Libmonster ID: UK-1496


Candidate of Economic Sciences

MGIMO-University of the Ministry of Foreign Affairs of Russia


Candidate of Economic Sciences

National Research University "Higher School of Economics"

Keywords: special economic zones, special economic zones, GCC, Saudi Arabia, United Arab Emirates

Countries of the Gulf Cooperation Council (GCC)* develop and implement economic diversification strategies to reduce dependence on oil exports. An important place in these programs is assigned to special economic zones( SEZs), i.e. territories that have a legal and administrative regime that differs from the regime in the main territory of a given state.

Due to the large functional and geographical diversity of special economic zones, there is no single unified typology. According to the classification of experts of the World Bank (WB), SEZs are divided into free economic zones( FEZs), export-production zones, hybrid zones (including the features of the first two types of zones), port, urban, and export-production zones for a single enterprise. Supplement to this classification - a list of types of specialized zones, which include: technology or science parks, industrial zones, financial service zones, areas with specialization in software and the Internet, airport, tourist zones, logistics parks or warehouses 1. There are a number of shortcomings in the WB classification - industrial zones are not singled out separately, since they may be wider than state zones.

In some countries, depending on their economic priorities, preference is given to different types of SEZs. So, in Russia, the law "On Special Economic Zones" lists four types: industrial and production, technical and innovation, tourist and recreational and port 2. The GCC countries have developed free economic zones, industrial zones and districts, so-called economic cities, specialized zones, and financial centers.

SEZs are created to encourage countries to participate in the international division of labor, to ensure the accelerated development of certain areas or industries. Special economic zones are tools that allow differentiating economic policy, since their creation does not mean changing the economic regime throughout the country, but allows you to provide benefits in certain priority areas.

Analogs of special economic zones existed in the Middle Ages in the form of free ports. Pioneers among modern SEZs are the Irish Shannon, established in 1959.3, offshore companies in Liechtenstein, the Bahamas and Bermuda (1926-1935)4, and North American zones created in the United States in accordance with the law adopted in 1934.5

Until the 1970s, such zones were concentrated in industrialized countries, then they were created by developing countries.

Currently, 73% of the world's countries have SEZS6. To the middle

* The GCC is an integration group created in 1981, which includes: Saudi Arabia, the United Arab Emirates, Qatar, Kuwait,Oman ,and Bahrain.

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In 1986, there were 176 SEZs in the world, and by 2015 their number had increased to 4,300. 7 According to the International Labour Organization (ILO), at least 66 million people work in them (including 40 million in Chinese SEZs).8.

The top three world leaders in terms of the number of SEZs include countries that differ in socio-economic policies, such as the United States (266 zones), China (190) and Indonesia (115)9, which indicates that the leading countries in terms of GDP actively use the SEZ tool as one of the economic policy measures.


Trends in the development of special economic zones in the countries of the" Arab six " correspond to global processes. The creation of such areas in the Arabian Peninsula has intensified since the mid-1990s.

In the 1970s and 1980s, the Arabian monarchies used rather strict protectionist measures to ensure the development of economic sectors outside the oil and gas complex. The strictest restrictions applied to the opening of enterprises with foreign participation: it was required to have a local partner with an ownership share of at least 51%.

Since the late 1980s and early 1990s, there have been significant changes in the approach of the Arabian monarchies to foreign economic policy: these states have largely liberalized their foreign economic regimes, considering that such a strategy will allow for faster modernization of the economy. The private sector is given key importance in economic development strategies (although it should be noted that at the moment it is not able to become the sole driver of economic growth), as well as attracting foreign technology and capital. At the same time, it should be borne in mind that in these countries about 60% of GDP is generated in the public sector.10

The special zone instrument is highly sought-after and relevant for the GCC countries. It allows combining, on the one hand, full liberalization in a number of regions and sectors of the economy. In different Arabian monarchies, priority is given to the development of different types of zones, depending on the priorities of economic policy. The United Arab Emirates (UAE) has achieved the greatest success in the development of free zones. The approach of Saudi Arabia and Oman to the creation of urban zones - so-called industrial cities and districts-is interesting. In addition, various specialized zones are being created in the GCC. In total, there are more than 70 SEZs in the region.

