40 year history of UAE logistics: Part two - Free zones
Part two of our special series on the 40 year history of logistics in the UAE: Free Zones
By Jon Cuthbert and Len Chapman
The UAE has a long history of establishing free zones to attract foreign investment and business. From Jebel Ali Free Zone (Jafz), to RAK FTZ and Khalifa Industrial Zone Abu Dhabi (Kizad), the UAE’s free zones have flourished with foreign companies keen to take advantage of the commercial benefits on offer and proximity to major regional markets. Easy access to world class logistics facilities has allowed free zone companies to grow both their regional and international reach, further establishing the UAE as a global logistics powerbroker.
In 1985, Jebel Ali Free Zone opened as the UAE’s and regions first free zone and over the years, this would become the template which competitor free zones would follow, establishing the backbone of UAE’s lucrative logistics sector. But initially, Jebel Ali Free Zone was not the economic success story that it is today.
In the early 1970s, the late ruler H.H Sheikh Rashid Bin Saeed Al Maktoum announced a new complex to be built at Jebel Ali. He envisaged a town, seaport and airport focused on developing an industrial region in the emirate. The UAE was still in a state of political flux after its creation on December 2nd 1971 and there was suspicion Sheikh Rashid had hoped Jebel Ali New Town would become the new UAE capital city provided for in its first constitution.
But political changes in the UAE meant only Jebel Ali Port was built, despite a widely held view this new port was unnecessary. Construction began in 1976 and Jebel Ali Port opened in 1979. Sealand Shipping Company, who pioneered the development of container shipping, was awarded the contract to manage and operate the port. They brought their international container business to Jebel Ali, but other shipping lines were reluctant to use the facility since it was managed by their competitor. Consignees also considered the port too far out of town for collection and delivery of their cargoes. Consequently, throughputs failed to grow and Jebel Ali struggled to develop.
To overcome these barriers Sir William Halcrow and Partners, the original consultants for Jebel Ali Port, proposed a free zone be attached. The idea was taken up and the land adjoining Jebel Ali Port was defined as a free zone by decree, permitting foreign companies to establish themselves without a local partner, and operate tax free, whilst being able to freely repatriate funds. Leased offices, warehouses and supporting infrastructure were built and now companies moving into the free zone could choose to lease ready built offices or warehouses, or build their own facilities on leased land.
During his tenure, H.E Sultan Ahmed Bin Sulayem was given responsibility for Jebel Ali Free Zone and he enthusiastically pushed for its development. He began to sell Jebel Ali Free Zone worldwide, establishing offices in many countries where Jafz could link with each country’s businesses promoting the associated economic and strategic benefits.
In the early days, Japan was a major focus for attracting clientele. As a result, electronic manufacturers Sony and Aiwa were the first major companies to set up their regional distribution hub at Jafz. Following this, J. Ray McDermott Middle East relocated their offshore oil industry fabrication activities from Dubai Creek to be the first manufacturing firm in Jebel Ali Free Zone. But Jafz’s growth remained slow primarily due shipping companies being reluctant to use a port operated by a competitor and local consignees perception of Jebel Ali being too far out of town.
That changed in 1990 when the Dubai Government established Dubai Port Authority as an independent commercial company to take over the management of Jebel Ali Port and Port Rashid, and operate both as a single unified port [see LogisticsMiddleEast.com: 40 year history of UAE logistics: Part one - Ports for more information]. Shipping Lines were no longer reluctant to call at Jebel Ali and consignees could choose which port to deliver their cargoes. Logistics as a result was made much easier.
Jafz then began to gain traction. Major companies such as Mercedes Benz and Swarovski established a hub in the free zone, building their own facilities. As more companies situated in Jafz, other firms began to realise the benefits of establishing operations in the free zone. Jafz in turn invested further in infrastructure to sustain projected growth. Purpose built accommodation complexes were built with sports facilities to meet the needs of increasing employee numbers, as well as commercial restaurants, cafes and other facilities to cater to all free zone customers. The premise was if you came into Jafz, you did not need to go to Dubai for your needs.
As an important development in the growth of Jafz, Jebel Ali Free Zone Authority made significant investments in new land, warehouses and offices. These new facilities were taken up by either new businesses or existing businesses expanding.
But by the mid-1990s, it had became clear the free zone would run out of developed land on the seaward side of Sheikh Zayed Road. It already owned undeveloped land on the other side of Sheikh Zayed Road and engaged Parsons UAE to develop a masterplan for Jafz’s long term growth.
At the time, there were concerns the free zone may concede this land to the newly planned Dubai World Central and so as a consequence, Jebel Ali South came into being with new concepts and facilities.
At the start of the new millennium there were several thousand Jafz businesses. A fresh approach to Jafz’s management operations was needed after the initial focus had previously been on securing new clients through marketing and providing basic administrative services. The size of Jafz’s client list warranted better client management and support services tailored to meet business needs.
The appointment of Salma Ali Saif Bin Hareb as CEO of Jafza (now Economic Zones World), was key to changing that focus. Through her vision, Jafza began to use technology to develop working relationships with its established clients. Jafz had now matured from a free zone which offered “hand holding” to potential clients doubtful about moving into an area, to an operation whereby clients needs were specifically tailored to.
Today, Jafz’s success has been mirrored by the numerous free zones throughout the UAE, each offering their own particular strategic and economic advantage. However, in the beginning it was Jafz’s initial success which established a blueprint from which other free zones have since leveraged to their advantage.
And whilst there has been some criticism that there are now too many free zones in the country, it must be remembered that it was Jafz which played a major role in building the backbone of the logistics industry and contributed to the powerful economy and financial stability the UAE now enjoys.