Experienced, Self-Driven & Results Orientated

Sharief Habib Al Awadhi, Director General of the Fujairah Free Zones Authority

Interview with HE Sharief Habib Al Awadhi, Director General of the Fujairah Free Zones Authority.
by Lawrence J. Ireton.

Sharief Habib Al Awadhi

Sharief Habib Al Awadhi

Lawrence J. Ireton: Fujairah is the only emirate located entirely on the Gulf of Oman side, and run by his highness Sheikh Hamad. There are quite a lot of interesting regional developments coming up but first, can you give our readers an introduction to the uniqueness of this emirate?

Fujairah is the fifth-largest emirate in size at about 1,480 km/sq. Fortunately or unfortunately, more than 80% of it is mountains. That gives it uniqueness, but also removes a lot of land availability. Less than 20% of the land can be utilized. It also has a very special climate. During summer in June and July, it is 10 degrees cooler in the day time than other emirates.

Lawrence J. Ireton: Location-wise, you are the only emirate entirely situated on the eastern side. Does that have any effect on the emirate’s development as compared to others in the west?

We say we are inside/outside Gulf. Sailing has a lot of importance in the marine industry. You can dock a ship in Fujairah, and then it takes more than 15-18 hours to dock to another port in the Emirates. But we do not rely on circumstances like crises or wars. But we witnessed the importance of Fujairah in the early 1980s and late 1970s during the Iraq-Iran War, and again in Kuwait in the Second Gulf War.

People do not always consider that Fujairah has access to an open sea, which is very important for water resources. Today Fujairah hosts the biggest desalination plant in the Middle East. There is no doubt that the pipeline is moving from Fujairah all the way to Abu Dhabi. When you are talking about the Gulf, you have a closed water environment. But Fujairah is open sea, and the only port without an approach channel. These elements help, and accordingly there were changes. From mid-2000 onwards, the construction of buildings, manmade islands, and towers required a lot of rocks, and Fujairah produces quite a lot of rock, on aggregate, close to 80-90 million tons. These are a very special type of hard rock.

In general, Fujairah was always known as an agricultural base between fisheries. But in the last 30 years even before His Highness Sheikh Hamad, modern Fujairah tried to maintain a unique position; not too advanced, but not very far behind. Sheikh Hamad was very keen to drive sustainable development, which is very important to the emirate. Fujairah is still the only emirate without a free hold. There is the land limitation, but His Highness also wants to maintain its uniqueness.

Because of this, in the last 10 years Fujairah has developed as a global bunkering hub, next to Rotterdam and Singapore. It was not just for the sake of doing business for business. His Highness is a very federal man, and his instructions are according to the federal system, with regards to investment attraction, investment projects, or political stability. That itself made Fujairah very unique in general.

Also because of the location, you have the highest local population. Fujairah has hundreds of small villages due to its topography and geographic position, which is different from when you have very open land and everyone merges. You still find traditional behavior. Everything here has been maintained very simply and naturally because you want to preserve and protect. The soil is rich with rain and you can see the greenness. We have a little bit of everything, and without overlooking other emirates.

We also try to follow what is happening, whether it is the free zone or a port. The Port of Fujairah was established in the early 1980s, and slowly developed as a container terminal, then later with general cargo and petrochemicals. Sometimes it is good to have a strong master plan, but sometimes also it is good that you develop accordingly. We started the free zone with a portion of the land in the port. Now I can say that we should have started bigger. But if we had started that big, it would have been costly. Fujairah is never too far behind or too far ahead. You try to maintain the momentum.

Lawrence J. Ireton: Can you tell us more about the overall infrastructure of Fujairah, and how advanced it is getting?

When the port was developed we realized that although we might not have airlines, we should have the ground floor for aviation facilities, so the airport was developed. The port was developed with a long term vision, with a small add on. Once the port was developed, we had both a port and an airport and with those, the potential to manage cargo, in addition to the customs department, so why not start the free zone?

I feel the infrastructure available today is good for a period to establish a foundation. It means today, if the Fujairah international Airport decides to expand, and one airline comes in and needs a bigger facility. The runway and buildings are there, so maybe they end up adding a couple buildings in less than two years. So you did not invest so much in buildings, which gives a lot of release and cost relief.

