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Sun 1 Apr 2012 09:39 AM

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Zoning in: How Dubai has leveraged free zones

Oliver Cornock explains how Dubai has leveraged its free zone model to get ahead of its Gulf competitors

Zoning in: How Dubai has leveraged free zones
Zoning in: How Dubai has leveraged free zones

Set to ride a rising wave of interest in its free trade zones, Dubai is cashing in on its long-term investments to further bolster its economy by attracting new clients looking for a stable and central base of operations.

Covering a wide range of business activities, from manufacturing to exporting, logistics, media, education and finance, Dubai’s free zones are becoming increasingly important to its economy and represent a strengthening bond between the emirate and global trade.

“Information and communications technology, media, health and education will all experience positive growth as projections indicate increased spending across the GCC in each of these key sectors,” Amina Al Rustamani, the CEO of TECOM Business Parks, which manages several of the emirate’s free zones, said. “Therefore, free zones that wish to capitalise must specifically cater to these knowledge-based industries by developing not just the infrastructure but an ecosystem which fosters business development, innovation and entrepreneurship.”

According to data from the Dubai Free Zones Council released in early March, there are 22 separate free zones established in the emirate, which between them generate almost one-third of Dubai’s GDP. Currently, there are some 19,000 companies registered within the combined free zones, providing employment for more than 225,000 people.

The newly established Dubai Free Zones Council intends to further enhance Dubai’s appeal as an investment and business destination. By cutting red tape and boosting accountability and two-way communications, officials hope more companies will take advantage of Dubai’s free zones as an operational centre, the council’s chairman, Mohammed Al Zarooni, said at a networking event in early March.

“The key objective of establishing the council is to unify and standardise the measures and procedures of registering and licensing new businesses,” he said. “This will cut the time and efforts an investor or a company might waste spinning from one free zone to another. We aim at going beyond the customers’ expectations via creating a one-shop window.”

If the tide of new registrations at some of Dubai’s free zones is anything to go by, demand for space is already high. In late February, the Dubai International Financial Centre (DIFC) reported a seven percent increase in the number of firms operating out of the financial services free trade zone, with the number of companies registered and active rising by 848 from end-2010 to end-2011.

According to Abdullah Mohammad Al Awar, the CEO of the DIFC authority overseeing the centre, stronger interest from Asia, the Middle East, Europe and the Americas could see company numbers double by around 2017.

The DIFC was not the only one of the emirate’s free zones with a surge of interest last year. Dubai’s three dedicated media zones also saw new registrations spike. Between them, Dubai Media City, Dubai Studio City and the International Media Production Zone had 284 new companies licensed in 2011. 

Mohammad Abdullah, the managing director of Tecom Investments’ Media Cluster, said that new developments in IT will help boost registration take-up further.

“The GCC’s demographic makeup consists of over half the population below 35, resulting in a rapidly increasing consumption of media,” Abdullah said. “Combined with improved internet and broadband penetration levels across the region, we anticipate an accelerated growth for those companies looking to capitalise on content creation and delivery across multiple platforms.”

Though generally thriving, some of Dubai’s free trade zones may feel pressure this year if the European debt crisis pushes up borrowing costs. Two of the emirate’s leading zones, the industry-focused Jebel Ali Free Zone (JAFZA) and DIFC Investments — a unit of the emirate’s tax-free business financial centre — have large scale repayments due this year.

The JAFZA has a $2bn sukuk bond maturing in November while DIFC Investments has $1.25bn worth of Islamic bonds due in June. Though officials from both organisations are confident they can refinance their debt, which was used to expand operations, a renewed bout of economic instability in Europe and beyond may make their task more difficult.

Mohammed Ibrahim Al Shaibani, the director general of the Dubai Ruler’s Court, has said there does not seem to be any need for either JAFZA or the DIFC to avail themselves of any government support.

“I am very confident they will manage to sort out these issues on their own,” he told a leading newspaper in mid-February. “But we are available for any advice, any help. But mainly they will manage it themselves. In reality the main money generator is Dubai, and Dubai is doing really well.”

Indeed, the emirate’s GDP is forecast to expand by up to four percent this year, at the upper end of the regional average and well beyond any modest growth major economies in Europe could hope for, with much of the impetus being provided by its free zones. Having invested heavily to establish the infrastructure and business models for its many free zones, the emirate looks set to reap the benefits of its outlay.

Oliver Cornock is the regional editor of Oxford Business Group.