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RAK Highlights the Success of Free Trade Zone Model in UAE

Wednesday, 18 August 2010 14:49

This year marks the 10th anniversary of the founding of RAK Free Trade Zone (RAK FTZ). While this is an important milestone, it also highlights the success of the FTZ model in general , as illustrated by developments at several other similar zones in the emirate.

A decade ago, RAK FTZ was the only such zone in the emirate, unique in offering tax breaks, low start-up costs and an emphasis on small and medium-sized enterprises. The model had seen success elsewhere in the Gulf, notably in Dubai, as GCC nations looked to diversify their economies.

RAK had been searching for a means of boosting foreign direct investment (FDI) inflows, and the combination of incentives and promotions has helped the emirate achieve double-digit, year-on-year growth for much of the last decade.

RAK FTZ has taken a face-to-face approach to attracting clients and FDI. The zone’s authority attends or hosts conferences year round, offering special incentives to firms that seek licensing at these events, including discounts on office space and access to business centre services in the zone.

February 2010 saw a busy schedule for the RAK FTZ Authority, with the 2010 Cairo ICT, Gulf Food 2010 and Expo Pakistan exhibitions – all of which it had a presence at – occurring within weeks of each other. It was also announced in July that RAK FTZ would host the World Free Zone Conference in November 2010.

In June it was announced that RAK FTZ would partner with Service Corp to provide virtual office and other support services through the FTZ. The efforts have helped to fuel the growth in new licences, which rose 10% in 2009, and led to an 11% increase in revenue that year. The zone is home to some 4000 firms and in July, RAK FTZ’s CEO, Oussama El Omari, told local press, “We forecast 2250 additional companies in 2010.”

However, RAK FTZ is not the only player in the local FTZ market. It was joined in 2005 by the RAK Investment Authority (RAKIA), which has sought to capitalise on niches not served by RAK FTZ. RAKIA has targeted several international business segments through various arms of its organisation. RAK Offshore, for instance, concentrates on firms that primarily conduct business elsewhere in the world.

RAKIA has focused more on heavy industry and manufacturing, maintaining several “free and industrial zones”, including those at Al Hamra and Al Gail, which together measure approximately 26.8m sq metres. Each of the two zones has its own dedicated power plant, producing 45 MW and 65 MW, respectively.

The investment authority has seen impressive success in its first five years, bringing in total FDI of $3.2bn. It licensed 263 new businesses in the first quarter of 2010 and 600 by the end of the first half. Its total number of licensed companies now stands at more than 6500.

Similar to RAK FTZ, the authority uses exhibitions to attract new investments. In May, RAKIA sponsored the Arab Investment Summit, which was attended by over 200 businesses. The authority emphasised the advantages of its zones: no corporate tax, no foreign exchange controls and 100% foreign ownership. These offers were partly responsible for the licensing successes in the first half of 2010, which saw 75% growth over the same period of 2009.

The SeAH Steel Corporation of South Korea recently leased 250,000 sq metres for the construction of a manufacturing plant in RAKIA Industrial Park. The company is to join several other firms that are part of the authority’s cluster for fabricated metals firms.

Additionally, the port of Al Jazeera that serves Al Hamra free zone is being upgraded. The dry dock has been undergoing an expansion since late 2009. RAKIA is constructing two floating docks that will service small to medium-sized vessels, which usually run approximately 60 by 18 metres and weigh 1200 tonnes. The market for this size of vessels is considered underserved, as the container ships visiting the Gulf are typically much larger.

The success of these projects will see continued competition between free zone operators in RAK, and each may attempt to explore further, unexploited gaps in the market. The RAK Free Media and Film Zone, for instance, remains under development, as do the RAK Centre for Business Excellence, RAK Education Zone, RAK Financial Centre and the RAK Industrial and Technology Park.

Global Arab Network

This article is published in partnership with Oxford Business Group

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Last Updated on Wednesday, 26 January 2011 17:54

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