The enterprise free zone is an Irish invention, first developed in 1959 by the entrepreneur Brendan O’Regan at Shannon Airport in the west of Ireland. He noted that the airport’s role as a refuelling stop was coming to an end as the range of aircraft increased, so had the idea of attracting businesses to a new cluster by offering tax-free special status.
Since then, the development of free zones has spread around the world. They have thrived in the Gulf region, helped by a combination of factors.
Gulf states have excellent transport infrastructure and are strategically positioned between east and west, and close to the Suez Canal. Free zones offer visa-free status for employees of the zones, ease of setting up and registering a company, and businesses are permitted to retain 100% foreign ownership. They have been used by multinational firms to establish manufacturing, logistics and storage centres for servicing markets in Europe, West Asia, the Middle East and North Africa.
But free zones are far more than convenient hubs for established multinational firms. They have become an integral feature of the Gulf economy, assisting diversification and economic development. The region is politically and economically stable, with good personal security. These features, combined with the low bureaucracy and tax of the free zones, combine to attract entrepreneurial individuals from many different countries. The unique location of the Gulf Co-operation Council (GCC) countries has meant that, for the past 30 years, it has been an island of stability in a sea of instability, which has encouraged entrepreneurs to move in to establish businesses for exports to their home country. The region has been attractive to entrepreneurs both from similar and different cultures, and has offered an attractive lifestyle and welcoming atmosphere, accepting of different backgrounds. It is easy to integrate, and you will not be seen as a stranger because of your colour, race or religion.
In the past year, the upheaval caused by the conflict in Ukraine, which has had repercussions throughout areas of Russian influence such as central Asia, as well as in Europe, has further added to the status of the Gulf’s free zones as a safe haven for entrepreneurial individuals.
The free zones have even attracted some entrepreneurs from India, which does have economic and political stability and established tech clusters, such are the attractions.
In Qatar, the Government set up the Qatari Free Zones Authority in 2018 as a regulatory body and to attract investors. Three sectors are prioritised: Logistics, downstream chemicals, and science and technology. Google Cloud, for example, has set up a centre in Qatar free zone.
Knowledge transfer is part of the appeal of establishing the zones. A strategic goal is to increase total economic activity within the country, and including hi-tech clusters helps ensure that the spill-over effects include activities with high added value. Most employees in a free zone are expats, but local citizens are also hired. Free zones have ultra-high digital connectivity, which can be extended to the rest of the economy. Multinational firms within the zone will often use local suppliers. An obvious objective for free zones is to attract large multinational companies to establish a manufacturing, administrative or logistics centre in a free zone. In Qatar, more could be done to attract startup and small and medium-sized (SME) companies. Cumulatively, these can add significantly to economic development and diversification. Moreover, because an expat can own 100% of a free zone enterprise, unlike in the rest of the country, this can be a way in which entrepreneurial expats are incentivised to invest more in Qatar, rather than in their home country.
Free zones are not necessarily geographically separate from mainstream society. In Qatar, they are socially integrated, based in offices alongside others in the mainstream economy. The expats employed by the free zones typically live in Doha and spend money there. As the global economy emerges from the Covid pandemic, free zones, by encouraging trade and diversifying economies, have a key role in economic development in the Gulf.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.