IN THE ZONE

Ras Al Khaimah 2017 | ECONOMY & FINANCE | REVIEW: ECONOMY

The Emirate has become a strong symbol of the broader UAE vision of strength through economic diversification.

Ras Al Khaimah enjoys a fortuitous geographical setting, being the UAE's first point of entry in the Arabian Gulf. It is also blessed with some of the best aviation networks in the world, meaning its commercial endeavors are a four-hour flight away from 31% of the world's population in the Middle East and the emerging markets of East Africa and South Asia. It also enjoys excellent express highways, and coastal ports, not to mention a new rail network scheduled for the coming years.

As Abdul Mohaymen Kunbargi, CEO of Union Investments, active in real estate, transport, manufacturing, and hospitality, explained, “a comprehensive government plan is in place to transform the UAE from an oil-based to a knowledge-based economy, [which] for Ras Al Khaimah will translate into a greater focus on industry, related services industries, and the infrastructure to support both." Notably, too, seven of the UAE's 11 cement plants are in Ras Al Khaimah, as well as a wealth of heavy industry, including RAK Ceramics, one of the world's largest ceramics producers. Its urban and industrial infrastructure has been honed to the standard expected by industrial investors elsewhere in the UAE, not least in the absence of an oil economy in the traditional sense, as no exports are made from local production. As Ramy Jallad, CEO of the RAK Investment Authority (RAKIA) & RAKFTZ industrial free zones, explained, “The Emirate's biggest revenue stream is not from oil but from the export of construction materials to the neighboring countries." In 2014, for example, the Emirate, through RAK Gas, collected just 15% of its total revenues from gas, down YoY from 26%.

Ras Al Khaimah's commitment to becoming a knowledge-based economy comes with the added appeal of being a safe environment in a region of turmoil for both local businesses, and as a stepping stone to wider markets. This has prompted the government to diversify its economy towards industry, simplify the business environment, and increasingly look to tourism, including the potential for medical tourism. Success in this ambition is confirmed in the Emirate's “A" rating from both Fitch and Standard & Poor's. The Emirate has also opted to pursue diversification by developing itself into an industrial hub drawing strength, and FDI, from a network of industrial free and non-free trade zones.

The Performance? Fitch Says, 'A' OK

Annual growth of local economic indicators has been at close to 9-10% in recent years, and the Emirate, while subject to federal law in some areas such as health, enjoys autonomy over internal affairs, fiscal policy, and economic development. The Emirate, like the nation overall, is very much oriented to the private sector, looking to it to boost key new sectors that will become tomorrow's growth engines, such as tourism and education. Underpinning the overarching dedication to economic diversity, no single sector of the economy exceeds more than 20% of total GDP. And with industrial, manufacturing, and mining at the tip of its economic spear, the Emirate stands to benefit ahead of key upcoming regional events such as the Expo 2020 and the 2022 FIFA World Cup, and is expected to outpace overall UAE growth.

Perhaps predictably then, in May 2016 Fitch Ratings affirmed Ras Al Khaimah's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'A' with a 'Stable Outlook.'

Additionally, the UAE Country Ceiling was affirmed at 'AA+,' applicable to Ras Al Khaimah and Abu Dhabi. The ratings decision was based upon RAK's membership of the UAE, as well as a low debt/GDP ratio and firm fiscal performance, despite protracted macro indicator weakness. Notably, UAE membership means that the Emirate requires no foreign exchange reserves of its own. Furthermore, essential public services and infrastructure are supplied directly by the federal government, which is a blessing for the local budget.

Recent efforts to standardize financial planning and control, too, were applauded. Accordingly in 1Q2016, the Financial Planning and Analysis Division commenced quarterly monitoring of departmental spending. And meanwhile, the Emirate's headline government debt ratio is predicted to decline to 16.6% in 2016 from 21.9% in 2015 in the absence of new debt; Fitch foresees a further reduction of debt in 2017 and thereafter. Additionally, Fitch anticipated cash deposits across government entities to decline to 4.9% of GDP, noting that at end-2015 the government's listed domestic equity investments had been at around 19% of GDP 2015, going on to incur a 22% valuation loss for that year on market volatility. Fitch expects a budget deficit of 1.4% of GDP in 2016, versus the 2015 surplus of 0.3%. In the details, Fitch foresees lower increases in revenue generated by free trade zones, real estate, and healthcare, in step with the lower-than-anticipated prints of 2015. The expectation for tourism was also for a smaller-than-budgeted revenue rise.

