In an attempt to diversify away from rapidly-diminishing oil and gas reserves and further open the doors to foreign direct investment (FDI), GCC countries have been driving their economies through the introduction of free zones.
In particular, the UAE has blazed the trail for free zones by creating a wealth of incentives for international firms to come and set up their trade in the Middle East. With a GDP of US$163bn in 2006, the UAE is one of the top countries to attract FDI in the region, and free zones have immensely contributed to the nation's economy and the inflow of investors. They have also played a vital role in the country's industrial development.
While the main legal standpoints on investment in the UAE are outlined in the Commercial Companies and the Trade Agencies laws, which holds provisions that limit and regulate the involvement of foreign investors in the UAE's economy, a large portion of trade moves through the country's free zones - which number over 20 at the moment.
Foreign investors can enjoy 100% ownership, operate in a tax-free environment and be exempt from the ‘hiring of nationals’ obligations.
In those free zones, foreign investors can enjoy 100% ownership, operate in a tax-free environment and be exempt from the licensing, agency, emiratisation or the hiring of UAE nationals and national majority-ownership obligations that are applicable elsewhere within the domestic economy.
Most recently, changes have been implemented to the Trade Agency Law and reforms such as the adoption of competition legislation, structural reforms, and further liberalisation of the services sector are being negotiated. The UAE has recognised the underlying potential in free zones and realised that the best way to attract FDI is through friendly trade policies. International companies have also spotted the benefits of setting up in the country. This includes obtaining significant cost advantages that are not generally available in any other business environment.
Some of the incentives include the absence of foreign exchange controls; no trade barriers or quotas; competitive import duties; competitive labour costs - the labour force is multilingual and skilled; competitive energy, financing and real estate costs; and no corporate profit or personal income taxes (except for oil companies and branches of foreign banks).
As approximately 70% of the UAE's trade passes through Dubai, which has become a favoured environment for inward investment over the past few years, the emirate now enjoys a global reputation as a major economic hub for foreign multinational corporations (MNCs).
One of the largest contributors to trade in the UAE is the Jebel Ali Free Zone, where around 5500 companies from more than 120 countries currently operate.
Upcoming projects in Dubai include Dubai World Central (DWC), a residential, commercial and logistics complex adjoining the Jebel Ali Free Zone and Port. DWC will house Dubai Logistics City, the world's first truly integrated logistics platform, with all transport modes, logistics and value added services, including manufacturing and assembly, in a single bonded and free zone environment.
Across the emirate, growing sectors such as logistics, transportation, telecommunications, tourism, insurance, construction and the energy sector all boast considerable investment opportunities. The financial sector, for instance, is expanding through the creation of financial free zones such as the Dubai International Financial Centre, a financial free zone regulated by Dubai and now home to over 100 financial services and associated companies.
Whereas established free zones have attracted an abundance of international companies, it will not come as a surprise if upcoming free zones such as Dubai Silicon Oasis, Mohammad Bin Rashid FZ, Dubai Auto Parts FZ, and Dubai Studio City FZ, to mention just a few, will gain similar attention.
Arabian Business takes a look at some of the most successful free zones in the UAE and beyond, as well as the groundbreaking logisitics companies that populate them.
For a logistics company, quality everyday performance is the differentiator between the very best and the rest. On occasion however, a company is required to provide the same level of service under extraordinary conditions, and so it proved earlier this year - when Cyclone Gonu hit the coast of Oman in June, DHL Middle East was on hand to play a key role in bringing relief to the crisis-hit state. DHL's UAE and Oman offices were directly involved in the relief efforts, with a dedicated team tasked with reaching areas devastated by the disaster. DHL sent two 40ft trailers and four two-tonne vans, which delivered water, food and candles to areas with no power or water supply. The team also assisted was the village of Qurayat, where 80% of homes were destroyed, and as part of the aid, DHL provided people with boxes of drinking water which were desperately needed by the local communities.
To more everyday affairs, and DHL Express Middle East recently moved to strengthen the company's position as one of the region's leading express and logistics providers, by appointing two senior marketing professionals to take the company forward. DHL New Zealand veteran Fiona Taag has been installed to oversee regional marketing strategies as area marketing manager, while Elliot Santon has joined as marketing manager for the UAE.
Santon has previously worked on high-profile strategies for global brands such as Vodafone, Coca-Cola and Tesco, and will be expected to help further consolidate DHL's reputation in the region.