In 2007 and early 2008, the government allocated us bigger land in an industrial area of 4,000 sq./meters. We have developed it and spent on minor infrastructure, such as roads, fencing, and leveling. It would have been crazy if we had done this 10 years ago. The cost would have been so high, I could not have sold it for less than its price. When you sell something, the most important thing is the price. Many people sell a product without knowing the actual production costs. Sometimes when you make a huge investment, for instance if you lay down roads, you are not going to make immediate profit. It is a lifetime investment, and the return comes when there are cars traveling on it. But when you build a tower, it could cost the same or half the price of that road, and the meter starts tipping.

This is how it is in Fujairah. The infrastructure is there with the Port of Fujairah today, and they are developing a new industrial port. An industrial port typically needs 5-7 years to develop, but it has already been developed in the last three years. They can see the existing port, they have a breakwater, they are developing, and have a plan for the next five years. The add-on policy is good; it provides a lot of competitiveness, and gives you a backup.

Managers need to take investments into consideration. For example, we have three locations as a free zone today. For me, that means three times more security and manpower, but that is not a big problem. This is what Fujairah is all about. For example, today the pipeline coming all the way from Abu Dhabi is a strategic and political decision to export more than 50%-70% of the UAE oil through Fujairah. The area called the Fujairah Oil Industrial Zone was established as an authority in March 2011, but the business has been going on for the last 10 years.

We signed the contract for the first storage tank in 1997, and it was launched in 1998. Then slowly, another tank farm came, and next to the tank farm came a small refinery. Today we have about 3.2 million tons of storage facilities. A bigger refinery is due to be commissioned in five years’ time. A pipeline is already laid down all the way from Abu Dhabi to here. We are talking about connectivity somewhere in May or June of this year. We think in another few months the whole area will be fenced, segregated, and management will come. Today I host about 50 companies who are a member of these types of petrochemical operations. Today, we develop ourselves as a brand, Fujairah Petrochemical. We are in discussions, and have been given the privilege to negotiate other projects to utilize the downstream. So that is Fujairah; you add on, and start the business.

Many people talk about the economic crisis of the end of 2008. We felt the pinch because many people were registering a part in Fujairah, and catering to the Emirates, mostly Dubai. We felt the pinch, but it was not a shock. People based their services here, but mostly paper companies. We started things very small. Even if you had come five or three years ago, you would see buildings going up in different parts of Fujairah, except for 2007, and the late 1990s. Real estate accommodation in Fujairah was always cheaper than Dubai and Abu Dhabi in comparison. It was always at a reasonable price because the emirates had a policy not to award too much land, most of it was being given to locals free of charge. You cannot have hundreds of buildings coming up all of a sudden with a small population. 2008 and 2007 was exceptional; people got crazy, and prices went up. But the real estate business in Fujairah was very successful, far more successful than many emirates.

These are the things that have been different in Fujairah, thanks to the guidance of His Highness and his long term vision. Most of the land has been given freely to the locals. Every citizen is eligible for free land to develop commercially.

Lawrence J. Ireton: The Industrial Oil Zone has been operating overseas for many years. Is that a free zone?

It is not a free zone. It is an organization and an area zone. It will be controlled, identified, located, fenced, and an authority will manage it. But it will get free zone status on certain projects. Maybe people will establish there, and they will have to take documentation to get the privilege status of a free zone. We will work together indirectly so that when they need something in the free zone, they will collect the papers here. We have quite large numbers of them. We have eight major operators there, like the refinery. A lot of them have free zone status, as their licenses and facilities come from here. But I think the government will manage the rent collection and maintenance. It will be an authority to look after, but documentation and registration according to each authority.

Lawrence J. Ireton: You have been quoted before as saying that free zones in the Emirates need to be innovative in the model of their strategy, as opposed to copying the Abu Dhabi and Dubai model. How has the Fujairah Free Zone been innovative in its strategy?

Free zones in the UAE could have done far better than what we have achieved, whether Fujairah or Jebel Ali. We have failed to attract sustainable businesses with a downstream that can create raw materials and salaries. How much of the products consumed in the UAE are local products? We cannot even manage the smallest items, whether soaps, consumables, shampoos, diapers, or candies. We made it so easy that people do not think about bigger investments.

For example, if we take any investment that gives you a good 20% back, and you are very innovative and creative, and you do a business based on your know-how and capabilities that gives you 20% returns. That means in order to make 200,000 dirhams a month, you have to invest 1 million. But people can achieve those 200,000 dirhams a month without investing 1 million, by just having trading. If you open a small shop or trading company in the free zones with $5,000-$10,000 dollars credit lines, and import a few containers a month, you can make that money. Why should they think about going any bigger with a proper investment?

