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Arab media cities look to bright future

Tax exemptions, low operating expenses help firms succeed

Since 1997, three Arab States have begun projects to capitalize on the concept of establishing tax-free multimedia technology parks. In the first of a regular series of exclusive articles for The Daily Star on the telecommunications and IT sectors, Jordan-based Arab Advisers Group takes a closer look at these government backed projects, comparing investment size, incentive offerings and profitability.

This expert briefing is based on Arab Advisers' latest report, "Media Cities in the Arab World," written by Abedalrahman Pharaon and Judeh Siwady. For more information see www.arabadvisors.com.

Three countries in the Arab World - Egypt, Jordan and the United Arab Emirates - have adopted the concept of free zones for the media industry. The Egyptian Media Production City (EMPC) was the first of the three media cities to be opened in the Arab world, in 1997. Dubai Media City (DMC) and Jordan's Media City were opened in 2001. The three centers provide investors and the media industry with a tax-free zone that enables them to import hardware and software without constraint and to take advantage of attractive exemptions on corporate taxes, especially for exported services and products.

The zones will hopefully lead to clusters of media industry firms (in content production, broadcasting and services) that will create job opportunities and encouraging more foreign investment.

The three media cites have succeeded in persuading Arab-focused media companies and stations to migrate from Europe to the Arab world. Orbit, Arab Radio and Television (ART), Showtime and MBC, to name but a few, have already moved.

The main winner in attracting these stations was the Media Free Zone in Dubai, in the UAE. MBC, for instance, moved there from the United Kingdom. ART has moved its headquarters, which were originally in Italy, to Jordan.

The main services available at the media cities include broadcasting, production, post-production, satellite teleporting and satellite newsgathering. Other services that add value to the media cities include internet cafes, five-star accommodation, movie theaters, sports facilities, family entertainment parks and various shops.

Given Dubai's growing cosmopolitan appeal, the high quality of life and zero taxation, the city is able to attract top regional and global talent.

The Arab Advisers Group believes this will be a boon for companies wishing to set up shop there. There is a drawback to Dubai, however - unlike Egypt, for example, the majority of the workforce and media talent working at DMC is foreign. Egypt on the other hand relies mostly on homegrown talent. As the staff lives and works in Egypt, the costs will be lower than shipping them to Dubai to start a media firm.

In general, the benefits of setting up a media company at any of the three zones include exemption from personal and corporate taxation, 100 percent business ownership for foreign firms, and 100 percent repatriation of capital and profit. There is also an absence of foreign and local currency restrictions, and custom duties and operating costs tend to be lower than elsewhere.

Dubai Media City was started in January 2001 as a government-established free zone, promoted by General Sheikh Mohammad bin Rashid Al-Maktoum, the crown prince of Dubai and the UAE's defense minister. The city is part of the effort to develop Dubai into a "global ICT and media hub." DMC is dedicated to all media-related businesses and has a budget of 3 billion dinars (over $816 million). DMC's total development area is 1 million square feet and includes 14 buildings.

Dubai Media City, Dubai Internet City and the Knowledge Village are all part of Dubai Technology, Electronic Commerce and Media Free Zone, which was established to create an environment that would attract technology and media enterprises to operate locally, regionally and globally from Dubai.

Egyptian Media Production City was created in 1997 in the Media Free Zone. EMPC is Egypt's largest media firm and also one of the leading media production firms in the Arab world. It currently enjoys a 10-year tax exemption.

EMPC's authorized capital was set at 5 billion Egyptian pounds ($833.3 million), with a paid-up capital of 1.72 billion pounds. According to EMPC, the total operating revenues decreased from some $14.5 million to $9 million in the period from June 2002 to June 2003. On the other hand, total operating expenses have also fallen, from $11.8 million to around $7.4 million. Therefore, EMPC's net profit decreased from $1.54 million to $1 million during the first half of 2003.

The Arab Advisers Group notes that one of the main reasons for the decrease in net profits is the devaluation of the Egyptian pound against the dollar. We believe that EMPC remains the regional giant, and will maintain its lead for the foreseeable future. The firm's vertical integration, especially in the Egyptian market, where it produces movies, production services and also owns the major cinemas that show them, is a valid strategy that strengthens its lead in the market.

Jordan's Media City, the smallest of the three media cities under review in this report, was founded in 2001 following an agreement between the Jordanian government and Dallah Media Production Company. Dallah is 100 percent owned by Sheikh Saleh Kamel, who also owns ART. The main leaseholder for Jordan's Media City is its sister company, ART.

As a Dallah subsidiary, JMC is closely tied to ART, and we expect JMC to remain the smallest of the three media cities in the short to medium term. It covers 18,000 square meters and is located near Jordan Radio and Television Studios in east Amman. Currently, the media city has a total of 48 employees. Jordan's Media City's main function is providing production and broadcast services to media companies and TV stations.

Beirut,08 31 2004
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