DHL recently enhanced its service between the Middle East and Asia, by offering a streamlined solution for customers trading with China from the UAE. Using ‘time definite' deliveries, DHL states its customers can transport goods from China to the UAE, or any other destination using the UAE-China trade lane, and pay for delivery in their home country. DHL shipments in China are guaranteed daily uplifts and cargo space through 11 dedicated gateways - including four major gateways in Beijing, Shanghai, Guangzhou and Shenzhen. Future improvements to support the flow of goods and documents between UAE and China will include additional ground network upgrades and ground fleet enhancements, as well as a greater number of flights.
DHL has offered services in the Middle East for over 30 years, with expertise in express, air and ocean freight, overland transport, and contract logistic solutions, as well as international mail services. As a Deutsche Post World Net brand, DHL's international network links more than 220 countries and territories worldwide, and numbers over 285,000 employees. The group generated revenues of more than US$80bn in 2006.
Jebel Ali Free Zone (JAFZA)
As one of the first free zones in the UAE, Jafza has rapidly expanded its operations becoming one of the world's largest and fastest growing of its kind. Run by the Jebel Ali Free Zone Authority, Jafza is owed by Dubai World and caters to Dubai Port, which ranks ninth worldwide in terms of container traffic. The free zone offers warehousing and distribution facilities to both international and local companies.
Jafza goes back as far as 1980 when HH Sheikh Rashid Bin Saeed Al Maktoum inked a decree to establish the free zone, creating with it a new key trade and industrial section to the port, which now spreads over 135 sq km. Officially, however, Jafza's founding took place in 1985 when the construction of offices and warehouses was completed. Five years on, Jafza diversified into building factory units in response to high demand.
At present, Jafza is an industrial and commercial hub and home to 5500 companies from over 120 countries. Considered one of the most successful free zones worldwide, companies from countries such as South Korea have recently shown interest in Jafza, eyeing it as an entry point to the GCC. A sharp increase in the number of South Korean companies setting up in the zone is anticipated. During the UAE-Korea Business Investment Opportunities Exhibition in Seoul this year, Jafza attracted attention from potential investors.
During the event, Ibrahim Al Janahi, senior vice president of commercial sales at Jafza, said: "This was the first such economic forum between the two countries and... opened new horizons for bilateral trade developments." Korea has already proven its role in Dubai with involvement in some of the biggest projects throughout the emirate. The number of Korean companies in Jafza has more than doubled from 20 in 2004 to 45 in 2006.
Earlier this month, it was reported that Kuwaiti logistics firm Agility was bidding for a 51% majority stake in the state-owned Telkom Kenya, the east African country's fixed line provider. The Kenyan government is keen to privatise the loss-making outfit, and while Agility could face competition from India's Bharti Airtel, Reliance Communications and the Tata Group, a successful bid would mark the latest in a series of ambitious moves for the company, formerly known as PWC.
Agility also revealed that it had secured another contract from the US military worth US$345m. The three-year deal will involve the supply of food and medicine, and follows a US$59m contract from the US air force, as well as being part of a consortium that won another US$50bn contract from the US military. To cap a typically busy month, Agility has also signed an agreement to acquire two logistics companies in Singapore, building its presence in the energy and break bulk sectors in the South East Asia region. The company's new acquisitions - Synergy Shipping and Synergy Logistics - specialise in the transportation of oilfield tubulars and related drilling equipment, as well as providing a broad range of international freight forwarding services between South East Asia, the Middle East, Europe and the US. The deal also includes subsidiary PT Synergy Indonesia (PTSI), based in Batam, Indonesia. The company operates its own tugs, barges as well as a fleet of transportation equipment in Batam, with plans to expand further in the marine and projects sectors. All this adds to Agility's enviable reputation as a global provider of integrated supply chain solutions with more than 20,000 employees, 450 offices in 100 countries worldwide and over US$4.5bn in annual revenues.
A publicly traded company, Agility offers its customers a personalised service and flexible solutions tailored to meet their individual business needs. These are supported by Agility's comprehensive network of warehousing facilities, transportation and freight management services. This network was added to just last month, when the company leased approximately 40,300 sq m from AMB Property Corporation, a leading global developer and owner of industrial real estate at development projects in Houston, Amsterdam and Paris. The new hubs will play a key role in the company's supply chain management, as Agility's customers span a range of industries from technology and retail to consumer products and oil and gas.
