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Economy 4.0

Separate and unequal economies in the Arab world

David Brancaccio Jun 23, 2011
Economy 4.0

Separate and unequal economies in the Arab world

David Brancaccio Jun 23, 2011

Kai Ryssdal: Egypt took a not-insubstantial step toward getting its economy back on track yesterday. The transitional government in Cairo has passed a budget for the 2011 fiscal year, which starts at the end of this month. Our series, Economy 4.0, is an ongoing study in getting economies back on track and in how to get the global financial system to work better for more people. In Dubai, in the United Arab Emirates, they’re still trying to figure out how to match commerce with economic opportunity.

Our special correspondent David Brancaccio reports from Dubai.

David Brancaccio: In the UAE, it’s one country, two sets of rules for business. It’s like air travel: there’s the regular treatment or — if you meet the criteria — short lines and free drinks. Let’s start with the regular business treatment.

Animal sound

Guess what animal: sheep with a head cold? Answer: camel. Four thousand of ’em in a state-of-the art dairy in the desert outside the city of Dubai. Camelicious does camel milk in plain, date, saffron and more. When German-born Ulrich Wernery became convinced of the positive health effects of camel milk, he knew he needed to bring in a UAE citizen to get the job done.

Ulrich Wernery: I was with him on a flight to U.K. so he could not escape. So I told him everything what I knew about camel milk and said “Sir, let’s do a dairy!”

Wernery didn’t mess around: He was pitching “The Boss,” the ruler of Dubai, Sheik Mohammed bin Rashid Al Maktoum. In most of the UAE, foreigners with a business idea are required by law to take on a UAE partner, who will own at least 51 percent of the company. Even if it’s just a branch office, a foreign business still needs a UAE sponsor.

Siju Chan of Ex-Pat Assist can set it up.

Siju Chan: It’s just like a real estate business, I mean you’re getting people together and make sure that everyone’s happy.

Brancaccio: You know what you are? You’re a broker, but you’re also like a matchmaker.

Chan: That’s right. A matchmaker really does the job.

In the standard issue Emirates business climate, foreigners who want access to the inside of this oil-rich market have to share the bounty by playing ball with locals. But there is another business ecosystem for businesses serving foreign markets from the UAE…

Axis of Evil Comedy Tour

…where this man moved his business after 15 years producing TV in London.

Jamil Abu-Wardeh: And my little “Cross Over The Bridge” I’ve used in the Middle East is stand-up comedy — putting that on T.V.

Brancaccio: How’s that working?

Abu-Wardeh: It’s mushrooming, um, I used the word “exploding” in the past, but that’s not exactly the best connotation in the Middle East.

Did he really say that out loud? Jamil Abu-Wardeh set up his production company in one of the UAE’s many so-called “free zones,” in one designed especially for media companies. He pays flat fees to do business here, but there are no taxes, even if big profits roll in.

Abu-Wardeh: If you’re gonna be making a million, you’re not gonna be taxed on a million.

There are also free-trade zones for Internet companies, another for factories, product distribution centers and more. And businesses from all over the world are relocating to this almost libertarian paradise with its soft-touch government oversight and no requirement for UAE ownership. But what does the local emirate or the country as a whole get out of it since there are effectively no import, export, personal, or corporate taxes?

Lots of spinoffs, says Jamal Al Sharif, who runs a free zone called Dubai Media City.

Jamal Al Sharif: You know, you’re gonna be using the airlines, you’re gonna be using the hotels, your partners are gonna be using the accommodations. So that, that helps the growth of the economy of Dubai and that’s how Dubai government actually looks at it.

They also help draw expertise to the country, be it how to run an Internet company or how to make a situation comedy.

Omar Sawaya: They’re a way to accelerate development, but ultimately successful free zones need to link back to the real economy.

Omar Sawaya with the consulting firm A.T. Kearny in Dubai, says free zones from the UAE to Egypt and beyond should be seen as a stage in a progression.

Sawaya: So that over time, the notion of free zone disappears and it becomes really a part of the overall economy of a country.

It’s been a year when so many people around the Middle East are demanding the right to participate in their countries, politically and economically. The Arab Spring is a reminder that sticking so much of the economic fun into special zones for foreigners may not be a sustainable, long-term plan.

In Dubai, I’m David Brancaccio for Marketplace.

Ryssdal: David’s got a blog, and you can hear all the other stories in our series, Economy 4.0.

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