If buildings reflect a country’s aspirations, there’s nothing more ambitious than the Burj Khalifa that dominates Dubai’s skyline. At 828 metres high and with more than 160 storeys, the world’s tallest building is a powerful statement of an economy that thinks big – and does things even bigger.

The skyscraper’s opening earlier this year could not have come at a better time for Dubai, boosting the status of an investment location that had been threatened by questions over the state of its economy in 2009. But there’s more to Dubai than the Burj Khalifa, and the vast free zones spread across the emirate have been one of the biggest investment success stories to emerge from the Middle East in recent years.

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Increased capacity

Many businesses operating in Dubai are frustrated at the press coverage generated by the Dubai World debt problems and claim that the negative headlines were undeserved. However, Mohammad Abdullah, executive director of Dubai Media City, remains sanguine. “Such coverage strongly demonstrates Dubai’s global stature. Only a globally recognised banking and finance centre, a leisure and tourism destination or a global trading hub gets this level of attention,” he says.

The region has weathered the storm and emerged stronger, with the United Arab Emirates as a whole leaping up the World Bank’s latest business rankings. Growth in the UAE is forecast to top 3.2% in 2010, with Moody’s issuing a stable outlook for the country.

“The fundamental drivers of Dubai’s growth, the so-called ‘Dubai’ model, remain strong: openness and economic reform, excellent infrastructure and logistics, non-oil diversification, an internationally networked trade and tourism hub, the role of the free zones, economic clustering, and the pool of regional and international companies and people,” says Dr Nasser Saidi, chief economist at Dubai International Financial Centre Authority. “Dubai’s long-term transformational vision remains intact, as [is] evident from the budget plans released recently,” he adds.

At the heart of Dubai’s global success are the free-trade zones that have attracted investment dollars to the emirate and helped diversify its economy away from oil. There are more than 20 free-trade zones catering for all areas of business – from high-tech, media and finance to knowledge, gold, diamonds and even flowers. “Free zones offer a business-friendly environment to foreign investors, for example, in terms of allowing ownership, ease of obtaining permits, employment laws, custom duties and tax regime,” says Mr Saidi. “Given the ease of opening a business, 100% foreign ownership, management and employment, 0% tax rate on income and capital, freedom to repatriate capital and profits without restrictions and other incentives, the free zones possess a clear comparative location advantage for foreign companies.”

It is a route that a growing army of companies are opting for. “The proof is that we have welcomed 231 new companies during 2009 in our media clusters,” says Media City’s Mr Abdullah.

Take Tecom Investments, which is the creator of a number of zones, including Dubai Knowledge Village, Dubai International Academic City, Dubai Media City and Dubai Studio City. These zones have helped consolidate the status of the emirate as a global destination for some of the best minds and technologies. For example, the Knowledge Village and Academic City were set up for students who did not want to travel outside the region, and their success can be seen in the massive growth in student numbers, from 2000 in 2003 to 15,000 in 2010.

Dubai Airport Freezone (DAFZ) also has cause to be bullish. It registered a 30% increase in revenues in 2009 and contributed 2.2% to Dubai’s GDP as a result of major companies based in the zone expanding their office space. Companies attracted to DAFZ in 2009 included Hubbell Incorporated from the US, Symriyse from Germany and Japan’s Idemitsu Lube, bringing its number of registered firms to 1490.

“The free zone results in 2009 indicate an increasing willingness of foreign firms to operate from Dubai,” says Sheikh Ahmed Bin Saeed Al Maktoum, chairman of DAFZ. “There is no doubt the global financial crisis has affected world economic activities, but free zones around the world have benefited a great deal from these exceptional circumstances. DAFZ in particular has turned them into positive opportunities, opening its doors to foreign companies seeking to expand their markets to distribute their products in the Middle East and beyond.”

The Jebel Ali Free Zone (Jafza) – the Middle East’s largest free zone – also saw impressive growth in 2009. Now in its 25th year of operation, it attracted 484 new companies last year, taking the total number of firms operating from Jafza to 6402. Among the new businesses are multinationals such as Halliburton, DQE International, Saiga, Ames and Michelin. Jafza also posted a 15% increase in leases in 2009, leasing out 91 light industrial units (LIUs) over 52,409 square metres.

The free zone is attracting an increasing number of UK-based enterprises, according to Khadija Al Bastaki, Jafza’s manager of commercial sales. She says: “In 2001, there were 134 UK firms in the zone. By 2008, this had grown to 388 and in 2009 this had grown again to 399.”

Jafza says it has seen uninterrupted year-on-year growth in the number of companies choosing to base themselves in the zone over the past 10 years, along with a corresponding increase in the number of employees. In 2001, the 1537 companies then operating from Jafza employed a total of 56,663 people. By 2009 that figure had risen to 139,000.

Many of the free zones report they are expanding capacity to deal with ever-increasing demand. “We initiated a multibillion dollar South Zone project in 2005,” says Ms Al Bastaki. “This is a hybrid model where two clusters will be formed for the food and beverage industries.”

“DAFZ expansion plans in 2010 to provide extra office space are on track. The project, West Wing No 7, is near completion and will be ready for tenants to move in by the first quarter of 2011,” says Sheikh Ahmed.

Mr Abdullah reports that Dubai Media City and Dubai Studio City have received proposals from a number of companies seeking bigger space or moving from desk space at the business centre to a fully fledged office at the cluster to manage their expanding presence in the region.

 

Fighting the crisis

The free zones have been working hard to maintain their competitiveness during the economic crisis, launching many initiatives to enhance support for firms trading in the emirate. Mr Abdullah says: “We have launched the Business Sustainability and Support Centre to provide free consultancy services to our clients by professionals on overcoming the challenges that have arisen due to the global economic downturn.

“In addition, as part of our commitment to promote and support talent and private employers in the region, we have established specialist business centres for the journalists and independent professionals who have found our media cluster an ideal base for business development and building relationships with other media.”

Jafza has also implemented a number of ­added-value projects and customer-oriented support services. These include LIU 15, the South Zone warehouses and showrooms, the revamped Project Ahlan customer service facility, and EZ Post, the exclusive free-zone courier service that has reduced transaction processing time by as much as 70%.

With signs that investor confidence around the world is returning, Dubai has set its sights on further development. Many of its free zones have ambitious expansion plans and are continuing to push forward with innovative infrastructure projects. There are many reasons to be cheerful about its wider economy, too. For example, not only is its hotel sector seeing visitor numbers pick up, there are also plans to add more rooms with the Tourism & Commerce Marketing Department/Dubai Statistics Centre revealing that approximately 18,000 are scheduled to be delivered by the end of 2011. And the emirate is also addressing its transport challenges, with the opening of 10 stations out of a planned 47 in the first stage of the rollout of the Dubai Metro.

“The bottom line is that Dubai’s fundamentals remain strong and it is addressing the challenges that emerged in the aftermath of the international crisis,” says Mr Saidi. “Investors will look beyond recent turbulence to the fundamental factors and the gateway role of Dubai to the region’s strong growth prospects at a time [when] advanced economies are struggling to recover, rebuild their insolvent banking and financial sectors and face the risk of a double-dip recession due to the build up of unprecedented budget deficits and bloated public debt.”