A Political Economy of Free Zones in Gulf Arab States (International Political Economy Series) [1st ed. 2021] 3030712737, 9783030712730

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INTERNATIONAL POLITICAL ECONOMY SERIES SERIES EDITOR: TIMOTHY M. SHAW

A Political Economy of Free Zones in Gulf Arab States Robert Mogielnicki

International Political Economy Series

Series Editor Timothy M. Shaw , University of Massachusetts Boston, Boston, USA; Emeritus Professor, University of London, London, UK

The global political economy is in flux as a series of cumulative crises impacts its organization and governance. The IPE series has tracked its development in both analysis and structure over the last three decades. It has always had a concentration on the global South. Now the South increasingly challenges the North as the centre of development, also reflected in a growing number of submissions and publications on indebted Eurozone economies in Southern Europe. An indispensable resource for scholars and researchers, the series examines a variety of capitalisms and connections by focusing on emerging economies, companies and sectors, debates and policies. It informs diverse policy communities as the established trans-Atlantic North declines and ‘the rest’, especially the BRICS, rise. NOW INDEXED ON SCOPUS!

More information about this series at http://www.palgrave.com/gp/series/13996

Robert Mogielnicki

A Political Economy of Free Zones in Gulf Arab States

Robert Mogielnicki Arab Gulf States Institute Washington, DC, USA

ISSN 2662-2483 ISSN 2662-2491 (electronic) International Political Economy Series ISBN 978-3-030-71273-0 ISBN 978-3-030-71274-7 (eBook) https://doi.org/10.1007/978-3-030-71274-7 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

This monograph is dedicated to Joan Barry & Jack Mogielnicki

Acknowledgments

Any multiyear intellectual undertaking involves many more people than can be acknowledged appropriately at its eventual conclusion. What follows is a brief and admittedly incomplete list of knowing and unknowing supporters. Beyond serving as a wonderful academic supervisor, Dr. Philip Robins was involved in this journey through the Gulf’s free zone system from its beginning, when free zones proved a vexing variable during my early graduate studies at the University of Oxford. I have benefited enormously from his steady guidance. My partner, Grace, offered wise advice garnered from her publishing experience as well as consistent support. My family—Jack, Dave, and Dan—provided necessary distractions from the research and writing process. Anne, Yousri, Kevin, and others served as good friends along the way. Last-minute, holiday editing from Mary at AGSIW helped to ensure the timely delivery of the manuscript draft. The strongest elements of this work are a reflection of these personal influences.

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Contents

1

2

3

Mapping Free Zones in the Gulf: Trends and Dislocations Links in the Global Capital Accumulation Circuit The Internationalization of Gulf Economies Academic Foundations for Free Zones Commercialized Rents: A Theoretical Contribution Structure of the Monograph References

1 6 8 11 12 16 18

Regulating Free Zones: A History of Ownership, Labor, and Fees Pearls, Hydrocarbons, and Non-Oil Industries Foreign Ownership Expatriate Labor Customs Duties and Other Fees References

23 25 28 33 37 42

The Dubai Model and UAE Free Zones Early Emergence and Dominance of Dubai’s Free Zones Tracing Free Zone Development in Abu Dhabi The Northern Emirates Sharjah Ajman & Umm al Quwain Ras al Khaimah

49 50 58 69 71 72 75

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CONTENTS

Fujairah References 4

77 81

Free Zones in Oman, Saudi Arabia, Bahrain, Qatar, and Kuwait Omani Free Zones Saudi Free Zones Bahraini Free Zones Qatari Free Zones Kuwaiti Free Zones References

89 90 99 109 117 121 125

5

Elite Embeddedness in Free Zone Development Gulf Ruling Families and Free Zone Ownership Elite Balancing: Mixing Business and Politics Other Institutional Mechanisms of Elite Control References

133 134 146 153 158

6

Free Zones as Spheres of Regional Contestation Inter-Emirate Competition in the UAE The Competitive Regionalization of Gulf Capital Ramifications of the 2017 Rift with Qatar Gateways for Iranian Influence in the Gulf? References

165 166 175 181 184 189

7

A Commercial Nexus Between East and West Buying Asian Partners in Bulk Brand Recognition of American and European Firms Border Zones: Iraq and Yemen Other Regional Actors: Turkey, Egypt, & Israel References

199 200 207 210 213 218

8

The Fraught Future of Free Zones in Gulf Arab States Ongoing Free Zone Development Economic Diversification & Reform Agendas Rentierism Revisited Moving Beyond the Gulf References

227 228 230 235 238 239

List of Free Zones

243

Index

255

About the Author

Dr. Robert Mogielnicki is a Resident Scholar at the Arab Gulf States Institute in Washington. He previously worked as a human resource development consultant and in journalism across the Middle East and North Africa, and he holds a D.Phil from the University of Oxford. His published work has appeared in Foreign Policy, The Banker, World Politics Review, Cairo Review of Global Affairs, and Axios. Dr. Mogielnicki regularly provides commentary for international media outlets, including: Bloomberg, Forbes, The Wall Street Journal, Financial Times, Reuters, HuffPost, Nature, BBC World News TV , VOX , Voice of America, Washington Post, Los Angeles Times, AFP, Nikkei Asian Review, and S&P Global. Dr. Mogielnicki received his D.Phil from the University of Oxford’s Magdalen College, where he conducted research in conjunction with the Oriental Institute and Middle East Centre. Drawing on extensive fieldwork in the United Arab Emirates, Oman, Qatar, Bahrain, and Kuwait, his doctoral dissertation examined the political economy of free zones in Gulf Cooperation Council countries. He earned his M.A. in modern Middle Eastern studies from St Antony’s College, University of Oxford, and completed a master’s thesis on labor policy formulation and implementation in the emirates of Abu Dhabi and Dubai. He received his B.A. from Georgetown University as a double major in Arabic and government, graduating magna cum laude and Phi Beta Kappa.

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ABOUT THE AUTHOR

Dr. Mogielnicki specializes in the intersection of politics and economics across Gulf Arab states. He is particularly interested in how these geostrategic states engage in processes of economic transformation through trade and investment policies, labor market interventions, economic diversification, and technological innovation. He created and leads a long-term research initiative, “Next Gen Gulf,” that explores how the latest trends in technology are shaping the economies and governments of Gulf Arab states. He speaks Modern Standard Arabic and the Egyptian dialect and possesses a working knowledge of the Tunisian dialect. He is a former recipient of the Sultan Qaboos Arabic Language Scholarship (2007– 2011) and served as a Critical Language Scholar in Tunisia in 2011. Dr. Mogielnicki has lived in the United Arab Emirates, Egypt, Tunisia, Morocco, Turkey, Jerusalem, the United Kingdom, and a number of European countries. He currently resides in Arlington, Virginia, with his partner and an energetic golden retriever.

Abbreviations

ABRFZ ADAFZ ADGM ADNOC ADPC AFZ BIA BIIP BIW BLZ BRI DAZ DBRZ DHCC DIAC DIC DIFC DLD DMC DMCC DTMFZ DUBAL DWC EC EDB EGA

Ahmed Bin Rashid Free Zone Abu Dhabi Airport Free Zone Abu Dhabi Global Market Abu Dhabi National Oil Company Abu Dhabi Ports Company Ajman Free Zone Bahrain International Airport Bahrain International Investment Park Bahrain Investment Wharf Bahrain Logistics Zone Belt and Road Initiative Dubai Auto City Dammam Bonded and Re-Export Zone Dubai Healthcare City Dubai International Academic City Dubai Internet City Dubai International Financial Centre Dubai Land Department Dubai Media City Dubai Multi Commodities Centre Dubai Technology and Media Free Zone Dubai Aluminum Dubai World Central Economic City Bahrain Economic Development Board Emirates Global Aluminium xiii

xiv

ABBREVIATIONS

EPZ EZ EZW FDI FEWA FFZ FTA FTZ FZ GAFTA GCC HFZ IHC IPIC JAZFA JV KBSP KFTZ KIZAD KOM LNG MACNA NREC OBU OPAZ PCFC PEIE QFC QFZA QIZ QSTP RAK RAK FTZ RAKIA RST SAGIA SAIF Zone SCAD SDRS SEZ SEZAD SFZ SIPC

Export Processing Zone Economic Zone Economic Zones World Foreign Direct Investment Federal Electricity and Water Authority Fujairah Free Zone Free Trade Agreement Free Trade Zone Free Zone Greater Arab Free Trade Area Gulf Cooperation Council Hamriyah Free Zone International Humanitarian City International Petroleum Investment Company of Abu Dhabi Jebel Ali Free Zone Authority Joint Venture Khalifa Bin Salman Port Kuwait Free Trade Zone Khalifa Industrial Zone Abu Dhabi Knowledge Oasis Muscat Liquified Natural Gas Maritime Company for Navigation National Real Estate Company Offshore Banking Units Public Authority for Special Economic Zones and Free Zones Ports, Customs, and Free Zone Corporation Public Establishment for Industrial Estates Qatar Financial Centre Qatar Free Zone Authority Qualifying Industrial Zone Qatar Science and Technology Park Ras Al Khaimah Ras Al Khaimah Free Trade Zone Ras Al Khaimah Investment Authority Rentier State Theory Saudi Arabian General Investment Authority Sharjah International Airport Free Zone Statistics Centre Abu Dhabi Saudi Development and Re-Export Services Company Special Economic Zone Special Economic Zones Authority in Duqm Salalah Free Zone Sohar Industrial Port Company

ABBREVIATIONS

SISCO SOE Tameer TANMIA TECOM Texmas UAQ FTZ VAT World FZO WTO

Saudi Industrial Services Company State-Owned Enterprise Al Khaleej Development Company Oman National Investments Development Company Dubai Technology and Media Free Zone Authority Textile Merchants Group Umm Al Quwain Free Trade Zone Value-Added Tax World Free Zones Organization World Trade Organization

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List of Figures

Fig. 2.1 Fig. Fig. Fig. Fig.

3.1 3.2 3.3 3.4

Fig. Fig. Fig. Fig. Fig.

3.5 3.6 3.7 3.8 4.1

Fig. 4.2 Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. 6.1 Fig. 7.1

Table of employment figures in select free zones in Dubai (2016) Snapshot of JAFZA’s economic contribution (2016) Graph of operating free zones in Dubai Graph of free zone creation in Abu Dhabi Graph of free zone development in the GCC & adjusted oil prices Box and whisker plot of free zones in the northern emirates Graph of Ajman Free Zone firm registrations (2010–2015) Table of selected Ras Al Khaimah free zone Figs. (2016) Table of Fujairah’s overall free zone trade Table of Omanization requirements in Omani free zones (2016) Table of the value of Saudi Arabia’s imported goods and services Table of the global distribution of public and private free zones Author’s own image of the traditional Gold Souq and the Gold and Diamond Park in Dubai Diagram of organizational hierarchy of free zones in Dubai (2016) Author’s own image of a deserted RAK Media Free Zone, August 15, 2016 Graph of Qatar Financial Center firms by geographical origin

36 53 54 59 65 70 74 76 77 96 102 142 154 156 170 208

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List of Interviews

The author personally conducted all interviews and kept them strictly confidential; however, professional affiliations and interview locations provide background and context for the interview subjects. General references to “staff members” resulted from the evolution of a system that balances accessibility against confidentiality. Interview 1. Director of a defense consultancy. Dubai. July 14, 2014. Interview 2. Former head of HR for a major UAE bank. Dubai. July 30, 2014. Interview 3. HR consultant in oil and gas sector. Dubai. July 30, 2014. Interview 4. Former advisor in Dubai’s Executive Office. Dubai. August 6, 2014. Interview 5. Head of HR for a UAE financial authority. Dubai. August 7, 2014. Interview 6. Vice chairman of major real estate company. Abu Dhabi. August 7, 2014. Interview 7. Regional director of a graduate business school. Dubai. August 14, 2014. Interview 8. Project manager from an economic think tank. Dubai. August 14, 2014. Interview 9. Consultant specializing in Saudization for major HR consultancy. Dubai. August 19, 2014. Interview 10. Manager of major Dubai bank. Dubai. August 19, 2014. Interview 11. Director of HR for a major UAE hotel group. Oxford. October 9, 2014. Interview 12. Owner of a consultancy specializing in Emiratization. Oxford. October 30, 2014. Interview 13. A member of one of the Emirati royal families. Oxford. November 4, 2014. xix

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LIST OF INTERVIEWS

Interview 14. Singaporean diplomat specializing in GCC youth issues. Oxford. November 25, 2014. Interview 15. Vice president of HR for an oil and gas company in Abu Dhabi. December 5, 2014. Interview 16. Former UK Ambassador to the UAE. Oxford. December 12, 2014. Interview 17. Owner of British consulting firm registered in Abu Dhabi’s Masdar Free Zone. Dubai. March 24, 2016. Interview 18. Senior member of marketing team from a major Dubai free zone. Dubai. March 24, 2016. Interview 19. Emirati manager at Jebel Ali Free Zone. Dubai. March 31, 2016. Interview 20. Director of Dubai Silicon Oasis. Dubai. April 3, 2016. Interview 21. Program head at Hamriyah Free Zone. Sharjah, UAE. April 12, 2016. Interview 22. British owner of consulting firm registered in Abu Dhabi’s Masdar Free Zone. Abu Dhabi. April 14, 2016. Interview 23. Manager at Masdar Free Zone. Abu Dhabi. April 14, 2016. Interview 24. Senior corporate manager of Fujairah Free Zone. Fujairah, UAE. April 18, 2016. Interview 25. Sales representative of Creative City. Fujairah, UAE. April 18, 2016. Interview 26. Director at Bahrain Center for Strategic, International and Energy Studies (Derasat). Awali, Bahrain. April 26, 2016. Interview 27. Consultant for Bahrain International Investment Park. Hidd, Bahrain. April 27, 2016. Interview 28. Economic officer at the Economic Development Board. Manama, Bahrain. April 27, 2016. Interview 29. Partner at Dubai-based law firm. Dubai, UAE. May 11, 2016. Interview 30. Managing director of an economic zones consultancy and secretary general of a global EPZ association. Remote call from Dubai. May 11, 2016. Interview 31. Manager at Gold and Diamond Park. Dubai, UAE. May 15, 2016. Interview 32. Manager at Sohar Freezone office in Dubai. Dubai, UAE. May 19, 2016. Interview 33. Managing director of an economic zones services company sponsored by TECOM. Dubai, UAE. May 23, 2016. Interview 34. Partner at UK training company based in Abu Dhabi but registered to RAK Free Zone. Remote conversation fromDubai, UAE. May 28, 2016. Interview 35. Former consultant at JAFZA and managing director of consultancy focusing on special economic zones. Dubai, UAE. May 31, 2016. Interview 36. Manager of Sohar Port and Freezone. Sohar, Oman. June 6, 2016. Interview 37. Business editor at Omani daily newspaper. Muscat, Oman. June 7, 2016. Interview 38. Public service department officer of Duqm Special Economic Zone. Duqm, Oman. June 8, 2016. [Arabic]

LIST OF INTERVIEWS

xxi

Interview 39. Staff member at Salalah Free Zone. Salalah, Oman. June 9, 2016. Interview 40. Senior industrial estate and free zone manager. Salalah, Oman. June 9, 2016. Interview 41. Staff member from Duqm Special Economic Zone. Muscat, Oman. June 12, 2016. Interview 42. Director from the Public Establishment for Industrial Estates. Knowledge Oasis Muscat, Oman. June 12, 2016. Interview 43. President of the National Association of Foreign-Trade Zones. Washington, DC. June 17, 2016. Interview 44. Analyst at International Trade Department, World Bank. Washington, DC. June 20, 2016. Interview 45. Manager at USA Regional Trade Centre. Sharjah, UAE. July 21, 2016. Interview 46. Manager at Economic Zones World. Remote conversation from Dubai, UAE. July 23, 2016. Interview 47. Consultant at Khalifa Industrial Zone Abu Dhabi (KIZAD). Abu Dhabi, UAE. July 24, 2016. Interview 48. Senior manager at Abu Dhabi Global Market. Abu Dhabi, UAE. July 24, 2016. Interview 49. Business journalist at Thomson Reuters. Abu Dhabi, UAE. July 24, 2016. Interview 50. Manager at Dubai Design District. Dubai, UAE. July 25, 2016. Interview 51. Manager at Dubai International Academic City. Dubai, UAE. July 25, 2016. Interview 52. Senior corporate manager of Dubai Healthcare City combined with remote interview question responses. Dubai, UAE. July 26, 2016. Interview 53. Manager of Bahrain International Investment Park. Remote conversation in Dubai, UAE. July 26, 2016. Interview 54. Senior Corporate Manager of World Free Zones Organization. Dubai, UAE. August 1, 2016. Interview 55. A director from Hamriyah Free Zone. Sharjah, UAE. August 11, 2016. [Arabic] Interview 56. Staff member at Ajman Free Zone. Ajman, UAE. August 11, 2016. Interview 57. Staff member at Sharjah International Airport Free Zone. Sharjah, UAE. August 11, 2016. Interview 58. Manager at Ras Al Khaimah Investment Authority (RAKIA). Ras Al Khaimah, UAE. August 14, 2016. Interview 59. Source closely associated with RAK Maritime City. Remote conversation in Dubai, UAE. August 16, 2016. Interview 60. Senior manager at Dubai Auto Zone. Ras Al Khor, Dubai, UAE. August 18, 2016. Interview 61. Staff member at Manateq. Doha, Qatar. August 21, 2016

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LIST OF INTERVIEWS

Interview 62. Manager at Qatar Science and Technology Park. Doha, Qatar. August 21, 2016 Interview 63. Director at Qatar Financial Centre. Doha, Qatar. August 21, 2016 Interview 64. Manager at Um Alhoul Special Economic Zone. Um Alhoul Site, Doha, Qatar. August 22, 2016. Interview 65. Business editor at The Peninsula newspaper. Doha, Qatar. August 22, 2016. Interview 66. Director at Bahrain Investment Wharf. Hidd, Bahrain. August 23, 2016. Interview 67. Senior corporate manager at Bahrain Logistics Zone. Hidd, Bahrain. August 23, 2016. Interview 68. Business editor at Gulf Daily News. Manama, Bahrain. August 24, 2016. Interview 69. Staff at Bahrain Business Incubator Centre. Hidd, Bahrain. August 23, 2016. Interview 70. Senior free trade zone official, Ministry of Commerce and Industry. Kuwait City, Kuwait. August 25, 2016. [Arabic] Interview 71. Head of major Kuwaiti newspaper. Kuwait City, Kuwait. August 25, 2016. Interview 72. Economic specialist, U.S. Embassy Kuwait. Remote conversation from Jerusalem. September 6, 2016. Interview 73. Commercial service officer, U.S. Embassy in Doha, Qatar. Remote conversation from Jerusalem. September 21, 2016. Interview 74. Head of business and trade Council on Saudi Arabia. Remote conversation from Oxford. November 21, 2016. Interview 75. Former U.S. Ambassador to Bahrain. Washington, D.C. January 17, 2018. Interview 76. Senior U.S. trade official responsible for the Middle East and North Africa. Washington, D.C. January 29, 2018. Interview 77. Dubai-based sanctions investigator for financial crime compliance department of a European bank. Remote conversation from Washington, D.C. February 15, 2018.

CHAPTER 1

Mapping Free Zones in the Gulf: Trends and Dislocations

As the first book-length empirical study of free zones in Gulf Cooperation Council (GCC) countries, this volume systematically illustrates the development processes behind free zones in Gulf Arab states and assesses the impact of these commercial entities on regional integration, global trade and investment trends, and the foreign relations of Gulf countries. The work maps how economic strategies involving free zones evolve alongside varying levels of resource availability and state capacity on a local level. In the process, the work reveals how development paths are impacted by regional and global accumulation circuits and the ensuing linkages to Gulf Arab states. Free zones reflect the past: These trade and investment hubs are products of long-run historical processes and shaped by both economic and political institutions. At the same time, free zones offer a glimpse into the future, insomuch as these commercial entities facilitate the accumulation of global capital. Yet free zone development is an under-examined topic in the broader literature on the Gulf. The empirical findings and theoretical implications of the work therefore provide an original contribution to prevailing political economy discussions concerning the Gulf region. The dearth of political economy scholarship on Gulf free zones contrasts with the substantial degree of political and economic capital invested in these initiatives. Governments in resource-scarce GCC polities have long promoted free zones as essential components of economic © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_1

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diversification strategies. Since the early 1980s, Dubai’s free zone development strategy, which is best symbolized by the emirate’s flagship Jebel Ali Free Zone, has been considered a regional model for promoting nonoil growth. Jebel Ali Free Zone accounted for more than one-third of Dubai’s gross domestic product (GDP) in 2018, and the free zone was responsible for 10.7% of the GDP of the entire United Arab Emirates (UAE) that year (Nandkeolyar 2020). The northern emirates of the UAE and Oman likewise contain robust free zone systems that play essential roles in stimulating economic activities, generating government revenue, and attracting foreign direct investment. Resource-abundant polities in the Gulf have also embarked, albeit more recently, on major free zone development initiatives. Government officials in Abu Dhabi claim that the emirate’s Khalifa Industrial Zone will include the largest free trade zone in the Middle East and North Africa, owing in large part to significant Chinese investment pledges. Qatari officials tout the technological capabilities of its new free zones connected to the small country’s primary port and airport. Neom in Saudi Arabia and Silk City (Medinat al-Harir) in Kuwait both incorporate free zone characteristics into long-term projects. Neom is as a central pillar of the ambitious economic transformation programs spearheaded by Saudi Crown Prince Mohammed bin Salman, whereas Silk City has struggled to move beyond the conceptual stage. Whether part of established or nascent free zone projects, these entities continue to function as salient features of the Gulf Arab region’s political economy. Regional governments utilize free zones to encourage the development of specialized industries, such as e-commerce and e-sports in Dubai, or to support strategic visions and high-priority national development projects, like the Red Sea development projects on Saudi Arabia’s western coast. The coronavirus pandemic and the oil price rout of early 2020 highlighted ongoing efforts by Gulf Arab states to diversify public sector revenues away from hydrocarbon proceeds and to promote sustainable, non-oil growth. Facing fiscal constraints and an uncertain energy landscape, Gulf governments will increasingly look toward free zones as sources of non-oil revenue and means for enabling greater private sector involvement in their economies. More—not less—will be demanded of these entities during the challenging economic times ahead. Free zones facilitate local, regional, and international investments into Gulf Arab economies, thereby making them primary commercial vehicles for deepening international partnerships. While boosting inward foreign

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direct investments and non-oil trade aligns with long-term economic objectives, these elements are also crucial ingredients for recoveries from sharp economic downturns, as witnessed in 2008, 2014–2015, and 2020. Modest recoveries in oil and gas prices followed the earlier of these economic shocks, but a similar scenario after 2020 is not assured. Gulf policymakers need free zones to not only support economic recovery efforts but also help project robust economies alongside high-profile international events taking place in the Gulf: the 2020 G-20 summit in Riyadh, the 2021 Expo in Dubai, and the 2022 FIFA World Cup in Doha. During the virtual G-20 summit hosted by Saudi Arabia in November 2020, the country’s Minister of Investment announced plans to launch new special economic zones intended to boost low levels of foreign investment. Yet not all free zones are created equal. Free zones systems in GCC countries reveal substantial variation in the timing, scale, and scope of development between the early 1980s and 2020. This variance is at odds with the relative homogeneity of GCC economies—notably the overreliance on hydrocarbon resources for government revenues. Much of the existing academic literature on free zones examines these initiatives purely through an economic lens but ignores regional nuances and structural factors in the Gulf. Such an approach does not lend to answering crucial political economy questions: Who are the winners and losers of free zone development? What is the relationship between free zones and institutional reform? This monograph argues that GCC governments and other actors utilize free zones as political, and not merely economic, instruments. Actors in both resource-scarce and resource-abundant territories across the region have employed free zones to generate new rent streams, encourage rent-seeking behavior, and accomplish other political objectives. Even economic dimensions of Gulf free zones are highly intertwined with the region’s politics. The political instrumentalization—both domestically and internationally—of these economic mechanisms is critical for understanding free zone development outcomes in the Gulf region as well as broader implications for the global economy. A closer study of free zone regulations, ownership structures, state-business relations, and multinational linkages across systems in each of the Gulf Arab states, therefore, can enrich our understanding of the forces underlying economic processes in the Gulf and beyond.

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The argument advanced in this monograph possesses practical and theoretical applications. On a practical level, Gulf free zones are a vital component of the global capital accumulation circuit. Yet the specific trajectories of free zone development depend upon domestic, regional, and international factors, which can constrain or encourage free zone proliferation as well as shape free zone policies in a given territory. The monograph develops a broader methodological framework for researchers seeking to unpack both the political economy of similar commercial entities in the Gulf and free zones in other countries and regions. On a theoretical level, free zones function as a form of rent distribution to connected business elites and are thus integral to the political strategies and power of Gulf ruling families. The research employs a qualified version of rentier state theory (RST) and, in doing so, introduces a new conceptual categorization of rents associated with free zones—described in this work as commercialized rents. The concept builds upon existing scholarly applications of RST in the Gulf by revealing previously unexplored rentier structures and the embeddedness of local and international elites in nonhydrocarbon development processes. The author’s prior D.Phil research conducted at the University of Oxford between 2015 and 2018 resulted in the first comprehensive political economy mapping of the Gulf’s free zone system. A subsequent D.Phil dissertation framed free zone development cases along three analytical dimensions: hydrocarbon dynamics, elite relationships, and global competition. Field visits to 44 of the approximately 50 free zones observed in the dissertation, 77 interviews with government and business officials associated with free zone development, and an extensive collection of primary source materials generated the data for this doctoral study. The systematic examination of the free zone sub-system in each GCC state provided an important foundational study of free zone development across the region. This monograph moves beyond a country-by-country case structure and instead delves into timely thematic discussions intended to expand the practical applications and deepen the theoretical reflections. The primary objective of this monograph is to shed light on Gulf free zone development and its consequences in a manner that is accessible to a wide audience. As a result, concise language takes precedence over dense academic jargon. Any omission of tangential research studies does not necessarily mean that these works were not consulted and considered but more likely did not sufficiently advance the narrative to warrant their inclusion.

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With estimates of the number of free zones across the globe ranging from 3,000 to 3,500 entities (Akinci and Crittle 2008, 7; Neveling 2015, 1007; Hakimian 2011, 853), careful consideration of terminology and definitions is essential for any work focusing on free zones. There are various terms and tabulations relating to the free zone concept and its various manifestations over time and across geographies. The World Bank prefers to use special economic zones (SEZs) as an umbrella term, while much of the global literature on the topic cites the traditional term free trade zone (FTZ). Free zones (FZs), economic zones (EZs), export processing zones (EPZs), and foreign-trade zones (FTZs) are other common appellations used globally. The precise shape of these entities and the details of their operations depend more on local context and less on nomenclature norms. This monograph therefore employs the term free zone for two reasons. First, the term demonstrates a particularly high usage in GCC countries and therefore is both representative and accurate for a Gulf-specific study. The term’s equivalent in Arabic, al-mant.aqa al-h.urra, proved to be the most common appellation in Arabic discussions, Arabic media, and formal Arabic reports.1 Second, the term free zone helps avoid potential conflation with regional free trade agreements (FTAs), such as the Greater Arab Free Trade Area, or bilateral FTAs akin to the one between Oman and the United States. These agreements establish trading blocs that are commonly—and confusingly—known as free trade zones. Since FTAs and their consequent free trade zones feature in the forthcoming chapters, it is important to minimize potential misunderstandings of terminology relating to the key term of analysis. In addition to consistent terminology, a study of free zones requires a working definition for the concept. Free zones can be broadly defined as demarcated geographic areas contained within a territory’s national boundaries where the rules of business are different from those that prevail in the national territory (Farole 2011, 23). The relative economic autonomy of individual emirates within the UAE, an integral country case when examining Gulf free zones, suggests that these entities are better defined within autonomous territories rather than national boundaries by default. More specifically, free zones in GCC countries differ from their onshore counterparts in three crucial areas: permitting full foreign 1 The Arabic plural form for free zones is al-man¯ a.tiq al-h.urra. In some cases, textual sources use al-man¯ a.tiq al-iqtis.¯ adiyya, which translates to economic zones.

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ownership of commercial entities, offering reduced workforce nationalization requirements, and providing duty and tax exemptions. The free zones observed in this monograph demonstrated at least two of the three aforementioned characteristics. It is important to note that other Gulf economic zones, like industrial zones and industrial estates (IEs), do not differ substantially from the rules regulating onshore commercial activity in their territories. While not considered free zones in this analysis, the development trajectories and roles of these entities occasionally overlap with free zones and are therefore considered in the following pages.

Links in the Global Capital Accumulation Circuit GCC governments began establishing free zones in the late twentieth century, although the free zone concept emerged much earlier and is not exclusive to the Gulf region. Early free zone concepts existed in ancient Phoenicia, Greek city-states, the Roman Empire, and European ports (Tiefenbrun 2012, 5), but Patrick Neveling (2015, 1010) contends that Puerto Rico opened the first modern free zone in 1947. The Shannon Free Zone in Ireland, created in 1959, was a model for early free zone development in Shenzhen, China, during the 1980s (Kennard and Provost 2016). Within the Middle East, Aden operated as a free port under British colonial rule from 1853 until 1970 (Holt 2004, 94), and British diplomats described Beirut’s free zone as a haven for gold smuggling (“Gold Smuggling” 1949; Stewart 1961, 48). In 1970, a socialist government in South Yemen designated Aden as a free zone (Khalili 2020, 112). Jordan, Egypt, Syria, and Israel adopted free zones during the 1970s to utilize strategic ports and waterways (Akinci and Crittle 2008, 28). The ruler of Dubai laid the foundation for the Gulf’s mostrecognizable free zone by constructing the Jebel Ali Port in 1980, and a free zone officially opened in 1985 to facilitate the warehousing and storage of shipments entering the port. Governments have long leveraged these free zones to accomplish international strategic and commercial objectives. The early Greek and Roman examples of free zone-like entities functioned as “launching pads for political and economic domination” (Tiefenbrun 2012, 5), while in 1919 an international delegation designated the German ports of Hamburg and Stettin as “free zones” for 99 years to ensure adequate international oversight of key ports following World War I (Commission on the International Regime of Ports 1919, Article 21). The international

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airport in Shannon, Ireland, which hosts the Shannon Free Zone, was a collaborative initiative by the governments of the United States, Canada, and Britain (“Shan-Zhen” 2016). Shannon’s strategic geographic and commercial location provided a convenient entry point for multinationals seeking to enter European markets. Since 2001, the United States has used Shannon Airport for its military planes transporting troops to Iraq and Afghanistan. Free zone development was not only a western phenomenon. China established four SEZs in 1979 to increase foreign participation in industrialization programs without causing major disruptions to the existing economic, political, and social systems (Wei 2000, 203). Jiang Zemin, the Chinese senior vice minister of the State Imports and Exports Administration, visited Shannon in 1980 to study its relationship to regional economic initiatives before reproducing a similar free zone in Shenzhen. Over twenty years, the Shenzhen SEZ transformed a small area with 20,000 people and a total industrial output of $10,000 into a major city housing 3.5 million people with a per capita GDP of $4,000 (ibid., 202). The perceived success of Chinese SEZs prompted neighboring India to rapidly expand the scale of export zones and SEZs in the country—India had created its first export processing zone by 1964 (Seshadri 2011, 8– 11). The Asia and Pacific region hosts the largest number of free zones worldwide, with 991 of the 2,301 zones found globally, according to a 2008 World Bank study (Akinci and Crittle 2008, 18). Global governments portray free zones as solutions to a broad array of economic challenges. Then British member of parliament Rishi Sunak— and later Chancellor of the Exchequer—suggested free ports as a method of boosting manufacturing output, trade, and employment in a postBrexit United Kingdom (Sunak 2016, 4). The Iranian secretary for the High Council of Free Zones contrasted high employment rates in free zones with lower rates in other, traditional spheres of the economy (“Unemployment Lowest” 2018). In other instances, these zones can be problematic. An Organisation for Economic Co-operation and Development (OECD) report found that the introduction of one new export processing zone—one type of free zone—into an economy increased counterfeiting by 5.9% on average (OECD 2018, 73). Limited labor regulation within free zones can result in unfavorable working conditions (Bolle and Williams 2013; Liberato and Fennell 2007, 396). Moreover, a multitude of free zones with independent regulatory authorities can make

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a location an attractive destination for illicit financial flows (Kumar 2020, 24–25). The nexus between free zone development and international political economy is apparent in the Gulf Arab region. In the late 1930s, the British viewed the idea of an Iraqi free zone in Kuwait as a viable foreign policy option and even contemplated funding the project with the caveat that any expenses would be “recovered from them through dues etc. in the ordinary course of business” (“British Policy in Kuwait” 1938, 74r). Donald Hawley, a British political agent during the 1950s, helped design Dubai’s real estate ownership regulations and served on the Port Committee, which established the physical and regulatory foundations for the free zone at Jebel Ali (Al-Gurg 1998, 79). More recently, U.S. government officials fretted over the potential for various forms of illicit activities—counterfeiting, arms smuggling, or the transfer of technology for weapons of mass destruction—to take place under the cover of GCC free zones. China’s nebulous Belt and Road Initiative (BRI) involves a complex web of memorandums of understanding, investment pledges, and actual projects within free zones across the Middle East and Africa.

The Internationalization of Gulf Economies The dynamic interplay of international interests and Gulf free zone development took place alongside several concurrent transformations that deepened the internationalized nature of Gulf economies. Yet change did not happen overnight. “The huge variation we see in the world today in both economic and political outcomes is the result of longrun historical processes,” explain Acemoglu and Robinson (2009, 1). The transformative impact of the pearling and hydrocarbon industries on Gulf economies, societies, and politics is well documented. European, American, and Asian powers further pushed the region’s integration into the world economy in new directions. Free zones played a key role in facilitating economic engagement with global actors across nonhydrocarbon industries. Prominent local actors in Gulf Arab territories also deserve credit for the gradual, if not always smooth, processes of integration into an increasingly globalized world economy. What follows is a brief elaboration of significant transformations that paved the way for and overlapped with free zone development, while Chapter 2 details how free zone regulatory regimes are connected to political and economic institutions.

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Gulf Arab territories exploited shifting trading centers and capital flows, owing to colonial dynamics, civil wars, sanctions, and the recycling of petro-dollars. New man-made waterways, like the Suez Canal in 1969, reduced the maritime distance between European and Asian markets and increased the significance of Middle Eastern ports. Bahrain’s reputation as a financial hub grew substantially after the 1975 outbreak of Lebanon’s civil war, which sparked an outflow of investments toward more stable financial hubs. The Iran-Iraq War during the 1980s shifted port activity in the northern Gulf to safer hubs in southern Gulf states. Thus, it was unsurprising that Jebel Ali has been one of the U.S. Navy’s most frequented ports outside of the United States since the 1990s (Ramos 2010, 128). GCC countries also acted as veritable capitalists on the global stage: Kuwait was the largest single foreign holder of British sterling in 1967 (Fain 2008, 3), affirming Adam Hanieh’s (2011, vii) assertion that Gulf countries are more complex entities than “simply monarchies that sit atop an oil spigot.” Decision makers in Gulf territories did not simply wait for favorable trade and investment winds to present new opportunities. Rulers and merchants oversaw the construction of trade, logistics, and transportation infrastructure that helped Gulf Arab territories better exploit changes to the international economic and geopolitical order. Dredging shallow channels and building deep-water ports increased the maritime capacity of Gulf Arab ports, cultivating fertile environments for future free zones. According to Laleh Khalili (2020, 7), the “plans to build harbours are rarely about objective or neutral calculations of cost,” and free zones are “crucial in creating the pulsating economic macroorganisms that port systems are today.” The rise of commercial aviation as an integral element of international commerce helped newly-created Gulf airports and national airlines thrive. The later development of expansive air transportation sectors and related industries, such as tourism and hospitality, enhanced economic growth and attracted new visitors. Expansive road networks and new highways ensured that people and goods could move efficiently within and across countries or—in the case of the UAE—around the Strait of Hormuz. The political parameters delineating Gulf territories, and simultaneously shaping their engagement with the rest of the world, also changed throughout the twentieth century. The January 1968 announcement of Britain’s departure from the Gulf by 1971—part of the “East of the Suez” departure plan—encouraged many remaining protectorates in the

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Gulf to become independent countries. Following the Islamic Revolution in Iran and the outbreak of the Iran-Iraq War, the newly independent Gulf Arab states revisited the concept of creating a regional framework for cooperation through the GCC. Formally launched in 1981, the GCC afforded Gulf Arab states greater clout in the international arena (Robins 1989) and functioned as a symbolic security enterprise (Legrenzi 2011a, 278). The independence of Gulf Arab territories by the early 1970s and the creation of the GCC were significant institutional developments that influenced how free zones emerged in the 1980s. GCC member states further entrenched themselves into the global economic system through FTAs, customs unions, and membership in international organizations. In 1997, the six countries of the GCC joined the Greater Arab Free Trade Area (GAFTA) to remove tariff and nontariff barriers on trade among members of the agreement. GCC states too sought to integrate their economies by implementing a customs union, which involved imposing a standard five percent duty on goods from outside the GCC and creating a shared point of entry system for all foreign goods. Though the vision for a customs union emerged in 2003, its full implementation was delayed over a decade because of disagreements concerning tariff rates and the mechanism for sharing customs revenue (Dokoupil 2012). Dubai, a transshipment hub, and Saudi Arabia, a country known for heavily subsidizing nascent industries, clashed over the appropriate tariff level for industrial goods (Legrenzi 2011b, 65). “The abolition of the right to set external tariffs is felt not only as a major abdication of sovereignty, but also as the weakening of the link to an extremely important constituency”—namely the merchants (ibid., 5). All of the GCC states became World Trade Organization (WTO) members between 1995 and 2005. Shifts in worldwide production from the Atlantic region to East Asia reoriented the GCC region as a geographic hub between emerging markets. Fast-growing Asian economies and their subsequent energy needs increased the attention afforded to Gulf-Asia ties. Economic policymakers in the Gulf sought to deepen these commercial linkages beyond the energy sector. Though only representing a small share of global free zones, GCC states and their free zones nevertheless serve as important logistics and transshipment hubs for Asian goods headed to markets across the globe. The region’s gradual global integration resulted in both commercial opportunities and constraints affecting free zone development.

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Academic Foundations for Free Zones Much of the existing literature covering the political economy of free zones tends to focus on case studies outside of the GCC states. Lotta Moberg (2017, 23–24) analyzes the capability and incentives of policymakers to pursue beneficial policies through free zones in India, China, and the Dominican Republic. She employs a robust political economy framework assuming that those responsible for free zone development possess imperfect knowledge and self-interested motives. Triyakshana Seshadri’s (2011, 9) study of Indian free zones contends that policymakers prioritized trade liberalization over the promotion of export zones. Meanwhile, George Crane (1990, 7) argues that political pressures complicated free zone implementation in China and led to poor investment deals. Hassan Hakimian (2011) focuses on Iranian free zones’ ability to connect isolated countries like Iran to the international economy, whereas Jafar Alavi and Henry Thompson (1988) advance a rudimentary theory of free zone that relies heavily on a description of foreign-trade zones in the United States. A limited academic foundation for GCC-centric studies on free zones exists, but it often approaches the topic from a purely economic perspective or through an exceedingly narrow selection of case studies. Arang Keshavarzian (2010) offers one of the few political economy studies focusing on free zones in the Gulf region. His article compares Dubai’s Jebel Ali Free Zone with Iran’s Kish Free Trade Zone, demonstrating that free zones project territorial sovereignty in turbulent geostrategic settings and direct rents to domestic and international members of elite coalitions (ibid., 263). In a comparative analysis of media free zones, Stephen Quinn, Timothy Walters, and John Whiteoak (2003) compare the underlying visions, ownership structures, and likelihood of success associated with Dubai Media City, Jordan Media City, and Egypt Media Production City. The authors conclude that these media free zones “compete in a tiny marketplace” (ibid., 147). In both instances, GCC case studies are compared with non-GCC cases. Works on the political economy of Gulf Arab states sporadically discuss free zones but do not treat the concept as a central analytical category. Adam Hanieh (2011, 2 and 82) views free zones as part of important economic changes in the 1980s that laid the foundation for the growth of Gulf capital across the GCC. Karen Young (2014, 37) writes that free zones in the UAE serve international capital markets, foreign investors,

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and government entities as part of a negotiation between the majlis [Ar. a council or gathering of people with common interests] and the market. Christopher Davidson (2005, 232) divides the UAE’s elites into two socioeconomic groups, the “old rentiers” and the “new rentiers,” noting that the latter derives economic rents from free zones and industrial parks. According to Jessie Moritz (2016, 211), the Sohar Port and Freezone is one of the various government-commissioned megaprojects that ultimately failed to address the underlying problems of unemployment in Oman and is an example of elite embeddedness in development initiatives. Other GCC-focused studies explore elite accommodation to government interests and the economic integration into the global economy without emphasizing the role of free zones in these processes. Khalid Almezaini (2013, 44) describes how private sector elites in the UAE linked economic, political, and social interests with the interests of ruling families and the government, but he does not identify free zones as a prime apparatus for facilitating these linkages. Kristian Coates Ulrichsen (2015) documents the uneven integration of Gulf Arab territories into the global economy without mentioning free zones. His later study on the UAE, however, does briefly mention free zones as part of the country’s efforts to project power and influence in an intensely globalized setting (Ulrichsen 2017, EBook Sect. 23.5).

Commercialized Rents: A Theoretical Contribution This monograph also engages with another body of literature and its associated theoretical concept: rentierism. The author does not attempt to induce a seismic shift in rentier state theory (RST), but the theory’s prevalence in Gulf political economy studies makes it difficult to ignore. This monograph employs RST as a complementary analytical tool rather than a comprehensive explanation for the free zone system across GCC states. Rents are “a reward for ownership of all natural resources” (Beblawi and Luciani 1987, 49) and represent income derived from selling goods and services at prices significantly above their production costs. Free zones certainly play a role in the rentier economies described by Hazem Beblawi and Giacomo Luciani (1987, 87–88) as those in which rents predominate,

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rents are externally derived, a small minority is involved in rent generation, and the government is the main recipient of rents. What is less clear is exactly how and where free zones fit into this paradigm. Early RST literature often ascribes structural homogeneity and patterned outcomes to rentier states. Dirk Vandewalle (1988), Terry Lynn Karl (1997), Jill Crystal (1995), Michael Ross (2001), and Douglas Yates (1996) conclude that oil rents have negative effects on democratization and economic development, while other studies suggest that natural resource abundance depresses growth (Sachs and Warner 1995, 7). Under the traditional rentier bargain, citizens are expected to forego democratic practices in return for a share of rents accrued by the state. This early rentier literature likewise suggests that rentier states are more concerned with expenditure policies than coherent economic policies. In his distinction between allocation and production states, Luciani (1990, 68) writes that “oil production appears to have a strong and decisive influence on the nature of the state.” He does, however, acknowledge that rent-like revenue sources other than oil and income flows that do not accrue directly to the state can also influence the nature of a given state (ibid., 68–69). The concept of rent seeking reflects the opposite side of the same analytical coin. James Buchanan (1980, 13–14) details three types of rent seeking useful for this analysis: (i) entrants seek advantageous behavior and opportunities related to unequally distributed rents, (ii) jobseekers waste resources to attain lucrative public sector positions over comparable positions in the private sector, and (iii) differential treatment by the government. All three forms of rent seeking apply to Gulf free zones, wherein government officials and local citizens receive unequal opportunities to generate rents from foreign firms, public sector positions in free zones and related authorities are favorable employment positions, and firms secure differential treatment through free zone policies. Buchanan (1980, 4) describes rent seeking as “behavior in institutional settings where individual efforts to maximize value generate social waste rather than social surplus,” but this does not necessarily mean that rentier structures always impose negative impacts on economies and societies. Inherent within this conceptualization of rent seeking is the notion that similar behaviors can produce very different social consequences under diverse sets of institutions (ibid.). The rigidity of early RST literature does not provide a sufficiently flexible framework for analyzing the differing development outcomes of free

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zones in the Gulf. Instead, a version of “late rentierism” (Gray 2011, 18– 19), which accounts for historical dynamics, differentiation in rent types, and international conflicts, remains more useful for this analysis. This latter form of RST, or advanced rentierism, utilizes rentier concepts to understand how states distribute rents and manage elite relationships but does not treat rentierism as a comprehensive explanation for a complete system (ibid., 16). Those authors considered here as part of the late rentierism trend—including Steffen Hertog (2010a; b), Adam Hanieh (2011), and Michael Herb (2014)—emphasize that the effect of strategic rents varies from country to country according to endogenous and exogenous influences. There are others, such as Courtney Freer (2018), who have updated traditional RST views on the Gulf by expanding into the realm of political Islam. Ferdinand Eibl and Adeel Malik (2016) link rentierism with trade liberalization by revealing how Middle Eastern and North African governments with significant distributive responsibilities generate rents through partial economic liberalization. These nuanced understandings of RST provide a more expansive view of rent generation, rent distribution, and rent-seeking behavior, thereby incorporating alternative rentier activities—such as free zone fees and policies—that do not fit as neatly into traditional rentier frameworks as proceeds from hydrocarbon exports. Discussions of rents in GCC economies overwhelmingly refer to those extracted from hydrocarbon resources. However, there are, of course, other forms of rents: regulatory rents, remittances, and foreign aid (BadiaMiro et al. 2015, 33). For example, Anne Peters and Pete Moore (2009, 256) demonstrate how the Jordanian regime relied on a diverse array of geopolitical rent donors to retain power during periods of late development, political crises, and neoliberal conditionality. Regulatory rents—or government manipulation of prices to benefit a particular group—align closely to free zone rents. Eibl and Malik (2016, 5) view regulatory rents as essential for maintaining political order and serving as “commitment devices” between economic elites and MENA governments with limited natural resources and significant distributional commitments. Licensing can also encourage rent-seeking behavior and generate new rent streams for specific coalitions of individuals or firms (Krueger 1980, 52; Soares and Moreira 2011, 31–38). Resource-abundant states, as argued by Philip Lane and Aaron Tornell (1995), engender more rent-seeking behavior than their resource-scarce counterparts because the domestic politics of the former revolve around

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capturing resource endowment rents. Meanwhile, free zones are considered avenues to promote economic growth outside of these traditional rentier structures. The reality is more nuanced: Free zones are at once centerpieces of Gulf Arab states’ efforts to diversify their economies away from hydrocarbon resources and simultaneously reliant upon the existing political and economic institutions in the region. And not all forms of rents or rent-seeking behavior are harmful. Rather, rents can play a vital role in growth and development (Khan 2000), while the success of institutional reform can depend on the alignment of elite incentives with economic reform outcomes (North et al. 2009). The standard typologies of rents are found lacking for an analysis of free zones in the Gulf. Thus, this monograph introduces the new concept of commercialized rents, or rent streams related to free zones. In contrast to Lane and Tornell’s findings, commercialized rents encourage actors in resource-scarce territories to engage in similar types of rent-seeking behavior found in resource-abundant territories. The concept of commercialized rents moves beyond the narrow taxonomy of “new rentiers” (Davidson 2005, 232), a socioeconomic group deriving economic rents from free zones and industrial parks in the UAE. Commercialized rents reflect a paradoxical combination of expanding governmental interference in the economy and opening markets to a wider group of local and international business actors. This opening is facilitated by GCC governments: Rent generation occurs through commercial licensing, service fees, and real estate provision, while heavy regulation mitigates negative impacts on local, politically connected firms. The underlying foundation for commercialized rents remains a reward for the ownership of natural resources, namely commercial real estate availability and geostrategic locations, and the ability to control access to markets through firm registration. The capacity to generate commercialized rents and mitigate the negative social impacts from this process varies from one Gulf territory to another. Commercialized rents therefore offer a new conceptual avenue for examining the multilayered development narratives in the economies of Gulf Arab states. The concept also helps to illustrate the complicated—and at times counterintuitive—nature of advanced rentierism. Local and international elites participate in commercializing these rent streams. Local elites help transform free zones into sustainable corporate entities by providing the business acumen required to attract foreign investment and, to varying degrees, by serving as veritable investors

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themselves. Successful free zone enterprises require diversified and continuous flows of foreign investors, inexpensive foreign labor, and subsidized commercial services. Consequently, commercialized rents are not based solely upon tangible commodities—though there are indeed Gulf free zones that specialize in commodities—but also the perceptions of investors and the ability to implement attractive commercial policies. This dynamic ensures that the supply of commercialized rents is not fixed. While GCC policymakers exert substantial control over business environments within free zones, they have less control over global market forces, capital flows, and the social consequences of free zone policies. The web of actors involved in the generation of commercialized rents and non-commodity foundation of the rent source complicates the distributive responsibilities facing governments dependent on rents from free zones. On the one hand, commercializing rents fit neatly into increasing calls for greater private sector involvement in these countries, particularly as a means for governments to divide certain distributional responsibilities among actors in the private sector without extending substantial economic authority or political power to these groups. However, the majority of free zone rents are extracted from foreign firms and expatriates, thereby relieving the bulk of local citizens from productive responsibilities associated with free zone companies. On the other hand, the free zone-related interests of GCC governments, local business elites, and global firms are not always aligned. The precise relationship between generating commercialized rents and promoting the welfare of national citizens, for example, can be a contentious issue.

Structure of the Monograph Chapters 2 through 4 emphasize the endogenous factors shaping Gulf free zones—or how local dynamics gave rise to commercial entities needed to manage global flows of trade, investment, and capital. Chapter 2 examines the complex and dynamic relationship between free zones and the region’s varied regulatory environments. The chapter unpacks the three central characteristics that distinguish free zones from their onshore counterparts: permissibility of full foreign ownership, fewer restrictions on the utilization of foreign labor, and exemptions from customs duties and other taxes. Chapter 3 frames the Gulf’s free zone sector by providing a comprehensive description of the free zone system in Dubai, which contains nearly half of the region’s operating free zones,

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and that of the remaining emirates across the UAE. Chapter 4 maps the smaller free zone systems in the remaining GCC states of Oman, Saudi Arabia, Bahrain, Qatar, and Kuwait. Chapter 5 examines how political actors permitted and benefitted from a state-led, controlled form of economic liberalization beginning in the 1980s and 1990s—ultimately laying the foundation for accelerated free zone development in the boom years of the early 2000s. The chapter covers elites’ embeddedness in free zone development processes by revealing ownership structures associated with Gulf ruling families, business elites’ participation on corporate boards, and other institutional mechanisms of elite control over free activities and revenues. Chapters 6 and 7 focus on the exogenous factors shaping free zone development. Chapter 6 explores how regional contestation impacts Gulf free zones. Inter-emirate competition in the UAE, tensions among GCC member states, and the perception of Iranian infiltration into Gulf economies have played a central role in the reconfiguration of capital flows into and across free zones. Chapter 7 looks beyond the Gulf’s borders and toward other global actors engaging with the region’s free zones. This chapter affords substantial attention to the relationship between China and Gulf free zones, which function as integral commercial hubs connecting Asian markets to consumers in Africa and Europe. Securing major American and European firms as free zone, clients can positively impact the reputation of Gulf free zones; however, other actors from India, Egypt, and even Israel are active participants in the Gulf’s free zone system. Chapter 8 examines ongoing Gulf free zone development projects that are positioned to serve as central economic initiatives over the coming decades. Saudi Crown Prince Mohammed bin Salman is spearheading the ambitious megaproject-cum-free zone of Neom in northwestern Saudi Arabia—a project expected to cost billions of dollars and span decades. The 2019 announcement of Dubai’s 50-year charter indicates the emirate’s continued adherence to a free zone-led economic growth strategy and aims to construct a virtual commercial city—a digital free zone—capable of hosting 100,000 firms. This final chapter evaluates the potential impact of regional reform agendas, such as changes to foreign ownership limitations, and global trade and investment dynamics on future free zones development in the Gulf. After revisiting debates over rentierism and economic diversification, the chapter maps areas for further research in the fields of Middle East studies and international political economy.

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of Jordan.” Studies in Comparative International Development 44.3 (2009): 256–285. Quinn, Stephen, Timothy Walters, and John Whiteoak. “Tale of Three (Media) Cities.” Australian Studies in Journalism 12 (2003): 129–149. Ramos, Stephen. Dubai Amplified: The Engineering of a Port Geography. Abingdon: Taylor and Francis, 2010. Robins, Philip. The Future of the Gulf: Politics and Oil in the 1990s. London: Royal Institute of International Affairs, 1989. Ross, Michael. “Does Oil Hinder Democracy?” World Politics 53 (2001): 325– 361. Sachs, Jeffrey and Andrew Warner. “Natural Resource Abundance and Economic Growth.” NBER Working Paper 5398 (1995). Seshadri, Triyakshana. The Political Economy of Special Economic Zones in India. PhD Dissertation: George Mason University (2011). “Shan-Zhen—How a Small Irish Town Influenced the Mega-City Shenzhen.” ArchDaily. January 26, 2016. Accessed January 29, 2016, https:// www.archdaily.com/780950/shan-zhen-the-unlikely-influence-of-a-smallirish-town-on-mega-city-shenzhen. Soares, Fernando Antonio Ribeiro and Tito Belchior Silvar Moreira. “Rentseeking Trade Policy and Economic Welfare.” Modern Economy 2 (2011): 31–38. Stewart, Charles. “The Changing Middle East Market.” Journal of Marketing 25.3 (1961): 47–51. Sunak, Rishi. The Free Ports Opportunity: How Brexit Could Boost Trade, Manufacturing and the North. Surrey: Centre for Policy, 2016. Tiefenbrun, Susan. Tax Free Trade Zones of the World and in the United States. Edward Elgar Publishing. Northampton, Massachusetts (2012). Ulrichsen, Kristian Coates. “The Political Economy of Gulf Arab States.” The James A. Baker III Institute for Public Policy (2015): 1–26. Ulrichsen, Kristian Coates. The United Arab Emirates: Power, Politics, and Policymaking. Ebook. Abingdon: Routledge, 2017. “Unemployment Lowest in Free Trade Zones.” Financial Tribune. January 3, 2018. Accessed January 4, 2018. https://financialtribune.com/articles/ economy-business-and-markets/79198/unemployment-lowest-in-free-tradezones. Vandewalle, Dirk. Libya Since Independence: Oil and State Building. Ithaca: Cornell University Press, 1998. Wei, Xie. “Acquisition of Technological Capability Through Special Economic Zones (SEZs): The Case of Shenzhen SEZ.” Industry and Innovation 7.2 (2000): 199–221.

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Yates, Douglas A. The Rentier State in Africa: Oil Rent Dependency and Neocolonialism in the Republic of Gabon. Trenton, NJ: Africa World Press, 1996. Young, Karen. Political Economy of Energy, Finance and Security in the UAE: Between the Majilis and the Market. London: Palgrave MacMillan, 2014.

CHAPTER 2

Regulating Free Zones: A History of Ownership, Labor, and Fees

The central defining aspects of modern free zones in the Gulf reveal important characteristics of the region’s political economy. Barring minor variations, Gulf free zones offer clients eligibility for full foreign ownership, unfettered access to expatriate labor, and preferential treatment concerning customs, taxes, and other fees. The issues of foreign ownership, expatriate labor, and fees not only possess deep historical foundations in Arab Gulf states but also remain persistent—and, at times, contentious—features of the region’s political economy. These economic institutions are intertwined with free zone development, having shaped the development of these entities and themselves been influenced by the evolution of the region’s free zone system. The persistence of these economic institutions delineates free zones from their onshore counterparts. As institutional arrangements change, free zones must also adapt. Reducing the rich economic history of Gulf Arab territories to a handful of thematic categories is a formidable challenge, and the final selection regrettably ignores many more topics than it includes. This chapter’s primary objective is not to list every major historical and institutional development in Gulf Arab states but rather to offer sufficient historical context for the arguments put forth throughout the monograph and introduce the primary institutional constraints—or the “rules of the game” (North 1990, 3)—shaping the behavior of individuals and © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_2

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organizations involved in free zone activities. Free zone development in the GCC did not occur in a vacuum: Free zones were created within a set of institutional constraints and also “gradually altered the institutional framework” (ibid., 8) across the region. The concept of institutions provides an analytical link between theoretical considerations of rentierism and on-the-ground development dynamics. Incorporating institutional analysis is likewise a useful tool for connecting evidence from secondary sources with fieldwork findings. This work relies upon Douglass North’s (1990, 3) description of institutions as “the humanly devised constraints that shape human interaction.” His definition is especially important when distinguishing between institutions and GCC government agencies, the state apparatus, and other commercial organizations. Moreover, New Institutional Economics stresses that “organizations often invest in changing the rules of the game but fundamental changes are usually stepwise and cumulative” (Eggertsson 2013, 1), and that institutions both constrain and incentivize the behavior of social actors. The related argument that all big economic institutions are ultimately political institutions because they must have a political end to survive and protect their interests (North et al. 2009, 146) helps explain the competing political interests behind fee zone development. Daron Acemoglu and James Robinson (2009, 12) echo North by noting that “what economic institutions arise in equilibrium depends on the distribution of political power.” According to Acemoglu and Robinson (2009, 4), political institutions and the distribution of resources explain how elites gain power and co-opt systems in their favor, which offers an important link between North’s view of institutions and the concepts of autocracy and family rule. Political incentive compatibility constraints determine the behavior of political elites (Acemoglu and Robinson 2013, 186), and unproductive institutions and policies can nevertheless accomplish the interests of elite social groups holding political power (Acemoglu 2003, 620). Various social actors sought to attain and secure power as the Gulf Arab region underwent multiple and overlapping processes of transformation. Chapter 1 highlights specific examples of internationalization processes related to Gulf economies, where political and economic actors capitalized on external developments. However, the economies of the Gulf also experienced fundamental transformations from within. The rise

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of pearling industries, oil and gas sectors, and nonhydrocarbon industries each signaled new levels of complexity for the region’s economies and socioeconomic dynamics. At each stage, institutions associated with ownership, labor, and fees worked to advance or impede the interests of social actors.

