A Telecommunications Perspective

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Economic zones, which are designated areas in which residents and companies are exempt from certain laws and taxes, have been used around the world as an incentive to boost local business. The trend in some countries in the Middle East and North Africa (MENA) region, especially Gulf Cooperation Council (GCC) members, is to use these zones as vehicles for spurring economic diversification and decreasing dependency on the oil sector. Such zones can attract new types of tenants with skills and other resources to contribute to the investment and establishment of new, globally competitive industries, especially service-based industries. Some countries are developing grand plans that extend the traditional concept of zones to economic cities.

Developers of many of these new zones want to provide advanced information and communications technology (ICT) infrastructure and services in order to attract leading tenants. As more Gulf states strive to adopt similar diversification ambitions, there is greater competition to be the regional leader in some industries and therefore in ICT facilities and service offerings. To ensure advanced ICT facilities are available, some developers are considering taking a hands-on role in rolling out infrastructure and services for these zones. There are a number of ICT development and management models that could be considered by policymakers, regulatory authorities, and developers. The common denominator among all of the models, however, is that in countries with liberalized telecommunications markets, there are no regulatory exemptions or special treatments for zones. Exemptions would be counterproductive and would, in practice, be the inverse of the purpose of the zone, which is to enable more liberalized commercial environments. Some regulatory changes, however, may be necessary: For instance, regulatory environments may need to be opened further to allow developers and other investors to be authorized to manage networks and provide services within zones. Economic zones should be vehicles supporting greater telecommunications liberalization, especially in terms of enabling fair and value-creating competition within the market.

The Challenge at Hand

Economic zones have existed for many years across the MENA region. Initially, such zones were free ports for customs duty benefits. More recently, some GCC member governments began adopting economic zones that have evolved beyond simple concepts such as a customs zone near a port, implementing more widespread incentives and creating important vehicles for driving economic diversification policies.

Gulf countries have recognized the need to develop their national economies beyond dependency on the oil sector. Many new zones are being introduced, which are centered on ICT, financial, and other service sectors. The policy objective is to build new national economic platforms based on specific concepts or industries for promoting growth, attracting new types of visitors and residents, and enabling employment opportunities.

Planners, developers, and national policymakers in the GCC want to have state-of-the-art ICT infrastructure and services in their zones, including the following:

• Availability of high-capacity, high-speed infrastructure
• Reliable access to advanced ICT facilities and services
• Provision of comprehensive ICT management services.

Developers believe that meeting these needs will help attract leading tenants that can boost spending and enable the introduction of globally competitive industries, investments, and growth to each country in which ICT-enabled zones are introduced. As more countries in the region adopt the concept of economic zones, the need increases to provide the best facilities and environment to attract premier residents1 and visitors. This is especially the case where countries have competing objectives, such as to be the regional hub for specific sectors.

To implement advanced ICT infrastructures, some developers are considering taking control of their construction and rollout, as well as service provision, to tenants in these zones—a role that would normally be played by telecommunications operators. However, developers run the risk of coming up against regulatory barriers in implementing this approach. These barriers, depending on the country’s regulatory framework, could include a lack of authorization or clarity of rights in regulatory regimes for nontelecommunications operators to construct or provide infrastructure or services within a defined area such as a zone.

To support the realization of advanced ICT infrastructure and delivery, it is necessary that national telecommunications authorities consider reassessing existing regulatory frameworks and obligations. Authorities may conclude either that the authorization regime could be further liberalized or that current practices are sufficient enablers. However, authorities should be cautioned against exempting telecommunications provision within zones from the national laws and regulations applied outside the zones. This is for the simple but significant reason that most countries have initiated or undergone liberalization already. Instead, authorities need to consider whether further liberalization is necessary across the sector, which in turn would benefit the zones.

Article index

• The Challenge at Hand
• Introducing Economic Zones and Cities
• Exhibit 1 - UAE Economic Zones Establishment Time Line
• Growth of Economic Zones in the Middle East
• Delivering Advanced ICT Infrastructure and Services
• Exhibit 2 - Benefits and Challenges of the Private ICT Zones Management Model
• Benefits and Challenges of the Private ICT Zones Management Model
• Exhibit 3 - Benefits and Challenges of the Exclusive ICT Zones Management Model
• Exhibit 4 - Benefits and Challenges of the Managed ICT Zones Management Model
• Exhibit 5 - Benefits and Challenges of the Open ICT Zones Management Model
• Lessons Learned for Stakeholders
• Resources

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Author Profiles

Karim Sabbagh, is a partner with Booz & Company based in the Middle East. He focuses on information and communication technologies and leads the firm’s related engagements in the region. He advises multinational and local clients on industry-level policies, regulations, business strategies, partnership and alliances, and operating and governance models.

Bahjat El-Darwiche, is a principal with Booz & Company based in the Middle East, specializing in communications and technology. He has led engagements in the areas of telecommunications sector liberalization and growth strategy development, policymaking and regulatory management, business development and strategic investments, corporate and business planning, and privatization and restructuring.

Jonathan Fiske, is a senior associate with Booz & Company based in the Middle East, specializing in regulatory affairs. He has international experience advising and leading engagements with telecommunications operators and authorities in the areas of regulatory management, licensing, sector policymaking, liberalization and regulatory development. He has also supported investors with mergers and acquisitions due diligence and managed regulatory affairs at operators.

Chady Smayra, is a senior associate with Booz & Company based in the Middle East. He has extensive experience in the telecommunications industry acquired through various projects in the Middle East and North America. He has led a number of engagements related to telecom sector development, policy and regulatory management, investment strategy, due diligence, business planning, and CFO agenda development.

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