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With investments of Dh200 million, the Fujairah Free Zone Authority is embarking on an expansion drive through some 25 new factories, including pharmaceuticals, containers, waste re-cycling, ceramic and equipment spare parts, which are to be functional within the next three years.
In an interview with Emirates Business, Sharif Habib Al Awadhi, Director-General of the Fujairah Free Zone Authority, said Fujairah's strategic location has helped attract more than 1,500 firms to the free zone with total investments of more than Dh2bn already in it.
Can you tell us about the history and beginnings of the Fujairah Free Zone Authority?
With the increasing cost of construction and office management in the UAE, many new investment companies wishing to open branches in the country started to head to low-cost free zones available in the Emirates.
The idea of the Fujairah Free Zone Authority was born in the 1980s. Following the launch of the Jebel Ali Free Zone (Jafz) in 1985, the Fujairah Government issued a decree on February 28, 1987, to set up the Fujairah Free Zone Authority. But its actual operation started in 1991.
In the first four years, not many people were eager to set up operations in the Fujairah Free Zone. The real demand by companies happened only after 1995, following the organisation of promotional events overseas according to the directives of His Highness Sheikh Hamad bin Mohammed Al Sharqi, Supreme Council Member and Ruler of Fujairah, who is also the Chairman of the Fujairah Department of Industry and Economy.
Due to the importance of industrial investments for the national economy, our promotional efforts concentrated attracting the biggest possible number of overseas industrial investors to benefit from the country's infrastructural and positional advantages, such as airports, ports, etc.
For 18 years we concentrated on two things. The first was building up the emirate's infrastructure and the second was the passing of appropriate legislations to regulate work at the free zone.
By virtue of promotions in different regions, like the Indian Sub-continent, Europe and Africa, a lot of companies have been attracted to the zone. There are currently 1,500 firms in the free zone covering commercial, industrial, services and logistics sectors.
Fujairah Free Zone Authority meets the needs of investors and international companies. At the heart of our success has been the fact that the management adopts the same methods as international ports and free zones and provides innovative solutions for small and medium companies wishing to set up branches in the UAE.
What kind of free zones are in demand?
Companies are keen to obtain low-cost economic solutions and options, as well as to set up shop in geographical locations close to their overseas markets. Therefore, companies head to free zones connected to airports and ports, like the ones in Fujairah, Jebel Ali, Ajman, Sharjah and Ras Al Khaimah.
What are the advantages provided by the free zones in the country, particularly Fujairah?
There are many investment advantages provided by free zones in the country, including integrated infrastructure and flexible legislations that attract investments. The Fujairah Free Zone Authority is characterised by its strategic location. It is the link between the UAE and other countries. Especially the GCC states and Western Asia via Fujairah airport. The Fujairah Free Zone Authority is also near Fujairah Port, which has the Middle East's biggest fuel provision station with a capacity of 2 million tonnes. The port provides 12,000 ships with fuel a year. In addition, natural resources of raw materials, such as gas, oil and copper, are available. The investor deals with only one entity to obtain his licence, owns 100 per cent of the project and no taxes are imposed on his income. Besides, there is no condition to recruit a certain number of UAE nationals in the workforce. Due to these advantages, we have succeeded over the past seven years in attracting many industries such as plastics, iron, wood and pipe insulators.
What is the cost of establishing of new company in the Fujairah Free Zone?
The cost of setting up a new company, including the first year's running costs, within the Fujairah Free Zone Authority is $6,131 (Dh22,519). And the cost of renewal is $3406.
We heard you have set up a new service called virtual offices. Could you tell us about that?
As part of our plans to provide low-cost solutions that attract investment, we present investors with alternatives of traditional offices called "virtual offices". This gives them all the advantages of traditional offices, like a land line, postal address and meeting room, though the investor is not present actually in the office.
Can virtual offices replace traditional offices?
Virtual offices are the optimum alternative for firms wishing to work in the country with the least possible cost and human resources. One or two employment visas are issued for each virtual office. These offices allow their owners to open a bank account and perform import and export operations at the country's ports and airports.
What is the estimated percentage of industrial, commercial and service projects in the country's free zones, and Fujairah in particular?
According to studies, commercial projects account for 50 per cent of the total licences given to companies in the free zones, while service companies form 35 per cent and the remaining 15 per cent. Regarding Fujairah Free Zone Authority, we have noticed the number of licences for industrial projects have gone up over the past few years, as their owners wish to take advantage of the raw materials available in the emirate.
What are the most prominent businesses currently in the free zone?
Before the international financial crisis began, investors took on projects related to construction and properties to benefit from the real estate boom. I can confirm that more than 60 per cent of licences issued over the past five years were related to construction and properties. Currently, there is a demand for licences in mining, office equipment, information technology, general trade, services and consulting.
What are the impact of the international financial crisis on Fujairah Free Zone?
Each economic crisis has two shocks. There is the shock when the crisis first breaks and the shock of living with its consequences. A period of not less than a year separates the two. We have gone through the shock of discovering the crisis and we are yet to know about its effects on different sectors. It seems the property and financial markets are remarkably affected. With regards to the Fujairah Free Zone, I expect the projects that were set up over the past three years will be affected, as their export markets have been impacted. It is unlikely that old projects set up 10 years ago will be affected, as they can fall back on their recovered capital and the profits gained.
Can you give us an idea about some of the factories located in the Fujairah Free Zone, the volume of investment and the number of workers?
The number of workers and technicians in the Fujairah Free Zone Authority is around 8,000. The volume of invested capital is estimated at Dh2 billion. There are many projects in the free zone outside the refinery and refined oil storage station, which supplies ships with fuel.
The federal government intends to apply the value added tax (VAT), though its date of application is not determined yet. What can the possible effects of VAT be on the performance of free zones in the UAE, especially Fujairah free zone?
All round prices have gone up heavily in the past three years. That is a problem for investors, especially European ones, who came to the Gulf to avoid taxes. Through the application of VAT, the advantages available for investors in the UAE will be impacted. So the idea should be re-considered and better-researched to discover the effects of the VAT on investments and the national industry.
The products of the UAE's free zones are treated as foreign commodities when they are exported to other Arab states and charges are imposed on them. The Ministry of Economy has failed to solve this problem with Arab states. The imposing of a new tax on free zones will be a new burden and pose a hindrance in attracting foreign investments. It may push investors to search for another investment-friendly countries. This does not mean we are against the tax or any federal laws benefiting the national economy, but its side effects should be studied.
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