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Constructive, Innovative and Futuristic

Interview - March 14, 2012
Emirates Industrial City has been conceived as a modern industrial city of first of its own kind in Sharjah. Here, Mohammed Al-Hazzaa, Director General of Emirates Company for Industrial Cities, discusses the idea behind the project

Sharjah’s Industrial Sector represents 40- 50% of the UAE's total industrial GDP and there are many well known advantages to locating in this emirate, such as lower operating costs due to the government subsidies on water and electricity. Currently the Emirate is divided into 19 industrial districts and given your positing as the DG of the Emirates Company for Industrial Cities, kindly provide us with an introduction to the sector.

Sharjah is known for hosting small-to-medium sized industries here in the UAE. We take advantage of the physical proximity to Dubai, the location of Sharjah, the availability of land, flexible rules and regulations, and the ports. There are about 19 industrial cities, and our project is the Emirates Industrial City, a private sector venture however with full support from the local government. We bought the land and we developed it, so it is 100% private. Our support from the government is important when it comes to the licensing, providing electricity, and giving political support to the project.

Right now the Sharjah government is trying to rezone some of the old industrial areas because it has become very clustered and you will currently find industrial areas within the urban areas and in residential zones. So, they are trying from an environmental, safety, and urban planning perspective to reallocate some of these zones. So, the purpose of our project is to provide an alternative location for those people to move out to. I know that at least nine of the industrial cities are supposed to be rezoned, and we hope that a project like ours will be able to provide an alternate location for these factories to move to.

Please therefore provide us with some more information regarding this particular project, which as I understand was announced back in 2004 with a total estimated cost of 3 billion dirham (AED), covering 83 million square feet, which is broken down into eight specific zones.

This project is a typical real estate project, but not in the residential or commercial sense, it’s industrial. So this is why it is called an “industrial area”. The name of the project is “Emirates Industrial City”, but the name of the company is “Emirates Company for Industrial Cities”, which means that the same project could be replicated elsewhere. So what we have done is design the site in terms of planning/zoning and we have developed the infrastructure such as electricity, roads, telecoms, portable water, energy supply and now the plots are ready for private construction of warehouses and factories, etc.

Given there are many similar industrial zones and also the option of locating in the various free zones, not only in Sharjah but all over the UAE, what are the specific advantages for companies locating in the Emirates Industrial City?

The advantage, I believe is having state-of-the-art infrastructure facilities. The location is also an advantage. We are situated on the outer bypass 611, which is really a federal super-highway, starting from Abu Dhabi and continuing on to Dubai, Sharjah, and currently being extended to Ajman, Umm Al-Quwain and Ras Al Khaimah. Also the cost is not very expensive when compared to other places in the UAE and we have a lot of flexibility here; there is not a lot of red tape over procedures.

I also believe that the advantages of free zones are currently diminishing, due to the ongoing talks at the WTO (World Trade Organization) about opening the markets and removing all protection measures. Also, if you locate to our Industrial City you will be treated as a local company. So you can export to the GCC countries and import without duties, while actually in the free zones, you will be treated as an international company and you won’t be able to enjoy the advantages of local import-export agreements.

And it would seem most companies agree with you, given approximately 25% of Sharjah’s companies are located within free zones, whereas 75% are outside in industrial zones, etc. Do the normal restrictions still apply for companies locating in the Industrial Cities such as limited foreign ownership of 49%?

Those conditions still apply but here in the Emirates, we have what they call “service agents”. You have to have a local person to represent you from the legal point of view and for the long-term. But, when it comes to the flexibility in doing business, you can manage your own operations yourself. Actually, it is a well-developed and known practice here in the GCC and UAE to have this. You are talking about the concept of owning the land, itself, but usually the industrial investor is not interested in owning, because the cost of owning that land is very small compared to the kind of equipment and investments that he is putting. We have these advantages of long-term arrangements for those people to come and stay with us. Even having a local partnership, a local presentation, is even good for foreign investors because they enjoy the advantage of being both “international” and “local”.

An important factor for foreign companies locating in the UAE/Sharjah is the government and legal framework provided. In this respect what can a company wishing to locate here expect?

Sharjah’s industrial development has been taking place over the last 30 years and right now the rules and regulations are changing. There is a lot of competition because more industrial people, more industrial plans, and more industrial areas are coming up. So, I believe that maybe in the past it was very simple and very basic in terms of what rules and regulations a company could expect; however, now I see a clear need to make these rules and regulations clearer for investors.
We should put them in a book and formalize those policies when it comes to the industrial investments here in Sharjah. Of course, for our project, we are talking to the government about this in order to give the necessary incentives for the investors to continue their current plans and to expand and to attract new investors. In terms of what we currently have I believe that it is very hospitable and open, but investors need clear rules, policies, and regulations to know what they are about to do. Industrial investors would always like to know what they are getting themselves into. You must remember that industrial investments are generally a commitment of at least 25 years. The first five years is generally lost in simply establishing the business, the set-up, the commissioning and pre-commissioning. After that they tend to break even, so they do not generally start making money until after the first five years.

What are the main types of industries that you are trying to attract?