There are 41 special economic zones in the UAE. Of these, there are 28 free economic zones (12 general and 16 sectoral), 1 industrial, 12 specialized (4 science parks, 4 zones in the media and film industry, 2 financial centers, 1 ecological zone, 1 humanitarian zone). Oman has 4 FEZs, 8 industrial and 2 specialized zones. Qatar has 1 free economic zone, 4 industrial zones and 1 financial center. Kuwait has 1 free economic zone, Bahrain has 3 free economic zones and 1 financial center. Saudi Arabia is creating so-called industrial cities; in addition, Riyadh has a financial center.


Most of the SEZs of the GCC countries operate in the form of free economic zones. The Kyoto International Convention (1973) provides the following definition of a SEZ: it is "...part of the country's territory where goods are considered as objects removed from the national customs territory, and therefore are not subject to generally accepted customs control and tax regulation " 11. From these positions, FEZs can be used as one of the tools to stimulate exports, including rationalizing its structure in order to increase the share of non-primary industries 12.

The leader in the creation of free economic zones in the countries of the "Arab Six" is the UAE. The FEZ regime here provides foreign investors with the right to own 100% of the company's shares. In addition, residents of the zones are fully exempt from export and import duties, have the right to export 100% of capital and profit, do not pay corporate tax for 15 years with the possibility of extending this period for another 15 years, and do not pay taxes on personal income.

At a time when tax revenues to the budget from oil and gas activities are several times higher than the amount of any other income, the country provides a preferential tax regime in the so - called non-oil sector in order to stimulate business development.

Not only in free economic zones, but also on the OS-

page 29

Map. Special economic zones of Dubai.


The following taxes are not levied on the territory of the United Arab Emirates: personal income tax, realized capital gains tax, value added tax, corporate income tax. By law, the country has established a progressive scale of taxation for companies, according to which, starting with income from 1 million dirhams ($272 thousand), a tax of 10% of income is paid, and for income above 5 million dirhams ($1.36 million), the tax is 55%. However, in practice, most sectors of the economy, except for oil companies and branches of foreign banks, have exceptions, and de facto this income tax is not paid 13.

With the development of free economic zones, the UAE is forced to compete with other countries in terms of the quality of management, the cost of doing business, and the benefits provided. The fact that thousands of companies are registered in the largest free economic zones of the UAE shows that the country is able to withstand this competition. This is also indirectly confirmed by various ratings. For example, in the World Bank's Doing Business ranking, the UAE ranks 31st, 14 with no countries from Asia or Latin America ahead of them.

The first free economic zone in the Arabian monarchies, Jebel Ali, was established in the Emirate of Dubai in 1985. Its development was successful and gave an impetus to other FEZs. Currently, 7.3 thousand companies are registered in Jebel Ali 15. The foreign trade turnover of this FEZ is $69 billion, 16 which is a high figure. Jebel Ali accounts for 20% of all foreign direct investment (FDI) directed to the UAE as a whole; more than half of exports from the Emirate of Dubai also come from Jebel Ali.17

In 1995, the Sharjah International Airport Free Zone was established in the Emirate of Sharjah. Now in it

page 30

more than 6.1 thousand companies from 185 countries are registered 18.

As in the case of Dubai's Jebel Ali, MSZASH is a real tool that has ensured the diversification of the economy of the Emirate of Sharjah. The following data can be used as proof. Sharjah is the third largest emirate in the United Arab Emirates by GDP, with one-third of the UAE's industrial output coming from Sharjah.19

In 2000, the Ras Al Khaimah free Trade zone was opened, which currently has the largest number of companies registered in comparison with other zones of the UAE - 8.6 thousand.20 Its structure includes industrial, business, technological and academic districts. An important factor is its proximity to Dubai. At the same time, Ras Al Khaimah aims to stay ahead of Dubai zones both in terms of costs and quality of services. Its main advantage is that the cost of living and doing business in Ras Al Khaimah is lower than in Dubai.

