Free Trade Zones in the UAE and Economic Development - Research Paper Example

? Contents Contents 2 Introduction 3 Abu Dhabi Airport Free Zone (ADAFZ) 3 Positive Contributions to the UAE 3 Negative Contributions to the UAE 4 Benefits to Investors 5 Strategies for Growth 5 Dubai Media City Free Zone (DMC) 6 Negative Contributions to the UAE 7 Strategies for Growth 8 UAE Free Trade Zones Employment Rules 9 10 Conclusion 11 References 12 Free Trade Zones in UAE and Economic Development Introduction United Arab Emirates (UAE) has established many Free Trade Zone Areas in order to provide an incentive for businesses to be located in the region. Free trade zones were originally created targeting foreign investors so as to promote foreign trade. They are areas where certain special laws do apply with respect to income repatriation, taxation, ownership, recruitment of labor, and value addition. Over the years, free trade zones have become the preferred areas by foreign investors since they offer a cost effective combination of factors of production (Dubai Media City, 2009). This paper focuses on two companies only i.e. Abu Dhabi Airport Free Zone and Dubai Media City Free Zone. Abu Dhabi Airport Free Zone (ADAFZ) Positive Contributions to the UAE The Abu Dhabi Airport Free Zone is a business and logistics park which is being established by the Abu Dhabi Airports Company (ADAC). The creation of ADAFZ is a milestone for Abu Dhabi to globally establish itself as a leading business centre. Expansion of the airport will enable passenger traffic to shoot from the current 7 million to over 40 million per year. Cargo capacity will also be boosted to two million tons from the current 150,000 tons per year. (Ameifo.com, 2011). According to uaefz.com, multiple business ventures are being established ranging from logistics, aviation and aerospace, consultancy, business development, computing and information technology, electronics, express transport, medical equipment and pharmaceuticals. Various amenities have been put together under one roof and conveniently integrated to provide the best services for investors (Jumeiraconsultants.com, 2011).  The free trade zone provides the locals with better goods at subsidized prices hence boosting the economy. The cheapness of goods is usually as a result of cheap production costs in addition to cheap imported labor. The UAE is freed of re-tasking its resources and instead focuses on its comparative advantages. ADAFZ and other free trade zones function as economic laboratories, which allow UAE governments, to learn what will be most beneficial to their economies over a long time (Ehow.com, 2011). Negative Contributions to the UAE Abu Dhabi Airport Free Zone may appear as an equal opportunity for everyone, but, these advantages come along with some disadvantages. The disadvantages extend for UAE is related to the technology level which means that the less industrialized emirates may suffer a disadvantage till they technologically develop. When Abu Dhabi opened its borders to the other emirates to be in the same free trade zone, it also invited fierce competition as well. This means that the whole of UAE competes with one another (Uaefz.com, 2011). The free trade area may also economically develop the area around the airport more than other regions in Abu Dhabi and UAE as a whole. This region may attract more foreign investors than other regions which may lead to economic underdevelopment of some other areas in the free trade zone. The underdevelopment may also impact the Abu Dhabi’s (Ehow.com, 2011). The issue of opening of borders brings the challenge of corporations seeking out for the lowest labor and environmental standards in order to minimize its production costs hence pressuring for low working standards. Furthermore, the transparency and absence of strict regulations of ADAFZ make it an attraction for illicit investors to launder crime proceeds and maybe finance terrorism (Fatf-gafi.org, 2011). Benefits to Investors According to Abu Dhabi (2011) an investor has to lease the facility in order to acquire a license that allows for operation in the free zone. The procedures for cargo handling and clearance are simple. ADAFZ collaborates with Abu Dhabi Ports Company for easy transport of goods to and from the park. Visas are issued upon government approval although there are no labor restrictions. Registration and processing of document takes two working days (Jumeiraconsultants.com, 2011). ADAFZ’s has a unique setting which provides its customers with a dynamic business environment along with its benefits which include full