In addition, Agility has three specialised business units - Defence and Government Services; Project Logistics; and Fairs and Events Logistics - each with dedicated teams to meet the complex customer requirements in these markets.
While venturing into a number of new markets this year, Jafza has also been seen withdrawing from a few, namely Malaysia. Over two months ago, Jafza withdrew from the management concession for Port Klang Free Zone (PKFZ) after serving a formal termination notice. A US$1.1bn project, PKFZ was planned to be the industrial and commercial free zone powerhouse for Southeast Asia, built on a similar model to Jafza. Entirely-owned by Port Klang Authority, but managed and marketed by Jafza, a 15-year contract starting in 2004 was put in place. Jafza, however, decided to withdraw on the grounds it was realigning its business strategy and to focus on free zone developments in which it would retain operational control as an equity stakeholder.
Most recently, Romania has also joined the fleet of nations showing interest in Jafza. A delegation from the country led by HE Ovidiu Silaghi, Romanian Minister of Small and Medium Enterprises, Commerce, Tourism and Liberal Professions paid a visit to the free zone recently, aiming to establish better cooperation between Romania and Dubai as well as to examine the elements that made it a successful business model.
A state-of-the-art tracking system has become the backbone of Aramex's business.
In addition to its contribution to the establishment of Dubai as a business hub, Jafza aims to create a global platform of "special economic zones" including business and logistics parks, to enhance international trade, industry and commerce around the world. Also in the pipeline, Jafza is looking to hold special promotional road shows in Egypt later this year as a response to high demand for information from potential investors at the Interbuild 2007 exhibition in Cairo.
Aramex is one of the Arab business world's undoubted success stories. Established in 1982 as an express operator, it has since established itself as a global brand recognised for its quality service and unique multi-product offering. This success is reflected by its most recent set of results: the company reported a 36% increase in profits to US$9.1m in Q2 2007 against US$6.7m in Q2 2006. First half profit was up 39% to US$17.3m, while revenues grew by 21% in the quarter and 39% for the first six months.
Back in January 1997, Aramex became the first Arab-based international company to trade its shares on the Nasdaq stock exchange. Today it is listed solely on the Dubai Financial Market (DFM) as Arab International Logistics, and Aramex and its worldwide alliance form an extensive transportation network that spans the four corners of the globe.
With offices strategically located in major cities, Aramex offers customers around the world comprehensive transportation solutions that range from international and domestic express delivery, freight forwarding, logistics and warehousing to publication distribution and specialised shopping services including the ‘shop & ship' ‘US mailbox', and ‘shop the world' catalogue shopping.
Adding to its range of products and services is the company's number one priority, and earlier this month Aramex signed an agreement to handle the express deliveries for Oman Post in the Middle East, North Africa, Indian subcontinent and Europe. Furthermore, the company recently unveiled a state-of-the-art logistics centre in Beirut, which will generate better transit times for the sea and land movement of goods from Europe and North Africa to the GCC and Levant countries.
Aramex operates strategically located logistics facilities in Jebel Ali Free Zone in the UAE, Sahab Duty Free in Jordan, and others in Riyadh, Jeddah, Bahrain, Egypt, Morocco, India and Iran.
The opening of the Beirut Free Zone facility is another element of the investment strategy for Aramex's logistics infrastructure in the region, which includes the upgrade of existing facilities and the establishment of new centres such as one at Dubai Logistics City, which will cover over 240,000 sq m.
This area of operational ability is crucial for the Aramex-led Global Distribution Alliance (GDA) that brings together 40 independent express companies from around the world.
Each one specialises in their own region and together covers the entire globe with the same, unified standards and business procedures.
With over US$7.5bn in combined revenues, the network has more than 12,000 offices, 33,000 vehicles and 66,000 employees serving alliance customers and attending to the details of their business round the clock, around the globe.
A completely integrated information and communication technology infrastructure connects Aramex's worldwide operations, enabling a seamless flow of information between the company and its alliance members and customers.
The network is empowered by a state-of-the-art tracking system that has become the backbone of Aramex's standardised business processes.
This is the flagship of an array of customised technology solutions developed by the company for its clients.
