40 year history of UAE logistics: Part two - Free zonesby Jon Cuthbert on Dec 18, 2011
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.
United Arab Emirates
Matthew Wernham (Dec 19, 2011)