How many free zones can Dubai absorb?

Another day, another free zone, or sometimes that is how it feels in Dubai. This week saw the unveiling of the Dubai International Metals and Commodities Centre at an impressive gathering of the burgeoning Dubai financial community.

Lest we forget, the latter got its own Dubai International Finance Centre in February, a free zone for everything except retail banking. Since then there has been a new free zone for automobile parts. So what is it all about? What is the vision behind these visions?

The common rationale behind each free zone is to allow 100 per cent ownership to companies incorporated therein, attract new foreign companies to Dubai, and to create an expensive new office or showroom complex. Yet Dubai's vision is more than that.

The whole of the Middle East is undergoing a sea change on the ownership front, thanks to the pressures of globalization and the World Trade Organization. What Dubai is cleverly doing is getting ahead of the pack and getting business and finance to locate in the emirate with 100 per cent ownership now rather than tomorrow.

It might be that businesses and banks that relocate to Dubai later choose to decamp to Riyadh where operating costs are half those of a Dubai free zone, where the word free definitely is not associated with rental charges. But once a company is established in Dubai, and its staff is bedded in, it becomes far more difficult to leave.

Besides, the strength of Dubai is mutually self-reinforcing. The more businesses it attracts the more of a business hub it becomes, and so the more essential it is for a business to stay in Dubai. This is the critical mass argument that underpins the extraordinary business vision of Dubai's Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum.

So the answer to the conundrum of how many free zones Dubai can absorb is easy enough. The emirate will create so many free zones that one day the whole city will become one big free zone, with all the multinationals in residence.

What Dubai will have to watch, like any other rapidly expanding business hub, is that its economy does not overheat. For example, if too many new businesses set up without the provision of enough accommodation then housing rentals will soar upwards and put upward pressures on the cost of labor. It is the same with the road infrastructure which is already feeling the strain at rush hour.

However, to be fair the cost of living in Dubai is still too low to be included on a list of the most expensive cities in the world, and this may just prove to be one of the prices of its success.