By Joanne Bladd
Ras Al Khaimah might not be as glamorous as Dubai, but it has plans to make headlines of its own.
Northern neighbour Ras Al Khaimah might not be as glamorous as Dubai, but it has plans to start making headlines of its own.
As sailing teams did battle in Valencia, Spain last month for the prized America's Cup, Khater Massaad could have been forgiven a flicker of rage. The glittering race, boasting one of the oldest trophies in international sport, was, until October, poised to be fought out in the tiny Gulf sheikdom of Ras Al Khaimah. For Ras Al Khaimah, more used to the shadow of neighbouring Dubai than the spotlight, this was its chance to shine.
Things did not go to plan. A spat between rival teams Alinghi and Oracle blew up into a storm of mudslinging - one of the more injurious claims being that Ras Al Khaimah, so close to Iran, was at risk of terror attacks - peaking in eight court cases, a last-minute venue change and blow to the trophy's reputation more savage than that delivered by a hammer-wielding Maori protestor in 1997. RAK, the venue chosen by Alinghi, was left high and dry.
From Massaad then, CEO of the emirate's state-backed investment authority, Rakia, which reportedly splashed $120m on the regatta plans, you'd expect the topic to spark some sourness.
"We are happy we were considered, and we might now be a future venue for regattas or championships," he says mildly, not sounding like a man $120m out of pocket. "It's not a bad result for us."
Some people would phrase a multimillion-dollar loss differently. "Everyone has put so many figures on this," he says. "We invested in total $15m. Of that, we've been refunded $5m by Alinghi. The remaining $10m was [spent] on infrastructure, but on things we needed to do anyway. The loss did not exceed $2m.
He grins broadly. "But it's brought so much attention to RAK, people know us now. Whether good or bad, they know. And as long as they speak about you, it's always good."
For the little-known emirate, it's been a debut of sorts. What Dubai brings in glamour, Ras Al Khaimah has in grit. Palmed in the northernmost tip of the UAE, it is the tradesman's entrance to the peninsula, known for its industry rather than its skyscrapers.
While its richer neighbours built towers, Ras Al Khaimah has built trade. Under the auspices of Rakia, the investment arm founded by Crown Prince HH Sheikh Saud Bin Saqr Al Qassimi in 2005, the tiny state has reeled in more than $2.5bn in foreign investment, a sum expected to hit $3bn this year.
Its industrial zones have handed out more than 4,500 licences to firms lured by the offer of dirt-cheap labour, low overheads, 100 percent ownership and profit repatriation. Last year, the state netted the coveted title of the region's ‘Best Foreign Direct Investment Destination' by the Financial Times and fDi magazine, trumping Dubai and Saudi Arabia's much-hyped free zones.
RAK's might not be an industrial boom on a scale to match China's - manufacturing accounted for nine percent of its GDP in 2008 - but it's certainly a boomlet.
"It's simple. RAK doesn't have oil. There is very little gas. There are no natural resources," says Massaad of the decision to take the trade route. "For any country to sustain itself, you have to create and develop an economy. Industry is long-term and it's sustainable. It's the real backbone of every economy."
The Gulf is not known for its industry, so Ras Al Khaimah is a rarity. Its growth has been anchored in the success of its flagship firm RAK Ceramics that, on Massaad's watch, grew from a single small factory to the world's largest ceramics firm. In 1998 the firm went public with total investment capital of $250m, and today employs around 12,000 staff across fifteen countries. Some 86 percent of its production is exported. Last year, net profit rose 20 percent to $71.4m.
"It's an example of what can be done here," says Massaad, who is also the firm's CEO. "We have a $1bn turnover. If ceramic tiles, which are cheap and heavy, can be exported to anywhere in the world, any other product should be able to make a business here. Industrialists trust that if this firm can be a success story, so can they."
Aiding Ras Al Khaimah's edge is its comparatively cheap labour costs. While Dubai and Abu Dhabi's skylines are dotted with superscrapers, Ras Al Khaimah still resembles a shanty town in places. With its dusty roads and giant factories, hallmarks of an industrial city, no one could accuse the emirate of a breakneck pace of growth.
As a result, it has largely sidestepped the hike in business costs and living standards seen in its neighbours, making it the most economical destination for firms eyeing entry to the Gulf.
Industry has also helped the emirate duck the worst of the financial crisis. In contrast to Dubai's soggy balance sheet, RAK's liabilities are modest, with total debt estimated at around 36 percent of the emirate's output in 2009.
Thanks to its diverse economy, the state is forecast four percent growth in the medium-term by rating agency Standard & Poor's, which last week reaffirmed its A' long-term and ‘A-1' short-term sovereign credit ratings.
By all accounts, the industrial model has served Ras Al Khaimah well. But it's a model that is facing stiff competition from the seemingly unstoppable export machines of India and China. Both are cheaper, with larger worker pools and lax labour laws. Which raises the question; in a global economy where factory sites are increasingly fungible, can Ras Al Khaimah compete with Asia's tigers?
Massaad snorts. "I have put greenfield factories in China, in India, Bangladesh and in Sudan. We set up our factory in RAK at the same time as our site in India. We built exactly the same factory. Here, it took us twelve months to start production. In India, it took three years."Second," he continues, getting into his stride, "we have a cement factory in China. Analysts say China has manpower, raw materials, low costs. That bloody factory is the only black point in my balance sheet. We've not been able to make money for the last ten years. If you know someone who wants to buy a factory in China, we can talk."