In addition to the zones listed above, 16 specialized industry zones created in Dubai are worth noting. Just listing the names of these districts gives an idea of the variety of areas in which they operate. Dubai Automobile Zone, Dubai Auto Parts Zone, Dubai Construction Materials Zone, Dubai Carpet Free Zone, Dubai Textile City, Dubai Flower Center, Dubai Gold and Diamond Park, etc. These zones specialize in re-export operations and attract thousands of companies and entrepreneurs. Dubai, an emirate with an area of only 1.1 thousand square kilometers, has about 30 special economic zones (see map).

Although the authorities of the United Arab Emirates are making efforts to place foreign production facilities on the territory of the state, re-export continues to be the main activity of their FEZs. At the same time, the UAE has made significant progress in this area.

According to the State Statistics Center of the UAE, in 2014, total exports from the country amounted to $292 billion, including re-exports of $66 billion. (23% of total exports), non-oil exports - $36 billion 21 (12% of exports). Such a share of re-exports is a high indicator for the state, one of the world's largest exporters of raw materials. The GCC countries other than Oman - Saudi Arabia, Bahrain, Kuwait and Qatar - account for 80-90% of their exports from commodities.22 Thus, thanks to the development of FEZs, the UAE managed to partially diversify its exports.


In other Arabian monarchies, except for the UAE, free economic zones have been created in Bahrain, Oman and Kuwait. In them, FEZs do not play an important role in economic development, but this role is likely to increase.

Bahrain's economy is the most diversified among the GCC countries. For a number of objective reasons, it is forced to rely on non-resource sectors in its development. Bahrain has only three free economic zones, which is explained by the small size of its territory.

In order to encourage the country's participation in international export-import operations, a free economic zone regime has been established at the main airport and main seaport of the country. The Bahrain Logistics Zone was established in 2008 near the port of Khalifa bin Salman and covers 1 square kilometer (with a total area of 780 square kilometers in Bahrain). The free economic zone at Bahrain International Airport is an infrastructure for cargo storage and transshipment, as well as offices and traditional airport duty-free areas for retail trade. The third zone - the Bahrain International Investment Park-is located 5 km from the airport and covers 2.5 square kilometers. Thus, free economic zones occupy 0.5% of the country's territory.

Re-export in Bahrain's foreign trade plays an even more important role than in the UAE, but it is primarily associated not with the use of FEZs, but with the re-export of petroleum products. Bahrain's oil production is only 42,000 barrels per day, but the country re-exports tens of thousands of barrels coming from Saudi Arabia.23 As a result, oil and petroleum products account for 51% of Bahrain's exports. Another 9.1% is accounted for by mechanical engineering products, a significant part of which is also not net exports, but re-exports 24. Bahrain plans to build liquefaction facilities for liquefied natural gas (LNG) to be re-exported via pipelines to neighboring countries.

There are 4 special economic zones in Oman. Along with free economic zones, the country's authorities are developing so-called industrial zones

page 31

(they are described in the second part of the article). The main purpose of creating an Omani SEZ is to attract large foreign companies to diversify the structure of the economy.

Accelerated modernization and economic diversification are vital for Oman. After all, this country, unlike most other GCC members, faces the problem of depletion of oil and gas fields more acutely. While maintaining current oil production levels, Oman's proven reserves will last only until 2029.28 In 2012, according to the country's Central Bank, half of the GDP structure was accounted for by oil and gas production, 16% - by industrial production, 33% - by services, and 1% - by agriculture.26

Heavy industry and tourism are among the priority areas of the country's economic development. The role of Oman's free economic zones in the country's economy is now relatively small compared to the Arab leader in this area - the United Arab Emirates. However, the authorities ' approach to the development of special economic regions promises that the importance of SEZs will increase over time.

