Free Zones for Dummies

Probably not a good headline but it follows the theme that despite all that is written by those that did and those that know and those that think they know - they still Fail. In my office here in Thailand I am surrounded by hundreds of Academic Papers, Reports and Proposals to Governments about how they should start an Economic Free Zone. How come I have never seen any of the submission reports or proposals implemented?

How to Start a Free Zone? A similar question that has been asked of me over the 40 years I have been in the business. The reply often surprises the person asking the question. "Its Not about Money" - I reply. "Its about commitment". A classic example of this can be seen in the UAE - United Arab Emirates where certain Emirates embraced Free Zones and others disregarded them. Take the Emirate of Ajman and the Al Nuaimi Ruling Family - you couldn't wish to meet a nicer Royal Family. His Highness The Crown Prince Sheihk Ammar and the Chairman of the Free Zone His Highness Sheihk Ahmed. The Ajman Story is very unique insomuch that Shk Ammar and Shk Ahmed were at the time the driving force that wanted to get Ajman into the main stream of business.

When I told people I was going to work for the Ajman Government they sniggered behind their hands and murmored (a big step down from Dubai Jebel Ali) - A Thomas the Tank Engine Moment as I call it. The Engine that believed it could and it did. In those early days we worked from 07:00 in the morning till sometimes 10:00pm at night signing up New Free Zone companies. Jebel Ali average sign up at the time was 10 per month when Ajman was double at 20. The waiting room was always packed with people wanting to know about the Free Zone packages on offer at Ajman Free Zone.

If by chance you ever get the opportunity to visit Ajman (next to Sharjah) take a look at the tall glass Steel Buildings that now house the Ajman Free Zone offices - Spectacular and splendid indeed. But also look across the road to the temporary offices where it all started. They are still there.

People associate Free Zones with massive investment in infrastructure. When in reality all we started off with in Ajman was a construction Master Plan of 50 Offices 25 Ground + 25 +1Floor. Before they were even completed they had SOLD OUT. That early cash flow and success is reflected today in what you see in Ajman.

The Ajman Formula as I call it can and has been replicated in many locations. However, there were some Emirates that didn't embrace the Free Zone concept quite so easily, in fact they rejected the very idea (Abu Dhabi - Free Zones Corporation, Umm Al Qiwain to name but a few and even in neighbouring Oman they outright rejected the Ajman Concept).

It's actually quite easy to put a monetary value against those places that intitially rejected the Free Zone concept claiming it wasn't for them and would never work. Now we see those that rejected are playing catch up and claiming great success. But in reality how much have they actually lost in real revenue terms? Hundreds of Millions of Dollars in DIRECT investment and Billions of Dollars in Indirect Investment.

Whats the difference?

Direct Investment - the amount paid to the Free Zone Host ( Free Zone Authority) in Licence Registration Fees and Rental Fees for offices (as an example). You can take a low case reference of say USD $10,000 per Investor Company. Small money I hear you say but not when you have a huge client base of 8,000 - 10,000 or even 15,000 Investors - Get your calculators out I'm not doing all the work here. The Offices (in theory) can be written off/recovered in One Year - I guess thats why many of these Free Zones are averaging 50% ++ Profit Margins.

Indirect or Value Added - Whats that? - Its the Money spent outside the Free Zone ( We at DSI have carefully monitored this over the 40 + Years and it averages out {from just the small Free Zones} at USD $130,000 per Investor Company ( we can share the breakdown). Maybe you might need a bigger calculator or turn your I-Phone sideways - Lets do the maths? 10,000 Investor Companies x $130,000 = USD $1.3 Billion ( Yes thats right) - Suddenly got your attention I believe?

Now apply a similar calculation to the bigger Free Zones in Dubai where the Set Up and Start up Costs are higher then those figures - Go through the Roof. Did you know that Jebel Ali Port and Jebel Ali Free Zone ( I think Year End 2016) Contributed over $140 Billion towards the GDP in Free Trade in Dubai - The Grand total was actually in excess of USD $500 Billion in total Free Trade for Dubai.

Then that brings me back to Abu Dhabi (Kizad and ADAFZA) who both denounced years ago that they didn't want to follow Dubai down the Free Zone Route. How much have they lost? Yes you still need a bigger calculator and asking many questions why? I tried in Abu Dhabi when I was was Commetcial Director of Zones Corporation - but there was very little appetite for Free Zones in those days (2008). "We want to do something else" I was told. Same Story when I was CEO of Salalah Free Zone and trying to encourage the then Minister of Commerce to launch the UAE Style Free Zones Programme. NO LUCK. After all they had the PEIE System and after 23 years it might just start to make a profit.

All those missed opportunities. Indecision, ignorance is like a Cancer - Grows. How many places in my working life have I been to meet with Presidents, Prime Ministers, Ministers of Finance and Ministers of Commerce. All very nice people - but couldn't make a decision to save their lives. Its the People that suffer - They Want Work, They want Prosperity and they want hope. There are still a few places left that I haven't been to and opportunity can be revisited. People say I should write a book. Maybe I should but that doesnt help my fellow man to improve his life and provide his children with a better future.

So I will continue. Its costs very little to hear this story in greater detail and starting a basic Free Zone is far cheaper than you think. Remember Little Ajman and what is there today and what it is contributing to the Ajman Economy. I played a small role but something I am proud of.