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Special Economic Zones driving success for GCC ports

The role of SEZ's in the GCC.
ANALYSIS, Ports & Free Zones

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 Multiple ports within the GCC owe their success or have benefitted significantly due to their adjacent Special Economic Zones.

While within the UAE, Jebel Ali Port and Free Zone in Dubai is the primary example, Khalifa Industrial Zone Abu Dhabi (KIZAD) in Abu Dhabi, Hamriyah Free Zone in Sharjah, and RAK Maritime City Free Zone within Ras Al Khaimah (RAK) are other examples of SEZs being major contributors or critical components in success of their respective ports. In neighbouring Oman, Sohar Port has benefitted significantly from the adjacent Sohar Free Zone and Salalah Port has benefitted from the Salalah Free Zone. Another major integrated port and SEZ project is being developed at Duqm port. Similar contribution of SEZs in success of ports is also aspired by two other GCC nations – Kuwait and Qatar — through their respective integrated ports and SEZ projects named Kuwait Free Trade Zone and Qatar Free Trade Zone, respectively.

The Jebel Ali Port and Free Zone is the first and leading integrated port and SEZ within the Middle East, owned and managed by Dubai Ports World (DP World), a company owned by the Government of Dubai in the United Arab Emirates, via a holding company. Jebel Ali Port was the first ambitious infrastructure project of the UAE (especially, Dubai Government) to create the largest port in the Middle East and the world’s largest manmade port.

The port was constructed through the 1970s and completed in 1979. The port, along with its adjacent area, was made a “free zone” in 1980, which primarily meant a “customs-free” zone for promoting re-exports.

In 1985, an independent authority named Jebel Ali Free Zone Authority (JAFZA) was established to manage and promote the free zone.

Key benefits from Jebel Ali Port and Free Zone combination to foreign investors include: Developed infrastructure claimed to be ‘plug and play’ ready within the free zone, immediate and easy access to seaport with good infrastructure and efficiency, independent free zone authority and “one stop shop” bureaucracy, customs-free trading zone and no foreign ownership restrictions.

The successful combination of port and SEZ at Jebel Ali propelled growth of its cargo volumes and placed it in the league of world’s Top 10 container ports despite being purely reliant on transhipment and re-export cargo.

Jebel Ali Port plays a vital role in the UAE’s (especially Dubai) economy by serving the world markets with over 180 shipping lines and more than 90 weekly services connecting the port to over 140 ports worldwide. It is primarily a container port and its container terminals are equipped with a total of 23 berths and 78 cranes to cater to the world’s largest container vessels (including those being built). In 2013, Jebel Ali Port achieved a throughput 13.6 million-teu and was ranked ninth-largest container port worldwide.

The success or growth of SEZs in a given location is driven by the potential of industrialisation and the level of investment in industrial infrastructure done by the local (state) government in providing necessities like electricity, water, transport connectivity, defined land banks, land acquisition guidelines, and uniform taxation structure, amongst others.

Unevenly distributed SEZs in the GCC is also an issue leading to lower realisation of benefits in locations of crowded establishments and missing potential gains in other locations. Further, almost all of these port-SEZ combinations are heavily reliant on re-exports for their volumes and the available volume within the region is being fragmented between these multiple ports.

Even in case of port-based SEZs, despite the significant additional advantages they offer over land-locked SEZs, experts say they cannot be recommended for every port. While availability of suitable infrastructure is one of the most important factors while deciding on a Special Economic Zone, there are other factors like proximity of potential cargo-feeding industrial clusters, environmental impact, state-level regulations, displacement of labour (primarily fishermen), weather conditions, and, lastly, scope for long-term growth and expansion that need to be taken into account before deciding on a port-based SEZ.
The combined development of ports and SEZs offer high potential to accelerate the economic prosperity of the countries in the GCC. It can also possibly cover up the less-than-expected benefits from conventional SEZs to a certain extent. Several operational and planned SEZs at ports in countries like the UAE, Oman, Qatar, and Kuwait are likely to add significant success to those ports and trade revenues for the countries. However, it should be noted that not every port can be developed into an integrated one and SEZ entity and several factors have to be considered to approve the development of such facilities.
Investors need to have proven expertise in development of such zones and have a clear business plan for justified / optimal use of the allocated port and land banks. Simultaneously, governments must eliminate the limitations in the existing SEZ policies and define a specific policy for port-based SEZs. Best practices and key factors that contributed to the success of this model in nations like China and the UAE have to be adopted in other the GCC countries, too, by improvising them to suit the specific country needs context. Such constructive efforts from both the government and investors would definitely lead to high-potential gains for the economy from these zones.

Srinath Manda is the Program Manager for Transportation and Logistics Practice for regions of Middle East, North Africa and South Asia at Frost & Sullivan.

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