Dubai Airport Free Zone (DAFZA)
As another rapidly-expanding free zone in the region, Dafza has come a long way since it was founded in 1996. Strategically established as part of Dubai International Airport, Dafza now hosts a multitude of companies, and boasts access to millions of potential customers that pass through the emirate's busy airport.
Although the airport free zone offers many incentives for commercial and retail businesses to prosper, it does not support any form of manufacturing.
This is mainly due to its location in the heart of Dubai where residential areas are plentiful.
In mid-August this year a newcomer joined this list of companies, Aerospace International Services (AIS), a leading aerospace consultancy that plans to manage its regional operations from Dafza.
Dafza's clients include distribution companies such as Logistics Middle East and ABB Industries FZE; import and export such as 365 Days Freight Services, 588 Holdings, AD Middle East, AZ Logistic, ABC Telecom FZCO; trade including 6G Group FZCO, A Hak International Contractors Asia FZE, and Abbott Laboratories.
This month represents a major landmark in the Qatari company's history. Just a fortnight ago, the leading trade and services group began trading on the Doha Securities Market (DSM), in a move designed to cement Mannai Corporation's reputation as a model of converting a successful family business into a public shareholding company.
The move came at the end of another hugely successful six months for the business. Sales revenues grew by 53% in the first six months of 2007 compared to the same period in 2006, and net profit for the first six months was US$13.8m, an increase of 39% above the corresponding period last year. Meanwhile, earnings per share was US$1.32 for the six-month period ended June 30, 2007.
Mannai Corporation covers a diverse range of activities including automotive, heavy equipment, IT systems, engineering services, travel, soil investigation, facilities management, consumer products, medical equipment, oil and gas and utilities representation. Although the group's companies undertake a great diversity of projects, they all operate under the Mannai Corporation umbrella, working successfully with over 300 principals in 38 distinct product categories - indeed, taking the broad view that Mannai's various divisions constitute a corporate ‘family' helps lend strength and cohesion to the company's image and activities.
The company is broadly divided into two key activities; trade and services. A key strength of the Mannai Corporation lies in the interactive cooperation between its different operating companies. Every division and subsidiary works to the same high standards, and as a result the company has earned a solid reputation for integrity
The Mannai Corporation celebrated its 50th Anniversary in 2000 as the largest private industrial and trading company in Qatar - and all from humble beginnings as an auto parts trader established by Ahmed Abdullah Mannai. With the growing importance of Qatar's economy, the group refocused its business in 2001 by divesting all its overseas interests and reducing its dependence on cyclical, asset-heavy activities. The goal of this restructuring was achieved in 2004 when the trading and services subsidiaries proved more than capable of delivering sustainable quality earnings to shareholders. In December 2005, Mannai Corporation became a member of the IPCO Group, when a majority of its equity was acquired by Qatar Investment and Projects Development Holding Company (QIPCO Holding). QIPCO is chaired by HH Sheikh Hamad Bin Abdullah Bin Khalifa Al Thani, who is also chairman of Black Cat Construction, and is on the board of Qatar Shipping Company.
RAK Free Trade Zone (RAKFTZ)
Despite last week's announcement that the emirate is loosening restrictions on 100% foreign ownership, the Ras Al Khaimah Free Trade Zone (RAKFTZ) still offers considerable incentives for investors.
Aiming to become one of the largest of its kind in the region with an environmentally-friendly strategy, the free zone encourages e-commerce and entrepreneurship. Companies can set up with 100% ownership, 100% income and corporate tax exemption and 100% capital and profit repatriation.
It also provides long-term renewable leases, access to over 1.2 billion consumers, transparency in laws and regulations, access through promotion centres in Dubai and Abu Dhabi, advanced communication and sea port and international airport facilities.
Last year, Qatar Logistics signed a global agreement for freight forwarding activities with the US-based company IJS Global - which has US offices in Newark, Portland, Houston, Atlanta, Chicago, Los Angeles, Miami and New York, and has also acquired companies in Hong Kong, China, Philippines, Thailand, Sri Lanka, Taiwan, Singapore and Brazil. The development is the latest in Qatar Logistics' restructuring and expansion programme, which has included the introduction of various new services, such as document storage, international relocation and third party logistics.
The company, which is a subsidiary of the Mannai Corporation, also opened a new distribution centre to cope with increasing demand for logistics services in the bustling city of Doha. Qatar Logistics already has its own in-house international freight forwarding division, which acts as a natural adjunct to its international activities, and has developed into a significant force in its own right, becoming one of the leading independent commercial forwarders in the country.
