The Benefits of the United Arabs Emirate Free Zones - Book Report/Review Example

Free Zones in UAE Introduction The United Arab Emirates has along history of establishing and using free zones as a strategy of attracting foreign businesses and investments. There are currently more than 38 Free zones in the country, with each free zone designed around one or more business industry categories and are only allowed to offer licenses to the foreign owned business companies within the given categories. All the free zones are each governed by independent Free Zone Authority (FZA) which is also responsible for assisting companies to establish their businesses within the FTZ as well as issue them with operating licenses. Except for those who have acquired the nationality of the United Arab Emirates, the provisions of the UAE’s Commercial Companies Law (CCL) can not apply to the Free Zone Establishments (Terterov and Shoult 46). Free Zones in UAE offer a number of potential benefits to foreign businesses some of which may include being exempted from corporate tax for up to 50 years, no personal income taxes, government assistance with labor recruitment and other support services such as housing and sponsorship, 100% repatriation of profits and capital, 100% foreign ownership of the business enterprises and 100% export and import tax exemptions. As a result, from Jebel Ali Free Zone in Dubai to Kalifa Industrial Zone in Abu Dhabi, free zones in the United Arab Emirates have always flourished with foreign companies that are particularly keen to take advantage of the numerous commercial benefits offered by the FTZs as well as the close proximity of the country to major regional markets. 1.1. History/Background of Free Zones in UAE The history of the creation of the Free Zones in the United Arab Emirates dates back to the 1976 when the former UAE ruler, the late Shiekh Rashid Bin Saeed announced the construction of a new business complex at Jebel Ali. He particularly envisaged the creation of an international business hub in the emirates. The UAE was still in a state of political instability after its formation on December 3rd 1971. The construction of the commercial region made the UAE parties suspicion that Sheikh Rashid looked forward to Jebel Ali town becoming the new capital city for the UAE. Different constitution parties of the UAE widely held that the construction was not necessary. However, significant political changes gave a breakthrough to the project. Construction resumed in 1977 and took two years to complete. The Jebel Ali Port opened in the year 1979. The construction contract was awarded to Seal and Shipping Company. The company had pioneered the expansion of commercial container shipping and hence it was the most suitable to manage the project. Upon completion of the Jebel Ali Port, the seal and shipping company introduced their international container shipping business to the port. However, other transportation operators were hesitant to use the business’ facilities since they were managed by their competitor. Other organizations also considered the Jebel Ali port way too far out of the business district, making it difficult for delivery and collection of their cargoes. Consequently, the Jebel Ali struggled to grow. Sultan Ahmed Bin Sulayem was given the responsibility of supervising and undertaking the development of Jebel Ali Free Zone and he began marketing the new development across the globe. In 1985, the famous Jebel Ali Free Zone was opened as the first free zone in UAE and the greater Middle Eastern region and it quickly became and economic success story. JAFZ established the framework of the UAE’s rewarding logistics sector. Over the years, competitor free zones have sprouted in numerous locations across the United Arab Emirates, and they have since become the backbone of the country’s lucrative logistical sector. 1.2. Objectives of the Study The primary objective of researching and writing this paper is to give a brief history of the of the current day UAE business hub, that has attracted the largest number of investors in the world. In addition, the study will exploit some of the reasons why investors swarm to the UAE to conduct their business. Apart from the benefits accrued by investors, the essay will also establish some of the challenges that investors have encountered in the course of doing their activities. 2. Discussion and Analysis 2.1. Current Scenario in General Free zones have become important tools as the developing countries attempt to attract foreign investment whilst aiming at promoting trade and national growth. The advent of the free zones is a useful institution-oriented innovation that has spread in the economic arena for the past two decades. There is a widespread belief that establishment of a free zone attracts foreign investments, boosts exports, which in turn heightens foreign exchange earnings and whilst creating job opportunities. A nation that manages to attain such goals will witness a significant improvement in the economy, which can translate to improved living standards. It is on such grounds that a number of free economic zones were established in several countries such as within the United Emirates. 2.2. Current scenario in the Middle East / UAE Middle East is one of the countries that the world economic forum is focusing on in its bid to explore the longstanding difficulties plus opportunities that are particular to the UAE itself and to the broader GCC countries. Middle East has a series of scenarios covering up to 2025. The scenarios surfaced in World Economic Forum yearly meeting, and they were launched in Middle East in the same year. On the other hand, the UAE economy is at the present recovering from a recession. At the same time, various business sectors are diversifying into new areas to enhance expansion. Due to the increase in petroleum prices, the oil sector has tasted real bad economic times. For a period of about two years, the market prices of petroleum products failed to stabilize. The situation forced many commercial activities into uncertainty. It is important to note that the petroleum industry represents more than one- third of the gross domestic product (GDP) of the united Arabs Emirates. However, demand rise from UAE neighboring countries has strengthened the export activities leading to further increase in the rate of recovery. Several free zones