Details

More private free zones set to surface

Al Mazaya Holding: Saudi Arabia, UAE provide lion’s share of Gulf investment opportunities

 

-Dubai hosts 60% of total free zones in UAE

-UAE free-zones model to be copied

-Saudi Arabia to reinvigorate free zones to attract FDI

Al Mazaya Holding’s weekly real estate report confirmed that the Gulf countries, particularly Saudi Arabia and the UAE, have introduced long-term investment opportunities with added economic value and investment tools capable of generating an unlimited number of opportunities across various sectors. The most important of these are free zones, which now accommodate significant investments with a direct and positive impact on the GDP of respective countries. These zones stimulate business especially the industrial and commercial sectors in addition to their direct effect on increasing demand for real estate products and consequently the development of more real estate projects.

The weekly report pointed to the importance of free zones and their significant role in maximising the value of investment and performance of multiple economic sectors. The report, in this regard, cited the model provided by the UAE free zones which play an eminent role in the country’s economy, establishing UAE as a global and regional hub for trade and services. Industry data indicate that the number of free zones operating effectively in the UAE reached 37 and 23 of which are located in Dubai and accommodate more than 38,000 companies in areas of finance, technology and media. Sprawling over large areas of land allocated for investment, these zones directly create a rising demand for real estate and services.

Al Mazaya Holding said that the relationship between free zones and other economic sectors, especially the real estate and transport sectors, remains a complementary one. Investments in free zones constitute the cornerstone of activating the real estate sector, said the report, adding that the UAE strategy is based on business development, attracting investors and diversifying income streams.

The current trend is to exempt many free zones from Value-Added Tax (VAT) in accordance with clear regulations to incentivise free zone and re-export operations and ensure that the operations of overseas companies are not affected by this tax, setting important guidelines for taxes and customs duties. The report explained that applying VAT to production activities means the tax value shall be reimbursed in the event of exporting products abroad, which means providing more stimulus and support for exports.

The report emphasised that the application of VAT has a relatively little impact on the competitiveness of free zones products. Current business indicators in the UAE economy reveal that VAT-exempted free zones draw more new investors, said the report, noting that the 5% VAT generally affects many businesses, primarily legal services, finance and InfoTech, while their application generates many benefits, primarily compliance to financial auditing and governance, which ultimately means more administrative efficiency and investor confidence.

The report said that Saudi Arabia has announced a clear-cut plan to diversify sources of income and is working in this direction through quality investment projects conducive to attracting foreign investment. These projects are contributing to the development of modern technologies, ensuring optimum utilisation of resources, increasing the volume of exports and ultimately providing jobs and creating diversified investments.

It added that the Saudi national transformation programme aims to increase foreign direct investment from 30 billion riyals to 70 billion riyals and from 3.8 per cent of the GDP to a world record level of 5.7 per cent by 2030. The report noted that the Kingdom enjoys one of the world’s leading economies besides being a member of Group 20 and is the largest economy in the region, and therefore, investment in the Saudi economy offers great opportunities in the region and beyond due to the impact the Saudi economy has on neighbouring countries.

In the Sultanate of Oman, the report noted that the mobility provided by essential projects being established in the country over the past several years fits within the Sultanate’s vision aimed to make its free zones a global and regional hub for attracting investments, which will result in diversifying sources of income and creating new jobs for Omani citizens. This is done through focusing on attracting vital projects in the field of logistics services, storage, petrochemical industries, vehicle manufacturing and recycling projects, said the report, considering the Omani experience in the field of free zones as a modern one compared to other regional experiences. The report attributed the significance of these investments to their role in increasing the volume of trade and investment exchange in various sectors and in ensuring best utilisation of natural resources. The report explained in this regard that government entities regard free zones as one of the most viable solutions to diversify sources of income as oil represents a major revenue stream in Oman. The report said the enforcement of new investment legislations in Oman is set to diversify sources of income and realise the Government’s vision for revitalising the domestic economy.

Al Mazaya Holding said that the successes achieved by free zones in a number of Gulf countries would stimulate neighboring economies to focus on injecting more investments in this field, stressing the importance of utilising these successes by establishing regional free zones that are shared by several countries and aligned with major global blocs, such as the European Union in order to provide a platform for major deals with world countries through those zones. This comes at a time the Arabian Gulf and the European Union are in need to develop bilateral trade in services, especially banking and financial services, as the volume of trade with Europe now accounts for 23.5% of the value of the Gulf trade with the world, which is estimated at 450 billion dollars.

In conclusion, the report stressed the importance of free zones in activating investment flows, calling for the expansion and modernisation of free zones and the creation of more specialised ones over the coming period.