Dubai: For a foreign small to mid-sized business looking for a local or regional base, the ironclad rationale was they should not be looking beyond the free zones here. But the prospect of wholesale changes to the Companies Law — which is expected to eliminate or dilute some of the legacy requirements for businesses to operate — could have SMEs weighing their non-free-zone options.
If the legacy requirements are scaled down, it could translate into cost savings of 15 to 30 per cent on an annualised basis, depending on the scale of the business, according to some management consultants.
What they emphasise is that the lower costs are not confined to the registration and start-up phase of a venture.
If that is the case — and the makeover of the Companies Law does result in wholesale changes — would that mean the relevance of free zones could be diluted somewhat?
"The new Companies Law will add value and attract investments with large capital requirements into the country … especially for specialised sectors that the government is targeting to set up in the UAE," said Oussama Al Omari, CEO and director-general of the Ras Al Khaimah Free Trade Zone.
"While a free zone has a free market attitude, it is a one-stop shop, especially for smaller businesses." Sure, Al Omari does have a specific interest in insisting that free zones will be just as relevant after any changes to the Companies Law. But there are others who agree with him, and wholeheartedly at that.
"For a foreign SME eyeing prospects in the UAE and the Gulf, the 100 per cent ownership rights that the free zone provides for is a no-brainer," said a consultant at a Dubai-based legal firm. "If these businesses are from Europe, their primary goal is to make headway in these new markets and then aim for full repatriation of their future profits."
That the leading free zones are seeing marked increases in their foreign tenant numbers in recent months cannot then be a coincidence.
As a case in point, the RAK Free Trade Zone listed 194 companies of British origin at the end of last year against 127 the year before, while those from the US made up 72 against 61 in 2010.
"SMEs are our core business," said Al Omari. "We have several cost-effective facilities governing their requirements and we also provide rental holidays.
"We also have a special Products and Offers Committee which has meetings on a weekly basis and puts forth their market research for discussion. It retains a high level of control of our product costs and comes up with new packages which would meet the requirements of ever-changing market trends."
According to industry sources, a lot of the stability within the local free zone space has to do with these entities not resorting to bruising price-based campaigns against each other. "Dubai's free zones have their own identities and niches they serve, while Ras Al Khaimah's has its own target clientele," said the consultant at the law firm. "The internal free zone dynamics will not change with the new capacities being created in Abu Dhabi or elsewhere."
By the looks of it, neither should the revised Companies Law. "The UAE free zones contribute more than 25 per cent to the country's GDP, you cannot just ignore that fact," said Al Omari.
"I don't think the new law will dilute the relevance of the free zones; they can actually complement each other."
Creation of another park within the sprawling Ras Al Khaimah Free Trade Zone is always a distinct possibility, according to its CEO. Currently, the entity lists more than 5,000 ‘active' companies, of which 869 are of domestic origin.
"Since inception the vision was to develop a multiple park system," said Oussama Al Omari. "Instead of restricting ourselves — and consequently our clients — to a single location, we established the free zone at various specialised sites. "The aim of the diverse ‘parks' was to provide separate environments that could encourage different types of investors and industries. You can say that our Business Park, which is located in the city centre, is already a home for SMEs … we just don't call it clustering."
— M. N.