Moving on up: The transition towards higher-value finished and semi-finished products continues

In the Gulf, diversification is the name of the game. Directly or indirectly, the region derives most of its income from hydrocarbons. Given that these resources are finite, governments have long sought to reduce this dependency by promoting growth in non-oil sectors, such as manufacturing, tourism and banking, with varying degrees of success. RAK has so far been one of the region’s most successful examples of diversification.

Although the economy is small in absolute terms, worth Dh17.6bn ($4.8bn) in 2010, according to the RAK Department of Economic Development (RAK DED), the emirate has long been a leader in terms of diversification. This is partly due to nature – it possesses very little in the way of oil and gas – and partly because of foresight on the part of the authorities, which have pursued a policy of attracting manufacturing industries for the past 20 years. Their efforts have been quite successful: in 2010 the industrial sector accounted for some 30% of GDP, against just 5% for oil, and RAK was home to several large industrial concerns as well as thriving construction, tourism and retail sectors.

20: 20 PRINCIPLE: RAK levies no taxes, instead deriving its income from a series of investments, which makes for a business-friendly government keen to attract investors. The emirate follows a “20:20 rule”, meaning that no one sector should account for more than 20% of GDP or for more than 20% of the fiscal surplus that the government aims to generate each year. These rules have led to the creation of a diverse economic base that is resilient and increasingly specialised.

RAK has made the most of the resources it possesses (notably limestone deposits in the Hajjar Mountains), and industries based around the processing of this material – quarrying, cement and ceramics – are among the oldest in the emirate, with local group RAK Ceramics the world’s largest ceramics producer by volume. However, new industries have been attracted to RAK in recent years and their range is among the broadest in the GCC. Metals has been a notable growth segment, with Saudi group Zamil Steel coming to RAK in 2006; it now produces 40,000 tonnes of pre-engineered steel buildings a year. New developments in the pipeline include a copper and gold smelter by Unifico, a Swiss mining group, which is due to open in 2013, and an antimony processing plant by a joint venture between UK mining group TriStar Resources and local conglomerate Union International Holding Group.

ADDING VALUE: There is a slow but discernible trend towards producing higher-value finished and semifinished products in RAK, moving away from the basic industries that dominate the industrial make-up of the non-oil sector of many other Gulf economies. For example, pharmaceuticals is a well-established sector in RAK, with local firm Gulf Pharmaceutical Industries, or Julphar as it is better known, one of the leading producers of generic drugs in the GCC. Slowly, the group is moving towards higher-value products like insulin, having invested in a new facility to turn out 1500 kg (equivalent to 50m phials) a year of insulin, making RAK the world’s fourth-largest producer.

In the glass industry, RAK has been home since 2010 to Ghani Glass, a RAK-Pakistani joint venture producing glass bottles for the pharmaceuticals industry, which complements the emirate’s factories producing sheet glass for use in construction. Factories that turn out articles such as batteries and steel cables and other consumer goods have also recently joined RAK’s industrial scene, as has optical media firm Falcon Technologies International, a producer of Blu-ray discs and archival solutions. Sridhar Vaidyanathan, head of corporate finance and investments at the RAK Investment Authority (RAKIA), told OBG that he sees RAK as a natural centre of high-end manufacturing 10 years hence.

However, in any modern economy, services are of increasing importance, and RAK is no exception. Developing the service sector helps to create jobs, and with this in mind RAK is looking to expand its tourism, retail, real estate and financial services industries.

TOURISM & KNOCK-ON EFFECTS: Developing tourism is logical for RAK. The emirate has 65 km of coastline, mountains up to 1500 metres, hot springs, and a number of forts and other historic sites. The emirate is able to benefit from the high profile of neighbouring Dubai, which is well known across the globe as a tourism destination, but can differentiate itself by appealing to a somewhat different demographic. Its location, just under an hour’s drive from Dubai International Airport and next to Oman’s Musandam Peninsula, allows RAK to market itself as a convenient alternative. The emirate has its own airport, with charter flights to Germany, Austria and Sweden, and is planning to expand the number of direct flights from Northern Europe. RAK Airways, the emirate’s flagship carrier, also has plans to expand the number of routes it serves, though currently these are mostly geared to the Middle East and North Africa region and the Indian subcontinent.

Increasing tourist numbers, together with a growing population, are helping to spur real estate developments in the emirate. The number of hotels has expanded rapidly over the past few years. The Rotana Cove, Banyan Tree Al Wadi, and Hilton Resort and Spa opened in 2009; the DoubleTree Suites, serviced apartments belonging to the Hilton Group, followed suit in 2011; and several more hotels are in the pipeline, including the Waldorf Astoria, set to open at the end of 2012. In addition to hotels, tourists also help to make a number of mixed-use developments more viable, particularly in terms of the retail element. Some of the biggest developments under construction in RAK include the Marjan Island development, an artificial island featuring hotels, villas, malls and leisure facilities; Saraya RAK, another mixed-use development on an artificial island; and RAK Financial City, which will house RAK Offshore upon completion.

OFFSHORE: A subsidiary of RAKIA, RAK Offshore is charged with attracting and licensing offshore financial business. RAK does not aim to go head-to-head with the big financial services centres in the region, but aims to target specific niche markets where it can have an advantage, including registration of private yachts. RAK is able to offer low operating costs compared to elsewhere in the region, as well as transparency and compliance with anti-money laundering regulations. RAK Offshore told OBG it aims to double the current rate of company registrations to 200 a month and have 2000 registered agents by the end of 2012.

EDUCATION & RESEARCH: Other growth areas in the emirate include education and knowledge industries. The government is promoting education, partly in response to the need for a greater skills base among the national labour force, but also because it increasingly recognises that education can itself be considered an industry, and the emirate is now home to several universities. Of these, RAK College is public and forms part of the Higher Colleges of Technology, a federal public institution with branches throughout the UAE. The others are private institutions, a number of which are either campuses of overseas institutions or joint ventures with foreign universities. Among these are the University of Bolton, an English university which established a campus in RAK in 2008, while the American University of RAK opened its doors in 2010. A number of Indian higher education institutions also have campuses in RAK. As of 2010, the total number of students in higher education was around 3300, according to figures from the RAK DED.

In addition to these campuses, a number of research institutions have set up test sites and research centres. Many of these are Swiss institutions, including the Centre Suisse d’Electronique et de Microtechnique, which is investigating solar energy, and the École Polytechnique Fédérale de Lausanne (EPFL), which is looking into smart power grids. The EPFL opened a campus and research centre in 2009. Over the long term, such institutions are likely to support the growth of high-tech industries by improving the pool of engineering talent available locally and via the creation of spin-off firms set up to commercialise their research.

Given the importance of education to the emirate’s ongoing development, the Sheikh Saud bin Saqr Al Qasimi Foundation for Policy Research (SSFPR), a local NGO, is working on several strategies to improve provision in RAK and the UAE. Founded in 2009, SSFPR is committed to developing policy research in education in collaboration with the federal government and international researchers; in addition, it also runs development and exchange programmes for local teachers.

KEY TO SUCCESS: The key to RAK’s success in diversification has been that the emirate was an early adopter of the principle of specialisation. With its small population and limited resources, RAK quickly learned to concentrate on niche markets, while making the most of its proximity to larger economies such as Abu Dhabi and Dubai. RAK has positioned itself as a low-cost, low-bureaucracy environment for more specialised, smaller-scale projects. This has resulted in the development of a diverse range of industries and made the emirate’s economy one of the most resilient in the GCC. As investment comes into RAK in the years ahead, the diversification of the local economy is only likely to continue.