UAttractive incentives to set up shop in Dubai

WITH ITS LIBERAL free-trade regime. Dubai is luring an increasing number of South African companies looking for an export gateway to the Middle East, India, China Eastern Europe, Russia and North Africa. Some 75 SA companies have already established a presence in one of Dubai’s more than 50 free-trade zones, says Omar Khan, director of customer services centres at the Dubai Chamber of Commerce & Industry. In addition, 65 000 South Africans live in Dubai, with a further 100 000 visiting every year.

Khan says there’s huge potential for more SA companies to bring their goods and services to Dubai. The Unite Arab Emirates (UAE) is at the crossroads of three continents and within a four-hour flight of 1,7bn people, which positions it as an ideal re-export destination.

Says Khan: “Dubai provides a great springboard between Western and Eastern/Asian markets. SA’s minerals, food and textiles are popular imported goods. And SA firms providing construction, information technology and professional services, such as engineering and architecture, are also in big demand”.

He says Dubai has vast logistical capability and a well-developed transport infrastructure, making it easy to move goods to and from Dubai. That means products can be imported, warehoused, repackaged and exported to their final destination quickly and cost-effectively.

Apparently, many exporters ship their products to Dubai to take advantage of its duty free regime for goods in transit and then fly the goods onwards to their end destination, further saving costs.

Khan says the biggest benefit for foreign companies to set up shop in one of Dubai’s free-trade zones is that they don’t pay taxes or duties on imports and re-exports. Duties only become payable when goods are exported from the zones to Dubai itself. Even then, duties are modest and a number of products are exempt. And foreign companies operating in free-trade zones aren’t required to share their equity with local partners, unlike foreign companies that operate outside Dubai’s free-trade-areas – those require a 51% local shareholding.

There’s also no corporate or income tax in Dubai and no exchange controls or limitations on the repatriation of capital or profits. Khan says that rationale is to make it as easy as possible for foreign businesses to set up shop in Dubai. Red tape and administrative processes are kept to a minimum, aided by an entire network of government agencies whose sole purpose it is to help bring new companies to the Gulf state.

Dubai’s focus on establishing itself for a global trading and business hub is part of a strategic plan to diversify its economy away from oil, as its reserves are expected to run dry within 10 years. Khan says Dubai’s dependence on oil has already diminished dramatically over the past 15 years. In the early Nineties oil contributed 80% to its GDP. That’s currently shrunk to just 6%. Trade, industry, transport, construction, real estate and tourism are now Dubai’s six biggest income generators. Its one of the worlds fastest growing economies, with a hefty 19% GDP growth recorded last year.

One of Dubais biggest free-trade-zones – the Dubai Airport Free Zone Authority (DAFZA) – has targeted Africa – SA in particular – as a potential growth market. DAFZA marketing director Ibrahim Ahli says less than 2% of the more than 1000 companies established at the zone are from Africa, with 40% from Europe, 12% from the US and the rest mostly from the Gulf region.

Ahli says DAFZA is an ideal trading platform for industries such as pharmaceuticals, gold, jewellery and watch manufacturing, fresh flowers export, confectionery/chocolates, electronics and automobile manufacturing.

Says Ahli: “It’s easy for SA companies to do business at DAFZA, as UAE carrier Emirates already flies directly to SA three times a day. By 2010, Emirates will operate eight daily flights to SA. In addition, 134 other airlines fly to and from Dubai, with passenger numbers expected to breach 40m by end 2008. That compares to London Heathrow’s 70m/year”.

First published in Finweek 5 June 2008