THE strategic geographical location of the Eastern Province and its port capital, Dammam, makes it an investors’ paradise and a potential nerve center for the Kingdom’s exports. The region shares borders with five Arab and Gulf states. It is the only land connection to Bahrain; it has borders with Kuwait, Qatar and the United Arab Emirates; and on the north it shares a border with Iraq. In addition, it is close to Iran and the Indian subcontinent. The latter is important: Over the years the subcontinent has used Eastern Province’s strategic location to channel a large range of products, industrial as well as consumer, into the Saudi market.
Originally, Saudi Arabia concentrated largely on its oil and petrochemical exports. Its other industrial products made little ground in the neighboring Gulf states. However, things have started to change during the last five years as both the government and the private sector made the export of non-oil products a top priority. The government’s liberalization policy has changed the entire complexion of business in the country.
Just a few hundred kilometers south of Dammam is Dubai which has prospered from a re-export policy that directly touches upon Saudi Arabia. Many international manufacturers found it more lucrative — and easier — to deliver their products to Dubai, from where they were sent on to other GCC and Arab states. As part of the process, a packaging industry has grown up in Dubai. Many products imported from the Indian subcontinent are re-packed and re-exported in the Emirate before transshipment to other GCC countries.
Saudi Arabia has long been one of the major markets for Dubai’s re-exports. Indeed, Dubai’s economy has thrived on the Saudi market. It was in response to this success that the ambitious re-export zone project at the King Abdul Aziz Port was devised. It is now finally operating: The first delivery was a consignment of American cars imported by a local agent.
The government has permitted this new Dubai- or Singapore-style pattern of trading in the hope of capitalizing on the growing opportunities for a multimillion-dollar business with neighboring countries.
The liberalization of Saudi economy has created a new trading climate and has given a major boost to the export sector. In advance of liberalization, the Eastern Province Chamber of Commerce & Industry launched a study to explore the possibilities of the region emerging as a strong re-export zone within the GCC. The study was completed in record time. Working from it, a handful of forward-thinking Saudi businessmen set up the re-export zone at King Abdul Aziz Port in Dammam.
The facility named "Bonded & Re-export Project" is segregated from the normal cargo unloading area and it is not governed by the normal port and customs regulations. If goods are re-exported either by road, sea or rail within a specific period, no customs duty is payable on such imports within the enclosed zone. Needless to say, the customs department maintains a close watch on the movements in and out of the zone.
Initiated by the private sector, the project is run by the Saudi Development & Re-export Services Company. Khaled Muhammad Al-Bawardi, president of Al-Bawardi Group, is the chairman. Founder members include Al-Muhaidib Group, H.A.K. Al-Qahtani Group, A.L. Al-Issa Group, International Maritime Company and Saudi Trans Gulf, besides Al-Bawardi Group. The Zamil Group, Abdulkarim Trading Establishment, Al-Hamdan Group and Al-Kuhaimi also have business interest in the zone.
A main feature of the re-export zone working is that customs do not insist that imports must all be re-exported. Partial shipment is allowed. Goods meant for local distribution can also be stored within the zone for a specified period, subject to the customs approval. Duty on the imported goods stored within the zone is levied only when they are taken out of the zone for local distribution.
For the last two years, the Saudi Development & Re-export Services Company has been actively engaged in developing the project and related infrastructure. The project came about as a direct result of the liberalization of re-export policy announced by the government in April 1998 and it followed an agreement with the General Organization for Ports.
With effect from April 27, 1998, transit and transshipment was allowed from three ports: Dammam, Jeddah and Jubail. Prior to liberalization, re-export from the Kingdom was not exempt from duties and normal custom procedures. This made it difficult for importers to respond to the growing demand from neighboring countries. The Dammam re-export zone has now been joined by another private sector re-export zone in Jeddah which started operations last year.
Under the revised rules, the holding of bonded goods outside of customs zones is also permitted. Such goods, which may be either imports or held as re-exports, can be stored in a general warehouse inside or outside the customs area for a specific time under customs control, but without payment of custom duties.
Those companies wanting to use the existing zone facilities require one of two types of licenses costing between SR5,000 to SR10,000.
The Dammam Re-export Zone has built 22 modern warehouses equipped with latest technology and facilities. It also has its own container terminal to handle all types of containers and related service. Its 40,000 square meters is only the first phase of development. The facility has room to expand with sites designated for export-oriented manufacturing. A metal processing unit is already planned.
Another important proposal is the establishment of a Third Party Logistics Services Complex within the zone. This would provide a local distribution base for international suppliers of consumer goods and industrial products. From such a base, world brand leaders could meet orders from within the region.
The zone has already played an important role in simplifying procedures for the air cargo. Under present regulations, duty-free imports are allowed not only from Dammam port, but also from the customs offices located elsewhere, such as King Fahd International Airport. Consignments are transported to the zone under special safeguards and without the normal duty and other clearance procedures at the airport.
The zone is expected to boost Saudi foreign trade, generate additional import business, stimulate non-oil exports and develop new trade links with neighboring states. Analysts believe that if the trade sector succeeds in developing this business through proper overseas marketing and if the customs authorities choose to adopt flexible policies, then Jeddah and Dammam have the potential to emerge as the major Afro-Asian re-export centers of the 21st century.