Bob's
story
In January 1990 I quit my job with
a large trading company in Dubai. I thought I could make
a living on my own, from research and consulting. I had
only a hazy idea of how to go about it.
Having no friends or colleagues who
had been down this road, I groped my way forward. The first
step was to arrange a new visa, which then as now was straightforward.
The next step was to try to form a company. Back then, business
licensing in Dubai was controlled by the Municipality. After
many fruitless visits to the licensing department, it transpired
that only UAE nationals could establish companies. The best
that I could hope for would be to have a 49 percent stake
in a company that a national would control.
A second option was to apply for
a professional license. In that case, the business would
not be a legal entity but a permit for an individual to
practice. It would still need to have a UAE national as
a "sponsor" – a term that, in those days, was
not well defined.
What I was able to understand was
that there was no contract between the sponsor and the expatriate
(or if there was, it would not be enforceable). The sponsor
would invest no money in the business, nor would he or she
necessarily help the business in any way; but the sponsor's
signature would be needed on all official documents such
as licenses, visa applications and work permits. The fees,
it seemed, could be negotiated.
Dubai in 1990 was already a predominantly
expatriate city. Although I could speak, read and write
Arabic, I knew very few UAE nationals, and none whom I could
approach to be a sponsor. Eventually I was introduced to
a young educated national. His terms were quite straightforward.
He would obtain the professional license, which would be
in his name; he would choose the name of the company (he
wanted to call it "Modern Economic Consulting");
and his fees would be 10 percent of the turnover. At that
point I was somewhat discouraged.
Eventually a kind of solution emerged.
I met a fellow expatriate, a Brit, who had a professional
license in his own name. He was paying a fixed fee of about
US $14,000 a year to the sponsor; he had one contract and
it looked as if there might not be another. He was happy
to team up with me and we did a deal. We formed what was,
in effect, a partnership on the basis of a gentlemen's agreement
(we could not register it officially).
The first thing that we did was to
find another, less expensive, sponsor. My partner had some
contacts. Our first candidate was a young UAE national from
Ajman; however the Municipality turned him down as he was
not from Dubai. He in turn introduced us to a friend of
his from Dubai, who became our sponsor at a fee of about
US$ 8,000 a year plus 1 percent of turnover.
It was a bad year to start a business.
We opened our doors in June 1990; in August, Iraq invaded
Kuwait. In our first six months, our turnover was just over
US$ 400. Yes, four hundred dollars.
When the Gulf War was over, Dubai
had been discovered by the West and never looked back. Business
picked up and we got work. For four years we did reasonably
well, hired staff, moved to a smarter office and became
known as people who did a good job.
In 1994 we formalized the partnership,
still under the same sponsor and still with a professional
license from the Municipality, but with a broader field
of authorized activities. Again it was not a partnership
in a legal sense, but at least both names were on the license.
Within two years the business had collapsed in acrimony
and litigation. But that's another story.
In short, in March 1996 I was on
my own again, and almost back at square one, except that
I had some reputation in the market and one loyal client
who stuck with me.
By this time, business licensing
had moved out of the Municipality and into the Department
of Economic Development. The licensing procedure had become
a lot more transparent. An expatriate still needed a sponsor
but now the relationship was called a local service agency
and was based on a contract. The Department provided a model
contract, or you could draft your own. I asked the sponsor
of my previous company to be my local service agent and
he agreed. I negotiated the fixed fee down to about US$
6,000 a year but had to accept the percentage going up to
2 percent of turnover.
Finally I was in business on my own.
Fortunately I was not alone. My wife Nadia gave up her job
as a manager in Citibank and joined the company. During
the next few years we rebuilt the business.
This was when we started to be aware
of the free zones. Dubai had two – Jebel Ali Free Zone and
Dubai Airport Free Zone – and others were opening in the
neighboring emirates. In effect, the free zones were a parallel
business environment – they were physically within the UAE
but in a legal sense they were "offshore". Within
the free zones, different laws and regulations applied.
From an expatriate's viewpoint it
looked great – you could open a company in your own name,
no partner, no sponsor. You would not deal with the emirate
or federal government – the free zone would be your intermediary.