Sohar Free Economic Zone is located near the city of the same name in the north of the country. Its shareholders are the Sultanate of Oman and the Port of Rotterdam, whose shares are distributed in the proportion of 1 to 1. The area of this FEZ is 4.5 square kilometers. There are few foreign companies registered in Sohar - only 26. However, the volume of accumulated investments is quite large - $21 billion 27.

The zone's companies belong to the following industries: mechanical engineering, metallurgy, mineral resource processing, and logistics. Agreements have been signed that will allow collecting up to 200 thousand tons per year in Sohar. transport and process up to 180,000 barrels of oil per day 28.

A major ambitious project has been the development of a free economic zone in the city of Duqm, located in a relatively sparsely populated area in the central coastal part of Oman, since February 2013. To stimulate the development of this region, the authorities created a FEZ regime on an area of 1,750 square meters. at the same time, 365 sq. km have already been contracted by various companies. This zone is the largest by area in the Middle East. The length of the SEZ Dukm coastline exceeds 70 km. The zone includes a seaport and airport, industrial and tourist areas, a logistics center, a fishing harbor, the city of Dukm itself, as well as the" educational " district 29.

A "combined" free port and airport zone 30 is being created near the port of Salalah in Oman. It is planned that over time, the SEZ of Salalah will merge with the industrial zone of Raisut.

In 1999, a logistics free zone was established on the border with Yemen in Mazouna to facilitate cargo turnover between the two countries. Its special feature and main advantage is the possibility of attracting cheap labor from Yemen on a visa-free basis. However, this zone is landlocked, so the scale of operations here is lower than in other special areas of Oman.

Kuwait has only one free economic zone - the Kuwait Free Trade Zone. It was established in 1999 on an area of 50 square kilometers. The zone includes the sea port of Shuweih.

Traditionally, the country's economy is overly regulated, so within a few years of the establishment of the FEZ, 90% of its vast territory was contracted, mainly by Kuwaiti companies. The country is one of the world's top five oil producers, with a population of just 3.1 million, including foreign workers. The state's gold and foreign exchange reserves accumulated in the sovereign investment Fund of Kuwait amount to about $600 billion.31 Therefore, the state does not have many incentives for economic diversification, Kuwait does not pursue an active policy in this direction and is not interested in the development of FEZs. The investment regime in the Kuwait Free Trade Area is less liberal than in the FEZs of other countries in the region.

To date, no free economic zones have been created in Qatar - only four industrial zones are functioning. However, the government has announced plans to create several free economic zones. At the beginning of 2016, the Cabinet of Ministers considered a draft law on the creation of a state-owned company "Manatek", which should manage the infrastructure of the zones; at the same time, contracts for $459 million have already been signed. for the construction of industrial facilities in the future Qatar Economic Zone 32.

This free economic zone will be located near Hamada International Airport, which is currently under construction, and will focus on research and manufacturing activities.

page 32

industry. Zone II is being created south of the existing Doha Industrial Zone. Zone III will be located next to the new port in Musaid 33.

There are also no free economic zones in Saudi Arabia, but due to the fact that the new leadership of the Kingdom announced plans to liberalize the economy, there is a certain probability of the emergence of free economic zones.

Thus, three GCC countries out of six-the United Arab Emirates, Bahrain and Oman - pay significant attention to the development of FEZs and have achieved tangible positive results. In the future, the role of special economic zones in the economy of these countries will undoubtedly grow, not only due to the export of raw materials, but also due to large-scale re-export operations.