corporate tax exemption, full Import and export tax exemption and a full Personal income tax exemption. Other exemptions include a full ownership property ownership for foreigners and full profits and capital. Investors also enjoy centralized administration services which are easy to access. The trade zones location is in proximity to the Abu Dhabi International Airport making it easy for businessmen/women to move with ease. In ADAFZ investors have a choice of warehousing and light assembly in the land plots (Uaefz.com, 2011). Strategies for Growth ADAFZ is owned by ADAC which was incorporated in 2006 in order to spearhead a massive redevelopment of the UAE’s aviation infrastructure. Its creation was part of a restructuring ambition which was aimed at delivering better services to support the UAE’s long-term tourism and economic strategies. Its aim is to build an economy which is more vibrant to promote and attract private investors. ADAFZ creation is in line with ADAC’s objective to finance its Airports development, to minimize Government grants, and to generate non-aeronautical revenues (Emiratesfreezone.com, 2011). Emiratesfreezone.com asserts that ADAFZ will be able to concentrate numerous services to proximity and ensure that essential business services are delivered swiftly. These services include and are not limited to: warehouses, serviced offices, light industries, land leasing, cold storage facilities, and conference rooms. Laborers and other staff will also be accommodated here. ADAFZ will see an expansion in banking, postal services, insurance firms, hotels and food courts. The site further claims that travel agencies and duty free shops are to be based here. ADAFZ investors already enjoy 24 hour security services (Uaefz.com, 2011). Dubai Media City Free Zone (DMC) Positive Contributions to the UAE Dubai Media City (DMC) was launched in 2001. DMC and other related companies increased UAE’s market for communication products to a net worth of approximately over $3.1 billion in 2008. DMC has always been a perfect choice for communication companies wishing to locate in the UAE (Out-law.com). Many international media houses have moved in since DMC’s launch. They include MBC, Sony, Reuters, Middle East Business News, Zen TV, and other leading broadcasters. Also, housed therein are publishers, writers, graphic artists, and others. CNN has set up a regional news bureau and has launched an Arabic website, CNNArabic.com. The list of other residents not only includes American and European broadcasters but also Indian channels UNI TV and AsiaNet and Iranian Soroush Multimedia (Tbsjournal.com, 2011). Like ADAFZ, DMC and other free trade zones function as economic laboratories which allow UAE governments to learn what will be most beneficial to their economies over a long time (Ehow.com, 2011). Negative Contributions to the UAE Increased competition has led to some of the emirates gaining some level of competitive advantage over others. Dubai and Abu Dhabi’s advanced technology compared to the other has led to such advantage. This has led to the rise in unemployment levels in the other emirates because of fewer employment opportunities compared to Dubai (Dubaifreezonesuae.com, 2003). The opening of DMC has led to the rise in the number of rival companies. The competition has resulted into a scenario whereby companies are now trying to restructure in order to fit into the system. This has led to many communication companies spending a lot of money on the management and corporate teams to facilitate this process (Ehow.com, 2011). The DMC has economically developed the area around the Media city compared in Dubai. This may lead to the economic underdevelopment of other regions which might lead to Dubai’s Going down at some point (Ehow.com, 2011). Research shows that women are a minority among the technical staff. I.e. women are either undermined or viewed as delicate and sensitive hence men having a high probability of getting job positions requiring high levels of training. UAE women seem to have internalized the same perceptions which make them reluctant to acquire technical jobs (Uaefz.com, 2011). Benefits to Investors Dubai Media City provides investors with the only media hub in the emirates where business can operate profitably in the local and international markets since it’s strategically located at the crossroads of South Asia, the Middle East, and Africa. Investors are assured of State of the art uplink/teleport/play-out services, telecommunication and broadband access, production and post production studios and facilities, and opportunities