Journal of Commerce / July 24, 2000
By Larry Luxner
DUBAI, United Arab Emirates -- Many years ago, when port official Sultan Ahmed Bin Sulayem's grandfather was a pearl diver, the people of Dubai knew nothing about containerized shipping or free zones. But they did know about international trade.
"We are merchants, and we've been trading since the days of our ancestors," said Sulayem. "Our country was on the maritime Silk Route to China, and we moved goods to and from Africa. Our forefathers used to dive for pearls for three months during the summer, and then take them to India to sell. But then the Japanese discovered cultured pearls, the maharajahs were forced out of power in India, and that industry was destroyed."
After that, says Sulayem, "the trade and the port became our business."
Sulayem is today chairman of both the Jebel Ali Free Zone Authority and the Dubai Ports Authority. His spacious office is decorated with large potted plants, black ergonomic chairs and a framed letter of congratulations for making the dean's list at Temple University.
As the young executive will attest, trade is still very much Dubai's business.
In 1998, re-exporting activities by this member of the United Arab Emirates amounted to 17.8% of Dubai's total $24.2 billion in non-oil trade. Of the $4.3 billion in re-exports, Iran -- right across the Persian Gulf from Dubai -- was the emirate's best client, accounting for $760.5 million. Other big customers were India ($270 million); Saudi Arabia ($266 million); Kuwait ($179 million); Turkey ($159 million) and the United States ($118.4 million).
Before the 1990-91 Gulf War, in fact, Dubai officials were urging Kuwaiti and Saudi businessmen to transfer funds here, promising that their investments would be safe from the impending hostilities. Once the war was over, Dubai's executives quickly took another tack -- emphasizing how close the commercial capital of the UAE was to Kuwait, making it the logical place from which to direct massive reconstruction efforts.
It appears that Dubai and the 25,000-acre Jebel Ali Free Zone have benefitted from both arguments.
"Even during the war, with Dubai being only 600 miles from the front line, there were investors moving in, including those from Kuwait and Bahrain, as well as Europeans," said Patrick McDonald, former deputy chief executive at the Dubai Commerce and Tourist Promotion Board.
Today, over 1,650 companies are based at Jebel Ali, which was built between 1976 adn 1979 at a cost of around $2.5 billion. Overall, 32% of the free zone's clients come from the Middle East, 23% from Europe, 25% from the Asia-Pacific region and the rest from the United States and other countries.
On a typical day, dockworkers can be seen loading and unloading cargo at the free zone's sprawling port, reached from Dubai Municipality via a 17-mile, four-lane highway, presently being upgraded to eight lanes at a cost of $165 million.
The dock itself boasts 67 berths, more than nine miles of quay, and a modern container terminal operated by Maersk Sea-Land. The port has 16 gantry cranes, 12 of which are post-Panamax and super post-Panamax cranes. Storage facilties include a 42,500-cubic-meter cold store for frozen and perishable commodities, a 47,000-cubic-meter termperature and humidity controlled store for semi-perishable goods, and vast open areas for the storage of dry bulk and general cargo.
Companies can also import and export goods through Port Rashid, 22 miles away, or at one of the ports in Sharjah, another emirate up the coast. The Dubai Ports Authority -- whose writ includes both the Port of Jebel Ali and Port Rashid -- now ranks as the busiest port in the Middle East, and among the top 20 in the world in container throughput.
Among the many advantages offered by Jebel Ali are 15-year renewable exemptions from corporate taxes, no personal taxes and no requirements for local partners.
About one-fourth of the firms doing business in Jebel Ali are headquartered in India. Another 25% are companies based in the six GCC countries -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE -- and the rest are from the United States, Western Europe and the Far East.
Among multinationals at Jebel Ali are Black & Decker, Colgate-Palmolive, Compaq, Daewoo, Honda, Johnson & Johnson, Nissan, Samsung and Sony.
One man who knows about investing here is Jaguish N. Patel, finance manager of TG Industries, which makes 150 leather jackets a day for export to Germany, France and Spain.
"About 90% of our 120 employees are Pakistani," says Patel. "We provide food and accommodations. Our factory employs professional people. If they make one mistake, we have to start over."
Patel says the plant's raw materials -- like its employees -- come from Pakistan, and that his is one of 10 garment manufacturing plants that enjoy tax-free operations in the zone.
Yoshio Kubo, managing director of Sony Gulf, says his company's sprawling Jebel Ali operation supplies televisions to clients all over the globe. In fact, he says, "during the recent World Cup, Eastern Europeans desperately wanted color TVs. So thousands of TV sets were exported from Japan to Dubai, and sent by jet from Dubai to Moscow.
"At the same time," Kubo adds, "we sell from this warehouse to Iran. That's our biggest market."
Now, Dubai hopes to capitalize on Jebel Ali's success with the Dubai Airport Free Zone, inaugurated in March 1999. DAFZ, located at Dubai International Airport, covers an initial 1.2 million square meters, including 140,000 square meters for freight handling. It has already lured 75 blue-chip tenants including Boeing, Porsche, IBM and Christian Dior.
Shahla Ahmed Abdul Razak, research and development director at DAFZ, says the existing tenants are bringing in a combined investment of 231 million dirhams (about $70 million), with 36% of that from trading companies, 35% from manufacturing and 30% from the service sector.
"We are looking at multinational companies wishing to build a long-term relationship with us," says Abdul Razak, noting that the free zone won't consider any individual venture generating less than one million dirhams ($300,000).
Like Jebel Ali Free Zone, the new Dubai Airport Free Zone is run by its own authority, headed by director Mohammed al-Zarooni. Companies based at DAFZ rent office space on an annual basis, but can lease land for up to 15 years. Free-zone tenants are exempt from national agency laws and can be 100% foreign-owned.
DNATA, Dubai's state-owned aircraft handling company, has opened its own dedicated terminal at the free zone and has lured eight new customers to Dubai -- airlines that previously operated out of neighboring emirates. Among them: Azerbaijan Airlines, Sky Cabs and Beirut-based Trans-Mediterranean Airlines, which uses Dubai to hub its Boeing 707 services between Mideast and African destinations.
In December 1999, DNATA achieved its highest ever monthly throughput, handling a record 46,000 tons -- 18% higher than its throughput in December 1998 -- and the new business has restored the double-digit air cargo growth that characterized DNATA's performance in the mid-90s.
At present, Dubai International Airport can handle 500,000 tons of cargo, with volumes expected to jump six-fold within 20 years. Airport authorities have embarked on a five-phase expansion plan to meet this demand. By early 2001, Dubai should be able to handle one million tons of air cargo annually, rising to 2.7 million tons by 2018.