Pearls, Hydrocarbons, and Non-Oil Industries Long before global businessmen and wealthy tourists poured into glitzy Gulf airports and combined business and recreation in blended commercial hubs, tribal rulers and merchants ruled the sparsely populated, desert terrain of the Arabian Peninsula. Early tribal rulers, known as shaykhs, controlled territory that “had previously been determined by the patterns of tribal alliances which were not always permanent” (Zahlan 1986, 69). Their ultimate authority often depended on a powerful merchant class that generated revenue for rulers, provided loans, and transformed territories into flourishing commercial centers. Gulf shaykhs and merchants profited from the fishing industry (Looney 2009, 2), camel breeding (Heard-Bey 1984, 198–199), religious pilgrimages, and even the slave trade (Treaty 1849, 715). Income from date plantations constituted approximately one-quarter of the ruler of Kuwait’s revenue in the preoil period (Herb 2014, 78). However, pearling proved among the most lucrative of the region’s pre-oil economic activities. The pearling industry intertwined the fortunes of rulers and merchants. Rulers extracted taxes from pearl merchants and captains—or accepted other gifts in return for tax exemptions (Fromherz 2012, 4; Khuri 1981, 48)—and generated revenues from customs duties and service provision to an increasingly wealthy population. Gulf merchants received protection and patronage from rulers in return for this financial support. The Al Hidd area of Muharraq Island—where Bahraini free zones were later developed—formerly housed the tribal allies of the ruling Al Khalifa family. In fact, the early urban layout of Muharraq “developed around the residences of the Al Khalifah family” (Fuccaro 2009, 73). Before the creation of independent nation-states, merchants could more easily leverage the threat of relocation: “People evaluated demands by rulers for tax or military service against the efficacy of the protection being offered in return, and often found it wanting” (Lancaster and Lancaster 2011, 299).

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Pearling employed a large number of local residents. Bahrain’s total population of 99,000 people included approximately 17,500 pearl divers in 1905, and the number rose to over 20,000 at the height of the industry in 1929 (Bahrain National Museum 2016). However, the lucrative industry declined following the commercialization of Japanese cultured pearls in 1918 and the onset of the Great Depression.1 Bahrain and Dubai returned to other forms of trade, including smuggling goods into Iraq and Persia (Owen and Pamuk 1998, 83). Discoveries of hydrocarbon resources initiated a further transformation in the socioeconomic hierarchy of social actors in the Gulf. The subsequent revenues, initially from concessions for exploration and then receipts from hydrocarbon exports, decreased the rulers’ historical reliance upon merchants. In the 1950s, ruling families in both Qatar and Kuwait promptly settled their merchant debts and lowered customs duties (Crystal 1995, 7 and 73). This newfound economic autonomy, according to Herb (1999, 21), helped ruling families to consolidate authority over the emerging petro-states. Hydrocarbon rents provided rulers with the financial resources to purchase the political acquiescence of merchants. Oil and gas revenues also permitted ruling regimes to secure the loyalty of local residents and later national citizens through employment in public sector bureaucracies, subsidies, and other forms of wealth transfers. This process produced a ruling bargain, or a rentier social contract, between the state and society, wherein much of society surrendered political representation in return for economic rewards in the form of goods and services provided by the state. “Where economic elites once entered politics to protect their economic interests, after oil, merchants left the realm of formal politics to preserve those interests,” explains Jill Crystal (1999, 1). However, structural factors ensured that the process of negotiating ruling bargains did not apply uniformly across Gulf Arab territories. The relative strength and weakness of pre-oil merchants, as Crystal aptly demonstrates in her study on Kuwait and Qatar, affected their political power vis-à-vis rulers following the discovery of oil (ibid., 6). General scholarship on the early oil period in Bahrain suggests that Sunni merchants connected to the political elite maintained their former economic and social advantages of the pearling days as Bahrain’s economy 1 There is some disagreement over the precise beginning of the commercial sale of cultured pearls, with various sources suggesting dates ranging from 1918 to 1928 (Nagai 2013, 784; Farn 1986, 108).

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evolved to accommodate newfound rents from oil (Yanai 2014, 42; Lawson 1989, 97; Gardner 2010, 37). Varying quantities of hydrocarbon reserves and population demographics ensured that resource abundance was not necessarily synonymous with resource wealth. “In comparison with Qatar, Abu Dhabi and Dubai, Bahrain is a poor country, for its per capita income in 1968 was estimated at $390, or just about one-tenth that of Qatar,” describes a 1972 report on the newly independent shaykhdoms (Sadik and Snavely 1972, 213). Dubai possessed approximately four percent of the UAE’s total proven crude oil reserves, and the depletion of these resources led to a steep decline in the significance of hydrocarbons for Dubai’s GDP (Oxford Business Group 2014, 203). By 2007, the oil and gas sector in Dubai accounted for a meager 1.8 percent of the emirate’s total GDP on official government ledgers, while wholesale and retail trade represented the largest contribution to GDP, constituting 28.9% (Dubai Statistics Centre 2007). “Its commercial sector, based on a strong trading tradition, made it prosperous long before the Emirate became an oil producer,” explains Al Sayegh (1998, 88). There remains, however, some debate over the precise role of hydrocarbon resources in Dubai’s economy. Herb (2014, 28), for example, estimates that the oil and gas industry accounted for between 25% and 33% of Dubai’s government revenue from 2003 to 2008 and that transfers from Abu Dhabi provided additional revenue. The nature of hydrocarbon commodities available in different locations across the region also impacted bargaining dynamics. Longer-term and stable contracts associated with Qatari natural gas contrasted with the price fluctuations accompanying oil reserves in other Gulf Arab territories (Gray 2013, 93). Moreover, the degree of state formation and the strength of institutions at the introduction of hydrocarbon wealth— a reflection of the importance of timing and sequence of historical events—also shaped the ruling bargain with social groups. Recognizing the inherent risks involved with an overreliance on the oil and gas sector, Gulf Arab states have also sought to develop nonhydrocarbon industries: tourism and hospitality, air transportation, banking and finance, media, and retail. A series of oil price crises in the late twentieth and early twenty-first centuries emphasized the need to diversify Gulf Arab economies away from the oil and gas sector. It is within this period of internal economic transformation that free zones were developed in earnest. In many cases, the economic contribution of the oil and gas sector relative to the GDP of Gulf Arab states has decreased; however,

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government revenues remain highly dependent upon proceeds from the oil and gas sector. Most Gulf Arab states continued to rely on the oil and gas sector for more than 70% of public sector revenues as of 2019. Similarly, historical issues surrounding foreign ownership, expatriate labor, and customs duties and other fees did not disappear.

Foreign Ownership To fully appreciate why the right to full foreign ownership is a central defining component of Gulf free zones, it is necessary to understand the historical role of foreigners in the region. Foreigners exerted substantial economic and political control in the early histories of Gulf territories. “In the seventeenth century, Venetians, Jews from Aleppo, and Banias from Gujarat were the chief exporters of Gulf pearls,” describes Andrew Gardner (2010, 35). Nearly half of Qatar’s population prior to the oil era were foreign Baharinah, Iranians, and Africans (Zahlan 1979, 18). Banian merchants in Muscat played an important role in the internationalization of foreign trade beyond the Indian Ocean basin by importing European and American products in the late nineteenth century (Lawson 1983, 96). Foreign merchants’ control of strategic industries in the Gulf heightened tensions with locals and led to an uncomfortable dependence upon foreign expertise. In late nineteenth-century Dubai, Persian immigrants managed the retail service and foodstuff sectors, and British subjects from India controlled the banking and shop keeping sectors, which played a major role in financing the pearling expeditions that kept Dubai’s economy afloat (Al Sayegh 1998, 88–89). Beyond the influence of foreign merchants, external powers and governments extended political and economic control over Gulf Arab territories. The Persians, Portuguese, and Ottomans long competed for influence over the region’s strategic waterways. However, it was Britain that proved particularly influential in shaping the modern development of Gulf Arab states.2 “Britain’s attempts to protect that trade by prevention of violent actions by the sea-faring Arabs of the southern Gulf provided

2 Britain’s precise role in the Gulf is a source of historical contention, with some authors arguing that other regional powers, like the Ottomans, played influential but underemphasized role in regional affairs. James Onley argues Britain’s guardianship role was “not imposed coercively,” while other authors view British influence strictly within a colonial framework (Anscombe 1997; Onley 2009).

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the basis for its strong position in Arabia at the end of the nineteenth century,” writes Frederick Anscombe (1997, 14). Through the General Treaty of 1820, which imposed anti-piracy policies, the shaykhdoms of the modern-day UAE and Bahrain became British protectorates. The treaty shaped internal affairs among the shaykhdoms by, for example, recognizing the coastal towns of Umm Al Quwain and Ajman as independent states to ensure that small territories controlled by independent chiefs would serve as buffers between the Qawasim ports of Sharjah and RAK (Rugh 2007, 179). Under the Perpetual Maritime Truce of 1853 with the British, the future emirates of the UAE became known as the Trucial States. Foreign influence also impacted economic institutions in the Gulf. The 1849 treaty between the British government and the Shaykh of Sohar in Oman intended to suppress the area’s slave trade (Treaty 1856, 715). So strong was British influence in the region that the transition from the silver standard to the British gold standard across the Indian Ocean in the late nineteenth century caused silver prices to plummet and exhausted Oman’s currency supplies (Speece 1989, 501). It was not just distant foreign powers that affected changes to economic systems in the Gulf. Fred Lawson’s (1983, 109) fascinating work on free trade in the Arabian littoral between 1800 and 1905 finds that open trading orders were not a consequence of British political and economic hegemony but rather more likely to occur when relatively equal foreign powers competed for access to markets in the region. He suggests that trading patterns in Muscat, Aden, and al-Mukha “may have been determined by the character and intensity of local political struggles within these countries themselves, rather than by aspects of their interactions with foreign powers” (ibid., 111). Foreign commercial influence in the region intensified following oil discoveries during the early twentieth century. One of the earliest oil agreements was signed in 1923 for oil operations in the Hasa province of present-day Saudi Arabia (Zahlan 1986, 64). Saudi Arabia signed a commercial agreement with a group of American oil companies in 1933— forming an arrangement that would later become the Saudi Arabian Oil Company known as Saudi Aramco—but the country nevertheless depended heavily upon loans based on future oil reserves until the conclusion of World War II (Jones 2010, 28). Even political elites in territories that did not yield substantial hydrocarbon reserves benefitted from early oil agreements. The ruler of Ras Al Khaimah’s limited concession for oil

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exploration constituted more than half of his annual income (Lienhardt 2001, 167). As certain Gulf shaykhdoms prepared to become independent nationstates, Britain sought to retain its influence across the region. Saudi Arabia achieved independence in 1927 through the Treaty of Jeddah with the British. In 1946, Britain’s Gulf Residency moved from Bushire of Persia to Bahrain, and the Gulf Resident oversaw subordinate political agents in Muscat, Sharjah, Doha, Kuwait, Abu Dhabi, and Dubai (Onley 2009, 4). The residency permitted Britain to monitor and influence Gulf Arab affairs, especially in territories that remained under British protection, and preserve the notion of a Pax Britannica in the Gulf. Nevertheless, Britain’s 1951 Treaty of Friendship, Commerce, and Navigation granted formal independence to Oman. Britain also rendered obsolete the Anglo-Kuwait agreement of 1899, paving the way for Kuwait’s formal independence in 1961 (Scott 1961). The January 1968 announcement of Britain’s departure from the Gulf by 1971—part of the “East of the Suez” departure plan—encouraged the remaining protectorates to become independent countries. In February 1968, Qatar’s ruler led negotiations, known as the Dubai Agreement, to create the Union of Arab Emirates among Qatar, Bahrain, Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Umm Al Quwain, Ajman, and Fujairah. Various issues surrounding the location of a capital, immigration concerns, and the basis for determining representation prevented the formation of the proposed union (Letter 1970, 2). Qatar and Bahrain elected to pursue independence separately, and the remaining territories collectively formed the United Arab Emirates in 1971. Foreign influence in Gulf Arab states led to the creation of institutions that protected the commercial interests of locals. “All foreign firms seeking to set up business interests in Abu Dhabi were charged an ‘entrance fee,’ and were made well aware of Shakhbut’s dislike for non-Abu Dhabi merchants,” notes Davidson (2008, 78), referring to steps taken by the ruler of Abu Dhabi from 1928 to 1966. Newly independent states codified foreign ownership laws requiring foreign-owned companies to cede 51 percent of their ventures to local sponsors to shield local firms from foreign competition. In the same vein, new laws required branches of foreign-owned companies to employ local agents and distributors to access the domestic economy. Restrictions on foreign ownership accomplished two main objectives. First, it permitted governments to retain control over strategic industries and ensured a role for citizens in

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economic development processes. Second, restrictions on foreign ownership and agency requirements provided economic incentives to dole out to elites and allies. Agency regulations also represented a historical continuity with existing economic institutions: [O]ne of the fundamental means that rulers had to win the support of leading merchants was the granting of sole agency rights for foreign imports. In the postcolonial period, this pattern was codified through laws that prevented imports without the representation of a local agent. (Hanieh 2011, 75)

While these rules and regulations served narrow, domestic interests, they also created constraints for trade and investment flows. Sponsorship, agency, and distributorship are “all effective non-tariff barriers to investment” (Young 2014, 59). Many foreign investors in the Gulf bristle at the notion of surrendering a majority stake in their company to a local partner. A British owner of a consulting company operating in the UAE likened the local ownership regulation to paying a direct tax to Emirati citizens and described the regulation as “profoundly inefficient.”3 The UAE is a useful case study for examining how evolving foreign ownership regulations in GCC states relate to free zones. According to Federal Law 8 of 1984, foreign firms engaging in onshore commercial activities in the UAE require local sponsors to own 51% of a company’s capital (UAE Federal Law 8/1984, Article 22). The Commercial Companies Law, which was originally codified by Federal Law 8 of 1984 and later amended through Federal Law 2 of 2015, dictates the parameters of this regulation. Branches of foreign companies do not have to demonstrate local ownership; however, branches must operate through an Emirati agent or a fully-owned Emirati company to access the domestic market legally (UAE Federal Law 2/2015, Article 329). This encouraged Emiratis and local firms to compete for sponsorship rights over onshore companies owned by non-GCC nationals or to serve as agents for branches of foreign companies. Foreign companies that desire to retain full ownership of their corporate entity must register in a free zone to receive a license for legal commercial activity. The Commercial Companies Law of 2015 states: 3 Interview 22, British owner of consulting firm registered in Abu Dhabi’s Masdar Free Zone, Abu Dhabi. April 14, 2016.

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Other than foreign companies licensed to conduct their activities in free zones in the State, foreign companies may not conduct an activity inside the State or set up an office or branch therein without a license to this effect by the competent authority with the consent of the Ministry. (UAE Federal Law 2 of 2015, Article 327)

In theory, free zone companies are prohibited from providing services to the domestic economy without a local agent, but smaller companies regularly operate in this fashion. Emirate-level governments are reluctant to clamp down on this activity, fearing that it would discourage foreign commercial investment. Meanwhile, many small firms do not submit indepth audits to avoid detection when they reapply for trade licenses.4 Larger firms, unable to operate below the radar in official ledgers, can also receive special consideration through government partnerships. The commercial law regulating foreign companies is “subject to the special agreements made between the Federal Government or the local Government or any entity of either of them and foreign companies” (UAE Federal Law 2 of 2015, Article 327). In this case, the federal or local government acts as a temporary sponsor for foreign firms. Such scenarios are supposedly reserved for instances in which the achievement of a strategic country goal requires the involvement of a foreign company. Thus, free zones offered foreign investors the only formal and consistent avenue for maintaining full ownership of their ventures. An Emirati employee at a free zone in Sharjah revealed how local elites adapted economic institutions, such as foreign sponsorships, to fit their interests. According to this interviewee, the foreign ownership law exists to ensure that business continues to function smoothly in the case that the foreign investor goes bankrupt or leaves the country or another crisis disrupts business operations.5 However, the interviewee suggested that rules regulating foreign ownership are quite flexible. “The rules are the rules – you can’t change them. But you can make new rules in brackets,” he explained.6 Here, the interviewee referred to a scenario in which an Emirati may own 51% of the shares of a foreign company but only receive 4 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April 18, 2016. 5 Interview 57, staff member at Sharjah International Airport Free Zone, Sharjah, UAE, August 11, 2016. 6 Ibid.

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a small monthly or annual sum for being a local sponsor. The flexible nature of this economic institution highlights the privileges available to connected members of the business community who either know how to bend the rules or can afford to do so. As foreign ownership regulations are dictated by federal laws, the role of local sponsorships for foreign firms and how this economic institution relates to free zone activity is not unique within the northern emirates; it exists throughout the UAE and, to varying degrees, other GCC states. Changing foreign ownership regulations pertaining to onshore entities therefore impacts the incentives offered by free zones. Federal DecreeLaw 19 of 2018—also known as the FDI law—eased onshore foreign ownership limits by establishing an approval process for specific economic activities, which “signaled an initial shift away from the strict foreign ownership restrictions,” (“UAE to Allow” 2020). In November 2020, the UAE further overhauled the Commercial Companies Law of 2015 and expanded the opportunities for full foreign ownership of a mainland company. The implications of these legal developments for free zones are discussed in the final chapter of this book.

Expatriate Labor In addition to reducing foreign commercial competition, Gulf governments took steps to safeguard citizens’ privileged position in the labor market. The total population of the GCC region grew from four million in 1950 to 28 million in 1997, by which point expatriates constituted between 70 and 90% of the total workforce in some countries (Kapiszewski 2001, 4). Despite growing national populations, the percentage of GCC nationals in the workforce declined from 49.2% in 1975 to approximately 30% in 1997 (ibid., 70). In response, GCC governments implemented workforce nationalization policies, mainly enforced through labor quotas, to increase the quantity and quality of job opportunities for locals. Hertog (2012, 92) argues that “the first Saudization quotas, in fact, were codified as early as the late 1940s, but never consistently implemented.” In 1970, the Saudi government wishfully declared that 75% of the workers in all businesses should be Saudi and that they should receive at least 51% of the company’s total salary expenditures (Lindsey 1991, 237). The initial efforts to regulate private sector workforces proved difficult. Therefore, early state inventions in the labor market focused on public sector entities because government

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bureaucracies already served as distributive mechanisms and consequently represented low-hanging fruit for labor reform. The Omani government implemented legal requirements for workforce nationalization in the private sector in 1994 (Kapiszewski 2001, 226), while a 1995 ministerial decree in Saudi Arabia required private employers with at least twenty employees to increase their employment of Saudis by five percent each year (Al-Asfour and Khan 2014, 246). Other countries followed with country-specific versions of workforce nationalization policies: Bahrainization, Emiratization, Kuwaitization, and Qatarization. Yet replacing expatriates with citizens while maintaining growth was not so straightforward. “Paradoxically, increasing the available work opportunities for nationals in the private sector requires an equivalent increase in the number of foreign workers,” explains Onn Winckler (2009, 83). Low-cost expatriate workers help to keep private sector firms in the Gulf profitable and globally competitive. Expatriates also constitute a veritable consumer segment within Gulf economies and source of non-oil income for governments. Free zones enable the continuous flow of expatriate workers into the Gulf region by exempting—either in full or partially—employers from workforce nationalization regulations. The scale of exemptions varied slightly according to the demographic composition of each country. In the UAE, Qatar, and Kuwait, free zones openly advertised unrestricted access to expatriate labor. Free zone policies in Oman and Bahrain required clients to meet certain workforce nationalization targets, although these requirements tended to be lighter than those for firms outside of free zones. Bahrain’s government granted five-year exemptions from Bahrainization requirements as part of lease agreements for companies operating in free zones.7 The differential in labor costs between Bahraini and non-Bahraini employees illustrates the value of rents extracted from reduced labor requirements. Total monthly labor costs for Bahraini nationals averaged BD 628 (~$1,697) in 2006, whereas the same costs for non-Bahrainis averaged BD 246 (~$665).8 Assuming

7 Interview 28, economic officer at the Economic Development Board, Manama, Bahrain, April 27, 2016. 8 The total labor costs vary across sectors, but the overall figures used here also correspond closely to figures reported in the manufacturing sector. Currency values are based on 2006 price estimates (Bahrain Labour Market Regulatory Authority 2006).

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constant prices, an employer could save approximately $61,920 for each non-Bahraini worker employed during the five-year exemption period. The structural isolation and vertical integration of free zones in the Gulf weakened governments’ ability to implement effective and consistent workforce nationalization policies. “Free trade zones are enclaves of truly free markets where entrepreneurs are liberated from restrictive commercial, labour, and manufacturing regimes,” writes Keshavarzian (2010, 265). UAE free zones, in particular, afforded employers abundant avenues to circumnavigate federal and emirate-led workforce nationalization policies and initiatives meant to increase local employment (Mogielnicki 2015). The prevalence of free zones in the emirate of Dubai is so widespread that “about 90 percent of the market has access to free zones,”9 estimated a specialist on GCC workforce nationalization. Emirati citizens found employment opportunities within the country’s free zone bureaucracies, but companies operating in free zones overwhelmingly hired expatriate employees. An HR consultant for an oil and gas company in Abu Dhabi explained the poor performance of Emiratization across the country by remarking that “free zone companies do not have to follow Emiratization regulations and policies. They operate freely with no incentives [to follow such policies].”10 Many free zone officials declined to reveal Emiratization rates among their staff, and other workforce estimates suggested that Emiratization rates in newer free zones were far below the relatively high Emiratization rate of established free zones. For example, an Emirati manager from JAFZA estimated that Emiratis only constituted a small minority of approximately 10 percent of the free zone staff in the Dubai International Financial Centre (DIFC) and Dubai Multi Commodities Centre (DMCC) free zones.11 While free zones may employ a sizeable segment of the labor force in emirates like Dubai, the absolute effect of free zones on labor politics in countries like Bahrain, Kuwait, and Saudi Arabia is relatively limited due to smaller ratios of free zone employees to the total national workforces (Fig. 2.1). Of course, the widespread use of expatriate labor in Gulf Arab states also exists outside of free zones. However, the structural organization

9 Interview 9, consultant specializing in Saudization for major HR consultancy, Dubai, August 19, 2014. 10 Interview 3, HR consultant in oil and gas sector, Dubai, July 30, 2014. 11 Interview 19, Emirati manager at Jebel Ali Free Zone, Dubai, March 31, 2016.

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Fig. 2.1 Table of employment figures in select free zones in Dubai (2016)12

of Gulf free zones provides an additional barrier to labor market reform efforts in much the same way that Hertog’s concept of segmented clientelism encourages unequal forms of exchange around the state apparatus and through parallel structures of the distributive system (2010, 12). “The system has created a number of institutional, regulative and distributive ‘fiefdoms’, sometimes with strongly overlapping areas of jurisdiction. This increases the number of stakeholders and channels of formal or informal access, but makes the creation of ‘reform coalitions’ a formidable task,” argues Hertog (2005, 116). Indeed, expansive free zone subsystems, such as the one in Dubai, created a similarly varied set of institutional, regulative, and distributive fiefdoms. This regulatory insularity has largely protected free zone companies from being forced to meet stricter workforce nationalization measures. Gulf governments retain the ultimate authority for determining how free zone policies engage with federal and national labor laws. Most Gulf free zones tout independent authorities, but these bodies are ultimately an appendage of the state. An expert on GCC workforce nationalization remarked that, with the Emiratization policy, the UAE government “is not curbing unemployment as much as they are appeasing certain segments of the population.”13 In this context, free zones perpetuate a deep dualism of Arab labor markets resulting from government intervention for political appeasement objectives (Assaad 2014). The contradiction between government support for free zones policies, which benefit business elites, alongside Emiratization efforts intended to increase the supply of local employment opportunities has stoked tensions among

12 National employment figures are estimates from empirical data collected during fieldwork ending on September 2016 and reported/suggested Emiratization rates for that period. 13 Interview 9, consultant specializing in Saudization for major HR consultancy, Dubai, August 19, 2014.

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various socioeconomic groups across the region. An interviewee closely associated with government Emiratization efforts explained: There is talk that they [the Dubai government] would begin introducing quotas in the free zones. The only reason companies in free zones are engaging in nationalization is because they see a strategic value in having Emiratis or they feel a social responsibility.14

Meanwhile, a director of a major business school in Dubai confirmed that “free zones complicate the matter … and laws need to be changed regarding how companies in free zones can act.”15 In 2013, the UAE’s Federal National Council considered changing labor laws to require free zone companies to meet Emiratization targets (Salama 2013). By and large, efforts to reform labor regulations inside Gulf free zones and apply stricter limits on the importation of expatriate workers have not yielded significant results.

Customs Duties and Other Fees Customs duties and other fees were far from trivial matters in the Gulf. Sovereignty over the right to apply or exempt customs duties proved to be a powerful economic mechanism—especially prior to the discovery of hydrocarbon resources. Merchants, rulers, and British colonial officials all sought to exploit customs regimes for their respective benefits. Shaul Yanai (2014, 69–70) describes Yusuf Kanoo’s shady interactions with customs officials at the expense of Skaykh Isa bin Ali Al Khalifa,16 the ruler of Bahrain from 1869 to 1932: During Sheikh Isa’s rule, Indian officials collected the [customs duties] fees. For a long period they had been doctoring the financial reports and embezzled huge sums. The customs overseers reached under-the-table arrangements with the wealthy Sunni merchants … in a deal between Yusuf Qanu and Yusef Fakhro, two of Bahrain’s wealthiest merchants, and the

14 Interview 12, owner of consultancy specializing in Emiratization, Oxford, October 30, 2014. 15 Interview 7, regional director of a graduate business school, Dubai, August 14, 2014. 16 The British forced Shaykh Isa to abdicate in 1923; however, his abdication was not

recognized by many Bahrainis (House of Khalifa 2018).

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customs collectors, each year only one of the merchants paid a reduced fee on imported merchandise with a generous payoff going directly to the Indians customs collectors.

Customs served as the main source of government revenues in Bahrain before oil exports began in 1932, and Shaykh Isa outsourced customs bookkeeping to a Hindu firm that kept the accounts in Sindhi. The opaque process, according to a British-appointed customs director from Calcutta, led to massive embezzlement by the director and prominent Bahraini merchants (Al-Tajir 1987, 53). Elites could derive substantial financial rewards by consolidating customs processes in Bahrain under the control of a small handful of actors. The Shaykh refused an earlier suggestion from the British Viceroy to appoint a British customs director, viewing it as “threatening his independence” (ibid., 180). Customs duties continued to be an important source of government revenue across the Gulf, even in polities that relied predominantly upon oil and gas revenues. From 1948 to 1970, oil revenues accounted for 75.8% of total government revenues in Bahrain, but customs duties represented the next highest revenue earning stream with 16.5% (Abdel Latif 1985, 97). Control over customs and free zones oscillated between royal family members and individuals from prominent families loyal to Al Khalifa. A later ruler of Bahrain, Shaykh Isa bin Salman Al Khalifa, merged the customs and ports departments in 1966 and appointed Shaykh Khalid bin Abdullah Al Khalifa as general director of the agency—further institutionalizing the ruling family’s control over this sector (Official Order 1966). The influence of the Bahraini royal family over customs, ports, and free zone affairs solidified over the subsequent decades. During free zone creation in the early 2000s, a member of the ruling family, Shaykh Daij bin Salman Al Khalifa, presided as president of the government entity responsible for customs, ports, and free zones. Major General Basim Yacub Al Hamer took over control from Daij bin Salman in 2008 (Kingdom of Bahrain Ministry of Interior 2018). The Al Hamer family is a public supporter of the Al Khalifa ruling family, and this support is affirmed in official press releases issued by the Bahrain News Agency (“More condemnations” 2015). In 2011, King Hamad bin Isa Al Khalifa appointed Mohammed bin Khalifa bin Ali Al Khalifa as president of customs affairs, a position that included oversight of free zone affairs, through Decree 38 of 2011.

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Additional hydrocarbon discoveries in the 1960s and subsequent exports did not fundamentally alter the economic “rules of the game” (North 1990, 3) in trading hubs like Dubai. Reliance on customs duties for government revenue, rent generation from service provision, and dependence on foreign commercial activity remained pillars of the economy. Nearly 75% of Dubai’s total government revenues came from customs duties in 1968, whereas oil royalties and taxes accounted for approximately 97.1% of total revenues in neighboring Abu Dhabi (Kazim 2000, 230). Shaykh Rashid bin Said Al Maktoum, who ruled Dubai from 1958 to 1990, used the first floor of the customs building as his personal office (Dubai Customs 2020), likely to keep a close eye on this central department. Shifting customs regimes created winners and losers in the Gulf. Sharjah’s Qawasim tribe lost administration rights over the Port of Lingah in 1887, following customs reforms by the Persian government. When additional customs regulations ended the port’s free trade status, Dubai captured a significant portion of Lingah’s commerce (Zahlan 1978, 12). A later agreement over the GCC customs union in late 2002 and early implementation stages in 2003 increased barriers to trade in Abu Dhabi. A new five percent duty on previously exempted imports increased prices for local importers. “Abu Dhabi requires large imports of machinery and equipment, building materials, road construction and communications equipment” (El Mallakh 1981, 119). Before the implementation of the customs union and creation of free zones in Abu Dhabi, the emirate’s government provided local businesses with direct exemptions on customs duties to compete with incentives offered by free zones in Dubai and the northern emirates. The new GCC regulations, however, prevented Abu Dhabi from granting individual custom exemptions as an investment incentive. The introduction of GCC-wide customs regulations led one form of rent seeking—individual import duty exemptions—to be replaced by another manner of rent seeking. The emirate’s customs department considered a certification procedure involving a letter from the Ministry of Finance or General Industry Corporation that would eliminate the GCC duty for certain UAE businesses. Abu Dhabi ultimately produced a formal customs exemption program for “industrial production line inputs” (Industrial Development Bureau 2020), which had to adhere to the laws and regulations of the federal UAE government and the GCC.

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Omani policymakers likewise worked around customs regulations and rules of origin when possible. In some instances, this resulted in a blurring of the demarcation between the country’s onshore and offshore economies. The incentives offered by the SEZ at Duqm include the treatment of “finished or assembled products in the area … as locally produced products” (Duqm Special Economic Zone Authority 2017). By following rules of origin, Gulf-based companies can export their products into other GCC states duty free, provided the products meet standards set by the GCC customs union. This commercial caveat is significant because the UAE serves as Oman’s top export destination for non-oil goods in 2017 (Oman Ministry of Commerce and Industry 2014, 42; The Observatory of Economic Complexity 2017). Rules of origin were likewise important as Omani policymakers debated the conditions of the FTA with the United States. Whereas free zones are usually considered outside the GCC market, free zone companies in the Salalah Free Zone can access the free trade corridor created by the Oman-U.S. FTA.17 Permitting companies in free zones to produce local products and the inclusion of free zone companies into a bilateral FTA ensures that select companies receive overlapping benefits: those originating from their free zone status as well as those applying to onshore companies. This alignment of offshore and onshore incentives is an example of Oman’s tendency to diverge from GCC conventions on specific economic and security issues. Influential merchants in the Gulf have, at times, opposed stateled free zone development because of the associated encroachment of customs officials. For example, the joint venture between the Textile Merchants Group (Texmas), a major body of Dubai-based wholesale trade merchants, and Dubai Ports and Customs Authority exemplified merchant resistance to initiatives perceived as excessive state co-optation. The partnership led to the creation of Dubai Textile City, a quasi-free zone entity described by Texmas as “a state-of-the-art operational facility exclusively for its members” (“About TEXMAS” 2016). Although Dubai Textile City was intended to function as a free zone, “the idea found little support among traders who feared they would have to divulge too many ‘trade secrets’ to customs officials in order to enjoy their duty-free status” (Shakir 2008). Preexisting internal divisions between merchants

17 Interview 39, staff member at Salalah Free Zone, Salalah, Oman, June 9, 2016.

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and rulers in the emirate of Dubai (Hanieh 2011, 58) and the rise to prominence of some merchants without strong links to Dubai’s ruling family (Almezaini 2013, 50) offer a historical backdrop to merchant resistance to state-led economic initiatives. Customs duties are just one of many different commercial fees in use across the Gulf. Dubai’s ruling family, for example, imposed various fees on the emirate’s population for revenue generation. “Sources of income that the Sheikh of Dubai specifically had were his family’s control of the ferrying service across the Creek, such that no one else was allowed to have such a service, and the taxi service in Dubai, and between Dubai and Sharqah,” explains Kazim (2000, 188). The modern emirate continues to rely on government-led service provision; Dubai derives between eight and twelve percent of GDP by providing services through state-owned enterprises (SOEs) to foreign residents (Hvidt 2009, 409). The effectiveness of such an economic model, in terms of revenue generation, depends on continued influxes of residents and visitors. While Gulf free zones are largely tax free, annual free zone license registration fees function like a flat tax on firms. Compared with other regions, the Gulf is a relatively low tax environment, but taxes nevertheless exist. Saudi Arabia introduced personal income, capital gains, and corporate taxes in 1950, but the tax law was amended six months later to exclude Saudi citizens (International Monetary Fund 2016, 4). Abu Dhabi, Dubai, Sharjah, and Ras Al Khaimah established various forms of income tax through royal decrees between 1965 and 1969 (OECD 2012, 15). The UAE’s constitution allows the country’s federal government to levy taxes, but only excise and value-added taxes have been imposed at the federal level. In Bahrain, Emiri Decree Law 22 of 1979 imposed a tax on locally sourced income (OECD 2011, 12–13). There are a range of corporate taxes on foreign and national corporations—especially those operating in the oil and gas sector. Corporate income taxes in Oman, Kuwait, and Saudi Arabia range from as low as 5% to as high as 85% (KPMG 2014; Ernst & Young 2018). Gulf free zones and their authorities offer investors additional assurances against the introduction of new corporate taxes in the future. For example, the website of Dubai’s Jebel Ali Free Zone mentions “0% corporate tax for 50 years” as a “renewable concession” (JAFZA 2020). Whereas Gulf governments have long offered concessions to multinational firms for oil exploration and production, tax concessions within free zones—if even for prospective taxes—provide additional options for

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attracting firms and raising revenues through a fee-based structure. Yet the tax concessions in free zones do not protect against all tax regimes. The 2016 agreement to introduce value-added tax in GCC threatened to alter economic institutions associated with the region’s free zones. Staff members from UAE free zones were uncertain about precisely how value-added tax would be implemented.18 Meanwhile, a business editor from a Bahraini daily newspaper suggested that Dubai’s free zones could likely avoid value-added tax implementation because “they actually have free zones”—a simultaneous reference to the ambiguous status of Bahraini free zones.19 Chapter 6 describes how the value-added tax heightened competitive dynamics within and among emirates in the UAE, and Chapter 8 explores how new tax regimes are likely to impact future free zone development in the Gulf.

References Abdel Latif, Abla. “Public Finance in Bahrain from 1935 to 1981.” In Bugent, Jeffrey and Theodore Thomas eds. Bahrain and the Gulf: Past Perspectives and Alternate Futures. Kent: Croom Helm, 1985. “About TEXMAS.” Textile Merchants Group. Accessed October 28, 2016. https://texmas.com/about-texmas/. Acemoglu, Daron. “Why Not a Political Coase Theorem? Social Conflict, Commitment, and Politics.” Journal of Comparative Economics 31 (2003): 620–652. Acemoglu, Daron and James Robinson. “Paths of economic and Political Development.” In Weingast Barry R. and Donald Wittman, eds. Oxford Handbook of Political Economy. Oxford: Oxford University Press, 2009. Acemoglu, Daron and James Robinson. “Economics versus Politics: Pitfalls of Policy Advice.” Journal of Economic Perspectives 27.2 (2013): 173–192. Al Sayegh, Fatma. “Merchants’ Role in a Changing Society: The Case of Dubai, 1900–90.”Middle Eastern Studies 34.1 (1998): 87–102. Al-Asfour, Ahmed and Sami A. Khan. “Workforce Localization in the Kingdom of Saudi Arabia: Issues and Challenges.” Human Resource Development International 17.2 (2014): 243–253.

18 Interview 23, manager at Masdar Free Zone, Abu Dhabi, April 14, 2016; Interview 47, consultant at Khalifa Industrial Zone Abu Dhabi (KIZAD), Abu Dhabi, UAE, July 24, 2016. 19 Interview 68, business editor at Gulf Daily News, Manama, Bahrain, August 24, 2016.

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Almezaini, Khalid. “Private Sector Actors in the UAE and Their Role in the Process of Economic and Political Reform.” In Hertog, Steffen, Giacomo Luciani, and Marc Valeri. Business Politics in the Middle East. London: Hurst & Company, 2013. Al-Tajir, Mahdi Abdalla. Bahrain 1920–1945: Britain, the Shaikh and the Administration. London: Croom Helm, 1987. Anscombe, Frederick F. The Ottoman Gulf: The Creation of Kuwait, Saudi Arabia, and Qatar. New York: Columbia University Press, 1997. Assaad, Ragui. “Making Sense of Arab Labor Markets: The Enduring Legacy of Dualism.” IZA Journal of Labor & Development 3.1 (2014): 1–25. Bahrain Labour Market Regulatory Authority. “Labour Cost Components (in BD per month) Among Bahraini and Non-Bahraini workers 2006—Q1.” Information and eGovernment Authority. https://blmi.lmra.bh/2017/12/data/ lmr/Table_26.pdf. Bahrain National Museum. Wall Text. Natural History and Technology. Manama: Bahrain, 2016. Crystal, Jill. Oil and Politics in the Gulf: Rulers and Merchants in Kuwait and Qatar. New York: Cambridge University Press, 1995. Davidson, Christopher. Dubai: The Vulnerability of Success. London: Hurst & Company, 2008. Dubai Customs. “History & Background.” The Government of Dubai. Updated April 12, 2020. https://www.dubaicustoms.gov.ae/EN/ABOUTDUBAICU STOMS/Pages/HistoryAndBackground.aspx. Dubai Statistics Centre. “Gross Domestic Product at Current Prices—Emirate of Dubai: 2007–2006.”Government of Dubai. Accessed June 6, 2018. https:// www.dsc.gov.ae/Report/GDP%20Constant%20(2007-2006).pdf. Duqm Special Economic Zone Authority. “Incentives.” Accessed April 6, 2017. https://www.duqm.gov.om/invest/incentives. Eggertsson, Thrainn. “Quick Guide to New Institutional Economics.” Journal of Comparative Economics 41.1 (2013): 1–5. El Mallakh, Ragaei. The Economic Development of the United Arab Emirates. Abingdon: Routledge, 1981. Ernst & Young. Global Oil and Gas Tax Guide: 2018. Ernst & Young, June 2018. https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/top ics/tax/guides/ey-oil-and-gas-tax-guide-2018.pdf Farn, Alexander E. Pearls: Natural, Cultured and Imitation. Letchworth: Butterworth & Co, 1986. Fromherz, Allen. Qatar: A Modern History. London: I.B. Tauris & Co, 2012. Fuccaro, Nelida. Histories of City and State in the Persian Gulf: Manama since 1800. Cambridge: Cambridge University Press, 2009. Gardner, Andrew. City of Strangers: Gulf Migration and the Indian Community in Bahrain. Ithaca: Cornell University Press, 2010.

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Gray, Matthew. Qatar: Politics and the Challenges of Development. London: Lynne Rienner Publishers, 2013. Hanieh, Adam.Capitalism and Class in the Gulf Arab States. New York: Palgrave Macmillan, 2011. Heard-Bey, Frauke. From Trucial States to United Arab Emirates: A Society in Transition. Michigan: Longman Publishing Group, 1984. Herb, Michael. All in the Family: Absolutism, Revolution, and Democracy in the Middle Eastern Monarchies. Albany: State University of New York Press, 1999. Herb, Michael. The Wages of Oil: Parliaments and Economic Development in Kuwait and the UAE. Ithaca: Cornell University Press, 2014. Hertog, Steffen (ed.). National Employment, Migration and Education in the GCC. Berlin: Gerlach Press, 2012. Hertog, Steffen. “Saudi Economic Reform Efforts.” In Aarts, Paul and Gerd Nonneman, eds. Saudi Arabia in Balance: Political Economy, Society, Foreign Affairs. New York: New York University Press, 2005. Hertog, Steffen. Princes, Brokers, and Bureaucrats: Oil and the State in Saudi Arabia. Ithaca: Cornell University Press, 2010. House of Khalifa. “Al Khalifa Royal Family Tree.” Accessed January 11, 2018. https://houseofkhalifa.com/family-tree/. Hvidt, Martin. “The Dubai Model: An Outline of Key Development-Process Elements in Dubai.”International Journal of Middle Eastern Studies 41 (2009): 397–418. Industrial Development Bureau. “Customs exemption.” Abu Dhabi Government. Updated 2020. https://idb.added.gov.ae/incentives/Customs-Exemption. International Monetary Fund. Diversifying Government Revenue in the GCC: Next Steps. Riyadh: International Monetary Fund, October 26, 2016. JAFZA. “Why JAFZA: Competitive location for business growth.” Jebel Ali Free Zone. Updated 2020. https://jafza.ae/why-jafza/. Jones, Toby Craig. Desert Kingdom: How Oil and Water Forged Modern Saudi Arabia. Cambridge: Harvard University Press, 2010. Kapiszewski, Andrzej.Nationals and Expatriates: Population and Labour Dilemmas of the Gulf Cooperation Council States. Reading: Ithaca Press, 2001. Kazim, Aqil.The United Arab Emirates A.D. 600 to the Present: A Socio-Discursive Transformation in the Arabian Gulf . Gulf Book Centre, 2000. Keshavarzian, Arang. “Geopolitics and the Genealogy of Free Trade Zones in the Persian Gulf.”Geopolitics 15.2 (2010): 263–289. Khuri, Fuad. Tribe and State in Bahrain: The Transformation of Social and Political Authority in an Arab State. Chicago: University of Chicago Press, 1981.

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Kingdom of Bahrain Ministry of Interior: Customs Affairs. “History of Customs.” Ministry of Interior. Accessed January 11, 2018. https://www. bahraincustoms.gov.bh/history_customs.php?SID=WWxRd2VVcHVUblJ RVkZFOQ%253D%253D. KPMG. Taxation of Cross-Border Mergers and Acquisitions: Oman. Muscat: KPMG, May 2014. https://home.kpmg/content/dam/kpmg/pdf/2014/ 05/oman-2014.pdf. Lancaster, William and Fidelity Lancaster. Honor is in Contentment: Life before oil in Ras al-Khaimah (UAE) and Some Neighboring Regions. Berlin: De Grruyter, 2011. Lawson, Fred H. “International Regimes and Commercial Hegemony: Control of the Arabian Littoral, 1800–1905.” The International History Review 5.1 (1983): 84–112. Lawson, Fred H. Bahrain: The Modernization of Autocracy. Boulder: Westview Press, 1989. Letter, File 1/8, pg. 2, “Translation From Ahmad Ben Ali Al Thani (Ruler Of Qatar) To Sheikh Zayed Ben Sultan Al Nhayyan (Ruler Of Abu Dhabi),” 1970, Sir Geoffrey Arthur Collection, Oxford University, Middle East Centre Archive. Lienhardt, Peter. Shaikhdoms of Eastern Arabia. Hampshire: Palgrave, 2001. Lindsey, Gene. Saudi Arabia. New York: Hippocrane Books, 1991. Looney, Robert. “The Omani and Bahraini Paths to Development: Rare and Contrasting Oil-based Economic Success Stories.” World Institute for Development Economic Research (2009): 1–29. Mogielnicki, Robert (the author). Beyond Perceptions: The Challenge of Emiratization in Abu Dhabi and Dubai. M.Phil thesis: Oxford University, 2015. “More Condemnations of Iran’s Flagrant Meddling.” Bahrain News Agency. July 26, 2015. Accessed October 6, 2017. https://bna.bh/portal/en/news/ 678903. Nagai, Kihohito. “A History of the Cultured Pearl Industry.” Zoological Science 30 (2013): 783–793. North, Douglass C.Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press, 1990. North, Douglass, John Wallis, and Barry Weingast. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. New York: Cambridge University Press, 2009. OECD. Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Bahrain. Paris: OECD Publishing, 2011, 12–13. OECD. Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: United Arab Emirates. Paris: OECD Publishing, 2012.

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Official Order. “Merging the Ports and Customs Departments.” November 5, 1966. Archives: Historical Documents. Kingdom of Bahrain Ministry of Interior Customs Affairs. Accessed January 11, 2018. https://www.bahraincu stoms.gov.bh/uploads/images/doc5.jpg. Oman Ministry of Commerce and Industry. Annual Industry Report 2014. Muscat: Department of Industrial Information, 2014. Onley, James. “Britain and the Gulf Shaikhdoms, 1820–1971: The Politics of Protection.” Center for International and Regional Studies. Working Paper No. 4 (2009). Owen, Roger and Sevket Pamuk. A History of the Middle East Economies in the Twentieth Century. London: I.B. Taurus, 1998. Oxford Business Group.The Report: Abu Dhabi 2014. Oxford: Oxford Business Group, 2014. Rugh, Andrea B. The Political Culture of Leadership in the United Arab Emirates. New York: Palgrave McMillan, 2007. Sadik, Muhammad and William P. Snavely. Bahrain, Qatar, and the United Arab Emirates: Colonial Past, Present Problems, and Future Prospects. Massachusetts: Lexington Books, 1972. Salama, Samir. “Emiratisation Efforts Falling Short.”Gulf News. November 19, 2013. Accessed April 10, 2015. https://gulfnews.com/news/uae/govern ment/emiratisation-efforts-falling-short-1.1257040. Scott, Richard. “Independence for Kuwait: UK Protection Withdrawn.” The Guardian. June 20, 1961. Accessed May 10, 2018. https://www.thegua rdian.com/theguardian/1961/jun/20/fromthearchive. Shakir, Husain. “Textile City Likely to Open This Year.” Gulf News. May 16, 2008. https://gulfnews.com/business/economy/textile-city-likelyto-open-this-year-1.105512. Speece, Mark. “Aspects of Economic Dualism in Oman, 1830–1930.” International Journal of Middle East Studies 21 (1989): 495–515. The Observatory of Economic Complexity. “Oman: Export Destinations.” MIT . https://atlas.media.mit.edu/en/profile/country/omn/#Pro duct_Space. Accessed September 28, 2017. Treaty. Engagement towards the British Government, entered into by the Chief of Sohar, for the prevention of Slave Trade. 22 May, 1849. In Lewis Hertslet, Hertslet’s Commercial Treaties: A Collection of Treaties and Conventions, Between Great Britain and Foreign Powers. London: Butterworths, 1856. Volume IX, pp. 715–716. UAE Federal Law 8 of 1984. Article 22. https://www.uaeahead.com/knowle dge/laws/doc/10b.htm. UAE Federal Law 2 of 2015. Article 329. https://ejustice.gov.ae/downloads/ latest_laws2015/federal_law_2_2015_commercial_companies_en.pdf.

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“UAE to Allow 100% Foreign Ownership of Businesses.” Gibson Dunn. November 25, 2020. https://www.gibsondunn.com/uae-to-allow-100-per cent-foreign-ownership-of-businesses/. Winckler, Onn. “Labor and Liberalization: the Decline of the GCC Rentier System.” Political Liberalization in the Persian Gulf. London: Hurst & Company, 2009, 59–85. Yanai, Shaul. The Political Transformation of Gulf Tribal States: Elitism and the Social Contract in Kuwait, Bahrain and Dubai 1918–1970s. Eastbourne: Sussex Academic Press, 2014. Young, Karen. Political Economy of Energy, Finance and Security in the UAE: Between the Majilis and the Market. London: Palgrave MacMillan, 2014. Zahlan, Rosemarie Said. “The Impact of the Early Oil Concessions in the Gulf States.” In Lawless, R. I. (Ed.), The Gulf in the Early 20th. Century: Foreign Institutions and Local Responses. Durham: University of Durham, 1986. Zahlan, Rosemarie Said. The Origins of the United Arab Emirates: A Political and Social History of the Trucial States. London: The MacMillan Press, 1978. Zahlan, Rosemarie Said. The Creation of Qatar. London: Croom Helm, 1979.

CHAPTER 3

The Dubai Model and UAE Free Zones

Dubai’s expansive free zone system is considered a model for regional and global free zone development. However, the establishment and growth of Dubai’s flagship free zone at Jebel Ali in the 1980s and 1990s occurred alongside the emergence of other free zones in the hydrocarbon-scarce northern emirates. The commercial success of Jebel Ali was neither predetermined nor guaranteed, and Dubai had several political objectives for its first free zone. In the early 2000s, Abu Dhabi’s government began aggressively promoting free zone development in the oil-abundant, capital emirate. Without a federal mechanism for coordinating free zone development across emirates exercising a large degree of economic policy autonomy, these commercial entities proliferated drastically during the high-growth years of the early 2000s. The consequent development outcomes included successful business clusters and commercial flops. Referencing the World Economic Forum’s global competitiveness report for 2012–2013, the UAE’s Ministry of Economy stated that the country’s emirates: have succeeded in the application of their strategy to diversify their economies through the creation of free zones in specific sectors, allowing them to evolve and shift from a trading economy to a knowledge based economy. (United Arab Emirates Ministry of Economy 2015, 60)

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_3

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This statement implies that free zone growth was balanced across UAE territories with coherent free zone strategies, that free zones played a critical role in diversification efforts, and that free zones facilitated an evolution from a trading economy to a knowledge-based economy. A political economy analysis of free zones in the UAE, however, reveals that free zone growth was incredibly unbalanced among territories; free zone-led diversification efforts had the most success in territories that lacked substantial proven reserves of natural resources; and free zones did not always accomplish their stated objectives, such as generating more employment opportunities for Emiratis. Yet free zone development in the UAE has had a considerable degree of success. Flagship free zones—such as Jebel Ali Free Zone and the Dubai International Financial Centre (DIFC)—raised the international commercial profile of Dubai and that of the wider UAE. Successful free zones provided a commercial template for expansion of the system into other emirates and the incorporation of new industries, such as ecommerce or electronic sports. Abu Dhabi’s Khalifa Industrial Zone and Abu Dhabi Global Market resembled more established counterparts in Dubai; however, these newer free zones sought to attract capital from Asia and facilitate its deployment in Abu Dhabi. Free zones function as central commercial hubs in the northern emirates, which remain economically marginalized and partially dependent upon the prevailing business dynamics in Dubai and Abu Dhabi. The foundations of free zone development in the region are rooted in historical institutions and older mechanisms for organizing economic processes, but economic policy decisions in the emirate of Dubai and its Jebel Ali Free Zone played an integral role in the modern shape and trajectory of free zones across the Gulf.

Early Emergence and Dominance of Dubai’s Free Zones The emergence of free zones in Dubai followed decades of efforts to improve the local trade and services sectors. Concessions from hydrocarbon exploration and loans from resource-abundant neighbors provided funds for ambitious infrastructure investments, which increased Dubai’s reputation for free trade, benefited local merchants, and attracted new waves of immigrants. “Dubai chose to invest its oil revenues in economic

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activities that could strengthen the income-earning potential of its traditional income earners, namely, traders and service providers,” writes Hvidt (2009, 400). The first of these major infrastructure projects included a dredging of the Dubai Creek—the traditional hub of mercantile activity in Dubai—in the 1950s. Dubai’s then ruler, Shaykh Rashid Al Maktoum, also embarked on an electrification program, development of the Dubai port, further improvements to the Dubai Creek, and building Dubai’s airport as part of his administration’s development projects in the 1960s (Kazim 2000, 237–239). Although the Dubai Creek served as a bustling commercial hub for centuries, the creek’s shallow waters prevented the trading hub from receiving large maritime vessels. After various attempts to dredge the creek, as well as the opening of Port Rashid in 1972, Shaykh Rashid commenced plans to construct the Jebel Ali Port a further 50 km along the coastline toward Abu Dhabi. Hydrocarbon reserves—though limited—injected capital into the local economy during this critical juncture in Dubai’s history, as evidenced by the sevenfold expansion of Dubai’s economy between 1968 and 1973 (Zahlan 1978, 185). Within this context, Stephen Ramos (2010, 129) argues that oil revenue permitted Shaykh Rashid to develop monumental projects like the Jebel Ali Port and free zone but that rent streams from hydrocarbon exports were short-lived. An Emirati manager at Jebel Ali Free Zone echoed a common national narrative by explaining: “oil just acted as a springboard. The leadership, Shaykh Rashid [bin Saeed Al Maktoum], understood that oil would not last and economic diversification was necessary.”1 Shaykh Rashid formally signed the decree establishing the first free zone authority, the Jebel Ali Free Zone Authority (JAFZA), in 1980. The Jebel Ali Free Zone officially opened in 1985 to facilitate the warehousing and storage of shipments entering the port. The free zone and port “were, from the very first, a symbiotic whole where the free zone encouraged traffic through the port and the port facilitated investment in the free zone and by extension Dubai,” writes Khalili (2020, 113). The new free zone formerly organized commercialized rent generation within a government-controlled entity. This permitted the Al Maktoum ruling family and Dubai’s government to expand their active role in the rent generation and distribution processes common across the Gulf. A

1 Interview 3, Emirati manager at Jebel Ali Free Zone, Dubai, March 31, 2016.

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former JAFZA consultant described the decision to build Jebel Ali as an effort to “pull industry away from the creek and to a place with more room for expansion and potential,”2 while Ramos (2010, 114) portrays the Jebel Ali project as “based on a large trade facility and with a more cosmopolitan free port policy that was truer to Dubai’s pre-oil origins and merchant vocation.” The notion of returning to a free port policy reflects the political dimension discussed by Keshavarzian (2010, 275), who contends that the free zone possessed the overt objective of safeguarding economic autonomy from Abu Dhabi: “JAFZA set an important precedent for a whole roster of subsequent free trade zones established in Dubai that directly contravened UAE’s federal law that inhibited foreign business.” This view resonates with Michael Herb’s argument (2009, 380) that Dubai’s rulers promoted economic growth to avoid becoming subjects of the Al Nahyan ruling family in Abu Dhabi. Jebel Ali Free Zone not only partially insulated the emirate’s economy from the political influence of Abu Dhabi but also afforded the government of Dubai commercialized rent streams that did not depend directly on the hydrocarbon sector.3 The regulatory independence of the free zone reinforced nascent conceptualizations of economic autonomy between emirates, which had only agreed to form a federation in 1971. When the Jebel Ali Free Zone officially opened in 1985, it hosted 19 companies. By 2016, it sustained more than 7,000 fee-paying companies, 207,000 jobs, and 60,000 residents. Moreover, the free zone attracted approximately 32% of the UAE’s FDI in 2015 (Jebel Ali Free Zone 2015, 1–2). Compared with other UAE free zones, JAFZA was a trade behemoth. The free zone handled approximately 66% of imports, 45% of non-oil exports, and 29% of reexports between the UAE’s domestic market and the country’s free zones—considered foreign direct trade by the UAE’s customs authority—in the first five months of 2014 (Federal Customs Authority 2014, 54). Its companies contributed more than 21 percent of Dubai’s GDP and facilitated a quarter of the emirate’s non-oil trade volume in 2016 (Jebel Ali Free Zone Authority 2016, 5). The free zone generated AED 1.95 billion (~ $531 million) in revenue for 2017,

2 Interview 35, former consultant at JAFZA and managing director of consultancy focusing on special economic zones, Dubai, May 31, 2016. 3 It is worth noting that a number of oil and gas companies are registered clients of the free zone.

