Even with today's economic uncertainty and fresh memories of the recent economic downturn, businesses continue flocking to free zones in the UAE.
Economics
Free zones across the Emirates serve as economic engines that power growth. The National examines why businesses are flocking to free zones and what they need to know. Learn more
These economic clusters have cropped up throughout the country, offering businesses benefits such as tax exemptions for 50 years, plus full foreign ownership companies - which typically is not allowed for enterprises operating "onshore" in the Emirates.
While free zone officials often do not disclose detailed figures, an investigation by The National has found these commercial centres have grown rapidly in recent times.
In the past decade in Dubai, Tecom Business Parks alone has launched no fewer than 10 free zones, including Dubai Internet City.
Its healthcare-specific hubs are currently in talks with companies about manufacturing medical products in the emirate.
"We're talking about investments of US$50 million (Dh183.6m) to $100 million," says Marwan Abdulaziz, the director of business development at Dubai Healthcare City and DuBiotech.
Today, about 40,000 businesses operate in more than 30 free zones across the Emirates.
That compares to just 19 companies when Jafza, the country's first free zone, opened in 1985 at the port of Jebel Ali. It has since been growing at an average of 18 per cent a year and hosts more than 6,500 businesses today.
"Even in the heart of the [financial] crisis we grew," says Ibrahim Al Janahi, the deputy chief executive and chief commercial officer at Jafza.
A total of 61 high-rises with 2,500 businesses have sprouted in the Jumeirah Lakes Towers (JLT) free zone, which a decade ago was "nothing but 200 hectares of desert", says Malcolm Wall Morris, the chief executive of Dubai Multi Commodities Centre, which oversees JLT.
Free zones in Fujairah and Ras Al Khaimah are also growing, and officials from the industrial free zone of Kizad in Abu Dhabi have recently taken to roadshows in countries such as China, India and South Korea to entice new businesses here. Their aim is to have this 417-square-kilometre area contributing 15 per cent of the capital's non-oil GDP by 2030.
But while authorities are quick to market business benefits and the perks of working, living and even playing within a free zone, some business owners caution that the set-up process is not always as easy as it is made out to be.
And as authorities work to make the start-up process more efficient, they also acknowledge a "grey area", where a growing number of consultants believe they can provide services outside of a free zone even when they should not be doing so.
The National's three-part series, which begins today, examines each of these issues and aims to help entrepreneurs determine what they need to know before launching infree zones.
nparmar@thenational.ae
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At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
