Affiliated with: Department of Accounting, Federal University Dutsin-Ma, Katsina State, Nigeria
pISSN: 3115-6606; eISSN: 3156-2809
ORIGINAL RESEARCH ARTICLE
Marwa Sultan Mohammed Al Kindi and Armaya’u Alhaji Sani*
Department of Accounting, College of Economics and Information Systems, University of Nizwa, Oman
Corresponding Author: Armaya’u Alhaji Sani 
a.sani@unizwa.edu.om
This paper assesses the benefits of Free Zones (FZs) and Special Economic Zones (SEZs) for companies operating in Oman, while emphasizing their role in economic welfare and diversification in line with the goals of Vision 2040. Based on a synthesis of 31 selected academic papers on Oman and global SEZs, the study identifies key advantages, including tax concessions, foreign direct investment (FDI) attraction through stability and motivation, logistics development, human resource development (HRD), and Investment encouragement. Thematic analysis shows that Omani free economic zones such as Duqm and Salalah improve operational efficiency, with tax breaks reducing costs by 100% for up to 30 years, while FDI inflows have increased due to legal incentives and global alignment that attracts foreign investment. Logistics benefits position Oman as a strong regional gateway, reflecting the success of SEZs in the UAE and its skilled workforce. Salalah FZ supports export-oriented development, drawing lessons from Poland’s SEZ experience. The paper recommends using these zones for FDI and logistics expansion to align with national goals and reduce oil sector dependency, while offering more evidence-based insights into the operation of Omani zones for investors and policymakers.
Keywords: Free Zones (FZs), Global, Logistics, Special Economic Zones (SEZs), Tax concessions
Special Economic Zones (SEZs) and Free Zones (FZs) are tools that boost economic activity by offering tax breaks and simpler regulations (Khan & Anwar, 2015). Many countries use these zones to move away from relying only on natural resources (Bost, 2019). Since the 1970s, more than 5,000 SEZs have been set up worldwide, and they now attract about 20-30% of foreign investment by supporting exports and new technology (Pidorycheva, 2017). In the Sultanate of Oman, Special Economic Zones and Free Zones are essential to economic development plans aimed at reducing dependence on oil, with areas such as Duqm and Salalah emerging as key logistics and commercial centers (AL Hajri, 2021). However, these regions face challenges such as inadequate investment and management, which may affect their long-term success (Zeng, 2015).
Evidence on the efficiency of SEZs for companies varies (Narula & Zhan, 2019). While these areas reduce costs, problems such as poor infrastructure and unequal opportunities for some companies may limit their benefits (Moberg, 2015). In Oman, heavy dependence on oil makes it difficult to invest in other sectors (Ba-Awain & Daud, 2018). Because part of the research focuses on other countries, findings on the feasibility of Special Economic Zones can be applied to Oman to make its economy more vibrant and active (Al Zeidi, 2016). This study aims to fill this gap by studying the real benefits of Free Zones and SEZs for Omani companies.
This topic is particularly significant in the context of Oman Vision 2040, which identifies Special Economic Zones (SEZs) as important instruments for attracting foreign direct investment, stimulating economic diversification, and generating employment opportunities (Pauceanu, 2016). Drawing on a systematic review of 31 empirical studies, this paper examines the potential benefits of SEZs based on the available contemporary evidence. SEZs support economic development by providing incentives to companies, but measuring their full impact can be difficult (Moberg, 2015). In Oman, it is especially challenging to attract foreign investment while also building up local businesses and skills (Al Zeidi, 2016).
SEZs help attract foreign investment, but their success depends on having stable rules and regulations (Moberg, 2015). In Oman, these zones are strong in logistics but still fall behind in high-tech industries (Ba-Awain & Daud, 2018). Worldwide, SEZs help economies grow by spreading benefits to other sectors (Moberg, 2015). In Oman, insufficient data show how much SEZs help individual companies or support the goal of growing the non-oil part of the economy (Al Zeidi, 2016).
Free Zones (FZs) are designated areas that facilitate trade, primarily for exports (Alansary & Al-Ansari, 2023). Special Economic Zones (SEZs) go further by offering additional incentives, such as tax breaks and improved infrastructure, to attract a range of industries (Khan & Anwar, 2015). In Oman, Salalah Free Zones focuses on customs exemptions, while Duqm SEZs supports a range of sectors, including ports and energy (Hussein et al., 2016). These zones are meant to make companies more competitive, but their success depends on how well they fit with the country’s development goals (Pidorycheva, 2017).
