A friendly location: Free zones, industrial parks and other services cater to investors

The establishment of free zones – dedicated areas where businesses are exempted from various laws and regulations – has been used in many countries to attract foreign investment, notably in the UAE. The federal system, with its largely decentralised economic decision-making, means that almost all emirates have set up free zones. Ras Al Khaimah is no exception, and it has pitched its free zones very carefully, only targeting areas in which it has a distinct advantage.

Many of the incentives offered by free zones in RAK are broadly similar: no income, sales or corporate taxes; no restrictions on foreign exchange, repatriation of capital and profits, or foreign ownership; a transparent regulatory environment; and good connectivity, particularly to the major urban centres of Abu Dhabi and Dubai. While many emirates and other Gulf states have set up free zones to attract investment, RAK is different in that it has only a few, and each has been developed with input from the particular industry it aims to serve, resulting in well-designed zones tailored to economic niches. RAK has traditionally aimed for economic specialisation, and its free zones have reflected this policy from the start.

RAK FTZ: RAK’s first such zone was RAK Free Trade Zone (RAK FTZ), founded in 2000. RAK FTZ caters primarily to the needs of SMEs and is home to more than 5000 companies, active in a wide range of fields, including commercial services, trading, IT and consulting. RAK FTZ has ready-built offices and warehouses, accommodation for labourers and managerial staff, and land for development. Licences can be issued within a few days and the zone is able to sponsor visa applications to facilitate the deployment of skilled staff from abroad.

In 2011 RAK FTZ registered 2033 new companies, up 17% on the 1740 recorded in 2010. Renewals were up 16%, from 3271 to 3776. Marketing and management companies made up 14% of the businesses in the zone, while IT firms accounted for 13%, and building and construction firms 10%. RAK FTZ has taken a proactive approach to marketing, with strong use of social media and its own promotion offices in India, Turkey, Germany, the US, Abu Dhabi and Dubai. In its 2011-12 evaluation of 115 free zones in the Middle East, fDi Rakeen, which is due to be completed by 2013. Meanwhile, the benefits of offshoring and outsourcing activities with RAK Offshore are available to a wide range of companies, including multinationals, general and corporate trusts, and investment funds, as well as individuals. RAK Offshore has strong asset protection rules, confidentiality of execution, tax treaties with over 60 countries, a stable political and business environment, and strong anti-money laundering rules. “RAK has exceptionally high anti-money laundering compliance standards, and a 30% cheaper rate for setting up businesses compared to other jurisdictions,” Michael Schuster, the general manager of RAK Offshore, told OBG.

REGISTERED AGENT: New companies are assigned a registered agent to handle paperwork, either an individual lawyer or consultant, or a firm dedicated to this business. In 2011 RAK Offshore registered over 6000 businesses and 200 agents, making it one of the main drivers of economic growth in the emirate. The growth of a number of financial centres in the Gulf – notably Bahrain, Qatar and Dubai – means RAK has to concentrate on niche markets. Among these, RAK Offshore has identified partnerships with developing world markets, high-tech industries, and registries of private yachts and leisure boats. “We see a large opportunity in the development of marinas in the UAE, so we will be providing maritime registry services to facilitate the growth of this segment,” Schuster said.

INDUSTRIAL PARKS: Although not nominally free zones, RAKIA also operates two industrial parks, Al Hamra and Al Ghail, where investors benefit from many of the same incentives. More than $3.5bn in investment has come to these zones since RAKIA’s foundation in 2005, and some 900 companies have begun operations there. The bulk of these are manufacturing firms, engaged in fields such as ceramics, glass, steel and consumer goods. As with the free zones, RAKIA is able to respond to licence applications within just a few days. RAKIA also cooperates closely with RAK FTZ, with the option to incorporate there and evaluate the market before committing to setting up production facilities.

Investors in RAK do face challenges, but these apply to the whole emirate, not just the free zones. The main concern is the availability and price of electricity, due to a supply crunch toward the end of the past decade, when growth in capacity fell behind the rate of industrial expansion. RAKIA now operates its own power system, with a capacity of 129 MW, and a combination of independent power plants and capacity upgrades by the Federal Electricity & Water Authority (FEWA) mean supply and demand are now more or less in balance. Power constraints should ease as investments by FEWA and the RAK authorities start to feed through. On the plus side, the Etihad Rail project – a federal scheme to link all seven emirates in the UAE by rail – will benefit RAK by improving connectivity with the UAE and the wider GCC. On completion in 2017, RAKMC is likely to be a significant beneficiary, as it will be situated close to a major railhead. This will allow RAK’s free zones and businesses to better leverage the emirate’s advantageous location and infrastructure.