The Emirate will be supported by sustained expenditure on infrastructure projects to mitigate economic slowdown, including projects carried over from 2015. Fitch identifies the expansion of Saqr Port, and infrastructure investments in the RAKIA Free Trade Zone, as well as investment on Al Marjan Island in a community project, among others. The ratings agency foretells annual growth of 4% for 2016 and 2017, fueled by tourism, construction material exports, and the business generated at the Emirate's trademark free trade zones. And meanwhile, in trade terms, Saqr Port's handled tonnage climbed 4.8% in 2015, chiefly swelled by construction aggregate exports. Next year, a new rock crusher and enlargement of Saqr Port is anticipated to boost growth.

The Ras Al Khaimah Department of Economic Development (DED)

Established as the Economic Department by Emiri Decree No. (11) of 1981, and in 2007 renamed the Department of Economic Development, this body deals with the licensing, commercial control, and consumer protection aspects of investors, and is also a source of industrial data for the Emirate. Its Chairman, Sheikh Mohamed bin Kayed Al Qasimi, stressed that companies were impressed by the Emirate's prevailing low cost of production and manpower availability, adding that “from 2015 we have experienced firm economic growth, which has translated into 22% growth in the issuance of new licenses from RAK DED for that year." According to DED figures, the GDP print of Ras Al Khaimah exceeded AED30 billion (USD8.165 billion) during 2015.

RAK Investment Authority

RAK's free zones stumped up a combined AED5.04 billion (USD1.4 billion) in 2013, at over 16% of total GDP. And Ras Al Khaimah offers the opportunity of somewhat lower costs than the national average to attract long-term FDI. Today around 500 manufacturers, and over 15,000 foreign companies from around 100 nations are incorporated in the Emirate, representing since 2000 FDI of around AED15 billion; this includes over 150 significant industrial firms that have committed total investment in excess of AED5 billion. RAKIA, established in 2005, is at the heart of this success, as a major business address combining a state-of-the-art environment with regulatory stability. RAKIA is a unique proposition, too, in offering investors the choice of being established as a free zone or a non-free zone company, which determines their terms of trading within the Emirate, as opposed to solely exporting or re-exporting. The free zone option naturally offers staples such as 100% tax exemptions, corporate and personal, 100% foreign ownership, and 100% repatriation of capital and profits. As Ramy Jallad, the CEO of RAKIA & RAKFTZ, explains, “What sets the two apart is that RAKIA offers free zone and non-free zone jurisdictions with a focus on industrial companies, while RAK FTZ concentrates on free zone formations alone with the goal of providing growth to SMEs." Ahmad bin Saqr Al Qasimi is the Chairman of the RAK Free Trade Zone. He pointed out a unique feature of the RAK FTZ, whereby it “allows construction of labor accommodation onsite to help eliminate the cost of labor transportation." In addition to Turkey and Germany, the free trade zone has a regional office in India, another key market for the Emirate.
These designated trading zones work hand in hand with RAK's governmental entities to promote the Emirate as a one-stop-shop for prospective investors. To do so requires a widening of the appeal, which, as Ramy Jallad confirmed to TBY, is precisely what has occurred. “Earlier this year we decided to open RAKIA to media companies and professionals, making it the first investment authority to service media-related businesses in the Emirate. The impact this initiative has on the Emirate is immense as the media industry is fast-growing, especially with the rise of tablets and smartphones."

Selfie Sticks and Passports

Tourism is one of Ras Al Khaimahs' key economic dynamos of the future, generating both employment and revenue. The Ras Al Khaimah Tourism Development Authority (RAK TDA) was launched in May 2011 to foster growth of the Emirate's tourism infrastructure and promote the destination both domestically and overseas. RAK TDA's three-year tourism strategy, Destination Ras Al Khaimah 2019, envisages tourism's rising economic weight, whereby revenues of AED2.4 billion are being targeted for 2018, generated by 1 million visitors, and with 15,000 people working in the sector. By 2014, tourism was accounting for a double-digit share of GDP, at 14%. In 2015, the Emirate hosted 740,383 visitors, marking a 13% YoY appreciation in overall tourism revenues. Among those enjoying the coastal and mountain attractions were notable contingents from Germany and China. And for 2016, 820,000 tourists in total are estimated to visit, including the growing health tourism component. Ras Al Khaimah has over 2 million sqkm of land earmarked for the construction of approximately 10 high-end hotel complexes. Indeed, sector data indicates a hotel capacity rise of 50% by 2019, as the current crop of high-quality hotels in Ras Al Khaimah is considered insufficient for a holiday destination on the up-and-up. Total keys by 2020 are estimated at 12,000 on a CAGR of 19% between 2016 and 2020.
In short, the Emirate of Ras Al Khaimah is aggressively pursuing sustainable economic growth through diversification. And making good use of its prime geographical location, it is providing commercial conditions conducive to the parking of FDI.