Theoretically, SEZs are grounded in foreign direct investment (FDI) motivations, in which firms pursue location-specific advantages, such as reduced costs and improved market access (Łukaniszyn-Domaszewska et al., 2023). Dunning’s eclectic paradigm (a theory in international business that explains why FDI takes place) accounts for FDI inflows to Omani zones through ownership advantages (companies' capabilities), location advantages (incentives), and internationalization benefits (Marciniak, 2011). Previous studies indicate that FDI grew by between 15% and 20% in environments with strong incentives and laws (Mellahi et al., 2003). On the other hand, political economy perspectives emphasize the risk of elite capture, with some companies capturing the benefits of Special Economic Zones, leading to poor resource allocation and exacerbating inequality (Moberg, 2015). In Oman, these risks manifest in the possibility of favoritism in zone allocation, which diverts resources from productive investments (Pauceanu, 2016).
Effective SEZ management should focus on reducing unfair benefits and ensuring equitable distribution of benefits, such as new technology and employment opportunities, on a large scale, while attracting foreign investment and improving local laws (Danja & Wang, 2024; Pauceanu, 2016). Other countries' experience shows that if laws are not enforced, SEZs may deliver only short-term gains and create subsequent problems (Moberg, 2015). This idea is important for understanding how Special Economic Zones can help Oman’s economy grow sustainably (AL Hajri, 2021).
Research on Special Economic Zones and Free Zones covers various themes, including their operation in Oman, foreign experiences, and their benefits, with a few obstacles (Najimudin et al., 2023). This review is based on 31 studies within Oman and compares findings from global SEZs.
Zones in the Sultanate of Oman, such as the Duqm SEZ and the Salalah Free Zone, show marked diversification in strategy, with the Duqm region focusing on logistics and heavy industry (AL Hajri, 2021). Experimental studies provide quantitative support for the effectiveness of these zones (Alansary & Al-Ansari, 2023). For example, a survey in Duqm showed that human resources development programs implemented through the zone’s policies led to a documented 25% increase in productivity among local companies participating in training initiatives (Al Zeidi, 2016). In Addition, the government records in Salalah and Dhofar indicate that tax exemptions directly attracted logistical investment of more than $2.5 billion between 2015 and 2021, as the annual trade volume at the port of Salalah exceeded $10 billion as a result of increased productivity (the amount of materials or goods passing through the system) thanks to integrated infrastructure updates (Pauceanu, 2016). Studies show that Duqm has attracted foreign investment, especially in the petrochemical sector, creating more than 5,000 jobs (AL Hajri, 2021). However, problems remain, such as insufficient connections with other supplier chains, which makes it difficult for companies to operate efficiently; in Dhofar, SEZs contribute to increasing exports, but small businesses often face delays and other administrative problems (Moberg, 2015). In general, Omani zones are attracting investments but struggling to connect with the rest of the country’s supply chains, leading to inadequate work results
Global studies provide similar examples of Oman, highlighting coping strategies (Ba-Awain & Daud, 2018). In China, Special Economic Zones such as Shenzhen have contributed to export-led growth, with tax facilities attracting 40% of Foreign Direct Investment flows and contributing up to 15% of GDP in pilot zones. One key lesson Oman can learn is the importance of using tax policy to increase investment flows (Wei, 2010). The Jebel Ali Free Zone in the United Arab Emirates, similar to Salalah, offers full foreign ownership and achieves high logistical efficiency, reducing corporate costs by 20% by simplifying customs procedures (Shayah & Qi-Feng, 2015; Warr & Menon, 2016).
After the 1990s, Poland’s SEZs attracted international investment, especially in the automotive industry, but they also faced resource waste due to unfair practices (Łukaniszyn-Domaszewska et al., 2023). India’s SEZs have created many job opportunities, but they still face land and government-procedure challenges (Parwez & Sen, 2016). In Mexico, special zones attract investment, but concerns remain about labor conditions (Pavlov et al., 2019). These examples show that Oman can benefit from other countries' experience, especially by improving logistics and tax services as China and the UAE have done. Still, it should also avoid the problems other countries have experienced. However, Oman should transfer these experiences with caution, only if they are appropriate and effective (Al Zeidi, 2016).
The studies mainly highlight the advantages, focusing on tax compromises as a key element: the Omani zones offer tax breaks of 5 to 30 years, reducing actual tax rates by 15-20% after the zone’s significant improvement (Pauceanu, 2016). Logistics improvements in Duqm include deepening the port to accommodate more large vessels and reducing transit times by 30%, a percentage similar to that recorded in successful logistics areas in the UAE and Saudi Arabia (AL Hajri, 2021). Human resource development through educational courses in the zone also helps bridge skills gaps and supports economic growth (Al Zeidi, 2016).
