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2021 | Book

A Political Economy of Free Zones in Gulf Arab States

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About this book

This is the first book-length empirical study of free zones (FZs) in Gulf Cooperation Council (GCC) countries. The volume systematically illustrates the development processes behind FZs in Gulf Arab states and assesses the impact of these commercial entities on regional integration, global trade and investment trends, and the Gulf’s foreign relations. FZ development is an under-examined topic in the wider literature on the Gulf. The empirical findings and theoretical implications of the work therefore constitute a valuable addition to prevailing political economy debates concerning the Gulf region. The work maps how economic strategies involving FZs unfold in the presence of available resources on a local level while also demonstrating the ways in which development paths are shaped by the relationship of Gulf Arab states to regional and global accumulation circuits.

Table of Contents

Frontmatter
Chapter 1. Mapping Free Zones in the Gulf: Trends and Dislocations
Abstract
Free zones in Gulf Arab states play a crucial role in domestic development initiatives, regional integration, global trade and investment flows, and even the Gulf’s foreign relations. Yet free zone development is an under-examined topic in the wider literature on the Gulf. Free zones reflect the past because they are products of long-run historical processes 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. Commercialized rents—or rents from free zones—provide a theoretical bridge for understanding how persistent rentier structures have evolved alongside ongoing economic diversification efforts and economic reform agendas across the region. Gulf officials remain hopeful that free zones will likewise function as practical bridges to more sustainable economic futures.
Robert Mogielnicki
Chapter 2. Regulating Free Zones: A History of Ownership, Labor, and Fees
Abstract
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 Gulf Arab 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.
Robert Mogielnicki
Chapter 3. The Dubai Model and UAE Free Zones
Abstract
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 not 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.
Robert Mogielnicki
Chapter 4. Free Zones in Oman, Saudi Arabia, Bahrain, Qatar, and Kuwait
Abstract
Gulf free zone systems outside of the United Arab Emirates tended to be more limited in scale and scope 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 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.
Robert Mogielnicki
Chapter 5. Elite Embeddedness in Free Zone Development
Abstract
Gulf free zone development involved balancing the interests of royals, business elites, and other patronage networks. Leadership positions in major economic organizations, such as free zones, legitimized prevailing political structures in Gulf Arab states—especially in polities with fewer hydrocarbon resources. If ruling family members did not serve in free zones themselves, they often delegated development and management responsibilities to close allies and prominent families. In this manner, free zones provided an opportunity for ruling regimes to reorganize rent-seeking structures in a way that benefitted certain elite coalitions. For their part, Gulf business elites aligned their interests with free zone initiatives to embed themselves and their firms in broad, long-term economic development processes. Differing development aims and realignments of political institutions occasionally created tensions among free zone officials, ruling families, and regional governments. Free zones also extended institutional authority and state power beyond royal individuals and business-oriented elites. Free zone development absorbed key sectors of Gulf economies and established a state-led framework for private sector growth.
Robert Mogielnicki
Chapter 6. Free Zones as Spheres of Regional Contestation
Abstract
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. Varying levels of access to state resources can provide a commercial edge in the value propositions needed to attract firm registrations. GCC rifts and Iranian involvement in the region have posed more serious challenges for free zone systems in the Gulf.
Robert Mogielnicki
Chapter 7. A Commercial Nexus Between East and West
Abstract
Gulf free zones are nodes of international capital accumulation that facilitate commercial exchange with firms and investors from Asia, the Americas, Europe, Africa, and the Middle East. Newer initiatives, such as China’s Belt and Road Initiative (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. The extent of Chinese actors’ involvement in Gulf free zones varies according to local contexts and needs. Free zone officials promote high-profile anchor clients from America, Europe, or the Gulf to enhance their respective reputations. However, firms and investors from South Asia, Russia, and other Middle Eastern and North African countries often constitute the bulk of free zone customers. Free zones are tools for advancing controversial foreign affairs portfolios, and Gulf-based developers export their free zone skills and services around the globe.
Robert Mogielnicki
Chapter 8. The Fraught Future of Free Zones in Gulf Arab States
Abstract
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. New economic reforms—namely the easing of foreign ownership regulations, increasing local labor requirements, and imposing new taxes and fees—threaten to diminish many of the traditional business incentives associated with free zones in the Gulf. As Gulf Arab governments push forward with messy and often nonlinear processes of economic reform and diversification efforts, free zones demonstrate the persistence of rentier structures in Gulf economies.
Robert Mogielnicki
Backmatter
Metadata
Title
A Political Economy of Free Zones in Gulf Arab States
Author
Robert Mogielnicki
Copyright Year
2021
Electronic ISBN
978-3-030-71274-7
Print ISBN
978-3-030-71273-0
DOI
https://doi.org/10.1007/978-3-030-71274-7

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