How did China and Taiwan come up? It is very simple. Japanese products began being produced there, from a TV bulb component, to a little bit of frame. Then the Americans and Europeans went there, and all of a sudden you find an area with hundreds of components, or maybe 30% of one component. You do not see this in the UAE. You see a huge investment in a product which is specialized for a devoted market.

Lawrence J. Ireton: Like Aluminum?

Exactly. For example, in the mid-1980s we had garment industries. We had a US quota because there were over 150 garment industries in the UAE producing more than 6-10 million pieces a year. But you do not see much of them today, and everyone disappeared after the opening, even the auxiliary products like labels and zippers. We could have developed that business today. What we achieved in manufacturing between 1995 and 2000 was far greater than what was achieved between 2002 and 2010. The UAE free zones in the UAE have 5,000- 10,000 members, but it is all virtual trading.

Innovation itself was totally different, but we made it so easy. It is heaven for the investor, but it is a deceiving thing. Saudi Arabia has more and more manufacturing items. Of course, I do not want to publicize it. India could have been a good manufacturing partner of the UAE, but we overlooked it. This is why I am arguing. If you ask my staff, when they talk about Flexi, it is like somebody is putting a gun to my head, but it is good money. Someone walks in, he pays us $5,000, we produce one piece of paper, we do not even use it, and it is just a number. In the long run, this is harming the people that have a real business.

Lawrence J. Ireton: So what strategies do you have for creating the industrialization that needs to come, considering you mentioned that only 20% of the emirate can be developed due to space limitations?

We are trying to find out. Today, people want hundreds and thousands of meters. There are certain projects I would kill for. But because things are easy everywhere, I either have to let go or take. For example to support my argument, either in 2002 or 2003 we managed to bring a solar cell manufacturing unit from India in a very modest way. They went, developed it, and today in a span of seven years, they are also going to put the modeling. The company is purchasing a well-established, 50-year-old company. They are going from operating within 1,000 square meters, to today talking about 40,000 square meters. This equals hundreds of those virtual offices.

Lawrence J. Ireton: An investment which is going to be grounded…

Grounded, because when you see the trade values, ultimately it is Emirates, not just Fujairah. Today, when a businessman comes, we show him some of the industries and we do not have to talk further. 15 years ago I remember people used to come in and see a nice office. Some of the free zone back then had an area with a porto-cabin. People would say ‘How can we trust a company that itself does not have a permanent office?’ I remember we built this office, which is our third location. We started in a flat, in the current customs building. People came, and felt there was stability. People do not want to see tall buildings; they want to see a business that ticks. Maybe some free zones have more industries than I have, but ultimately when you talk about the ratio, it is less. So we have to be innovative and find out what helps. To do business in the UAE, I think manufacturing from scratch is a failure. Sometimes when you have the money it does not matter. When I walk through Emirates Airlines terminal, as proud as a proud UAE citizen and human being, I think hats off to Sheikh Mohammed. Global cities have to be innovative, and attract everybody from people overseas to the locals.

I have an investment that caters to oil and gas industries. It is a 52-year old American company on the NASDAQ, and it is their fifth plant. They started here, and were catering through different places, but they are also opening branches. Their processing hub is going to be in Fujairah, but they are putting a depot in Saudi Arabia. I am seeking and hoping that when these types of projects come, they have support. We have a lot of businesses that come just for a special market, such as companies that cater to building materials for construction in Dubai, for example.

What I admire about Dubai, in part, is that they tried to maintain the momentum.

When I went to college 30 years ago, there were just three TV channels and all there were all day were camel races. I was fed up. I did not know people would come here to see camel races and horse races. I once managed to see a horse race, and it was unbelievable and fantastic. It is different when you go there. I have noticed a lot of Europeans come. When you are here for one week, what else do you do? When I have clients coming in today, I convince them to stay in Fujairah to see the malls, and shopping centers. There are certain things that you realize once you become involved.

What has been done in some emirates is just being done to complement the others. In business, in the free zones, we should have pushed more for that. Too much and too many kills competition. When there is no competition, the business dies. You need competition, but there is a difference between competition and overdoing things. A free zone like Jebel Ali, established in the mid-1980s, only has the Jumairah Lake Towers, for example. I fear that type of business.

Lawrence J. Ireton: That is what you are doing.