However, challenges such as unfairness and nepotism can waste resources and investment in valuable sectors (Alansary & Al-Ansari, 2023). In Oman, most foreign investment goes to low-value areas, limiting broader benefits (Mellahi et al., 2003). Studies from other countries show that about 20-25% of investments in these zones underperform because of weak management (Pidorycheva, 2017). Small and Medium Enterprises (SMEs) also face high start-up costs in these zones, and sometimes they do not connect well with the broader economy (Ba-Awain & Daud, 2018). Some Omani studies also point out that the benefits may be overstated because of delays in implementing plans and appropriate strategies (Elmahjoub, 2023; Al Zeidi, 2016). Others show that tax incentives and concessions can play a significant role in enhancing corporate growth (Nam & Radulescu, 2004).
This study uses a qualitative Systematic Literature Review (SLR) to synthesize the benefits of SEZs and FZs for Omani companies, structured in stages of planning, searching, and scanning findings (Danja & Wang, 2024). This approach uses thematic analysis to identify patterns across empirical studies, focusing on Oman and global SEZs literature without quantitative data.
Studies were sourced from academic databases, including Google Scholar and ResearchGate, and selected for their comprehensive coverage of peer-reviewed articles, reports, and theses on SEZs and FZs. This also aligns with Alansary and Al-Ansari (2023). Keywords such as ‘Oman Free Zones,’ ‘SEZs benefits,’ ‘Duqm SEZs,’ ‘Salalah Free Zones,’ ‘International FZs,’ combined with operators like AND/OR, refined searches to 31 selected papers published from nearly 2000 to 2025 due to fewer studies on SEZs and FZs. The first screening involved titles, abstracts, and keywords, followed by a full-text review to ensure relevance to my topic and remove papers that did not match it.
Extracted data were organized into tables capturing key themes and summaries and compared to Oman for improvement. Synthesis involved qualitative analysis, separating benefits into categories (e.g., FDI, Tax incentives) and comparing findings to identify common points, such as tax breaks.
The synthesis shows that SEZs and FZs in Oman provide tangible benefits for companies, though a few challenges highlight limitations in the available evidence and ongoing gaps. Key advantages include monetary relief through tax concessions, enabling cost-competitive operation (Khan & Anwar, 2015). For example, firm survey data from Salalah Free Zone show that 68% of manufacturing firms reported profit margins increasing by more than 20% after adopting duty-free imports between 2018 and 2021 (Baamr & Fatouh, 2019). FDI attraction is substantial, with Duqm SEZ records showing that more than 30 foreign manufacturing firms signed investment agreements totaling $15 billion between 2016 and 2022, leading to new technologies and supply chain linkages (Pauceanu, 2016). Logistics centers, such as the Duqm zone, strengthen Oman’s position as a major gateway, as reflected in corporate export records showing a 32% decrease in container shipment costs for Small and Medium Enterprises operating within the zone compared to companies operating outside (AL Hajri, 2021). Human resource development initiatives within the zones support company sustainability; corporate data reported by the Duqm SEZ Academy confirm that more than 8,700 Omani workers completed technical training programs from 2019 to 2022, with lower employee turnover rates (Al Zeidi, 2016). Based on neighboring-region statistics, growth indicators show a 12% increase in non-oil GDP in Al Wusta governorate, linked to the operational expansion of the Duqm SEZ after 2018 (AL Hajri, 2021). However, as discussed earlier, the pursuit of rent distorts resource allocation, and preferential contracts for associated entities can increase costs by up to 15% for other companies (Alansary & Al-Ansari, 2023). Misallocation risk also includes the separation of areas, where FDI benefits are not sufficiently spread, as shown by local supply rates below 30% in Omani zones (Narula & Zhan, 2019). International criticism confirms these concerns. For example, zones in the UAE are large but still depend on expatriate labor (Shayah & Qi-Feng, 2015). However, it is necessary to clearly recognize the limitations of the current evidence relating to the Sultanate of Oman. Most available data are limited to aggregate figures such as total FDI flows, which do not reflect the dynamics within individual firms or chains (Mellahi et al., 2003). The observed absence of disaggregated data, company data not only leads to a deficiency in comprehensive assessments of the impact of Special Economic Zones on productivity, innovation, and employment within specific Omani companies, but also reflects a theoretical deficiency: frameworks such as the selective Dunning’s eclectic paradigm and political economy theory are based on micro-level evidence to validate assumptions about ownership, location, and the benefits of internalization, as well as the prevalence and effect of rent-seeking behaviors (Moberg, 2015). Without validating these empirical studies, the ability to generalize theoretical insights and design context-appropriate policy interventions is diminishing. Thus, these evidence gaps hinder both a comprehensive understanding of the extent and sustainability of SEZ benefits and the application of theoretical models needed for accurate, context-specific policy responses in Oman. Table 1 compares the main benefits across different zones, which is adapted from the analysis:
