The UAE and Gulf Free Zones have some structural changes to go through.
Image Credit: Dubai Media Office

The Gulf Free Zones have played a central role in the development of several sectors such as manufacturing and commerce. The United Arab Emirates, in particular, has set a model for success in this area.

100% business ownership along with ease of business licensing and access to advanced logistics services have indeed played a crucial role in the rapid expansion of free zones. Over the past three decades, these areas have maintained their growth trajectory. However, rapid global economic and trade changes, which are aimed at facilitating foreign investment flows, have prompted the Gulf countries to respond, especially after the emergence of competitive economic zones elsewhere in the Middle East, Africa and Africa. Asia.

Gulf countries have changed their inbound investment rules with the aim of maintaining their competitive position in liberalized regional and global markets. These include adjusting business ownership laws to help foreign investors fully own their businesses, not only in free zones, but also on the mainland. This was apart from other exceptional facilities such as the rapid issuance of licenses and the facilitation of labor recruitment, which practically led to a balance between national investments and those made by free zones.

Questions

However, such changes have raised questions about the future of free zones – are they still as important from a systemic point of view? Some of the privileges of the free zones will remain in place. These areas offer integrated facilities within a specific area and offer investors a significant advantage, especially areas close to ports and airports by reducing transportation costs.

Such considerations will preserve the role of free zones, but at the same time, recent changes in corporate ownership will limit new ones. This requires a radical change for these countries as the differences between economic zones, whether offshore or continental, disappear.

Need revision

The transformation, in turn, will force GCC countries to review some of the existing laws, such as those that exclude free zone products from certain privileges contained in the Customs Union. Calculating ownership percentages and value added percentages makes no sense given that the entire Gulf economy has turned into a free zone.

At the same time, it will be a real challenge for the Gulf Common Market, which grants privileges to interblock trade and the free flow of investments between GCC states. This will require a swift review of previous economic agreements, which in turn requires great efforts on the part of the GCC to amend their laws to respond to these changes.

Some will face complications in implementing these changes with the required speed due to the difficulty of making investment-related decisions and its subordination to more than one legislative body.

Over the course of four decades, the GCC has been able to conclude essential economic and trade agreements that have helped to increase financial and trade flows. All of this now needs to be rephrased due to the new circumstances.