally on 1 May, linking 720 mn consumers into the largest freetrade area by population after more than 25 years of negotiations.

The Mercosur agreement will gradually remove tariffs on most industrial and agricultural goods while shielding politically sensitive sectors like beef, poultry, sugar, and fruit.
Framed by Brazilian President Luiz Inácio Lula da Silva as a direct response to US President Donald Trump’s tariffs and “a reaffirmation of multilateralism,” the agreement is expected to deliver relatively modest economic gains despite its scale. The next phase of this agreement is likely to show up in investment flows, not just trade volumes.

How? By lowering barriers and aligning rules, it gives European firms a clearer path into South America’s supply chains — especially in areas like mineral processing, where China has long dominated investment. As competition for resources tied to energy and industrial policy intensifies, countries are responding to a more protectionist US stance by deepening ties elsewhere.

Why does it matter? The agreement pulls the EU into that competition, expanding its role from trade partner to long-term investor in mining, processing, and infrastructure. Ongoing talks with India, Indonesia, and Australia reflect a wider effort to stay involved in shaping trade and investment as global rules weaken and countries increasingly turn to region-to-region agreements.

Companies are already positioning around that shift. South American agribusinesses — from beef and fruit to minerals — are looking to expand exports into Europe, while European automakers, pharma firms, and tech companies are targeting growth and investment prospects in Mercosur.

Where the risks lie: The agreement is not fully locked in — Ursula von der Leyen moved to enact it provisionally without full parliamentary approval, triggering a possible court challenge at the EU’s judiciary. If the court rules against it, the agreement could be halted, raising questions over long-term investment flows and the EU’s credibility. Even so, markets like Mercosur are unlikely to fully replace lost trade with Washington, underscoring that this is more about diversification than substitution.

The bottom line: Beyond beef quotas, this is about supply chains, capital allocation, and geopolitical positioning. As US protectionism reshapes global trade, blocs like EU-Mercosur are moving to redirect flows of goods, capital, and influence — if judicial challenges don’t derail it.

MARKETS THIS MORNING-

Asia-Pacific markets are up in early trading this morning, led by South Korea’s Kospi, which is up over 3.6%. Japan’s Nikkei is closed today in observance of Greenery Day. Wall Street futures are flat, suggesting a muted start to the week as investors sit tight awaiting the many earnings reports due over the course of the week.

ADX

9,789

+0.1% (YTD: -2.1%)

DFM

5,767

0.0% (YTD: -4.6%)

Nasdaq Dubai UAE20

4,635

+0.5% (YTD: +5.2%)

USD : AED CBUAE

Buy 3.67

Sell 3.67

EIBOR

3.5% o/n

4.0% 1 yr

TASI

11,193

+0.1% (YTD: +6.7%)

EGX30

52,313

+1.1% (YTD: +25.1%)

S&P 500

7,230

+0.3% (YTD: +5.6%)

FTSE 100

10,364

-0.1% (YTD: +4.4%)

Euro Stoxx 50

5,882

+1.1% (YTD: +1.5%)

Brent crude

USD 108.38

+0.2%

Natural gas (Nymex)

USD 2.81

1.0%

Gold

USD 4,626

-0.4%

BTC

USD 78,902

+0.3% (YTD: -9.9%)

Chimera JP Morgan UAE Bond UCITS ETF

AED 3.70

0.0% (YTD: +0.9%)

S&P MENA Bond & Sukuk

151.40

+0.1% (YTD: -0.3%)

VIX (Volatility Index)

16.99

+0.6% (YTD: +13.7%)

THE CLOSING BELL-

The DFM held steady on Friday on turnover of AED 3.2 bn. The index is down 4.6% YTD.

In the green: Mashreqbank (+5.6%), National General Ins. Company (+3.5%), and Talabat Holding (+2.6%).

In the red: Dubai Investments (-4.9%), Amlak Finance (-4.8%), and BHM Capital Financial Services (-4.0%).

Over on the ADX, the index rose 0.1% on turnover of AED 1.3 bn. Meanwhile, Nasdaq Dubai was up 0.5%.


MAY

4-7 May (Wednesday-Friday): Make It in the Emirates, Adnec Center, Abu Dhabi.

