Free Trade Zones in UAE - Essay Example

Title: FREE TRADE ZONES IN UAE Name: Tutor: Institution: Date of Submission: Introduction The federation of the United Arab Emirates comprise of seven monarchies which are: Abu Dhabi,Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah, and Umm al-Qaiwain. Abu Dhabi is responsible for about 90 percent of oil produced by the UAE and takes a foremost role in political and economic decision-making. Most of the economic policy decisions are made by rulers of the individual emirates. Dubai is the UAE’s foremost center of finance, commerce, transportation, and tourism. Free trade zones that provide full opportunities for foreign ownership with no taxation attract considerable foreign investment and help to expand the economy, UAE nationals heavily rely on the public sector for employment and subsidized services, where roughly 80 percent of total government revenues is accounted for by Hydrocarbons (Hoekman, 2000). JAFZA was established in 1985 by the government of Dubai, JAFZA today is spread over an area of 48 sq. Kilometers and comprise of over 6400 companies, consisting of over 120 of the Fortune Globe’s 500 enterprises, from across the world. It is a principal driver of the escalating UAE economy. With its flawless track record, JAFZA stands for innovation, customer centricity, transparent operations and entrepreneurial dynamism. The Ras Al Khaimah Free Trade Zone (RAK FTZ) is one of the "free zones" of the United Arab Emirates (U.A.E.). It is positioned in the Emirate of Ras Al Khaimah in the north of the U.A.E. It was recognized in May 2000 by an Emiri Decree from Ras Al Khaimah's ruler His Highness Sheikh Saqr bin Mohammad al-Qassimi as the ruler, and its Chairman His Highness Sheikh Faisal bin Saqr Al Qassimi. RAK FTZ comprise of five parks in Ras Al Khaimah. These parks are the Business Park, Industrial Park, Technology Park, Aviation Park and Academy Zone. It has delegate offices in Turkey, India, Germany, and USA being the first free zone to offer centre for business as well as novelty and support centre facilities in four locations in the UAE. Positive Contributions of the Jebel Ali free zone to the UAE JAFZA has focused on building long term customer relationship through forging alliances with global investors by offering them value driven solutions and Updates of companies on the latest projects which has resulted to high investment in the UAE worldwide. JAFZA companies have provided substantial boost to Dubai’s economy through generation of vast business opportunities in the JAFZA’s economic sectors which are; transportation, hospitality, tourism, & as well as trading sectors. JAFZA has been instrumental in giving boost to human resource department which has enhanced human capital component of the country’s economy, a huge long term gain in the UAE’s wealth creation abilities. Foreign entrepreneurs have invested in human capital by offering essential technical and management trainings to their local staff. The demand for quality human resources eventually has led to increased investment in the country’s education and training sectors, finally enhancing the quality of the country’s human resources to world standards, thus building a favorable environment for technology transfers in the long run (Ibrahim, Paula, & Peter, 2005). Having operated for 22 years, JAFZA has acquired more than 300 times growth in most of its companies that have grown from 19 companies in 1985 to over 6000 in 2007 inclusive of over 150 of the Global Fortune ai’500 companies. It has led to the expansion of Dubai’s tourism industry. The city’s relative tolerance of western habits profusion of quality hotels, long stretches of beaches, warm winter, shopping incentives and desert activities have helped it become the leading tourism destination in the Gulf. Negative Contributions of the Jebel Ali free zone to the UAE Unemployment among UAE nationals is a political issue in presently; it has increased slightly to 2.7%. Even though this rate is relatively low, it mostly concerns emirates since foreigners generally don’t have access to unemployment status and benefits. Moreover, close to half the population of the emirate is under 15 years, and a huge number of nationals is probable to go into the labour force in the near future. In terms of the UNDP the human development indicators mainly depends on foreign labour that allows the non-oil sector to develop rapidly and competitively. Rather than the total factor productivity, the growth of labour and capital is responsible for most non-oil output expansion over the 1981-2000 periods. Because of the UAE's open foreign labour policy the expansion was made possible, which has facilitated the private sector to employ expatriate workers at competitive wages which is an added expense to the UAE (Marat, 2006). Most recently, total government expenditures, including consumption and transfer payments, increased a slightly to a GDP of 26.4 percent. The state has remained considerably involved in the economy through regulation in the owned by the state. Salary increments and development spending are increasing the expenditures. Benefits of Jebel Ali free zone to investors Investors are advised on future expansion & investment in that JAFZA helps its clients in choosing the advantageous site or place for their investment, as well as in determining operational requirements Business is harmonized where companies can avail the opportunities of exploring joint investments together with other mutual business opportunities through participation in regular events planned by JAFZA in the local and international market  Business Delegations to investors is done by JAFZA where events are organized and clients invited to business trips to other countries, which enables them to gain market entries to