From a creek to a river of success

Free Zones: Dubai has become so adept at creating free zones that it is a model for other countries looking to establish similar economic clusters. That has led Jebel Ali Free Zone to establish itself internationally, with operations in Malaysia, Djibouti and Morocco.

Ibrahim Mohamed Al Janahi , Deputy CEO , JAFZA and Chief Commercial Officer at Jebel Ali Free Zone in Dubai. Pawan Singh / The National

Decades ago, when Dubai was little more than a small city in a large desert, it set about the expensive and laborious process of dredging the Creek.

The aim was simple - to give dhows easier access.

Economics

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But it turned out to be the first in a series of policy decisions leading to the establishment of an operation further down the coast that now accounts for about a fifth of the emirate's economy.

Jebel Ali Free Zone (Jafza) is one of the world's largest and fastest-growing free zones, and the concept has been replicated in the UAE and beyond.

But not everyone saw the value in the idea at first.

After the dredging of the creek, Sheikh Rashid Bin Saeed Al Maktoum, the Ruler of Dubai at the time, wanted to attract ships to help to expand the economy. He started with Port Rashid, but decided to create a shipping hub to rival some of the world's largest in the early 1970s.

"This was his idea, which was rejected by everybody in town who said this is too much for a small city," says Ibrahim Al Janahi, the deputy chief executive and chief commercial officer of Jafza.

"The idea was rejected because everybody thought 'we have a port already, Port Rashid, and we don't know if … these shipping guys are coming, so why should we go for a huge port like that?'

"This was his vision. He could see the future. And this is what he insisted on."

Work began in the late 1970s and the port was completed in 1984.

But the Government had to do something to persuade companies to use it.

Its solution: to offer companies irresistible incentives by creating a free zone nearby.

It opened with 19 companies in 1985and had grown to 3,500 a decade ago. Today it has 6,500 companies.

"Free zones were started to attract companies who are mainly in the re-export business [and] investments in the country, which otherwise were routing to the neighbouring countries and advanced countries such as Singapore and Hong Kong," says Jitendra Gianchandani, the chairman and managing partner of Jitendra Consulting Group, which advises companies on setting up in free zones.

Jafza began to take off during its second year. But it took other emirates time to spot the opportunity.

The smaller ones caught on quickest, with Fujairah Free Zone being the first to open, two years later in 1987.

It has attracted many manufacturers because of its location as the only emirate on the east coast of the UAE.

"It has direct access to the Gulf of Oman and the Indian Ocean, which in terms of logistics will save a lot and assist a lot in terms of the running of the business," says Obaida Al Zouabi, a marketing executive at Fujairah Free Zone.

"So many manufacturers, trading companies, which rely on importing and exporting, prefer to be in Fujairah for easy access," he says.

Ajman established a free zone in 1988, and other emirates followed in the 1990s. Sharjah set up two free zones, and Umm Al Qaiwain established one.

However the real explosion took place at the start of the millennium.

Tecom Investments, which manages about a third of free zones in the UAE, was responsible for much of the growth.

It opened Dubai Internet City in 2000, Dubai Media City the following year and Dubai Knowledge Village in 2003. Others, including Dubai Studio City, followed.

"After the inception of Dubai Internet City and Dubai Media City, we started Dubai Knowledge Village," says Ayoub Kazim, the managing director of the education cluster - Dubai Knowledge Village and Dubai International Academic City. "Back then our goal was to host all education providers and HR and training providers as well," he says.

But in 2007, higher education was growing quickly, so Tecom decided to open a free zone dedicated to it.

"Some of the universities were still existing there, so we didn't force them to relocate. We left it up to them.

"Academic City [lets them] grow and expand further. It's larger than Knowledge Village, plus Academic City is located in greater Academic City, where you have all the national universities," Mr Kazim says.

Academic City now has branches of 27 universities from 11 countries, representing four continents.

"Free zones have helped put Dubai on the world map. [They have been] very successful in attracting certain brand names and certain anchors to Dubai," says Mohamad Itani,Hewlett-Packard's UAE general manager, who is based in Dubai.

"People were questioning the concept initially, but as companies started moving in and they were successful, a lot of companies started to follow as well," he says.

When HP first moved into Dubai in 1996, it chose Jafza as its base, lured by the ease of setting up and the absence of customs duties. The company remains one of the largest users of the free zone.

But it later moved part of its operation to Internet City when that free zone opened in late 2000.

"Does it make it difficult for us? Yes and no, because now we are maintaining two different entities, one in Jebel Ali and one in Dubai Internet City, we use Dubai Internet City as just a sales and marketing tool, while the actual physical shipments take place from the Jebel Ali entities," says Mr Itani. He says HP also has a non-free zone facility in Abu Dhabi to serve government ministries and other clients.

Mr Itani hopes that one day the entire UAE will become a free zone for IT companies.

Dubai has become so good at creating free zones that other governments have tried to replicate its success, says Mr Itani.

"A lot of other free zones, they benchmark and come and visit us, and being the dean of free zones, you have to provide this kind of greeting," says Mr Al Janahi, the Jafza deputy chief executive.

Several years ago, Jafza also started seeking its own opportunities abroad.

"We went to Malaysia and we went to Djibouti. We are still there. We went to Morocco for a while," he says.

"But currently we have a very successful free zone … We invested [in Djibouti] in a joint venture with the Djiboutian government, because that city in Africa is a copy of Dubai 50 years ago," Mr Al Janahi says.

The success of Jafza led to the setting up of more than 30 free zones in the UAE.

However, in a somewhat ironic twist, one of the newer members of the club does even not emphasise its status as a free zone.

"While twofour54 is a free zone, we don't market ourselves as such, preferring to focus on our role, which is to establish Abu Dhabi as a media and entertainment hub for the Arab world," wrote Paul Venn, the head of communications in response to a request for an interview.

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