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a

Table includes data estimates corresponding to a period between 2014 and 2016, with the goal of providing an overview of the free zone’s economic contribution to Dubai and the UAE a

Fig. 3.1 Snapshot of JAFZA’s economic contribution (2016)

of which approximately AED 1.68 billion were net profits (“Free zone exports” 2018) (Fig. 3.1). JAFZA’s status within Dubai is comparable to that of state-owned oil and gas companies in Abu Dhabi and neighboring GCC states. Easa Saleh Al-Gurg—a prominent UAE government advisor and former longstanding Ambassador to the United Kingdom—describes the Jebel Ali port and free zone as having “contributed more, perhaps, than any other innovation to the present success which Dubai enjoys” (Al-Gurg 1998, 80). The free zone actively positioned itself as a key enabler to the development of Dubai. A brochure celebrating the 30th anniversary of JAFZA reinforces this view, describing Dubai as “a gateway to world trade” and as having growth “built almost entirely on non-oil resources” (Jebel Ali Free Zone 2015, 5). Even a report from the Crown Prince Court in Abu Dhabi, which marked the 40th anniversary of the UAE, recognizes the creation of Jebel Ali Free Zone as a main economic milestone in the country’s history (Crown Prince Court 2011, 17). Substantial growth in GCC government coffers in the 2000s—largely owing to rising hydrocarbon commodity prices—created a favorable business environment for Dubai’s free zones and demand for their services. Foreign investment and commercial real estate figures from this period contextualize the degree of demand. FDI inflows in the UAE increased from $1.18 billion in 2001 to $12 billion in 2005 (The McKinsey Quarterly 2007, 9). The sum of these investments totaled nearly three times the amount of FDI inflows into neighboring Saudi Arabia during the same period. Moreover, the supply of office space in the emirate rose from one million square meters in 2007–3.4 million square meters in 2010, achieving an occupancy rate of 98% in 2008 (Bloch 2010, 946). The increasing demand from investors encouraged the government of Dubai to continue replicating free zone models to capture investments from new sectors and economic activities (Fig. 3.2).

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Free Zone CreaƟon in Dubai (1985-2016) Total number of Free Zones

30 25 20 15 10 5 0 1980

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Fig. 3.2 Graph of operating free zones in Dubai

Strong market demand and the perceived success of the Jebel Ali Free Zone encouraged the creation of additional free zones in the emirate. JAFZA operates under the umbrella company Economic Zones World (EZW), which was established in 2006. A senior manager at EZW described the mission of the company: “The idea behind EZW is that it would help Jebel Ali grow and would be a way to structure the growth of smaller zones.”4 Dubai Auto Zone, Dubai Textile City, and National Industries Park5 also came under the umbrella of EWZ, which produced additional commercialized rent streams. Another free zone-oriented umbrella company, Dubai Technology Electronic Commerce and Media Free Zone (TECOM), was formally established by Law 1 of 2000, although the group started developing free zones prior to the issuing of this law. TECOM launched its first free zone, Dubai Internet City (DIC), in 1999 with the goal of becoming the Gulf region’s premier technology hub. A leading UAE telecoms company, Du, started operations in DIC,6 demonstrating how local governments utilize free zones as incubators for SOEs and semi-government organizations. DIC continues to appeal to technology startups. On October 1,

4 Interview 46, senior manager at Economic Zones World, Dubai, UAE, July 23, 2016. 5 National Industries Park is not a free zone but rather an onshore investment park. 6 Interview 17, managing director of an economic zones services company sponsored by TECOM, Dubai, UAE, May 23, 2016.

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2020, the voice-centric social app company Yalla Group, which is headquartered in DIC and has a number of Chinese investors, became the first UAE-based technology unicorn to list on the New York Stock Exchange. TECOM also established Dubai Media City (DMC) and Dubai Knowledge Village in 2000 and 2003, respectively. According to DMC’s website, it is the “largest integrated media hub” in the Middle East and North Africa, hosting over 1,600 companies and 24,000 affiliated employees (Dubai Media City 2020). Dubai Knowledge Village is a talent development-focused free zone, but it also hosted academic institutions in its early stages of development. When TECOM established Dubai International Academic City (DIAC) in 2007, the academic institutions previously based in Dubai Knowledge Village relocated to DIAC. The TECOM group refers to these free zones as business communities, and their clients tend to operate in service-oriented industries more than traditional imports and exports. Many of these free zones, for example, do not possess customs bonded areas. TECOM managed eleven free zones and oversaw 5,100 companies employing 76,000 individuals by August 2016. The government of Dubai created the Dubai Multi Commodities Centre (DMCC) free zone in 2002 to position the emirate as a global trading hub for international commodities. DMCC launched one exchange for diamonds in 2004 and another for gold and commodities in 2005. The free zone also trades in base metals, tea, coffee, spices, and other agricultural products. Self-described as “the world’s fastest-growing Free Zone” (DMCC 2020), DMCC comprised more than 18,000 registered companies in September 2020 and contributed an estimated 10% of the emirate’s GDP, according to the executive chairman Ahmed bin Sulayem (2020). Around 60,000 employees worked in the free zone as of late 2020, and the surrounding district contained dozens of residential and commercial towers and hundreds of retail outlets. Dubai possesses two airport free zones: Dubai Airport Freezone, near Dubai International Airport, and Dubai South, further south near the Al Maktoum International Airport. Dubai Airport Freezone contributed approximately 12% of the emirate’s total foreign trade in 2019, with machinery and electronics equipment accounting for the largest share of foreign trade (“DAFZA signs,” 2020). The free zone also facilitated 18% of Dubai’s total free zone trade in 2016 (Townsend 2018). Dubai South is a mixed-use economic zone and also the site for Expo 2020—the world fair event postponed until October 2021. Dubai South was launched in 2006 alongside the opening of Dubai World Central Airport, which is

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also known as Al Maktoum International Airport, and the area contains a custom bonded free zone extending to Jebel Ali Port (Dubai South 2015, 10). The official name of the free zone with this development area is Dubai World Central, or the DWC Free Zone. At the end of 2016, Dubai contained an expansive and diverse group of 24 operating free zones. The emirate’s free zone system includes a healthcare city, an equestrian park, and a humanitarian aid-focused free zone. The emirate’s airport free zones also launched e-commerce-focused initiatives—or sub-zones. In 2017, Dubai announced the creation of the $735 million CommerCity, a 2.1 million square foot e-commerce free zone near the Dubai International Airport. CommerCity is a joint venture between the Dubai Airport Freezone Authority and wasl Asset Management Group, a subsidiary of the Dubai Real Estate Corporation. A second e-commerce free zone, EZDubai, launched in January 2019 as part of Dubai South’s Logistics District. EZDubai was 20% operational and another 27% of the zone was under development by September 2020 (“47% of,” 2020). The total economic contribution of free zones illustrates the symbolic value of commercialized rent streams and their allocative potential. Dubai’s free zones managed between 90 and 91% of the UAE’s total free zone trade during 2014 and 2015, and free zones in Dubai contributed approximately 30% to the UAE’s total trade in 2015 (Federal Customs Authority 2015, 3–4). Dubai accounted for 47% of the country’s nonoil free zone exports, while free zones in neighboring Sharjah, Fujairah, and Ras Al Khaimah accounted for 32, 13, and 8%, respectively (ibid. 3–4). Hamad Buamim, president of the Dubai Chamber of Commerce and Industry, estimated that Dubai’s free zones account for 75% of the emirate’s total exports (“Dubai’s free zone” 2016), while other estimates suggest free zones produce as much as 80% of non-oil exports (Coleman and Thurley 2017). The director general of both the Dubai Free Zone Council and Dubai Airport Freezone, Dr. Mohammed Al Zarooni, described free zones as “the most important [local form of] economic support to the Emirate of Dubai” (“Free zone companies” 2017). Free zones accounted for 33% of Dubai’s GDP and sustained 330,000 jobs by the end of 2016 (ibid.). As there were only an estimated 112,513 Emiratis in Dubai’s labor force in

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2016,7 companies operating in the emirate’s free zones could theoretically employ this entire segment of Emirati citizens with ease. Approximately half of the emirate’s 18 industrial areas held free zone status—an important qualification given that the industrial sector contributed between 11 and 14% of Dubai’s GDP (Government of Dubai 2016, 5). However, the bulk of the emirate’s free zone trade did not promote traditional productive activity. The value of imports from Dubai’s free zones exceeded that of non-oil exports by nearly 22 to one, and nonoil exports represented a mere 2.5% of Dubai’s total free zone trade in the first half of 2015 (Federal Customs Authority 2014, 3). Many of the goods passing through Dubai are reexports. In the first seven months of 2015, Dubai reexported over $30.24 billion in free zone goods, whereas reexports through Abu Dhabi’s free zones accounted for a paltry ~$63.2 million (Federal Customs Authority 2015, 3). Government officials in Dubai furthermore believed that free zones dampened the impact of economic slowdowns and crises. The aforementioned Dr. Zarooni—who also serves as CEO of Dubai Silicon Oasis (DSO)—explained: While free zones can’t stay completely insulated from global growth dynamics, they are less insecure in the sense that a slowdown or stagnation isn’t likely to impact free zones as severely given that they are often special enclaves that generally enjoy governments’ policy and fiscal support. (Fernandez 2016)

Dr. Zarooni’s perception of free zone growth ascribes substantial agency to the state as the primary actor responsible for maintaining macroeconomic stability in turbulent settings—a view resonating with Dani Rodrik’s (1999, 17) understanding that generating growth through openness requires strong institutions of conflict management. In contrast to Dr. Zarooni’s optimistic view of a free zone-enabled resilience to economic downturns, Davidson (2008, 153) argues that Dubai’s dependence on free zones and tourism has fostered a precarious link between the confidence of the international community and the sustainability of Dubai’s “whole development model.”

7 Statistics rely on population estimates of 223,430 Emirati citizens for 2016 and Dubai Statistics Center—Labor Force Survey 2016 figures indicating that 48.2% of Dubai’s citizens are “economically active.”

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Tracing Free Zone Development in Abu Dhabi Whereas Dubai’s free zone system filled an economic void related to scarce hydrocarbon resources, Abu Dhabi’s free zones emerged alongside a robust energy sector. Given that “[t]he process of state formation sweeps up what resources have been to hand” (Dresch and Piscatori 2005, 11), it is unsurprising that Abu Dhabi’s hydrocarbon resources played a critical role in the emirate’s early modern history and remain an influential force behind political, economic, and social development across the UAE. Substantial hydrocarbon wealth delayed the timing of free zone creation in Abu Dhabi, limited the overall scale of free zone development in the emirate, and minimized the total contribution of free zones to the emirate’s economy. Abu Dhabi’s relatively late adoption of free zones in 2006 coincided with a renewed focus on economic diversification efforts across the UAE and within the capital emirate. The emergence of free zones in Abu Dhabi occurred during an eventful decade at the outset of the twenty-first century: The global price of crude oil swung from a low of $28.48 in November 2001 to a high of $166.32 in June 2008 (Macrotrends 2017); Khalifa bin Zayed Al Nahyan became ruler of Abu Dhabi in 2004; the local and federal governments released Abu Dhabi Vision 2030 and UAE Vision 2021; and the 2008 financial crisis forced Abu Dhabi to provide billions of dollars of debt relief to Dubai. Moreover, the end of the decade coincided with the beginning of “Arab Spring” protests across the Middle East and North Africa that, as Kristian Ulrichsen (2016, 210) argues, “injected urgency into the looming transition from oil-dependent economies toward competitive post-oil economic (and political) structures.” Thus, Abu Dhabi’s free zones were developed in a paradoxical period characterized by high, but fluctuating, oil prices and increased rhetorical efforts to diversify the emirate’s economy away from hydrocarbon resources. The hydrocarbon sector functioned as the largest and most lucrative economic activity in the emirate throughout the latter half of the twentieth century, when Abu Dhabi pursued a “relatively risk free” path of development based on hydrocarbon-fueled industrialization and overseas investments (Davidson 2007, 38). Abu Dhabi’s long-term industrial strategy began to take shape with the 1982 inauguration of the Ruwais industrial complex—a project that aimed to diversify downstream petroleum operations (El Mallakh 1981, 84). By 2017, nearly half of the manufacturing activity in Abu Dhabi took place in industrial zones

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Total number of Free Zones

Free zones in Abu Dhabi 6 5

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4 3 2 1 0 2005

Abu Dhabi Global Market

KIZAD TwoFour54 Masdar Free Zone 2006

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Fig. 3.3 Graph of free zone creation in Abu Dhabi

managed by ZonesCorp (ZonesCorp 2017), a developer and operator of economic zones created by the government in 2004. Despite being regularly listed as a free zone in major GCC newspapers, ZonesCorp clearly stated on its website that it does not issue free zone licenses and that all companies must maintain an Emirati shareholder with at least 51% ownership. Abu Dhabi also began recycling surplus oil wealth into sovereign wealth funds and other investment portfolios dating back to the 1970s; these investment funds were worth an estimated one trillion dollars by 2009 (Davidson 2009, 73–75) (Fig. 3.3). Abu Dhabi’s hydrocarbon-related development path relates closely to the five free zones that were established in the emirate between 2006 and 2013. The earliest official free zone in Abu Dhabi opened in Masdar City, a subsidiary of the government-owned sovereign wealth fund known as the Mubadala Development Company. Masdar Free Zone sits within a city of seven square kilometers and focuses primarily on renewable and future energies; however, the zone has increased the scope of industries since its inception in 2006. Approximately 30% of the free zone’s clients operate in energy generation, storage, distribution, and efficiency.8 Mohamed Al Ramahi, the chief executive officer of Masdar, linked Masdar’s growth to the opportunity to participate in what he described as one of the world’s most sustainable urban environments (Al Ramahi 2020). Indeed, Abu Dhabi’s early free zone experience reflected a strategy 8 Data on free zone sector analysis provided remotely by interviewee 23 on April 14, 2016.

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of investing in a familiar sector: energy. “The commercial enterprise based on production and circulation of new green technology started from the very beginning to generate revenues, becoming not a simple feature of the Masdar City project, but its very engine,” writes Federico Cugurullo (2013, 34). Masdar Free Zone also carefully regulated which companies obtained free zone licenses, which impacted a given firm’s ability to secure major contracts. “If you want to do business with the Abu Dhabi government, then you need to be registered within this free zone. There are only a few small exceptions made to this rule when the service is viewed to be in the strategic interest of the government,” explained a manager at Masdar Free Zone.9 He added that, “ADNOC [Abu Dhabi National Oil Company] and related national energy companies will not consider bids from companies that are not operating within this free zone.”10 The relationship between company registrations in free zones and procurement processes in the emirate thus ensured continued linkages to the oil and gas sector. Strong state support for the media-focused twofour54 free zone and Abu Dhabi Airport Free Zone (ADAFZ) reflected the success of DMC and DAFZA in neighboring Dubai. In 2016, twofour54 managed approximately 430 free zone clients and 600 freelancers. It awarded Aldar Properties a $272 million contract to build a new free zone site on Yas Island in 2017 (“Aldar” 2017). The free zone also signed a threeyear contract with a prominent regional network, MBC, and served as the filming location for the Bollywood film Dishoom. By 2020, the free zone reported more than 600 media companies with around 4,800 staff, 850 freelancers, and 130 entrepreneurs (twofour54 2020). CNN is a partner company of the free zone, and the American news-based television channel announced the launch of a journalism academy at twofour54 in September 2020. The growing popularity of twofour54 turned the media free zone into a quasi-hub for free zone activity in the emirate. One interviewee who owned a company registered in Masdar Free Zone said that his flexi-desk options allowed him to work from twofour54’s office

9 Interview 23, manager at Masdar Free Zone, Abu Dhabi, April 14, 2016. 10 Ibid.

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space, and he took advantage of this opportunity regularly.11 Another interviewee registered his consulting company at the RAK FTZ branch in the Abu Dhabi Mall, but he regularly worked out of workspaces at twofour54 because he resided nearby in Abu Dhabi.12 In a similar vein, state support for Etihad airlines is interrelated with the development of Abu Dhabi Airports Free Zone.13 According to its website, the airport free zone registered its 100th free zone license in November 2014 and then did not issue another press release until January 2017 (Abu Dhabi Airport Business City 2017). In June 2017, the free zone reported the issuing of its 200th license. These company registration figures show a small client base and slow growth rate when compared to other UAE airport free zones. “Free zones are not publicly listed so they don’t need to divulge their financials. We have no idea if they are making profits. I think Dubai free zones are making money, but it’s hard to say about the other free zones. It doesn’t seem like they are making losses,”14 explained an Abu Dhabi-based business journalist while describing the opaque business environment. The Khalifa Industrial Zone Abu Dhabi (KIZAD) is one of Abu Dhabi’s newer free zones and an industrial megaproject. KIZAD, which emerged conceptually during the creation of the Abu Dhabi Ports Company by royal decree in 2006, exemplifies governmental backing for free zones and demonstrates how SOEs are primary actors of state capitalism (Bremmer 2009, 42). A KIZAD interviewee explained, “Our price is very competitive because we have support from the Abu Dhabi government. Our goal is to use this support to open businesses.”15 Government attempts to keep the prices of free zone registration fees and other services below competitive levels are an additional form of rent seeking (Buchanan 1980, 10). 11 Interview 22, British owner of consulting firm registered in Abu Dhabi’s Masdar Free Zone, Abu Dhabi. April 14, 2016. 12 Interview 34, partner at UK training company based in Abu Dhabi but registered to RAK Free Zone, remote conversation from Dubai, UAE, May 28, 2016. 13 A group of global airlines has claimed that Etihad airlines received $15.2bn in capital transfers, interest free loans, and other subsidies since 2004 (“Airline” 2015). 14 Interview 49, business journalist at Thomson Reuters, Abu Dhabi, UAE, July 24, 2016. 15 Interview 47, consultant at Khalifa Industrial Zone Abu Dhabi (KIZAD), Abu Dhabi, UAE, July 24, 2016.

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Abu Dhabi’s government not only provided generous funding but also serves as the free zone’s anchor client. The onsite anchor client of KIZAD, Emirates Global Aluminium (EGA), is a joint venture between Mubadala Investment Company and the Investment Corporation of Dubai. EGA is one of the largest greenfield single-site aluminum smelters in the world (Abu Dhabi Ports Company 2016), and it is the country’s biggest industrial company outside of the oil and gas sector. The availability of cheap energy is a necessary input for the economical production of aluminum (Australian Atlas 2017). In many respects, KIZAD’s anchor client reveals a recycling of government-accrued rents rather than the existence of an independent private sector. The Khalifa Port Free Trade Zone was established in November 2016 as a distinct entity within KIZAD. Prior to the free zone’s emergence, KIZAD awarded both free zone and non-free zone licenses. Thus, the free trade zone represented an expansion of existing services rather than the creation of a distinctly new entity. Free zones in Abu Dhabi function as a mechanism for the government to control firm entry and activity in the local market and—in some cases— protect elite interests. “While often carrying the label of a free-market or free trade policy, SEZs are a way for the government to reorganize economic activity,” argues Moberg (2017, Ebook 102.2). The emirate’s selective registration process is apparent in the relatively modest number of free zone company registrations in Abu Dhabi. KIZAD hosted 30 free zone clients and 100 non-free zone clients by mid-2016; this generated an estimated 5,000 jobs.16 Masdar Free Zone, the oldest free zone in Abu Dhabi, only hosted 360 companies after nearly ten years of operations. These numbers are quite small when compared to the 7,600 companies and 135,000 jobs sustained by JAFZA, Dubai’s flagship industrial and trading zone. Yet a KIZAD consultant explained that “KIZAD only focuses on value-adding clients – we are very selective. We want clients that bring unique, industrial and smart projects [to Abu Dhabi].”17 Abu Dhabi’s substantial investable assets underpin the credibility of Abu Dhabi Global Market (ADGM) as a financial hub and free zone (Abu Dhabi Global Market 2016). The emirate’s fifth free zone on Al 16 Interview 47, consultant at Khalifa Industrial Zone Abu Dhabi (KIZAD), Abu Dhabi, UAE, July 24, 2016. 17 Interview 47, consultant at Khalifa Industrial Zone Abu Dhabi (KIZAD), Abu Dhabi, UAE, July 24, 2016.

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Maryah Island contends not only with DIFC in Dubai but also with established and growing financial hubs in Bahrain, Qatar, and Saudi Arabia.18 To compete with a well-known field of regional rivals, ADGM officials decided to focus on fintech, which a senior ADGM manager described as a unique proposition.19 However, various domestic constraints and international issues hampered ADMG’s early growth. The CEO of ADGM, Richard Teng, explained in an April 2016 interview that “there are challenges in the market at this point in time. Global economic conditions are not the most conducive for investment – there is market volatility, depressed commodities prices and many financial institutions are resizing their global operations and withdrawing from emerging markets” (Townsend 2016). A senior manager at ADGM elaborated on the domestic factors complicating the free zone’s growth: We want to be the best financial center for unique knowledge in the whole region, but the problem is implementation. We have a recession with oil prices – which was the key enabler. We are in a difficult position now….We have to deal with various politics and wars with Yemen that are slowing down our growth. And everybody got knocked down by the Brexit vote.20

The strong link between Abu Dhabi’s free zone system and the emirate’s oil and gas sector is a blessing and a curse. ADGM’s CEO cited depressed commodity prices, and the other staff member described oil as the key enabler to Abu Dhabi’s financial free zone. These descriptions portray ADGM as the product of an allocative state and underscore the difficulties of growing free zones in Abu Dhabi without stable financial support systems provided by hydrocarbon rents. A reporter from Thomson Reuters qualified ADGM’s response to the tough business environment: “It does not appear that international companies have responded very quickly to

18 Bahrain possesses an established reputation as a hub for Islamic banking and finance,

Qatar opened the Qatar Financial Centre (QFC) in 2005, and Saudi Arabia developed the King Abdullah Financial District in Riyadh. 19 Interview 48, senior manager at Abu Dhabi Global Market, Abu Dhabi, UAE, July 24, 2016. 20 Interview 48, senior manager at Abu Dhabi Global Market, Abu Dhabi, UAE, July 24, 2016.

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ADGM. They [ADGM officials] claim there is a lot of interest. But I think that it will take some time.”21 In March 2019, the Abu Dhabi government announced the launch of Hub71—an entrepreneurship initiative located in ADGM. Hub71 aims to support technology startups and promote Abu Dhabi as a preferred location for innovative technology companies. Hub71 is a flagship initiative of Ghadan 21, a three-year $13.6 billion dollar “accelerator programme” (Government of Abu Dhabi 2020)—also referred to as an economic stimulus package—launched by the government of Abu Dhabi in 2019. Building on its growing financial and technology credentials, ADGM has sought to carve out niches in fast-growing spheres of financial technologies, such as cryptocurrencies. The free zone’s approach to regulatory security and attractive financial incentives have attracted a number of cryptocurrency exchanges. There are clear links between Abu Dhabi’s hydrocarbon resources and the timing of free zone development in the emirate. First, the presence of proven oil reserves appears to be a strong demotivating factor for early experimentation with free zones. Abu Dhabi held 94 percent of the country’s proven oil reserves as of 2015 (“The UAE” 2017), and it established its first free zone later than any other emirate. Ajman, Umm Al Quwain, and Fujairah do not possess any substantial proven oil reserves, and these emirates adopted free zones in the late 1980s. Those emirates with small oil reserves, Sharjah and Ras Al Khaimah, adopted free zones in 1995 and 2000, respectively. The clear outlier in the group is Dubai, which opened Jebel Ali Free Zone in 1985, but it is worth noting that the emirate did not establish its second free zone until 1996. Thus, if Dubai’s early free zone experience is discounted, then the remainder of the emirate’s pattern of free zones development aligns more closely with that of Sharjah and Ras Al Khaimah. The relative value of oil over a given timespan also appears to have exerted a demonstrable effect on free zone creation in oil-abundant territories like Abu Dhabi. In fact, all of Abu Dhabi’s free zones emerged during years of rising oil prices. Quite contrary to the widely held belief that low oil prices spur free zone development, Abu Dhabi did not develop free zones during the sustained period of low and fluctuating oil prices from the late 1980s until the early 2000s. Rather, the emirate’s 21 Interview 49, business journalist at Thomson Reuters, Abu Dhabi, UAE, July 24, 2016.

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policymakers waited for rebounding prices to begin developing free zones. While Abu Dhabi government officials did discuss the possibility of creating a free zone on Saadiyat Island in the late 1990s, the project never came to fruition (Al Mulla 2013). In the four years prior to Abu Dhabi’s adoption of its first free zone in 2006, GCC revenues from oil and gas more than tripled from $100 billion to $325 billion, providing additional funds for government spending (The McKinsey Quarterly 2007, 9). In a similar vein, Qatar built its first two free zones in 2005—when natural gas prices reached historic highs. Correlation between increasing energy prices and free zone creation coincides with other findings linking nonhydrocarbon activities with hydrocarbon prices. For example, a 2014 IMF report on diversification in the GCC found that a steady increase in the share of non-hydrocarbons output in GDP is highly correlated with oil prices (Callen et al. 2014, 4) (Fig. 3.4). Relieved of the responsibility of becoming the emirate’s primary revenue generation mechanisms, free zones instead were visible, physical evidence of Abu Dhabi’s economic diversification efforts—even if limited free zone activity provided merely a symbolic contribution to diversification. This role for free zones became especially important during oil price volatility associated with the global financial crises and the sustained period of low oil prices beginning in 2014. An interviewed

$120.00

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Fig. 3.4 Graph of free zone development in the GCC & adjusted oil prices

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journalist from Thomson Reuters noted, “Abu Dhabi came late to the party. There was never [a] need to diversify until oil started falling. Unlike Dubai, Abu Dhabi does niche tourism, like the Formula 1 racing and globally-recognized museums. Then they realized that they needed free zones.”22 Free zone formation and associated development initiatives featured prominently in Abu Dhabi’s government visions—namely the Abu Dhabi Vision 2030 launch in 2008 and the presentation of UAE Vision 2021 at a Federal Cabinet meeting in 2010 (Vision 2021). The Abu Dhabi 2030 Vision describes free zones as “the primary tools for encouraging foreign investment” in Abu Dhabi (al-ru’¯ıa al-iqtis.¯adiyya 2030, 50), whereas the UAE Vision 2021 portrays the UAE as a “stable and diversified economy, distinguished by flexibility in adopting new economic models and gaining maximum benefit from global economic partnerships” (ru’¯ıat 2021, 17). Ulrichsen (2017, EBook Sect. 444.1) considers free zones central to the UAE’s long-term transition from a political economy based on hydrocarbons to a knowledge-intensive economy. Renewed calls for economic diversification appeared in the Ministry of Economy’s Annual Economic Report 2015, which was released amid low oil prices and the beginning of austerity measures. The central economic transformation target cited in the report is the contribution of nonoil sectors to 80 percent of the UAE’s GDP by 2021 (United Arab Emirates Ministry of Economy 2015, 31). While this report covers the national economy, Abu Dhabi shoulders the overwhelming responsibility for meeting this target because the remaining emirates in the UAE already rely predominantly on non-oil revenues. In 2009, for example, 75% of the UAE’s non-oil trade passed through Dubai’s two main ports (Davidson 2009, 173), whereas the hydrocarbon sector still represented 56.5% of Abu Dhabi’s GDP in 2012 (Oxford Business Group 2014, 18). It is within this context that Abu Dhabi’s free zones became prime tools to illustrate the emirate’s diversification efforts. The Abu Dhabi Ports Company describes its flagship project, KIZAD, as “a cornerstone of the Abu Dhabi Economic Vision 2030” that is expected to contribute 15% of Abu Dhabi’s non-oil GDP (Abu Dhabi Ports 2016). A press release issued by Emirates News Agency, the official government news agency of the UAE, portrays KIZAD’s activities during 2016 as “a key 22 Interview 49, business journalist at Thomson Reuters, Abu Dhabi, UAE, July 24, 2016.

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facilitator of economic diversification…in line with Abu Dhabi Vision 2030” and having “achieved significant growth in its Emiratisation drive” (“KIZAD registers,” Emirates 2017b). Yet KIZAD only accounted for 3.2% of the emirate’s non-oil GDP in 2016 (“KIZAD registers” albawaba 2017a)—a fraction of that provided by Jebel Ali Free Zone in Dubai. Jebel Ali Free Zone companies contributed more than 21% of Dubai’s total GDP and facilitated onequarter of non-oil trade by volume in 2015 (Jebel Ali Free Zone Authority 2016, 5). James Robinson and Ragnor Torvic’s work (2005, 197) on white elephants, inefficient projects with negative social value, suggests that such projects nevertheless offer political advantages for government officials. Free zones, regardless of commercial success or total economic contribution, accomplish two overt political objectives by employing Emirati citizens and demonstrating initiative to advance the economic interests of Abu Dhabi’s citizenry by creating a more sustainable economy. Despite a concerted government-led effort to cast free zones as key enablers of economic diversification, it is rather difficult to determine the impact of Abu Dhabi’s free zones using traditional economic indicators. A statistical bulletin issued by the UAE’s Federal Customs Authority in 2015 revealed the contribution of Abu Dhabi’s free zones to be less than one percent of total free zone trade in the UAE; Dubai accounted for 90% of total free zone trade in the country (Federal Customs Authority 2014, 3). Abu Dhabi’s total free zone trade amounted to a mere $158 million January through July of 2015, placing the capital emirate only ahead of Ajman’s $130 million in terms of overall free zone trade value during that period (ibid.). Hydrocarbon resources and subsequent economic diversification efforts can help to illustrate the timing, scale, and certain motivations behind free zone development in Abu Dhabi. However, there are nevertheless limits to any analysis of free zones in Gulf Arab territories that focuses exclusively upon hydrocarbon resources and perceptions of resource scarcity and abundance. Pure economic calculus does not necessarily determine free zone formation (Keshavarzian 2010, 265), and unstated objectives remain rooted in free zone development (Hakimian 2011, 857). Moreover, Hanieh (2011, 46) maintains that the proliferation of free zones removed constraints on internationalized capital and permitted business elites to exploit cheap labor and other resources.

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As was the case in other emirates, the relaxed labor regulations in Abu Dhabi’s free zones contradicted efforts to implement Emiratization policies. Territories with large free zone systems and small distributive responsibilities, such as Dubai, could partially mitigate political complications related to the contradictory implementation of these employment policies by creating substantial job opportunities in extensive, multi-tiered free zone bureaucracies. But the free zone system in Abu Dhabi was much smaller. Abu Dhabi possessed a total population of approximately 2,784,490 residents, about 536,741 Emirati citizens, and five free zones by the end of 2016. Comparatively, Dubai possessed a slightly smaller total population of 2,698,600 residents, approximately 233,430 Emirati citizens, and 24 free zones. Abu Dhabi’s public touting of high Emiratization rates within the KIZAD bureaucracy, which reached 64% by the end of 2016, nevertheless reflected a similar response to these contradictory employment policies (“KIZAD” Emirates 2017b). Statements by officials directly linked free zone activity with local employment and private sector development, suggesting additional efforts to mitigate this contradiction. The acting CEO of twofour54, Maryam Al Mheiri, expressed an optimistic view of the free zone’s contribution to the local economy: Creative sectors like the media will generate the vast majority of job opportunities in the future, so for our part, twofour54 will continue to focus on developing Emirati and Arab talent, to enable more private sector investment in the local industry and the job creation that comes with this. (“Predictions” 2017)

Fewer free zones offered a limited absolute potential for generating public sector employment opportunities in free zone bureaucracies. An interviewee from Masdar Free Zone admitted that while free zones succeeded in generating revenue and increasing foreign talent, free zones in Abu Dhabi have not been widely successful in generating significant employment for Emiratis.23 He viewed stricter Emiratization requirements for free zone companies as unlikely because, in his estimation, “lax restrictions on foreign talent” was a crucial consideration for free zone registrations.24

23 Interview 23, manager at Masdar Free Zone, Abu Dhabi, April 14, 2016. 24 Ibid.

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Rather than implementing labor regulations that may have discouraged FDI, Abu Dhabi’s government opted for other manners of rent redistribution to national citizens through free zones. UAE nationals, for example, are exempt from paying the registration fee of AED 5,000 (~$1,361) at Masdar Free Zone, receive a 33% reduction on licensing fees compared with non-nationals, and are eligible for an additional waiver of the first year’s business licensing fees if their projects are Khalifa Fund SMEs.25 For a sense of scale, the Khalifa Fund, a socioeconomic development agency of the government of Abu Dhabi, supported 608 projects between its founding in 2007 and 2013 (“New Khalifa” 2018). In this manner, the government leveraged commercialized rent streams to incentivize national employment through entrepreneurism rather than embarking upon the more difficult task of influencing meso-level firm behavior concerning the hiring of nationals. The World Bank estimated that the unemployment rate in the UAE was approximately 3.6% in 2014, placing the country in the mid- to lower-tier of unemployment rates across the GCC. Expatriates and lessprivileged locals in the northern emirates accounted for a disproportionate percentage of this official unemployment figure. In fact, an IMF country briefing estimated that as much as 80% of the UAE’s unemployed youth in 2011 were in the northern emirates (International Monetary Fund 2011). The small proportion of relatively privileged Emirati citizens in Abu Dhabi, at less than 20% of the total resident population, reduced domestic pressure upon the local government. Countries like Oman and Saudi Arabia, which touted much higher employment rates of 7.2 and 5.6% in 2014 and possess higher ratios of national citizens, are in greater need of economic development projects that provide adequate employment opportunities for locals.

The Northern Emirates Free zone development in the northern emirates is marked by its early, steady pace of development. The northern emirates of Sharjah, Ajman, Ras Al Khaimah (RAK), Umm Al Quwain, and Fujairah began establishing free zones in the late 1980s, and the bloc possessed ten operating free zones by the end of 2016. Sharjah and Ajman launched new free 25 Data on Masdar Free Zone fees provided remotely by Interviewee 23 on April 14, 2016.

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Fig. 3.5 Box and whisker plot of free zones in the northern emirates26

zone projects between 2016 and 2020, whereas the remaining emirates continued to develop their existing systems of free zones. Limited hydrocarbon resources influenced the timing and scale of free zone development in these emirates, where free zones were established earlier and more often than their resource-wealthy neighbors in Abu Dhabi, Qatar, and Kuwait. Consequently, free zones provided new rent streams for territories containing roughly one-third of the UAE’s total population but accounting for only 13% of the country’s overall economic output (Dokoupil 2014) (Fig. 3.5). Free zones provided a mechanism for rulers and their governments to generate new rent streams in lieu of revenue from oil and gas rents. The northern emirates completely lacking hydrocarbon resources were the first to establish free zones in the late 1980s. Sharjah and RAK, which each possessed modest hydrocarbon reserves, established their first free zones slightly later than Fujairah, Umm al Quwain, and Ajman. The opening of Dubai’s Jebel Ali Free Zone in 1985 served as a model for free zone development in these resource-scarce emirates. Observers often attribute Jebel Ali Free Zone’s success to its first-mover advantage27 ; however, this view ignores the environmental circumstances (Suarez and Lanzolla 2015, para. 2) and specific capabilities (Kerin et al. 1992, 48) behind Jebel Ali Free Zone’s development. Dubai’s modest endowment of hydrocarbons, hegemonic influence of regional trading patterns, and institutional 26 Figures sourced from interviews and data collection conducted by the author. 27 Interviewees 22 and 30 both suggested that Jebel Ali Free Zone provided Dubai

with the first-mover advantage in FZ development in the region.

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arrangements governing interactions between ruling and business elites strongly aided free zone growth in the emirate. Similar dynamics unfolded across the smaller free zone systems of the northern emirates. Sharjah The emirate of Sharjah’s free zone development was a bifurcated process. The first stage began in the mid-1990s. Hamriyah Free Zone (HFZ) and Sharjah Airport International Free Zone (SAIF ZONE) were both established in 1995 following royal decrees. HFZ utilizes the emirate’s 14-meters deep port and hosts around 6,500 companies from 163 countries (Hamriyah Free Zone Authority 2020). The free zone advertises business setup in less than one hour. Meanwhile, SAIF ZONE leverages the emirate’s international airport to attract customers. The airport free zone hosts more than 8,000 companies engaged in the industrial, commercial, and services sectors (Sharjah Airport 2020). Statistics from mid-2015 of total free zone trade in Sharjah recorded AED 19.9 billion (~$5.4 billion), indicating a free zone trading sector nearly four times as large in value as that of Fujairah (Federal Customs Authority 2014, 3). An Emirati from the senior management team at HFZ summarized how commercially inclined officials utilized both free zone access and foreign ownership regulations to accomplish vested interests: It is a try to or six losing

very sensitive topic [changing the foreign ownership law] but I will explain [it] to you. All locals are sponsors. I am a sponsor for five companies. If the foreign ownership law is changed, locals will be out. It will also affect the free zone. So what is the benefit?28

These comments portray the interviewee as simultaneously benefitting from two ostensibly competing economic institutions. Rather than being forced to support or oppose gradual economic liberalization, some citizens instead reaped benefits from both ends of the dichotomy consisting of limited economic openness and state control. The interviewee from Sharjah maintained several sponsorships with non-free zone companies, affording continual access to rents. Additionally, he held a full-time government position in a free zone that generated government revenues 28 Interview 55, a director from Hamriyah Free Zone, Sharjah, UAE, August 11, 2016. [Arabic]

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from free zone company registration, licensing, real estate, and related services. The benefits transferred to specific Emirati citizens through these two economic institutions served a political objective by minimizing conflict, conforming with the notion that all economic institutions must have a political end to survive and protect their interests (North et al. 2009, 146). The availability of rent streams, however, depends upon the continuation of foreign ownership regulations in the country and the existence of free zones as a commercial alternative. A second stage of free zone development began in 2016–2017 with the announcement of three new free zones: Sharjah Research Technology and Innovation Park, Sharjah Media City (Shams), and Sharjah Publishing City. The emirate’s ruler established Sharjah Research Technology and Innovation Park through royal decree in 2016, and the free zone supports research and development across industry, government, and academia. Sharjah Research Technology and Innovation Park focuses on a number of thematic pillars: water and environmental technologies, renewable energy, digitization, transportation and logistics, and industrial design. In August 2020, the American University in Cairo inked a partnership with the free zone to support startups in the Egyptian and Emirati ecosystems (“Sharjah research,” 2020). One of Shams’ key value propositions is the free zone’s digitalized business setup and operations, and companies could obtain a professional license for as low as $3,130. In 2019, the media free zone invested $13.6 million to build three new buildings as part of efforts to attract video game companies, individual gamers, and other media companies (Khan 2019)—a marketing strategy that aligns with UAE efforts to become a hub for e-sports. Meanwhile, Sharjah Publishing City brands itself as “the world’s first Free Zone concept dedicated exclusively to service the global Publishing and Printing industry” (Sharjah Publishing City 2020), and it is managed by the Sharjah Book Authority. In October 2019, Sharjah Publishing City offered free year-long trade licenses and offices to Emirati and Arab publishers as part of efforts to support the region’s publishing industry (“Sharjah Publishing City offers,” 2019). Ajman & Umm al Quwain Ajman’s free zone development process dates to the 1980s. The emirate’s government established the Ajman Free Zone (AFZ) in 1988. The free zone is located nearby Ajman port, which Hutchison Ports Ajman—a

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subsidiary of KC Hutchison Holdings and itself a free zone company— operates “under the guidance and supervision” (Hutchison Ports Ajman 2017) of the ruler and the crown prince. In November 2015, the ruler of Ajman issued a royal decree establishing a new media free zone, and Ajman Media City Free Zone formerly launched operations in 2018. The free zone caters to businesses operating in media, entertainment, technology, and digital media industries. Free zones generate substantial rents for the small territories of the northern emirates, and this is especially true for the larger, established free zones. An employee from AFZ stated, “We had [a] financial growth rate of more than 21 percent in the first half of 2016,”29 but would not elaborate on the free zone’s precise revenue figures. However, simple calculations estimated the free zone’s annual revenue to be at least AED 178.5 million (~$48.6 million) in license registration fees alone.30 This rough estimate remains a considerable annual sum for Ajman, the smallest of the UAE’s emirates in terms of territory, though it possesses a much higher population than Ras Al Khaimah, Fujairah, and Umm Al Quwain (Fig. 3.6). High company registration rates may generate rents from real estate and licensing, but the quantity of companies in a free zone does not necessarily translate into broader economic development progress. In fact, Moberg (2017, EBook Sect. 28.9) argues that “a zone that attracts a lot of firms may not be successful and can even be harmful for an economy.” Reports of AFZ’s client base ranged between 15,00031 and 22,000 registered companies in 2016-17 (“Ajman Free Zone opens” 2017), which would classify it as the largest free zone in the UAE in terms of company registrations.32 The firm registration figures are likely exaggerated: A staff member from SAIF Zone in Sharjah quipped that more companies close

29 Interview 56, staff member at Ajman Free Zone. Ajman, UAE, August 11, 2016. 30 This figure was calculated by multiplying 15,000 companies by AED 11,900, the

cheapest annual company registration. Registration fees for executive offices can cost as much as AED 60,000, so the actual revenue generated from licensing and registration was likely much higher than the estimate. Estimates and prices are based on December 2016 figures. 31 Interview 56, staff member at Ajman Free Zone, Ajman, UAE, August 11, 2016. 32 Most of the investors registered with AFZ are Indian, Russian, or European.

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New Company RegistraƟons

AFZ Company RegistraƟons 2000

1755

1500 1000

925

789

948

1061

2012

2013

727

500 0 2010

2011

2014

2015

Year Fig. 3.6 Graph of Ajman Free Zone firm registrations (2010–2015)

than open in AFZ each year.33 The industry focus of a given free zone also matters. Trading and other service-oriented industries require minimal infrastructure and can be set up quickly because of the low risk involved, whereas manufacturing investments tend to proceed more slowly because of the increased value risk.34 An interviewee from AFZ noted, “Dubai attracts companies that contribute to economic development. We don’t do that yet.”35 SMEs represented approximately 80% of AFZ clients, and the free zone aimed to further increase its SME portfolio by 30% in 2017 (“Ajman Free Zone aims” 2017). Umm Al Quwain’s Ahmed Bin Rashid Free Zone emerged through Royal Decree 2 of 1987. The free zone initially bore the name of Shaykh Ahmed bin Rashid Al Mualla—ruler of Umm Al Quwain from 1928 to 1981. In 2014, the local government rebranded the ABRFZ as the Umm Al Quwain Free Trade Zone (UAQ FTZ). The free zone’s primary facilities are located on E11, a central highway linking the largest cities in the country. UAQ FTZ’s e-commerce license helped maintain SME registrations during the second quarter of 2020, when the free zone witnessed a 70% increase in new e-commerce license registrations amid

33 Interview 57, staff member at Sharjah International Airport Free Zone, Sharjah, UAE, August 11, 2016. 34 Interview 35, former consultant at JAFZA and managing director of consultancy focusing on special economic zones, Dubai, UAE, May 31, 2016. 35 Interview 56, staff member at Ajman Free Zone, Ajman, UAE, August 11, 2016.

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the coronavirus outbreak (“Umm Al Quwain free,” 2020). The free zone likewise offers “special concessions” (UAQ Free Trade Zone 2020) at the emirate’s Ahmed Bin Rashid Port, where there is a free trade zone area. Ras al Khaimah The government in Ras Al Khaimah established two primary free zones during the early 2000s: RAK Free Trade Zone (RAK FTZ) in 2000 and Ras Al Khaimah Investment Authority (RAKIA) in 2005. The RAK FTZ demonstrated a commercial concentration of more than 30 firms per hector—the highest measure in a 2017 study of 23 free zones in Organization of Islamic Cooperation countries. The average ratio rested at 8.3 firms per hector (Coleman and Thurley 2017, 13). The emirate’s two free zones merged to form the Ras Al Khaimah Economic Zone (RAKEZ) in April 2017 (‘RAKEZ offers” 2017). The merger placed more than 13,000 free zone companies under the newly-created bureaucratic umbrella of RAKEZ. “It doesn’t hurt to also try to develop industrial capacity. This [RAKIA] is a big deal for a small place,” explained a RAKIA manager while highlighting the free zone’s significance for Ras Al Khaimah.36 The government also launched a short-lived media free zone—RAK Media Free Zone—in 2006. The objective behind the free zone’s creation involved boosting the emirate’s media industry through the provision of cost-effective professional licenses and visas. However, the free zone entered the UAE’s crowded media market prior to the global financial crisis of 2008, exacerbating the commercial challenges facing the fledgling initiative. RAK Media Free Zone stopped issuing freelance visas in 2009 and ceased operations thereafter. The UAE’s northernmost emirate also established a maritime free zone to better utilize its port infrastructure. RAK Maritime City, which was created by royal decree in 2009, employed a small staff of two full-time individuals and managed a portfolio of approximately 25 clients by mid2016. All of the tenants held a 25-year lease, and the occupancy rate was around 90 percent.37 Since the free generated income predominantly

36 Interview 58. Manager at Ras Al Khaimah Investment Authority (RAKIA). Ras Al Khaimah, UAE. August 14, 2016. 37 Interview 59, source closely associated with RAK Maritime City, remote conversation in Dubai, UAE, August 16, 2016.

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RAK FZs

FZ Employees

Companies

Established

RAK FTZ

480

8,000

2000

RAKIA

180

N/A

2005

RAK Maritime City

2

25

2009

Fig. 3.7 Table of selected Ras Al Khaimah free zone Figs. (2016)

through real estate activities rather than licensing and services, its estimated total revenue for 2015 reached approximately AED 240 million (~$65 million).38 RAK Maritime City rebranded as Saqr Port and Free Zone and is overseen by RAK Ports. RAK Ports also manages Ras Al Khaimah Port, which includes “a Free Zone area with direct waterfront access” (“Ras Al Khaimah Port,” 2020) (Fig. 3.7). The ruler of Ras Al Khaimah, Shaykh Saud bin Saqr Al Qassimi, presided over the operational launch of RAK Maritime City on May 16, 2011. He described the new maritime free zone as an effort to “mimic the past with modern tools” and reconnect with the emirate’s maritime tradition of trade (Yousef 2011). The ruler’s symbolic language suggested a return to a vibrant economic past for an emirate often described by UAE residents as sleepy, and his presence reinforced the central role of the royal family in leading economic development initiatives. Concurrent statements by free zone officials indicated that the initiative would create 5,000 jobs and increase trade at the nearby Saqr Port by 25% (ibid.). A closer examination of the perceived and actual benefits of free zone development in Ras Al Khaimah reveals a more complicated picture. RAK’s free zone activity contributed an estimated 16.3% to GDP in 2013 (“Ras Al Khaimah Free” 2015). However, an interviewee closely associated with RAK Maritime City portrayed the free zone’s contribution to the local economy in less flattering terms: Nothing…except the revenue that is going to the government…Free zone companies are not obliged to benefit local Emiratis and most of them don’t…None of the companies trade with the UAE. All of their activity is

38 The free zone rented out approximately six million square meters of real estate in 2015, and the free zone charged AED 40 per square meter of leased land.

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in the rest of the Gulf or India or elsewhere. Many were involved in the second stage of the Suez Canal or in Iraq or in a big port in Saudi Arabia. It’s nothing to do really with bettering and employing UAE people. They don’t supply consumer goods to the UAE marketplace.39

The resource-scarce northern emirates carefully balanced initiatives to generate commercialized rents against concerns over the economic contribution of free zone companies. A failure to encourage foreign companies to better engage with the local economy in RAK has the potential to fuel opposition to government efforts to attract international businesses. Fujairah The Fujairah Free Zone (FFZ) was established in 1987 as an entirely government-owned entity near the Port of Fujairah. The ruler of Fujairah, Shaykh Hamad bin Mohammed Al Sharqi, considers FFZ to be a driving force of the emirate’s economy and is directly concerned with its progress.40 Fujairah’s second free zone, Creative City, did not open until 2007 following Royal Decree 4 of 2007. The media-focused free zone operates under the administration of the Fujairah Culture and Media Authority. Fujairah’s free zones play an outsized role in the emirate’s relatively small economy. Fujairah’s annual free zone trade in 2015 alone accounted for ~ $2.26 billion (Government of Fujairah 2015, 155), whereas the emirate’s GDP only reached $4.1 billion in 2017 (“UAE’s Fujairah” 2018). Total free zone trade in Fujairah consumed over half of the emirate’s total foreign trade from 2013 to 2015. By way of comparison, free zone trade represented approximately 35% of total trade in neighboring Dubai (Jebel Ali Free Zone Authority 2016, 5) (Fig. 3.8).

Fig. 3.8 Table of Fujairah’s overall free zone trade41 39 Interview 59, source closely associated with RAK Maritime City, remote conversation in Dubai, UAE, August 16, 2016. 40 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April 18, 2016. 41 The figures are taken from the Fujairah Statistics Centre Statistical Yearbook 2015.

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Competing free zone models in the UAE highlight the tension that can arise between securing steady government revenue streams and encouraging productive activities. “The traditional or classical free trade zone focuses on production, manufacturing, and exports. You see these starting in the 1990s in the UAE and there is actual, real activity going on. This type of zone is suffering now,”42 explained an interviewee from FFZ. This contrasts with a newer free zone model, according to the interviewee, which mainly derives revenue from licensing and related services and engages in bidding wars to dole out flexi-desks. “This is morally not acceptable, but it is cost-effective. Image-wise it is not great but profitwise it looks fabulous. But you are just selling a bunch of papers.”43 His description of commercialized rents resonates with Moberg’s argument that any free zone can appear successful through profligate spending and fiscal incentives but that the reallocation of resources alone does not create wealth (Moberg 2017, EBook Sect. 46.1). Fujairah’s Creative City seems to fit the latter categorization of free zones that focus on licensing and services. According to its website, the free zone has “the reputation of providing a professional and engaging environment for individuals and businesses working in a broad spectrum of business fields including Media, Events, Consulting, Education, Communication and Marketing, Music and Entertainment, Design and Technology” (“Create Your Future” 2020). The Creative City manual for company registration lists pre-approved, non-export business activities but also notes, “Specific activities other than the ones mentioned can be provided as per client request, subject to management approval” (Creative City 2016, 10). As in Dubai and Abu Dhabi, free zones in the northern emirates permit employers to circumnavigate Emiratization policies. Supposed tensions between business communities and GCC governments over measures to limit the supply of cheap migrant labor and employ more nationals did little to change this labor policy (Stevens 2016, 8). All of the free zones in the northern emirates grant full exemptions from Emiratization requirements for free zone-registered firms despite socioeconomic conditions 42 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April 18, 2016; Interview 56, staff member at Ajman Free Zone, Ajman, UAE, August 11, 2016. 43 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April 18, 2016.

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that resemble those in Oman and Bahrain, where free zone employers are required to meet minimum Omanization and Bahrainization targets. For example, Omanization requirements for companies in Omani free zones ranged from ten to 25% in 2016. The northern emirates have not vigorously pursued Emiratization policies within free zones because preserving unfettered access to expatriate labor flows accomplishes a number of political and economic objectives. The unrestricted use of cheap expatriate labor increased demand for free zone access and licenses by local and foreign merchants because it helps firms extract larger rents (Callen et al. 2014, 24). The Emirati head of a prominent Abu Dhabi-based holding company supported this view by dismissing the notion that private firms have a specific duty to hire national citizens.44 Ruling families in the UAE derived additional profits through SOE-led service provision to the continued influx of expatriates into their territories. Given that expatriate household income accounted for 52% of the UAE’s GDP in 2014 (International Monetary Fund 2016, 22–23), the economic pie connected to service provision is substantial. This socioeconomic context explains why a senior corporate manager of FFZ described its 10,000 workers as “consumers” when enumerating the free zone’s main objectives.45 Positive dynamic effects of free zones occur “when multinational companies integrate with the local economy by employing local workers and by buying inputs from domestic firms” (Moberg 2017, EBook Sect. 46.1). Yet, neither free zone bureaucracies nor free zone companies in the northern emirates hired many local citizens. According to Fujairah’s Statistics Centre, the Fujairah Free Zone Authority only employed 91 people in 2015, and less than half of the employees were Emirati citizens (Government of Fujairah 2015, 42). The government authority’s workforce grew moderately from 76 employees in 2013; however, the overall public sector employment opportunities in free zones remain relatively limited. As for private sector employment opportunities, the FFZ reported a total of 9,890 employees across its 3,255 registered free zone

44 Interview 6, vice chairman of major real estate company, Abu Dhabi, August 7, 2014. 45 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April

18, 2016.

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companies but did not provide the number of national employees in free zone companies.46 Limited employment of Emiratis by free zone firms was not restricted to the northern emirates. Emiratis constituted approximately ten percent of the free zone staff in Dubai’s DIFC and DMCC,47 and a Masdar manager conceded that UAE free zones have been unsuccessful in generating employment for Emiratis.48 In the remaining countries of the GCC, expatriates filled 88% of the seven million jobs created between 2000 and 2010—a crucial period of free zone proliferation in the region— with nearly 85% of these expatriates holding low-skilled roles (Callen et al. 2014, 12). Free zone employment has not fundamentally changed the GCC employment paradigm wherein low-skilled expatriates fill the overwhelming majority of positions in the private sector. The Emirati official from FFZ viewed the pace of free zone development in the broader UAE as inimical to sustainable development: “Free zones made business so convenient that they didn’t grow in the right way. There is better manufacturing and production in Saudi Arabia and [formerly] in Syria. We have no local manufacturers.”49 Christian Steiner (2014) attributes the rapid pace of urban development to the neopatrimonial, authoritarian character of government, specific governance structures, and spatial planning systems in the Gulf. Highly concentrated free zone growth during the early 2000s in Dubai and Abu Dhabi stood to capture rent streams that might otherwise have flowed toward free zone subsystems in the northern emirates. Yet the rapid pace of free zone development in the UAE is indicative of strong local, regional, and international demand for these services. Opportunistic economic policymakers and officials across the country’s emirates channeled this demand to strengthen the credentials of existing free zones and create new ones, while seeking to maximize rent streams. Flagship free zones and the government-related entities behind their creation set industry benchmarks for free zone development in neighboring Gulf Arab states and beyond.

46 Figures provided remotely by a Fujairah Free Zone employee on February 2, 2017. 47 Interview 19, Emirati manager at Jebel Ali Free Zone, Dubai, March 31, 2016. 48 Interview 23, manager at Masdar Free Zone, Abu Dhabi, April 14, 2016. 49 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April

18, 2016.

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Davidson, Christopher. Abu Dhabi: Oil and Beyond. London: Hurst & Company, 2009. Davidson, Christopher. Dubai: The Vulnerability of Success. London: Hurst & Company, 2008. “Development of Masdar City.” Journal of Urban Technology 20.1 (2013): 23– 37. DMCC. “About: The World’s Fastest-Growing Free Zone.” Accessed September 23, 2020. https://www.dmcc.ae/about-us. Dokoupil, Martin. “MIDEAST MONEY—Northern Emirates Offer Cost Haven in Booming UAE.” Reuters. April 30, 2014. Accessed June 23, 2016. http://www.reuters.com/article/emirates-north-economy-idUSL6 N0NJ06F20140430. Dresch, Paul and James Piscatori, eds. Monarchies and Nations: Globalisation and Identity in the Arab States of the Gulf. London: I.B. Taurus, 2005. “Dubai’s free zone model key to diversifying Latin American Economies.” Trade Arabia. November 11, 2016. Accessed February 10, 2018. http://www.tra dearabia.com/news/IND_316555.html. Dubai Media City. “MENA’s Largest Integrated Media Hub.” Accessed October 1, 2020. https://dmc.ae/. Dubai South. Welcome to the City of You. Dubai: Dubai South, 2015. Dubai Statistics Center. “Number of Population Estimated by Nationality— Emirate of Dubai (2017–2015).” Government of Dubai. Accessed July 9, 2018. https://www.dsc.gov.ae/Report/DSC_SYB_2017_01%20_%2003.pdf. El Mallakh, Ragaei. The Economic Development of the United Arab Emirates. Abingdon: Routledge, 1981. Federal Customs Authority. Emirates Customs: Monthly Statistical Bulletin. Abu Dhabi: United Arab Emirates, 2014. Federal Customs Authority. Emirates Customs: Free Zones. Issue 40. Abu Dhabi: Electronic Statistical Bulletin, 2015. Fernandez, Keith. “Economic Slow Down Less Likely to Impact Free Zone.” Gulf News. May 8, 2016. Accessed May 12, 2016. http://gulfnews. com/gn-focus/special-reports/free-zones/economic-slowdown-less-likely-toimpact-free-zones-1.1821631. “Free zone Companies in Dubai Become Accustomed to How Implement Value Added.” Emarat Al-youm. October 22, 2017. Accessed February 10, 2018, http://www.emaratalyoum.com/business/local/201710-22-1.1037415. [Arabic]. “Free zone exports exceed 225 billion dirhams in 2017.” al-iqtisadi. August 12, 2018, Accessed August 15, 2018. https://aliqtisadi.com/1173674‫اإلمارات‬-‫فی‬-‫الحرة‬-‫المناطق‬-‫صادرات‬-‫ نمو‬/. [Arabic]. Government of Abu Dhabi. “Investing in Our Future.” Accessed September 15, 2020. https://www.ghadan.abudhabi/en/home.