their field of activity. Customers are advised through JAFZA’s consulting offices on relevant issues related to setting up a business JAFZA provides the investors with; free foreign ownership of companies, repatriation of capital and profits, no income taxes, abundant energy, free currency exchange, and in-house e-business support services (Sascha, 2007). Strategies of the Jebel Ali free zone for Growth The emirate’s leaders have a commitment to trade and frankness as engines of development, each relying on their comparative advantage provided by Abu Dhabu in energy-based industries: Dubai in commercial, telecommunications, tourism, and financial services; Sharjar in textile and manufacturing of light; the Northern emirates in Agriculture, quarrying, cement, and shipping. They have pursued quit open trade, investment, and labor policies with effective trade tariffs average of 4%. And mainly employment expert workers who account for 90% of the labor force (mostly from the Indian subcontinent, the Middle East, and the Philippines). Free trade permit of 100% foreign ownership of companies was established to capture the strategic advantages of location. The emirates’ services related to trade and infrastructure compete aggressively with the best internationally set standards in ports, airports, customs, shipping, telecommunications, power, water, roads, banking, finance, and stock markets. The combination of policies with better governance and structural reforms has largely reducing rents and has emphasized on education and economy wide productivity improvement instead (United Nations Conference on Trade Development, 2007). Positive contributions of the ras Al khaimah Free zones (RAK FTZ) to the UAE Standing for affordability, flexibility and wide geographical area, RAK FTZ is quickly emerging as the favorite business center in the region, which can easily be accessed by investors, and spread into the emerging markets. In the past year RAK FTZ registered 1,740 new free zone companies, while its International Companies (IC) division registered 1,499, signifying an increase of 14.65% in the total number of registrations as compared to 2009. Renewals of licenses achieved a 16.49 %significant growth of in 2010. 3,271 companies renewed their business licenses, which reinforced the free zone's reputation as the best investment zones in the Middle East. At the end 2010, the total number of dynamically operational and registered companies in RAK FTZ stood at over 5,000. The annual performance report for 2010, RAK FTZ had a 10% growth in total revenue during the year compared to 2009. The massive locally and internationally organized marketing campaign, where RAK FTZ hosted the 10th World Free Zone Convention in Ras Al Khaimah contributed to the constructive results achieved by Ras Al Khaimah's free zones in 2010. A total of more than 4,500 new companies were registered throughout the zones in Ras Al Khaimah, boosting the emirate's economic growth and GDP for 2010. While, development projects throughout RAK remained on course, including the Mina Al Arab, Al Hamra area, and the reserves in the tourism and manufacturing sectors, like the vehicle assembly plant of Ashok Leyland, giving a total investment of USD 50 million (international Monetary Fund. Legal Department, 2000). RAK FTZ's open door economic development policy has boosted the confidence of investors from across the world, which has increased capital investment in our free zone and in RAK. Business confidence has been manifested in the increase in the number of companies that have set up operations in RAK FTZ. The ease with which the new companies were able to set up business and start operations has left a positive impression. More importantly, the environment provided for the growth and flourishing of the companies has become a hallmark of RAK FTZ which is mostly admired by investors. Efforts are effectively made by the marketing team to ensure that specifically targeted awareness campaigns reach potential investors throughout the globe. RAK FTZ's launching of a new mobile phone website (English and Arabic), the introduction of the new 'Mazeed' Service area at the first Business Centre in the RAK FTZ Business Park and the start of a Promotion and Innovation Center at Dubai Festival City, offers a variety of services to foster the increasing business needs of the prospective clients. RAK FTZ opened a RAK Business Center location in its Business Park, as part of the attempt to reach out to the investors and corporate businesses in all sectors. RAK FTZ has continued to focus on expanding its reach, with sustained emphasis on growing the Brazil, Russia, India and China, markets and concentration on keeping the levels of expansion achieved in 2010 through the its authority and radical approach to SMEs and entrepreneurship. The free zone will continue with its corporate social responsibility initiatives and follow its emiratization programme by eliminating more UAE Nationals from its workforce. One of the major projects programmed for 2011 is to open a new spa of women only at the Business Centre 4 building (International Monetary Fund. Legal Department, 2000) Negative contributions of the ras Al khaimah Free zones to the UAE Nationwide growth has resulted in much vehicles especially heavy one travelling through and within the emirate. This has resulted into many fatalities in terms of road accident which has resulted to losses in terms of life and property; this has called for the UAE to come with measures that would help in the reduction or eradication of these fatalities. The United Arab Emirate is an associate of the Gulf Cooperation Council (GCC) customs union. The UAE’s weighted average tariff rate was 3.7 percent in 2009. Import restrictions, services market access barriers, non-transparent