(The ending follows)

1 Special Economic Zones. The World Bank, Washington. 2008 -,%20Lessons%2 0Learned%20and%20Implications%20for%20Zone%20Development.pdf

2 Federal Law No. 116-FZ of July 22, 2005 "On Special Economic Zones in the Russian Federation".

3 Not so special // The Economist. 04.04.2015 -http://www.economist.eom/news/leaders/21647615-world-awash-free-trade-zones-and-their- offshoots-many-are-not-worth-effort-not

Platonova I. N., Lzhentsev N. N., Kostyunina G. M., Buglai V. B. 4 International Economic relations in the era of globalization, Moscow, MGIMO, 2012, p. 254. (Platonova I. N., Liventsev N. N., Kostyunina G. M., Buglai V. B. 2012. International economic relations in the globalization age. M.) (in Russian)

5. Andrianov V. D. 5 Special economic zones in the world economy, Moscow, MSU, 1998, p. 3. (Andrianov V. D. 1998. Special economic zones in the world economy. M.) (in Russian)

6 Not so special...

7 Ibidem.

8 Trade Union Manual on Export Processing Zones. International Labour Organization. Geneva. 2014, p. III, 4 -

Platonova I. N. et al 9 Edict. soch., p. 255.

10 Calculations of authors by: Hertog S. The private sector and reform in the Gulf Cooperation Council. London, LSE. 2013, p. 8.

11 International convention on the simplification and harmonization of Customs procedures. Kyoto. 18.05.1973 -

Biryukova O. V. 12 Trade and political tools in international trade in services. Moscow, Ekonomika. 2013, p. 254. (Biryukova O. V. 2013. Trade-political tools in international services trade. M.) (in Russian)

13 Taxation in the United Arab Emirates. Dubai, Galadari and Associates. 2015, p. 2 -

14 Doing Business 2016. The World Bank. Washington. 2016, p. 6 - http://www.doingbusiness.Org/~/media/GIAWB/Doing%20Business/Documents/Annual-Rep orts/English/DB16-Chapters/DB16-Mini-Book.pdf

Bin Hareb A. 15 Sights set on a brighter future // The Zone. 2014. Issue 38 - 2015).

16 Our History // -

17 A guide to Middle East Economic Zones 2013. Special Report // MEED. London. 2013, p. 6.

18 Sharjah Airport International Free Zone Authority -

Khawaja M. 19 Sharjah most diversified economy in the region - report // Arabian Gazette. 02.05.2012 -

20 Ras al-Khaima Free Trade Zone -

21 Tahrir tahliliy. Ihsaat al-tijara al-kharijiyya li dawlat al-emirate al-muttahida hilal aam 2014. Abu Dhabi. Markaz ouataniyeh li ihsaa. 2015, pp. 6, 8, 9. (Analytical report. UAE foreign trade statistics in 2014 Abu Dhabi. State Statistical Center, 2015, pp. 6, 8, 9 -

Biryukov E. S. 22 Mechanisms of structural adjustment of the economy in the Gulf countries: present and future //Asia and Africa today. 2015, N 1 (690), p. 39. (Biryukov E. S. 2015. Mechanisms of economical restructuring in the Gulf states: present and future // Aziya i Afrika segodnya. N 1) (in Russian)

Sullivan P. 23 Bahrain: Economic Cooperation and Diversification in Challenging Times // World Policy - ion-challenging-times


25 BP Statistical Review of World Energy 2015. London, BP. 2015, p. 6.

26 Oman economic zones. Supplement // MEED. London. 21.08.2013, p. 4.

27 Overview. Sohar Port/Free Zone -

28 Ibidem.

29 Profile. Duqm -

30 Oman economic zones...

Biryukov E. S. 31 Investing funds of sovereign investment funds: the experience of the countries of the Arabian Peninsula and recommendations for Russia // Economics and entrepreneurship. 2015. N 6-2 (59-2), p. 70. (Biryukov E. S. 2015. Investment of sovereign wealth funds: experience of the Arabian Peninsula states and recommendations for Russia // Ekonomika i predprinimatelstvo. N 6 - 2) (in Russian)

32 Qatar awards $459m contract to build first economic zone // - 467.html

33 Special Economic Zones to help Qatar diversify economy // Gulf Times. 13.02.2016 -



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