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Government of Dubai. Dubai Industrial Strategy 2030: Dubai Plan 2021. Dubai: Government of Dubai, collected in Dubai in 2016. Government of Fujairah. Statistical Yearbook: Nineteenth Issue 2015. Fujairah: Fujairah Statistics Centre, 2015. Gulf International Trading Group. “Heritage.” Accessed August 28, 2017. http://www.gulf-group.ae/ibrahim_md_al_midfa.php. Hakimian, Hassan. “Iran’s Free Trade Zones: Back Doors to the International Economy?” Iranian Studies 44.6 (2011): 851–874. Hamriyah Free Zone Authority. “About Hamriyah Free Zone.” Accessed September 28, 2020. http://www.hfza.ae/about_hfza. Hanieh, Adam. Capitalism and Class in the Gulf Arab States. New York: Palgrave Macmillan, 2011. haya al-sh¯ariqa li-l-mat¯ah.if. “majlis al-midfa‘.” (Sharjah Museums Authority. “Majlis Al Midfa”). Accessed August 24, 2017. http://www.sharjahmuseums. ae/Our-Museums/Majlis-Al-Midfa.aspx?lang=ar-AE. [Arabic]. Herb, Michael. “A Nation of Bureaucrats: Political Participation and Economic Diversification in Kuwait and the United Arab Emirates.” The International Journal of Middle East Studies 41 (2009): 375–395. Hutchison Ports Ajman. “Company Profile.” Hutchison Ajman International Terminals Limited—F.Z.E. Published in 2017. https://www.hutchisonportsa jman.com/en-us/SitePages/CompanyProfile.aspx. Hvidt, Martin. “The Dubai Model: An Outline of Key Development-Process Elements in Dubai.” International Journal of Middle Eastern Studies 41 (2009): 397–418. International Monetary Fund. United Arab Emirates: 2011 Article IV Consultation. Staff Report. Washington D.C.: IMF, 2011. International Monetary Fund. Diversifying Government Revenue in the GCC: Next Steps. Riyadh: IMF, 2016. Jebel Ali Free Zone Authority. “Dubai Industrial Strategy.” In The Zone—Jebel Ali Free Zone. Issue 47. Published in July 2016. Jebel Ali Free Zone. Jafza, Dubai. Where Business Comes Together. Dubai, JAFZA, 2015. Kazim, Aqil. The United Arab Emirates A.D. 600 to the Present: A SocioDiscursive Transformation in the Arabian Gulf . Gulf Book Centre, 2000. Kerin, Roger, P. Rajan Varadarajan and Robert A. Peterson. “First-Mover Advantage: A Synthesis, Conceptual Framework, and Research Propositions.” Journal of Marketing 56 (1992): 33–52. Keshavarzian, Arang. “Geopolitics and the Genealogy of Free Trade Zones in the Persian Gulf.” Geopolitics 15.2 (2010): 263–289. Khalili, Laleh. Sinews of War and Trade: Shipping and Capitalism in the Arabian Peninsula. London: Verso, 2020.

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Khan, Sarmad. “Sharjah Media City Looks to Lure Game Developers as it invests Dh50m in New Buildings.” The National. November 11, 2019. https://www.thenational.ae/business/technology/sharjah-media-city-looksto-lure-game-developers-as-it-invests-dh50m-in-new-buildings-1.936236. “KIZAD registers strong performance in 2016.” Al Bawaba. January 26, 2017a. Accessed January 27, 2017. https://www.albawaba.com/business/pr/kizadregisters-strong-performance-2016-929448. “KIZAD registers strong performance in 2016.” Emirates News Agency. January 25, 2017b. Accessed January 27, 2017. http://www.wam.org.ae/en/print/ 1395302594031. Macrotrends. “Crude Oil Prices—70 Year Historic Chart.” Accessed September 5, 2017. http://www.macrotrends.net/1369/crude-oil-price-history-chart. Moberg, Lotta. The Political Economy of Special Economic Zones: Concentrating Economic Development. Abingdon: Routledge, 2017. “New Khalifa Fund initiative to support UAE SMEs.” The National. January 8, 2018, Accessed July 18, 2018. https://www.thenational.ae/business/newkhalifa-fund-initiative-to-support-uae-smes-1.118701. North, Douglass, John Wallis, and Barry Weingast. Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History. New York: Cambridge University Press, 2009. Oxford Business Group. The Report: Abu Dhabi 2014. Oxford: Oxford Business Group, 2014. “Predictions 2017: Maryam Al Mheiri, twofour54 acting CEO.” Gulf Business. January 29, 2017. Accessed February 2, 2017. http://gulfbusiness.com/pre dictions-2017-maryam-al-mheiri-twofour54-acting-ceo/. “RAKEZ offers its services through 5 free zones and 6 offices.” Al Bayan. April 19, 2017. Accessed April 20, 2017. http://www.albayan.ae/economy/localmarket/2017-04-19-1.2919800. [Arabic]. Ramos, Stephen. Dubai Amplified: The Engineering of a Port Geography. Abingdon: Taylor and Francis, 2010. “Ras Al Khaimah Free Trade Zone set for expansion.” Zawya. June 26, 2015. Accessed October 16, 2017. https://www.zawya.com/story/Ras_Al_ Khaimah_FTZ_set_for_expansion-ZAWYA20150629082552/. “Ras Al Khaimah Port: A Complete Maritime Solution.” RAK Ports. Accessed September 16, 2020. https://rakports.ae/ports/ras-al-khaimah-port/. Robinson, James and Ragnar Torvic. “White Elephants.” Journal of Public Economics 89 (2005). Rodrik, Dani, “The New Global Economy and Developing Countries: Making Openness Work.” Washington D.C.: Overseas Development Council, 1999. ru’¯ıat 2021: al-im¯ar¯at al-‘arabiyya al-mutah.ida. “muttah.id¯ un f¯ı al-t.um¯ uh. wal-‘az¯ıma.”)Vision 2021: United Arab Emirates. “United in Ambition and Determination.”( Abu Dhabi: UAE Federal Government, 2010. [Arabic].

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S¯alim, ‘Abd al-H . al¯ım.“h.¯akim ‘Ajm¯an yukarrum al-mant.aqa al-h.urra bi4 jaw¯aiz f¯ı sib¯aq al-tamayyuz al-h.ak¯ um¯ı.” al-yawm al-s¯ abi‘ . (“The ruler of Ajman presents the free zone with four government excellence awards.”) Youm7 . May 25, 2017. Sharjah Airport International Free Zone. “Saif Zone keen to attract international visitors.” SAIF ZONE. Accessed October 1, 2020. https://www.saif-zone. com/en/media/news/saif-zone-keen-to-attract-international-investors/. Sharjah Publishing City. “Welcome to Sharjah Publishing City.” Sharjah Book Authority. Accessed September 12, 2020. https://www.spcfz.com/default. aspx?PageId=38. “Sharjah Publishing City offers free year-long trade licenses, offices to publishers.” Gulf Today. October 31, 2019. https://www.gulftoday.ae/ news/2019/10/31/sharjah-publishing-city-offers-free-year-long-trade-lic ences-offices-to-publishers. “Sharjah research, innovation park signs deal with AUC.” TradeArabia. August 30, 2020. http://www.tradearabia.com/news/EDU_372108.html. “Sharjah Ruler reallocates Khaled Al Midfa to chair Sharjah Media City ‘Free Zone’.” Sharjah24. February 13, 2017. Accessed September 15, 2017. https://www.sharjah24.ae/en/sharjah/196370-sharjah-ruler-rel ocates-khaled-al-midfa-to-chair-sharjah-media-city-free-zone-. Steiner, Christian. “Iconic Spaces, Symbolic Capital and the Political Economy of Urban Development in the Arab Gulf.” In Wippel Steffen, Katrin Bromber, Christian Steiner, and Birgit Kraweitz, eds. Under Construction: Logics of Urbanism in the Gulf , 2014. Stevens, Paul. “Economic Reform in the GCC: Privatization as a Panacea for Declining Oil Wealth.” Chatham House Research Paper, 2016. Suarez, Fernando and Gianvito Lanzolla. “The Half-Truth of First-Mover Advantage.” Harvard Business Review. April Issue (2015). Sulayem, Ahmed Bin. “Webinar on Charting the Post-Pandemic Future of U.A.E. Free Zones.” Public webinar by the U.S.-UAE Business Council. September 23, 2020. The McKinsey Quarterly. Beyond Oil: Reappraising the Gulf States. Dubai: McKinsey & Company, 2007. “The UAE and the Global Oil Supply.” The Embassy of the United Arab Emirates. Accessed February 20, 2017. http://www.uae-embassy.org/about-uae/ene rgy/uae-and-global-oil-supply. Townsend, Sarah. “Can Abu Dhabi’s New Financial Free Zone Compete?” Arabian Business. April 29, 2016. Accessed October 17, 2017. http://www.arabianbusiness.com/can-abu-dhabi-s-new-financial-freezone-compete–630008.html#.VyORMaNcSko. Townsend, Sarah. “Dubai Free zones Unite to Boost Foreign Investment Flows.” The National. June 1, 2018. Accessed June 1, 2018. https://www.

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thenational.ae/business/economy/dubai-free-zones-unite-to-boost-foreigninvestment-flows-1.735701. Twofour54. “About twofour54 Abu Dhabi.” Accessed October 5, 2020. https://www.twofour54.com/en/who-we-are/about-twofour54/. UAE Federal Law 8 of 1984. “Commercial Companies Law.” Article 22. http:// www.uaeahead.com/knowledge/laws/doc/10b.htm. “UAE’s Fujairah records GDP of $4.1 billion in 2017.” Zawya. April 10, 2018. https://www.zawya.com/uae/en/economy/story/UAEs_Fujairah_records_ GDP_of_41bln_in_2017-WAM20180410130029951/#:~:text=FUJAIRAH% 20%2D%20The%20Annual%20Statistical%20Book,foreign%20trade%20amou nted%20to%20AED6. UAQ Free Trade Zone. “The Benefits: A World of Opportunity Awaits at UAE FTZ.” Umm Al Quwain Free Trade Zone Authority. Accessed September 3, 2020. https://uaqftz.com/benefits/. Ulrichsen, Kristian Coates. The Gulf States in International Political Economy. Hampshire: Palgrave Macmillan, 2016. Ulrichsen, Kristian Coates. The United Arab Emirates: Power, Politics, and Policymaking. Ebook. Abingdon: Routledge, 2017. Umm Al Quwain Free Trade Zone. “Who we are: Backbone of UAQ FTZ.” UAQFTZ . Accessed August 8, 2017. http://uaqftz.com/who-weare/. “Umm Al Quwain Free Trade Zone Sees 70% Increase in New E-Commerce Licenses in Last Three Months.” Zawya. July 14, 2020. https://www.zawya. com/mena/en/press-releases/story/Umm_Al_Quwain_free_trade_zone_ sees_70_increase_in_new_ecommerce_licenses_in_last_three_months-ZAW YA20200714163749/. United Arab Emirates Ministry of Economy. The Annual Economic Report 2015. 23rd Edition. Abu Dhabi: UAE Ministry of Economy, 2015. Vision 2021, “UAE Vision.” Ministry of Cabinet Affairs. United Arab Emirates. Accessed September 5, 2017. https://www.vision2021.ae/en/our-vision. . Yousef, Deena Kamel. “Maritime City to Generate Dh40m.” Gulf News. May 17, 2011. Accessed October 17, 2017. http://gulfnews.com/business/sectors/ shipping/maritime-city-to-generate-dh40m-1.808771. Zahlan, Rosemarie Said. The Origins of the United Arab Emirates: A Political and Social History of the Trucial States. London: The MacMillan Press, 1978. ZonesCorp. “ZonesCorp—Your Gateway to Growth Capital—Abu Dhabi.” ZonesCorp. Updated September 18, 2017. Accessed November 20, 2017. http://www.zonescorp.com/en/about-us/zonescorp.

CHAPTER 4

Free Zones in Oman, Saudi Arabia, Bahrain, Qatar, and Kuwait

Gulf free zone systems outside of the UAE tended to be more limited in scale than their Emirati counterparts. Yet free zones were no less important as policy mechanisms for regional governments. Free zones reflected the political and economic institutions of the host country and accomplished a wide range of objectives for Gulf Arab governments. Resource-scarce countries or those with significant distributive responsibilities, such as Oman and Saudi Arabia, attempted to leverage free zones to create more balanced development countrywide. Bahrain struggled to reconcile competing notions that the entire country functioned as a free zone alongside the outsized importance of the neighboring Saudi market. The small, wealthier countries of Qatar and Kuwait opted to construct a smaller number of large-scale free zone projects with varying degrees of success. In many cases, Gulf free zones emerged in development phases linked to periods of renewed interest in economic diversification, political and economic shocks, or leadership transitions. Ongoing free zone development processes likewise rest upon the pillars of past economic histories and the subsequent regulations and commercial entities that facilitated trade and investment in Gulf Arab states. This chapter touches briefly on the rich histories of various Gulf Arab states and their economies; however, its primary objective is to compare and contrast the particular development paths of free zone systems outside of the UAE. As in © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_4

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the UAE, the stated mission of other Gulf free zones involves foreign investment attraction, local employment creation, and non-oil revenue generation. Yet political considerations often preceded their development, and political ramifications followed their creation. The one-stop shop marketed by many free zone officials does not necessarily mean that a one-size-fits-all free zone exists in the Gulf. Regional governments embarked on multibillion-dollar free zone megaprojects alongside smaller, niche free zones entailing much lower costs. Governments outside of the UAE tended to focus on a smaller group of high-priority industries for free zones: logistics, aviation, finance, and media. Gulf governments also sought to incorporate new and advanced technologies as part of their free zone development strategies, but the technological applications and strategies behind these entities varied considerably.

Omani Free Zones Oman’s free zones are intrinsically linked to local and international politics. The country’s modest hydrocarbon resources shape the nature of power-sharing arrangements between the Omani government and local and international economic actors. The resulting political foundations help to frame government motives behind free zone development in the historically rebellious governorate of Dhofar, the politically contentious city of Sohar, and the chronically underdeveloped province of Duqm in the governorate of Al Wusta. At the same time, the country’s longrunning fiscal challenges, renewed focus on economic diversification in the late 1990s, and persistently high unemployment rates forced Oman’s government to seek both local and foreign partnerships for the creation and management of the country’s free zones. Although Oman’s first free zone did not emerge until the late 1990s, the introduction of Industrial Estates (IEs) in the 1980s and concrete economic diversification initiatives in the 1990s laid the commercial foundation for free zone development in the sultanate. The first IE emerged in Al Rusayl in 1983 and reflected Sultan Qaboos bin Said’s commitment to building a local industrial base. Oman’s IEs resembled what Albert Hirschmann (1958) considers to be necessary, state-led incentives to encourage private investment in the domestic economy. Though a precursor to Omani free zones, IEs differ substantially from the free zones discussed in this work and more closely resemble specialized zones from

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the World Bank’s typology of special economic zones. A close regional comparison to Omani IEs is the industrial zones of ZonesCorp in Abu Dhabi, as these entities do not offer investors exemptions from foreign ownership. Consequently, clients in IEs tend to be smaller-scale, Omani firms,1 whereas Omani free zone projects seek to facilitate larger-scale foreign investments. The government established the Public Establishment for Industrial Estates (PEIE)—also referred to as Madayn—in 1993 to oversee the development of the country’s IEs (“About Industrial” 2016). The creation of a new industrial city in Ibri in 2020 brought the total number of IEs under the PEIE’s umbrella to eight.2 When Oman launched its first two free zones in 1999 and 2003, the government housed the new free zones under the administrative structure and oversight of the PEIE. The Al Mazunah Free Zone emerged near Oman’s border with Yemen, whereas the technology-focused Knowledge Oasis Muscat (KOM) free zone functions as the only operating free zone in Muscat. A formal Free Zones Law emerged through Royal Decree 56 of 2002, and an eventual Free Zone Committee located within the Ministry of Commerce and Industry regulated the policies of future free zones. Economic diversification efforts and new institutions created by the internationalization of the economy bolstered free zone creation in Oman. Chief among government efforts to diversify Oman’s economy involved the conceptual launch of a development roadmap, Vision 2020, in 1995. A main tenant of Vision 2020 included increasing the contribution of non-oil industries to 81% of GDP by 2020 (Oman Ministry 2014, 45). Multinational organizations also shaped the enforcement environment through which free zones emerged in Oman. Following recommendations by the International Monetary Fund and World Bank, the Omani government established the Oman Centre for Investment Promotion and Export Development and implemented foreign ownership exemptions for international firms (Looney 2009, 5–8). The country’s efforts to develop a more outward-oriented economy, namely by expanding exports beyond hydrocarbon commodities, also coincided with Oman becoming a member of the World Trade Organization (WTO) in 2000. As a WTO 1 Interview 37, business editor at Times of Oman, Muscat, Oman, June 7, 2016. 2 There are Madayn cities in Rusayl, Sohar, Raysut, Sur, Nizwa, Buraimi, Simail, and

Ibri. The close institutional linkages often lead many observers to conflate free zones with IEs.

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member, Oman gradually reduced applied tariff rates and allowed private and foreign investors to play a greater role in the economy (Gani 2015, 127). Yet economic liberalization efforts in Oman ultimately proceeded in a state-controlled manner. It is within this context of controlled economic liberalization that five Omani free zones emerged in Al Mazunah, Muscat, Sohar, Salalah, and Duqm. The specific spatialization of Omani free zones—particularly those in Dhofar, Sohar, and Duqm—illustrates how free zones are intimately connected to broader political and socioeconomic tensions in Oman. The assertion that locational elements of free zones involve political motivations is not unusual. Kishore Roe (2000, 252) argues that “[t]he choice of location of many public zones [in the Middle East] was based on political rather than economic considerations.” Indeed, the location of the Jebel Ali Free Zone reflected inter-emirate political disputes between Dubai and Abu Dhabi. Jessie Moritz (2016, 241) attributes exceptionally high Omani citizen unemployment in Sohar, Salalah, Duqm, and Liwa as an underlying cause behind the 2011 unrest in these cities, which, she notes, “are major sites of state investment in mega-projects.” The diffuse spatialization of Omani free zones, as opposed to a cluster formation around the country’s more populous northern region, therefore warrants a location-focused analysis of domestic free zone proliferation and its political implications. Rather than materializing near a traditional trading locale, the country’s first free zone emerged along the politically contentious Dhofar border with Yemen in Al Mazunah. The Al Mazunah Free Zone, Salalah Free Zone (SFZ), and one IE3 in the Dhofar governorate demonstrate the unequal civil development in the south that emerged after the Dhofar war. A report by the Middle East Development Division in Amman (1975, 11) describes economic goals as a decidedly secondary objective of civil development plans in Dhofar: The Government of Oman has already drawn up plans for the civil development of the Jebel in the wake of the recent military victory. The principal objectives of these plans are to establish a civil Government presence in

3 Created in 1992, the Raysut Industrial Estate covers just over three million square meters, does not allow 100 percent foreign ownership, and contains approximately one hundred small, Omani firms focused on manufacturing. Interview 37, business editor at Omani daily newspaper, Muscat, Oman, June 7, 2016.

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all the main tribal areas of the Jebel, and to secure the security of the area. Although these objectives are of a political and social nature, their successful achievement will also be of a great economic benefit to Oman.

During the war, the Dhofar Liberation Front, later the People’s Front for the Liberation of the Occupied Arabian Gulf, received substantial support from the People’s Democratic Republic of Yemen; arms and fighters regularly moved back and forth across the permeable Yemen-Oman border. While containing only nine percent of Oman’s total population, Dhofar possesses more operating free zones than any other governorate in the country. In addition to advancing economic development objectives, these free zones afforded various security advantages. The Al Mazunah Free Zone lies in the middle of Oman’s land border with Yemen. Therefore, it offers a strategic base for monitoring border activity and regulating flows of goods and people across the border. The Royal Oman Police consider Al Mazunah province an established smuggling route used to transport weapons and immigrants from Yemen to more lucrative markets. Meanwhile, the free zone and port in nearby Salalah provided a convenient location to station the Royal Navy of Oman.4 The police and naval presence served both military expediency and as a symbol of the royal presence in the southern governorate. Al Mazunah’s remote location, which aided smuggling, also exacerbated socioeconomic challenges. Ten years after the creation of the free zone, of which generating jobs for the area’s residents was supposedly a key objective, Omani unemployment rates in Al Mazunah nevertheless reached as high as 73.2% (Moritz 2016, 241). Politicized free zone development processes also existed in Sohar, the capital city of the Al Batinah North Governorate and a long-term “bone of contention” (Phillips 1971, 98) within Oman. Marc Valeri (2015, 9) argues that the marginalization of Sohar and its surrounding regions later paved the way for an industrial site and free zone as part of a strategy to revitalize the area: Until the early 2000s, Sohar remained a rural provincial town, neglected, like other regional centers, by the post-1970 modernization process…In this context, the government’s decision to establish an industrial site and

4 Interview 40, senior industrial estate and free zone manager, Salalah, Oman, June 9, 2016.

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free zone—conceived by the regime to be an international showcase of the country’s economic diversification—was seen as a godsend in Sohar.

The Sohar Industrial Port Company (SIPC) managed the port, and any companies registered in the industrial park required registration as onshore companies. The adjoining free zone materialized in 2010 as a joint venture between SIPC, the Port of Rotterdam, and Skil, an Indian company experienced with economic zones in India. Yet the project’s perceived local contribution—along with that of other local commercial projects and development initiatives—was insufficient for Omani protesters in Sohar who, in February 2011, demonstrated against unemployment, corruption, and inequality during what Valeri (2015, 8) labels the first mass public criticism of state policies since the Dhofar War of the 1970s. Although concurrent protests occurred in Muscat, Salalah, and Sur, Valeri considers the Sohar demonstrations paramount, and he directly links the unrest to the social consequences of the port and free zone project: Inequalities exploded, with pockets of wealth (including luxury gated townships reserved for expatriate executives of industrial groups doing business at the port) contrasting sharply with the rest of the area, where residents had no access to the economic benefits of the development and experienced a stagnation or a diminution of their living standards. (ibid., 9)

A manager from the Sohar Port and Freezone admitted that he had not seen a positive impact on the local economy, or employment more specifically.5 Angry protesters renamed the Sohar Globe Roundabout to “Reform Square,” an action reminiscent of Cairo’s Meydan Tahrir and Manama’s Pearl Roundabout. In response to public pressure, Sultan Qaboos removed Maqbool bin Ali Sultan—the Minister of Commerce and Industry, chairman of the Free Zone Council, and chairman of the Sohar Industrial Port Company—from his ministerial position after being specifically identified in protester grievances. While these protests may not have seriously threatened the regime, as James Worrall (2012, 1) suggests, they did encourage government action in economic, social, and political spheres. 5 Interview 36, a manager of Sohar Port and Freezone, Sohar, Oman, June 6, 2016.

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The Special Economic Zone in Duqm (SEZAD) was created just months after the early 2011 protests. The chairman of the SEZAD board of directors, Yahya bin Said bin Abdullah Al Jabri, possessed academic credentials from Harvard Business School and Northwestern University and previously led efforts to improve corporate governance in the finance sector as the Executive President of the Capital Markets Authority (“Executive Profile” 2017). In this respect, he represented a departure from the controversial figure of Maqbool Sultan. With a tiny local population, the central governorate of Al Wusta, where Duqm is located, did not pose any political threat akin to that of Dhofar or Sohar. The governorate of Muscat contained approximately 1.27 million residents in 2015, whereas Al Wusta housed only 41,409 residents. However, Al Wusta experienced serious socioeconomic challenges. It exhibited the lowest growth rate in 2015, registering just 0.1%, of all the governorates in the country (“Oman records” 2015). “Al Wusta doesn’t have great development or good services. But it has a strategic place. If we develop this place, it will be like a mirror to the rest of the country,” explained an Omani employee from the SEZ.6 Some Omanis from the interior and southern parts of the sultanate perceive northern development projects as taking place at the expense of the rest of the country. Therefore, it is unsurprising that the mission statement of the SEZ at Duqm is “to contribute to the Omani economy and the socio-economic development of Al Wusta Governorate” (Special Economic 2020). Royal Decree 5 of 2016 extended the boundaries of the SEZ to include the nearby Ras Markaz Crude Oil Park, an ambitious oil storage facility managed by the Oman Tank Terminal Company. The park, which has a pipeline to the Duqm refinery, is a “critical element in the next generation of Oman’s diversified infrastructure” (Middle East Policy Council 2020). The zone also announced a partnership with Iskan Oman Investment Company and Middle East Education Venture to build an integrated academic city. The first academic year for a higher education college was planned for 2021–2022 (“First College” 2020), but the coronavirus pandemic is likely to alter this timeline. Oman began constructing free zones earlier than the “super-rentier” (Freer 2017, 479–500) territories of Abu Dhabi and Qatar—Gulf polities with the highest per capita income, lowest proportion of national 6 Interview 41, staff member from Duqm Special Economic Zone, Muscat, Oman, June 12, 2016.

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citizens, and most generous rentier benefits. And unlike Dubai, where parallel free zones operate under corporate umbrella companies, Omani free zones largely remain stand-alone projects with separate authorities. Oman’s constrained fiscal capacity ultimately limited free zone proliferation in the country. In 2012, the country’s Free Trade Zone Authority announced that it would spend $450 million to expand these zones (“Oman economic” 2013), suggesting that the government under Sultan Qaboos was more interested in the further development of existing free zones rather than launching entirely new initiatives. Similar to most free zones in other GCC states, Oman’s free zones permitted foreign investors to maintain 100% ownership of their business venture. Article 4 of the country’s Free Zone Law stipulated that foreign capital regulations, such as those limiting foreign ownership to 49%, do not affect free zone companies (Free Zones Law 2002). While foreign investment regulations loosened in certain sectors thereafter, onshore companies nevertheless required an Omani sponsor with a minimum stake of 30% (Oman Ministry 2014, 67). Other incentives offered by Omani free zones included exemptions from customs duties, free repatriation of profits, and an extendable ten-year tax holiday (Oman Ministry 2014, 67). Yet unlike most other GCC states (Bahrain is the other exception), Oman’s free zones imposed comparatively strict labor regulations regarding the number of Omanization exemptions available to employers (Fig. 4.1). A manager from the Sohar Port and Freezone explained that the varying Omanization requirements within Omani free zones are the result of bargaining with the government in the absence of a clear national framework. However, he added that the Omanization rates function as

Fig. 4.1 Table of Omanization requirements in Omani free zones (2016)

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a “negative differentiator” and that he would prefer not to have Omanization rates at all.7 The Sohar Port and Freezone’s relationship to the government differed slightly from that of most regional free zones, which are entirely government-owned. This partial ownership structure has led to tensions: “The government is part of the JV, and it is still difficult to get what we want done sometimes,” exclaimed the free zone manager, who believed that Duqm SEZ offered the most attractive commercial benefits in the country.8 Undefined Omanization requirements increased the potential for rentseeking behavior by companies competing for lax labor regulations inside the free zone. For example, the SEZAD requires its companies to adhere to an Omanization rate stipulated by the board (Duqm Special 2017). The chairman of the board, Yahya Al Jabri, explained that “[b]ecause this is a specialized economy, we don’t want to have a very rigid policy of Omanization” (“Down in Duqm 2014). A staff member from the SEZ’s corporate office clarified an additional socioeconomic consideration behind the undefined Omanization requirements: “There are approximately 2,000 locals around the Duqm area, which is not enough to start a large economic city. The government is trying to bring in nationals from all over the country. The goal is to attract national manpower.”9 Many government employees working in the Duqm SEZ hailed from the Sharqiyah governorate, due to labor shortages in Al Wusta.10 Employment policies within Omani free zones are closely linked to tax regimes. Oman levied a flat corporate tax of 12% on all companies, but the Ministry of Finance introduced legislation in 2016 that increased the tax rate to 15% (“Taxation time” 2017). Taxation rates, however, are applied differently across various free zones. The Sohar Port and Freezone provides companies with a corporate tax exemption if they meet incrementally increasing Omanization targets. KOM emphasizes exemptions from personal income taxes, which already exist countrywide; the website makes no mention of corporate tax regulations (Knowledge Oasis 7 Interview 32, manager at Sohar Freezone office in Dubai, Dubai, UAE, May 19, 2016. 8 Ibid. 9 Interview 41, staff member from Duqm Special Economic Zone, Muscat, Oman, June 12, 2016. 10 Interview 38, public service department officer of the Duqm Special Economic Zone, Duqm, Oman, June 8, 2016.

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Muscat 2017). SEZAD offers investors a thirty-year tax exemption with the option for renewal but excludes certain sectors. The lower Omanization rates in free zones, policy loopholes allowing companies to circumnavigate regulations, and opportunities for rent seeking over lax labor requirements resulted in criticism of the government’s allocation of resources to free zone clients. Referring to foreign clients in the SFZ, an Omani interviewee from Dhofar stated: I think that foreign companies are the winners. They get free gas, good location, and they don’t really hire Omanis. I ask myself ‘Why didn’t the government think that big multinationals will not look out for us? How many people will they actually employ?’ This is an important question. The issue is that traditional management just looks at overall investment numbers.11

Foreign diplomats in Oman often met with local delegations of Dhofari government representatives to address concerns about international firms failing to contribute to local communities. Despite these complaints, the strong emphasis on industrial projects and manufacturing firms in Omani free zones, as well as fewer shared offices for individual consultants, generally supported local employment initiatives.12 For example, the country’s IT-focused free zone, KOM, exhibited an Omanization rate of approximately 50% of its 3,800 staff members in 2016.13 Official country reports portray the Omani government as the driving force behind free zone development and activities. For example, Oman’s 9th five-year plan, which spans from 2016 to 2020, considers progress on free zone development as part of the government’s infrastructure achievements, subsuming these achievements into a broader category of state success in the realms of economic stability, living standards, and social projects. The plan, however, is more critical of the private sector’s lack of progress in diversifying away from oil and employing local citizens,

11 Interview 40, senior industrial estate and free zone manager, Salalah, Oman, June 9, 2016. 12 Interview 32, manager at Sohar Freezone office in Dubai, Dubai, UAE, May 19, 2016. 13 Interview 42, director from the Public Establishment for Industrial Estates, Knowledge Oasis Muscat, Oman, June 12, 2016.

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noting: “The Sultanate has made significant progress in economic diversification where the share of the oil activities retreated from (66%) of GDP in 2000 to (44%) of GDP in 2014. The non-oil activities are still dependent to a large extent on oil and gas production” (Supreme Council of Planning 2016, 20–21; 33). Oman’s continued dependence on hydrocarbon resources for government revenue helps explain why the estimated budget deficit for 2016 reached nearly 21% of the country’s GDP, a larger ratio than any other GCC state (Oxford Economics 2017). Although the majority of Oman’s free zone development took place under the late Sultan Qaboos, it seems his successor, Sultan Haitham bin Tariq, who assumed power in January 2020, also views free zones as useful tools for economic diversification initiatives. In February 2020, the government of Oman announced its National Aviation Strategy 2030 and plans for a Muscat Airport City spearheaded by the Oman Aviation Group, a government-related entity overseeing aviation and air logistics. The centerpiece of the Muscat Airport City project is a 3.3million-square-meter free zone that caters to light industry, e-commerce, storage and warehousing, aviation equipment, hospitality, and other aviation services (Prabhu 2020). The initiative to develop airport free zones in the sultanate is part of the Diwan of Royal Court efforts to advance the National Programme for Enhancing Economic Diversification—also known as Tanfeedh. Despite government efforts to cut 2020 expenditures, the Special Economic Zone at Duqm remained a high-priority development initiative for Oman’s new leadership. KOM’s technologyfocus and its central location in the capital city also position the free zone to play a central role in digital transformation initiatives over the coming years.

Saudi Free Zones Free zone development processes in Saudi Arabia unfolded in three broad phases. The early foundations of free zone development began with the creation of bonded and re-export zones in the late 1990s. The second phase of development concerned the emergence of economic cities (ECs)14 in the early 2000s under the guidance of the Saudi 14 Saudi ECs represent a methodological challenge within this monograph because the entities occupy a position between a traditional free zone and an onshore industrial city. Other sections and chapters briefly mention similar commercial entities, in Oman and Abu

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Arabia General Investment Authority (SAGIA), a government body that became the Ministry of Investment in February 2020. A re-alignment of Saudi political institutions following the succession of King Salman bin Abdulaziz in 2015 and the rising profile of his son, Mohammed bin Salman, initiated a third, ongoing phase of free zone development. The Saudi government signaled a greater willingness to establish free zones as stand-alone projects intended to address an array of domestic and international challenges. Only in this third period of development did free zones assume a definitive role in the country’s national strategy. The megacity-cum-free zone Neom features as a central component of this developmental phase; however, Saudi officials have also implemented free zone components within a number of other national development projects. The country’s early free zone sector consisted of two bonded and re-export zones in Jeddah and Dammam. The Tusdeer Bonded and Re-Export Zone in Jeddah emerged in 1999, and the Saudi Industrial Services Company (SISCO) and Xenel jointly manage the project. Tusdeer materialized as a build, operate, and transfer concession with the Saudi Ports Authority. The country also launched the Dammam Bonded and Re-Export Zone (DBRZ) in 2000 with the aim of offering “its users a strategically placed world class free trade environment in which to conduct business” (Saudi Development 2017). The DBRZ operates under a 30-year privatization lease granted by the Saudi Ports Authority, and the Saudi Development and Re-Export Services Company (SDRS) manages the free zone. The ownership structure of the country’s free zone in Dammam comprised a collection of local and global commercial interests. SDRS, the free zone’s management company, represents a consortium of Eastern Province businessmen, Hutchison Port Holdings, and the Maritime Company for Navigation (MACNA). Hutchison Port Holdings is a multinational firm headquartered in Hong Kong, while MACNA was established in Riyadh in 1995 as a local subsidiary of Hutchison Port Holdings.

Dhabi for example, but did not discuss them in-depth because of their distinctly onshore nature. This chapter sub-section affords more analytical attention to Saudi ECs because these entities incorporated free zone policies—specifically permitting full foreign ownership and offering exemptions from workforce nationalization requirements—and because Saudi policymakers viewed ECs as urban foundations for future free zone development.

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The small scope of and expenditure on these early initiatives illustrate the marginal role that free zones played in the Saudi economy in the late 1990s and early 2000s. In 2002, Saudi free zones employed an estimated 1.1% of the country’s workforce (Milberg 2007, 10). DBRZ’s initial capital investment of $38 million paled in comparison with the $735 million invested in CommerCity, Dubai’s e-commerce-focused free zone established in late 2017.15 Other Saudi free zone development proposals in the early 2000s failed to materialize. The Chamber of Commerce in Yanbu, a port area along the Red Sea and in the governorate of Madinah, considered building a free zone on Al Abbassi Island. Yet discussions in 2005 with SAGIA, the Chamber of Commerce, and the General Corporation for Ports led nowhere (“Saudi’s Al Abbassi” 2005). A number of factors limited the expansion of Saudi Arabia’s free zone system during its early stages of development. The large domestic market in Saudi Arabia increased demand for locally consumed imports, while growth in export-oriented industries outside of the hydrocarbon sector remained limited. Non-oil exports in 1998 measured a paltry $6.11 billion (Aljebrin 2017, 391), whereas imports of goods and services reached $38.8 billion (World Bank Group 2017). “Saudi is trying to attract manufacturing investment for their onshore sector…so free zones would not be very useful in the Saudi context,” noted the head of a European-Saudi business council.16 Free zones akin to those operating in Dubai would, in many instances, increase transaction costs for Saudibased firms targeting the domestic market in Saudi Arabia and those of the wider GCC because goods entering domestic markets from free zones are subjected to a five percent customs duty (Fig. 4.2). Saudi Arabia’s labor demographics simultaneously altered the political calculus behind free zone policies. A member of Bahrain’s Economic Development Board described Saudi Arabia as “having the most aggressive labor policy,” in the region,17 while a regional free zone expert argued that Saudi Arabia’s local employment demands led to a more

15 The expenditure of $38 million in 2002 represents approximately $56 million in 2017 prices. 16 Interview 74, head of business and trade council on Saudi Arabia, remote conversation from Oxford, November 21, 2016. 17 Interview 28, economic officer at the Economic Development Board, Manama, Bahrain, April 27, 2016.

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Fig. 4.2 Table of the value of Saudi Arabia’s imported goods and services18

traditional approach to free zone development.19 Indeed, a large ratio of national citizens, accounting for more than two-thirds of the total population, increased pressure on the Saudi government to provide employment opportunities for local citizens.20 Comprehensive workforce nationalization exemptions within free zones, in turn, proved difficult to implement. The government instead instituted minor, but symbolic, Saudization quotas within various commercial entities. Neighboring GCC countries with comparatively large ratios of national citizens to expatriates, like Bahrain and Oman, also implemented strict workforce nationalization policies within free zones to increase employment opportunities for local workforces. In addition to domestic concerns, Saudi Arabia’s bid for WTO membership required the implementation of widespread economic reforms, including relaxed foreign ownership regulations and tax procedures, that reduced many of the incentives behind free zone. These WTO negotiations, which began in the mid-1990s and concluded in 2005, coincided with a period of accelerated free zone proliferation in the rest of the GCC. Rather than creating additional regulatory environments through new free zones, Saudi Arabia’s government instead focused on comprehensive economic reforms, streamlining commercial procedures, and centralizing commercial processes to assist its application for WTO membership. Tim Niblock argues that these economic reforms intended to satisfy WTO conditions for accession and supplant oil revenues with resources from foreign investment (Niblock 2008, 18–19). In particular, the establishment of SAGIA in 2000 streamlined foreign investments 18 Figures in the table are sourced from the World Bank. 19 Interview 30, managing director of an economic zones consultancy and secretary

general of a global EPZ association, remote call from Dubai, May 11, 2016. 20 This estimate relies on 2014 population figures from the Gulf Labour Markets and Migration Programme and the World Bank.

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and commercial registration procedures under one government agency. According to the head of a European-Saudi business council: There are no barriers to 100 percent foreign investment in non-security related sectors. You just have to get an investment license from SAGIA. In this sense, the Saudi investment climate is actually a bit more liberal than Dubai and Oman.21

SAGIA centralized the commercial activities traditionally managed by free zones, whereas other GCC states distributed these bureaucratic processes to various free zone authorities. The centralization of firm registration and commercial investment processes under SAGIA reduced incentives for the government to allocate additional funding for free zone development and limited the bureaucratic operating space for vertically oriented, isolated government entities to rapidly expand free zone proliferation in the country. Rather, the overarching WTO negotiations provided a platform for the state to reform commercial agency regulations and foreign ownership requirements in the banking, insurance, and retail trade sectors. Although early attempts to reform the commercial agency system failed, the state did successfully enact reforms in 2005 that increased foreign ownership in the banking, insurance, and distribution sectors to between 60 and 70% (Hertog 2008, 667). Between 2005 and 2006, Saudi Arabia formally announced plans for the development of four ECs: King Abdullah Economic City (KAEC), Jazan Economic City (JEC), Prince Abdulaziz Bin Mousaed Economic City (PABMEC), and Knowledge Economic City (KEC). The initial project plans consisted of six ECs, but the government scaled back the project’s scope. SAGIA oversaw the broader EC initiative but appointed private sector developers for each EC. Saudi Arabia established these ECs during a period when rising oil prices were filling government coffers. Between 2000 and 2008, the foreign exchange reserves in Saudi Arabia’s central bank rose from $50 billion to $450 billion (Setser and Frank 2017, 18). This capital accumulation enabled the government to allocate $60 billion for the construction of ECs (Gallarotti 2013, 12).

21 Interview 74, head of a business and trade council on Saudi Arabia, Remote conversation from Oxford, November 21, 2016.

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EC policies, which contained a mixture of onshore and offshore incentives, aimed to attract private sector investments from local and foreign sources. In this context, Saudi ECs partially resembled largerscale versions of IEs in Oman and industrial zones in Abu Dhabi with respect to their domestic orientation. Firms operating within ECs received duty-free exports to GAFTA countries (Ernst and Young 2015, 7–18)— an incentive structure shared by all onshore companies as a result of Saudi Arabia’s integration into the regional free trade agreement. Low energy costs provided additional savings for investors. In fact, subsidized commercial services and industrial inputs help explain why nearly half of the country’s manufacturing industry opted to locate within ECs (AlDarwish et al. 2015, 79). The Saudi government strategically spread EC locations across the country to promote diversification and development in areas outside the traditional urban centers (Gallarotti 2013, 13). The geographic distribution of Saudi ECs reflected the approach taken by Omani policymakers to prioritize free zone development in economically marginalized areas. Other EC policies aligned more closely with the traditional characteristics of free zones in neighboring GCC territories. Firms in Saudi ECs enjoyed “no restrictions on sponsoring foreign employees” (Ernst and Young 2015, 18), or very lax local labor requirements. For example, some ECs instituted Saudization quotas of approximately 5%, whereas onshore firms needed to meet quotas ranging from 10 to 20% in their respective industries. Firms operating in ECs derived rents from workforce nationalization exemptions. ECs also offered the option for full foreign ownership, which resembled the ownership regulations common in Emirati, Qatari, and Kuwaiti free zones. The government entity of SAGIA could sponsor visas for foreign businesspeople without involving local firms (U.S. Department of State 2018, Section 3). By absorbing responsibility for foreign labor sponsorships, the government partially sidestepped the rentier roles traditionally held by Saudi citizens. Saudi policymakers hoped that these regulatory frameworks and commercial incentives would position ECs as “fertile sites for foreign universities” (Gallarotti 2013, 20), and other foreign companies operating in non-oil industries. Yet neither the re-export zones nor the ECs appeared to make a major impact on economic diversification indicators: the non-oil sector as a percentage of GDP decreased from around 64% in 1996–2001 to about 50% in 2006–2010 (Albassam 2015, 114). According to observers closely associated with the projects, ECs lacked

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overarching policy frameworks.22 Moreover, the construction stages of these cities coincided with the 2008 financial crisis, which led to new funding constraints and dampened investor demand. Changing perceptions of the economic, political, and social utility of the country’s hydrocarbon resources made it increasingly difficult for the government to ignore slow progress on ECs. Between June 2014 and January 2015, the price of oil dropped by approximately 50%. Saudi Arabia recorded a deficit of nearly $100 billion in 2015, leading observers to describe the situation as an “economic time bomb” (Al-Khatteeb 2015). The IMF indicated that “[m]ore needs to be done to realign incentives for firms to export and workers to seek private sector jobs” (International Monetary Fund 2015, 1). The Saudi government had intended for ECs to become business and finance hubs, but when this objective was not met, the government chose to develop and rent the real estate instead. A blunt government assessment of this prior EC strategy signaled concerns about the projects becoming white elephants: “[w]ork has halted in several cities, and others face challenges that threaten their viability” (Saudi Vision 2030). Despite challenges associated with ECs, the Saudi government did not entirely abandon free zone projects. In fact, Saudi Arabia’s officials demonstrated a renewed interest in free zones following the collapse of oil prices in late 2014 and 2015. Free zone development in Saudi Arabia also changed according to domestic, regional, and international institutions. “It is institutions that determine how interests are translated into decisions, in a way that ‘objective’ sector- or factor-based explanations fail to explain,” writes Steffen Hertog (2010, 245). The political ramifications associated with the precipitous drop in oil prices beginning in late 2014 and the rapid ascension of Mohammed bin Salman to power altered how the new regime approached free zone development. New free zone proposals reflected large-scale investments and a propensity for accomplishing foreign policy aims through economic development measures. The timing of new free zone announcements coincided with changing perceptions of the value of the country’s proven hydrocarbon resources. 22 Interview 30, managing director of an economic zones consultancy and secretary general of a global EPZ association, remote call from Dubai, May 11, 2016; Interview 74, head of business and trade council on Saudi Arabia, remote conversation from Oxford, November 21, 2016.

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A useful measurement of hydrocarbons’ perceived value to the state is the breakeven oil price, or the price per barrel of oil required for an oil-exporting country to balance its budgets. In 2015 and 2016, Saudi Arabia’s breakeven oil price was $92.90 and $79.70, respectively, whereas the average price of one barrel of oil rested at $51.60 and $50.40 each year (International Monetary Fund 2018). Between August 2014 and April 2017, the Saudi Arabian Monetary Authority sold in excess of $245 billion in reserves and raised $17.5 billion by issuing sovereign bonds (Setser and Frank 2017, 19). During this period, the Saudi government launched Saudi Vision 2030, which formally incorporated free zones into the national strategy. Vision 2030, considered the brainchild of Mohammed bin Salman, provides insight into how free zones factor into the crown prince’s vision for the country. Free zones became an important element of the new regime’s strategy to enhance its legitimacy through new projects. Announced in April 2016, the economic section of the vision outlines industry-focused zones: We will create special zones in exceptional and competitive locations. We shall take into account the comparative advantages of the Kingdom’s different regions, assess their feasibility for promising sectors, and then establish special zones, such as logistic, tourist, industrial and financial ones. Special commercial regulations to boost investment possibilities and diversify government revenues will be applied to these zones. (Saudi Vision 2030)

The newly expanded role for free zones in the country contradicted the historical role and centralized structure of SAGIA. With Saudi Arabia already a full-fledged member of the WTO, the perceived cohesiveness of commercial regulatory environments in the country was no longer an imperative policy objective. The policy decision also granted the crown prince new opportunities for distributing rent streams to various elite coalitions to shore up political support. “He [Mohammed bin Salman] is perceived as having accumulated power in order to make decisive decisions more easily,” argues Lindsay Hughes (2018, 5). The free zone concept likewise served as a useful tool for government efforts to revamp foundering megaprojects and partially shift distributive responsibilities to the private sector. Vision 2030 indicates that the rehabilitation of ECs may include the addition of free zone elements,

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and the vision applies a similar strategy to the King Abdullah Financial District in Riyadh.23 “We will seek to transform the district into a special zone that has competitive regulations and procedures, with visa exemptions, and directly connected to the King Khaled International Airport” (Saudi Vision 2030). The Saudi Economic Cities Authority subsequently signed a memorandum of understanding with the Dubai Airport Freezone in October 2017 (“DAFZA” 2017). This cooperative agreement suggests that Saudi policymakers still valued Dubai’s free zone experience despite past criticism that EC setbacks involved an unrealistic emulation of Dubai’s development model and a lack of demand-side considerations.24 While free zones emerged conceptually as part of the Saudi Vision 2030 announcement in April 2016—as oil prices reached record lows— specific and concrete articulations of free zone plans did not surface until prices rebounded slightly in 2017. Saudi Arabia had announced plans to build a Saudi-Egypt causeway and construct a free zone in the Sinai Peninsula in April 2017 (“Saudi newspapers” 2017); however, the conceptual launch of Neom in October 2017 represented an evolution of the earlier Sinai free zone proposal. Neom introduced a new free zone model within the GCC region because it incorporates territory from both Egypt and Jordan. Egypt pledged 1,000 square kilometers of land in the Sinai in return for a stake in the project’s $10 billion development fund (“Saudi Arabia and” 2018). The proposed territory for Neom includes the controversial islands of Tiran and Sanafir, which the Egyptian president ceded to King Salman in a June 2017 agreement that was ratified by Egypt’s parliament and upheld by the Egyptian Supreme Court. It is particularly difficult to separate the $500 billion Neom project in the northwest area of Tabuk from efforts to consolidate state power and state institutions under the authority of the new crown prince. Mohammed bin Salman chairs both the special authority and state sovereign wealth fund responsible for Neom’s development, and the project’s first commercial contracts entailed the construction of several royal palaces (Rashad 2018). Resource-abundant economies often focus on real estate ventures rather than clusters of productive industries because the former initiatives offer a convenient method of distributing 23 Interview 74, head of business and trade council on Saudi Arabia, remote conversation from Oxford., November 21, 2016. 24 Interview 30, managing director of an economic zones consultancy and secretary general of a global EPZ association, remote call from Dubai, May 11, 2016.

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rents to elites (Porter 2010, 499). Neom also accomplishes elements of Mohammed bin Salman’s broader social reform agenda: One of the main themes of Saudi Vision 2030 involves promoting a vibrant society with strong roots, fulfilling lives, and strong foundations. The free zone promises inhabitants “an idyllic living environment and rich quality of life,” and “world-standard social norms in culture, arts and education” (Neom 2018, 2). Prior studies on megaprojects in Abu Dhabi and Qatar suggest that discussions over sustainability or “green” development can mask the underlying goals of capital accumulation (Cugurullo 2013, 34) and consolidation of the ruling family’s political power (Rizzo 2017, 96). Neom’s stated objectives involve attracting foreign investments and redirecting local capital into the domestic economy (Neom 2018, 3–5). These objectives demonstrate the regime’s intention to satisfy distributive responsibilities through free zone development—processes of commercialized rent generation in Oman and the northern emirates accomplished similar objectives. Japan’s SoftBank, which secured $45 billion in planned investments from the crown prince in 2016, indicated that it would reinvest $15 billion in Neom and an additional $10 billion in other Saudi projects, essentially recycling Saudi investments into the domestic economy (Nair et al. 2017). Neom’s informational materials euphemistically describe outward investments as “economic leakage” resulting from foreign imports, international investments, and overseas spending (Neom 2018, 5). Indeed, the process of leveraging free zones to capture a portion of the estimated $50 billion in private net outflows that left the country annually from 2010 to 2015 (Setser and Frank 2017, 19) possesses fewer political risks than the practice of conducting anti-corruption campaigns, like the one orchestrated by Mohammed bin Salman in November 2017. Such measures may produce one-off financial windfalls and be a deterrent for corruption; however, these actions can also shake investor confidence. Saudi government officials have also incorporated free zone characteristics into other high-profile national development projects launched under the leadership of Mohammed bin Salman and owned by the Public Investment Fund. For example, the Red Sea Project—a luxury tourism project intended to position Saudi Arabia on the global tourism map—will function as a special economic zone with “a carefully designed legislative and regulatory system” (Rosen 2020). The objectives behind this legislative and regulatory system are to set new standards in environmental sustainability, foster a commercial environment that appeals to economic stakeholders, and attract international tourists. Any free zone can appear

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successful through profligate spending and providing fiscal incentives, but the reallocation of resources alone does not create wealth (Moberg 2017, EBook Section 46.1).

Bahraini Free Zones Bahrain experimented with a free trade zone within its Mina Salman Port as early as 1962—more than two decades before Dubai opened the Jebel Ali Free Zone. This early free zone experimentation resembled the behavior of other hydrocarbon-scarce Gulf territories; however, the country did not continue to build free zones with the same fervor as the UAE. Instead, the establishment of free zone-like entities and regulatory reforms offered Bahrain-based firms many of the same benefits associated with free zone firms in other Gulf countries. When a limited free zone sector eventually emerged in the 2000s, it straddled offshore and onshore boundaries and operated according to the country’s fiscal considerations, domestic concerns, and regional relations. Saudi Arabia remained the most significant market for the majority of free zone firms in Bahrain. Certain Bahraini officials actively discouraged the labeling of these commercial entities as “free zones,” while other government entities claimed confusingly that the “whole of Bahrain is a ‘free zone’” (Bahrain Economic Development Board 2015). The Mina Salman Free Trade Zone focused exclusively on creating a tariff-free environment to encourage export-led sectors.25 This traditional notion of a free zone in the 1960s fit with the region’s geopolitical context prior to the emergence of the GCC customs union. By reducing tariffs and other trade barriers, Bahrain could create a comparative advantage over other commercial hubs in the Gulf. Rather than transforming the Mina Salman Free Trade Zone into a more expansive project, as was the case with Jebel Ali in Dubai, Bahrain instead focused on courting foreign investors for economic diversification initiatives and regulatory reforms—thus reinforcing the notion that Bahrain’s broader economic environment provided attractive incentives to investors. New free zone-like entities and regulatory frameworks, specifically the promotion of Offshore Banking Units (OBUs) and the Exempt Companies Law, emerged in the 1970s. OBUs provided the infrastructure

25 M¯ına is an Arabic transliteration for port.

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for foreign banks to operate in the region in return for an annual fee payable to the government. While these foreign banks were prohibited from interacting with residents of Bahrain, the government reserved the right to engage with OBUs. “Offshore banking was seen as a way of allowing foreign banks the opportunity of having Bahrain as a regional base without further jeopardizing the financial viability of the existing commercial banks in Bahrain,” explains Elias Ghantus (1985, 134). Codified linkages with OBUs also offered the Bahraini government crucial access to foreign capital. Similar to commercial ownership regulations in other GCC countries, Bahrain required foreign firms operating outside of the financial sector to cede a majority share of their venture to a Bahraini partner. However, Bahrain partially reformed these foreign ownership regulations in the late 1970s by instituting a new regulation option for offshore firms. Gokhan Akinci and James Crittle (2008, 43) argue that many MENA countries utilize SEZs “to pilot dramatic liberalization in foreign investment ownership policies.” Yet rather than creating another quasi-free zone entity akin to the Mina Salman Free Trade Zone or OBUs for firms operating outside of the banking sector, Bahrain’s Ministry of Commerce and Agriculture established a new legal status for exempt companies through Law 25 of 1977: According to this Law, an Exempt Company is not subject to the usual requirement of having a majority local partner and must have capital of no less than BD 20,000…To protect national companies from unfair competition, Exempt Companies are allowed to conduct business only offshore. This rule, however, did not preclude some of the Exempt Companies from basing their production on locally supplied raw materials as was the case with the aluminum company. (Ghantus 1985, 133)

This status reflected the alternate site framework for foreign-trade zones (FTZs) in the United States,26 where single companies can receive FTZ status outside of traditional FTZs or sub-zones.27 Exempt companies 26 A key difference, though, is that the U.S. program aimed to promote foreign trade; regulations on foreign ownership remained less of a concern. The alternate site framework in the United States also emerged in 2009, much later than Bahrain’s “exempt companies” status. 27 Interview 43, a president of the National Association of Foreign-Trade Zones, Washington, DC, June 17, 2016.

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in Bahrain can only operate for 25 years, and Bahraini nationals must seek permission from a government minister to own more than 20% of an exempt company’s shares (International Business Publications 2016, 104). The legal stipulation attaching Bahraini ownership of an exempt company to ministerial permission granted business actors opportunities connected to the unequally distributed rents and differential treatment by the government—two forms of rent seeking described by Buchanan (1980, 4). OBUs and exempt company status emerged during a decade when Gulf countries received massive financial windfalls from hydrocarbon exports. The former established an offshore operating environment for foreign banks while simultaneously insulating local businesses from competition, whereas the latter provided exemptions from local ownership regulations for foreign investors. Neither policy fostered entirely autonomous markets: The Bahraini government reserved the right to engage with OBU firms, and various elements of the exempt company status required ministerial permission. Nevertheless, the initiatives ensured that qualifying firms enjoyed what amounted to the critical benefits of GCC free zones and also produced tangible benefits across the country. OBUs contributed 8.5% to the country’s total GDP in 1981 and employed 3,596 Bahrainis by 1982, as the third highest industry in terms of employment (Ghantus 1985, 137), reducing the incentives to spend lavishly on launching new free zone projects. Declining oil revenues resulting from the oil glut of the 1980s reduced available funds for OBUs. Many banks closed their branch offices in Bahrain and stopped paying annual operating fees to the government. Those foreign banks that remained competed in an increasingly mature market sector. By the late 1990s, Bahrain’s government sought new methods to lure foreign investment into the country. Ulrichsen (2011, 100) notes that the resource-scarce countries of Bahrain and Oman led the region with a series of national visions, reforms, and economic targets aimed to diversify their economies from oil and gas revenues. In Bahrain, these initiatives included the creation of the Economic Development Board (EDB) in 2000 and the government’s marketing of the country under the Business Friendly Bahrain banner. Bahrain’s domestic market alone was not sufficient to attract international investors. However, the growing domestic market in neighboring Saudi Arabia became a major carrot to dangle in front of foreign investors. From 1995 to 2005, Saudi Arabia’s GDP grew by 131%, and the country witnessed a

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106% boost in imported goods and services over the decade, according to the World Bank. By 2005, Saudi Arabia contained a domestic consumer base of nearly 17 million local citizens—up from 9.5 million locals in 1985 (Gulf Labour Markets and Migration 2018). Bahraini officials highlighted their country’s close proximity to and connectivity with Saudi Arabia as a major commercial advantage. An economic officer at the EDB claimed that “there is no reliable domestic consumption base [in Dubai]. In Riyadh, there are ten million people…who can’t leave.”28 He continued by stating that foreign investors “definitely are not coming to Bahrain for the domestic market. Most companies are operating here because of the proximity to Saudi Arabia.”29 The emergence of the Saudi Arabia-oriented free zone entities coincided with the 2008 launch of Bahrain’s Vision 2030, which intended to “shift from an economy built on oil wealth to a productive, globally competitive economy, shaped by the government and driven by a pioneering private sector” (The Government of Bahrain 2008, 3). The vision proposed building a more diversified economy by focusing on the financial services sector and encouraging new investments in other non-oil sectors, including tourism, business services, manufacturing, and logistics (ibid., 12–13). Free zone development fell into the latter category of this two-pronged Vision 2030 strategy to drive robust economic growth. Whereas OBUs and exempt companies emerged to manage capital inflows, later free zone entities facilitated growing outflows of manufactured goods and other services to Saudi Arabia. Two resulting entities opened in 2005 and 2008: the Bahrain International Investment Park (BIIP) and Bahrain Logistics Zone (BLZ). A manager from BIIP emphasized that the park is “only one traffic stop away from Saudi Arabia. Everybody wants to serve there but they don’t want to be there.”30 BIIP’s clients can utilize duty-free access to the GCC market, GAFTA, and Bahrain’s FTA with the United States. “Bahrain has been proactive getting free trade agreements, and these are important for our clients. [There are] lots of companies operating in Bahrain to serve North 28 Interview 28, economic officer at the Economic Development Board, Manama, Bahrain, April 27, 2016. 29 Interview 28, economic officer at the Economic Development Board, Manama, Bahrain, April 27, 2016. 30 Interview 53, manager of Bahrain International Investment Park, Remote conversation from Dubai, UAE, July 26, 2016.

