The UAE realizes that the best way to attract foreign investment is to promote trade-friendly policies. International companies setting up in the UAE can obtain significant cost advantages not generally available internationally. The major factors are no foreign exchange controls; no trade barriers or quotas; competitive import duties (usually 5 percent with many exemptions); competitive labor costs — labor force is multi-lingual and skilled; competitive energy, financing and real estate costs; and no corporate profit or personal income taxes (except for oil companies and branches of foreign banks). An estimated 70 percent of UAE's trade passes through the Emirate of Dubai, which has created a favorable environment for inward investment over the past few years. Today, Dubai enjoys a global reputation as a major economic hub for foreign multi-national corporations (MNCs) due to:
- Relative ease of setting up and operating a business
- Large presence of mature free zones enabling easy import and export operations, warehouse storage to hold inventory; and support of a sophisticated customs organization and logistics industry
- Cosmopolitan lifestyle that attracts businesses to set up their regional offices
The largest contributor to trade is the Jebel Ali Free Zone where around 5,500 companies from more than 120 countries currently operate. Exciting new projects in Dubai include the Dubai World Central, a planned residential, commercial and logistics complex adjacent to the Jebel Ali Free Zone and Port. This development will also house Dubai Logistics City, the world's first truly integrated logistics platform, with all transport modes, logistics and value added services, including manufacturing and assembly, in a single bonded and Free Zone environment. In addition, a new international airport is being built to handle annual freight capacity of 12 million tonnes and passenger capacity of more than 120 million.
Tips for Incorporating UAE into your Global Supply Chain
1. Educate key players on export controls — Nearly 25 percent of all goods imported into the UAE are then re-exported to regional markets. This is due to the fact that the UAE continues to be a trade hub where inventory for the region is held and requirements for late market customization and similar needs are met through a mature logistics industry. Do the key supply chain players within your organization understand that your company could face high fines or penalties if goods are re-exported to countries or individuals that appear on international restricted party lists? In the United States, fines have now reached the $100 million mark for companies found to be violating export regulations unintentionally or otherwise.
- Action: Consider hiring an outside trade expert to conduct an export compliance awareness session. Anyone within your organization involved in making decisions that have an impact on with whom the company does business or where goods are being sent should attend. This could include compliance managers, sales/export managers, logistics/supply chain managers, and financial managers. Senior management should also consider attending as they could be deemed legally responsible for the trading activities of their company.
2. Stay current with regional trade regulations — It is often challenging for companies to stay up-to-date on regional trade challenges, trends and regulations. According to a leading automotive component manufacturer with significant presence in the Middle East, their head office in the U.S. does distribute updates on trade regulations, but these updates have no relationship or connection to trade in the Middle East region.
- Action: Does your company have real-world insight into actual Middle East trade challenges and how other companies are addressing these issues? If not, your company is probably not competitive in the region.
3. Leverage Free Trade Agreements — The Gulf Cooperation Council (GCC) is an economic and political policy-coordinating forum for the six-member states, including the United Arab Emirates, Bahrain, Kuwait, Oman, Qatar and Saudi Arabia. The UAE, as part of the GCC, is currently pursuing FTAs with the EU, Australia, New Zealand and Japan. The GCC continues negotiations with China, India and other nations. The United States is the only country with which the UAE is currently negotiating a bi-lateral FTA — a separate agreement that does not include the other GCC states. According to Adrian Gonzalez, director, Logistics Executive Council, ARC Advisory Group: "The complexity associated with understanding and leveraging Free Trade Agreements is beyond the scope of many companies because they either lack the expertise, resources, technology or all of the above to do it efficiently and cost-effectively. Many companies eventually come to a decision point: either invest internally or outsource to a trade expert."