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UAE Freezones Biz News Updates
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UAE free zones will need to up their game to retain tenants, says expert
Easing of onshore regulations means prices may come under pressure in more
expensive locations
Free zone authorities in the United Arab Emirates (UAE) will need to build
higher-value networks to justify their higher expense as many of their
regulatory and other benefits are stripped back, according to an expert.
Discussing a new report on Special Economic Zones published by consultancy
firm Oliver Wyman earlier this month, partner Anush Vats told Zawya that
many of the '40-plus' free zones in the country have been developed around
advantages such as allowing 100 percent foreign ownership and exemption from
certain labour laws, and focussed more on property than industry
development.
"To be honest, my sense has always been that the UAE experiment started,
quite rightly, by looking at the regulatory incentives, as most countries
do, but then it got somewhat distracted into a real estate play," he said in
a phone interview.
As a result, he added, some free zones are now "largely competing without
relevance to industry".
This could become more of a problem for free zone operators as the
government undertakes a series of reforms that reduce their competitive
advantage. In recent months, the UAE government has announced proposals to
allow 100 percent foreign ownership of companies in onshore (non-free zone)
locations and to offer 10-year visas for certain classes of individuals,
including entrepreneurs and innovators.
"Now you are starting to see the base economy compete, and the neighbouring
economies are starting to replicate a lot of those early successful factors,
they will have to do more," Vats said.
Craig Plumb, head of research at JLL Mena, told Zawya in an interview last
week that space within free zones currently attracts a substantial rent
premium over onshore locations.
"So if foreign companies can now set up in an onshore location, why would
they pay the extra rent to go into a free zone?”
Plumb added that free zones will need to ensure that licences remain
attractive among communities that are no longer a captive audience.
"In the past, if you were a healthcare company, you had to go to (Dubai)
Healthcare City if you wanted to have 100 percent foreign ownership. If that
no longer applies, what are they going to do to justify charging that extra
rent?" he asked.
The Oliver Wyman report, Special Economic Zones As A Tool For Economic
Development, warned policymakers from across the region against attempting
to create new, high-value zones "without the underlying building blocks in
place", pointing out that many successful SEZs started as manufacturing or
service zones in the 1980s and had developed from there.
Logical logistics
Vats highlighted Jebel Ali Free Zone as “a brilliant example of a successful
specialised zone, because they came in very, very clearly with a logistics
mindset and they didn't get distracted into 'I can have ICT, I can have
media, I can have pharmaceutical’.
“Cracking one sector is incredibly hard and it takes countries 20-30 years,”
Vats said. “We see sometimes aspirations where people say they will go after
7-12 sectors in one go, and that's not easy.”
He cited King Abdullah Economic City (KAEC), the $100 billion project
announced in 2005, as an example of a special economic zone where there were
"six or seven sectors" targeted for investment, with one of these being data
centres, but the only comparative advantage that could be offered would be
access to subsidised electricity, which was unsustainable.
"In the hottest part of the world, putting a data centre together doesn't
quite make sense," Vats said. "Unfortunately, a lot of these projects
suffered from more aspirational and less objective thinking."
Similarly, he said that although the $10 billion King Abdullah Financial
District (launched in 2006) was “a very beautiful city with great buildings
and great infrastructure”, it lacked much of the "software" that had made
Dubai International Financial Centre a success, such as a common law
judiciary, incentives for investors and quality of life benefits.
"The software.... which is basically what makes these cities work, which is
governance, incentives, the regulatory levers... if you don't go deep enough
into a sector to understand what makes it tick...it unfortunately doesn't
last," Vats said.
September 17, 2018 |
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Courtesy Thomson Reuters Zawya
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