12-14 May (Tuesday-Thursday): Abu Dhabi Infrastructure Summit, ICC Hall, Adnec Center, Abu Dhabi.

15-17 May (Friday-Sunday): Art Dubai, Madinat Jumeirah, Dubai.

19-22 May (Tuesday-Friday): Abu Dhabi Water and Energy Week, Adnec Center, Abu Dhabi.

22 May-7 June (Friday-Sunday): Dubai Esports and Games Festival, Dubai.

JUNE

3-4 June (Wednesday-Thursday): MENA Investor Conference, Ritz-Carlton DIFC, Dubai.

3-4 June (Wednesday-Thursday): MENA Desalination Forum, Conrad Abu Dhabi Etihad Towers, Abu Dhabi.

15 June - 15 September (Monday-Thursday): Dubai Mallathon, Dubai.

17 June (Wednesday): Investopia Global Talks, Tashkent, Uzbekistan.

22-24 June (Monday-Wednesday): The International Glass Manufacturing Show, Dubai.

JULY

31 July (Friday): Large businesses achieving annual revenues equal to or above AED 50 mn must appoint an accredited service provider for e-invoicing implementation.

AUGUST

17-20 August (Monday-Thursday): Arabian Travel Market, Dubai World Trade Center, Dubai.

SEPTEMBER

1-3 September (Tuesday-Thursday: Middle East Energy, Dubai World Trade Center, Dubai.

7-9 September (Monday-Wednesday): AIM Congress, Dubai World Trade Center.

7-9 September (Monday-Wednesday): International Property Show, Dubai World Trade Center, Dubai.

12-13 September (Saturday-Sunday): Emirates International Congress on AI & Visionary Leadership in Transforming Healthcare, Adnec Center Abu Dhabi.

29-30 September (Tuesday-Wednesday): AFCM Annual Conference, Abu Dhabi.

OCTOBER

4-10 October (Sunday-Saturday): World Space Week, Abu Dhabi.

5-7 October (Monday-Wednesday): AI Everything Global, Adnec Center, Abu Dhabi.

12-14 October (Monday-Wednesday: Airport Show, Dubai World Trade Center, Dubai.

20-22 October (Tuesday-Thursday): Future Health Summit, Adnec Center Abu Dhabi.

27-28 October (Tuesday-Wednesday): Arab Competition Forum, Dubai.

Signposted to happen sometime in October 2026:

  • Abu Dhabi Space Week, Abu Dhabi.

NOVEMBER

2-6 November (Monday-Friday): Dubai Future Finance Week, Dubai.

4 November (Wednesday): Digital Transformation Summit, Sofitel, Abu Dhabi.

9-10 November (Monday-Tuesday): Annual government meetings, Abu Dhabi.

10-12 November (Tuesday-Thursday): Dubai International Electric Vehicle Exhibition & Conference, Dubai World Trade Center.

DECEMBER

2-4 December (Wednesday-Friday): UN Water Conference, UAE.

8-9 December (Tuesday-Wednesday): Capital Market Summit, Madinat Jumeirah, Dubai.

Signposted to happen sometime in 2027:

  • 1 January: Deadline for large businesses to implement e-invoicing;
  • 1Q 2027: Completion of the first phase of Hassyan seawater desalination project;
  • 1-3 February (Monday-Wednesday): World Governments Summit;
  • 31 March: Small businesses with annual revenues of less than AED 50 mn are obliged to contract with an accredited service provider for e-invoicing implementation;
  • 31 March: Government entities are required to appoint an accredited service provider for e-invoicing implementation;
  • 21-22 April (Wednesday-Thursday): Token2049, Dubai;
  • 1 July: Deadline for small businesses to implement e-invoicing;
  • 1 October: Deadline for governments to implement e-invoicing;
  • Abu Dhabi’s solar and battery energy facility, combining 5.2 GW of solar capacity and 19 GWh of battery storage, is set for commissioning.

Signposted to happen sometime in 2028:

Signposted to happen sometime in 2029:

  • Sibos 2029 organized by the Society for Worldwide Interbank Financial Telecommunication (SWIFT), Dubai;
  • Annual Meetings of the World Bank Group and the International Monetary Fund, Abu Dhabi;
  • The commissioning of the seventh phase of Mohammed bin Rashid Al Maktoum Solar Park.
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