The Hindu Business Line : Lessons from the desert zones

THE hour-long road drive in a Toyota MUV from Dubai airport to Sharjah Air International Free Zone (Saif) was an encounter with heat at 45 degrees centigrade. The vehicle's powerful AC was no match for the heat of the forenoon sun. The visitor's room at the Saif Zone, though, was a welcome contrast.

The air in the elegantly furnished wide hall was cooled at 20 degrees. Seeing us, members of the media and business team from India, relieved to be out of the heat, Mr Ashok K. Varma, the zone's commercial director, said, speaking partly figuratively: " This is the comfort we provide not only to our visitors but to our investors and everyone else in the zone."

The zone's growth in the past ten years perhaps has something to do with the comfort zone that the Saif is. Started in 1995, the zone has over 1,000 companies operating out of it.

"Here people come, do their business and make money. They don't have to pay any tax. Hundred per cent foreign ownership is allowed. They can bring their own workers. They can exit whenever they want. And there is no bureaucracy controlling them," said Mr Varma. Companies can get all types of services — transport, catering, legal, banking, consultancy, etc., within the zone.

It also provides accommodation for employees which the companies can take on rent. "Productivity of Indian workers here is much higher as compared those in India. The working environment makes a big difference, said Mr Varma"

After the success of Jebel Ali Free Zone, several free zones have come up in the Gulf countries. The UAE has ten free zones, and they compete with each other to attract more business. Jebel Ali, in Dubai, has 2,760 companies from 86 countries, of which 342 are Indian. Nearly 650 Indian companies operate out of the UAE zones.

The success story of these zones could offer valuable lessons to promoters of the free zones being developed in India, said Mr Sanjay Gupta, CEO, Infrastructure, Adani group, who led the study team to the free zones in the UAE. The Adani group is developing a Special Economic Zone at Mundra, in Gujarat, with a phased investment of Rs 7,000 crore.

One key advantage of all the UAE free zones is that their basic infrastructure is developed with government funding. Capital is not an issue in the oil-rich emirates; rules and regulation are clear and transparent. All major zones are well connected by air, sea and land. But the most noticeable feature is their "approach to the clients."

The free zone authority functions as an arm of the government. The units in the zone are exempt from corporate and income tax. DTA sales are allowed subject to payment of Customs duty. Unlike in India, where free zone authorities function more as regulators, the zone administrations in the UAE act as a development agency helping the units to function.

"In our zone one can start his business in two days. The zone provides all he requires under one roof, including visa and other documents, " said Mr Varma.

Almost all zones in the UAE offer furnished offices, land on lease, warehouses, temporary storage facilities, container parking area, bunkers and labour accommodation. India is a major market for most free zones in the UAE. Indian firms account for ten per cent of the companies in Jebel Ali, in Dubai, and 26 per cent in Hamriyah Free Zone, in Sharjah.

"India is one our major markets, and a team from Hamriyah zone will be visiting India next week" said Dr Rashid Al Leem, Director General of Hamriyah Free Zone Authority.

Asked whether he sees any competition from the new free zones being set up in India, Dr Leem said: "There is enough space for everyone to do business. In fact, even in the UAE the zones compete with each other. So we do not see any competition from India."

According to Mr Sanjay Gupta, Indian SEZs can easily compete with these zones in terms of pricing . In fact, the rent and other costs in the Mundra SEZ will be 50 per cent less than in zones in the UAE. Even in term of facilities, Mundra, with advanced port and rail connectivity, could offer the same level of service.

In India, under the new policy, licences have been issued to set up 24 SEZs. These zones will face competition from within the country and abroad. Their success will depend on the government policies and the attitude of the administration authorities.