What benefits do free zones offer industrialists in Abu Dhabi?

Leveraging its location at the confluence of over 200 air routes, 150 shipping lanes, thousands of kilometres of road networks and a developing rail system, Abu Dhabi offers global and local businesses a range of industrial and free zones closely linked to these avenues. This dovetails with the emirate’s long-term development strategies, the Abu Dhabi Economic Vision 2030 and the Abu Dhabi Plan, where industry is a key part of future diversification, job creation and the development of a more innovation-based economy. Indeed, Abu Dhabi’s free zones have a wide portfolio, ranging from high-tech, renewable energy outfits at Masdar City, to aluminium businesses at the Khalifa Industrial Zone Abu Dhabi (KIZAD) and glass manufacturing at the Industrial City of Abu Dhabi (ICAD). All of the emirate’s free zones benefit from well-developed infrastructure, a high level of logistics connectivity, one-stop shops and a range of incentives – as well as from being at the heart of a fast-developing country and region.

Zone Operator

The largest operator of industrial zones in the UAE is ZonesCorp, which was established by the Abu Dhabi government in 2004. ZonesCorp runs ICAD and Al Ain Industrial City (AAIC), located some 20 km from Al Ain City. ICAD has a focus on engineering and metals, chemicals and plastics, construction materials, and oil and gas services, as well as high-tech and general industries. AAIC, meanwhile, is on a 10-sq-km site and supports light manufacturing, agricultural processing, construction materials, chemicals and plastics, and advanced technology units.

In addition, ZonesCorp is currently developing Rahayel City, which is focused on the automotive segment. Located on a 6-sq-km site approximately 12 km west of Abu Dhabi City, the project, estimated to cost Dh1bn ($272.2m), was unveiled in April 2019. The project has initially involved companies specialising in vehicle manufacturing, maintenance and servicing, with the eventual goal of establishing a fully integrated automotive cluster.

ZonesCorp also runs 30 fully serviced residential cities for workers, with a total housing capacity of 450,000 people, as well as eight temporary workers’ accommodation units, which have a combined capacity of 30,000 people. These are situated close to the emirate’s industrial zones and include facilities such as supermarkets, mosques, pharmacies, restaurants, entertainment centres and medical clinics.

Ports

Abu Dhabi Ports is another major player in the emirate’s industrial zones and is responsible for KIZAD. This industrial zone is located near Khalifa Port, which lies halfway between Abu Dhabi and Dubai, and was officially inaugurated in late 2012. With an 8-km-long breakwater and serving over 25 shipping lines with direct links to some 70 international destinations, Khalifa Port is the leading port in the emirate and one of the largest in the region.

Since 2016 the port’s industrial zone has contained a free trade zone (FTZ) – KIZAD FTZ – which specialises in trade and logistics. It is home to businesses from a range of emerging industries such as packaging, food processing, pharmaceuticals, spare parts, aluminium, steel and metal products, and health care equipment. As of August 2019 more than Dh70bn ($19.1bn) had been invested in the industrial zone, and by November that year the zone had attracted over 600 investors. Highlights from 2019 included the opening of the KIZAD Polymers Park, which is expected to produce 300,000-400,000 tonnes of plastic products a year, adding $2.5bn to the UAE’s annual GDP. China is a major investor in the KIZAD FTZ, with more than 20 Chinese companies investing over $1.7bn in the zone as of mid-2019. Indeed, KIZAD FTZ now includes a dedicated China-UAE Industrial Capacity Cooperation Demonstration Zone, on a 2.2-sq-km area that can be expanded to 12.2 sq km. Chinese businesses include tyre manufacturer Roadbot, which has announced plans for a tyre manufacturing plant at the site, expected to open in October 2020.

