Investing IN THE UAE Is a free zone RIGHT FOR YOUR BUSINESS?
The main purpose of establishing free zones in the UAE was to serve as a business nucleus for companies to conduct business with the world, not in the UAE. One of the chief benefits offered by free zones is foreign investors can hold 100 per cent ownership. Free zone companies are intended to operate within the corresponding free zone as a hub for the worldwide operations and are not licensed to operate within the rest of the UAE.
Therefore most of the free zone companies during the early days were engaged in import and re-export activities. At present, a large majority of such free zone companies do business with clients in the UAE and GCC through local providers.
RAHUL DHADPHALE, REGIONAL DIRECTOR -- MIDDLE EAST AT LONDON BUSINESS SCHOOL AND PROBIR CHAKROBARTY, COO, RAKIA DISCUSS THE DEVELOPMENT OF UAE'S FREE ZONES
According to a report by Emirates NBD, SMEs in Dubai represent 95 per cent of all firms, account for 42 per cent of the workforce and contribute around 40 per cent to the GDP generated in Dubai's economy. In terms of sector breakdown, trading SMEs account for 57 per cent of SMEs, service SMEs for 35 per cent and manufacturing SMEs for around eight per cent. Only one per cent of all companies globally are the top sharks, such as Microsoft and Apple; and even these big fish are supported by SMEs within their various infrastructure and production facilities and activities. Free zone development is critical to the development of the UAE SME sector because SMEs offer a lot of substitute solutions at a much more competitive price in the market, which reduces a monopoly of big scale players.
Recently, legislation has been put in place, establishing the Dubai Free Zones Council with the express purpose of developing Dubai's free zones and encouraging industry, commerce, tourism and services sectors as well as improving coordination among Dubai's free zones.
The law identifies the authorities and responsibilities of Dubai Free Zones Council to include input to establishing the emirate's strategic plans, prepare comprehensive policy for Dubai's free zones, drafting the regulations and guidelines for free zones and amalgamating the registration, licensing and monitoring procedures applied in Dubai's free zones.
The law also empowered the DFZ Council to coordinate with Dubai's authorities for establishing an integrated database to serve the purposes of the free zones, revise the legislations and regulations that oversee the free zones, coordinate with concerned authorities regarding free zones and foreign investments affairs and representing them before local, federal and international groups and in local, regional and international conferences and exhibitions.
According to Rahul Dhadphale, Regional Director -- Middle East at London Business School, even though Dubai was not the first to come up with the concept of free zones, it has certainly pioneered the development of specialist free zones across the full spectrum of industries for example finance, education, media, shipping etc. "The Dubai free zones also offer an opportunity for smaller specialist/ niche firms to set-up their operations at an affordable rate. These companies may not have invested in the Gulf had it not been for this opportunity," said Dhadphale.
Probir Chakrobarty, COO of RAKIA free zone said that the development of SMEs also encourages foreign investment into the UAE while promoting entrepreneurship and innovation. Investment into industrial projects also reduces a country's dependence on imports. "When people are coming over here and setting up businesses they are becoming the local suppliers in the UAE market, so it is crucial for SMEs to come over here," said Chakrobarty.
The ease of business from a free zone area for a major reason many SMEs and start-ups to choose to base their businesses in free zone areas across the UAE. Another reason is the location of the free zone areas, and the fact that many of the free zones support specific verticals. For example, if a company is a financial corporation and all its customers are in the DIFC, clearly DIFC is the best free zone to be in. If a company is an importer of goods through the port, then Jebel Ali is the best place to be, and so on.
The development of these free zones also allows top-notch financial institutions to set up operations and bring in their talent to work and live in the Gulf, making Dubai an incredibly culturally rich environment. It also allows Dubai to be a truly international hub for businesses to trade in Asia, Africa and the Middle East.
However, there are possible downsides to free zone areas. First, free zones are highly restrictive -- business owners can only operate within the free zones and cannot expand into other markets. This is a major drawback for businesses looking to service other parts of the UAE. Second, the restrictions go even further as each free zone is designated for a specific type of business, so conducting business is limited to where the office has been set up in Dubai. Furthermore, the free zones are not required to meet Emiratisation targets set out by the Government, so may not be getting on-board as many Emiratis as they could.
"This could have an impact long- term on developing local talent and transferring expertise to Emirati talent, as they can simply ship in experienced people from their centres in New York, London etc. Dubai is seen as having a transient 'professional population' which could mean that retention of talent [albeit expatriate] is also very transient," said Dhadphale.
Another issue with free zones, according to London Business School, could be that the ease of setting up businesses in the Gulf could encourage the 'wrong sort' of companies (in extreme circumstances) to set up in Dubai, e.g. those that are here for the quick short-term gain.
"This, however, may be limited as my experience has shown that local companies and institutions have become more sophisticated and always question and request the 'foreign' organisation's commitment to the region," said Dhadphale.
UAE Free Zones
* Abu Dhabi Airport Free Zone (ADAFZ)
* ADPC - Khalifa Port and Industrial Zone (KPIZ)
* Ahmed Bin Rashid Free Zone (ABRFZ)
Ajman Free Zone (AFZ)
* Dubai Academic City
* Dubai Airport Free Zone (DAFZ)
* Dubai Biotechnology & Research Park (DuBiotech)
* Dubai Car and Automotive City Free Zone (DUCAMZ)
* Dubai Gold and Diamond Park
* Dubai Healthcare City
* Dubai Industrial City (DIC)
* Dubai International Academic City
* Dubai International Financial Centre (DIFC)
* Dubai Internet City
* Dubai Knowledge Village
* Dubai Logistics City
* Dubai Media City
* Dubai Multi Commodities Centre
(DMCC Free Zone)
* Dubai Outsource Zone
* Dubai Silicon Oasis
* Dubai Studio City
* Dubai Techno Park
* Dubai Technology and Media Free Zone
* Economic Zones World
* Fujairah Creative City
* Fujairah Free Zone
* Hamriyah Free Zone
* Higher Corporation for Specialized
* Industrial City of Abu Dhabi
* International Media Production Zone
* Jebel Ali Free Zone
* Jumeirah Lakes Towers Free Zone
* RAK Investment Authority Free Zone
* Ras Al Khaimah Free Trade Zone
* Ras Al Khaimah Media Free Zone
* Sharjah Airport International Free Zone
* U.S.A. Regional Trade Center
(USARTC) Free Zone
Free Zones under Construction
* Dubai Maritime City
* Dubai Carpet Free Zone
* Dubai Auto Parts City
* Heavy Equipment and Trucks Zone
* Mohammad Bin Rashid Technology Park
* Dubai Flower Center
* Dubai Textile Village
* International Humanitarian City
* Dubai International Arbitration Center
[c] 2015 CPI Financial. All rights reserved. Provided by SyndiGate Media Inc. ( Syndigate.info ).