growth (Dubai Media City, 2011). DMC foreign investors enjoy 100% property ownership and permission of full repatriation of capital and profits. In addition, investors are guaranteed a 50-year exemption from corporate taxes and personal income. Custom duty for goods and services is also at 0% (Dubai Media City, 2011). DMC is located in a unique environment where businesses share a working campus which is dedicated to the communication industry. Businesses do collaborate interact and effectively. The Community in DMC is anchored by global communication leaders, regional and local. The Infrastructure is world class with a State of the art community and technical infrastructure which supports and fosters the business growth (Dubai Media City, 2011). Strategies for Growth The future is bright for DMC. The parent company plans to employ over 50,000 and house more than 10,000 in the next few years. Phase II alone cost $32.6 million and was spread over 46,450 square meters. Phase III covered 34,300 square meters and cost $40.8 million. A production studio build by network productions for film and TV programs production did cost between $16 million and $30 million (Dubai Media City, 2011). DMC is set to expand in infrastructure to cater for a richer and diverse community. DMC aims at setting up Media and Business Centers in its expansion plans to promote entrepreneurship and talent. This expansion plan targets independent media professionals and freelancers. This will make DMC an ideal place for reaching down to the industry players at the bottom of the chain (Llass.calumet.purdue.edu, 2011). With the establishment of Free trade zones like DMC, UAE rulers are looking forward to a future which is not oil driven. This makes them use brute of money in the creation of world class technology infrastructure for the UAE to become the midpoint between the east and west (Stephen, Walters, and Whiteoak, 2004). UAE Free Trade Zones Employment Rules According to Abudhabi.ae, UAE nationals have a right to work and in case they are not available the priority is then given to Arabic nationals and then to other nationalities, in that order. FTZ’s do not employ juveniles under the age of 15. The site further asserts that all employees have a holiday on Fridays except the daily wage workers. Employees are further entitled for holidays with full pay on Hijri New Year, Isra and Miaraj, Gregorian New Year, Prophet Mohammad's birthday, 3 days for Eid Al Adha and Arafa Day, 2 days for Eid Al-Fitr (Abu Dhabi, 2011). The maximum working hours are 8 per day and 48 hours per week. Free Zone Authority sponsors the staff engaged in working for licensees. An investor must invest not less than AED 50,000.00 to qualify for an investor visa. If a licensee wants to recruit staff, he or she will be required to sign an agreement. The agreement is commonly referred to as a Personnel Secondment Agreement. The agreement is a lay down of the conditions which the Free Zone Authority will consider when sponsoring a licensees’ Employees (Jitendra Business Consultants, 2003). Employee transfer between licensees inside a Free trade Zone is permissible, given that there is an agreement between the licensees in addition to an approval by the Free Zone. An employee’s contract can be terminated by the employer with a 30 day notice or without notice if the Employee breaches several contract rules (Rakftz.com, 2011). However, this measure is subject to FZA approval. Conclusion By introducing Free Trade Zones, the UAE has grasped the whole world attention with the economy growing tremendously in a span of nearly a decade. Statistics show that UAE free zones currently host around tens of thousands of companies. The number of free zones in the UAE is increasing and their impact on the economy is deepening. With the possibility of oil reserves running dry in the near future, UAE will have to look for other means to sustain their economy and free trade zones are not an exception. References Abu Dhabi (2011). UAE Labour Law. Retrieved Nov. 20, 2011 from http://www.abudhabi.ae/egovPoolPortal_WAR/appmanager/ADeGP/Citizen?_nfpb=true &_pageLabel=p20160&lang=en. Adafz.ae (2007). Abu Dhabi Airport Business Park. Retrieved Nov. 16, 2011 from http://www.adafz.ae/investor_advantages.html. Ameinfo.com (2011). Abu Dhabi Airports Company unveils free zone plan. Retrieved Nov. 16, 2011from http://www.ameinfo.com/114828.html. Dubai Media City (2011). Benefits. Retrieved Nov. 16, 2011from http://dubaimediacity.com/join-dmc/how-to-join-dmc/benefits. Dubai Media City (2011). 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