In Good Shape

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Having been an early proponent of the need to develop a diverse economic base, Sharjah is now reaping the benefits by placing itself in a good position to ride out the international recession.

While the strong emphasis on industrial production as the cornerstone of the economy could have left Sharjah exposed when the global markets went into decline, it seems that the emirate's underlying strength, supported by state initiatives, will limit the impact of the crisis.

A fair measure of this strength came from the state's policy of offering a liberal investment regime, including setting up two major free trade zones, granting tax concessions to private and corporate investors, allowing the repatriation of assets and profits, and not levying import fees on goods and materials.

In just a few years, Sharjah's pro-investment policies have turned the emirate into an attractive investment destination, luring a large number of industrial and trading activities to its state-of-the-art free zones and industrial areas, says Sheikh Sultan bin Ahmed Al Qassimi, the chairman of the Sharjah Commerce and Tourism Development Authority.

Sharjah's industrial sector was a significant contributor to economic growth, and along with a multitude of small and medium-sized industrial enterprises has collectively helped to stimulate the emirate's economy, he told a seminar on Sharjah's economic strategy and special economic zones held on May 10 and 11.

"Today, with 19 manufacturing areas, Sharjah is one of the UAE's major industrial centres, accounting for almost 48% of the country's industrial GDP," said Al Qassimi.

According to Majid Jafar, the executive director of the Crescent Petroleum Group in Sharjah, there are a number of reasons as to why the emirate has escaped the worst of the economic slowdown. While saying that all of the economies of the UAE were interdependent, Jafar believes that the effects of the global financial crisis have been less severe on Sharjah due to the emirate having chosen a slightly different model for development.

"Sharjah is the third-largest economy in the UAE and has the widest industrial base of all the emirates, with many small and medium-sized enterprises (SMEs), several successful free trade zones and world-class ports on both coasts," he said in an interview with local media in late April. "The approach of the government has been very free-market oriented, encouraging private involvement and with hardly any state-owned companies in any sector."

This, combined with a lower level of exposure to speculation in the property market and the closer economic links between Sharjah and the Arab world, have served the economy well, he added.

While diverse and resilient, there are still a few problems facing Sharjah's economy. Despite having reserves of around 1.5bn barrels of oil and some 303bn cu metres of natural gas, the emirate's growing industrial base, along with the energy requirements of the rest of the economy, is placing increasing strain on power supplies. In particular, current domestic gas output can meet only half of the annual requirement of Sharjah's electricity generation grid, meaning there can be shortfalls at times of peak demand.

The state is seeking to improve the situation, both through increasing generation capacity, sanctioning the development of new gas fields and looking to step up gas imports to keep the turbines turning.

Another problem that has cropped up during the global downturn is a lack of liquidity, especially for smaller businesses that, according to the Sharjah Chamber of Commerce and Industry (SCCI), comprise 80% of the emirate's economy.

However, through the SCCI, Sharjah is taking the lead in supporting SMEs, with the chamber working alongside local banks to establish special lending packages for small-scale businesses.

Unveiling the scheme in early April, the SCCI director-general, Hussain Mohammed Al Mahmoudi, said the programme would be a “bottomless pit” of funds to support SMEs.

"SMEs are vital for Sharjah's economy," he said. "It is dependent on them and not the real estate and banking sectors. We felt SMEs were not securing the loans they needed and that this was the right time to step in."

Wadah Al Taha, a Dubai-based analyst, said that the support programme was an important step, and one that should serve as an example to the rest of the UAE, where other sectors of the economy have been given the majority of financial assistance.

"The focus has been on banking and property sectors, but SMEs contribute as significantly as any other sector to the UAE's economy," said Al Taha in an interview with local media on May 3. 

"Sharjah's initiative is timely and should be a lead for emirates like Dubai – or better still, something for the federal government to take into account."

Another measure to support SMEs, announced on May 10, will be the setting up of seven special zones, each targetting a particular industry, inside the emirate's two existing free zones.

Ahmed Al Midfa, the chairman of the SCCI, said the sub-zones – one each for steel, petrochemicals, maritime industries, oil and gas, timber, construction and perfume products – were part of the emirate's push towards providing investors with a "convenient legal structure, advanced infrastructure and modern services".

By taking a relatively hands-off approach to business, while providing the tools and regulatory environment in which it can thrive, Sharjah has developed an economic model that can weather the current slowdown and prosper when the upswing arrives.

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