Here in Sharjah we are mainly centered on small-to-medium industries: packing and plastic, food processing, consumer-type products, industrial services, etc. They mostly serve the local communities and some exports.

I understand that there were discussions held by the Emirates Industrial City with Shurooq (Sharjah Investment and Development Authority) and I wanted to know what collaborations have ensued from that initial meeting back in 2010?

I wish and hope that the Sharjah government will have more people like Marwan Al Sarkal (CEO of Shurooq), because he is a very professional man. He knows what he wants, and he is making the situation viable for all.

Shurooq is responsible for helping and developing the business environment here in Sharjah, so we have been talking to them about establishing a strategic relationship; they provide the legal platform for us, and we provide the hardware. We can introduce projects like the Sharjah Auto Village or The WALZ – a Warehousing and Logistics Zone. For example, we have a huge project for warehouses: almost 6 million square feet, 220 units, which could really attract up to 2,000 businesses into this. We do not have “typical warehouses” but rather, a warehousing and logistics zone. We are close to Sharjah airport; we are close to these seaports, and we are also close to Dubai airport on outer bypass 611. So, we thought: “Why do we not collectively attract people to come and locate here?” For example, both air cargo and high-tech companies would be ideal tenants for storage and logistics services. And this kind of partnership, which we have been discussing with Shurooq, could be an ongoing, steady income to the Sharjah government through this partnership.

The importance of this is that the type of investment we are attracting here would not be a hit and run – somebody coming and then disappearing – but rather they would be making solid investments in the emirate and their business. This would be a long-term collaboration between them and us and through this we could even develop further plots and areas.

To us, applying the concept of “one-stop shop” is very important. We have noticed that here you have to shop around. By the way, 75% of my time is spent running around to different government agencies just to finalize and discuss issues. That is a waste of time. Shurooq could be the center for really dealing with the investors. They represent the Sharjah government; they can cut through the red tape. They know about Sharjah's rules, regulations and policies, and then they work with the investors like us. We believe the door is open, and we are still discussing that issue. Unfortunately, this process has been interrupted by the interference of other pop-out agencies announcing similar projects. For example, we went a long way with Sharjah Auto Village, and then, all of a sudden, a similar project was announced. We believe that in that case, that project is not working out because when it comes to the used car business, it has to be clustered, meaning: it has to be done in one place. But, if you do it in different places, then the momentum will be lost and the clustering concept will disappear. Our feasibility study says that this business has to be clustered in one place in order to attract international companies for international auction yards. It is a totally different ball game. It was really a perfect example, but unfortunately right now, I am afraid to say, it is “gone with the wind”. We are hoping that we will be doing something different through WALZ – that is, “Warehousing and Logistics Zone”.

Focusing back in on the Emirates Industrial City how far into completion are you from the 2004 plans and how many zones are now active for companies to come in?

Actually, the whole project was completed in 2007, because our role is just to develop the infrastructure and make it a livable and usable area. And, we have achieved that. And then, we started dealing, selling, and attracting investors. Almost 50% of the project has been sold-out, and so, we have the remaining 50% left. A quarter of the remaining 50% is meant for the WALZ project. Unfortunately, the financial crisis has really been affecting our project, and the completion times of these warehouses and attracting people.
However, I am happy to say that last year was a good year, and right now, we are moving again. We hope that we will be able to attract and resume our work. From our side, we are done and ready, but the prices have gone down, and the demand has drastically gone down. This is why the role of Shurooq and other government agencies, is very important. That is what I meant by “changing conditions”. The demand before was far beyond the supply; right now, it is the other way around. The demand is far below. The effect of this is that we slashed the cost of leasing these warehouses by 75%. At that time, leasing cost about 35 - 40 dirhams per square foot. Right now, we are leasing at 15 dirhams per square foot.

And is this proving a sufficient incentive for the investors to come in?

Yes definitely, and we need to give them these incentives as there are so many players competing for the same investor. So, you have to be reasonable and put yourself into the shoes of the customers, the investors. We need to be more flexible, more affordable. In the last quarter of 2011, the business that has been achieved in leasing these units at the WALZ project exceeded what we had done in the first three quarters. Right now in 2012, we still see this. However, with more support and understanding and collaborating with people like Shurooq, I believe this process could be accelerated.

Lastly, if I may, I wanted to know what implementation you bring from your side and what is your personal vision for this project, this development?

Well I’m a nice guy! But no frankly speaking, my background is in industrial management, in which I have a Master's. I have worked in the manufacturing and industrial sector for almost 15 years, as production manager, plant manager, etc. So, I could always relate to the customers' needs and feelings about that. I could give them security and make them feel welcome. It is important to remember that it is a partnership; a customer-client relationship. I try to make all the people who come to us really feel, from the bottom of my heart, that we are business partners. So, we try and help and support them, regardless of financial, managerial, or regulatory difficulties that they may face. The biggest problem for a project such as this is to be treated simply as a real estate project, rather than a real estate and industrial project. Our project is not about property. We are trying to establish an industrial base, to enhance the industrial base in Sharjah, and make it a win-win situation for the investors who stay here, for the Sharjah government, and for our shareholders as investors to this project.