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Africa,”31 explained a BIIP manager. The park also offers governmentsubsidized electricity, water, and sewage services (World Trade Organization 2014, 34), offering below-market rates for services—similar to incentives offered by free zones in Abu Dhabi and the northern emirates. BIIP operated at 85% capacity and employed approximately 4,000 residents in 2016—although publicly available figures made no distinction between Bahraini and foreign employees working in BIIP’s 72 operational companies. Nearly 80% of BIIP’s firms were involved in manufacturing while 20% operated in internationally traded services (International Development Ireland 2017). Although BIIP’s corporate brochure lists “no recruitment restrictions” as one of its incentives, this is slightly misleading because it does not include the exemption’s time limit (Bahrain International Invest Park 2018, 3). Bahrain’s government granted five-year exemptions from Bahrainization requirements as part of lease agreements for companies operating in free zones.32 The differential in labor expenses between Bahraini and non-Bahraini employees employed during a five-year exemption period beginning in 2006 was approximately $61,920 (Bahrain Labour Market Authority 2006), which illustrates the value of rents extracted from reduced labor requirements. Ownership and management of BIIP are made up of public–private partnerships among local, regional, and international parties. International Development Ireland (IDI), an Irish company that specializes in the practical implementation of institutional and corporate development projects, received the initial contract to operate BIIP through an agreement with the government.33 The reliance on foreign companies stems, in part, from an inclination to share the risk of marketing industrial products with more established foreign firms (Al-Yousef 1985, 130). IDI has leveraged Ireland’s reputation for economic development and the success of the country’s Shannon Free Trade Zone to win contracts for various development and economic zone projects across the globe. The entire BIIP project team in Bahrain was Irish; however, the long-term strategic 31 Interview 53, manager of Bahrain International Investment Park, remote conversation

from Dubai, UAE, July 26, 2016. 32 Interview 28, economic officer at the Economic Development Board, Manama, Bahrain, April 27, 2016. 33 Following the transfer of BIIP to Bahraini management, IDI hopes to continue working on development projects in southern Al Hidd area to improve the roads, lighting, and drainage systems.

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plan involves the transfer of BIIP operations to a Bahraini team.34 The Baytik Industrial Oasis—an industrial park in BIIP—is wholly owned by the Kuwait Financial House. Meanwhile, BLZ operates within the ports and maritime portfolio of the Ministry of Transportation and Telecommunications. The Ministry of Industry, Commerce, and Tourism approves all of BLZ’s trade licenses and also oversees BIIP. Territorial constraints diminished the feasibility of autonomous free zone authorities in Bahrain. “We have one square kilometer. Bahrain is a tiny dot compared to other GCC countries, and it would be inefficient to have a government body within a government body for one square kilometer of land,”35 explained a BLZ staff member. BLZ’s primary purpose involved providing commercial support for the nearby Khalifa Bin Salman Port (KBSP). “It’s premium land near the port…The main criteria for companies is that they use the port,”36 stated a senior corporate manager at BLZ. Land reclamation for the BLZ site began just as the BIIP opened in 2005, and the site was operational by 2008. The timing coincided with the commencement of operations at the new KBSP, which replaced the older port of Mina Salman, in 2009. “The old port was very congested. The new port is purpose-built and modern,”37 explained a business editor at Gulf Daily News. The editor added that only about 30% of the new port is currently being used for commercial operations, leaving the government eager to attract new clients. A senior corporate manager at BLZ echoed vacancy concerns: “We invested lots of money in the port and we want to see it at full capacity.”38 The precise status of BIIP and BLZ remained purposefully vague, allowing officials to provide both free zone-like incentives and GCC customs benefits to prospective clients. Bahrain established its FTA with the United States in January 2006 but first ensured that other GCC

34 Interview 27, consultant for Bahrain International Investment Park, Al Hidd, Bahrain, April 27, 2016. 35 Interview 67, senior corporate manager at Bahrain Logistics Zone (BLZ), Al Hidd, Bahrain. August 23, 2016. 36 Ibid. 37 Interview 68, business editor at Gulf Daily News, Manama, Bahrain, August 24, 2016. 38 Interview 67, senior corporate manager at Bahrain Logistics Zone (BLZ), Al Hidd, Bahrain, August 23, 2016.

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members, namely Saudi Arabia, had no serious objections.39 Some of BIIP’s companies encountered difficulties when interacting with Saudi and Kuwaiti customs officials who considered the park a free zone and therefore outside of GCC customs territory.40 BLZ also confronted issues when reconciling its economic activities with the common perception of free zones in the region. BLZ is a bonded area where merchandise can be stored and manipulated without payment of customs duties, but some of its operations take place within the grey area between onshore and offshore spheres. Officials ultimately changed the entity’s original name from the “Bahrain Free Zone” to avoid a direct association with free zones. Stricter adherents to the customs procedures in other GCC member states protested a doubling of benefits that flouted customs conventions in the region. An interviewee from BLZ, however, suggested that emphasizing the entity’s non-free zone characteristics was intended to reduce confusion for clients: “We consider the whole of Bahrain a free zone because there is no tax. We didn’t want to mislead potential tenants that they would be getting something different within the zone…So we shied away from the [term] free zone.”41 The Bahrain Investment Wharf (BIW) is widely confused for being a free zone. BIW instead was a $2 billion development project of the Al Khaleej Development Company (Tameer), a subsidiary of Inovest BSC. “It is a wrong notion that this is a SEZ. Nothing, absolutely nothing, is given by BIW. Many people think of it as a SEZ because it was advertised as a SEZ on the website. This is wrong,”42 explained a BIW director and the final remaining employee left in the office. The precise role of BIW was not clear to others operating in related economic spheres. An economic officer at the EDB described the BIW as dealing mainly in the technology sector,43 while an employee of BIIP stated that it “turned into a logistics and warehousing hub and reports to the ministry on a quarterly 39 Interview 75, former U.S. Ambassador to Bahrain, Washington, DC, January 17, 2018. 40 For more details on this issue, refer to Chapter 6. 41 Interview 67, senior corporate manager at Bahrain Logistics Zone (BLZ), Al Hidd,

Bahrain, August 23, 2016. 42 Interview 66, director at Bahrain Investment Wharf, Al Hidd, Bahrain. August 23, 2016. 43 Interview 28, economic officer at the Economic Development Board, Manama, Bahrain, April 27, 2016.

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basis.”44 However, a BIW director stated that the entity functioned purely as a real estate venture: “There are no clients. We reclaimed the land…we sold the land…finish. There is nothing left to do.”45 The case of BIW further illustrates the strong association between real estate development and free zones in the Gulf. Real estate played a central role in the business model of Bahraini free zones. The reallocation of wealth through land transfers is a common feature in the GCC, occurring in various forms across Kuwait, the UAE, and Oman. In Bahrain, the real estate associated with operating free zones resulted from land reclamation projects in Al Hidd. In fact, land reclamation processes constituted the main cost associated with the development of free zones like BIIP.46 The value and scarcity of these commercial plots encouraged investors to land bank, a practice of signing leases without intending to commence operation on the properties. This practice led the Minister of Industry and Commerce to decree that if a free zone company does not begin operations within two years, then the government could reclaim the land.47 The stipulation aligned with similar real estate regulations laid out in Law 28 of 2014 that projects must commence within six months or face removal from the country’s official real estate register (Trowers and Hamlins 2014). Commercial reforms and the establishment of free zones in Bahrain, however, did not overwhelmingly diversify the state budget. While financial services accounted for 58% of Bahrain’s GDP and manufacturing added an additional 15.2% by 2012, oil and gas accounted for 75% of government revenues (World Trade Organization 2014, 12–13). Other estimates suggest that oil and gas revenues constituted as much as 90% of the state budget in specific years, with nearly three quarters of this revenue coming from Bahrain’s share of revenues from the Abu Safa oil field (Mills 2012). Despite Bahrain’s meager 124.6 million barrels of proven crude oil reserves by the start of 2017 (Central Intelligence Agency 2018), the ratio of hydrocarbon revenues as a percentage of total government revenues 44 Interview 27, consultant for Bahrain International Investment Park, Al Hidd, Bahrain, April 27, 2016. 45 Interview 66, director at Bahrain Investment Wharf, Al Hidd, Bahrain. August 23, 2016. 46 Interview 27, consultant for Bahrain International Investment Park, Al Hidd, Bahrain, April 27, 2016. 47 Ibid.

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had not changed significantly from its average of 75.8% between 1947 and 1970.

Qatari Free Zones Qatar contains a bifurcated free zone system: The Qatari government established the country’s first two operating free zones in 2005, and the government created additional free zones under a separate holding company in the following years. The latter group launched in 2011 as three special economic zones before ultimately rebranding as free zones under a new free zone authority that emerged in 2018. The 2017 GCC rift that resulted in a diplomatic and economic boycott on Qatar prompted a number of free zone policy changes and developments, such as the creation of the free zone authority and renewed plans for a new media city. Qatar also possesses several logistics, industrial, and warehousing zones that, while not serving as free zones, nevertheless operate under similar commercial entities. The Qatar Financial Centre (QFC) and the Qatar Science and Technology Park (QSTP) emerged through laws 7 and 36 of 2005. Neither of these free zones are directly connected to key commercial transport hubs in the country. Since its inception, QFC has operated as “a government agency in its own right” and reported to the Ministry of Economy.48 The QFC initially targeted companies operating in the financial sector in order to link the country’s financial sector with international financial firms (Gray 2013, 130), but the free zone expanded its focus to include non-financial companies in 2011. Oracle, Uber, Mastercard Gulf, and Goldman Sachs International are examples of companies that have registered with QFC (U.S. Department of State 2020). Similar to the DIFC in Dubai, the QFC contains an independent legal structure based on English common law and presided over by international judges. The QSTP operates under the Qatar Foundation. The free zone’s mission is “to establish a knowledge-based economy for [a] post-oil era,”49 and it therefore focuses predominantly on research and development. According to a QSTP official, the free zone’s emphasis on research

48 Interview 63, director at Qatar Financial Centre, Doha, Qatar, August 21, 2016. 49 Interview 62, manager at Qatar Science and Technology Park, Doha, Qatar, August

21, 2016.

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and development mitigated competition from free zones in neighboring countries, like the UAE, where many free zones concentrated on sales and commercial activities.50 Both the QSTP and QFC offered investing companies tax exemptions; however, firms registered at QSTP are also exempt from the country’s 10% tax on corporate income (U.S. Department of State 2020). Both free zones permit full foreign ownership, which served as an exemption from earlier foreign ownership regulations applying to onshore companies pursuant to Law 13 of 2000. While this law limited foreign ownership to 49%, it does make exceptions for companies operating in the sectors of agriculture, industry, health, education, tourism, energy, and renewables (Foreign Investment Law 2000). New laws decreed by the emir in 2018 and 2019 have since eased foreign investment regulations within Qatar. The Qatari government launched a multidimensional project to build three new special economic zones in 2011. The Minister of Business and Trade issued Decision 272 of 2011, which established the Economic Zones Company to lead the project. Two years later, the Economic Zones Company rebranded as Manateq. The company held groundbreaking ceremonies for two special economic zones—Ras Bufontas and Um Alhoul—in 2014 and 2015, respectively, and wielded an authorized capital of QAR 5 billion (~$1.37 billion). Both special economic zones remained in the early stages of construction by the end of 2017: Um Alhoul had an estimated final completion date of 2025. The third special economic zone, Al Karaana, is between Doha and Abu Samra, which contains a border crossing into Saudi Arabia. The 2017 GCC rift and ensuing boycott complicated development plans for this third special economic zone.51 The objectives behind the special economic zone initiative were diverse. In one respect, the entities demonstrated Qatari efforts to better utilize the country’s air, sea, and land transit points for commercial purposes. A commercial services officer from the U.S. Embassy in Doha argued that the new special economic zone “regulations were set up

50 Ibid. 51 See Chapter 6 for more information on how Qatari free zones adjusted to the 2017 GCC rift.

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so that money stays inside the country.”52 For their part, Qatari officials highlighted economic and social objectives ranging from small and medium-size enterprise growth, residential development, and heritage tourism. For example, Um Alhoul’s planners expect a population density capacity of 67,000 residents and a fully functional heritage site for tourism purposes. A project manager from Um Alhoul noted that it would target local SMEs that aspire to become major industrial players; however, he was careful to add: “We don’t want to compete with the existing players.”53 The comment reveals the inherent tensions between opening new space for economic actors and protecting incumbent firms in the Qatari economy. The timing of the special economic zone initiative, having launched in 2011, offers important context concerning the project’s scope. In particular, the entrepreneurial and social objectives addressed underlying factors behind the political unrest associated with the “Arab Spring” protests that swept across the Middle East and North Africa. Indeed, neighboring Oman also launched its special economic zone at Duqm in the country’s least developed governorate during the same year. In Qatar, though, entrepreneurial provision was a specific method of shoring up state support. Crystal Ennis (2015, 116) argues that in Qatar “entrepreneurship promotion, although cast in the language of private sector development, has thus far become another vehicle for state patronage.” The promise of funding Qatari entrepreneurs served as just one manner in which the regime leveraged free zones for political ends. The government carefully embedded free zone development into broader themes of policy reform and economic diversification mentioned in country visions and strategies. A staff member at Um Alhoul described the project as a “product” of Qatar Vision 2030.54 Meanwhile, the Qatar National Development Strategy 2011–2016 (NDS) listed the country’s two older free zones as part of policy improvements intended to increase foreign firm participation outside of the energy sector (Qatar

52 Interview 73, commercial service officer, U.S. Embassy in Doha, Qatar, remote conversation from Jerusalem, September 21, 2016. 53 Interview 64, manager at Um Alhoul Special Economic Zone, Um Alhoul Site, Doha, Qatar, August 22, 2016. 54 Interview 64, manager at Um Alhoul Special Economic Zone, Um Alhoul Site, Doha, Qatar, August 22, 2016.

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National Development Strategy 2011–2016, 47). The NDS also categorized Qatar’s newer special economic zones as part of diversification efforts wherein “high-level infrastructure services and freedom from regulatory and other burdens is expected to stimulate new investment” (ibid., 97). Emerging concerns over Qatar’s investment climate prompted changes to the country’s free zone system and affiliated economic institutions. The 2017 GCC rift and ensuing boycott demonstrated that Qatar could not remain overly dependent upon free zone-related trade and logistics infrastructure in neighboring GCC territories (Mogielnicki 2017). In response to the economic shock caused by the boycott, Qatar’s emir issued Law 21 of 2017. The new law granted free zone firms in Qatar comprehensive tax exemptions for all profits on traded goods in transit, exemptions from the commercial agency system, and reassurances of complete control over workforce hiring (“New law offers” 2017). In 2018, the Qatari government created the Qatar Free Zone Authority (QFZA) and relocated Ras Bufontas and Um Alhoul under the jurisdiction of this authority. Al Karaana remained within Manateq’s portfolio alongside other logistics, industrial, and warehousing zones. The QFZA aims to offer “state-ofthe-art infrastructure” next to Hamad Port and Hamad Airport, with a focus on attracting firms specializing in logistics, chemicals, and emerging technologies (Qatar Free Zones Authority 2020). Qatari officials also set in motion plans to construct a media city free zone for hosting both traditional and new media companies. Although the formal establishment of Qatar Media City relates to Law 13 of 2019, the project’s chairman, Sheikh Saif bin Ahmed Al Thani, noted that research and planning started as early as 2005. Qatar’s emir tasked government officials to push ahead with the media city in 2017 (Government Communications Office 2019). The nascent media city does not operate under the QFZA; however, the codification of the city’s legal regulations in Law 13 of 2019 amounts to the standard incentives offered by other Qatari free zones and those in other Gulf countries (Al Meezan 2019). Project planners aspire to attract international social media firms and influencers, and senior Qatari government officials appealed to the country’s local private sector to support the project’s development (“Prime Minister” 2019). The media city remained in its early developmental stages as of October 2020.

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Kuwaiti Free Zones In Kuwait, an empowered merchant class steered the country’s early free zone development in a direction that occasionally conflicted with government aims. The Kuwaiti government established a legal framework for free zones in 1995 through Law 26 of 1995, but local private sector actors led early free zone development in the country. In 1998, the National Real Estate Company (NREC), of which the Sultan Al Essa conglomerate owns 30%, signed an agreement with the Kuwaiti government to manage and operate the Kuwait Free Trade Zone (KFTZ) within the Shuwaikh Port. The Al Essa family owns the Sultan Center supermarket chain and the GCC’s largest logistics company, Agility (Hanieh 2011, 128). This commercial portfolio enabled the family to secure multibillion-dollar supply contracts for U.S. troops in Iraq and Afghanistan. A prominent entrepreneur from the family, Jamil Sultan Al Essa, managed the KFTZ at the outset of the initiative. As part of its agreement with the government, the NREC received 20% of the free zone’s operating profits and was entitled to 90% of profits from additional projects in the commercial area (“Kuwait Free Trade Zone” 2016). Relations between NREC and the government, however, deteriorated over the course of eight years. Kuwait’s cabinet council accused the NREC of mismanagement, terminated the firm’s contract, and suspended the company’s activities within the free zone through resolution 507 of 2006 (U.S. Department of State 2018). In 2010, the government revoked many of the commercial licenses in the free zone. “They [the government] pretty much killed it. It was a deliberate choice,”55 said the head of a major Kuwaiti newspaper while explaining that the government was not genuinely committed to economic liberalization. A free zone expert who worked on economic zone projects in Kuwait, Saudi Arabia, and Qatar echoed this view: “They [the Kuwaiti government] want to look like they are considering economic diversification, but they don’t really want to do the necessary work to do it correctly.”56 Kuwaiti government officials saw things differently. The initial objective of KFTZ was attracting foreign investment, but Kuwaiti firms 55 Interview 71, head of major Kuwaiti newspaper, Kuwait City, Kuwait, August 25, 2016. 56 Interview 30, managing director of an economic zones consultancy and secretary general of a global EPZ association, remote call from Dubai, May 11, 2016.

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composed approximately 95% of the free zone’s clients.57 A 2015 investment climate report by the U.S. Department of State (2015, 19) also notes that “the majority of the firms operating in the zone are Kuwaiti.” The overwhelming concentration of Kuwaiti firms partly explains the government’s reservations about the project’s progress. Unlike other GCC free zones, such as those in Qatar, the KFTZ had not demonstrated a strengthening of state linkages with international firms. The industry focus of the companies within the KFTZ was also a source of contention. According to Zayed Al-Zaid, a columnist at Kuwait’s Annahar newspaper, “some traders exploited it to be an investment and commercial area…but their activities turned out to be restaurants and cafés, instead of diversifying State resources and stimulating the economy” (“Kuwait closes” 2019). The NREC contested the government’s decision in a legal battle lasting approximately ten years and only accepted a final court ruling regarding the cancellation of the contract in March 2016. Three years earlier, the government had transferred control of the KFTZ to the Ministry of Commerce and Industry (MOCI), which was then tasked with creating a new free zone strategy (National Real Estate Company 2016). Between 2016 and 2017, the MOCI proposed transferring the KFTZ’s operations to the Kuwait Direct Investment Promotion Authority, a public organization tasked with enhancing Kuwait’s economic diversification efforts. The Kuwait Direct Investment Promotion Authority also oversees the development of trade-focused free zones in Al Abdali and Al Nuwaiseeb. Yet, the KFTZ ultimately remained under the supervision of the Public Authority for Industry until the Council of Ministers cancelled the port area’s free zone status in January 2019 (“Kuwait’s government” 2019). Following a short transition period, the government entrusted the Shuwaikh Port area to the Kuwait Ports Authority. The lengthy legal battle and struggle to make the initiative commercially viable demonstrated that “the incentives for the private sector are different,”58 and that real cleavages exist between the government and powerful businesspeople in Kuwait.

57 Interview 70, senior free trade zone official, Ministry of Commerce and Industry, Kuwait City, Kuwait, August 25, 2016 [Arabic]. 58 Interview 44, analyst at International Trade Department, World Bank, Washington, DC, June 20, 2016.

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The other components of Kuwait’s free zone system have encountered challenges at its conceptual stage. The Silk City megaproject and economic zone initiatives aim to transform Kuwait into a competitive commercial hub and simultaneously reduce the country’s dependence on revenues from hydrocarbon resources—key objectives of the country’s Vision 2035. The Silk City project emerged following several attempts throughout the 1980s and 1990s to develop residential zone projects in the al-Subiyah region of northern Kuwait (Alsabah and Alsudairi 2020, 5–6). Plans for Silk City evolved into a broader economic zone in 2004, but several government entities unsuccessfully juggled the massive project proposal over the following years (ibid.). Planners hoped that the project would eventually accommodate upwards of 700,000 people and attract $100 billion (“Silk Road” 2017), but development plans languished as a result of economic policymaking paralysis in the country and pessimistic feasibility studies. As if the uncertain status of Silk City did not pose enough challenges, the notion of incorporating additional islands into a larger northern development megaproject started to gain traction. This second, related project sought to transform the islands of Boubyan, Warbah, Failaka, Maskan, and Aouha into an integrated economic zone in the northeastern corner of the country. Following a 2015 decision by the supreme planning council, Kuwait’s government announced an ambitious development plan for the five uninhabited islands in December 2015, nearly one year after oil prices plunged by nearly 50% (“Kuwait to launch” 2015). Officials estimated that the economic zone would generate $40 billion in annual revenue, create 200,000 jobs, and house 400,000 residents, according to a study conducted by the Development of Islands Committee within the Council of Ministers (“Kuwait to spend” 2017). According to Kristin Smith Diwan (2018), the transformation of uninhabited northern islands into an integrated economic zone is also a strategy of “amplifying foreign stakes in continued Kuwaiti sovereignty over its northern territories.” Defense Minister Nasser Sabah Al Ahmed stated that the government would likely merge Silk City and the integrated economic zone into one grandiose project, following recommendations from an ongoing feasibility study (Omar 2018). Yet free zone development in the northern part of the country also faced local opposition. Some Kuwaiti policymakers fret that an integrated economic zone planned for the massive Silk City project would have adverse commercial and legal effects, such as excluding local

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developers or permitting the consumption of alcohol (Alsabah and Alsudairi 2020, 12). The Kuwaiti government also hired the law firm DLA Piper in 2013, when oil prices reached historic highs, to help develop three new free zones that never came to fruition (Anderson 2014). Efforts to increase Kuwait’s business competitiveness and reduce its dependence on hydrocarbon revenues are much needed. The flow of foreign investments into Kuwait declined from $3.3 billion to $275 million between 2011 and 2016 (Oxford Business Group 2017). The region’s free zone systems possess many similarities in terms of definitional characteristics and incentives for firms and investors. However, the underlying processes of free zone development across the Gulf unfolded unevenly. The timing, scale, and scope of free zone development varied from country to country and even among subnational units of comparison. Some free zones struggled to attain financial sustainability—other projects never moved beyond the conceptual stages. Moreover, the terms of commercial advantages afforded to free zone firms shifted according to demographic considerations and political developments. Differing economic structures and orientations account for part of this variation. Hydrocarbon resource scarcity often encouraged earlier and more expansive free zone proliferation, whereas hydrocarbon resource abundance often provided the financial resources needed to construct newer, cutting-edge free zones. Specific personalities also mattered. Leadership transitions provided an opportunity for new individuals to alter the trajectory of economic development or personalize existing development paths, and free zones served as useful tools in this respect. Yet free zones required the active participation of economic actors— both local and foreign. These economic actors are embedded in the broader Gulf economies where free zone development takes place. The impact of free zones on prevailing economic institutions involved negotiations between regional governments, local elites, and international economic actors. The following chapter examines these elite social relations and their linkages to free zone development.

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CHAPTER 5

Elite Embeddedness in Free Zone Development

All big economic institutions are ultimately political institutions because they must have a political end to survive and protect their interests (North et al. 2009, 146). Ruling families, business elites, foreign firms, and local citizens in Gulf Arab states collectively shaped free zone development according to distinct interests. These interests overlapped in many areas but also diverged in some respects. The interactions among these social groups resembled a dynamic trade liberalization framework, wherein processes of rent generation and rent seeking occurred concurrently. The general structure of the trade liberalization framework involved a supply side composed of ruling family members and government officials and a demand side consisting of local business elites, foreign firms, and local citizens. Liberalizing foreign trade and investment in the Middle East “produces winners and losers” (Richards and Waterbury 2009, 218), but calculating the gains and losses associated with free zone development is not so straightforward. Social actors often occupied both sides of the framework, and vested interests did not always adhere—with ideological consistency—to the ostensible economic liberalization of free zone development. Therefore, any adapted trade liberalization framework suitable to make sense of Gulf free zones must demonstrate sufficient flexibility to incorporate actors with overlapping public and private interests. Fluctuating social demographics and fiscal capabilities can increase the demand-side © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_5

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bargaining power of local citizens and foreign firms as ruling elites evaluate their “political incentive compatibility constraints” (Acemoglu and Robinson 2013, 177)—or what they must do to stay in power. This flexible and blurred relationship between supply and demand forces of free zone development aligns closely with Judith Goldstein’s (2012, 2) view that trade liberalization depends on a complex mixture of the distribution of economic interests, collective action costs of organizing, and the institutional rules and norms that channel social forces into policy. Gulf free zone development involved balancing the interests of royals, business elites, and other patronage networks. The consequent linkages helped contain conflict in limited access social orders (North et al. 2009, 37) wherein rulers considered independent private sectors as a political threat (Malik 2014, para. 18). For these reasons, ruling families across Gulf Arab states codified their authority over free zone creation, ensuring their ability to direct and distribute related rents. As part of political entrenchment efforts, ruling families incorporated an established network of close allies and prominent businesspeople into free zone bureaucracies. These elite allies assumed corporate roles in free zones and accrued limited political powers to shape free zone policies and arbitrate firm registration through affiliated authorities and councils. In turn, business elites leveraged these free zone affiliations to connect their interests to those of the ruling families and national governments. The consequent structural utility of free zones and their associated policies serve the vested interests of both ruling and business elites in the Gulf, while also limiting the potential avenues for a politically threatening private sector to emerge.

Gulf Ruling Families and Free Zone Ownership That ruling families function as key actors within the state and their respective territories is clear. However, the relationship between the ruling family and the concept of the state requires clarification before ruling families’ roles in free zone development can be fully understood. Abdulhadi Khalaf (2013, 45) argues that “the state is the ruling family; that is to say, more than simply stating that the state is an instrument of the ruling family. Rather, there is a distinct intertwining of state and the ruling families in a relation of indistinguishable organic unity.” Alternatively, Hanieh (2011, 12) considers the Gulf Arab state “not as a ‘thing’ or collection of individual social actors, but rather as a particular expression of class formation – with the latter understood as a set of social relations that

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is continually in the process of coming-into-being.” The former conception describes the state as a slightly static composition of elite individuals, whereas the latter view offers a more fluid, dynamic definition of the state based on constantly evolving relationships. This work incorporates both concepts, acknowledging the persistence of distinct royal family members as well as the flexible evolution of the state through changing local and global relationships. Free zones “maintain the de facto power of rulers (or domestic sovereignty) by solidifying ruling coalitions and creating new modes of capital accumulation without disrupting the existing socio-political hierarchies and ruling coalitions” (Keshavarzian 2010, 265–266). In other words, political institutions and the distribution of resources through free zones can help to explain how elites gain power and co-opt systems in their favor (Acemoglu and Robinson 2009, 4). Dubai is a useful starting point for examining the relationship between political institutions and free zones. The ruling Al Maktoum family ensured symbolic and physical links to free zones in the emirate because the economic activities of these entities enhanced the political legitimacy of the ruling family. The structural characteristics of free zones and the nature of commercialized rents facilitated political legitimization efforts through the state apparatus. Free zones require long-term planning and implementation that must be associated with the symbolic visions of specific individuals as well as tangible state initiatives. Within this context, JAFZA connected narratives of state formation with the political leadership of the ruling family. For the 30-year anniversary of JAFZA’s establishment, the free zone’s corporate magazine stated: Jebel Ali Free Zone (Jafza) is a local and regional role model in excellence and fulfillment. This is embodied in the strategic vision and wise leadership of the nation that anticipated the future and predicted international economic developments. Jafza was founded 30 years ago thanks to the strategic vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, to attract foreign investment to the emirate and diversify the economy from oil. (Jebel Ali Free Zone Authority 2016, 5)

Some of the existing narratives of free zone development in Dubai are overly focused on the farsighted benevolence of Dubai’s rulers. “This explanation for Dubai’s economic success and the creation of the free

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trade zones is overly consequentialist and attributes prophetic pre-science to the ruling class” (Keshavarzian 2010, 272). Meanwhile, accounts of the negative dimensions of economic development, which contradict overly positive historical narratives, occasionally met with resistance. For example, the Dubai government imposed a temporary ban on Arabian Business, a popular news organization based in the DMC free zone, after its reporting of several failed real estate projects in the emirate in a manner that Dubai authorities considered “false news” (Schreck 2017). The banning of news outlets operating in the media free zone demonstrated the limits of free zone firm autonomy from local government interference. The depiction of Jebel Ali Free Zone as a strategically implemented vision of Dubai’s leadership should be critically evaluated. This is not to deny any due credit to Dubai’s leadership but rather to more fully understand the early foundations of free zone development and the political interests at stake. An interviewee with close ties to senior JAFZA leadership noted that a former CEO “may very well debunk the misperceptions that Jebel Ali was a perfectly conceived, strategic plan. There was a lot of trial and error involved in setting up Jebel Ali—they [Dubai officials] had no idea about the success that it would later bring.”1 Easa Saleh Al-Gurg (1998, 110), a prominent advisor to Dubai’s ruling family and former executive director of the Trucial States Development Board, similarly noted that Jebel Ali Free Zone “was originally conceived and constructed ad hoc, with very little real planning.” Other external observers initially viewed it as a prestige project; however, this view largely changed once the Iran-Iraq War increased demand for the free zone (Ulrichsen 2017, Ebook section 326.2). Despite uncertainties that may have existed at the outset of the project, Jebel Ali Free Zone ultimately proved to be a commercial success for the emirate of Dubai and one of its most prestigious economic entities. Leadership positions in key economic organizations legitimized the prevailing political structures of ruling families. Therefore, ruling family members held prominent chairmanships and leading roles in free zones and related entities across the emirate. If royal family members did not directly manage free zone operations, they established the overseeing entities and appointed the executive teams. Shaykh Maktoum bin Rashid 1 Interview 14, managing director of an economic zone consultancy and secretary general of a global EPZ association, remote call from Dubai, May 11, 2016.

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Al Maktoum, who ruled Dubai from 1990 to 2006, established the Ports, Customs, and Free Zone Corporation (PCFC) by ruler’s decree in 2001. Later that year, Shaykh Mohammed bin Rashid Al Maktoum— the current ruler but then crown prince—appointed Sultan Ahmed bin Sulayem as its chairman (Dubai Customs 2020). PCFC managed the Dubai Ports World, Dubai Customs, Dubai Port Authority, and JAFZA. Shaykh Mohammed also launched the Dubai International Financial Centre (DIFC) in 2002. One of Shaykh Mohammed’s sons and the deputy ruler of Dubai, Shaykh Maktoum bin Mohammed Al Maktoum, is the chairman of the DIFC. Unlike JAFZA, DIFC operates under “an independent judicial system based on English common-law,” (Dubai International Financial Centre 2015, 5). Every other free zone in Dubai, while exempt from certain federal and local laws and regulations, technically operates under UAE law. The DIFC’s separate legal framework enhances its structural isolation, yet it remains embedded as a central commercial and urban structure of Dubai. Thus, the DIFC retains a degree of embedded autonomy by maintaining both regulatory independence and links to ruling elites. Shaykh Maktoum formerly served as chairman of Dubai Technology and Media Free Zone Authority (DTMFZA), which oversaw the development of TECOM’s zones before being rebranded as Dubai Creative Clusters Authority (DCCA) through Law 15 of 2014. Shaykh Maktoum laid the foundational stone for CommerCity, a $735 million e-commerce free zone run jointly by Dubai Airport Freezone and wasl Asset Management Group. He also chairs wasl, which operates as a major real estate company under the Dubai Real Estate Company (Dubai Government Media Office 2017). Shaykh Ahmed bin Saeed Al Maktoum, a billionaire uncle of Dubai’s ruler, likewise holds several prominent positions in free zones across the emirate. He serves as chairman of Dubai Aviation City Corporation—the corporate entity responsible for developing the Dubai South airport free zone—and also chairs the Dubai Airport Freezone. Shaykh Ahmed assumed the chairmanship of Dubai World, which oversees Jebel Ali Free Zone and the other free zones under EZW, following the removal of the former chairman, Sultan bin Suleyman, in 2010. Moreover, Shaykh Ahmed presides as chairman of Emirates Group, another major holding company that manages four of Dubai’s free zones. When Shaykh Mohammed transformed the Dubai World Trade Centre into a

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free zone through Law 9 of 2015, he appointed Shaykh Ahmed as vicechairman and Shaykh Hamdan bin Rashid Al Maktoum, the late deputy ruler of Dubai and former finance minister, as chairman (Dubai World 2015). Other free zones portrayed the Dubai ruling family as filling a specific global or local need. International Humanitarian City (IHC)—created in 2003 as a global humanitarian logistics free zone—projects the philanthropic intentions of the ruling family upon a global stage. The Dubai Media Office prominently features IHC in its public descriptions of the ruler of Dubai’s philanthropic activities (Government of Dubai 2017). The publicity conforms with Keller Easterling’s (2012, para. 28) argument that IHC “exists to support some of the chief critics of zone politics and abuses.” In December 2016, Shaykh Mohammed announced plans to expand IHC in response to increasing demands for humanitarian aid around the world, and the ruler’s wife, Princess Haya bint Hussein, is the chair of IHC. By the end of 2016, the free zone hosted nine UN agencies and more than fifty humanitarian organizations (“Dubai ruler” 2016). Dubai Healthcare City (DHCC) serves a similar purpose. Shaykh Mohammed founded DHCC in 2002 to become an internationally recognized center for healthcare, wellness, medical education, and research. A strong healthcare sector also has domestic benefits. “The UAE’s leadership realized early on that a thriving healthcare sector is key to the long-term growth and sustainability of the country,” noted a manager at DHCC.2 Another free zone reflects the ruler’s personal interests, demonstrating that the highly personalized pattern of political rule in Dubai extends to free zone initiatives in the emirate. Meydan free zone, described as “the visionary concept of His Highness Sheikh Mohammed Bin Rashid Al Maktoum,” (Meydan 2016) is dedicated to international horse racing, equestrian events, luxury hospitality, sports, and amusement services. The project aims to “create not just a venue for horseracing, but an integrated city that is sustainable, environmentally responsible and one that positions Dubai at the centre of the competitive global business stage” (ibid.). Shaykh Mohammed previously established an equestrian investment group, Godolphin, as a means of consolidating his personal interests and related investment portfolios. The Meydan free zone exemplifies how 2 Interview 52, remote interview question responses with Dubai Healthcare City, Dubai, UAE, July 26, 2016.

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Dubai’s ruler leveraged commercial entities to further link his equestrian interests to broader development initiatives in the emirate. Similar to Dubai, the relative economic significance of free zones to the economies of northern emirates encouraged the direct participation of ruling family members in free zone activities. As central actors in free zone development, ruling families can derive and distribute related rents through a complex balancing of local, federal, regional, and global relationships. It is within this context that ruling families in the northern emirates utilized free zones to project power and control rent streams. Royal family members maintained a ubiquitous presence in the corporate structures of free zones across all of the northern emirates. Shaykh Khaled bin Abdullah bin Sultan Al Qassimi, a member of Sharjah’s royal family, served as chairman of Sharjah’s two older free zones, SAIF Zone and HFZ. He was simultaneously the chairman of the Department of Seaports and Customs. In July 2020, the ruler of Sharjah established the Sharjah Seaports, Customs & Free Zones Authority and appointed Shaykh Khaled as the new authority’s chairman (“Sharjah Ruler” 2020). Sharjah Publishing City’s website links the creation of the free zone to the ruler’s love of books. Over 30 years ago in the deserts of Arabia, a father gifted his son with a golden dagger. Usually, such gifts become priceless heirlooms, passed down from father to son, generation to generation. As it turned out, however, the son had a reverence for books and a deep love of learning. So much so, that at 12 years old he mortgaged the dagger, this gift from his father … to buy books. In doing so, the son guaranteed that the memory of his father will live on in the hearts and minds of his people, long after the dagger has turned to dust. (Sharjah Publishing City 2020)

Dr. Sultan Bin Muhammad Al Qassimi, Sharjah’s ruler, is the son mentioned in the story featured on the free zone’s website. In neighboring Ras Al Khaimah, Shaykh Ahmed bin Saqr Al Qassimi served as the chairman of the emirate’s two primary free zones: RAK FTZ and RAKIA. Shaykh Ahmed is the eighth son of the late ruler of Ras Al Khaimah, Shaykh Saqr Al Qassimi, and he was also chairman of

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RAK Customs Department and several other government-owned organizations.3 The 2017 merger of RAK’s two free zones to form the Ras Al Khaimah Economic Zone (RAKEZ) further consolidated the royal family’s representation in the new free zone’s leadership hierarchy (“RAKEZ Offers” 2017). Shaykh Ahmed remained chairman of RAKEZ, and Shaykh Mohammed bin Humaid bin Abdullah Al Qassimi, another member of RAK’s ruling family and former managing director of RAK FTZ, became managing director of RAKEZ. Free zones in Umm Al Quwain, Ajman, and Fujairah likewise demonstrated strong associations with ruling families in each emirate. Umm Al Quwain’s Ahmed Bin Rashid Free Zone owes its creation to Royal Decree 2 of 1987. The free zone bore the name of Shaykh Ahmed bin Rashid Al Mualla—ruler of Umm Al Quwain from 1928 to 1981. Although the emirate’s government rebranded the ABRFZ as the Umm Al Quwain Free Trade Zone (UAQ FTZ) in 2014, its website prominently displays the current ruler of Umm Al Quwain and the crown prince as patrons (Umm Al Quwain Free Trade Zone 2017). Shaykh Saud bin Rashid al Mu‘alla is the current ruler of Umm Al Quwain, and Shaykh Rashid bin Saud bin Rashid Al Mu ‘alla is the crown prince. Relatives of the ruler have leadership positions within the UAQ FTZ’s corporate structure: Shaykh Khalid bin Rashid Al Mualla serves as chairman of the board of directors for the Port, Customs, and Free Zone Establishment,4 and Shaykh Ahmed bin Rashed bin Abdul Aziz Al Mualla is a board member. The chairman of AFZ, Shaykh Ahmed bin Humaid Al Nuaimi, is one of the sons of Ajman’s ruler, Shaykh Humaid bin Rashid Al Nuaimi. Shaykh Ahmed is also the chairman of the Economic Department. This dual professional affiliation testifies to the central role of the free zone in Ajman’s economic development strategy. An AFZ employee emphasized the importance of the connection between the free zone and the royal family: “We are the only free zone in Ajman, and we have a direct connection with the government. The chairman of the free zone, Shaykh Ahmed, is the son of the ruler. We can get a lot done because we have a close

3 Shaykh Ahmed is also chairman of RAK Hospitality Holding, which oversees the management of the emirate’s assets in the hotel and hospitality industries, as well as chairman of RAK National Insurance Company, Falcon Technologies and Emirates Sports Culture Club. 4 Shaykh Khalid is also the chairman of the Emiri Diwan.

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relationship with the government.”5 In May 2017, the ruler of Ajman presented four government excellence awards to the director general of the AFZ during a public ceremony—reinforcing the free zone’s connections to both the government and the ruling family (S¯alim 2017). The ruler’s third son, Shaykh Abdul Aziz bin Humaid Al Nuaimi, chairs Ajman Media City Free Zone’s board of directors. The chairmanship of FFZ lies with Saif bin Hamad bin Saif Al Sharqi, the son of the deputy ruler of Fujairah. Fujairah’s second free zone, Creative City, opened in 2007 following Royal Decree 4 of 2007 by Shaykh Hamad bin Mohammed Al Sharqi, the ruler of Fujairah. The free zone operates under the administration of the Fujairah Culture and Media Authority, a government entity chaired by the ruler’s second-eldest son, Shaykh Rashid bin Hamad Al Sharqi. As in Ajman, the ruler of Fujairah considers the older free zone a driving force of the emirate’s economy and is directly concerned with the free zone’s progress.6 An affiliation to ruling families—through foundational links, leadership ties, or publicly stated expectations—can increase pressure upon free zone administrations to accomplish immediate gains in terms of company registrations and revenue generation. Crane (1990, 7) explains how domestic politics can hamper the economic performance of free zones in his analysis of the political economy of SEZs in China: A more satisfying explanation of SEZ problems focuses on politics … political pressure has confounded policy implementation as the desire for quick results has pushed zone administrators into dubious deals with both foreign and domestic economic agents. In short, it is politics that has undermined economic performance in the SEZs.

In addition to a royal presence in free zone bureaucracies, many non-royal free zone officials in the northern emirates reported directly to rulers.7 This power hierarchy heightens the likelihood for political considerations to influence decision-making, especially in state capitalist systems wherein

5 Interview 56, staff member at Ajman Free Zone, Ajman, UAE, August 11, 2016. 6 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April

18, 2016. 7 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April 18, 2016.

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Fig. 5.1 Table of the global distribution of public and private free zones9

political bureaucrats must make commercial decisions and political motivations underlie investment decisions (Bremmer 2009, 44). Unlike Dubai and the northern emirates, Abu Dhabi’s Al Nahyan ruling family does not play a conspicuous administrative role within free zones. In fact, ruling family members are noticeably absent from the corporate hierarchies of free zone entities. The 2019 appointment of Sheikh Mohammed bin Hamad bin Tahnoon Al Nahyan as chairman of the Abu Dhabi Airports is one exception.8 A less visible role for the ruling family in these economic entities, however, should not be misinterpreted as a waning of the Abu Dhabi government’s control over free zones specifically or the economy more generally. Martin Hvidt (2013, 33) argues that Vision 2021 does not indicate a decreased role for the government in the economy, given that the word “private” seldom appears in the document. None of the free zones in Abu Dhabi are privately owned or managed. This public ownership structure differs from the growing trend of private sector involvement in the ownership, development, and operation of global free zones (United Nations Conference on Trade and Development 2015, 5), but it aligns with the general preference for government-owned free zones across the MENA region (Fig. 5.1). The influence of the Abu Dhabi royal family over free zones is apparent in other ways. As in other Gulf polities, Abu Dhabi’s free zones trace their origins back to royal decrees, signifying a historic link between the ruler

8 Crown Prince Mohammed bin Zayed Al Nahyan and Deputy Prime Minister Mansour bin Zayed Al Nahyan are chairman and vice-chairman of Mubadala, which owns Masdar. 9 These figures were part of a 2008 World Bank report (Akinci and Crittle 2008, 19).

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and free zone creation. For example, Abu Dhabi Global Market was established by Law 4 of 2013, a royal decree issued by the ruler. Establishing free zones by royal decree conversely means that the ruler remains the final arbiter—or the ultimate source of authority, according to a Dubaibased lawyer experienced in free zone law10 —for legal regulations and policies in free zones. This source of authority contrasts with foreign-trade zones in the United States, for example, wherein a rigid legal structure or “set of rules” regulates trade and investment policies.11 The ruler and crown prince of Abu Dhabi exercise firm control of free zone bureaucracies through royal decrees that quietly reshuffle board members overseeing free zones or their parent companies (Abu Dhabi Ports Company 2013). The aforementioned Law 4 of 2013 illustrates how the royal family asserts authority through free zones. The law, issued by Shaykh Khalifa bin Zayed Al Nahyan, notes the financial free zone will “have an independent legal personality and enjoy full legal capacity and financial and administrative independence” (Abu Dhabi Law 4 of 2013, article 2). In the same vein as the DIFC in Dubai, ADGM operates under Common Law for all civil and commercial matters pertaining to free zone clients. Crucially, the law also mentions that the free zone “shall be affiliated with the Government,” and dictates that the chairman of the Executive Council, or the crown prince of Abu Dhabi, shall determine the appointment and remuneration of board members every five years (ibid., article 4). Crown Prince Shaykh Mohammed bin Zayed Al Nahyan regularly exercises his power to appoint board members within the emirate’s free zones by issuing resolutions as chairman of the Executive Council. In this way, ADGM and other free zones maintain both legal independence under common law and strong links to ruling and business elites. This dichotomy of legal and regulatory autonomy combined with links to society’s elites resembles Peter Evans’ (1995) concept of embedded autonomy. Moreover, the branding of the Khalifa Industrial Zone of Abu Dhabi (KIZAD)—as well as KIZAD’s Khalifa Port Free Trade Zone—is highly personalized to reflect a direct association with Khalifa bin Zayed. Abu Dhabi is the only GCC territory containing an operating free zone named

10 Interview 29, partner at Dubai-based law firm, Dubai, UAE, May 11, 2016. 11 Interview 43, president of national association of foreign-trade zones, Washington,

DC, June 17, 2016.

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after a member of its ruling family.12 The remaining free zones in the GCC bear the names of their respective territories, an industry association, or both. Linkages to the royal family, however, can possess downsides. Nominal, ownership, or participatory ties to royal family members sometimes perpetuate the notion that state-linked commercial entities possess sovereign guarantees. Although the entirety of Abu Dhabi’s free zone creation occurred under Khalifa bin Zayed’s rule, elite Emirati actors within the media also associated free zone creation with Shaykh Khalifa’s father, Shaykh Zayed bin Sultan. Ibrahim Al Abed, an advisor to the National Media Council and overseer of the Emirates News Agency, attributed country-wide free zone development during Shaykh Zayed’s rule with attracting international media institutions and transforming the country into a global media hub (Saqr 2018). The portrayal of these efforts, in effect, subsumed free zone development in Dubai and the northern emirates as part of Shaykh Zayed’s legacy narrative. Saudi ECs—early precursors to free zones—contained various connections to specific royal personalities. The King Abdullah Economic City and Prince Abdulaziz Bin Mousaed Economic City possess eponymous links to members of the ruling family. Prince Mansour bin Abdullah bin Abdulaziz Al Saud sat on the board of Knowledge Economic City Company, demonstrating a physical, commercial connection to the royal family. Meanwhile, Crown Prince Mohammed bin Salman chairs the foundation board for the Neom megaproject. The first commercial contracts awarded for Neom involved the construction of several royal palaces. Crown Prince Mohammed bin Salman is also chairman of the Public Investment Fund, the Saudi sovereign wealth fund that oversees Neom and other national development initiatives likely to incorporate free zone characteristics. With a small ruling family and no heirs, Sultan Qaboos did not need free zones to provide an expanding royal family with bureaucratic positions. However, the late sultan maintained ultimate authority and bureaucratic control over Omani free zones. Sultan Qaboos codified the Free Zone Law through Royal Decree 56 of 2002, and subsequent free zones owed their existence to royal decrees. A Free Zone Committee within the Ministry of Commerce and Industry regulated free 12 Umm Al Quwain’s free zone initially bore a royal name but changed to the Umm Al Quwain FTZ in 2014.

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zone policies. The Minister of Commerce and Industry, an appointee of Sultan Qaboos, chairs this committee. Moreover, free zone brochures and promotional materials feature the customary acknowledgments to Sultan Qaboos: the SEZ at Duqm brochure offers a picture tribute to Sultan Qaboos (Duqm Special Economic Zone Authority 2015), and the Salalah Free Zone brochure describes the free zone as “endorsed by His Majesty, Sultan Qaboos Bin Said, with a commitment to make its 21 sq. km. one of the most progressive and desirable business venues on a global front” (Salalah Free Zone Company 2016, 4). As in other Gulf polities, there are strong foundational links between Qatari free zones and the ruling family members serving in government. Tamim bin Hamad Al Thani established the legal framework for free zones by ratifying Law 34 of 2005 when he was deputy emir of Qatar. Tamim bin Hamad’s involvement in free zone development reflected, in part, his expanding portfolio of responsibilities after becoming heir apparent in 2003. Royal family members likewise hold key positions in government departments and organizations that manage free zone activities in Qatar. Shaykh Tamim bin Hamad appointed Ahmed bin Jassim Al Thani Minister of Economy and Commerce upon assuming power from his father, Shaykh Hamad bin Khalifa Al Thani, in 2013.13 Other corporate positions held by Ahmed bin Jassim include chairman of Manateq, deputy chairman of the QFC, and deputy chairman of the Qatar Investment Authority (State of Qatar Government Communications Office 2018). The government was also the primary investor in free zone projects— conforming with Mehran Kamrava’s (2013, 145) observation that “[m]ost major urban development projects are wholly or largely funded by the state.” The QSTP operates under the authority of the Qatar Foundation—an organization Kamrava (2009, 407) described as the “most comprehensive and ambitious” government-controlled entity in Qatar. Shaykha Muza bint Nasser, the mother of Shaykh Tamim bin Hamad and wife of Shaykh Hamad bin Khalifa, chairs the Qatar Foundation. Qatari

13 Hamad bin Jassim, a cousin of the former Emir Hamad bin Khalifa, operated as a prominent business broker in the government until Tamim bin Hamad took over from his father in 2013. This subtle shift in political institutions brought new social actors to the forefront of free zone development in Qatar.

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government funding provided Manateq, the SOE overseeing the development of the country’s SEZs, with an authorized capital of approximately $1.37 billion. The significance of state linkages to Qatari free zones is not lost on foreign firms operating in Qatar. A commercial service officer at the U.S. embassy in Qatar likened free zones to informal commercial partnerships with the government: “A PPP [public private partnership] is another version of a free zone. If you are partners with the government, then you don’t need to worry about a license.”14 The Qatari government fostered preferential commercial relationships prior to the development of free zones. Tax exemptions were granted on a case-by-case basis and required a royal decree, an analysis by a tax exemption committee, and a recommendation from the finance ministry (World Trade Organization 2005, 19). Free zones represented a physical manifestation of these preferential policies and practices.

Elite Balancing: Mixing Business and Politics Ruling elites did not, however, operate within a vacuum. Instead, the distribution of power between ruling families and business elites further shaped free zone development in the region. Free zones provided ruling regimes with an opportunity, as is often the case with economic reforms, to reorganize rent-seeking structures in a way that disproportionately benefitted certain elite coalitions (Heydemann 2004, 2). This allowed business elites to align their interests with free zone initiatives and embed themselves and their firms in free zone development processes. The interlocking of corporate roles in Gulf free zones based on tribal and other linkages reduced uncertainty in political and economic environments—a primary feature of interorganizational elite co-optation (Allen 1974, 393). However, the degree of elite cooperation, and consequently the scale and scope of free zone proliferation, depended on the particulars of ruler-elite paradigms in each case study. Dubai’s ruling family orchestrated free zone development in a manner that permitted specific coalitions of business elites to participate in commercialized rent generation without radically challenging existing

14 Interview 73, commercial service officer, U.S. Embassy in Doha, Qatar, remote conversation from Jerusalem, September 21, 2016.

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political and economic structures. A small coterie of Emirati businessmencum-royal advisors built the foundations of Dubai’s free zone sector. Sultan bin Sulayem, a childhood friend of the current ruler (Ulrichsen 2017, EBook Sect. 118.3), played a leading role in the development of Jebel Ali Free Zone. He is chairman and CEO of DP World and also chairman of PCFC. Sultan’s son, Ahmed bin Sulayem, is the executive chairman of the DMCC free zone. Mohammed Al Gergawi built the TECOM Group. Sultan bin Sulayem and Gergawi are “risk-takers and adept at rapidly expanding the holdings and operations of the government-related entities,” (Young 2014, 70–71) and Ulrichsen (2017, EBook section 343.2) considers the men to be “lieutenants” of Shaykh Mohammed. Other close advisors to Shaykh Mohammed during the period of extensive free zone proliferation in the early 2000s included Mohammed Al Abbar and Omar bin Suleiman. Abbar is chairman of the real estate development company Emaar Properties, which oversees the Dubai Gold and Diamond Park, and Suleiman played a central role in the development of the prestigious DIFC. Dubai’s top business elites established larger corporate entities that included free zone development as part of their commercial portfolios over decades. “The firms were strongly encouraged to outdo one another in developing very large-scale, expensive and — often seen from the outside as garish and overblown — ‘iconic’ projects,” writes Robin Bloch (2010, 945). In Abu Dhabi, free zones also functioned as commitment devices for individual and familial allies closely aligned with the ruling family. The ruler and crown prince of Abu Dhabi utilized royal decrees to appoint board members in free zones or their parent companies across the emirate. The interlocking of corporate directorships in the capital emirate’s free zone entities resembles a form of interorganizational elite co-optation, which Michael Allen (1974, 393) describes as a cooperative strategy by economic organizations to reduce uncertainty in their environments. There is a tribal dimension to some of these linkages; however, not all of the prominent individuals and families involved in free zone development hail from Abu Dhabi. Most local inhabitants of Abu Dhabi belong to four main tribes,15 but the Al Nayhan ruling family is part of the Bani Yas tribe. The corporate structures of Abu Dhabi’s free zones reveal particularly strong representation from elite branches of the ruling family’s Bani 15 These four tribes include the Bani Yas, Al Manager, Al Dhawahir and Al Awamir (Documentation and Research Bureau of The Emirate Court 1969, 19).

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Yas tribe—especially the Al Muhairi, Al Qubaisi, Al Khoury, Al Marar, and Al Mazrouei.16 The Al Muhairi is one of the few families in the UAE able to link their wide-ranging economic, political, and social interests with those of the ruling family (Almezaini 2013, 44). Dhaher bin Dhaher Al Mheiri serves as CEO of the Registration Authority at ADGM, while Waleed Al Mokarrab Al Muhairi is a board member at ADGM. Maryam Eid Al Mheiri is the CEO of the Media Zone Authority, which regulates the twofour54 free zone, and Mohamed Helal Al Muhairi is the director general of the Abu Dhabi Chamber of Commerce and Industry. The Al Qubaisi section of the Bani Yas tribe was the most heavily involved in Abu Dhabi’s pearling industry (Davidson 2009, 114). Mohamed Najm Al Qubaisi and Khaled Abdulla Al Qubaisi are vicechairmen of ADGM and Masdar, respectively. In 2016, a member of the Al Khoury was on every free zone board in Abu Dhabi except Masdar’s. Mohamed Darwish Al Khoori was formerly a board member of ADGM, and Abdulla Abdul Reda Al Khouri is currently on the board of the Media Zone Authority. Meanwhile, Abu Baker Siddiq Al Khoori previously sat on the boards of both the Abu Dhabi Ports Company and Abu Dhabi Airports Company. As for the Al Marar family, engineer Awaidha Murshed Al Marar was chairman of the Abu Dhabi Airports Company and a board member at KIZAD, while Musabbah Mubarak Al Marar was on the board of the Abu Dhabi Airports Company. The Al Mazrouei family provided tribesman to fight for Zayed bin Khalifa Al Nahyan against Wahhabi incursions in the 1800s (ibid., 113), and the family possesses a direct royal connection through the current ruler of Abu Dhabi’s first wife, Shamsa Bint Suhail Al Mazrouei. An unweighted ranking of the GCC’s most powerful families—in terms of economic influence afforded by participation on board representation— found the Al Mazrouei family to be the third most powerful family in Abu Dhabi and the eighth most powerful family in Dubai (The National Investor 2008, 28). Engineer Mohamed Mubarak Al Mazrouei presided on the board of KIZAD and was the CEO of Abu Dhabi Airport Company, the corporate entity responsible for managing the airport free 16 The author chose to use the English transliterations per common usage for the individuals mentioned, thus the Al Muhairi—or al-muhayr¯i—family name appears in slightly different English versions. Similarly, there are some slight variations in English transliterations of Al Khoury.

