The Free Trade and Industrial Zones in the UAE The United Arab Emirates is considered as the leading country in the Middle East when it comes to introducing and implementing diverse approaches to the economy. The Middle East has always been known as a region where some of the world’s largest oilfields are concentrated…
The establishment of free trade and industrial zones may well be considered as a unique step which other Middle Eastern countries have not yet emulated. The UAE has proven though that there are advantages gained for diversifying through such approach. Two very successful free trade zones, Jabel Ali Free Zone Area (JAFZA) and Dubai Airport Free Zone Area (DAFZA), have contributed significantly to the economy. Indeed, free trade zones are not without its share of problems and these also have negative impact to the economy. Nevertheless, the benefits far outweigh the costs. JAFZA has made very relevant contributions to the UAE’s economy since its establishment. In fact, its share in the Dubai’s economy is very strategic. It accounts for more than 25 per cent of the total trade being conducted in the city. In just 25 years, it saw the establishment of many companies in its vicinity. The year 2010 is considered as its most successful year. By the end of this year, there were 480 companies that set up facilities in the area. 55 of these are multinationals and were draw by JAFZA’s “customer focused value proposition that brings together products, all relevant services as well as value added benefits under one roof to form an ecosystem that is conducive to business” (Banga, 2011). The entry of such investments has, in turn, benefited the UAE in more ways than one. It is one of the entities that continue to fuel the country’s growth, resulting in UAE’s distinction as one of the countries in the region with the most stable economies. JAFZA has been a major factor in increasing the country’s gross domestic product. This is proven by information from the International Monetary Fund and the Dubai Statistics Department which says that “growth over the last 15 years in the number of companies at JAFZA are 3 times that of the UAE GDP, and that it outpaced the rate of growth of Dubai's GDP by nearly one and a half times” (AME Info, 2010). It is not just in the area of investments that the UAE has benefited from the operations of JAFZA. The Free Zone has also created thousands of jobs for the locals and for migrant workers. In 2001, there were about 40,000 people employed in the companies operating in it but this number further increase in meteoric fashion that by 2010, a workforce of 115,000 was achieved (Banga, 2011). JAFZA has definitely been very advantageous to the emirates. Despite the positive contributions though, the existence of JAFZA and free trade zones, in general, has negative repercussions as well. Per free trade zone rules, the companies that operate here are not required to comply with the laws of the UAE regarding visa requirements, employment, and labour market nationalization. With such freedoms, foreign investors can develop flexible labour schemes that may guarantee higher profits without fear of government intervention to protect the workers’ rights. Hence, this puts the workers in the free zones at a disadvantageous position. While the companies within the premises of the free zone earn bigger, they also enjoy tax holidays or exemptions. JAFZA, similar to other free trade zones elsewhere, guarantee that “multinational companies enjoy full ownership and profit repatriation within the confines of the free-trade zones” (Kanna, 2011, p.142). This means that the country does not get any share in the profits generated through the operations of the foreign companies existing in ...
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However, the said goods have to be legal goods. Free Trade Zones, abbreviated to FTZ are also known as Foreign-trade zones or exporting Processing zones in some quarters. These zones are usually situated in areas with several advantages to trade like good infrastructure, availability of labor, since they involve a lot of manual laborers and availability of quick and reliable transport.
Duties, tariffs, quotas, excises, subsidies, customs and other such concepts do not exist there and foreign investors have great deal of freedom to start up their business in these areas, often accompanied by tax breaks, less paperwork and few restrictions (Noack, 2007).
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).
It is projected that there are currently well over 1000 Free Zones in use, in about 120 nations (UAE Government, 2008). The rationale for this noteworthy enlargement is that Free Trade Zones have been an unusual system for nurturing industrialization that is export-led worldwide.
Dubai is the major city, principal port and industrial centre of confederacy. UAE consisted of multiple emirates, namely Abu Dhabi, Ajman, Dubai, Fujairah, and Ras al (Geospatial Media and Communications Pvt Ltd, “United Arab Emirates: Highway to sustainability”).
The paper will also focus on the concept of the economic diversification by identifying ways through which diversity contributes to the economy. Growth of the oil and non-oil sector for a period of ten years will be discussed, in way that facilitates understanding of contribution made by these sectors to the economy of UAE.
Prior to the discovery of oil, 70% of UAE’s populace was involved in pearl collection and fishing, with the rest, or 30% involved in agriculture, handicrafts and construction of wooden boats (Elhiraika and Hamed 2-3). The