Unfortunately, yes, I am. But you cannot be more catholic than the Pope. I think we could have done much better. We have a very stable, very lucrative country, with the best infrastructure, in less than a 500 or 600 km radius. The furthest distance to the most modern city is less than 300 km. You have airports, ports, everything. We could have done much better. Today we could filter or screen certain businessmen, but that does not mean there are not a lot of strong business houses in Fujairah. I am just saying that we could have achieved more.

Lawrence J. Ireton: The question is what are you going to do to achieve better?

Well, we left it to time, and now time is answering. We are balancing, which is the only thing we can do. So far this year we have five to six manufacturing units, which is very good. As long as I bring in enough manufacturing units to the Emirates, it does not matter for me.

Lawrence J. Ireton: You have a healthy balance of real development versus virtual.

Exactly. We have consistently attracted manufacturing this year and last year. If you look at our table, we have a continuous manufacturing attraction.

Lawrence J. Ireton: In the future, this pipeline is going to attract a lot of business surrounding petrochemicals and downstream oil and gas. They are going to be heavy investment industries, and there will be a need for more logistics and service for the area. That is quite clearly a possibility that can happen.

Exactly. We have certain advantages. For example, today I have a good port, which is accessible to the open sea. I have to see what type of business that can bring such as cargo, and whether the port can handle it. I am looking at those things when we negotiate. We know the niche, but nowadays it becomes very difficult. I want people who want me. That is why I talk about branding. I do not necessarily need something to be called Fujairah. For example in the last few days we have negotiating a project that requires a specific type of marine facilities. It requires a little bit of land because of the accessibility. I know I have an edge over certain people, and that is where I can work.

We have to look for certain projects, and we are always negotiating projects related to that. Of course you get an advantage because today when you talk about the pipeline people approach you. If I lose a client that just wants a virtual office, it does not matter. Yesterday we had a guy who wanted to put in food processing, which is something different, but it was easy for me to sell it to him.

I still believe each Emirate has the same advantages. But what happens is we are too busy taking easy business, and we have neighbors eager to have businesses. We have to think and be innovative. That is how I look at it.

Lawrence J. Ireton: There needs to be more concentration on the industrial side. You have given us quite a bit of insight into how Fujairah needs to position itself in terms of finding those who want to come and what you can offer. Do you have any final comment to say to the readers?

Time, history, achievement, and the results have proven that the Emirates are a solid base for business. The advantage of having seven emirates has also contributed to enhancement, development and competition. It also gave a chance to try out a lot of concepts. Many concepts have been launched in Dubai and Abu Dhabi, without having to come in as a Federal law. It started as an initiative, and you see it is successful, you repeat.

The infrastructure in the Emirates is also very good. Nowadays infrastructure is everything. Even the multinationals themselves are a form of infrastructure. When I flew Emirates Airlines at the early stage, I used to feel ridiculous. The hostesses spoke Spanish, English, Portuguese, and I thought that was crazy. But the airline wants to be able to take every business man. That in itself is an infrastructure in the UAE. We have enough ports, and four successful airlines. We have the government, the UAE nationals, education, health; our positioning has proven that the UAE is good.

But my final advice is you take what we can offer at a lower cost. We do not want every business to come. You can talk about steel rods, but that does not mean that you bring raw materials, and convert it. You use the supply chain procurement. There is enough ground. We have strong consumer neighbors like India. The Emirates are a very good crop, and that is the advantage of the Emirates.

Lawrence J. Ireton: I think the best thing you said was the complementarities. Someone once described it to us as the seven colors of the rainbow.

Yes, that could not be said better. Everything, including success, has a price. Today my work has to complement the success that Dubai has achieved. I know many other emirates or other zones will take advantage of what we have done, and it is needed. Every restaurant needs a kitchen. Sometimes you are the restaurant, sometimes the kitchen, sometimes the management, and I am still trying to be the kitchen of the UAE. I am sure other zones or Emirates can do the same thing. We feel business continues, but we have to be innovative.

I remember in the mid-1990s, people used to bring everything to India. But today in India it is cheaper than here. So unless you provide an added value, you lose that business. Similarly in the free zones, Saudi Arabia is developing a nice package that I am seriously considering, but I do not want to publicize it. Today for example, no tax is a good thing in this country. Everyone gets happy, but after a while it becomes a problem. Since there is no tax, the facilities and utilities costs will increase, and ultimately this is a hidden, non-deductible tax. In the United States you can get it back, so we should come up with an idea like that. This is what I am talking about, and I am sure people in different zones are as smart as me, but everyone sees it from his perspective.