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zone. Before being appointed Commander-in-Chief of the Abu Dhabi Police in January 2020, Major General Pilot Faris Khalaf Khalfan Al Mazrouei was a board member of the Abu Dhabi Ports Company and chief of the General Authority for the Security of Ports, Borders and Free Zones (Company Overview 2017). Individuals from the Al Mubarak and Al Jaber families also maintain prominent representation within free zone corporate structures and underscore influential commercial and political linkages. Mohamed Khalifa Al Mubarak is chairman of twofour54 (“Management Team” 2020). Mohamed’s brother, Khaldoun Al Mubarak, is a confidant of the crown prince of Abu Dhabi and chairman of the Manchester City Football Club. Khaldoun is the CEO of Mubadala Investment Company, and he formerly served as chairman of the Abu Dhabi Media Zone Authority (Akbari 2013). Their father, Khalifa Ahmed Al Mubarak, was assassinated in 1984 while serving as the UAE’s ambassador to Paris, and the government of Abu Dhabi dedicated a street behind the crown prince’s court in his honor in 2014 (Salem 2014). Meanwhile, Dr. Sultan Ahmed Al Jaber was chairman of Abu Dhabi Ports Company from 2009– 2019—when he helped to develop KIZAD. He is also chairman of Masdar. Ulrichsen (2016) argues that Sultan Al Jaber’s high-profile roles, and specifically his appointment to head the Abu Dhabi National Oil Company (ADNOC),17 reflects an effort by Crown Prince Mohammed bin Zayed to extend political authority over the most important elements of federal policy. Rulers entrusted members of prominent families with free zone leadership positions in other parts of the Gulf. The ruler of Sharjah appointed Dr. Khaled Omar Al Midfa as chairman of Sharjah Media City following Royal Decree 12 of 2017 (“Sharjah Ruler” 2017). Al Midfa is a prominent merchant family in Sharjah that emigrated from Oman in the eighteenth century and is strongly integrated with the ruling family in Sharjah (Almezaini 2013, 63). The family not only remained close advisors to Sharjah’s rulers but also established a niche in media and cultural activities across the country. For example, the Sharjah Museums Authority includes Majlis Al Midfa, a literary saloon owned by Ibrahim Bin Mohammed Al Midfa. Ibrahim Al Midfa established the UAE’s first newspaper in 1927 (haya al-sh¯ariqa li-l-mat¯ah.if 2017) and served 17 ADNOC was created in 1972 by the government of Abu Dhabi to participate in oil concession ventures (Commercial Department of the British Embassy 1975, 37).

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as a senior advisor for several Sharjah rulers and royal family members (Gulf International Trading Group 2017). Qatar’s Al Emadi family, a key player in the finance and real estate industries, held top positions in the QFC. The management team of Manateq, Qatar’s state-run free zone and special economic zone developer, likewise reflected the influence of important merchant families: Al Emadi, Al Kaabi, Al Marri, and Al Naimi (Manateq 2018). Sultan Qaboos delegated many of the country’s free zone affairs to the Al Shanfari clan in Dhofar,18 the Al Zawawi family, and the Sultan family. The professional trajectory of Maqbool bin Ali Sultan exemplifies how free zones served as important nodes between the royal family, Omani merchants, domestic politics, and international capital flows. Maqbool hailed from the prominent Sultan family of the prosperous Lawatiyyah community of merchants.19 His family’s firm, W. J. Towell, prospered by managing hydrocarbon-funded infrastructure projects commissioned by Sultan Qaboos during the 1970s and 1980s. W. J. Trowell also drafted the master plan for the Sohar Port, owned a 10% stake in the Sohar Power Company, and successfully lobbied for an aluminum smelter in the eastern city of Sohar. In 1991, Sultan Qaboos appointed Maqbool as Minister of Commerce and Industry, where he chaired the Free Zone Committee—the primary government body responsible for determining free zone policy in the country. Simultaneously, he served as Chairman of the Sohar Industrial Port Company, which managed the Sohar Port and Freezone. In these capacities, Maqbool Sultan led free zone policy creation for two decades while also serving in private sector roles that directly benefitted from free zone development. One of Saudi Arabia’s oldest merchant families received the concession to develop and manage the country’s early bonded and reexport zones in Jeddah. The Tusdeer BRZ in Jeddah, which rebranded to LogiPoint in 2017, is run jointly by Xenel and its subsidiary firm, SISCO. Xenel’s company name refers to the late Zainal Alireza, the founding member of Bait Alireza, one of the oldest trading houses in Saudi Arabia. Originally of Iranian origin, the Alireza family emigrated to Jeddah in the 18 The Al Shanfari clan is part of the principal Dhofar tribe, the Bait Kathir, that played a central role in the ruling Bu Sa ‘id dynasty’s conquest of Dhofar at the end of the nineteenth century (Pridham 1987, 57). 19 The Lawati (plural) are one of a handful of Shi‘a groups in northern Oman (Peterson 2004, 43).

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late nineteenth century (Peterson 2007, 31). Having launched trading operations in 1845, Bait Alireza was honored with the first commercial registration number in the country (Haji Abdullah Alireza & Co. 2018). Luciani (2006, 146) considers Alireza as “one of the leading bourgeois families,” because of its financial backing for Abdulaziz bin Abdul Rahman Al Saud, the country’s founder, before the emergence of oil rents. The Alireza family’s connections to the Saudi royal family remained strong after the discovery of oil. Abdullah Alireza held multiple ministerial positions, including that of Minister of Commerce and Industry, and he was a senior advisor to the late King Abdullah bin Abdulaziz. The family received a royal condolence from King Abdullah upon the death of Zainal’s son, Ahmed Alireza, in 2012 (“King mourns” 2012). Ahmed’s surviving sons manage the group’s commercial interests: Khaled Zainal Alireza is the founding partner and vice-chairman of Xenel, Mohammed Alireza serves as chairman of the board of SISCO, while Aamer Abdulla Alireza is also on the SISCO board and serves as CEO of Tusdeer. Saudi Arabia provides a useful case study in how relationships between political personalities and business elites—as well as accompanying pressures from multinational institutions—impact free zone development. A lack of horizontal linkages between government organizations in Saudi Arabia resulted in historically isolated free zone entities that the state entrusted to narrow coalitions of business elites and private sector firms. Each initiative represented a different, unequal, and potentially unstable relationship with the state apparatus in a manner similar to the segmented clientelism described by Hertog (2010, 12). This was a calculated strategy by the regime because, as Hertog (2008, 669) explains, “[l]evels of trust and reciprocity between state and business were low.” In other words, there were limitations to the degree of economic authority that the state willingly ceded to the local business community. “The Al-Saud family members find themselves in a dilemma between diversifying the economy in order to continue growth and stability, yet they do not want to lose the ability to determine regulations and ownership,” writes Doreen Horschig (2016, 7). Free zones offer an attractive solution to this dilemma. The government retains ultimate sovereignty over commercial policies while generating new avenues for private sector involvement in the economy. As a consequence of interorganizational elite co-optation, politically connected firms often received lucrative commercial contracts associated with free zone development. Abu Dhabi’s twofour54 free zone awarded a $272 million construction contract to Aldar Properties. The developer’s

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CEO, Mohamed Khalifa Al Mubarak, simultaneously served as a member of the free zone’s board (“Aldar to” 2017; “Management Team” 2017). Manateq awarded a contract worth approximately $151 million for a housing complex within Qatar’s airport SEZ to the Ismail Bin Ali Group (Khatri 2017). The group’s owner, Manateq’s chief administration and finance officer, and the country’s finance ministers all hailed from the Al Emadi family. Bahrain’s BLZ requires clients to access the country’s new port, which Yusuf Bin Ahmed Kanoo Holdings Group, one of the region’s largest family-owned conglomerates, manages through a joint venture with APM Terminals. Oman’s Al Khonji Real Estate received usufruct rights for a 661,000-square meter plot of land in the Duqm SEZ, and the Saudi Binladin Group won the concession to operate as the contractor for the Jazan Economic City in Saudi Arabia. Local business elites involved in free zone development, however, could lose favor with ruling families. In the case of Dubai, increased commercial authority did not necessarily imply autonomy from royal families. Omar bin Suleiman was removed from his post as governor of DIFC in 2010 after an audit revealed that he had personally acquired $14 million by issuing annual bonuses (Mustafa 2010). He was replaced by Ahmed Humaid Al Tayer, who comes from an established merchant family in Dubai. Ahmed’s brother, Saeed Humaid Matar Al Tayer, is chairman and CEO of Meydan Group and previously served on the Dubai Free Zone Council. Sultan bin Sulayem also lost his position as chairman of Dubai World in 2010 and was replaced by the Dubai ruler’s uncle, Shaykh Ahmed. In Kuwait, a lengthy legal battle between a private free zone developer and the government demonstrated that “the incentives for the private sector are different.”20 The National Real Estate Company, a private firm partially owned by the powerful Sultan Al-Essa family, managed and operated the Kuwait Free Trade Zone from 1998 until 2006. However, the government accused the private company of mismanagement, cancelled many of the commercial registrations within the free zone, assumed control of the free zone, and then ultimately invalidated the port area’s free zone status in 2019. New political regimes could likewise pose a challenge for business elites associated with previous free zone development. Salman bin Abdulaziz Al Saud became king of Saudi Arabia in January 2015 following the death 20 Interview 44, analyst at International Trade Department, World Bank, Washington, DC, June 20, 2016.

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of his half-brother, King Abdullah bin Abdulaziz. The unclear status of ECs represented a vulnerability to the new regime because “[i]n the case of Saudi Arabia, building new cities has also long been seen by the ruling elite to be a key to its survival” (Moser et al. 2015, 71). Amr Dabbagh, the former SAGIA head and figurehead of the EC strategy, was detained in the anti-corruption campaign orchestrated by Mohammed bin Salman in November 2017. Widely known for his close relationship with Abdulaziz bin Abdullah, a son of the late King Abdullah, Dabbagh remained in prison until January 2019 (Said et al. 2019). Other arrests of high-profile members of the business community, like Bakr bin Laden, the owner of Saudi Binladin Group, and Prince al-Waleed bin Talal, contradicted Luciani’s (2006, 177) earlier assessment that “he [al-Waleed] guarantees that the ruling family will never turn against business, and there will always be a continuity of interests between the bourgeoisie and political power.”

Other Institutional Mechanisms of Elite Control In addition to reinforcing the political and commercial legitimacy of specific individuals, free zones extended institutional authority and state power across key sectors of Gulf economies. A comparison of the traditional Gold Souq with the modern Gold and Diamond Park illustrates how free zones linked commercial entities and other market forces to the state apparatus. Dubai is a lucrative market for trading in precious commodities: Approximately 40% of the world’s gold trade passed through the emirate in 2013 (“Gold industry” 2014). The original Gold Souq near the Dubai Creek still features a dense cluster of gold and jewelry merchants, and many of these merchants are of Indian and Pakistani origin. Yet companies operating in the Gold Souq are unable to apply for free zone licenses. Instead, investors seeking free zone licenses must apply through the Gold and Diamond Park—a glitzy free zone mall much farther south along Shaykh Zayed Road—to receive a free zone license through a special agreement with the Jebel Ali Free Zone.21 The park building displayed the branding of Emaar, one of the UAE’s primary real estate developers, and brandished the national flag of the UAE atop the building (Fig. 5.2).

21 Interview 31, manager at Gold and Diamond Park, Dubai, UAE, May 15, 2016.

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Fig. 5.2 Author’s own image of the traditional Gold Souq and the Gold and Diamond Park in Dubai

The government of Dubai played a central role in the creation of Emaar and retained approximately 30% of the company’s shares through the Investment Corporation of Dubai (Santos 2015, 9). In 2007, the ruler of Dubai technically secured a majority stake in Emaar by increasing the ownership stake of Dubai Holding, which is wholly owned by the ruler, to 27.9% of the company’s shares (International Monetary Fund 2011, 5; Merzaban and Cordahi 2007). In 2002, the government also established the DMCC free zone—the UAE’s largest market for diamonds and commodities—as an alternative option for investors operating in the commodities trade. Through the creation of the Gold and Diamond Park free zone and DMCC, the state co-opted traditional market forces by assimilating commercial activities of an important industry into the neat conformity of state-run free zone bureaucracies, which handled registration processes and annual license renewals. Cooptation should not necessarily be viewed in a negative sense. The Gold and Diamond Park and DMCC cater to different firms and consumers than those attracted to the traditional Gold Souq, potentially expanding the overall industry. While most of the companies operating in Gulf free zones are private sector firms, the proliferation of free zones alone does not indicate a diversified, independent private sector. Free zones in Dubai, for example, are entirely or partially owned by state-run investment vehicles and government conglomerates. Apart from the semi-government ownership structure of the Gold and Diamond Park, all of Dubai’s free zones operate

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under Dubai Holding, Dubai World, Emirates Group, or directly through the government (Al Faris and Raimundo 2015, 116). Dubai Holding is a government-owned industrial conglomerate that, through its management of TECOM Group, oversees free zones and business parks as part of its portfolio (“Dubai Holding” 2016). A rival conglomerate, Dubai World, operates DMCC, Jebel Ali Free Zone, and the other free zones under EZW through a number of subsidiaries. One subsidiary of Dubai World, Port and Free Zone World, assumed full control over DP World in February 2020 through a related party transaction that reinstated full state ownership over DP World. Emirates Group, a subsidiary of the Investment Corporation of Dubai, manages several free zones linked to the aviation industry. The Dubai government directly controls the DIFC, Meydan, and IHC free zones. Thus, the entire free zone industry in Dubai operates under the commercial management of “Dubai Inc.,” a broader commercial entity often described as “the interpenetration of the al-Maktoum family and the government’s business interests” (Bloch 2010, 945) (Fig. 5.3). When regional governments sought to secure private investors for Gulf free zone projects, it proved to be a difficult task. The history of the Salalah Port Services Company (SPS)—the commercial entity responsible for managing the Salalah Free Zone—is worth a brief elaboration because it underlines how commercial free zones ventures with private sector stakeholders often required significant financial support from the government. The Omani government originally aimed to share the free zone project costs with SPS, a semi-government entity,22 and Hillwood, a private U.S.-based company. The MoU in 2000 between the three parties stated that the government would assume 60% of the costs and the other two parties would split the remaining 40%. However, Hillwood backed out of the project in 2002, and the government ultimately assumed 100% equity in the project (Vaidya 2003). The systematic extension of state control over free zone rents coincides with Adeel Malik and Bassem Awadallah’s (2013, 296) argument that “private sector development is both a political and regional challenge. In so far as the private sector generates incomes that are independent of the rent streams controlled by the state, it can pose a direct political challenge.” Ruling families and governments in the Gulf maintained 22 The majority shareholders in SPS are the Ministry of Finance in Oman (20%) and APM Terminals B.V. (30%), a private Dutch company.

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Fig. 5.3 Diagram of organizational hierarchy of free zones in Dubai (2016)22

control over commercialized rents by installing ruling family members in top free zone positions, linking free zone ownership and management to government-owned commercial entities, and co-opting key nonhydrocarbon sectors of the economy through government-led free zone development. While ruling elites carefully linked free zone entities to the corporate structure of state entities, ruling coalitions nevertheless relied upon local “networks of privilege” (Heydemann 2004, 2) composed of business elites for developing and managing free zone entities. Dubai’s ruler established the Dubai Free Zones Council by royal decree in 2015. The council’s mission is to “study and liaise work between free zones in the emirate, the Government of Dubai and other relevant 22 The figure created by the author reflects majority shareholders and subsidiary entities in order to paint a broad picture of free zone ownership and government linkages. It does not, for example, convey potential minority shareholders.

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bodies” (Dubai Free Zones Council 2020). Shaykh Ahmed bin Saeed Al Maktoum chairs the council, and the remaining council members rotate among prominent free zone officials and economic policymakers. In March 2020, the council announced a coronavirus-related economic support package enabling free zone firms to postpone rent payments for six months, negotiate installments for other payments, receive refunds on deposits, and benefit from the free movement of labor between companies (“Dubai Free Zones” 2020). Previous and current members of the council hail from prominent Dubai families like Al Tayer, Al Gurg, Bin Sulayem, and Al Zarooni. Saeed Humaid Al Tayer previously presided on the Dubai Free Zones Council owing to his position as chairman of the board and CEO of Meydan Group. The Al Tayer is an established merchant family in the UAE and maintains close commercial ties with Dubai’s ruling family— even helping to run their family businesses (Peterson 2007, 32; Davidson 2009, 233; Almezaini 2013, 51). The Al Tayer family’s increasing role in Dubai’s economic affairs reflected a “return of an old guard” after the 2008 financial crisis (Bloch 2010, 949). Dr. Raja Easa Al Gurg held a position on the council owing to her leadership role at Dubai Healthcare City Authority. She is vice-chairperson and managing director of the Easa Saleh Al Gurg Group LLC (ESAG)—a partner for over 370 international brands operating in the region (Easa Saleh Al Gurg Group 2017). The patriarch of this merchant family of Persian origin, Easa Al-Gurg, created the company in 1960 and served as a royal advisor during the creation of Jebel Ali (Almezaini 2013, 49). Dr. Mohammed Al Zarooni is CEO of Dubai Silicon Oasis Authority, director general of Dubai Airport Freezone Authority, and chairperson of the World Free Zones Organization. Sultan bin Sulayem and his son Ahmed—who collectively oversee DP World Group, PCFC, and DMCC—likewise sit on the council. The Dubai Free Zones Council is one of the only formal mechanisms of horizontal coordination among free zones in the Gulf region. Limited examples of informal cooperation and ad hoc collaborations between free zones do exist, and relations between government leaders and firm-level participation facilitated these cooperative activities. However, Gulf free zones also confront stiff commercial competition from counterparts in the same emirate or country and across the region. The resulting spheres of contestation resembled healthy competition, at times, and more serious forms of economic and political conflict at other times.

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CHAPTER 6

Free Zones as Spheres of Regional Contestation

Gulf free zones are not only embedded in complex flows of global capital but are also shaped by competing interests of states operating in the international arena. While there are instances of cooperative engagement among free zones in the Gulf, they also play a part in regional competition. This competition unfolds on multiple levels: through free zone development and associated spheres of economic autonomy, among free zones within a given emirate or state, and between free zones in different Gulf polities. The federal structure of the UAE, which permits individual emirates a substantial degree of economic autonomy, provides a useful microcosm of the competitive free zone dynamics playing out in the broader Gulf region. Emirate-level governments concurrently launched free zones focusing on overlapping industries, such as media and finance. Varying levels of access to state resources—such as financial reserves, electricity, and power, or other industrial inputs—provide a commercial edge in the value proposition for firm registrations. Ownership structures and stakeholders also matter: Fully government-owned free zones and those with private partners must negotiate critical regulatory issues around labor and tax regimes. In some cases, free zones are implicated in forms of contestation that rise above standard commercial competition and related procedures. The 2017 GCC rift induced significant changes to Qatar’s free zone system, © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_6

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and free zones in other GCC countries experienced both positive and negative impacts from the reconfiguration of regional trade and supply chains. Iran also looms large over Gulf free zones. Iranian firms openly operate within many regional free zones; however, the imposition of sanctions on the Islamic Republic often complicated this form of commercial engagement. Iran itself boasts an expansive free zone and special economic zone system, but it has thus far not posed a major challenge to counterparts in Gulf Arab states.

Inter-Emirate Competition in the UAE Persistent political conflicts among the UAE’s emirates encouraged early free zone development in Dubai. The location of the port and free zone at Jebel Ali was a disputed territory between Dubai and Abu Dhabi until the 1960s. According to British intelligence files from 1948, Dubai’s ruler complained to the British political officer in Bahrain about the stationing of guards from Abu Dhabi in the Jebel Ali camp (“Bahrain Intelligence Summary,” 1948).1 In 1966, Dubai’s ruler constructed a radio tower in the disputed Jebel Ali area to establish sovereignty over the location, and Abu Dhabi only ceded the area to Dubai in 1968 following the agreement signed in Al Sameeh that paved the way for a federal union (Ramos 2010, 107). The development of Jebel Ali “followed a territorial logic, and must be interpreted in the context of intra-emirate conflicts” (Keshavarzian 2010, 247). The subsequent free zone at Jebel Ali guaranteed Dubai’s government a mechanism for retaining autonomy over the emirate’s economic policy (Keshavarzian 2010, 275). “Dubai went ahead and flouted every law because they needed to make money,” explained an Abu Dhabi-based business journalist.2 This economic sovereignty became especially important when the federal government in Abu Dhabi promulgated Law 8 of 1984, known as the Commercial Companies Law. Article 22 of the law required UAE companies to demonstrate Emirati sponsors holding at least 51% of company shares. The Jebel Ali Free Zone exempted foreign firms from the regulations of the new commercial law and consequently 1 Curiously, the ruler’s complaint also included the presence of “foreign labour” at Jebel

Ali. 2 Interview 49, business journalist at Thomson Reuters, Abu Dhabi, UAE, July 24, 2016.

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offered an alternate avenue for market entry into the country, leading some to label free zone creation as an effort to “sidestep” (Ramos 2010, 126) the federal Commercial Companies Law. The Dubai government’s commercial autonomy, however, was not absolute. Competition influenced the industrial inputs and services available in Dubai’s free zones. Jebel Ali Free Zone’s industrial activities required between 60 and 120 million cubic feet of natural gas per day. Dubai exhausted natural gas supply options from Oman and Umm Al Quwain before eventually sourcing the gas from Abu Dhabi (Sakr 1980, 185). Dubai also relied on the UAE’s second-largest telecoms operator, Du, to provide unrestricted Internet access for the emirate’s free zones. This service contrasted with the stricter proxy server provided by Etisalat, the state-run telecoms incumbent (Davidson 2009a, 225–226). The unfettered Internet access was a significant commercial incentive for DMC and DIC; however, Du began restricting internet usage in April 2008 per regulations set by the Telecommunications Regulatory Authority (“UAE starts restricting,” 2008). Dubai’s minority stake in the shareholder structure of Du illustrates how federal constraints can shape the emirate’s utilization of services. Dubai Holding owned 19.5% of Du’s existing shares. The UAE federal government, Mubadala, and public shareholders held the remaining 39.5, 20.08, and 20.92%, respectively (Du 2017). Thus, the federal government and Abu Dhabi’s sovereign wealth fund managed a controlling stake in the telecoms operator and could shape how the firm engaged with federal authorities. While Davidson (2005, 226–234) refers to DIC’s non-censored Internet connections and DMC’s short-term advertisement of greater freedom of the press as inadvertent steps toward greater democratic processes, these developments more accurately reflected a tension between Dubai’s development trajectory and federal government objectives. Despite the perception that free zones offered autonomous, enclave authorities, these entities remained susceptible to power negotiations between local and federal governments. A free zone specialist from the World Bank described GCC territories as “all competing over the same pie,”3 in terms of free zone development. A circular report on DP World’s proposed acquisition of EZW confirms the concern that Dubai’s free zones, especially Jebel Ali Free 3 Interview 44, analyst at International Trade Department, World Bank, Washington, DC, June 20, 2016.

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Zone, confronted not only competition from KIZAD in Abu Dhabi but also from other free zone and integrated port projects in the northern emirates, Qatar, and Oman (DP World Limited 2014). A senior manager at EZW considered RAK Free Zone and KIZAD as the closest competitors to Jebel Ali Free Zone. He explained, “We need to ensure than any organization coming to Dubai gets what they need,” to ensure continued firm registrations in free zones.4 Several clients from the Gold and Diamond Park in Dubai relocated to Sharjah’s Hamriyah Free Zone because the latter free zone offered discounted plots of land to new clients.5 Inter-emirate cooperation regarding free zones aligns with Mary Ann Tetreault’s (1999, 4–6) view of the UAE as a competitive state that engages in decentralized supply-side resource allocation for the local populations and economies of individual emirates. Apart from the Dubai Free Zones Council and Dubai’s influential free zone development companies, free zones in the UAE are the result of unilateral policy decisions and development initiatives undertaken by local governments. There existed neither a federal control mechanism for the sector nor an organized free zone lobby. According to Moberg (2017, EBook Section 135.1–139.9), the decentralization of decision-making regarding free zone formation and industry focus can allow local policy makers to better understand market conditions. However, the decentralized nature of free zone development in the UAE permitted Abu Dhabi’s government to construct free zones similar to those in other emirates, heightening competition among federal territories.6 Two notable examples are Abu Dhabi’s media free zone, twofour54, and its financial free zone, ADGM. Although commercial counterparts in Dubai—DMC and DIFC—possessed first-mover advantage within each free zone sector, specific environmental factors and capabilities can increase the advantages of late entry into a market sector (Suarez and Lanzolla 2015; Kerin et al. 1992, 48). Much of ADGM’s management team previously worked for DIFC, as officials in Abu Dhabi 4 Interview 46, manager at Economic Zones World, Remote conversation from Dubai, UAE, July 23, 2016. 5 Interview 31, manager at Gold and Diamond Park, Dubai, UAE, May 15, 2016. 6 Similar competitive dynamics exist in China, where special economic zone development

along the mainland’s coast has sparked concerns over the future position of Hong Kong as a gateway between the world and China (Leng 2017).

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wanted the newer financial free zone to be both more flexible and friendly than DIFC.7 Abu Dhabi is the political capital of the UAE, received substantial hydrocarbon rents during the key years of free zone development, and managed investment funds worth an estimated total of one trillion dollars in 2009 (Davidson 2009b, 72–75). The capital emirate possessed veritable political and financial clout to leverage in support of its nascent free zones. However, Young (2014, 63) notes that the “two centers [ADGM and DIFC] are bound to compete and force international firms to have mirror offices in both cities.” The competitive dynamics associated with UAE free zones extended beyond the emirates of Dubai and Abu Dhabi. Abu Dhabi’s decision to launch a media-focused free zone in 2007 was contentious because it increased the country’s total number of media free zones, which were located also in Ras Al Khaimah and Fujairah. These emirates rely heavily on non-oil revenues such as those accrued from free zones. Meanwhile, Abu Dhabi entered a crowded media free zone market during a year when the price of West Texas Intermediate crude oil per barrel increased from around $75 to $119 (Macrotrends 2020). The timing of the decision, as well as the simultaneous financial windfall from rising oil prices, placed Abu Dhabi in an advantageous position to attract media outlets following the global recession and Dubai’s ensuing debt crisis in 2009 (Prodhan and Walid 2010) (Fig. 6.1). Cluster formations can increase competition over a given pool of resources (Delgado et al. 2010, 514). The RAK Media Free Zone opened in 2006 as part of a strategy by the RAK government to offer a cheaper alternative to Dubai Media City. RAK Media Free Zone initially offered freelance visas to media professionals, which, costing AED 10,000 (~$2,725) per year, represented a substantial discount on DMC’s annual fee of AED 24,500 during that period (Hagey 2009). However, RAK Media Free Zone cancelled freelance visas in 2009, citing challenges in monitoring the commercial behavior of its freelancers based in Dubai (ibid.). In 2007, two new entities entered the UAE’s media free zone soiree. The aforementioned establishment of twofour54 in Abu Dhabi and Creative City in Fujairah compounded the commercial challenges for RAK’s fledging free zone. Facing an experienced competitor in Dubai, a well-funded entrant in Abu Dhabi, and a low-budget rival in Fujairah, 7 Interview 48, senior manager at Abu Dhabi Global Market, Abu Dhabi, UAE, July 24, 2016.

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Fig. 6.1 Author’s own image of a deserted RAK Media Free Zone, August 15, 2016

RAK Media Free Zone was unable to compete commercially in the UAE market. While the precise date of its closure is unclear, media reports on the free zone stopped after 2009, and the free zone was no longer in operation by the summer of 2016.8 Unphased by RAK’s commercial challenges in the media free zone market, Sharjah launched Sharjah Media City, described as a world-class hub for media and creativity, in early 2017 (“Sultan Re-organises,” 2017). The emirate also established Sharjah Healthcare City in 2012—a commercial competitor to Dubai Healthcare City, an initiative launched by Dubai’s government nearly a decade earlier. Free zones outside of the media and healthcare realms likewise employed competitive pricing strategies to attract new clients. A HFZ official described the unique selling point of the free zone as being “the most cost-effective free zone in the region, besides Jebel Ali.”9 During 8 Some interviewees in Ras Al Khaimah, including an employee at another one of the emirate’s free zones, suggested that the RAK Media Free Zone was still operational despite it being completely closed and boarded-up upon the author’s visit. 9 Interview 21, program head at Hamriyah Free Zone, Sharjah, UAE, April 12, 2016.

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the 2008 financial crisis, HFZ permitted companies to pay fees in installments as an inducement to retain their business during the tumultuous period.10 RAKIA performed annual price comparisons with Jebel Ali Free Zone and KIZAD,11 and a senior corporate manager at Fujairah Free Zone confirmed that competitive prices remain a central consideration for multinational companies operating in UAE free zones.12 The manager of a Sharjah-based regional trade office summed up how price-setting affects free zone business activity: “Sharjah has the most potential because it is cheap – and it all comes down to price.”13 Beyond pricing considerations, the unequal distribution of political and commercial power across the UAE’s federal entities impacted free zone development. Free zone officials in Sharjah expressed concern that Abu Dhabi’s growing free zone sector would challenge Hamriyah Free Zone in the short term.14 Meanwhile, attempts by the federal government to regulate free zone-affiliated activity faced resistance in the northern emirates.15 The UAE Cabinet approved a National Industrial Coordination Council in April 2016 to ensure cohesion among various governments’ industrial policies (“Cabinet approves,” 2017); however, a senior free zone official in Fujairah considered the council’s aim an infringement upon the industrial progress achieved by free zones. “Why create another option if a perfectly fine one already exists?” he asked.16 Criticism over federal interference from Abu Dhabi, however, was balanced against considerations over rent streams from the capital. The northern emirates rely on investments and funding from Abu Dhabi and the federal

10 Interview 55, a director from Hamriyah Free Zone, Sharjah, UAE,August 11, 2016 [Arabic]. 11 Interview 58, manager at Ras Al Khaimah Investment Authority (RAKIA), Ras Al Khaimah, UAE, August 14, 2016. 12 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April 18, 2016. 13 Interview 45, manager at USA Regional Trade Centre, Sharjah, UAE, July 21, 2016. 14 Interview 21, program head at Hamriyah Free Zone, Sharjah, UAE, April 12, 2016. 15 Coordination of industrial policy and duplicate economic development strategies have

been a concern since the 1970s both within the UAE as well as in the wider GCC region (El Mallakh 1981, 58–59; Al-Yousef 1985, 124–128; Hvidt 2013, 40). Yet no such formal coordination concerning free zones has emerged within the UAE or across the GCC. 16 Interview 24, senior corporate manager of Fujairah Free Zone, Fujairah, UAE, April 18, 2016.

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government. The Abu Dhabi Ports Company, for example, manages both KIZAD in Abu Dhabi and the Port of Fujairah, which is adjacent to the Fujairah Free Zone. Efforts by northern emirates to access federal electricity resources for free zones reveal how territories competed for rents from federal investments and subsidies. Those emirates that secured better access to federal resources and utilities could attract foreign and domestic investors with larger subsidies and reduced registration fees—major incentives for largescale business operations. These rent-seeking activities related to a general pattern of GCC governments using domestic energy distribution and pricing as a tool for social policy and income redistribution (Stevens 2016, 9). A RAKIA official considered the emirate’s easy access to federal electricity a major advantage over competing free zones in Ajman, Fujairah, and Umm Al Quwain. “We have electricity from the federal government. The others [free zones in the northern emirates] don’t have federal electricity,”17 explained the RAKIA manager. Abu Dhabi, Dubai, and Sharjah each operate respective electricity and water authorities. The Federal Electricity and Water Authority (FEWA) services the remaining emirates of Ras Al Khaimah, Ajman, Umm Al Quwain, and Fujairah. Supplying free zones with federal electricity requires a full industrial city and additional electrical infrastructure. RAKIA invested approximately AED 400 million (~$109 million) to secure access to federal electricity and reduce energy costs for clients.18 Free zones in smaller emirates, like Ajman and Umm Al Quwain, confronted barriers associated with accessing federal resources. Free zones in these emirates could not afford the minimal level of industrial development and investment required for the direct transmission of federal electricity beyond existing power plants. While FEWA announced a $354 million plan to expand the northern emirates’ energy facilities in 2016 (Shaaban 2016), competitive dynamics continued to drive free zone development. “The UAE is a federal entity. As long as they keep stepping on each other’s toes, there is unlikely to be much progress there [around free zone cooperation],” noted a manager at a Sharjah-based regional trade office.19

17 Interview 58, manager at Ras Al Khaimah Investment Authority (RAKIA), Ras Al Khaimah, UAE,August 14, 2016. 18 Ibid. 19 Interview 45, manager at USA Regional Trade Center, Sharjah, UAE, July 21, 2016.

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Federal taxes that apply unevenly across the country also encouraged competition among UAE free zones. The UAE’s Federal Law 8 of 2017 on VAT introduction reserves a wide operating margin for tax exemptions. Articles 50 through 52 of the UAE’s VAT law reference a “Designated Zone” that is considered “outside of the State” and thus not liable to pay tax (UAE Federal Law 8 of 2017), but the initial absence of an executive regulation document left the definition of a “Designated Zone” ambiguous (Patchett-Joyce 2017). The wording of “Designated Zone” afforded federal policymakers the discretionary power to include only certain types of free zones as well as a much broader selection of commercial entities under this classification. The consequent Cabinet Decision 59 of 2017 categorized three free zones in Abu Dhabi—the Khalifa Industrial Zone, Khalifa Port Free Trade Zone, and Abu Dhabi Airport Free Zone—as designated zones. Under the same resolution, Dubai received seven designated zones, and the remaining northern emirates secured between one and three designated zones each. Free zones with gated, bonded areas were more likely to receive this taxexempt status. Free zones not included in the resolution, like Dubai’s DMCC, directly appealed to the federal government to gain recognition as a designated zone (Fahy 2018). Ahmed bin Sulayem, DMCC’s executive chairman, said that raising his initial concerns surrounding the impact of VAT on his free zone “was not a popular thing to do” (Sulayem 2020). However, his main interest was not necessarily the securing of a blanket VAT exemption for the entire free zone but rather special consideration for DMCC’s clients involved in the gold and diamond industries. Ebtesam Al Kaabi, head of sales for JAFZA, noted, “We are one of the few bonded free zones where all of our companies are exempt from VAT, and it is one of our competitive advantages” (Al Kaabi 2020). Foreign firms and expatriate entrepreneurs employed free zones in the northern emirates as cost-effective entry points into the more lucrative markets of Abu Dhabi and Dubai. Local governments encouraged this rent-seeking behavior through inference to keep market entry prices below competitive levels (Buchanan 1980, 4), or the cost of obtaining comparable commercial licenses and basing operations in Abu Dhabi or Dubai. Indeed, it is common to hear the northern emirates described as back doors into wealthier emirates or low-cost suburbs of Dubai. Farouk Soussa, Citigroup’s chief economist for the Middle East, portrayed the northern emirates as “a safety escape valve. When things get too expensive

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and too crowded in places like Dubai, they start to look more interesting as opportunities” (Dokoupil 2014). Promotional materials for free zones in the northern emirates further perpetuated the view of these entities as backdoor gateways to the larger UAE market. Official brochures and informational booklets from free zones highlight the distance to Dubai as a major investment incentive.20 One positive view of these marketing efforts would suggest that free zones in the northern emirates positioned themselves within a free zone industry cluster to reduce barriers to entry for new firms. Clusters can increase entrepreneurship, boost exports, and attract foreign investment (Delgado et al. 2010, 514; Porter 2000, 16). However, these marketing efforts and their consequences produced various responses on the part of other southern emirates. To limit interference in its local market, the Dubai Land Department (DLD) specifically prohibited foreign companies registered in free zones outside of Dubai from purchasing real estate in areas designated for foreign investment (Kawasmi and Mukherji 2017). Instead, a foreign company must register with a DLD-approved free zone before it can acquire real estate in accordance with Dubai’s property ownership law. Article 4 of Dubai’s Property Ownership Law, Number 7 of 2006, states that all foreign ownership is subject to the ruler of Dubai. Certain free zone registration practices and firm behaviors in the northern emirates confirm the notion that free zones functioned as gateways to the larger UAE market. RAK FTZ maintained offices in the Abu Dhabi mall and Dubai, where UAE residents regularly applied for RAK business licenses. Consequently, many individuals received business licenses without ever visiting Ras Al Khaimah.21 One Abu Dhabi-based British consultant set up a company for his wife through the RAK FTZ branch in the Abu Dhabi mall, and he later considered using his wife’s company to sponsor his employment visa extension once he was made 20 See: Umm Al Quwain Free Trade Zone Authority, Umm Al Quwain Free Trade Zone (Umm Al Quwain: UAQ FTZ Authority, collected in May 2016), 1.; Sharjah Airport International Free Zone, SAIF Zone Welcome to the Freedom of Doing Business Your Way (Sharjah: SAIF Zone, collected in August 2016), 4–5.; Ras Al Khaimah Investment Authority, RAK Investment Authority: Doing Business Your Way (Ras Al Khaimah: Government of Ras Al Khaimah, collected in June 2016), 3.; Mantaqat ‘Ajman al-Hurra, Dalil al-Mustathmir (Ajman Free Zone, The Investor’s Guidebook) (Ajman: Ajman Free Zone, no date provided) [Arabic]. 21 This was the case for Interviewee 34, a partner at a UK training company based in Abu Dhabi but registered to RAK Free Zone.

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redundant.22 “These free zones [like RAK] cater to more flexible employment options, like allowing someone to get a work visa after they have been terminated from a different job [or] supplying family members with a visa,” noted a lawyer who worked on free zone legal frameworks in Dubai.23 In the early 2000s, Ajman Free Zone authorities had to limit visas for new free zone companies that they determined were solely interested in UAE work visas. The notion of free zones serving as back doors to alternative markets is not entirely unusual. Hakimian (2011, 851–874) considers Iran’s FTZs and SEZs mechanisms to improve the country’s international economic integration, and other academic work mentions North Korea’s strategy to create free zone-led linkages with regional neighbors and the global economy (Chen 1995, 612). These two cases, however, exemplify how isolated territories can utilize free zone development to enhance economic linkages with the global economy. Free zones in Gulf Arab states played a similar role as regional entry points and facilitators of Gulf capital.

The Competitive Regionalization of Gulf Capital The internationalization of capital takes place in three steps: the internationalization of the commodities circuit with the expansion of world trade, the internationalization of money in the form of international portfolio investments, and the internationalization of production as capitalists relocate productive activities outside of their countries of origin (Hanieh 2010, 84). Most Gulf Arab states have accumulated surplus capital from the sale of hydrocarbon commodities to global markets and consequently developed portfolio investments ranging from modest sums to massive accumulations. While regional states have had less success in internationalizing productive activity outside of the host economies, free zones do play an active role in the regional accumulation and deployment of internationalized Gulf capital. According to Hanieh (2011, 2 & 82), free zones were part of important economic changes during the 1980s that laid the foundation for the growth of Gulf capital, and the creation of Jebel Ali Free Zone and consolidation of Bahrain’s offshore banking market played

22 Interview 22, British owner of consulting firm registered in Abu Dhabi’s Masdar Free Zone, Abu Dhabi. April 14, 2016. 23 Interview 29, partner at Dubai-based law firm, Dubai, UAE, May 11, 2016.

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a facilitating role in the internationalization of Gulf capitalism throughout the twenty-first century. The internationalization processes associated with Gulf free zones did not take place within a completely cooperative regional environment. Rather than creating entirely new “rules of the game” (North 1990, 3) free zone development in Dubai reinforced existing economic and political institutions to counter the negative economic impact of new commercial and regulatory developments. The commercial spheres created by free zones preserved a substantial duty-free area in Dubai and partially protected the emirate from future trade barriers enacted by the federal government or other GCC member states. In 1994, the UAE’s federal government imposed a four percent duty on certain goods. “Although a relatively low figure,” explains Davidson (2005, 229), “Dubai’s merchants have relied upon a tax-free trading environment for much of the twentieth century.” In a similar vein, the GCC customs union, implemented in early 2003, levied a five percent duty on all goods originating outside the GCC, further eroding the free trade status of the emirate. The UAE tried unsuccessfully to secure an agreement with GCC members over a proposal to allow duty-free entry of goods produced in UAE free zones. Opposition stemmed from a desire to avoid the penetration of foreign firms into domestic markets from a free zone base in the UAE. GCC member states viewed regional free zone development through the dual lenses of opportunity and competition. In November 2017, the UAE and Saudi Arabia agreed on an initiative to double the trade volume between the two countries and decrease import and export costs. The chairman of DP World attended the meeting, revealing the importance of Dubai’s free zones in facilitating this enhanced economic cooperation (“Saudi and Emirates” 2017). One of Dubai’s largest real estate firms, Emaar, which owns the Gold and Diamond Park, is also involved in the development of Saudi Arabia’s King Abdullah Economic City on the Red Sea (Emaar 2017).24 Engagement among free zones in the UAE and Oman has been more contentious. Salalah’s strategic location between the Gulf of Aden and the Arabian Sea, deep-water port, and plans to develop the area into a transshipment hub placed the Salalah Free Zone in partial competition 24 Interview 30, managing director of an economic zones consultancy and secretary general of a global EPZ association, remote call from Dubai, May 11, 2016.

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with Dubai’s Jebel Ali Free Zone.25 An MoU between SFZ and JAFZA in 2006 led to premature media reports that JAFZA would ultimately manage the southern Omani free zone (“JAFZA to manage” 2006). However, the proposal collapsed over an inability to agree on JAFZA’s stake in the SFZ and additional funding commitments from Oman’s Ministry of Finance. Some Omani government officials feared that JAFZA would assume full control over the SFZ or use it to relocate undesirable clients. In 2008, Oman considered creating a free zone within the Khasab port in the country’s non-contiguous territory on the Musandam Peninsula, which overlooks the Strait of Hormuz (“Oman plans” 2008). This location, though, is surrounded by stiff UAE free zone competition on either end of the strait—particularly in Dubai and the northern emirates to the west and in Fujairah to the east. Therefore, Oman pivoted away from the Strait of Hormuz and built the SEZAD project midway along the coast of Oman’s central governorate of Al Wusta to capture business from markets utilizing trade routes on the Arabian Sea and greater Indian Ocean. The ambitious project within the SEZ at Duqm to build the world’s largest oil storage facility indicates a strategy of distancing from the Strait of Hormuz and may eventually compete with oil storage facilities in the Fujairah Free Zone. The Ras Markaz Crude Oil Park initially planned to develop storage capacity for 200 million barrels of oil—around 15 times the storage capacity at Fujairah (Ratcliffe 2020). Despite the regional competition, Gulf capital investments in free zones are not bounded by national borders. The SEZAD refinery was initially managed through a joint venture between the International Petroleum Investment Company of Abu Dhabi (IPIC) and the Oman Oil Company, with each company owning a 50% share in the $15 billion project. Kuwait Petroleum International replaced IPIC as a new project partner in 2016, following a realignment in the IPIC’s investment strategy (“Oman Oil” 2016). Qatar oversees a modest portfolio of investments in Duqm projects relating to the automotive industry,26 and 25 Interview 35, former consultant at JAFZA and managing director of consultancy focusing on special economic zones, Dubai, UAE, May 31, 2016; Interview 37, business editor at Times of Oman, Muscat, Oman, June 7, 2016. 26 Interview 37, business editor at an Omani daily newspaper. Muscat, Oman, June 7, 2016; Interview 41, staff member from Duqm Special Economic Zone, Muscat, Oman, June 12, 2016.

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Saudi Arabia has explored plans to transport oil to Duqm (Pillai 2016). Saudi Arabia also earmarked $210 million in funding from the Saudi Fund for Development for infrastructure projects in the Duqm SEZ (Al Lawati 2018). Kuwaiti capital is ubiquitous within Gulf free zones. A Kuwaiti developer, the Golden Hala Trading Company, signed an agreement with the Omani government in 2010 to develop three million hectares of the Al Mazunah Free Zone site in Dhofar. These attempts to reinvigorate the Omani free zone were not immediately successful because the Kuwaiti company and the Oman Electric Company repeatedly clashed over project details and complications related to the remote nature of the site.27 The Baytik Industrial Oasis at BIIP is wholly owned by the Kuwait Financial House. Bahrain’s reliance on external actors influences the shape and nature of free zone proliferation in the country. “Because Bahrain is poor in natural resources, it has developed an entrepôt, services-oriented economy; in fact the country imports virtually all of its needs. This means that international trade has had a sizeable influence on Bahrain’s foreign policy,” writes Emile Nakhleh (1976, 96). While Britain played an important colonial role in Bahrain during the nineteenth and early twentieth centuries, Saudi Arabia functioned as the most influential external actor shaping domestic policies in modern Bahrain. Bahrain’s interdependence upon Saudi Arabia is both economic and political in nature. The King Fahd Causeway is the most visible physical linkage between Bahrain and Saudi Arabia. The 25-kilometer, four-lane causeway was constructed in the 1980s, and it facilitates overland trade between the two kingdoms as well as Saudi access to Bahrain’s tourism industry. Saudi citizens alone account for between six and seven million of Bahrain’s ten million tourists each year.28 Bahrain’s strong economic linkages to the GCC bloc, and specifically Saudi Arabia, reduced the commercial utility of free zones and limited the small state’s incentives to expand free zone development. The GCC customs union grants duty exemptions for Bahraini goods exported to Saudi Arabia; however, goods originating from free zones are subjected to a standard five percent duty upon entering local GCC markets. Firms 27 Interview 40, senior industrial estate and free zone manager, Salalah, Oman, June 9, 2016. 28 Interview 28, economic officer at the Economic Development Board, Manama, Bahrain, April 27, 2016.

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operating in traditional free zones in Bahrain would not enjoy dutyfree access to the country’s primary export market. Saudi Arabia was the largest specified export market for Bahrain between 2011 and 2015, consuming nearly one-third of Bahrain’s total merchandise trade (The World Bank 2015). The UAE and Kuwait were also among Bahrain’s top five trade partners. Thus, Bahraini officials stressed that BIIP and BLZ were not technically free zones because the classification would require their clients to absorb the costs of customs duties when trading with local GCC partners.29 The manager at BIIP reiterated this point: “It is very important to consider BIIP a special economic zone rather than a free zone.”30 The primary explanation for this comment lies in Bahrain’s trade orientation toward the Saudi market. In addition to the direction of trade flows, the nature of tradable commodities mattered. “We have issues in the GCC because of the origin of the product. If you go over 40% of value added, then the product becomes a Bahraini product,”31 noted a senior free zone manager. Nearly 80% of BIIP’s clients operated in manufacturing, and consequently most of these firms exported domestically produced products to Saudi Arabia. UAE free zones also demonstrated a strong trade orientation toward the Saudi market—in 2015, 64% of the UAE’s intra-GCC free zone trade occurred with Saudi Arabia (Federal Customs Authority 2015, 5). However, a crucial difference involved the composition of these trade flows to and from UAE free zones: reexports, imports, and nonoil exports accounted for 85.9, 10.9, and 3.2% respectively (ibid.). In contrast to Bahrain, the predominance of reexports in the UAE’s free zone trade with Saudi Arabia reduced the adverse effects of customs regulations. Since reexports “are foreign goods exported in the same state as previously imported” (United Nations 1998) the custom duties associated with their importation into GCC markets did not represent additional transaction fees for UAE-based free zone companies.

29 See: Interview 54, manager of Bahrain International Investment Park, remote conver-

sation from Dubai, UAE. July 26, 2016; Interview 67, senior corporate Manager at Bahrain Logistics Zone, Al Hidd, Bahrain, August 23, 2016. 30 Interview 53, manager of Bahrain International Investment Park, remote conversation from Dubai, UAE, July 26, 2016. 31 Interview 67, senior corporate manager at Bahrain Logistics Zone, Al Hidd, Bahrain, August 23, 2016.

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Customs duties and rules of origin regulations did, however, increase transaction costs for Bahraini free zone clients. When fDi Intelligence magazine ranked BIIP as part of its list of global free zones of the future in 2013, customs officials in Saudi Arabia and Kuwait responded by attempting to collect duties on goods exported by BIIP clients. BIIP maintained that its companies possessed onshore licenses and therefore were entitled to duty exemptions in accordance with the Common Customs Law of the GCC. Following the incident, BIIP withdrew from participating in the magazine and its yearly rankings to safeguard duty exemptions for its companies.32 BIIP then marketed its domestic status as providing a five percent margin against comparable free zone companies in other countries (Bahrain International Investment Park 2018). Despite Bahrain’s locational advantage for serving the Saudi market, its free zones nevertheless faced competition from counterparts in other GCC states. “We don’t like to say that we are competing with Jebel Ali, but investors compare us with Jebel Ali. Nearly every investor is comparing us with Jebel Ali,”33 explained a senior manager at the BLZ. A similar pattern of regional competition emerged within Bahrain’s financial services industry. According to a former U.S. ambassador to Bahrain, Dubai’s efforts to build a rival finance sector caused substantial consternation in Manama.34 The proliferation of financial free zones yielded additional competition in the form of new, subnational commercial hubs: DIFC, ADGM, and the Qatar Financial Centre (QFC). While not falling into the category of a traditional Gulf free zone, the King Abdullah Financial District in Riyadh is another nascent financial hub. Despite initial expenditures reaching $10 billion, a Bloomberg report (Fattah 2016) suggested the financial center did not immediately align with the needs of the local market. As the region’s economic hegemon, Saudi Arabia’s economic and political overtures have repercussions for free zone development initiatives in neighboring GCC states. For example, conflicting Saudi and Kuwaiti interests in the northern Gulf pose challenges for nascent free 32 Interview 53, manager of Bahrain International Investment Park, remote conversation from Dubai, UAE, July 26, 2016. 33 Interview 67, senior corporate manager at Bahrain Logistics Zone, Al Hidd, Bahrain, August 23, 2016. 34 Interview 75, former U.S. Ambassador to Bahrain, Washington, D.C., January 17, 2018.

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zone projects in the region. The key selling points for Kuwait’s integrated economic zone and megaproject revolve around premier access to northern Gulf markets: Reconstruction in Iraq is a commercial opportunity, and Iran remains an underutilized market. Iran accounted for just 0.11% of Kuwait’s exports and 0.76% of imports in 2015 (World Integrated Trade Solutions 2015), revealing the potential for substantial trade growth. A proposed free zone on the Saudi-Iraqi border and potential Saudi rapprochement, however, would challenge Kuwait’s claim as the premier gateway into the northern Gulf. Meanwhile, the aggressive foreign policy stance on Iran adopted by Saudi Arabia—as well as the UAE—further complicates Kuwaiti abilities to link free zone initiatives with Iranian markets.

Ramifications of the 2017 Rift with Qatar The give-and-take nature of regional economic engagement in the Gulf occasionally resulted in more serious conflicts among regional actors. Longstanding disputes among Gulf polities and the interrelated interests of foreign powers and multinational firms offer a historical context for how regional security concerns and territorial disputes can influence the politics of free zone development. In the early 1930s, Ibn Saud of Saudi Arabia informed the Shaykh of Qatar that the entirety of the Qatari peninsula belonged to the Saudis, while only Doha remained under the sovereignty of the Qatari shaykh (Letter, Political Agent in Kuwait 1934, 2). The British political agent in Kuwait viewed this Qatari-Saudi border dispute as a threat to British commercial interests in Qatar (ibid., 3–4). Later in the 1940s, Petroleum Concessions Limited, a company associated with the Iraq Petroleum Company, sought a territorial clarification from the British Under Secretary of State in order to extend its concessional area with the Shaykh of Qatar (Letter, Petroleum Concessions 1947). This historical example aptly portrays how a Gulf border dispute functioned as a nexus among regional politics, international relations, and global commercial interests. The more recent Saudi, Bahraini, Emirati, and Egyptian efforts to isolate Qatar diplomatically and economically, as part of the Qatar-Gulf crisis that began in the summer of 2017, reflected a similar nexus of interests and caused major disruptions to the Qatari free zone system. The boycott affected the feasibility of the Qatari SEZ project near Qatar’s border with Saudi Arabia, altered how Qatari supply chains utilized

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regional free zones, and encouraged Qatar’s government to amend laws relating to free zones and foreign investment. Saudi Arabia’s closing of its border with Qatar directly impacted the commercial feasibility of Al Karaana, the Qatari SEZ between Doha and Abu Sumra. The state developer of SEZs, Manateq, had marketed Al Karaana as an overland gateway to GCC markets; however, the commercial success of the SEZ depended on unfettered access to Saudi Arabia. During a period of heightened tensions in 2018, media reports briefly surfaced that Saudi Arabia planned to deepen the demarcation of its border with Qatar by constructing a canal and nuclear waste dump in the area (Brennan 2018). GCC member states participating in the boycott utilized regional free zones as tools to increase the economic pressure on Qatar. Qatari businesspeople complained about seizures of their shipping containers at UAE free zones (“Qatar economy” 2017), and multinational companies heading to and from Qatar encountered difficulties accessing Jebel Ali Free Zone, a major transshipment hub for Qatari-bound goods (Khasawneh and Vukmanovic 2017). Maersk, a global supplier of food and consumer goods to Qatar, announced in June 2017 that it could no longer access the country via Dubai’s Jebel Ali port and free zone (ibid.). Moreover, a Qatari plant part owned by Norway’s Norsk Hydro lost access to the Jebel Ali port, and reports suggested that Qatari shipping containers were seized in various GCC free zones (“Qatar economy” 2017). A spokesperson for the parent company of Jebel Ali Free Zone downplayed the material impact of the ensuing embargo on trade volume in the free zone (“No Serious Impact” 2017); however, the boycott on Qatar likely placed downward pressure on trade volumes through Dubai’s free zones, which handled a majority of the UAE’s total free zone trade. Qatar was responsible for 9.4% of imports and 7.3% of reexports passing through UAE free zones in 2015 (Federal Customs Authority 2015, 6). According to Jean Francois Seznec (2020), “One of the main clients of Jebel Ali was Qatar … until there is a resolution with Qatar, Jebel Ali will be one of the main assets that suffers from the relationship between the UAE, Saudi Arabia, and Qatar.” Free zones in the emirate of Ras Al Khaimah also experienced commercial losses owing to the rift with Qatar. According to the chief executive officer of RAK Ports, which oversees maritime-focused free zones, “It took us almost a year to regain volumes we lost [from the Qatar rift]” (Venables 2019).

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The economic boycott and Qatar’s response induced reconfigurations and adjustments to the region’s free zone system. Since Jebel Ali Free Zone served as a regional base for many of Qatargas’ key suppliers, the Qatari state-owned gas company requested these suppliers set up local offices in Qatar (“Qatargas asks” 2017). Qatar rerouted major shipping and cargo transport lanes from Dubai’s Jebel Ali Free Zone to Omani hubs in Sohar and Salalah, resulting in a boon for Omani free zone business (Mogielnicki 2017). The trade volume between Qatar and Oman in August 2017 spiked by 1,200% (McLoughlin 2017). A pro-Qatari government Arabic newspaper, Al Sharq, published an article (“Sultanate of Oman” 2017) declaring that Oman was prepared to become a regional center for trade—a veiled slight to the UAE, the region’s de facto entrepôt. Qatar’s economic engagement with Turkey and Iran also increased. Qatar and Turkey began discussions over a joint $2.5 billion organized industrial zone in Doha (Office of the Prime Minister 2017), and trade between Qatar and Iran increased by 117% in the six months leading up to December 2017 (Adil 2018). For its part, the Qatari government initiated a broader overhaul of commercial regulations in the country. The emir, Shaykh Tamim Al Thani, addressed concerns about the country’s business climate by issuing Law 21 of 2017, which amended the original free zone legal framework that he had enacted in 2005. Statements from government officials portrayed the new free zone law as an effort to accelerate trade and expand private sector participation in the economy (“New law offers” 2017). To accomplish these aims, the amended law offered free zone firms comprehensive tax exemptions from all profits on traded goods in transit, exemptions from the commercial agency system, and reassurances of complete control over workforce hiring (mars¯um bi-q¯an¯un raqm 21 li-sanat 2017). The codification of these incentives related directly to concerns in the business community over Qatar’s potential implementation of VAT and the possible application of Qatarization requirements for free zone firms. Other provisions intended to align Qatari free zones with international standards: The law established both a new free zone authority and a center for dispute resolution. The Qatari emir also accelerated efforts to create a media city, and the pro-Saudi government Al

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Arabiya newspaper alleged that Qatar had tried to lure international media companies away from Dubai (“Campaign for Twitter” 2020).35 On January 5, 2021, Saudi Arabia, the UAE, Bahrain, and Egypt committed to end their boycott of Qatar at the 41st GCC summit, which took place in Al-Ula, Saudi Arabia. The resulting Al-Ula Declaration reinstated travel and trade linkages between Qatar and the boycotting states. Signatories from GCC member states and Egypt agreed to work toward reestablishing full diplomatic and economic ties within the region. The future trajectory of these reconciliatory measures will shape the ongoing development of Qatar’s free zone system.