have been started up within the United Arab Emirates (UAE) and several others are still being planned. Despite the free zones offering facilities and incentives that are more or less the same, their level of success varies from one country to another. There are companies that perform their routinely operations within the UAE without necessarily creating a definite presence in a given emirate. This is attained through different contractual arrangements. Occasionally, some foreign businesses may not wish to use funds to establish a branch office or a local commercial entity within the UAE if, for instance, it just needs to export services or goods to the UAE. In such conditions, franchisees, agents or distributors can be appointed though the party involved has to be from UAE (Terterov and Anthony 177). Prior to the operation inside the UAE, it is needful that the concerned business obtains a relevant license from a licensing authority in an appropriate emirate alongside ensuring compliance with the laws that govern business operations. An example of such laws is the UAE Commercial Companies Law. An example of the governing laws is UAE Commercial Companies Law (CCL). As Terterov and Anthony (179) assert, there could be other special requirements to be met other than those that pertain to the local licensing authority. Holding all economic factors constant, the UAE is likely to experience GDP growth of 4.5% in 2014 and double it to 9% the next two years (Marat, 2006, p.187). The UAE has of rate experience increased appetite pm real estate. Individuals who earlier were shying away from investing their money have started to demonstrate attention in prolong tenure investments. Experts consider year 2014 a year of full recovery and the year of consolidation (p. 188). Increasing the prices of petroleum products continue to be fundamental to original recuperation in the short term. Technology, energy and green sectors will reap maximum profits in the next couple of months due to increased appetite for amalgamation. Oil is still the most important segment contributing up to 63.6% of the GDP in UAE. The other most overriding sectors which have shown flexibility to the economic recession are whole sale trade and retail trade, restaurants, hotels and manufacturing. The general UAE inflation reduced to 4.1% in 2013 from 12% in 2012. The year 2012 marked the highest rate of inflation in over 20years. 2.3. Challenges Macro and micro-level constraints both form part of the common place factors attributed to the reduced level of success in a number of the zones. Success of a number of the zones relies on a complicated interaction in the geographical, economic and social factors which are all limited in the UAE. Except for some few cases, most of the free zones have had great challenges attracting foreign investment or the foreign exchange earnings. Another challenge facing the free zones is employment issues. Managers of business enterprises within the free zones face continual pressure to maintain overheads at workable levels and handling workforces that are originated from different cultural contexts, especially if countries of origin also differ. The UAE (United Arab Emirates) has provided the business community with many benefits pre-ordained for a modern age. Although the region is sparsely populated and located in the desert, its geographical position makes acceptable as a natural fundamental point for liaising with logistic and financial markets in Asia, America and Europe. Globalization experts give the UAE accreditation as a central locus from which economic globalization could operate. Its location further makes it ideal point for age of increased jet travel. However, despite the UAE possession of huge petroleum deposits, the sparse population was seen as a major drawback to economic modernization. However, the UAE has mitigated the effect of a small population by establishing more economic hubs under free zone policy. On the other hand, insufficient food production is also an important challenge facing the United Arab Emirates and the Middle East in general. The union relies on imported food to meet animal and human requirements. In addition, the UAE suffers shortage of safe drinking waters. Since it is located in one of the driest regions in the world, the union is classified as water deficiency stricken. In addition, high rate of poverty and illiteracy are major economic and human concerns. More than 50% of the Arab population is living in poverty. Poverty is certainly connected with the high level of illiteracy. It has been approximated that up to 1/3 of the adult cannot write or read. One of the possible cause of low food production and poverty in the region is the effects of global weather changes. The global weather change phenomenon has taken a greater toll on the Middle East. It has contributed to the increased desertification and plummeted downpour. On the other hand, low population growth rate in the Arab world has denied the UAE the much- needed market. 2.4. Recommendations Continued existence of free zones that are not capable of attracting foreign investment, as should be the case with a typical free economic zone, poses a significant threat to the economic growth of an emirate. Therefore, there is need to perform a thorough assessment of the measures that reign within the UAE free zones just to ensure that the measures do not in any way impede economic growth within the emirates. Lastly, employments issues that rise in the free area zones have the potential of impeding the intended goals of the free area economic zones. As a result, the UAE as a whole should make plans of rendering equal treatment even to individuals whose native homes is outside the UAE. Conclusion In conclusion, the united Arabs Emirate free zones have increased foreign companies’ interests to take advantage of the saleable benefits on offer. In addition, the UAE proximity to chief regional markets flourishes investors keen on the commercial benefits. Straightforward access to world rank logistics facilities has permitted free zone companies to grow not only their regional market but also the international reach. Access to world class facilities has further established the UAE as a global logistics powerhouse. . Works Cited Terterov, Marat and Shoult, Anthony. Doing Business with the United Arab Emirates. London: GMB Pub, 2006. Print. Read More