Special economic zones are allowing GCC countries to diversify their economies away from oil and provide jobs to their citizenry.

Author: Gordon Platt
Project Coordinator: S.J. Yun

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Free zones are being used increasingly throughout the Gulf Cooperation Council region to attract investment, as low oil prices and high unemployment highlight the need for economic diversification. The main role of these free zones, also known as free-trade zones or special economic zones, is to create jobs and introduce new skills and technology from overseas. All offer similar enticements, such as no taxes, 100% foreign ownership, duty-free imports, unrestricted repatriation of capital and profits, and subsidized utilities.

“Dubai’s network of free-trade zones has been instrumental in the diversification of the emirate’s economy and has helped establish it as a global trade and logistics hub,” says Hussain Al-Qemzi, CEO of Noor Bank. He addds free zones provide top-class facilities for doing business and are industry-specific.

The United Arab Emirates accounts for nearly half of all free zones in the region, with more than 40. The Jebel Ali Free Zone at the port complex in Dubai was the first in the emirate. The Dubai World Trade Center became a free zone in May and will develop a gated district that will also host Expo 2020 Dubai.

All seven UAE emirates now have their own free zones. In Abu Dhabi, the Khalifa Industrial Zone has attracted cumulative investments of $13 billion. The twofour54 media and entertainment free zone was instrumental in making Abu Dhabi’s nearby desert the main filming location for Star Wars: The Force Awakens, which opens in theaters in December.

Sheikh Ahmad Bin Saqr Al Qasimi, chairman of Ras Al Khaimah Free Trade Zone (in the RAK emirate), notes that they have doubled their occupancy—to more than 8,000 companies—over the past four years. “The establishment of new businesses at RAK FTZ,” he says, “has increased the number of jobs in Ras Al Khaimah to support these companies. Additionally, the FTZ’s successful efforts to lure investors to the emirate are major contributors to RAK’s solid economic growth.”

RAK FTZ has focused on expanding beyond its traditional core of industrial manufacturing into distribution and trading, services, information technology, healthcare and logistics. “Education is another main driver of future growth for us,” says sheikh Ahmad, a member of the ruling family of the emirate RAK. “We are targeting new educational institutions to grow RAK Academic Zone.”

US companies active in the RAK FTZ include J&R Business Consultancy, EBR Energy, and Diversified Drilling & Industrial Equipment Trading. “Among RAK FTZ’s advantages is the fact that we have a wide array of facilities to address growing companies at every stage of their development,” sheikh Ahmad says. “We make it as easy as possible to establish a company in the UAE.”

Already this year, RAK FTZ has held road shows in Italy, Japan, the Philippines, Australia, India, Pakistan and China. It is planning future trips to the UK, France, Germany, Belgium and Jordan.

Although Saudi Arabia lacks traditional free zones, it plans to build new industrial cities, with sections offering similar benefits. Construction has already begun on King Abdullah Economic City in Rabigh on the Red Sea, which is expected to become a top container port in the region.

Earlier this year, Qatar opened the first of three planned special economic zones. Located near the new Hamad International Airport, Ras Bufontas SEZ is targeting technology, energy, construction and logistics companies. The existing Science and Technology Park in Doha’s Education City has such major tenants as Microsoft, GE, Cisco and Siemens.

AbdulRazak Ali Issa, CEO of BankMuscat, says Oman has facilitated a favorable investment climate and is focused on attracting investment for ambitious economic development projects, including transportation infrastructure, heavy industry and upscale tourist resorts. “All of these projects are progressing on schedule and have attracted considerable interest from foreign investors, especially the world-scale port and special economic zone at Duqm,” he says.

Duqm, home to one of the biggest ship-repair yards in the Middle East, is being transformed into a center for industry. In May the Special Economic Zone Authority in Duqm signed an agreement with India’s Shipra to build the world’s largest castor oil derivatives complex. The zone also set aside land for Australia’s Xsite Group and Al Jazeera International to build a $500 million beach resort.

Kuwait introduced a new FDI law in 2013 to address its dearth of non-oil industries. The Kuwait Direct Investment Promotion Authority recently issued its first investment license to IBM Kuwait.

Free zones are helping GCC countries develop more diverse revenue streams. They will continue to attract foreign investment and contribute to future growth and employment at a time when these countries are facing demographic challenges from a young and growing population. The zones also provide opportunities for companies from developed countries to gain a foothold in a fast-growing region of the world.

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