Gateways for Iranian Influence in the Gulf? The composition and geographic origins of investments in Gulf free zones often conflicted with domestic, regional, and international foreign policy agendas. This conflict applied especially to Iranian investments in UAE free zones. Iran was the UAE’s largest reexport destination for non-oil exports in 2009, having received 17.6% of the country’s total reexports (Government of Fujairah 2015, 29). Indeed, a substantial portion of free zone trade bound for Iran passes through Dubai as reexports. Free zones in the northern emirates of Sharjah, RAK, and Ajman targeted Iranian firms as a key investor segment. Iranians represented the second largest segment of free zone investors in SAIF Zone behind Indians in 2006, and Iranian companies involved in shipping foodstuff and consumer goods to Iran constituted a sizeable portion of firms in the AFZ. However, the presence of Iranian firms in free zones across the northern emirates occasionally clashed with the UAE’s federal policy toward the Islamic Republic. Standard procedures for courting Iranian investors to RAK FTZ changed significantly in 2009, when UAE federal authorities increased their scrutiny of Iranians operating in the UAE. The move heightened tensions between the commercial interests of the northern emirates and the political stance of Abu Dhabi. The passage of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 strengthened existing U.S. sanctions against Iran and compounded the issues surrounding Gulf free zone engagement with Iranian firms. The RAK Free Trade Zone discontinued new licenses for Iranian firms

35 For more information, please refer to the Chapter 4 section on Qatari free zones.

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but permitted around 200 existing Iranian firms to continue operations, whereas Dubai’s Jebel Ali Free Zone continued to accept applications from Iranian companies (Arnold 2010). Federal tensions and the impact of U.S. sanctions likely affected Iranian investment in Sharjah’s HFZ, which oversaw a mere 70 Iranian firms among their nearly 6,000 registered free zone firms by mid-2016.36 Emirati officials have some justification for their concerns. At times, UAE-based free zone firms engage in commercial activities with Iran that attract the attention of U.S. officials. In March 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control designated a free zone company in Ras Al Khaimah and two other companies in Dubai’s DMCC free zone for purchasing petroleum products from the National Iranian Oil Company in 2019 (U.S. Department of the Treasury). Free zones functioned as physical conduits for other, subnational forms of Iranian influence in the Gulf. The HFZ orchestrated a plan to receive gas via Iran’s Salman gas field in an attempt to bolster limited supplies of associated gas, which the northern emirates use for electricity generation. However, “a dispute of pricing in 2010 as well as internal political opposition within Iran to the export of gas at a time of mounting domestic energy shortages saw the deal collapse in acrimony,” writes Ulrichsen (2017, EBook Section 393.8). In 2013, Oman and Iran launched a similar project to build an underwater pipeline for transporting Iranian gas to the Sohar Port and Freezone in Oman (“Iran, Oman” 2017), reflecting an Iranian pivot toward a free zone location in a GCC state recognized for its politically neutrality. Oman’s government sought to leverage its comparatively positive relations with Iran to enhance free zone-focused trade. Oman and Iran, along with Turkmenistan, Uzbekistan, Kazakhstan, and Pakistan, signed the Ashgabat Agreement in 2011 to establish a trade corridor between Central Asia and the Gulf. The agreement evolved further in 2014 following the signing of an MoU and the establishment of the International Transport and Transit Corridor. In the same year, Ali Akbar Sibawaih, the Iranian Ambassador to Oman, indicated that Iran would invest $4 billion in the Duqm project in Oman (Al Kiyumi 2014). SEZAD representatives met openly with the Iranian Secretary of Free Trade Industrial and Economic Zones in Tehran in October 2015 to discuss greater 36 Figures based on a complete client list provided by Hamriyah Free Zone to the author in August of 2016.

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collaboration between free zones in each country (“Duqm SEZ” 2015), and the CEO of SEZAD remarked bluntly: “Iran is a market that we cannot ignore” (“It’s All” 2017). Warm relations, however, have not resulted in a flood of Iranian investments into Omani free zones. “Oman and Iran have good relations; yet these good relations with other countries all over the world have not translated into foreign investment,” noted a senior industrial estate and free zone manager in Salalah.37 He mentioned that most of the Iranian investors he meets in the Dhofar region are interested in smaller-scale investment projects. In the special economic zone at Duqm, Iranian firms maintained a portfolio of smaller-scale investments relating to the automotive industry.38 The Iran Khodro Industrial Group and the Oman Investment Fund, one of the country’s sovereign wealth funds, planned to develop a $200 million joint venture, Orchid International Auto, to manufacture automobiles in SEZAD (Katzman 2020). The joint venture appears to have made very little headway since its announcement in 2016. The socioeconomic links between Qatar and Iran suggest that an examination of Iranian involvement in Qatari free zones is similarly worthwhile. Persians represented a significant portion of Qatar’s residents in the early post-independence period and constituted an estimated 23% of the total population by the late 1970s (Zahlan 1979, 125). The two countries also share the world’s largest underwater natural gas field—Qatar controls the North Field and Iran controls South Pars in the Gulf waters between the countries. Following the imposition of a boycott from neighboring states in 2017, Qatar has relied heavily upon Iranian airspace for aircraft to maintain access to global destinations. It is not surprising, then, that Manateq’s promotional brochure describes Qatari SEZs as an “unparalleled gateway to regional, national, and global markets” (Manateq Brochure 2016, 6) and specifically mentions Iran as a promising market. Qatari government officials meanwhile viewed the QFC as a transparent mechanism for monitoring limited Iranian investments in the country, whereas some American government personnel perceived Qatari free zones as a potential conduit for malicious Iranian influence across the

37 Interview 40, senior industrial estate and free zone manager, Salalah, Oman, June 9, 2016. 38 Interview 42, director from the Public Establishment for Industrial Estates, Knowledge Oasis Muscat, Oman, June 12, 2016.

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region. The economic openness afforded by Qatari free zones—specifically the QFC—alarmed U.S. officials and Treasury personnel monitoring Iranian influence across the region. U.S. government concerns over Iranian influence in Qatar’s financial sector and the QFC’s response to these apprehensions illustrated how Qatari free zone policy creation took place against the backdrop of global rivalries and international security concerns. Qatar, however, refused to take unilateral, direct action against Iranian financial activities without a United Nations Security Council resolution, fearing that such a step might have adverse effects on the country’s reputation as a developing financial hub. Instead, the QFC operated delicately between remaining open to global financial investments, including from Iran, and adequately addressing security-focused concerns of the international community. The QFC released various statements aimed at ensuring proper oversight of financial transactions with Iran and several other countries as well as relayed concerns about Iranian connections to Qatari Shi ‘a families involved in local building projects. Yet, Qatari regulators largely took their cues from the government, which exercised a relatively warm form of commercial engagement with Iran. In the government’s view, free zones like the QFC offered an accountable and transparent avenue for Iranian investments in Qatar and consequently accomplished Qatari foreign policy objectives. Despite fears that Qatari free zones facilitated greater Iranian influence in the country’s economic structures, a Dubai-based sanctions investigator downplayed Iran’s economic influence in Qatar and instead noted Qatar’s historic reliance on reexport hubs in the UAE and Saudi Arabia.39 Ironically, the imposition of the boycott on Qatar in June 2017 motivated the Qatari government to view Iran as a short-term trading partner.40 Qatar restored full diplomatic ties with Iran in August 2017, as hopes for a quick resolution between Qatar and the GCC member states supporting the boycott dissipated (Gambrell 2017). However, the signing of the Al-Ula Declaration in January 2021 and effective end of the boycott may alter the terms of Qatari-Iranian relations. The Qatari government is unlikely to allow strategic commercial ties with Iran to atrophy, but the 39 Interview 77, Dubai-based sanctions investigator for financial crime compliance department of a European bank, remote conversation from Washington, D.C., February 15, 2018. 40 Ibid.

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availability of alternative regional economic arrangements will ultimately reduce Doha’s reliance on Tehran. In a similar vein, free zones factor into Iran’s strategic partnerships with countries outside of the Gulf region. In 2019, a state-owned Chinese oil trading company imported Iranian oil into a “bonded storage” zone in China so that the oil would not pass through customs or appear on national import records (Wong 2019). The Trump administration nevertheless imposed economic sanctions on the Chinese company. In 2020, Iran and China announced plans to formalize a 25-year strategic partnership, which originally emerged in 2016. The agreement includes Chinese commitments to develop Iranian free zones in Maku, Abadan, and Qeshm island (Fassihi and Myers 2020). Such commitments demonstrate China’s willingness to use its experience with free zones and special economic zones as commercial leverage. Iran possesses seven free trade zones and sixteen special economic zones—these entities serve as important barometers for foreign investor confidence in the Islamic Republic (The Supreme Council 2017). The free trade zones are meant to promote exports and foreign investment, while the SEZs aim to enhance domestic infrastructure and internal trade. These Iranian zones likewise function as commercial hubs for petrochemical and hydrocarbon commodity storage projects, as is the case in the Mahshahr Petrochemical Special Economic Zone in the southwestern province of Khuzestan and the Pars Special Economic Zone in Bushehr province. According to Tehran Times, the special economic zone in Mahshahr “plays a crucial role in Iran’s non-oil economy” (“29 development,” 2020) since petrochemical exports are the second largest source of public sector revenue and account for 33% of all exports. The general quality and economic potential of commercial infrastructure within Iranian ports, free zones, and special economic zones led officials in nearby Gulf Arab countries, such as Oman, which aims to develop a logistics cluster through the government-related entity Asyad, to be concerned about competition from its Persian Gulf neighbor. If the trade and free zone dimensions of the Sino-Iranian strategic partnership materialize in a consequential manner, these concerns are likely to increase in Gulf Arab trading hubs. There are two reasons to believe that such a scenario remains distant or unlikely. First, China’s commitment—both economic and political—to Iran is uncertain, owing to clearer Chinese interests in Gulf Arab states. Second, and relatedly, Iran’s general isolation from the global economic community increases the risks for parties

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engaging with or operating in the Islamic Republic. U.S. President Joe Biden’s administration promises a pragmatic form of engagement with Iran that differs from the previous administration’s sanctions-led, maximum pressure tactics; however, substantive changes to Iran’s international status are likely to happen slowly. Free zone officials in Gulf Arab states therefore afford greater attention to larger markets to the east and west of Iran.

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Khasawneh, Roslan and Oleg Vukmanovic. “Port Bans Choke Qatar’s Commodity Trade as Gas Supply Worries Grow.” Reuters. June 6, 2017. Accessed November 8, 2017. https://www.reuters.com/article/us-gulfqatar-commodities/port-bans-choke-qatars-commodity-trade-as-gas-supplyworries-grow-idUSKBN18X1Y2. Leng, Sidney. “Will China’s Free-Trade Port Plan Pose a Theat to Hong Kong?” South China Morning Post. October 27, 2017. Accessed October 29, 2017. https://www.scmp.com/news/china/economy/article/2117358/ will-chinas-free-trade-port-plan-pose-threat-hong-kong. Letter, Petroleum Concessions Limited to the British Undersecretary of State. “Oil and the Disputed Saudi-Qatar Boundary, 1947.” April 29, 1947. In Richard Schofield, ed. Arabian Boundary Disputes. Volume 16. Archive Editions, 1992. Accessed from Library of Congress, Washington, DC. Letter, Political Agent in Kuwait to the Political Resident in the Persian Gulf. “Dickson and Williamson Highlight Underdevelopment of shaikhly Authority Within Qatar: Stress Political and Strategic Importance of Oil Concession Being Granted to a British Company.” January 1934. In Richard Schofield, ed. Arabian Boundary Disputes. Volume 16. Archive Editions, 1992. Accessed from Library of Congress, Washington, DC. MacDonald, Fiona, Mohammed Sergie, and Yousef Gamal El-Din. “Kuwait Joins Post-Oil Push but Warns It May Be Slower Than Saudi Arabia.” Bloomberg Politics. March 20, 2018. Accessed March 21, 2018. https://www.bloomb erg.com/news/articles/2018-03-20/kuwait-joins-post-oil-push-but-warns-itmay-be-slower-than-saudi. Macrotrends. “Crude Oil Prices—70 Year Historic Chart.” Accessed October 31, 2020. https://www.macrotrends.net/1369/crude-oil-price-history-chart. Manateq Brochure. Qatar Is Our Future. Doha: Manateq, collected in August 2016. Mantaqat ‘Ajman al-Hurra. Dalil al-Mustathmir (Ajman Free Zone. The Investor’s Guidebook.) Ajman: Ajman Free Zone, no date provided [Arabic]. mars¯ um bi-q¯an¯ un raqm 21 li-sanat 2017. “bi-ta‘d¯ıl ba‘d. ah.k¯am al-q¯an¯ un raqm 34 li-sanat 2005 bi-sha’n al-man¯at.iq al-h.urra al-istithm¯ariyya.” (Decree Regarding Law 21 of 2017. “Amending Some Provisions of Law 34 of 2005 Regarding Free Investment Zones.”) Doha, Qatar: Qatar Legal Portal. November 6, 2017. https://www.almeezan.qa/ClarificationsNoteDet ails.aspx?id=15554&language=ar [Arabic]. McLoughlin, Paul. “Oman Sees Trade Boost Following Qatar Blockage.” The New Arab. September 10, 2017. Accessed September 11, 2017. https:// www.alaraby.co.uk/english/news/2017/9/10/oman-sees-trade-boost-follow ing-qatar-blockade. Moberg, Lotta. The Political Economy of Special Economic Zones: Concentrating Economic Development. Abingdon: Routledge, 2017.

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Mogielnicki, Robert. “Qatar Must Adapt SEZs to New Regional Geopolitical Realities.” The Arab Gulf States Institute in Washington. July 28, 2017. https://www.agsiw.org/qatar-must-adapt-sezs-new-regional-geo political-realities/. Nakhleh, Emile. Bahrain: Political Development in a Modernizing Society. Plymouth: Lexington Books, 1976. “New Law Offers Big Incentives to Investors.” Gulf Times. November 7, 2017. Accessed November 8, 2017. https://www.gulf-times.com/story/570219/ New-law-offers-big-incentives-to-investors. North, Douglass C. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press, 1990. “‘No Serious Impact from Qatar Ban on Container Volumes,’ Says DP World.” albawaba. July 26, 2017. Accessed December 1, 2017. https://www.alb awaba.com/business/dp-world-qatar-container-volumes-1001866. Office of the Prime Minister. “Turkish Organized Industrial Zone to be Established in Qatar.” Directorate General of Press and Information. Ankara, Turkey. September 26, 2017. Accessed September 28, 2017. https://www.byegm.gov.tr/english/agenda/turkish-organized-indust rial-zone-to-be-established-in-qatar/118930. “Oman Oil Company to Partner with KPC for Duqm Refinery.” Reuters. November 8, 2016. Accessed June 2, 2018. https://af.reuters.com/article/ commoditiesNews/idAFL8N1D2564. “Oman Plans Free Trade Zone on Strait of Hormuz.” Emirates 24/7 . March 31, 2008. Accessed November 27, 2017. https://www.emirates247.com/ eb247/news/oman-plans-free-trade-zone-on-strait-of-hormuz-2008-03-311.219243. Oxford Business Group. “The Report: Kuwait 2017.” Oxford Business Group. Accessed July 12, 2018. Online PDF pg. 57. https://oxfordbusinessgroup. com/overview/broadening-horizons-attracting-foreign-investment-becomeskey-diversification-plans. Patchett-Joyce, Michael. “New VAT Law in the UAE: All Your Questions Answered.” The National. August 30, 2017. Accessed September 3, 2017. https://www.thenational.ae/business/economy/new-vat-law-inthe-uae-all-your-questions-answered-1.624166. Pillai, Jeta. “Ras Al Markaz to Make Duqm Oil Export Hub.” Oman Tribune. September 7, 2016. Accessed December 10, 2017. https://omantribune. com/details/10933/. Porter, Michael E. “Location, Competition, and Economic Development: Local Clusters in a Global Economy.” Economic Development Quarterly 14.1 (2000): 15–34. Prodhan, Georgina and Tamara Walid. “Top Media Head to Abu Dhabi as Dubai Still Struggles.” Reuters. March 8, 2010. Accessed November 17,

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2017. https://www.reuters.com/article/media-abudhabi-summit/correctedpreview-top-media-head-to-abu-dhabi-as-dubai-still-struggles-idUSLDE62 701B20100308. “Qatar Economy is Strong and Resilient: Minister.” The Peninsula. June 19, 2017. Accessed September 10, 2017. https://www.thepeninsulaqatar.com/ article/19/06/2017/Qatar-economy-is-strong-and-resilient-Minister. “Qatargas Asks Suppliers to Set Up Local Offices Amid GCC Rift.” Gulf Business. July 13, 2017. Accessed November 8, 2017. https://gulfbusiness.com/qat argas-asks-suppliers-set-local-offices-amid-gcc-rift/. Ramos, Stephen. Dubai Amplified: The Engineering of a Port Geography. Abingdon: Taylor & Francis, 2010. Ras Al Khaimah Investment Authority. RAK Investment Authority: Doing Business Your Way. Ras Al Khaimah: Government of Ras Al Khaimah, collected in June 2016. Ratcliffe, Verity. “Oman Steps Up Plan for Middle East’s Biggest Oil-Tank Farm. Bloomberg. June 17, 2020. https://www.bloomberg.com/news/art icles/2020-06-17/oman-steps-up-plan-to-build-middle-east-s-biggest-oiltank-farm. Sakr, Naomi. “Federalism in the United Arab Emirates: Prospects and Regional Implications.” In Tim Niblock, ed. Social and Economic Development in the Arab Gulf . London: Croom Helm, 1980. “Saudi Arabia and Egypt Pledge $10bn to Kickstart Construction of High-Tech Mega-City.” Independent. March 6, 2018. Accessed March 7, 2018. https:// www.independent.co.uk/news/world/middle-east/neom-saudi-arabia-egyptjordan-crown-prince-mohammed-bin-salman-president-abdel-fattah-alsisi-a82 41491.html. “Saudi and Emirates Sign Agreement of ‘Economic Cooperation’.” AlSharq Al-Awsat. November 7, 2017. Accessed November 8, 2017. https://aawsat.com/home/article/1075741/

[Arabic]. “Saudi Newspapers: The Free Zone in the Sinai…A Global Economic Front Moves the Gulf to the Mediterranean.” El Fagr. Accessed April 20, 2017. https://www.elfagr.org/2097217. [Arabic] Saudi Press Agency. “Saudi-Yemeni Free Trade Zones and Reconstruction After Defeating Coup.” Saudi Press Agency. February 21, 2017. Accessed July 10, 2018, https://www.spa.gov.sa/1594386. Seznec, Jean Francois. “Between East and West: The U.A.E.’s Growing Ties to China and Implications for the U.S.” Public Webinar by the U.S.-UAE Business Council. October 5, 2020. https://www.youtube.com/watch?v=wvd rscAtqE4 Shaaban, Ahmed. “Four Emirates to Benefit from Dh1.3bn Federal Power Aid.” Khaleej Times. January 7, 2016. Accessed September 21,

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2017. https://www.khaleejtimes.com/nation/government/four-emirates-tobenefit-from-dh13b-federal-power-aid. Sharjah Airport International Free Zone. SAIF Zone Welcome to the Freedom of Doing Business your Way. Sharjah: SAIF Zone, collected in August 2016. “Sleeping Giant.” The Business Year. Accessed January 19, 2017. https://www. thebusinessyear.com/oman-2015/sleeping-giant/review. Stevens, Paul. “Economic Reform in the GCC: Privatization as a Panacea for Declining Oil Wealth.” Chatham House Research Paper. 2016. Suarez, Fernando and Gianvito Lanzolla. “The Half-Truth of First-Mover Advantage.” Harvard Business Review. April Issue (2015). Sulayem, Ahmed Bin. “Webinar on Charting the Post-Pandemic Future of U.A.E. Free Zones.” Public Webinar by the U.S.-UAE Business Council. September 23, 2020. “Sultan Re-Organises Sharjah Media City ‘Free Zone’.” The Gulf Today. February 13, 2017. Accessed September 20, 2017. https://gulftoday.ae/por tal/5cf903eb-96d6-463e-9ba7-17958e8a3e66.aspx. Tetreault, Mary Ann. “The Economics of National Autonomy.” Middle East Policy 6.4 (1999): 4–7. “The Sultanate of Oman Finishes its Preparations to Become a Regional Center for Imports and Exports.” Al Sharq. July 26, 2017. https://www.al-sharq. com/news/details/504424 [Arabic]. The Supreme Council of Iran’s Free Trade, Industrial & Special Economic Zones. “Free Zones.” Center for Free and Spatial Economic Zones. Accessed March 7, 2017. https://www.freezones.ir/Default.aspx?tabid=137. The World Bank. “Bahrain Trade Summary 2015 Data.” World Integrated Trade Solutions. https://wits.worldbank.org/CountryProfile/en/Country/ BHR/Year/LTST/Summary. Accessed September 4, 2017. Townsend, Sarah. “Can Abu Dhabi’s New Financial Free Zone Compete?” Arabian Business. April 29, 2016. Accessed October 17, 2017. https://www. arabianbusiness.com/can-abu-dhabi-s-new-financial-free-zone-compete--630 008.html#.VyORMaNcSko. U.S. Department of the Treasury. “Treasury Targets Companies Facilitating Iran’s Petroleum Sales.” Accessed March 19, 2020. Press Releases. https:// home.treasury.gov/news/press-releases/sm949 UAE Federal Law 8 of 2017. “Value Added Tax.” https://www.mof.gov.ae/ En/lawsAndPolitics/govLaws/Documents/VAT%20Decree-Law%20No.% 20%288%29%20of%202017%20-%20English.pdf. “UAE Starts Restricting Internet Access.” Business Report. April 15, 2008. Accessed February 10, 2018. https://www.iol.co.za/business-report/techno logy/uae-starts-restricting-internet-access-903817.

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Ulrichsen, Kristian Coates. “The Politics of Economic Reform in Gulf Arab States.” James A. Baker III Institute for Public Policy of Rice University (2016). Ulrichsen, Kristian Coates. The United Arab Emirates: Power, Politics, and Policymaking. Ebook. Abingdon: Routledge, 2017. Umm Al Quwain Free Trade Zone Authority. Umm Al Quwain Free Trade Zone. Umm Al Quwain: UAQ FTZ Authority, collected in May 2016. United Nations. “International Merchandise Trade Statistics—Concepts and Definitions.” Statistics Division. Series F. No. 52. Para. 78. Published in 1998. Accessed September 1, 2018. https://stats.oecd.org/glossary/detail.asp?ID= 2268. U.S. Department of the Treasury. “Treasury Targets Companies Facilitating Iran’s Petroleum Sales.” March 19, 2020. Press Releases. https://home.tre asury.gov/news/press-releases/sm949 Venables, Mark. “UAE Presence Grows in the Maritime World.” MarineLink. August 13, 2019. https://www.marinelink.com/news/uae-presence-growsmaritime-world-469492. Wong, Edward. “U.S. Punishes Chinese Company over Iranian Oil.” The New York Times. Accessed July 22, 2019. https://www.nytimes.com/2019/07/ 22/world/asia/sanctions-china-iran-oil.html World Integrated Trade Solutions. “Kuwaiti Exports, Imports and Trade Balance by Country 2015.” WITS. Accessed July 12, 2018. https://wits.worldbank. org/CountryProfile/en/Country/KWT/Year/2015/TradeFlow/EXPIMP/ Partner/by-country. Young, Karen. Political Economy of Energy, Finance and Security in the UAE: Between the Majilis and the Market. London: Palgrave Macmillan, 2014. Zahlan, Rosemarie Said. The Creation of Qatar. London: Croom Helm, 1979.

CHAPTER 7

A Commercial Nexus Between East and West

The multifaceted geographic considerations behind Gulf free zones have geopolitical implications. Investors behind the firms registered in Gulf free zones largely hail from outside of the Gulf region. The varied clientele composition of Gulf free zones attests to the ability of these commercial entities to attract investments and encourage economic exchange from a wide array of global economic actors. From their base in the Gulf, free zone firms can target any number of global destinations. Free zones utilize established trade routes and investment ties as well as pave the way for new commercial partnerships. Free zones in the Gulf sit at the juncture of goods and services moving to and from Asian markets. Newer initiatives, such as China’s BRI, and more established socioeconomic relations, such as South Asian linkages to the Gulf region, are concurrently shaping and being shaped by free zone development and subsequent economic activities in the Gulf. Some of the world’s most recognizable American and European firms have established their regional headquarters within Gulf free zones. Meanwhile, capital from India, Russia, Turkey, and other Middle Eastern and North African countries can find a hospitable home in any number of free zones across the Gulf. The geographic location of free zones also shapes how international partnerships unfold. Free zones near airports or ports differ from those in

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_7

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more remote locations along borders in terms of industry focus and political risks. The effects of Gulf free zone development extend far beyond the region and the broader Middle East. Government-related entities, such as DP World, export the Dubai free zone development model and corresponding skills and services around the globe, simultaneously benefitting from development and management contracts.

Buying Asian Partners in Bulk Fast-growing Asian economies have relied heavily upon Gulf Arab states to supply the energy commodities needed to maintain impressive economic growth figures over the past decade. Yet Asia-Gulf commercial linkages extend far beyond the exchange of hydrocarbon commodities. Free zones channel trade and investment flows to and from Asian economies, and China and India play a predominant role as economic partners for Gulf free zones. Chinese engagement with Gulf free zones is more recent than that of India and, despite possessing significant investment potential, has not always met the expectations of government officials and businesspeople in the region. China’s BRI and the concomitant Digital Silk Road are expansive and ambitious undertakings. For this reason, it is easy to exaggerate the overlaps between China’s BRI and Gulf free zones or assume uniformity across various forms of economic relations. “The BRI is a global initiative, but its contours depend on local context,” writes Jonathan E. Hillman (2020, 7). Sino-Gulf economic cooperation within and across free zones is an important feature of the region’s political economy, but the nature of Chinese commercial engagement varies considerably from country to country in the Gulf region. From the perspective of free zone cooperation, China’s primary economic partner in the Gulf region is the UAE (Mogielnicki 2019a). The UAE’s small minority of local citizens,1 established trade and transshipment hubs, and substantial hydrocarbon resources are an attractive commercial proposition for China. In a 2015 meeting with Abu Dhabi Crown Prince Shaykh Mohammed bin Zayed, President Xi Jinping stated that “China is ready to speed up policy and project alignment with 1 Smaller ratios of local citizens to total residents impose fewer demographic constraints and distributive responsibilities upon regional governments, which can offer more commercial incentives to attract Chinese investments in free zones.

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the UAE,” within the framework of the BRI (“China, UAE” 2015). Chinese involvement in Abu Dhabi’s free zone system is most visible in the China-UAE Industrial Capacity Cooperation Demonstration Zone project in KIZAD. The demonstration zone project is part of a 50-year cooperation partnership with the Jiangsu Provincial Overseas Cooperation and Investment Company, and the conceptual launch in 2017 attracted approximately $884 million of investments from Chinese firms. By July 2019, the zone had attracted more than 20 Chinese companies and $1.7 billion of investments. Abu Dhabi Ports, which oversees KIZAD, began construction in October 2019 on a housing project able to accommodate 5,000 employees of the demonstration zone as well as signed a five-year agreement with the Industrial and Commercial Bank of China to offer additional services to Chinese firms in KIZAD (“Abu Dhabi ports” 2019). According to China Daily, the demonstration zone is “the only cooperation project between the two countries involved in the construction of the Belt and Road Initiative” (“China-UAE” 2019). The ruler of Dubai visited China in late April 2019 to participate in the Second Belt and Road Conference for International Cooperation, reaffirming the emirate’s commitment to its bilateral relationship with China. During the conference, Shaykh Mohammed announced $3.4 billion worth of BRI investments in Dubai: a $2.4 billion storage and shipping station in Jebel Ali and a $1 billion food processing and packaging plant (“Sheikh Mohammed” 2019). That the larger of the two investments was at Jebel Ali rather than a greenfield project—a new development on a vacant site—suggests an effort to funnel BRI-related projects through Dubai’s flagship commercial entities and organizations. Taimur Khan (2018) argues that free zone-focused investments reflect the UAE’s strategy to become an “essential component of China’s Belt and Road Initiative and secure Dubai’s Jebel Ali as the key logistics and trade hub linking Asia to Africa via DP World infrastructure, in the face of competition by a glut of new ports built by rivals with similar ambitions.” Indeed, DP World announced a partnership with Zhejiang China Commodity City Group Company to establish “the first freezone market place in the Middle East” (“DP World, Chinese” 2019) at Jebel Ali. There were 50 Chinese firms registered in Jebel Ali Free Zone in 2005. In one decade, the free zone contained more than 230 Chinese companies, and China represented its largest trading partner with ~$12.6 billion in bilateral trade (“More Chinese” 2005; “Jafza’s trade” 2016). Of the

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876 Chinese companies registered with Dubai Customs in 2019, 244 of the firms possessed free zone licenses (Oommen 2019). Although Jebel Ali Free Zone functions as a primary hub for inward FDI from China and trade with Chinese firms, other free zones in Dubai have expanded outreach and cooperation with Chinese counterparts. Dubai South, which is the location for the Expo event in 2021, has signed memorandums of understanding with the China Council for the Promotion of International Trade Shanghai and the China Chamber of International Commerce Shanghai to promote the BRI. In November 2020, DMCC opened a representative office in Shenzhen to further strengthen links with Chinese firms. The commodities-focused free zone possesses a dedicated Chinese website to facilitate business setup for Chinese firms (Maceda 2020). During 2018, DMCC witnessed 12% yearon-year growth in total firm registrations, but Chinese firm registrations grew by 31%, reaching approximately 500 companies (Zhihua 2019). In July 2020, DIFC signed a memorandum of understanding with Jiaozi Fintech Dreamworks, one of China’s first fintech entrepreneurship platforms. The agreement aims to offer fintech firms in both jurisdictions better access to their respective markets (“Dubai-China” 2020). Dubaibased logistics companies such as DP World have launched new digital supply chain platforms alongside acquisitions of Asia-focused shipping and logistics operators to expand their digital and physical connectivity to Asian markets (“DP World acquires” 2020). The northern emirates also leverage their free zones to attract trade and investment from China. The Ajman government permitted the Gulf Chinese Trading Corporation—a private company with Gulf, Chinese, and European shareholders—to retain free zone status for a China Mall operating outside of the AFZ. “We gave the Gulf and Chinese Trading Company the land, and they bring in the Chinese brands,” explained an AFZ employee.2 The Ajman Free Zone announced a $1.6 million fund in March 2020 to help the China Mall cover its rent obligations amid the coronavirus pandemic (Oommen 2020). In this case, it appears that influential parties lobbied the government to transfer resources through free zones. These direct collaborations between governments and private sector companies to allocate public goods and incentives through free

2 Interview 56, staff member at Ajman Free Zone. Ajman, UAE, August 11, 2016.

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zones formalized rent-seeking processes as part of state economic development initiatives. Yet governments in the northern emirates clearly see promise in their relations with the Chinese. Saud Salim Al Mazrouei, the director of Sharjah’s HFZA and SAIF Zone, said that China’s “Belt and Road Initiative means it is very important for them to have distribution centers in the region in order to grow and expand. Sharjah and its free zones can provide just the right platform for that” (Sharjah Business Feature 2020). High costs associated with Omani free zone development pushed Oman’s government to seek foreign investment commitments from China. Initial estimates for the total project cost of the SEZ at Duqm ranged from $87 billion to $100 billion (“Sleeping Giant” 2017). Chinese firms signed a $10.7 billion agreement to manage around 1,200 hectors, approximately one-third of the available land, through a joint venture between the Wanfang Oman Company and the Omani government (Diwakar 2017). The Wanfang Oman Company is a local subsidiary of Ningxia China-Arab Wanfang, a conglomerate of six private companies backed by China’s Ningxia regional government. This investment would have constituted more than half of Oman’s entire inward FDI stock of $18.5 billion in 2016 (UNCTAD 2017, 1). Under the agreement, Chinese banks would provide the capital for the industrial city, and individual companies were responsible for developing their respective industrial facilities (Fahy 2016). Interest from Chinese investors raised hopes that the SEZ at Duqm would become an important feature of China’s BRI (“Oman Counts” 2017) and led to predictions that “Duqm might become a key element in the development of both commercial and security relationships between Oman and China” (Jones and Ridout 2015, 270). Many pledged Chinese investments in Oman have existed largely in the form of paper commitments. Those financial instruments that have materialized are more modest in quantity. For example, the Asian Infrastructure Investment Bank approved a $265 million loan for Oman’s port and zone development in December 2016. The loan’s objective involved enhancing “the potential economic benefits from Duqm port development through improved transport efficiency, strengthened logistics, facilitated mineral exports, and reduced supply chain delivery time and costs for the wide spectrum of industries in the new Duqm Special Economic Zone and its broader hinterland” (Asian Infrastructure Development Bank 2020). In 2017, SEZ at Duqm launched a promotional

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campaign to attract Chinese investment from the Dalian province. The Dalian Port Company had previously invested $7 billion in the Djibouti International Free Trade Zone (“Duqm authority” 2017). The late Sultan Qaboos viewed Chinese investments with cautious opportunism. He understood the potential value of stronger economic ties with China but remained apprehensive about the strings attached to Chinese financial support. One of Qaboos’ most influential advisors, Dr. Omar Zawawi, was a major supporter of increased economic engagement with China and actively advocated for it as the president of the OmanChina Friendship Association. The political transition from Sultan Qaboos to Sultan Haitham bin Tariq and the death of Dr. Zawawi in early 2020 set the stage for a new period in bilateral relations. How the new sultan approaches Chinese investments and loans will consequently impact the nature and pace of Omani free zone development. Kuwaiti officials view capital flows from China as a potential source of external funding for national development priorities, which include free zone-related projects such as Silk City and an integrated economic zone spanning the country’s northern islands. Inward FDI flows to Kuwait declined from $3.3 billion in 2011 to a mere $275 million in 2016 (Oxford Business group 2017), thereby increasing the importance of tapping new sources of foreign investment. “The first serious attempts to solicit Chinese participation in the Silk City project were a by-product of growing domestic support (and eventual endorsement) for the ‘Kuwait 2035 Vision’ and the unveiling of China’s BRI in 2013,” note Alanoud Alsabah and Mohammed Alsudairi (2020, 8). In 2018, Kuwait’s al-Subiya and Boubyan Development Agency and China’s National Development and Reform Commission signed a memorandum of understanding to form a development mechanism for cooperation over the Silk City and northern islands development project (“Kuwait, China” 2018), and a Chinese delegation subsequently arrived in Kuwait in early 2019 to assess commercial opportunities within the project’s framework. Plans for Silk City and the northern islands development project lost momentum in late 2019 and early 2020, owing to shifting political dynamics and newfound economic constraints. One primary issue behind the project’s deceleration was the perception that local business and construction firms were being excluded from participating in public projects (Alsabah and Alsudairi 2020, 12)—a domestic concern that is unlikely to be resolved by greater Chinese involvement in Kuwait’s nascent free zone system.

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Chinese multinational firms are active players in the deployment of digital networks and technological systems across Gulf free zones with smart city components. Huawei is one of the core infrastructure providers for the Saudi Telecom Company, which secured a contract to deliver the advanced 5G and internet network in Neom (Mingas 2020). The megaproject-cum-special economic zone is owned by the Public Investment Fund and is as a prominent component of Saudi Vision 2030. Dubai South signed a memorandum of understanding with Huawei to deploy the Chinese firm’s smart city solutions in the Dubai South Business Park Free Zone (“Huawei and Dubai” 2016). In December 2020, the Qatar Free Zone Authority and Yutong, a Chinese manufacturer of commercial vehicles, agreed to set up a manufacturing plant for electric buses in Umm Alhoul. China’s official media outlets are planning to open offices in Qatar Media City, according to Beijing’s ambassador to Qatar (Adly 2019). Chinese involvement in free zone and port projects overseen by Gulf firms and government-related entities extends beyond the Gulf region. These Sino-Gulf interactions in international free zone development have occasionally taken place amid contentious circumstances. The government of Djibouti seized the Doraleh Container Terminal from DP World after losing a case submitted with the London Court of International Arbitration. Djibouti nationalized the container terminal, thus ending DP World’s 33% stake in Djibouti’s free trade zone project as well as the concession permitting DP World exclusive rights to move containers in the country (Paris 2020). Meanwhile, Djibouti awarded construction and management contracts for a $3.5 billion free trade zone, the Djibouti International Free Trade Zone, to Chinese firms. The Djibouti Ports and Free Zone Authority and China Merchants Holdings, a Chinese SEO, will manage the FTZ, while the Dalian Port Corporation, of which China Merchants Holdings is one of the largest shareholders, received the development contract. India has deep and sustained linkages with Gulf free zones in firm registration and staffing. Historical and economic ties between the Gulf and the Indian subcontinent are reflected in the trade, investments, and firm composition of Gulf free zones. India was one of the largest destinations for the UAE’s non-oil exports, securing 33.5% in 2009 (United Arab Emirates National Bureau of Statistics 2010, 27). Fujairah’s free zone trade mirrored this trend: Approximately 41% of the emirate’s direct

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free zone trade in 2014 occurred with non-Arab, Asian trading partners (Government of Fujairah 2015, 157). Abu Dhabi’s KIZAD attracted around $90 million of investments from India between 2012 and 2019 (“Our industrial” 2019). Indian companies were among the largest client base in many of the UAE’s free zones.3 Around 800 Indian companies were registered at Jebel Ali Free Zone in 2016 (“Dubai’s freezone” 2016), and DP World established an India-UAE bridge initiative in 2019 to further boost Indian trade and investment at Jebel Ali. In July 2019, India’s largest children’s retailer, Firstcry, launched a fulfillment center in EZDubai to better access consumers in the UAE and broader Middle East. Most of the investors registered with AFZ in 2016 were Indian, and Russians were the second-largest client contingent.4 Sharjah’s HFZA signed an agreement with Orient Source HK Limited, which is incorporated in Hong Kong but owned by an Indian national, to open a multifunctional maritime commercial facility (“HFZA continues” 2020). Indian firms and professionals are strongly represented in technologyfocused free zones. The breakdown of local, regional, and global clients in the Dubai Technology Entrepreneurship Centre, a program of Dubai Silicon Oasis, offers a useful visualization of these capital flows. Indian companies represented the largest national segment of clientele, at 30% of the free zone clients, and Pakistani firms comprised 7.3%.5 GCC companies accounted for a mere five percent of the free zone’s clients, and only 23 Emirati companies operated among the total client base of 802 firms. Non-GCC, Middle Eastern firms provided the second-largest segment of free zone clients after Asian firms. The ownership structure of free zones and the commercial enterprises therein illustrate the significance of nearby Indian markets. Oman’s Sohar Port and Freezone launched as a joint venture among SIPC, the Port of Rotterdam, and the private Indian firm Skil. Created in 1990, Skil specializes in commercial infrastructure and economic zone development 3 Interviewees 21, 24, 25, 56, and 57 confirmed that Indians are the largest portion of

free zone clients in Hamriyah Free Zone, Fujairah Free Zone, Creative City, Ajman Free Zone, and SAIF Zone, respectively. 4 Interview 56, staff member at Ajman Free Zone, Ajman, UAE, August 11, 2016. 5 Figures refer to registration numbers as of December 2017. The author remotely

collected this data on December 13, 2017, from an employee of Dubai Technology Entrepreneurship Centre, a program of Dubai Silicon Oasis.

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in India. Zawawi Minerals entered into an agreement with the American USG Corporation to develop a plasterboard plant in the Salalah Free Zone (Oman Ministry of Commerce and Industry 2014, 55). The partnership formed to meet the growing demand for building materials in the Middle East and India. Beyond providing lucrative markets, Indian commercial hubs also stand to compete with Omani free zones. A manager from Sohar Port and Freezone mentioned that the introduction of VAT in Oman could be problematic if Indian business hubs did not impose similar taxes and consequently became cheaper locations for existing businesses and future clients.6

Brand Recognition of American and European Firms Free zone officials often seek to increase the attractiveness of a free zone by securing high-profile anchor clients. In the Gulf, free zone anchor clients tend to be globally recognized American and European companies or major government-related entities, which signal a given government’s commitment to a specific zone project. Emirates Global Aluminium (EGA) serves as KIZAD’s anchor client and occupies the zone’s largest industrial site. EGA also operates a smelter at Jebel Ali in the emirate of Dubai. However, free zone officials prefer that these local firms operate alongside industry-leading multinationals in Gulf free zones. Early Qatari free zones—namely QFC and QSTP—served to showcase an elite concentration of American and European firms in the country. Qatar’s strong financial position and limited domestic constraints, owing to a small national population relative to the size of the country’s economy, afforded the government substantial bargaining power in managing global capital flows into the country. While free zones permitted foreign firms to operate in Qatar, these companies adhered to clear guidelines established by the state. Gray (2013, 130) describes this state-business dynamic as follows: “Qatar has sent a message to foreign firms that investment is welcome, but on the state’s terms.” The nature of firm registrations in these Qatari free zones suggests that international recognition, foreign expertise, and skills transfer outweighed revenue generation and job creation as key objectives behind free zone

6 Interview 36, manager of Sohar Port and Freezone, Sohar, Oman, June 6, 2016.

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development. The QFC “was opened to develop the financial sector and link it more closely with international financial firms,” writes Gray (2013, 129). While the QFC launched with a focus on financial services, registration rates of financial firms peaked in 2013, and firm registrations for business and professional service companies overtook financial firms in 2014 (Qatar Financial Centre 2016, 5). European firms accounted for the largest segment of registrations in QFC, followed by Qatari and American firms. Unlike many free zones in the UAE and Oman, the QFC did not exhibit a significant penetration of Asian firms, which accounted for only six percent of the free zone’s total registrations. The QSTP demonstrated a similar pattern of capital accumulation. Approximately half of the 30 tenants listed on the QSTP’s website in 2018 were major American and European companies: including Shell, Total, Siemens, Rolls-Royce, Microsoft, and General Electric (Qatar Science and Technology Park 2018) (Fig. 7.1).

QFC Firms by Region (2016) Asia Pacific 6% MENA 16% North American 19%

Europe 30%

Qatar 29%

Fig. 7.1 Graph of Qatar Financial Center firms by geographical origin

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In some instances, Gulf free zones targeted industry leaders headquartered outside of the Gulf, United States, and Europe as anchor clients. Vale, the Brazilian multinational involved in metals and mining, established a base in the Sohar Port and Freezone in 2011 to better access Chinese markets. Following its initial $2 billion investment in Oman, Vale signed an MoU with the Sohar Port and Freezone and the Oman National Investments Development Company (TANMIA) to offer its services to local mining companies in the sultanate (“Feature: Vale” 2017). In this respect, Vale not only served as a free zone anchor client but also engaged in efforts to promote knowledge and skills transfer to the domestic economy. Aggressive free zone marketing to foreign firms can produce unintended consequences. A perceived preference for foreign rather than local investment aligns with Crystal’s (1995, 7) hierarchical assessment of preferred investors in Qatar. Ennis (2015, 132) similarly explains how Qatari government policy, at times, favored international capital over local investments: “Despite policy moves to increase activity in the industrial areas, these areas remained more accessible to international capital. The procedures for Qatari entrepreneurs to acquire a plot and operate in the industrial areas remain cumbersome.” Similar concerns existed in Oman,7 suggesting that the preferential treatment of foreign investors was a sensitive topic for Gulf Arab regimes. In January 2018, the obscure London-based al-Mu ‘¯arid.a al-Qatariyya (Ar. The Qatari Opposition), known on Twitter as @CouncilQatar, attempted to thrust Qatar’s SEZs into the international limelight by suggesting that the country’s leaders directly benefitted from the projects at the expense of local Qataris. After asking why Qatari citizens were prevented from utilizing SEZs, the group’s Twitter account posted in Arabic: “The answer: because the revenues from free zones and foreignowned plots are divided between three [people]: the emir, his father, and Hamad bin Jassim” (The Qatari Opposition 2018). The accusations intended to foment public dissent among Qatari citizens and demonstrated the potential political vulnerability associated with Qatari free zones. The tweets link differing commercial policy implications for foreigners and locals directly to the administrative office of the Qatari

7 See comments by a free zone official in Dhofar about multinational firms in the SFZ in the Omani free zones section of Chapter 4.

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emir, and free zones are the most visible government entities perpetuating parallel regulatory environments in the country.

Border Zones: Iraq and Yemen Gulf Arab governments and prominent businesspeople have leveraged the concept of border free zones to demonstrate intentions for cooperative economic diplomacy in neighboring states. Saudi Arabian plans to establish free zones on its borders with Iraq and Yemen—two countries mired in conflict with long, complicated relations with Saudi Arabia—were linked to post-conflict stabilization and conflict resolution efforts. The Saudi government cut formal ties with Iraq in 1990 following Saddam Hussein’s invasion of Kuwait. Bilateral relations deteriorated further after the U.S. invasion of Iraq in 2003, when the ensuing military conflict threatened regional stability. Poor Saudi-Iraqi diplomatic relations and persistent security issues in Iraq during the 1990s and early 2000s coincided with substantial free zone proliferation across the rest of the Gulf region. However, minimal political and economic engagement between Saudi Arabia and Iraq during this period prevented the emergence of free zones along their border. Despite tense diplomatic relations with Saudi Arabia and domestic instability, Iraq nevertheless attempted to develop a free zone system and associated infrastructure within the country. The Iraqi Ministry of Finance codified a Free Zones Commission Law in 1998. This law led to the establishment of the Khor Al-Zubair Free Zone near Basra, the Falafel Free Zone near Nineveh, the Qayem Free Zone near al-Anbar, and the Sulaymaniyah Free Zone, which is managed by the Kurdistan Board of Investment, in the north of the country (Bohmer and Fanelli 2020). These free zones sought to promote trade with Iraq’s northern neighbors, whereas the country’s southern border with Saudi Arabia received considerably less attention from Iraq’s economic policymakers. The commercial viability and operational capabilities of these Iraqi free zones suffered from economic embargoes, armed conflict, and damaged infrastructure (ibid.). The limited progress of Iraq’s free zones and reinvigorated diplomatic ties presented an opportunity for Saudi Arabia to consider free zone development on its northern border. Saudi Arabia indicated interests in establishing free zones on the Iraqi border following a warming of ties between the two countries in 2017 (“Iraq Oil” 2017). The Saudi government reopened diplomatic offices in Iraq after 25 years, and several

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Saudi government officials subsequently visited the country during highprofile trips (Blanchard 2017). In August 2017, Saudi Arabia created a Saudi-Iraqi coordination council and announced plans to reopen the Arar border crossing with Iraq for the first time since 1990—a necessary condition for facilitating cross-border trade and launching initiatives to construct commercial infrastructure, such as free zones.8 In the spring of 2019, Saudi Arabia promised Iraq $1 billion in loans for development projects, and then Prime Minister Adel Abdul Mehdi met with Crown Prince Mohammed bin Salman during an official visit to Riyadh, where the leaders signed a number of agreements over trade, energy, and political cooperation. Geopolitical rivalries remain important factors behind Saudi free zone development on its northern border. The embedded Iranian presence in Iraq’s political, economic, and security structures challenges Riyadh’s regional foreign policy agenda. Iran had opened a free zone along the Shalamcheh border crossing near Basra, and the Islamic Republic removed visa requirements for Iraqis crossing the border to buy Iranian goods (“Saudi Arabia’s use,” 2018). Saudi efforts to foster new commercial hubs on its border with Iraq therefore constituted part of a broader strategy to counter Iranian economic influence in Iraq. Indeed, free zone development along the Saudi-Iraqi border would likely go hand-in-hand with enhancements to Saudi Arabia’s security-monitoring capabilities. Other Saudi free zone development proposals focused on Saudi Arabia’s southern border with Yemen. An early attempt to establish a Saudi-Yemeni free zone in the Al Wadeeah area of Najran stalled following the 2011 regional protests. The proposed free zone project in Najran reflected a collaboration among the Saudi government, private sector actors in Saudi Arabia and Yemen, and the Islamic Development Bank. However, the 2011 regional protests and the ensuing conflicts increased the risks for the project stakeholders. The indefinite postponement demonstrated that, rather than political unrest providing an impetus for economic development through free zone creation, political conflicts instead disrupted processes of free zone creation. In 2012, Shaykh Abdulmohsin Abdulaziz Al Hokair, the founder of Al Hokair Group and a prominent Saudi businessman, proposed launching a free zone on the Jizan-Yemeni border. Al Hokair believed that Yemen’s abundant labor

8 The Saudi-Iraqi Arar border crossing formerly reopened in November 2020.

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resources matched neatly with Saudi capital and commercial expertise— an alignment that could stimulate trade in Yemen (National Yemen 2012). However, the Jizan free zone project never materialized. In February 2017, the Saudi government revisited discussions about establishing free zones along its Yemeni border regions of Jizan and Najran. One of the implicit objectives behind this initiative in the southwest part of the country was to promote development in marginalized areas outside of Saudi Arabia’s traditional urban centers. However, the Saudi government also suggested in a press release that a need for “reconstruction” and “legitimacy” would revive defunct free zone development plans: It is expected that projects and programs of reconstruction of Yemen after the war ends and restoration of legitimacy will contribute to the revival of the project of free trade zones between the Kingdom of Saudi Arabia and Yemen. (“Saudi-Yemeni Free” 2017)

The nature of the conflict in Yemen had evolved substantially since 2011, and Saudi Arabia formally entered the civil war in 2015. It is noteworthy, therefore, that Saudi government communications specifically mention “reconstruction” and the “restoration of legitimacy” as objectives behind the reinvigorated free zone initiative. The press release also suggests that free zones could facilitate the movement of “millions of tons of cement, rebar, wood and other infrastructure materials” (“Saudi-Yemeni Free” 2017) into post-war Yemen, thus positioning Saudi businesspeople and firms as facilitators of post-conflict reconstruction. The former chief of the Saudi-Yemeni Business Council, Dr. Abdullah Marei Mahfouz, noted that the proposed FTZ would stimulate private sector activity not only in Saudi Arabia’s southern provinces but also in the Yemeni governorates of Hadramout, Al-Jawf, and Saada. The Saudi business leader also mentioned increased Yemeni exports—namely fish, fruit, and vegetables—and the generation of “thousands of jobs for the youth of Saudi Arabia and Yemen” as potential outcomes of FTZ development (“Saudi-Yemeni free-trade” 2017). He estimated that the project would require around $66.7 million in initial investments and that the value of trade would reach approximately $133.3 million in the first year (“Yemenis await” 2017). These plans have largely remained rhetorical rather than physical.

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The tragic war in Yemen has been a boon for business at Oman’s Al Mazunah Free Zone on the border with Yemen. Very little activity occurred at Al Mazunah between its opening in 1999 and 2010.9 Security issues in Yemen prevented a smooth flow of workers over the border, and the Omani government found it difficult to differentiate between serious Yemeni investors and those with other motives. “Many rich Yemenis want to go to the free zone to escape the war and invest in a safer environment,”10 said a source closely related to the free zone. Nevertheless, the conflict caused an outflow of investment through the country’s only nonSaudi land border. In May 2016, free zone authorities reported that 75 multinational companies had signed free zone agreements, and a further 25 applications remained under review (“Oman’s Al Mazunah” 2016). A director from the PEIE confirmed the war’s effect on the free zone: “Mazunah has witnessed a flurry of activity because all other borders are blocked. There are no commercial access points to Yemen other than their ports, but these have real security concerns. All of this [free zone activity] is because of the war.”11 He estimated that 95% of the available commercial space in Al Mazunah Free Zone had been allocated within a one-year period ending in June 2016.

Other Regional Actors: Turkey, Egypt, & Israel The interplay of Gulf free zones with other free zone systems in the broader Middle East region reinforces existing economic ties as well as establishes new regional relations. This section elaborates on three sets of interregional ties that are intertwined with Gulf free zone development: Turkey-Qatar, Egypt-Saudi Arabia, and Israel-UAE. In each of these cases, new Gulf free zones have been developed alongside established free zone systems in each respective non-Gulf countries. Of course, these are not the only configurations of interregional free zone cooperation, which contain deep and geographically diverse commercial linkages. However,

9 Interview 40, senior industrial estate and free zone manager, Salalah, Oman, June 9, 2016. 10 Interview 40, senior industrial estate and free zone manager, Salalah, Oman, June 9, 2016. 11 Interview 42, director from the Public Establishment for Industrial Estates, Knowledge Oasis Muscat, Oman, June 12, 2016.

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these cases illustrate how free zones play a central role in evolving regional relations and influence political and economic trends in the region. Qatari efforts to strengthen its economic relations with Turkey took place alongside tensions with Gulf Arab neighbors. According to the Central Bank of the Republic of Turkey, Qatar’s contribution to equity capital in Turkey increased from $715 million in 2015 to $4.9 billion in 2016—a sign that a drastic rise in Qatari investments into Turkey likely had its roots in the 2014 Saudi-Qatari rift, which lasted eight months (Mogielnicki 2019b, 90). The 2017 Gulf rift and the subsequent diplomatic and economic boycott encouraged Qatar to further reinforce existing trade and investment ties with regional states like Turkey, and the prospect of Qatari-Turkish free zone collaboration provided one avenue for boosting economic ties. Qatari and Turkish officials held discussions in September 2017 over a $2.5 billion organized industrial zone in Doha that could employ an estimated 10,000 Turkish employees. Official government statements from Turkey attributed the initiative to Turkish support for Qatar during the embargo (Office of the Prime Minister 2017). The statements suggested that the Qatari government would absorb 70% of the project’s costs, reserve development and investment contracts for Turkish firms, and subsidize commercial real estate. Qatar’s efforts to attract Turkish investments have yielded some progress. During a Qatar Chamber event in September 2020, a representative from the QFZA stated that Qatari free zone initiatives have witnessed increased interest from Turkish firms operating in the maritime and information and communications technology sectors (Dizon 2020). Turkish firms also have the option to consider free zone opportunities in their home country. Turkey’s approximately 20 free zones display a strong propensity for private ownership and management, contrasting with the Gulf trend of public ownership. Unlike Turkey, Egypt’s regional economic partnerships have skewed toward Saudi Arabia and the UAE. This Egyptian orientation toward the Saudi-Emirati nexus within the Gulf has been especially evident since the removal of President Mohammed Morsi and the coming to power of President Abdel Fattah El-Sisi. The Neom megaproject is the primary realm of free zone-focused cooperation between Saudi Arabia and Egypt. In 2018, Egypt’s government committed around 1,000 square kilometers of Egyptian territory in the southern Sinai Peninsula for the Neom project. The agreement included the establishment of a joint $10 billion fund to help finance development initiatives within the Egyptian part of the

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zone (Kalin 2018), but it is unclear when and how this funding will be deployed. Egyptian firms and investors likewise function as an important client segment in UAE free zones. Many free zones in the UAE employ Egyptian staff members to better attract and facilitate investments from Egypt. At the same time, technology startups based in UAE free zones often utilize Egyptian markets and the North African country’s sizeable consumer base to scale their ventures. Like Turkey, Egypt contains an extensive system of free zones. Egyptian free zones function under the authority of the General Authority for Investment and Free Zones (GAFI). This ownership structure creates “a total government monopoly for zone development, financing, operation and regulation” (Akinci and Crittle 2008, 49). GAFI oversees ten operating free zones (General Authority for Investment and Free Zones 2018), and the authority announced plans to construct several new free zones in 2019 and 2020 (“Egypt’s GAFI” 2019) before the coronavirus pandemic. An additional Suez Canal Economic Zone (SCZone), which is part of the Suez Canal Corridor Area Project launched by President El-Sisi in 2014, occupies four development areas and six ports along the canal (Suez Canal Economic Zone 2020). SCZone operates under a separate authority that determines commercial regulations, such as a 10% maximum threshold for foreign employees working in a company licensed with the free zone. Dubai-based DP World signed an agreement with SCZone in 2017 to develop and manage one of Egypt’s industrial zones in Ain Sokhna. DP World’s involvement with Sokhna port dates back to 2008 (DP World Sokhna 2012). The Dubai-based firm’s joint venture with the SCZone aroused a debate over how Egyptian free zones would compete against the Jebel Ali Free Zone. The chairman of DP World issued a formal statement assuring Egyptian stakeholders that the Emirati company remained merely “facilitators” of the project (“Chairman of DP” 2017). Russia is similarly interested in the canal zone. Moscow’s ambassador to Egypt set high expectations by estimating that a Russian industrial zone in the SCZone would attract $7 billion in new investments (Abu Zaid 2020). Egypt also contains additional qualifying industrial zones (QIZs) that enable tariff-free access to U.S. markets by incorporating Israeli inputs. The use of free zones to advance contentious relations is not foreign to Israel. Encouraged by U.S. policymakers, Israel has utilized free zones to establish economic linkages and to—ostensibly—promote crosscountry reconciliation efforts by fostering cooperation among Israeli,

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Egyptian, Jordanian, and Palestinian businesses in industrial zones.12 The subsequent qualifying industrial zones enable tariff-free access to U.S. markets, provided that firms in Arab countries incorporate Israeli inputs (Congressional Research Service 2013). Following the announcement of a UAE-Israel normalization agreement in August 2020, Israeli Prime Minister Benjamin Netanyahu mentioned that his country would import from UAE free zones, adding: “We know that we will get good prices” (“Israel will” 2020). Israeli interests in utilizing UAE free zones have been reciprocated in efforts by UAE-based commercial entities to explore commercial opportunities related to Israeli ports and free zones. In September 2020, DP World and Dubai Customs signed multiple memorandums of understanding with Israel-based DoverTower Group, a shareholder of Israel Shipyards port in Haifa and a partner in Eilat Port. As part of the agreements, DP World plans to study both the development of ports and free zones in Israel as well as the establishment of a direct shipping route between Eilat and Jebel Ali. UAE free zones have been at the forefront of the UAE-Israel normalization agreement. The Israel Diamond Exchange and the Dubai Diamond Exchange, which is part of the DMCC free zone, signed an agreement in September 2020 to enhance cooperation in the diamond trade. As part of the agreement, both commercial entities plan to open branch offices in their counterpart’s location (“Dubai Diamond” 2020). The executive chairman of DMCC, Ahmed bin Sulayem, suggested that closer relations with Israel would enhance the triangular trade in precious stones among Mumbai, Dubai, and Israel (Sulayem 2020). During an online webinar in September 2020, the head of sales for JAFZA advised Israeli firms to “hurry up and get in touch … This is what we do in sales” (Al Kaabi 2020). Meanwhile, the Dubai Airport Free Zone Authority and Jebel Ali Free Zone each signed memorandums of understanding with the Federation of Israeli Chambers of Commerce in late September 2020 to support Israeli companies that intend to establish businesses in Dubai (“DAFZA signs,” 2020). An agreement in December 2020 between Abu Dhabi Ports and the Manufacturers Association of Israel signals additional opportunities for Israeli firms to operate in KIZAD, a subsidiary of Abu Dhabi Ports. 12 For a comparative case study in Asia, you can find studies on the “experimental form of territoriality” (Doucette and Lee 2015) in the Kaesong Industrial Zone between North Korea and South Korea.

