Trading up: Boosting economic ties increases regional integration

A substantial number of new international economic agreements have boosted Ras Al Khaimah in recent years, largely as a result of government-led industrial development measures put in place over the past decade. The emirate has established trade relationships with a diverse group of nations, including Tanzania and the US. Rising export revenues have allowed the government to invest heavily in ambitious social reform programmes. Similarly, as the emirate’s reputation has grown, it has attracted an increasing amount of foreign investment.

BACKGROUND: Since the UAE was created in the early 1970s, trade and economic ties have been at the centre of the country’s foreign policy. The rise of Abu Dhabi and Dubai as regional financial and tourism centres, respectively, in the late 1990s and first half of the 2000s was closely related to an increase in international economic cooperation between the UAE and a number of major economic powers. Even in the wake of the 2008-09 international financial downturn, which had a negative impact on the country – though not nearly to the extent of many Western economies – the federal government has highlighted the importance of expanding and deepening economic integration. The topic of trade ties was a central talking point at the 2011 Global Arab Business Meeting, held in RAK in early October. According to a speech delivered at the event by Sheikha Lubna Khalid Al Qasimi, the UAE’s minister of foreign trade, continuing to ramp up economic integration – in particular with nations in the Middle East and North Africa – is the best way to ensure regional peace and stability, not to mention steady economic growth.

A HISTORY OF GROWTH: RAK boasts a number of competitive advantages for industrial development. The emirate’s location on the Strait of Hormuz means that local exporters and trans-shipment firms have direct access to one of the world’s busiest shipping lanes. The proximity of the strait translates into shipping prices that are considerably lower than in the UAE’s other major economic centres in Dubai and Abu Dhabi. Additionally, RAK is not nearly as built-up as many of its neighbours. The emirate has a substantial amount of undeveloped, affordable land, which is a boon for industrial firms looking to set up shop in the Gulf. Finally, RAK is home to sizeable amounts of a wide variety of mineral deposits. Extensive limestone deposits in the Al Hajjar Mountains, for example, have resulted in the development of a thriving construction materials segment, making RAK a main supplier in the UAE for construction materials.

THE LONG GAME: In addition to these natural advantages, the emirate has benefitted from decades of careful government oversight, with an eye to developing the industrial sector. RAK’s current status as a growing economic player in the UAE and further afield is the result of a long period of economic liberalisation, government investment and reform.

The industrial sector, which today accounts for the great majority of the emirate’s export revenues, was launched in the 1970s and 1980s by Sheikh Saqr bin Mohammed Al Qasimi, who ruled RAK from 1948 until he passed away in 2010. Sheikh Saqr played an integral role in setting up the UAE’s first cement factory in 1974. He was also one of the founders of RAK Ceramics in the 1980s. Today the firm is the largest ceramics manufacturer in the world.

After Sheikh Saud bin Saqr Al Qasimi, Sheikh Saqr’s son, took over the day-to-day operations of RAK in 2003, he introduced a series of ambitious economic reforms and targeted investments in the industrial sector. Sheikh Saud’s government has focused on improving the emirate’s transport and industrial infrastructure and increasing transparency requirements for government players and private sector firms, with the long-term goal of boosting overall economic diversification. In recent years RAK has benefitted from the development of a modern transport network. RAK is home to five interconnected ports, an international airport and a series of major road links. RAK is also expected to play a major role in the planned UAE-wide Etihad Railway network, which is currently in the early stages of development.

INDUSTRIAL HEAVYWEIGHT: Perhaps the government’s most important move in terms of developing the industrial sector was setting up the RAK Free Trade Zone (RAK FTZ) in May 2000 and, five years later, the RAK Investment Authority (RAKIA). These two entities, which remain 100% owned and operated by the government, have had a major impact on the emirate’s industrial development. RAK FTZ- and RAKIA-operated industrial areas are home to the majority of the emirate’s largest and most successful companies. The planned RAK Maritime City will provide similar incentives for maritime-based industry.

The industrial sector, which includes steel production, mineral processing, limestone quarrying and manufacturing, is responsible for nearly one-third of RAK’s GDP, according to the RAK Department of Economic Development (RAK DED). Foreign investment has stagnated slightly in other parts of the region as a result of the Arab Spring (see analysis), but RAK has remained popular among international and local investors alike. Indeed, as costs and risks rise elsewhere in the region, RAK may benefit from a bump in business. “There is a migration of companies from other GCC countries and the Middle East into RAK,” Alex Thomas, the general manager of marketing at RAKIA, recently told local press. “They are conscious about cost.” According to RAK DED, the emirate’s economy grew by 8% in 2011.

AROUND THE WORLD: While federal diplomats in Abu Dhabi handle the UAE’s official foreign policy, each emirate is allowed to pursue trade and economic relations with as many foreign entities as it likes. RAK has made good use of its autonomy in this area by ramping up foreign trade in recent years. Businesses operating in RAK hail from a variety of locations.

RAK FTZ is home to over 5000 firms from more than 106 countries, including, notably, India, Egypt, the US and the UK. As of early 2010, around 95% of these firms were small and medium-sized enterprises (SMEs). In 2011 RAK FTZ saw 2033 new firms register to do business in RAK, a 17% jump on 2010. Similarly, in the first six months of 2011, around 800 new companies were registered with RAKIA, up 31% over the same period in 2010. The authority is home to more than 3000 firms. While the majority of these companies registered under manufacturing licences, there has been increased interest in trade licences in recent years as well, according to RAKIA.

MAJOR PARTNERS: While RAK does business with companies from both hemispheres, the emirate maintains especially close ties with a handful of nations and areas. China and India are both leading trading partners, for example. Around 30% of the firms registered at RAKIA at the end of 2009 were based in the sub-continent. Similarly, European companies accounted for 18% of the firms registered with RAKIA, Asian firms for 7%, US-based companies for 3%, and Russian and other Commonwealth of Independent States-based firms for around 2%.

RAK’s thriving tourism market has the potential to attract new hoteliers and other tourism-related companies from around the world in the coming years. A handful of local organisations are working to boost trade ties in foreign markets. For example, in mid-May 2012 RAK FTZ sent a delegation to Pakistan, with the goal of attracting Pakistani businesses to invest in the emirate, either in the form of foreign direct investment (FDI) or by setting up new companies in the UAE. The delegation participated in a series of seminars in Karachi and road show events in smaller economic centres throughout the country. RAK FTZ is already home to a substantial number of Pakistan-based firms, which are active in a wide variety of industries. In an effort to boost ties with Korean and other East Asian firms, RAK FTZ also recently sponsored the UAE’s inaugural Made In Korea exhibition, which was held in Abu Dhabi in mid-May 2012. Contacts made at the event are expected to eventually lead to new business opportunities for Korean firms looking to set up shop in the UAE and vice versa.

Trade with the US, in particular, has ramped up rapidly. In the past decade the UAE’s exports to the US jumped by 18%, from $971.1m in 2000 to $1.15bn in 2010, according to official statistics. In 2010, the most recent year for which data is available, the UAE was the US’s largest export market in the Middle East, and the 21st-largest overall. The two countries trade a wide variety of products, including manufactured metals, chemicals, transport equipment, machinery and electronics, among others.

Both RAK and the US are working to encourage additional trade in the future. In early 2012 Oussama El Omari, the CEO of RAK FTZ, met with Michael Corbin, the US ambassador to the UAE, to discuss future cooperation plans. “The visit is an opportunity to reinforce our positioning as a business hub geared at helping SMEs and global businesses to set up in the region,” El Omari told local press during the meeting.