He stretches back in his chair. "So forget it. As long as you talk to me about China and India, I am confident. With that level of red tape, of complications, they can't compete."
That said, Ras Al Khaimah has been careful to hedge its bets. Rather than focus solely on its domestic market, its industrial reformation has stretched well beyond its borders. Rakia has rounded up a string of overseas interests, one of the largest of which is a free zone in the Georgia port of Poti. A 400-hectare replica of RAK's existing industrial park, the Black Sea port is a "destination business," for CIS countries, or multinationals that favour Europe over the Gulf as a launch pad.
"For countries looking for a free zone where they can do business with cheap labour and export to Europe, it's a good destination. Not everybody wants to come here," Massaad says. Rakia paid $150m for the port ("a cash investment,") and Massaad claims it realised 15 percent of that sum last year. It is Georgia's first free zone dedicated to luring in foreign investment.
"It's a running port. We have Azerbaijan, Armenia - they must go through the Black Sea to this port. So we have a population of 20 million to benefit from. It's a fantastic, strategic business."
Further east, India is also a target. Under a deal with the government of Andhra Pradesh, India's fourth largest state, a consortium including Rakia has snared 250km of prime coastline to build a port, industrial zone and an 8,000MW power station.
In India, where electricity demand outstrips supply by some seven percent, it's as close to a safe bet as an investment can be. Even better, the plant will be fuelled by vast quantities of coal - which plays neatly into the hands of another Rakia investment, MEC Holdings; a huge, Indonesian coal-mining venture partly owned by the Gulf state.
If Rakia has its way, the majority of MEC Holdings' output will be firing up the power plant - and the agency is even mulling a stake in an Indonesian railway, to trundle the coal out. "The coal will break us even on the port operation," says Massaad. Rakia expects to invest a maximum of $80m in the project. "Any other business to the port will then be a profit."
The business of industry, however, is only set to get tougher. Countries including Vietnam, Indonesia and India are racing to firm up their investment and tax laws to grease the path for multinationals. All will give Ras Al Khaimah a run for the world's money. While happy to get its hands dirty, Rakia is also dipping a toe in more white-fingered pursuits with the launch of the UAE's first offshore centre, the plainly named RAK Offshore.
The Gulf state's bid to lure investors looking for a new tax haven is well timed. Cash-strapped European governments are turning up the heat on established offshore hubs, such as Switzerland and Luxembourg, in a bid to replenish their tax coffers. Switzerland, home to a $2 trillion offshore industry and 27 percent of global offshore assets, is under increasing pressure to consider full transparency.
If it yields, it may prompt European investors to consider an offshore haven further from home. "We're certainly hoping to pick up business from that [European pressure], we're doing our best to," Massaad says. "We think RAK offshore is a good business model- we've taken from the best, but we're still compliant with UAE law. It's a true offshore asset for non-resident people."
The sheikhdom is also taking a fresh look at real estate. Despite being the first emirate after Dubai to permit foreign ownership of property, Ras Al Khaimah has not seen the building flurry of its neighbour - and so also sidestepped the financial flame-out of Dubai's real estate meltdown. Massaad estimates RAK needs at least 15 to 20,000 units to squash property prices down, and ensure it clings to its economic edge.
"I want to keep RAK as a cost-effective destination," he says. "I don't want to see studios at AED65,000 - they shouldn't be more than AED20,000 or AED30,000 a year. Developers will still make fifteen percent annually on that, a fantastic return, but our staff can still live here."
But tempting developers could be tough, in light of the scandal surrounding one of Ras Al Khaimah's most prominent, Khoie Properties. The firm's $800m La Hoya Bay project was the emirate's largest, set on the state-owned Al Marjan Island, a cluster of man-made islands. Khoie Properties CEO, Frank Khoie, is currently serving a three-year jail term for bouncing an AED57m cheque to Rakia, part payment for the AED302m worth of land purchased on Al Marjan Island.
A local court initially appointed Rakeen, the development arm of Rakia, as receiver of the project with Khoie's consent, in a bid to allow work to continue. Khoie has since withdrawn his consent, pushing the dispute back into court and leaving the project's 800 investors, many of whom are based in the UK, worried over the future of their investment. Many have paid up to 30 percent of the property price.
"We've asked the court to expedite [the guardianship]. We can't continue waiting like this. If we do, the investors will sue," Massaad says. "We would be willing to continue building the project if [investors] would begin paying the remaining 70 percent on a monthly basis. And that would go into an escrow account. For the money already paid, we would probably take the loss of the land, or part of the loss of the land.
"At the end of the day, we [Rakia] can wait for our money," he shrugs. "But I don't want any of the investors who bought their apartments with him to end up losing their money, the 30 percent they put down. The aim is to protect their interests."
For Massaad, the main story remains Ras Al Khaimah's industrial interests. Rakia is in the throes of setting up a series of clustered free zones in a bid to encourage niche industries to bloom. The agency has also signed a deal with The Ecole Polytechnique Fédérale de Lausanne, one of Europe's top technical colleges, to set up a twin campus in RAK, the next step in producing homegrown talent.
As with all Gulf states the underlying driver behind economic diversity is the need to create jobs for the region's young population. For Rakia, which claims to have created 65,000 jobs in the last four years, the aim is no different.
"Sooner or later these jobs will be occupied by Emiratis," he says.
"Today, some of them are finding better jobs in the government, in banks, in insurance, but sooner or later the population will grow to a point they will have to work in industry. And we'll have jobs for them."