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The wide array of international economic actors involved in free zones permits officials to reference a diversity of global interests. “DP World’s mission is to enable global trade – our work to build trade routes between the UAE, Israel and beyond will help our customers to do business in the region more easily and efficiently,” said Sultan Ahmed bin Sulayem, Chairman and CEO of DP World (“DP World, Dubai,” 2020). Ongoing free zone development and the realization of evolving free zone concepts—including transnational free zones spanning territory from three countries and virtual commercial cities—suggests new avenues of economic development and international partnerships. “I believe that this agreement is just the beginning of mutual and long collaboration and more agreements will follow between DP World and DoverTower across different industries,” said Shlomi Fogel, the chairman and owner of DoverTower Group (“DP World, Dubai,” 2020). In November 2020, Israeli media reported that Israeli Prime Minister Benjamin Netanyahu flew to Neom for a secret meeting with Crown Prince Mohammed bin Salman (“Israel’s Netanyahu” 2020). Although little appears to have materialized from the meeting, the selection of Neom for the meeting may suggest that the free zone in northwestern Saudi Arabia may serve as a focal point for cooperative efforts between the Saudi crown prince and Israeli counterparts. The Gulf free zone development model and affiliated services function as exportable commodities on a global scale. More than any other regional state or emirate, Dubai has demonstrated an ability to export its free zone model and expertise through various government-related entities. The emirate of Dubai established the World Free Zones Organization (World FZO) in 2014. Created under the auspices of the ruler, the Dubai-headquartered entity markets itself “the only truly international, multi-lateral organization for free zones” (World Free Zones Organization 2018). World FZO holds annual conferences that alternate between Dubai and international locations, which tend to reflect the geographies of the organization’s members. Other government-related entities in Dubai contain internationally oriented subsidiaries or departments that extend free zone development beyond Gulf borders, adding additional geographic layers to the commercialization of Gulf free zones. EZW, a subsidiary of Dubai World, provides global free zone consultancy, management, and operational services through Jafza International, a global free zone development company. Jafza International’s high-profile client relationships included a contract to manage the multibillion-dollar

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Djibouti Port and Free Zone, and EZW is heavily engaged in the development of the Misurata Free Zone in Libya (“EZW inks” 2007). These expansive investments into African and Asian ports and free zones partially reflect how Britain advanced its commercial and strategic interests in the Arabian littoral during the eighteenth and nineteenth centuries (Lawson 1983, 85). DP World, also a subsidiary of Dubai World, has an agreement with Somaliland to manage its port for 30 years in return for a 65% stake in the venture, and the Dubai-based company will build the new Berbera Free Zone to complement the port’s development (“Dubai’s DP World” 2017). DP World agreed to pay the government of Somaliland $5 million per year in addition to ten percent of the port’s revenues (“DP World to” 2017). In 2019, DP World signed agreements with the government of Kazakhstan to develop SEZs at the inland location of Khorgos and the Aktau port. Planners of the Khorgos Gateway promised that the industrial and logistics zone on the ChineseKazakh border would become a “New Dubai” (Hillman 2020, 40). Dubai-based development companies also oversee free zone development in Thailand, Senegal, Rwanda, the Democratic Republic of the Congo, Mozambique, Mali, and Algeria (“DP World reveals” 2017). The level of commercial influence afforded by free zone and port development is not always welcomed. DP World backed out of a deal to manage six American ports following pressure from the U.S. Congress. A by-product of the post-September 11 political climate, members of Congress expressed concern over the security implications of having strategic entry points to the United States managed by foreign companies (Sanger 2006).

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Gray, Matthew. Qatar: Politics and the Challenges of Development. London: Lynne Rienner Publishers, 2013. “HFZA Continues to Be a Strong Platform for Global Investors.” Gulf Today. November 2, 2020. https://www.gulftoday.ae/business/2020/11/02/hfzacontinues-to-be-a-strong--platform-for-global-investors. Hillman, Jonathan E. The Emperor’s New Road: China and the Project of the Century. New Haven: Yale University Press, 2020. “Huawei and Dubai South to Collaborate on Smart City Innovation.” Albawaba. Accessed July 12, 2016, https://www.albawaba.com/business/pr/huaweiand-dubai-south-collaborate-smart-city-innovation-861290. “Iraq Oil Minister: Establishment of Iraqi-Saudi Coordination Council a Significant Step.” Asharq Al Awsat. August 16, 2017. https://english.aawsat. com//home/article/1000266/iraq-oil-minister-establishment-iraqi-saudicoordination-council-significant “Israel’s Netanyahu Israel’s Netanyahu Flew to Saudi Arabia for Secret Meeting With MBS: Reports.” Time. November 23, 2020. https://time.com/591 4814/israel-benjamin-netanyahu-met-mohammed-bin-salman-saudi-arabia/. “Israel Will Import from UAE Free Zones, Netanyahu Says.” Reuters. August 17, 2020. https://www.reuters.com/article/uk-israel-emirates-trade/israelwill-import-from-uae-free-zones-netanyahu-says-idUSKCN25D1V2. “Jafza’s Trade with China Reaches AED 46.4 Billion.” albawaba. May 15, 2016. https://www.albawaba.com/business/pr/jafzas-trade-china-rea ches-aed-464-billion-840294. Jones, Jeremy and Nicholas Ridout. A History of Modern Oman. New York: Cambridge University Press, 2015. Kalin, Stephen. “Egypt Commits 1,000 sq km in South Sinai to Saudi MegaCity: Official.” Reuters. March 4, 2018. https://www.reuters.com/article/ us-saudi-egypt-investments/egypt-commits-1000-sq-km-in-south-sinai-tosaudi-mega-city-official-idUSKBN1GH02G. Khan, Taimur. “UAE and the Horn of Africa: A Tale of Two Ports.” The Arab Gulf States Institute in Washington. March 8, 2018. Accessed June 20, 2018. https://www.agsiw.org/uae-horn-africa-tale-two-ports/. “Kuwait, China Sign MoU on Finding Mechanism for Silk City, 5 islands.” Kuwait News Agency. November 18, 2018. https://www.kuna.net.kw/Art icleDetails.aspx?id=2760010&language=en. Lawson, Fred H. “International Regimes and Commercial Hegemony: Control of the Arabian Littoral, 1800–1905.” The International History Review 5.1 (1983): 84–112. Maceda, Cleofe. “Dubai’s DMCC Expects ‘New Wave’ of Chinese Businesses, Opens Shenzhen Office.” Zawya. November 9, 2020. https://www.zawya. com/mena/en/business/story/Dubais_DMCC_expects_new_wave_of_Chin ese_businesses_opens_Shenzhen_office-ZAWYA20201109091532/.

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CHAPTER 8

The Fraught Future of Free Zones in Gulf Arab States

Free zone development is not a static process but rather one that evolves alongside domestic, regional, and international factors. Following the collapse of oil prices in 2014–2015, regional governments continued to announce new free zone projects and initiatives. The incorporation of free zone characteristics into large-scale national projects and long-term development strategies in Gulf Arab states will ensure that free zones remain salient features of the region’s political economy over the coming decades. The multifaceted roles of existing and nascent free zones in the Gulf depend on global trade and investment flows, which experienced extraordinary shocks in 2020. As Gulf Arab governments push forward with messy and often nonlinear processes of economic diversification and reform, free zones demonstrate the persistence of rentier structures in Gulf economies. Free zones are ubiquitous in emirates and states with fewer hydrocarbon resources but have not yet functioned as genuine facilitators of economic diversification in polities with hydrocarbon abundance. New economic reforms—namely the easing of foreign ownership regulations, increasing local labor requirements, and imposing new taxes and fees—also threaten to diminish many of the traditional business incentives associated with free zones in the Gulf.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7_8

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Ongoing Free Zone Development As the regional hegemon of free zone development, the UAE continues to drive the region’s expanding free zone system. In July 2018, the Emirates News Agency announced that 44 free zones—either in operation or under implementation—existed across the country (“44 specialized” 2018). Sharjah alone introduced three new free zones into the regional system in 2016–2017, including Sharjah Media City and Sharjah Publishing City. The third free zone, Sharjah Research Technology and Innovation Park, opened its headquarters in December 2020. Ajman launched a media-focused free zone in 2018. Having entered a competitive media environment in the UAE, Ajman’s newest free zone removed security deposit requirements connected with work visas to attract clients (Bridge 2018). Abu Dhabi’s twofour54 media free zone plans to relocate to the 2.9 million-square-foot Yas Creative Hub in late 2021. The CEO of twofour54 described the new creativity hub as “the newest office of the future, rather than the last office of yesterday” (Oommen 2020). The emirate of Dubai is not at risk of being eclipsed as the UAE’s primary free zone developer. The January 2019 declaration of the emirate’s 50-year charter signaled a continued commitment to free zones and other forms of special economic zones as part of efforts to enhance the socioeconomic status of Dubai’s residents (Al Maktoum 2019). The second article of the charter describes the creation of a geo-economic map within the emirate as a precursor for increasing special economic zones. Dubai’s policymakers are not only committed to a free zone-led development model but intend to incorporate it within the emirate’s digital economy. Officials hope that the emirate’s e-commerce free zones— CommerCity and the EZDubai initiative in Dubai South—will capitalize on a growing e-commerce retail market. “Dubai CommerCity is a new push for a non-traditional economy based on Innovation and Smart transformation,” according to Shaykh Ahmed bin Saeed Al Maktoum (Dubai CommerCity 2019). Mergers and reconfigurations of free zone activities are likely over the coming years, but the system’s essential structure will remain intact. For example, in September 2020, Emaar Malls Group agreed to let Jebel Ali Free Zone handle all regulatory activities associated with the Gold and Diamond Park free zone (Godinho 2020). Beyond physical zones, Dubai’s 50-year charter includes a virtual commercial zone capable of hosting 100,000 companies. The government of Dubai subsequently started a Dubai Virtual Commercial City

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program (VCC) that “enables entrepreneurs and freelancers across the world to start a virtual company in the UAE … That means a person without a residence visa or permit can conduct a business in the UAE” (U.ae 2020). The VCC program resembles the Malaysian Digital Free Trade Zone, a joint venture between the Malaysian government and Alibaba. Malaysia’s digital free zone is considered an official BRI project (Chandran 2018). “China and its largest technology corporations have recognized the importance of digital commerce … so digital free trade zones are being created under the auspices of the Digital Silk Road to facilitate international e-commerce,” writes Clayton Cheney (2019). In addition to overlaps with Asian development strategies, the IsraelUAE normalization agreement has opened new geographic spheres of cooperation through free zones and in high-tech industries. The governments of Saudi Arabia and Oman do not oversee as many free zones as governments in the UAE, but both Crown Prince Mohammed bin Salman and Sultan Haitham bin Tariq appear committed to advancing long-term development initiatives with free zone components. Saudi Arabia’s high-profile announcement of Neom garnered international media attention, owing to its $500 billion estimated price tag and fantastical, high-tech elements recommended by global management consulting firms. According to the project’s website, “NEOM is a bold and audacious dream. It is a vision of what a New Future might look like” (Neom 2020). Global investors—especially those from Silicon Valley—have not yet flooded into Neom. However, a 2020 joint venture agreement among Neom, ACWA Power, and Air Products of the United States to build the largest green hydrogen and green ammonia in the world suggests “a new direction for Neom, as it moves away from being conceived as a city of robots and other grandiose ideas to being reimagined as a feasible project with serious developments” (Seznec and Mosis 2020). During a panel associated with the 2020 G-20 summit, Saudi Arabia’s Minister of Investment announced plans to create new special economic zones in 2021. The Ministry of Investment—the successor government entity to SAGIA, which oversaw the establishment of ECs across the country—will oversee these special economic zones. It remains to be seen whether these zones will be part of new, distinct development projects or rather an imposition of new regulatory regimes within existing business hubs. During his first year in power, Sultan Haitham bin Tariq established the Public Authority for Special Economic Zones and Free Zones (OPAZ)

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by royal decree and granted the authority control over Omani free zones at Duqm, Al Mazunah, Sohar, and Salalah. Articles five and six of the royal decree transferred all of the assets and employees of the special economic zone at Duqm over to the new authority (Public Authority for Special Economic Zones and Free Zones 2020). Oman’s government has invested substantial political and financial capital into the special economic zone at Duqm since its launch in 2011, and the government is unlikely to let the megaproject fall by the wayside. Those free zone projects still in the conceptual stages, however, may be put on hold or scaled down. For example, the announcement of Muscat Airport City in early 2020 occurred just before the global aviation industry encountered the profound disruptions related to the coronavirus. Tangible development progress on Kuwait’s Silk City and northern islands integrated economic zone megaproject over the short term is unlikely. The country’s parliament has been unable to pass a debt law in 2020 to cover the country’s expected fiscal deficit. Allocating billions of dollars for a long-term megaproject at a time when oil prices are staying lower for longer is not an urgent priority. In 2019, Kuwait’s government removed the free zone status of the KFTZ at the Shuwaikh port, but the Kuwait Direct Investment Promotion Authority is overseeing the development of nascent free zones in Al Abdali and Al Nuwaiseeb. Qatar’s relations with its Gulf Arab neighbors serve as a consequential variable in the Qatari free zone development process. A durable reconciliation between Qatar and the boycotting Arab states may pave the way for a more balanced distribution of Qatari free zone engagement with regional actors and states. The Al-Ula Declaration of January 2021 is a starting point for these reconciliatory measures. However, continued tensions will permit neutral Gulf Arab neighbors, like Kuwait and Oman, as well as other allies, such as Turkey, to enjoy an outsized share of economic activities associated with Qatari free zones. The small size of Bahrain’s economy leaves little room for substantial free zone proliferation over the coming years. Bahraini policymakers will also continue to confront the challenge of distinguishing free zone benefits from what investors might receive outside of these zones.

Economic Diversification & Reform Agendas Since Gulf Arab governments often marketed free zone initiatives as efforts to diversify their economies away from hydrocarbon resources

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and toward more sustainable industries, it is worthwhile to reflect upon how oil and gas dynamics impact the region’s free zone system. Two hydrocarbon-related variables—proven reserves and the price of hydrocarbon exports—have demonstrably influenced free zone development in the region. Resource-scarce territories in the Gulf tended to construct free zones earlier and more frequently, owing to a need to generate new rents, raise government revenue, and satisfy distributional responsibilities. Bahrain’s government experimented with a free trade area in its Salman Port in 1962, and Dubai opened Jebel Ali Free Zone, considered the region’s first full-fledged free zone, in 1985. The three northern emirates with the smallest proven hydrocarbon reserves in the UAE launched their first free zones in 1987 and 1988. By comparison, hydrocarbon-abundant territories tended to establish free zones later than their resource-scarce counterparts. The availability of hydrocarbon rents decreased the immediate need to raise government revenues and satisfy distributive responsibilities through free zones; however, many free zone activities depended directly or indirectly upon hydrocarbon wealth. Abu Dhabi launched its first free zone in 2006, and Qatar began free zone development in 2005. As smaller, hydrocarbonabundant territories, Abu Dhabi and Qatar demonstrated similar patterns in the timing of free zone development. In terms of scale, hydrocarbon-scarce territories developed more free zones. GCC territories with a combined total of 11 billion barrels of proven oil reserves in 2016 contained 41 operating free zones, whereas territories with nearly 500 billion barrels of proven oil reserves possessed only ten free zones. In 2016, Dubai contained 24 of the region’s 51 operating free zones, and the northern emirates contributed an additional ten free zones to the region’s total system. Oman’s five free zones represented the next largest sub-system outside of the UAE. Free zone proliferation remained more limited in hydrocarbon-abundant territories. Kuwait’s primary operating free zone at the Shuwaikh port was the centerpiece of a protracted legal dispute between a private developer and the government, and the area ultimately lost its free zone status in 2019. Saudi Arabia created two smaller-scale bonded and re-export zones in Jeddah and Dammam in the 1990s, and efforts to incorporate free zone elements as part of ECs in the early 2000s confronted delays and financial difficulties. The inverse correlation between free zone proliferation and proven hydrocarbon reserves suggests that commercialized rents are necessary in the absence of hydrocarbon rents.

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Analyzing free zone development in relation to proven hydrocarbon reserves yielded some unexpected results. For example, hydrocarbon scarcity did not always lead to an expansive free zone sector. Despite Bahrain’s relative resource scarcity and institutional propensity for free zone development, owing to the country’s creation of OBUs and exempt company status in the 1970s, the country did not vigorously pursue free zone development. Alternatively, substantial hydrocarbon resources did not guarantee a limited free zone sector. Abu Dhabi operated five free zones by 2020, and these well-funded entities competed with free zones in Dubai and the northern emirates. Moreover, the relatively early timing of free zone creation in Kuwait contrasted with later free zone development in other resource-abundant territories. Kuwait’s government formalized a free zone law in 1995, ensuring that the pace of free zone development began nearly a decade before that of Qatar and Abu Dhabi. Regional institutions, federal politics, and the relative autonomy of private sector actors help to explain these outlying cases. Free zone development took place alongside fluctuating oil and gas prices, which impacted perceptions surrounding the value of hydrocarbon rents in a given period. Theoretical links between rentierism and economic diversification should reveal greater government interest in free zone development during years of low oil and gas prices; however, free zone proliferation overwhelmingly occurred during years of rising oil prices and increasing global demand for energy. Between January 1999, when crude oil prices hit a low of $19.54, and June 2008, when they rose to $160.25 (Macrotrends 2017), 33 free zones were developed of the 51 that were established between 1985 and 2016. Only four free zones were developed during the preceding decade of sustained, low oil prices. This finding applied to both resource-scarce and resource-abundant territories. Of Dubai’s 24 free zones in 2016, 18 were created between 1999 and 2007. Qatar’s GDP growth surpassed 19% amid booming demand for liquified natural gas (LNG) in 2004 (The World Bank 2018), and the country developed its first two free zones in 2005. Qatar also announced project plans for three new SEZs in 2011, following GDP growth of nearly 20% in the previous year (ibid.). While the approximately 50% drop in oil prices in 2014–2015 renewed Saudi and Kuwaiti interest in free zones, concrete project plans were not formally developed until oil prices rebounded in 2017. Kuwaiti policymakers reaffirmed earlier commitments to the island free zone initiative during the Kuwait Investment Forum event in March 2018, revealing

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an absence of progress since the initial announcement in 2015 (“Kuwait to” 2015) and partially confirming an observer’s statement that free zone development in the country “is lip service more than anything else.”1 Similarly, Saudi Arabia formally incorporated free zone concepts into its national strategy as part of the Saudi Vision 2030 launch in April 2016, but policymakers announced intentions to explore free zone projects in coordination with Egypt, Jordan, Iraq, and Yemen later in 2017. Gulf Arab governments that heavily relied upon oil and gas revenues for state budgets—particularly Abu Dhabi, Saudi Arabia, and Bahrain— often incorporated free zones into economic diversification narratives. Yet, the minor economic contribution of free zones in these territories challenged the notion that free zones are—first and foremost—tools for economic diversification efforts. Abu Dhabi’s free zones registered a meager 0.002% of the UAE’s total free zone trade in 2015 (Federal Customs Authority 2015, 3). Saudi Arabian ECs only employed an estimated 1.1% of the country’s workforce in 2002, and the country’s non-oil revenue as a percentage of GDP actually decreased in the five years following the launch of the EC initiative. Bahraini free zones did little to initiate a transformation in the composition of state income, of which hydrocarbons constituted approximately 75% of government revenues for decades. Hydrocarbon dynamics remain relevant as an analytical lens but do not serve as comprehensive explanatory variables for the region’s free zone system. The analytical links between free zones and economic reform agendas in Gulf Arab states help to fill in some of these gaps. New foreign ownership regulations, labor force requirements, and taxation regimes can reduce the available rents associated with free zones. The argument by North et al. (2013, 7) that “[t]he appropriate counterfactual about eliminating rents is not a competitive market economy … but a society in disorder and violence,” predicts social conflict following such changes. Free zones permit foreign businesspeople, an important segment of the region’s business elite, to partner directly with governments, partially bypassing the historical role of local merchants as private sector intermediaries, agents, and sponsors. This process resembles the manner in which hydrocarbon resources reduced the commercial power of merchants vis-à-vis Gulf ruling families. Saudi Arabia’s SAGIA assumed 1 Interview 30, managing director of an economic zones consultancy and secretary general of a global EPZ Association, Remote call from Dubai, May 11, 2016.

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responsibility for foreign labor visas in ECs—new commercial hubs that some Saudi merchants believed would disrupt the country’s traditional business centers. Meanwhile, Omanis and Emiratis from the northern emirates often complained that foreign firms operating in free zones failed to adequately contribute to their host territories. A self-described Qatari opposition group attempted to foment hostility toward the Qatari emir by emphasizing similar local grievances surrounding foreign ownership issues relating to SEZs. Foreign ownership issues will remain contentious for the foreseeable future. Any changes to foreign ownership laws, like those initiated in the UAE in May 2018, in which the federal government paved the way for full foreign ownership in specific sectors, threaten the competitive advantage of free zones (“Free zones” 2018) and disproportionately affect territories that rely heavily on commercialized rents. In response to these reforms, the Dubai Free Zone Council announced plans to lower fees, further ease business processes, and introduce new e-commerce regulations (Debusmann 2018). As Gulf governments clarify the sectors impacted by new foreign ownership laws, free zone dynamics will play a critical role in the negotiations and ultimate shape of reforms. Other realms of domestic politics often constrained the absolute rentseeking potential of free zones. Workforce nationalization policies in free zones illustrate this dynamic. Gulf Arab territories with low ratios of national citizens to total residents—such as the UAE, Qatar, and Kuwait—had no restrictions on importing foreign labor into free zones. Territories with larger ratios of national citizens and higher unemployment rates—namely Oman, Bahrain, and Saudi Arabia—implemented workforce nationalization quotas in free zones and similar entities. Initial Omanization rates required in free zones ranged between ten and 25%, whereas onshore, private companies had to abide by rates closer to 35% for comparable industries. Saudi Arabia imposed a minor five percent Saudization requirement in ECs, and Bahrain offered five-year exemptions from Bahrainization requirements for free zone firms. Free zones in this latter group of GCC countries could not fully dissociate from labor market needs in the domestic economy, given the high political costs of local unemployment. Gulf free zone officials and firms must also navigate challenges posed by new tax regimes and subsidy reform. The most consequential tax for free zone officials and firms is VAT, which all regional states agreed to implement as part of a unified GCC agreement in 2016. The UAE,

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Saudi Arabia, and Bahrain implemented VAT between 2018 and 2019. The UAE government had to grapple with how to apply the tax across free zones in various emirates. Oman’s sultan approved the introduction of VAT beginning in April 2021, and Qatar and Kuwait are expected to implement VAT over the next couple of years. The implementation of other taxes, such as an income tax, also remains possible. Regional governments must determine whether free zones will function as tax havens for local and international businesses amid broader taxation reforms in the domestic economy. In December 2020, Oman’s government announced plans to phase out utility subsidies by 2025; electricity subsidies for non-residential consumers were removed in January 2020 (Al Balushi and Fattah 2020). The long-standing commercial exemptions, carve outs, and preferential treatment in free zones may too become harder for Gulf Arab governments to justify after an extraordinary year in 2020. The coronavirus pandemic and oil price rout have disrupted many of the Gulf’s essential sectors and battered government finances. Governments are pushing their private sectors to assume new responsibilities through both carrots and sticks. FDI into the region, which has largely been on a downward trend since 2008, is needed desperately. Regional governments are accelerating foreign ownership reforms to attract international firms. At the same time, governments must contend with rising unemployment rates among citizens. In the second quarter of 2020, total unemployment among Saudis reached a record high of 15.4% (General Authority for Statistics 2020, 1–3). The unemployment rate for Saudi women was 31.4%. In theory, stricter workforce nationalization requirements force private sector firms to hire more local workers. In practice, many firms just operate with fewer expatriate employees and do not hire additional local workers. Hiking rates for existing taxes and introducing new taxes are avenues for supplementing government revenue, but proceeds from taxes vary according to consumer demand and economic activity.

Rentierism Revisited By elucidating the relationship between perceptions of hydrocarbon wealth and free zone development, this book began where much of RST literature ended. Keshavarzian’s (2010) comparison of JAFZA in Dubai and Kish FTZ in Iran laid an important foundation for incorporating free zones into rentier literature, while Davidson (2005, 232) described

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a “new rentier” elite involved in free zone development across the UAE. Other revisionist accounts of RST focused on political opposition (Freer 2017; Moritz 2016) or successful SOEs (Hertog 2010) in GCC states, and there are plenty of other studies in this vein. However, the available literature on the subject lacks holistic mappings of rent generation and rent distribution in both hydrocarbon-scarce and hydrocarbon-abundant GCC territories. In contrast, this work examines free zone development across the entire region and illustrates how the region’s elite actors embedded themselves in these processes. The monograph thus expands, and in the process also updates, theoretical notions of the rentier state by revealing how local elites and international actors leverage free zones to extract commercialized rents and accomplish overt political and economic objectives. Rentier structures created by commercialized rents resemble those from hydrocarbon rents. Large, multi-tiered bureaucracies offer employment opportunities, and commercial subsidies provide services and industrial inputs at belowmarket rates. In this context, free zones and their adjoining economic institutions serve as pathways for building and maintaining political power in GCC polities. Free zones specifically reinforce prevailing power hierarchies in the GCC by enabling ruling elites to dole out patronage and privileges to royal family members and other allies, which correspondingly permits privileged insiders to engage in rent-seeking behavior. Free zones may have centralized control of foreign firms within stateowned entities, but state autonomy over foreign firms was not absolute. The nature of commercialized rents afforded regional and international actors leverage to negotiate with Gulf governments, and international political economy forces exerted additional influence on free zone development. Sub-national competition within countries, regional relations among GCC member states, and international interest in GCC territories presented both opportunities and obstacles for policymakers involved in free zone development. Moreover, global investor perceptions related to security and the ease of doing business in a given territory affected the feasibility of generating commercialized rents. Multinational firms exploited the right to set up headquarters in new business hubs much in the same manner that merchants in the pre-oil Gulf could relocate to territories with better business environments. The notion of commercialized rents has broad theoretical implications relating to the persistence of rentierism, the role of the private sector, and the durability of free zones in the GCC.

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The persistence of rentierism in Gulf Arab states and economic diversification away from hydrocarbons are not mutually exclusive processes. Diversifying Gulf economies away from oil and gas revenues will not usher in the end of rentierism. For example, the income from Dubai’s Jebel Ali Free Zone demonstrates that free zone revenue, at its essence, remains “a reward for ownership of all natural resources” (Beblawi and Luciani 1987, 49). Lease rental income comprised approximately 85% of the free zone’s revenue, and licensing and registration fees constituted the remaining 15% (DP World Limited 2014, 9). While Gulf free zones may rely on non-traditional rent sources, these entities perpetuate traditional rent-seeking structures. Free zones provide cushy bureaucratic roles, commercial exemptions, generous subsidies, and lucrative contracts for distribution to a wide array of social actors. The degree of political support afforded to these objectives depends on the need for commercialized rents and the distribution of political power in a given enforcement environment. Increased private sector activity associated with free zones does not necessarily translate into greater autonomy from the state. The vast majority of free zones in GCC countries are state-owned, public sector initiatives—making free zones unlikely vehicles for increasing private sector autonomy in the Gulf. Ruling family members or individuals appointed by rulers hold top bureaucratic posts in free zones, GCC governments retain substantial autonomy over setting free zone policies, and government councils often possess the final authority to approve free zone firm registrations. The careful balancing of international and local interests through state-owned free zones often indicates strategies to maximize commercialized rents rather than nurturing greater private sector autonomy in GCC economies. The limited attempts to encourage private ownership of free zones initiatives—such as Kuwait’s KFTZ, Oman’s SFZ, and Saudi Arabia’s ECs—resulted in legal conflicts or situations requiring the state to play larger financing roles than originally planned. Moreover, the commercial viability of many free zone enterprises in the Gulf depends upon the consumption of public resources—such as real estate, electricity, and industrial inputs—at below-market rates. For more than three decades, Gulf free zones have proved durable structural elements that can coexist alongside broader economic reform agendas. Despite the UAE’s early adoption of free zones and their widespread development, the country remained one of the last GCC member states to institute foreign ownership reforms, complicating the

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view of free zones as “catalysts for transition from a planned to a market economy” (Litwack and Qian 1998, 118). Expansive free zone development in Dubai and the northern emirates created a constituency of social actors that dually benefitted from strict sponsorship and commercial agency regulations, on the one hand, and employment opportunities in the public sector on the other hand. Free zones also continued to be established in countries that had previously implemented countrywide economic reforms rather than investing substantially in free zone development and the varied regulatory environments that accompany this process. Both Saudi Arabia and Kuwait, through their respective SAGIA and Kuwait Direct Investment Promotion Authority, substantially relaxed foreign ownership restrictions. Yet these reforms did not prevent each country from considering and launching ambitious free zone initiatives thereafter. Commercial regulations and legal frameworks can change rapidly in the Gulf owing to top-down decision-making processes, but underlying institutional arrangements tend to change at a slower pace.

Moving Beyond the Gulf This monograph puts forth a—as opposed to the—political economy of free zones in Gulf Arab states. If free zones adhered to the strict confines of economic theory and resulted solely from the logical decision-making of individuals with perfect knowledge, then the analysis would have been far easier and much less exciting to write. As much as this work is about free zones, it is also about the imperfect actors behind Gulf free zone development: governments, firms, and individuals. Readers may desire more than this one analytical study can offer. Governments want affirmation that their economic development strategies are sound. Free zone officials want to outperform their competitors. Investors want to know the best free zone in which to base their Gulf operations. This monograph does not attempt to affirm, rank, or prescribe. Rather, it explains Gulf free zones in a comprehensive and comprehensible manner, paying close attention to details and nuances. This study applies most directly to analyses of past, present, and prospective free zone development in Gulf Arab states. However, Gulf free zone engagement with international governments and firms provides an initial avenue to extend the findings of this work to other areas. Iranian and Omani free zone officials meet regularly, Egypt and Saudi Arabia are collaborating over Neom, and Turkey proposed a Qatari-funded free zone

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in Doha. In this context, Gulf free zones are not only useful comparative cases but also informative mechanisms for understanding the nature of international linkages in the Gulf, the MENA region, and other parts of the globe. The small but consequential differences, especially around foreign ownership and expatriate labor, between free zones in Gulf Arab states and commercial counterparts in other parts of the world make these entities so intriguing. Yet these differences should not discourage researchers from employing a similar analytical approach toward unpacking other free zone systems. First, it is crucial to determine the central characteristics of any free zone system. In Gulf Arab states, foreign ownership, expatriate labor, and preferential treatment concerning taxes and fees are the crucial defining components. Second, free zone creation and the trajectories of development must be traced and sequenced. This helps not only to identify the key actors involved but also to clarify what they stand to gain or lose from various development pathways. Third, free zone development must be assessed on the local, regional, and international levels. Where are these multilayered processes mutually reinforcing and when do they create tensions? The absence of clear-cut answers may be unsatisfying for researchers, but it is ultimately questions that keep the engine of analysis running in pursuit of new insights. Free zones are a central feature of the Gulf’s commercial landscape. These entities have left their mark not only on the political and professional trajectories of the region’s citizenry and residents but also on the Gulf region’s engagement with the global economy. Thus, the continued growth of free zones, their potential decline, or a combination of these two futures will be a consequential development with ramifications in the Gulf and beyond.

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Al Maktoum, Mohammed bin Rashid. “The Fifty-Year Charter.” The Dubai Executive Office. Updated October 23, 2019. https://u.ae/en/about-theuae/strategies-initiatives-and-awards/local-governments-strategies-and-plans/ the-fifty-year-charter. Akinci, Gokhan and James Crittle. Special Economic Zones: Performance, Lessons Learned, and Implications for Zone Development. Washington, DC: The World Bank Group, 2008. Beblawi, Hazem and Giacomo Luciani. The Rentier State. London: Croom Helm, 1987. Bridge, Sam. “Ajman’s New Media Free Zone Signs Deals with Indian, Egyptian Partners.” Arabian Business. July 16, 2018. Accessed July 18, 2018. https://www.arabianbusiness.com/media/400884-ajmans-new-mediafree-zone-signs-deals-with-indian-egyptian-partners. Chandran, Nyshka. “Alibaba’s ‘Digital Free Trade Zone’ Has Some Worried About China Links to Malaysia.” CNBC. February 12, 2018. https://www.cnbc.com/2018/02/12/concerns-over-alibaba-led-dig ital-free-trade-zone-in-malaysia.html. Cheney, Clayton. “China’s Digital Silk Road Could Decide the US-China Competition.” The Diplomat. July 17, 2019. https://thediplomat.com/ 2019/07/chinas-digital-silk-road-could-decide-the-us-china-competition/. Davidson, Christopher. The United Arab Emirates: A Study in Survival. Boulder: Lynne Rienner Publishers, 2005. Debusmann, Bernd Jr. “Dubai Free Zones Review Initiatives to Boost Foreign Investment.” Arabian Business. May 28, 2018. Accessed May 29, 2018. https://www.arabianbusiness.com/politics-economics/397650-dubaifree-zones-review-initiatives-to-boost-foreign-investment. DP World Limited. Proposed Acquisition of Economic Zones World FZE. Dubai: DP World, November 13, 2014. Accessed May 10, 2018. https://web.dpw orld.com/wp-content/uploads/2014/01/Project-Arsenal-Final-Circular-forStamping.pdf. Dubai CommerCity. “Welcome to Dubai CommerCity.” Updated in 2019. https://www.dubaicommercity.ae/. Federal Customs Authority. Emirates Customs: Free Zones. Issue 40. Abu Dhabi: Electronic Statistical Bulletin, 2015. Freer, Courtney. “Rentier Islamism in The Absence of Elections.” International Journal of Middle East Studies 49 (2017): 479–500. “Free Zones in the UAE ‘Will Confront Survival Challenges’ With the New Company Ownership Law.” Arabian Business. May 28, 2018. Accessed May 29, 2018. https://arabic.arabianbusiness.com/content/340920 [Arabic] . General Authority for Investment and Free Zones. “Investment Regimes: Free Zones.” GAFI . Accessed May 8, 2018. https://www.gafi.gov.eg/English/Sta rtaBusiness/InvestmentZones/Pages/FreeZones.aspx.

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General Authority for Statistics. “Labor Market Statistics Q2 2020.” GASTAT . Updated 2020. https://www.stats.gov.sa/sites/default/files/LM_2Q2020% 20%28Press%20release_EN%20%29.pdf. Godinho, Varun. “Jafza Agrees with Emaar Malls to Manage Business Activities of Gold & Diamond Park in Dubai.” Gulf Business. September 3, 2020. https://gulfbusiness.com/jafza-agrees-with-emaar-malls-to-managebusiness-activities-of-gold-diamond-park-in-dubai/. Hertog, Steffen. “Defying the Resource Curse: Explaining Successful StateOwned Enterprises in Rentier States.” World Politics 62:2 (2010): 261–301. Keshavarzian, Arang. “Geopolitics and the Genealogy of Free Trade Zones in the Persian Gulf.” Geopolitics 15.2 (2010): 263–289. “Kuwait to Launch Free Economic Zone.” Arab News. December 17, 2015. https://www.arabnews.com/economy/news/851986. Litwack, John M. and Yingyi Qian. “Balanced or Unbalanced Development: Special Economic Zones as Catalysts for Transition.” Journal of Comparative Economics 26 (1998): 117–141. Macrotrends. “Crude Oil Prices-70 Year Historic Chart.” Accessed September 5, 2017. https://www.macrotrends.net/1369/crude-oil-price-history-chart. Moritz, Jessie. Slick Operators: Revising Rentier State Theory for the Modern Arab States of the Gulf. D.Phil Thesis: The Australian National University (2016). Neom. “Mission.” Neom Website. Updated 2020. https://www.neom.com/enus/about/#contact-neom. North, Douglass, John Wallis, Barry Weingast, and Steven Webb. In the Shadow of Violence: Politics, Economics, and the Problems of Development. Cambridge UK: Cambridge University Press, 2013. Oommen, Anup. “Construction on Phase 1 of Yas Creative Hub 75% complete.” Construction Week. November 26, 2020. https://www.constructionweekon line.com/projects-and-tenders/269036-construction-on-phase-1-of-yas-cre ative-hub-75-complete Public Authority for Special Economic Zones and Free Zones. “HM Issues Royal Decree…” OPAZ . August 18, 2020. https://www.opaz.gov.om/en/ news/establishing-the-general-authority-for-special-economic-zones-and-freezones.shtml?csrt=3963250638143117874 Seznec, Jean Francois and Samer Mosis. “The ACWA Power–Air Products Joint Venture for Green Hydrogen: A New Saudi Energy Policy?” Atlantic Council. July 24, 2020. https://www.atlanticcouncil.org/blogs/energysou rce/the-acwa-power-air-products-joint-venture-for-green-hydrogen-a-newsaudi-energy-policy/. The World Bank. “GDP Growth (annual%).” The World Bank. Accessed April 16, 2018. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD. ZG?end=2016&locations=QA&start=2001&view=chart.

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U.ae. “Dubai Virtual Commercial City.” The United Arab Emirates’ Government Portal. Updated October 5, 2020. https://u.ae/en/information-andservices/business/dubai-virtual-commercial-city.

List of Free Zones

The following tables list the primary free zones discussed in this work. They are intended to provide a broad chronology and picture of free zone development in the Gulf but should not be treated as a static reflection of the region’s free zone system.

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7

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Established Free Zones

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The operational status of these free zones was confirmed by the author’s in-person fieldwork or verified remotely thereafter. In some cases, the date of establishment reflects an approximation based on when a given free zone moved beyond a purely conceptual stage.

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Nascent Free Zones or Those Under Construction

The status of Kuwait’s Silk City and integrated economic zone planned for the country’s northern islands remains somewhere between a project proposal and conceptual design stage. A driving force behind the project, Shaykh Nasser Sabah Al Ahmed, died in December 2020.

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Onshore Investment Parks, Commercial Conduits, and Other Zones

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These commercial entities are often included in online free zone lists; however, the author could not locate evidence that these entities offered a sufficient quantity of defining free zone services, such as exemptions related to foreign ownership requirements, workforce nationalization regulations, and customs duties or other fees. In some cases, these entities evolved into domestically-oriented zones.

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Closures and Unclear Operating Statuses

A site visit to the RAK Media FTZ confirmed that it had closed; however, the author could neither find concrete evidence that the Bahraini free zones had ceased operations nor that they continued to function. It is likely that companies near the old port and in Sitra retained

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exemptions from customs duties, while the original free zones have ceased to function as consolidated commercial entities. Mergers and Rebranding

Index

A Abu Dhabi Airport Free Zone (ADAFZ), 60, 173 Abu Dhabi Global Market (ADGM), 50, 62–64, 143, 148, 168, 180 Abu Dhabi National Oil Company (ADNOC), 60, 149 Abu Dhabi Ports Company, 61, 62, 66, 143, 148, 149, 172 Abu Dhabi Vision 2030, 58, 66, 67 ACWA Power, 229 Agency requirements, 31 Ahmed bin Jassim Al Thani, 145 Ahmed Bin Rashid Free Zone, 74, 140 Ahmed bin Saeed Al Maktoum, 137, 157, 228 Ajman Free Zone (AFZ), 72–74, 140, 141, 175, 184, 202, 206 Ajman Media City Free Zone, 73, 141 Aldar Properties, 60, 151 Al Emadi, 150, 152 Al Hidd, 25, 113, 116 Alibaba, 229

Alireza, 150, 151 Al Karaana, 118, 120, 182 Al Mazunah Free Zone, 91–93, 178, 213 Al Midfa, 149 Al Mubarak Khaldoun, 149 Mohamed Khalifa, 149, 152 Al Wadeeah, 211 Al Zawawi, 150 anchor clients, 62, 207, 209 Arar border crossing, 211 Asian Infrastructure Investment Bank, 203 Asyad, 188 B Bahrain International Investment Park (BIIP), 112–116, 178–180 Bahrain Investment Wharf (BIW), 115, 116 Bahrain Logistics Zone (BLZ), 112, 114, 115, 152, 179, 180 Baytik Industrial Oasis, 114, 178

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Mogielnicki, A Political Economy of Free Zones in Gulf Arab States, International Political Economy Series, https://doi.org/10.1007/978-3-030-71274-7

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INDEX

Belt and Road Initiative (BRI), 8, 199–204, 229 Berbera Free Zone, 218 Bin Sulayem Ahmed, 55, 137, 147, 157, 173, 216, 217 Sultan, 137, 147, 157 Bonded area, 55, 115, 173 Britain, 7, 9, 28, 30, 178, 218 C Capital accumulation circuit, 4, 6 China-UAE Industrial Capacity Cooperation Demonstration Zone, 201 Commercial Companies Law, 31, 33, 166, 167 Commercialized rents, 4, 12, 15, 16, 51, 52, 54, 56, 69, 77, 78, 108, 135, 146, 156, 231, 234, 236, 237 CommerCity, 56, 101, 137, 228 Comprehensive Iran Sanctions, Accountability and Divestment Act, 184 Coronavirus pandemic, 2, 95, 202, 215, 235 Creative City, 77, 78, 141, 169 Cultured pearls, 26 Customs duties, 16, 25, 26, 28, 37–39, 41, 96, 115, 179, 180, 252, 254 exemptions, 39 regulations, 39, 40, 179 D Dalian Port Company, 204 Dammam Bonded and Re-Export Zone (DBRZ), 100, 101 Deep-water ports, 9, 176 Designated Zone, 173

Dhofar, 90, 92, 93, 95, 98, 150, 178, 186, 209 Digital Silk Road, 200, 229 Djibouti International Free Trade Zone, 204, 205 Doraleh Container Terminal, 205 DP World, 147, 155, 167, 176, 200–202, 205, 206, 215–218 Du, 54, 167 Dubai’s 50-year charter, 17, 228 Dubai Airport Free Zone, 216 Dubai Creek, 51, 153 Dubai Diamond Exchange, 216 Dubai Free Zone Council, 56, 152, 234 Dubai Gold and Diamond Park, 147 Dubai Healthcare City (DHCC), 36, 138, 157, 170 Dubai Holding, 154, 155, 167 Dubai International Academic City (DIAC), 55 Dubai International Financial Centre (DIFC), 35, 50, 63, 80, 117, 137, 143, 147, 152, 155, 168, 180, 202 Dubai Internet City (DIC), 54, 55, 167 Dubai Knowledge Village, 55 Dubai Land Department (DLD), 174 Dubai Media City (DMC), 11, 55, 60, 136, 167–169 Dubai Multi Commodities Centre (DMCC), 35, 55, 80, 147, 154, 155, 157, 173, 185, 202, 216 Dubai Ports and Customs Authority, 40 Dubai Silicon Oasis, 57, 157, 206 Dubai South, 55, 56, 137, 202, 205, 228 Dubai South Business Park Free Zone, 205

INDEX

Dubai Technology Electronic Commerce and Media Free Zone (TECOM), 54, 55, 137 Dubai Technology Entrepreneurship Centre, 206 Dubai Textile City, 40, 54 Dubai Virtual Commercial City program (VCC), 229 Dubai World, 137, 138, 152, 155, 217, 218 Dubai World Trade Centre, 137 Duqm, 90, 92, 95, 185 refinery, 95 SEZ at, 40, 95, 97, 99, 119, 145, 152, 177, 178, 186, 203, 230 E Easa Saleh Al-Gurg, 53, 136 e-commerce, 2, 50, 56, 74, 99, 101, 137, 228, 229, 234 Economic cities (ECs), 99, 103–106, 144, 153, 229, 231, 233, 234, 237 Economic Development Board (EDB), 101, 109, 111, 112, 115 Economic diversification, 2, 17, 51, 58, 65–67, 89–91, 99, 104, 109, 119, 121, 122, 227, 230, 232, 233, 237 Economic Zones World (EZW), 54, 137, 155, 167, 168, 217, 218 Eilat Port, 216 Emaar Properties, 147 Embedded autonomy, 137, 143 Emirates Global Aluminium (EGA), 62, 207 Etisalat, 167 Exempt Companies Law, 109 Expatriate labor, 23, 28, 33–35, 79, 239 Expo 2021, 3, 202 EZDubai, 56, 206, 228

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F Federal Electricity and Water Authority (FEWA), 172 Federation of Israeli Chambers of Commerce, 216 FIFA World Cup, 3 5G, 205 Foreign ownership, 6, 16, 17, 23, 28, 30–33, 71, 72, 91, 92, 96, 100, 102–104, 110, 118, 174, 227, 233–235, 237–239, 252 Foreign-trade zones, 5, 11, 110, 143, 175, 205, 212 Free ports, 6, 7, 52 Free trade agreements, 5, 10, 40, 104, 112, 114 Fujairah Free Zone (FFZ), 77–80, 141, 171, 172, 177

G G-20 summit, 3, 229 GCC rift in 2017, 117, 118, 120, 165 General Treaty of 1820, 29 Golden Hala Trading Company, 178 Government revenues, 3, 28, 38, 39, 71, 106, 116, 231, 233 Greater Arab Free Trade Area (GAFTA), 5, 10, 104, 112 Gulf capital, 11, 175, 177 Gulf Chinese Trading Corporation, 202 Gulf Cooperation Council, 1, 3–6, 8–12, 14–17, 24, 31, 33, 35, 36, 42, 53, 59, 65, 69, 78, 80, 96, 99, 101–104, 107, 111, 112, 114–118, 120–122, 144, 165, 167, 171, 172, 179, 180, 182, 184, 185, 187, 206, 231, 234, 236, 237 creation of, 10

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customs union, 39, 40, 109, 176, 178 H Hamad bin Khalifa Al Thani, 145 Hamad bin Mohammed Al Sharqi, 77, 141 Hamdan bin Rashid Al Maktoum, 138 Hamriyah Free Zone (HFZ), 71, 139, 168, 170, 171, 185 Huawei, 205 Hub71, 64 Humaid bin Rashid Al Nuaimi, 140 Hutchison Port Holdings, 100 Hydrocarbon discoveries, 26, 39 rents, 26, 63, 169, 231, 232, 236 reserves, 27, 29, 51, 70, 231, 232 resources, 3, 14, 15, 26, 27, 37, 58, 64, 67, 70, 90, 99, 105, 123, 124, 200, 227, 230, 232, 233 sector, 52, 58, 66, 101, 156 I Indian Ocean, 28, 29, 177 India-UAE bridge initiative, 206 Industrial estates (IEs), 6, 90 Institutions, 8, 13, 15, 23–25, 27, 29–32, 42, 50, 55, 57, 63, 71, 72, 89, 91, 100, 105, 107, 120, 124, 133, 135, 144, 145, 151, 176, 232, 236 International Development Ireland (IDI), 113 International Humanitarian City (IHC), 138, 155 International Petroleum Investment Company of Abu Dhabi (IPIC), 177 Iran Iranian free zones, 11, 188

Iran Khodro Industrial Group, 186 Iraq, 7, 26, 121, 181, 210, 211, 233 Iraqi free zones, 8, 210 Islamic Development Bank, 211 Israel, 6, 17, 213, 215–217 J Jafza International, 217 Jazan Economic City (JEC), 103, 152 Jebel Ali, 9, 49, 52, 109, 136, 157, 166, 170, 180, 182, 201, 207, 216 Free Zone, 2, 11, 35, 41, 50–54, 64, 67, 70, 80, 92, 109, 136, 137, 147, 153, 155, 166–168, 171, 175, 177, 182, 183, 185, 201, 202, 206, 215, 216, 228, 231, 237 port, 6, 51, 53, 56, 182 Jebel Ali Free Zone Authority (JAFZA), 51, 52, 67, 77, 135 Jiangsu Provincial Overseas Cooperation and Investment Company, 201 K Khalifa Bin Salman Port (KBSP), 114 Khalifa bin Zayed Al Nahyan, 58, 143 Khalifa Fund, 69 Khalifa Industrial Zone Abu Dhabi (KIZAD), 2, 42, 50, 61, 62, 66–68, 143, 148, 149, 168, 171–173, 201, 206, 207, 216 Khalifa Port Free Trade Zone, 62, 143, 173 Khorgos Gateway, 218 King Abdullah Economic City (KAEC), 103, 144, 176 King Abdullah Financial District, 107, 180 Kish Free Trade Zone, 11

INDEX

Knowledge Economic City (KEC), 103 Knowledge Oasis Muscat (KOM), 91, 97–99 Kuwait Direct Investment Promotion Authority, 122, 230, 238 Kuwait Financial House, 114, 178 Kuwait Free Trade Zone (KFTZ), 121, 122, 152, 230, 237

L Labor quotas, 33

M Madayn, 91 Maktoum bin Rashid Al Maktoum, 137 Malaysian Digital Free Trade Zone, 229 Manateq, 118, 120, 145, 146, 150, 152, 182, 186 Maqbool bin Ali Sultan, 94, 150 Masdar City, 59, 60 Free Zone, 59, 60, 62, 68, 69 Merchants, 9, 10, 25, 26, 28, 30, 37, 38, 40, 50, 79, 150, 153, 176, 233, 234, 236 pearling, 25, 26 Mina Salman Free Trade Zone, 109, 110 port, 109 Mohammed Al Abbar, 147 Mohammed Al Gergawi, 147 Mohammed Al Zarooni, 56, 157 Mohammed bin Rashid Al Maktoum, 135, 137, 138 Mohammed bin Salman, 2, 17, 100, 105–108, 144, 153, 211, 217, 229

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Mohammed bin Zayed Al Nahyan, 143 Mubadala, 59, 62, 149, 167 Musandam Peninsula, 177 Muscat Airport City, 99, 230 N Nasser Sabah Al Ahmed, 123 National Iranian Oil Company, 185 National Real Estate Company (NREC), 121, 122, 152 Natural gas, 27, 65, 167, 186 Neom, 2, 17, 100, 107, 108, 144, 205, 214, 217, 229, 238 Netanyahu, Benjamin, 216, 217 New Institutional Economics, 24 O Offshore Banking Units (OBUs), 109–112, 232 Oil and gas sector, 25, 27, 28, 41, 60, 62, 63 Oman-China Friendship Association, 204 Oman Investment Fund, 186 Omar bin Suleiman, 147, 152 Omar Zawawi, 204 P Pearling, 8, 25, 26, 28, 148 Perpetual Maritime Truce of 1853, 29 Port of Fujairah, 77, 172 Port of Lingah, 39 Port Rashid, 51 Ports, Customs, and Free Zone Corporation (PCFC), 137, 147, 157 Prince Abdulaziz Bin Mousaed Economic City (PABMEC), 103, 144 Prince al-Waleed bin Talal, 153

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Public Authority for Special Economic Zones and Free Zones (OPAZ), 229, 230 Public Establishment for Industrial Estates (PEIE), 91, 213 Public Investment Fund, 108, 144, 205

Q Qatar Financial Centre (QFC), 117, 118, 145, 150, 180, 186, 187, 207, 208 Qatar Foundation, 117, 145 Qatar Free Zone Authority (QFZA), 120, 205, 214 Qatargas, 183 Qatar Media City, 120, 205 Qatar National Development Strategy, 119, 120 Qatar Science and Technology Park (QSTP), 117, 118, 145, 207, 208 Qeshm island, 188

R RAK Free Trade Zone (RAK FTZ), 75, 184 RAK Maritime City, 75, 76 RAK Media Free Zone, 75, 169, 170 Ras Al Khaimah Economic Zone (RAKEZ), 75, 140 Ras Al Khaimah Investment Authority (RAKIA), 75, 139, 171, 172 Ras Bufontas, 118, 120 Ras Markaz Crude Oil Park, 95, 177 Red Sea Project, 108 Rentierism, 12, 14, 15, 17, 24, 232, 235–237

Rentier State Theory (RST), 4, 12, 14, 235, 236 early RST literature, 13 Rents geopolitical rents, 14 regulatory rents, 14 Rent seeking, 13, 39, 61, 98, 111 Rent-seeking, 133 Rules of origin, 40, 180 Ruling bargain, 26, 27

S Salalah Free Zone (SFZ), 40, 92, 98, 145, 155, 176, 177, 207, 237 Salman bin Abdulaziz Al Saud, 152 Saqr Port and Free Zone, 76 Saud bin Rashid al Mu‘alla, 140 Saudi Arabia General Investment Authority (SAGIA), 100, 101, 103, 104, 106, 153, 229, 233, 238 Saudi Aramco, 29 Saudi Ports Authority, 100 Saudi Telecom Company, 205 Service provision, 25, 39, 41, 79 Shalamcheh border crossing, 211 Shannon Free Zone, 6, 7 Sharjah Airport International Free Zone (SAIF ZONE), 71, 73, 139, 184, 203 Sharjah Healthcare City, 170 Sharjah Media City (Shams), 72, 149, 170, 228 Sharjah Publishing City, 72, 139, 228 Sharjah Research Technology and Innovation Park, 72, 228 Shaykh Rashid bin Said Al Maktoum, 39 Shaykhs, 25

INDEX

Shaykh Saud bin Saqr Al Qassimi, 76 Shenzhen SEZ, 7 Shuwaikh Port, 121, 122, 230, 231 Silk City, 2, 123, 204, 230, 250 Sinai Peninsula, 107, 214 Skil, 94, 206 SoftBank, 108 Sohar, 90–95, 150, 183, 230 Sohar Industrial Port Company (SIPC), 94, 150, 206 Sohar Port and Freezone, 12, 94, 96, 97, 150, 185, 206, 207, 209 Sovereign wealth fund, 59, 107, 144, 167, 186 Special economic zones, 3, 5, 52, 74, 91, 117, 118, 120, 177, 188, 228, 229 Sponsorship, 31–33, 71, 104, 238 state-owned entities, 236 Strait of Hormuz, 9, 177 Subsidies, 26, 172, 236, 237 electricity, 235 utility, 235 Suez Canal Economic Zone (SCZone), 215 Sultan Bin Muhammad Al Qassimi, 139 Sultan Haitham bin Tariq, 99, 204, 229 Sultan Qaboos bin Said, 90, 145

T Tamim bin Hamad Al Thani, 145 Tax corporate income, 41, 118 exemptions, 6, 25, 97, 98, 118, 120, 146, 173, 183 value-added tax (VAT), 41, 42 Trade liberalization, 11, 14, 133, 134 Treaty of Friendship, Commerce, and Navigation, 30

261

Treaty of Jeddah, 30 Trucial States, 29 Tusdeer Bonded and Re-Export Zone, 100 Twofour54, 60, 61, 68, 148, 149, 151, 168, 169, 228

U Um Alhoul, 118–120 Umm Al Quwain Free Trade Zone (UAQ FTZ), 74, 140 Unemployment, 12, 36, 69, 90, 92–94, 234, 235

V Vale, 209 Vision 2030 Bahrain, 112 Qatar, 119 Saudi, 105–108, 205, 233

W Wanfang Oman Company, 203 Workforce nationalization Bahrainization, 34, 79, 113, 234 Emiratization, 34–37, 68, 78, 79 Kuwaitization, 34 Omanization, 79, 96–98, 234 Qatarization, 34, 183 Saudization, 33, 102, 104, 234 World Free Zones Organization, 157, 217 World Trade Organization (WTO), 10, 91, 102, 103, 106, 113, 116, 146

X Xenel, 100, 150, 151 Xi Jinping, 200

262

INDEX

Y Yas Creative Hub, 228 Yemen, 63, 91–93, 210–213, 233 Yusuf Bin Ahmed Kanoo Holdings Group, 152

Z ZonesCorp, 59, 91