Fastest growing safe haven
Dubai, September 25, 2012
By Mark Lazell
It is 16 years since Dubai Airport Freezone (DAFZ) was established as part of the local government’s broad plan to create a more investment-driven economy in the emirate.
From a macroeconomic perspective the strategic plan had spectacular consequences – one of the world’s most commercially dynamic, influential and successful cities was built up in just a few years. Dubai engineered its position at the heart of global trade, and multinationals from around the world flocked to the emirate to capitalise.
While Dubai cannot claim to have invented the freezone concept (that accolade is generally attributed to Ireland), it is on its shores that the idea has evolved and world-class economic clusters created.
DAFZ currently claims to be the “fastest-growing business hub in the Middle East”, having ridden the Dubai investment wave.
And, even as the world economy continues to labour and the Middle East lurches through a succession of political and military crises, the freezone continues to expand.
Today, DAFZ – which is located within the boundaries of one of the world’s busiest international airports – is home to some 1,600 companies from around the world. Their activities typically focus on low-volume, high value goods particularly suited to air freight, and include aviation, pharmaceutical products, logistics, cargo and freight, jewellery, electronics and electrical materials. It is a far cry from 1996, when DAFZA opened its doors with two central buildings and just one warehouse.
Dr Mohammed Zarooni is the director general of the now-iconic investment zone, and says the business model is firmly concentrated on attracting elevated levels of foreign investment.
“Every three years, Dubai Airport Freezone develops a strategic plan for the years ahead,” he explains.
The current plan, which includes overseas marketing roadshows showcasing DAFZ to potential investors in key markets, aims to drum up interest in a facility which, thanks to its airport location, claims to have unique competitive advantages – including direct and rapid access to about 220 destinations around the world on approximately 900 flights every day.
A total of 202 companies bought into the DAFZ model in 2011, setting up operations there. Despite, or perhaps because of, the world’s social, political and economic travails, this number was an impressive if not slightly surprising 110 per cent up on 2010’s figures.
According to official figures from the freezone Authority, growth was dominated by companies in the ‘general business’ sector, which was up 139 per cent year-on-year. Services, meanwhile, were up 45 per cent, aviation and electronics both up 13 per cent; engineering and construction materials 11 per cent and freight eight per cent. Overall, the authority says DAFZ contributed 2.27 per cent of Dubai’s gross domestic product (GDP) last year.
If the figures proved anything in particular, it was confirmation of the growing belief among observers and analysts that Dubai is back – and perhaps even more importantly for a hub promoting foreign investment, that the emirate is now increasingly seen as a safe haven for international investors.
So while DAFZ figures show that Gulf Co-operation Council (GCC) investors represented 27 per cent of new business last year, Europe accounted for approximately one fifth. Furthermore, European companies now account for more than one third of DAFZ’s tenants, including a number of household names such as Roche, Audi, VW, Bauer International, Chanel and Clarins.
In fact, it was Indian companies which led the way last year in terms of setting up operations in the freezone – their numbers increasing 150 per cent year-on-year. American companies were second, increasing 100 per cent, followed by European companies (81 per cent).
Dr Zarooni says the figures signify a shift in international markets where European and Asian companies, in particular, are looking at stable and attractive locations such as Dubai to compensate for sluggish markets in their home countries.
“International issues, such as the Eurozone crisis, have prompted an influx in European companies [to the Freezone], who now represent 32 per cent of our tenants, looking to capitalise on the opportunities within the GCC and MENA [Middle East and North Africa] markets,” he observes.
“Part of our mission is to add value to the UAE economy and so our tenants come from a variety of significant market sectors, covering oil and gas, manufacturing, automotive, luxury goods; with aviation naturally representing the highest percentage of space,” he adds.
In many respects 2012 has carried on where 2011 left off. Among the well-known international companies to commit to the freezone so far this year was Canadian aircraft manufacturer Bombardier Aerospace, which set up its Middle East Business Aircraft sales operations, and Panasonic Avionics, which specialises in inflight entertainment and communication systems for airlines, which broke ground on a new $40.8 million headquarters in May.
This was followed in June by the Financial Times’ respected fDi [Foreign Direct Investment] magazine announcing that DAFZ had been awarded first place on its Global Free Zone Rankings, following its second place last year.
Widely considered to be one of the most coveted industry performance barometers, the rankings are, according to the magazine, designed to “pinpoint the most attractive free zones for future investment and recognise those that are taking a proactive approach to their own development”. It bases its final results on a number of performance and strategic planning criteria, incentives, tax exemptions, infrastructure development and economic potential.
Dr Zarooni says such awards vindicate DAFZ’s approach to creating an attractive environment, the necessary infrastructure and incentives for inward investment, but also reflects its levels of engagement with tenants.
“We spend a significant amount of time speaking with our tenants and understanding their evolving business requirements,” he notes.
Communication and engagement is also a big part of DAFZ’s current global marketing strategy, and executives have been busy this year delivering seminars and exhibitions in its key target markets. “Asia Pacific is a region of ongoing interest for us, as is Europe,” Dr Zarooni confirms.
In May this year the DAFZ authority organised a networking seminar in Seoul, South Korea with the broad aim of increasing bilateral trade between the UAE and Korea, which is currently worth about $23 billion. Two months earlier, the authority held a similar seminar in Singapore – which already has 27 companies operating in DAFZ – fittingly entitled ‘The Bridge between East & West’. According to DAFZ, the seminar attracted a cross-section of interested Singaporean sectors, including logistics, oil and gas products and services, engineering and building materials, textiles, footwear, clothing, food, and beauty products.
Dr Zarooni acknowledges that attracting fresh inward investment is not easy in current conditions, but suggests that Dubai can capitalise on its safe haven image with a coordinated approach among all local players, even if they happen to be competitors.
In this regard, he brushes off potential concerns that the massive new integrated business and logistics hub Dubai World Central (DWC), taking shape just a few kilometres away near Jebel Ali and centred on the cargo-orientated Al Maktoum International Airport – will eat into DAFZ’s future business.
“We have not seen it [DWC] affect our business at all to date,” Dr Zarooni insists. “We are all working for Dubai, and complement each other.
“Competition is always going to be a challenging factor in our business; there are a number of free zone facilities established and opening both locally and regionally. But competition is healthy. It ensures we are constantly assessing our performance and benchmarking our services and facilities to maintain best practice.
“We have worked to create a unique business community in the UAE, and one of the biggest contributing factors to our success as the world’s leading free zone was the high-level of infrastructure in place,” he adds.
Earlier this year, a new 32,000 square metres facility, called 7W, was opened at DAFZ, another element of the long-term expansion plan slotted into place.
Having come a long way in just 16 years, in some ways the journey has only just begun for DAFZ.
* The above article appears in The Gulf, our sister publication