If you are a company looking to do business in the Middle East, chances are you have already heard of the UAE's pioneering work in helping to establish and nourish firms with the concept of free zones. Over the past few years, as the economic boom took the UAE to new heights, many organisations that came to set up shop here chose to do so in one of the country's many free zones.
"Free zones have played a fundamental role in the growth of the UAE as they have opened the economy to foreign direct investments and encouraged local and regional investors to focus on the UAE market," says Ahmad Baghoum, Executive Director of customer operations at Tecom Investments, a member of Dubai Holding, which manages some of the most important knowledge clusters in Dubai. "Consequently, they have helped expand non-oil exports and directly led to the growth of ancillary industries."
Free zones, or special economic zones, become an obvious choice for firms, not only because they give them an ideal base to conduct business anywhere in the Middle East, but also because of the other advantages.
"Free zones in the UAE offer a host of incentives including 100 per cent ownership, which guarantees investors full control over the management of their operations," says Baghoum. "The UAE free zones also guarantee exemptions from import and export duties and commercial levies, and permit full repatriation of capital and profits.
As a result, companies look to these free zones to derive maximum economic benefits from the region's growth."
According to Saeed Al Mulla, Vice President business park development at Abu Dhabi Airports Company (ADAC), free zones have many advantages. He says, "Companies choosing to set up inside a free zone enjoy many benefits such as tax exemptions, including corporate, personal, import and export taxes.
Even more, within the framework of free zones, foreign-owned businesses are guaranteed a smooth entrance to the UAE market, where restrictions on setting up businesses are lifted. For this reason alone, international businesses are flocking to free zones. The availability of a multi-cultural, multi-lingual skilled workforce, and full repatriation of capital and profits represent the additional benefits of operating
in a free zone environment in the UAE."
Providing incentives as they do, free zones have enabled the UAE to grow its economy across several industries, even as it offers model conditions for foreign companies
to establish themselves.
"Free zones in the UAE become a one-stop shop for many companies.
Licences are fast, there is 100 per cent ownership, they offer extremely developed networking capabilities, all the facilities are located within the set area and there is leeway on taxes," says Dagmar Abdelatif, General Manager of German Business Park (GBP) and Managing Director of the German Centre. GBP, which is set for completion in 2010, is being developed as a joint venture with Dubai Silicon Oasis, and will contain mainly German firms.
The German Centre, which will be housed within GBP, is supported by the German government and will aid small and medium businesses to find partners and conduct transactions in the UAE.
Though Dubai might seem to dominate with the sheer number of free zones, other emirates continue to demonstrate they can be viable choices as well. Infrastructure growth Ajman Free Zone Authority (AFZA), part
of the smallest emirate of the UAE, has followed the principle of constantly upgrading its offers in terms of connectivity, accessibility, infrastructure and the costs of operations.
"A new multi-million dirham state-of-the-art office complex has just been completed.
This has enabled us to add another 500 companies to the ever-growing list of investors in the free zone. The Dh50 million project was constructed in two phases and comprises two separate six-floor buildings containing more than 300 offices, which have been leased," says Shaikh Mohammad Bin Abdullah Al Nuaimi, Director General of AFZA. Now AFZA has started on another office tower as well as other projects in the emirate's new industrial zone.
Similar to AFZA, the Ras Al Khaimah Free Trade Zone (RAKFTZ) has worked hard to provide a hassle-free and customer-friendly environment, and prides itself on offering distinct advantages in location, cost, services and infrastructure over competing free zones.
"From its inception in 2000, the zone has witnessed a tremendous growth with an average annual increase of more than 50 per cent," says Oussama El Omari, CEO. "Since 2006, the number of companies registered in the free zone increased from 2,351 to 5,476. The growth has been more than 133 per cent and RAK FTZ expects to see an even higher increase in the next three years."
According to El Omari, last year 1,708 new companies registered with RAKFTZ, which has set up business and promotional centres across Dubai and Abu Dhabi, apart from liaison offices in other countries, to make it easier for investors to conduct business.
The capital Abu Dhabi already has multiple industrial zones, and ADAC is in the process of establishing the Abu Dhabi Airport Logistics Park (ADALP), which will operate as a free zone. ADAC's Al Mulla says, "The Abu Dhabi Airport Logistics Park is still being developed. We look forward to offering a world-class business hub, with all the facilities and services the world's most prestigious organisations would expect.
The Abu Dhabi Airport Logistics Park
is an intrinsic part of our wider strategy for developing ADAC's assets to facilitate and drive the emirate's future success, and play a significant role in Abu Dhabi's Plan 2030."
Credit crunch or not, most free zones expect demand for the services they offer to remain constant, if not increase. "We foresee that demand for these facilities will continue
to increase, just as demand is slated to increase significantly at Abu Dhabi International Airport following our expansion plans of the airport (a $6.8 billion or Dh24.9 billion development) due to be completed in few years," says Al Mulla.
Not only do most free zone authorities believe that the economic principles of the UAE are built on a solid foundation that will lead them through the financial crisis relatively unscathed, but many of them think this an ideal opportunity to help their investors.
"Whilst the global financial crisis will affect investors' ability to raise funds, many free zones offer valuable assistance to investors setting up new ventures, with anything from advice to helping secure bank funding and lower costs. Free zones that take these positive steps to support enterprises create a highly viable business environment, especially in a time of crisis when businesses look for ways to increase efficiency and cut costs," adds Al Mulla. All of them remain unfazed by the growing spectre of apparent competition from special economic zones in other Gulf countries.
Many even welcome the competition, considering
this the right impetus for them to add more facilities and keep themselves increasingly relevant to investors.
Spurred to improve and retain the edge over other free zones, free zone authorities in the UAE have taken on bold projects for the near future, both within the country and beyond.
"We are working on a project, called Navigator Business Campus (NBC) that will provide an integrated living environment," states RAKFTZ's El Omari.
"NBC, which uses renewable energy resources and is scheduled for launch this year, will provide companies with both office and residential facilities for their employees in the same area. Future developments include Phase Two of the Industrial Park and preparation of the new Al Ghayl Industrial Park."
TECOM Investments, meanwhile, is aiming to recreate its successful model of knowledge-based industry clusters in other parts of the world, especially in Asia and Africa, while concurrently expanding its regional presence.
"The SmartCity projects in Malta and Kochi
in India (a joint venture with Sama Dubai) are stellar examples of our international reach. The telecommunications industry is also pre-eminent in our international expansion plans. We have acquired stakes in Maltacom and Tunisie Telecom, as well as invested in Interoute and Axiom Telecom," says Baghoum.
Driven by the passion to excel and provide the best for the companies that choose to invest in them, the UAE's free zones are not only raising the stakes on service provision, but are also maintaining themselves as the finest choice to do business in the Middle East.