Elsewhere, Abu Dhabi Future Energy Company (Masdar) – a subsidiary of Mubadala Investment Company – was set up by the emirate’s government to run Masdar City, the location of a free zone for clean tech companies as well as a mixed-use urban development with a low carbon footprint. Companies that have located in the free zone so far include Siemens, Lockheed Martin, Honeywell, Emirates Nuclear Energy Corporation, the International Renewable Energy Agency and Rheinmetall.

Meanwhile, Abu Dhabi National Oil Company (ADNOC) runs the Ruwais Industrial Area, which has a petrochemicals and petroleum derivatives focus. The area includes the world’s largest integrated polyolefin complex, run by Abu Dhabi Polymers Company, a joint venture between ADNOC and Austria’s Borealis. At the same time, Etihad Rail is constructing a 139-km railway from Ruwais to the Saudi border, along with a Dh1.87bn ($509m) freight facility at Ruwais to handle the expected traffic. This forms part of Etihad Rail’s plans to link Ruwais with ICAD, KIZAD, Dubai, Sharjah and Fujairah.

In addition to the aforementioned zones, Abu Dhabi Airports Free Zone (ADAFZ), a wholly owned subsidiary of Abu Dhabi Airports Company, is mandated to set up zones around the airports in Abu Dhabi City and Al Ain, and at the Al Bateen Executive Airport. Companies at ADAFZ facilities are mainly concentrated in logistics, aviation maintenance repair and overhaul, and other airline support services. Around Abu Dhabi International Airport it has responsibility for the logistics and business parks, Abu Dhabi Destination Village, the Al Falah Free Zone and Airport City. As of 2019 ADAFZ had issued licences to companies from more than 38 countries and employment visas for roughly 2250 people.

Tawazun Industrial Park, which specialises in defence and aerospace, opened in June 2019. The park was set up by Houbara Defence and Security, a joint venture between Middle East General Enterprises and the UK’s QinetiQ.

Incentive Schemes

The zones offer a range of benefits for foreign investors in particular. First of all, companies in free zones do not require UAE shareholders. Typically, at least 51% of a company operating outside free zones must be Emirati-owned. While July 2019 did see a relaxation of this rule outside the zones for some 122 business activities, the zones offer 100% foreign ownership for a wider range of businesses. Companies in the zones also benefit from exemptions on all types of taxation, and no duties are imposed on imported or exported goods. Moreover, the zones offer one-stop shops, run by the zone operators, which facilitate many aspects of setting up a business, from connecting utilities to issuing visas and permits. This means incorporation in a zone in the emirate is faster than elsewhere in the region, at around two weeks for a company and three weeks for a branch. There are on-site immigration and Customs clearance departments, as well as a variety of workspaces, warehouses, parking and loading facilities. In order to take advantage of these offerings, a company must have an office in the zone and appoint an Abu Dhabi resident as company secretary.

Competitive Costs

With the region becoming more competitive for industrial and free zones, in mid-2019 the government of Abu Dhabi instructed public agencies and corporations to encourage new business by curbing unnecessary costs. This is in line with Abu Dhabi’s Ghadan 21, or Tomorrow 21, economic accelerator programme, under which the government has invested Dh50bn ($13.6bn) in development and incentive packages. This has resulted in lower costs for companies and closer cooperation among the authorities. For example, in August 2019 KIZAD announced that it was waiving the charges for 75% of its services and that the remaining fees and charges would be reduced.

In addition, in January 2020 Masdar and Abu Dhabi Ports signed a memorandum of understanding to collaborate on a framework that would allow investors to expand across the zones operated by the two entities. This agreement dovetails with the government of Abu Dhabi’s broader strategy to reduce overlap and duplication in public services and organisational frameworks (see Economy chapter).

The years ahead will likely see the costs of operating from the emirate’s industrial parks and free zones continue to be shaved as zone authorities seek to keep their offering competitive in a global economic environment that may see sluggish growth exacerbated by the impact of the Covid-19 pandemic. Organisational restructuring may mean the zones move closer to a single, overarching authority, potentially resulting in further benefits for companies looking to operate from this strategic location.