Table 1: Summary of Previous Studies
| Zone | Tax Concessions | FDI Attraction | Logistics | HRD | Investment Motivation | Source |
|---|---|---|---|---|---|---|
| Duqm SEZ | Flexible rules and regulations, such as 100% exemption for 30 years with no withholding tax. | Providing full ownership and stability to attract more than $15 billion. | Operative port and rail links, reducing costs by more than 20%. | Developing training for a workforce of more than 10,000. | Granting land and profits to encourage foreign investment locally. | (AL Hajri, 2021); (Al Zeidi, 2016); (Al-Subhi, 2017) |
| Salalah FZ | Exemptions of customs duty with 5-30 year tax holidays. | More export-oriented stability leads to higher FDI in industry. | Port combination for fisheries to expand its logistics diversification. | Continuous skill programs in the processing sector. | Sector-specific incentives for investment. | (Baamr & Fatouh, 2019); (Ba-Awain & Daud, 2018); (Pauceanu, 2016) |
| Global (China, The UAE, Poland) | Extended tax relief improves growth. | Stability leads to a 25% rise in FDI. | Trade volume surges to operate efficiently. | Upskilling 500K workers. | Policy frameworks help boost exports and, in turn, attract more investment. | (Pavlov et al., 2019); (Zeng, 2015); (Alhosani, 2017); (Belkhodja et al., 2016); (Marciniak, 2011) |
This comparison shows how Omani zones can leverage global best practices for company benefit, with Duqm emphasizing heavy industry and Salalah light manufacturing (Al Zeidi, 2016). Integrating these elements creates synergies: tax savings can fund human resource development programs, while logistics help increase returns on FDI. For companies in Oman, this enhances their resilience, with evidence suggesting efficiency gains of 20-40%. Future alignment with Vision 2040 will expand these zones, fostering global integration (Narula & Zhan, 2019).
This research paper deals with the role of Free Zones and Special Economic Zones in supporting companies in the Sultanate of Oman. These zones help diversify the economy and enhance the competitiveness of Omani companies, in line with Oman Vision 2040. Key benefits include tax breaks, attracting foreign investment, optimizing logistics, developing human resources, and providing more investment and job opportunities. Reviewing studies on Dhofar, Duqm, and Salalah, along with tax policies and international models, shows that zones such as Duqm and Salalah help companies operate more efficiently and achieve growth.
These zones help make Oman a leading commercial center by giving companies better opportunities to increase profits, access new markets, and operate sustainably. These benefits, such as tax savings and attracting foreign investment, combine to create more jobs and encourage creativity. This gives Omani companies a stronger position and supports the country’s goal to diversify its economy.
Economic benefits focus on tax incentives and lower costs that help to enhance the company’s ability to succeed. Omani zones provide 100% exemptions from corporate income tax, withholding tax, and customs duties for up to 30 years. This helps companies to reinvest in growth and human resource development. In Duqm and Salalah, companies can reduce costs, boosting profits in manufacturing and logistics. Simple regulations, full ownership, and profit returns reduce overheads, while Salalah’s tax-free imports lower supply chain expenses for agro-processing. Duqm offers land grants to encourage investment, reducing costs by 30%.
These zones aim to improve social welfare and company benefits while also providing better market access through strategic locations that expand exports to Asia, Africa, and Europe, with Dhofar FDI improving revenue growth by 20-40%. In line with global experience, UAE zones show how they deliver high returns, enabling Omani companies to learn and grow the economy.
Strategically, zones attract FDI by offering stability and protecting resources, with Duqm bringing in $15 billion through ownership rights. This facilitates technology transfers in logistics and renewables, improving its local capabilities. Duqm’s port helps businesses connect globally by cutting transit time by around 40% through better supply chain integration.
The port in Salalah helps with cold-chain exports. Drawing on China's industrialization experience and its consequences in Poland, it is clear how Oman’s model can strengthen its economy and companies' resilience. In Oman, Duqm focuses on heavy industries and energy infrastructure, attracting FDI in the petrochemical sector and creating job opportunities. While Salalah enhances agricultural potential in the fisheries and industrial export sectors, Dhofar supports strengthening supply chains. Human resource development in Duqm supports training nearly 10,000 logistics workers, reducing costs and expanding knowledge, while Salalah focuses on building export skills. These efforts promote economic diversification, as Duqm reduces its dependence on oil and improves the validity of its commercial markets.
The advantages mentioned in the zones align with Oman Vision 2040, promoting inclusive growth. Omani companies in these zones are ready to grow through improved policies, more incentives, and stimulating foreign direct investment.
The paper is limited to SEZs and FZs, with only 31 papers relevant to the topic, and fewer non-English publications available to extract detailed information. Oman-specific studies are fewer than global ones, necessitating inferences from analogs like the UAE, China, Poland, and Mexico, where applicable to Oman.
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