standards, sanitary and phytosanitary regulations, and preferences for domestic companies in government procurement add to the cost of trade. Only firms with a trade license may engage in importation, and only majority-owned UAE firms may obtain such a license (except for goods imported into “free zones”). Corruption has been alleged in the present days, where the UAE is ranked as the 30th among the 180 countries in Transparency International’s Corruption Perceptions Index for 2009, an improvement from 2008. Although there is no proof that corruption of public officials is a systemic problem; in 2008 and 2009, UAE authorities carried out investigation of several high-profile corruption cases. Benefits of the ras Al khaimah Free zones to investors The free trade zone has put strategies in place to assist clients during the economic slowdown to enable clients to carry on the business without interruption. They have tried to help them by making sure that the current crisis has little impact to their business (International Monetary Fund. Legal Department, 2008)  RAK FTZ encourages clients to use the services of companies within the free zone instead of looking outside. This way they are supporting each other, which is good for business.  RAK FTZ has made sure that companies within the zone connect with each other by organizing events for them to network like our Business Breakfast. The reputation for affordability, flexibility and broad geographical reach, RAS FTZ is quickly emerging as the ideal business center in the region, from which investors from all over the world, can easily access and branch into the emerging markets. Due to the commitment to simple and customer-friendly procedures recognized throughout the region. Clients enjoy a very wide range of facilities and value added services. Strategies of the ras Al khaimah Free zones for Growth Free Trade Zones (RAK FTZ) are working to attract investment by forging partnership with international companies and encouraging others to set up in the emirate. They both offer free Zones with light regulations, all infrastructure and practical support, which serve to complement RAk’s low overhead and its location along a major shipping route. RAK Free Trade Zone's strategy is to attract industrial and service companies that will trigger and aid the development of basic infrastructure and services in the emirate. By encouraging companies that have interests in public-private partnership with the free zone to set up projects in the airport, sea port, tourism, and education sector (Marat, 2006).   RAK FTZ is concentrating its efforts to target companies that are technology based and skill intensive that would be beneficial for the local community and the emirate.  As for incentives, RAK FTZ offers significant savings in operating costs when encouraging businesses to expand or relocate to RAK, especially the advantage of the competitive commercial rates and more affordable cost of living for employees.   RAK Free Trade Zone has a reputation as one of the most cost-effective zones. RAK FTZ's advantages such as location, competitive costs, top quality, value added services and state of the art infrastructure as a motivation to companies to open their facilities in RAK FTZ. RAK FTZ is continuing with the marketing campaigns both locally and internationally in the areas considered our feeder market.  Our regional offices have also been active in promoting RAK FTZ in their areas like India, Turkey, Germany, USA and China. RAK Free Trade Zone is focusing its efforts on small and medium size businesses and entrepreneurs (SMEs) through the promotion of their entry level product flexi facility. By focusing on the aviation industry, mainly in maintenance, repair and overhaul so as to create a hub and be the catalyst to aviation operators starting with companies that provide maintenance services.  RAK FTZ is looking at the alternative energy industry to enable them represent the right incubator for entrepreneurs which will develop and test their technologies through reinforcement of their key value-added services for their clients in the area of marketing (online and offline), HR recruiting, and expert legal advice (International Monetary Fund. Legal Department, 2008). Employment rules-inside and outside a free trade zone The use of any form of forced or compulsory labor is prohibited There is a minimum age set by the law for the employment of children The law provides for acceptable conditions of work in relation to minimum wages, working hours and safety of the occupation and proper health conditions. There law provides that there should be no discrimination in the workplace. The law condemns child labor. The law provides for freedom of involvement and the right of employers and employees to organize and bargain collectively References International Monetary Fund. Legal Department. (2008). United Arab Emirates: Detailed Assessment Report on Anti-Money Laundering. Washington: International Monetary Fund. Hoekman, B. (2000). Trade policy developments in the Middle East and North Africa, Volume 763. Washington DC: TheInternational Bank for Reconstruction and Development. Ibrahim, A., Paula, V., & Peter, A. (2005). United Arab Emirates yearbook . London: Trident Press Ltd. International Monetary Fund. Legal Department. (2000). United Arab Emirates: Detailed Assessment Report on Anti-Money Laundering ... Washington DC: International monetery Fund. Marat, T. (2006). Doing Business with the United Arab Emirates. London: GMB Publishing Ltd. Sascha, N. (2007). Doing Business in Dubai and the United Arab Emirates. Norderstedt: GRIN Verlag. United Nations Conference on Trade Development. (2007). World investment report: Transnational corporations, extractive industries and Development. Swizerland: United Nations publications. Read More