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Dubai free zones face regional competition

Dubai free zones face regional competition


5 November 2005

DUBAI - Dubai free zones are being given a run for their money as regional free zones expand and upgrade as they try to lure investors from Dubai to other Arab countries.

What once was an investment haven, Dubai has become an expensive developmental nightmare with some analysts predicting inflation rates as high as 6.3 per cent and above. With rising prices and high inflation becoming an impediment to higher profit margins, companies have been rumoured to eye other countries in the region to move headquarters, regional bases or set up complementary operations.

Though many regional free zones have been around since the early 1980’s, only recently has the free zone frenzy emerged, coinciding with countries developing free trade agreements (FTA) with their neighbours and others wanting to become members of the WTO.

While Dubai has been screaming ’location, location, location’ in an attempt to be the region’s primary business hub, other countries such as Egypt, Lebanon and Jordan have been developing their free zones and upgrading their infrastructure to take advantage of their similarly ideal locations. However, they have the advantage of avoiding any shortcomings and unforeseen obstacles that the UAE free zones faced when they first began and having at hand the formula needed to duplicate the resounding success of the free zones here.

Regional free zones are many. Between Jordan, Lebanon and Egypt there are almost 20 free zones operational or under development providing the necessary infrastructure and facilities such as ports and points of distribution. While the UAE has a clear advantage in that its approximately 15 operational free zones and its upcoming 13 free zones are based on the nature of the operations to be carried out in the free zones, other countries are following this lead and are also developing specialized free zones.

Currently there are three regional media free zones competing for a substantial share of the global media industry as well as for regional investors. While Dubai Media City (DMC) may provide certain benefits for its investors, Egypt’s Media Production City has the advantage of having a large, low-cost human resources pool. Jordan’s Media City has succeeded in attracting several high profile organisations that also have offices in Dubai, indicating that the DMC has serious competition.

The risk Dubai faces due to its rising costs is not just something in the minds of analysts, as of early 2004, Egypt established an new export-oriented free-zone just east of Cairo as the existing Cairo Zone had reached its saturation point. At that time Egypt was seeing four new projects in the natural gas and petrochemicals industry in the free zones worth an approximate $3.7 billion. Also, leading auto-parts manufacturers for such names as Rover, BMW and Land Rover had shifted into the Egyptian free zones with four new extensions and investments.

If something is not done to control the skyrocketing costs in Dubai, free zones could see an outflow of companies to other regional free zones offering the same facilities but having lower operational and production costs.

 source: Khaleej Times