You would save on the sponsorship but otherwise it wasn't
cheap – office rents in Jebel Ali were about double those
in Dubai. Financially, there probably would not be a saving.
But at least you would be free.
However, for our kind of business,
it was academic. For all practical purposes, the free zones
did not accept consultancies. They were looking for big
trading companies that would move containers through the
ports or cargo through the airports. They accepted some
service companies – for example banks and restaurants. But
we did not fit their customer profile.
The free zones also had the feeling
of being far away in the desert. Jebel Ali was 35 km from
town; Sharjah Airport Free Zone was 20 km in the other direction.
Today that would not be thought remote, but it seemed so
then.
This started to change in 2000. That
was when Dubai Internet City was established. It was the
first free zone that was within the city. It seemed to be
open to a much broader range of businesses. At least you
did not have to "move them refrigerators". But
you still had to be a "hi-tech" company or something
that would pass as such. Microsoft, IBM and Sony Ericsson
were the target market.
The floodgates started to open from
2001 onwards. After the Internet City came a host of "themed" free
zones. The first ones were within the city limits, like
Dubai Media City, Knowledge Village, Dubai Healthcare City,
the Gold and Diamond Park. Later, new free zones were established
further out of town but still quite accessible – like Dubai
Cars and Automotive Zone, and Dragon Mart. Some of the freehold
property areas, like International City and Jumeira Lake
Towers, have been redefined as free zones. As we write,
more are to come – like DuBioTech, Dubai Silicon Oasis and
Dubai Maritime City.
In 2001 we were still tied to local
service agents. After several changes of agent we had brought
the fixed fees down to about US$ 2,000 a year and eliminated
the percentage. Nevertheless it remained the case that the
renewal of our business license depended on a signature
that could be given or withheld, or given only with conditions.
For us as a consultancy, the "urban" free zones
were looking more and more appealing. Our first choice was
Dubai Media City.
We were glad to find that as a research
contractor and author of business books, we qualified as
a Media City tenant. It took us just two days to set up
an FZ-LLC (free zone limited liability company) and to conclude
a lease of office space. Both the licensing fees and the
space were expensive compared to "onshore" Dubai,
but we were finally free. That was five years ago. Since
then, Dubai Media City has treated us well. We're happy.
Nadia's story
My story is just a footnote to Bob's
story but this is how it goes.
The side of the business that I want
to tell is the personal one. In the 1990s, it was important
to know people in Dubai if you wanted to set up a business,
though this has changed with the advent of the free zones.
When Bob was struggling to rebuild
his business, I helped with the process of finding
a local service agent. We trawled many small and scruffy
offices downtown where greedy and neglectful people offered
their services as agents or sponsors. Bob eventually signed
up with the sponsor of his previous business. But it was
clear that the local service agent provided no support at
all to our business. In fact, we rarely saw him and our
only communication was to send him his quarterly check.
I was lucky that through my professional
career at Citibank, I had met friendly, interesting and
well established people in Dubai. Therefore when we decided
to change our local service agent, a colleague put me in
touch with her sister-in-law, an Iranian who had UAE nationality
by marriage. I was not sure that women could be local agents
in Dubai, but it proved not to be an issue. We registered
the lady as our new local service agent in a matter of days.
This relationship lasted a year.
Nothing went wrong but it still grated on our principles
to pay money and receive nothing in return. Meanwhile, another
former colleague obtained UAE nationality, also through
marriage. Several times previously, when she had heard
my stories about local agents, she had said that business
people should not be paying individuals who happened to
hold the right citizenship and who did not participate in
any positive way.
When time came to renew our license,
we asked this lady if she would be our local service agent.
Although she had not insisted on payment, we offered and
she accepted a modest fee, which we would pay in two installments
per year. Things went smoothly for the first semester and
then she asked for the fee before the due time. Bob and
I agreed that we had had enough of this dependence on arbitrary
individuals.
So it was a relief when we joined
Dubai Media City and freed ourselves from the sponsorship/agency
system. We were lucky, because not everyone gets into the
free zones. We are still hoping for the day when the whole
system becomes free.
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