By Ruari Phillips, Consultant
The Government of Dubai has signed a final agreement with DP World enabling it to develop an economic free zone at the Port of Berbera in Somaliland. Free Zones (FZ) are designated areas in which companies are taxed very lightly or not at all to encourage economic activity. The global trade enabler expects to break ground on the 12 square kilometre project later this year. Located right next to the port, it will support the development of Berbera as a trading hub and generate jobs.
“The free zone will encourage growth for the region’s economy,” said DP World Group Chairman, Sultan Ahmed Bin Sulayem. “It’s a boost for local prosperity and is going to create many jobs. We look forward to bringing our global experience here and help develop the area.”
Modelled on DP World’s Jebel Ali Free Zone in Dubai the project target’s a range of businesses including warehousing, logistics, traders and manufacturers. The first phase of construction is focused on a 4 square kilometre stretch of land. Future phases will be detailed in a concept plan together with the projected capital investment required from DP World. Construction of each new phase will start once the previous has achieved 85% occupancy.
The Jebel Ali Free Zone, also known as Jafza, commenced operations in 1985 with office units and warehouses available for lease. It hosts more than 7,000 global companies and includes approximately 100 of the Fortune 500 organisations. The free zone contributes 21 percent of Dubai’s GDP on a yearly basis and it employs more than 144,000 people. In 2015, Jafza generated $87.6 billion worth of trade.
DP World signed a 30-year concession agreement to manage the Port of Berbera in May 2016. Since September 2017, it has recorded a 40 percent year-on-year increase in container volumes. $442 million has been allocated to the project with more expected for developing the Berbera Corridor, a road linking the port to Ethiopia. A 400-metre container terminal is already under construction along with upgrades to existing facilities and new equipment.
Local workers are being sent to Thailand by DP World for training. Staff from operations, planning and administration departments will gain the required know-how and skills to run a world-class terminal. Upon their arrival in Thailand, a total of 713 permanent workers are to be met by Mr Alpesh A. Sharma, the managing director of Laem Chabang port.
“Over the course of one month our staff will be equipped with everything they need,” said Sharma. “The goal is to improve operations in the core business and increase revenue. Workers can then share the knowledge they learn with peers back in Berbera. They will broaden skills in all areas.”
The Berbera Free Zone will offer global opportunities to foreign investors with many cost-saving benefits. Companies are able to retain 100% ownership with no local sponsorship required. This often leads to higher productivity and an increase in employment. Encouraging foreign ownership also lowers prices and improves the quality of products. Businesses are able to repatriate capital and profits.
Another reason investors choose to set up companies in a free zone is taxation. They are not required to pay corporate tax or personal income tax. There are also no taxable periods, assessments or returns imposed. Goods can be introduced free of import duty. These goods can be stored, moved, used and processed at a much lower cost with much lower taxes. However, shareholders must pay attention to the taxes they are subject to in their home country.
Once complete, the Berbera Free Zone will offer ready-made factories and warehouses. This state of the art buildings is located right next to the shipping yard which is ideal for businesses working in import and export. Companies can utilise Somaliland’s growing infrastructure, state of the art technology and have fast access to big markets.
“Since DP World took over the running of the port, there have been many changes,” said Esmail Mahmoud, Head of Operations at DP World Berbera. “We’ve added a lot of equipment including three mobile harbour cranes. Six reach stackers have been installed, with three more on the way as well as empty container handlers, mobile cranes, internal terminal vehicles and forklifts. We are also using new software called Sodiaz.”
Land in Berbera (including the free zone) is set to drastically increase in value over the coming years. The deal with DP World will benefit everyone in the Horn of Africa. Although Somalia is strongly against further construction and has deemed the agreements illegal, development doesn’t show any sign of slowing down. DP World is creating jobs and opportunities for the people of Somaliland at a fast pace. They have already donated $770,181 in the past 12 months to educational institutions, mosques and hospitals.
The Berbera Free Zone is being built on a three-phase basis: Phase zero, phase one, and phase two. As part of phase zero, DP World is developing the existing terminal. This includes infrastructure, electricity and training facilities. Phase one begins in five months and is expected to be completed in 2020.