The company offers dedicated customs clearance at three Qatar port facilities, and its global alliances allows Qatar Logistics to tap into the knowledge, abilities and experience of more than 15,000 logistics professionals in over 1000 offices worldwide. The company's state-of-the-art storage and distribution facility has 84,000 sq ft of storage in a prime location, and has been specifically designed to offer the wide range of service options that clients demand, including air conditioned storage, personal effects and documents (Records Management) storage, Third Party Logistics (3PL) services, or any combination.
Uniquely, the storage facility has specific, secure buildings set aside for Records Management, sometimes referred to as Document Storage and Retrieval. This facility is continually under development, and includes environmentally controlled, purpose-built storage, state-of-the-art retrieval and records management systems, CCTV surveillance, personnel monitoring, and high security access and egress systems.
Aqaba Special Economic Zone (ASEZ)
The Aqaba Special Economic Zone (ASEZ) was inaugurated in 2001. A liberalised, low tax, duty free and multi-sector development zone, ASEZ is part of Jordan's reform strategy to provide worldwide investors with an attractive business environment.
Located at the crossroads of three continents, ASEZ is an attractive destination for investors and tourists alike. Situated in the Gulf of Aqaba leading to the Red Sea, ASEZ extends to the land borders of Israel and Saudi Arabia and embraces the territorial waters of Egypt, providing access to regional and international markets.
Managed and developed by the Kingdom of Jordan's Aqaba Special Economic Zone Authority (ASEZA), ASEZ is the first decentralisation model of its kind in Jordan. ASEZA claims to have created a one-stop-shop window that provides investors with all the requirements needed to operate in the zone.
The authority has also created an electronically enabled Enterprise Registration and Permitting System (ERPS) that is ISO certified for labour, registration and permits. Upon establishment ASEZA set a number of strategic goals including creating over 75,000 job opportunities and attracting US$6bn in investments.
Last year, ASEZA achieved more than 115% of its original goal to attract US$6bn by 2020.
Some of the incentives that have appealed to companies and brought them to ASEZ are the lack of foreign equity restrictions on investments in tourism, industry, retail and other commercial services; regional multi modal transportation hub with a full service seaport and international airport; 5% flat tax on net business income, except banking, insurance and land transport services; no tariffs or import taxes on imported goods for individual consumption and registered enterprises; no land and property taxes on utilised property for registered enterprises.
There are no foreign currency restrictions; full repatriation of profits and capital; streamlined labour and immigration procedures; multi-use commercial, tourist and residential environment; duty-free environment; and exemption from social services tax.
Launched just last year, KGL Logistics is an international freight forwarding provider offering air, ocean and road freight, multi-model transportation, and customs clearance. The company provides its clientele with complete warehousing solutions: open and closed yard storage, second and third party logistics, inventory management and value added services (including shrink wrapping, cross docking, and quality control) in addition to local distribution.
With corporate offices located in Kuwait, KGL Logistics is looking forward to expand its regional presence to cover the whole Middle East region within the coming two years. This strategic shift comes as KGL Logistics looks to enhance its international presence, and embrace global standards of effective Global Supply Chain management to further its business objectives and provide world-class products and services to its customers.
The first step in this direction comes with the opening of its new branch in Doha, Qatar, which will provide services including freight forwarding, customs clearance and warehouse and distribution. Besides the current 5000 sq m of warehouse space already available, KGL Logistics is in the process of building another state-of-the-art warehousing facility spread over an area of 18,000 sq m. The Qatar move is a strategic decision in line with KGL Logistics' business plans and operational objectives, as the country boasts strong pro-investment policies across all sectors. Industries such oil and gas and infrastructure will accelerate the growth of the economy, and the institutional and democratic reforms, along with a clear economic diversification plan, make Qatar a favourable destination for companies to operate within.
Over the next five years, the government is leading a US$130bn investment programme to develop energy, infrastructure, industries, utilities and aviation. Increasing export volumes and continued investment will result in Qatar being the region's fastest growing and richest economy, and KGL Logistics - which has been awarded the ISO 9001:2000 certification in recognition of its operational excellence and best operating practices techniques - appears determined to position itself at the forefront of this boom.