Font Size

- Aa +

Fri 3 Aug 2007 12:00 AM

Font Size

- Aa +

RAK to the future

Sheikh Tariq bin Kayed Alqassimi tells us why investors in the emirate have a short window to reap RAK's rewards.

It is easy for residents in the urban centres of the Arabian Gulf to forget that we live in the desert. The everyday toils seldom require us to leave the man-made oasis of city life, but when we do venture out into the vast expanses of desert, it is both humbling and exhilarating. Humbling because the barren desert portrays how small our city cocoons are; and exhilarating because it represents an inexhaustible opportunity for expansion.

In July, I had the opportunity to make the hour-long journey between Dubai to Ras Al Khaimah (RAK), and to meet with Sheikh Tariq Alqassimi, chairman of RAK-based Union Group of Companies, a holding company with interests in shipping, real estate, and IT services. Getting a story is always the plan, but as I drove through the desert, the story changed. The journey transports you between worlds, from hyper-developed Dubai, through the unadulterated desert, to Ras Al Khaimah, a sleepy town striving to make its way up. The reason why the scent of opportunity is in the air is not just because RAK is an underdeveloped area in the world's richest neighbourhood. Indeed the Gulf is peppered with sleepy towns. RAK has something more, and I was eager to find out.

I always tried in all my business ventures to be a pioneer, I never wanted to come and duplicate what others are doing.

Sheikh Tariq's office, which is near the new free zone in RAK, does not automatically give the impression that this is the centre of a major operation with over 2000 employees. It is not housed in an ultramodern glass and steel building. Instead is based within a nondescript three-storey structure on a sandy avenue. The ground floor is home to one of the Union Group's portfolio companies, a travel agency with the brilliant name ‘Time Travel'. Once inside Union Group's headquarters, it became apparent that while life is slower in RAK, there is a lot of business being done. Employees were rushing around to complete their tasks before the weekend; when I was received by Sheikh Tariq, has already been through a full day of meetings with his managers and businessmen looking to invest in RAK. Nevertheless, he passionately delivered the RAK narrative.

He began by pointing out the obvious, that Dubai and RAK are not competitors, and that "the prosperity of Dubai will only bring additional business to RAK". He continues: "I believe that in Dubai many factors contributed to its success. Some of the factors that made Dubai successful for the past five years also exist in RAK."

Elaborating on the ingredients for success, he first observes that the rise of oil prices provided the government with additional cash which fueled infrastructure investments, enabling the federal government to expand electricity, water treatment, and road networks.

The second factor that the Sheikh raised stems from the different approaches of the emirates. "The marketing of Dubai over the past decade, the success that they have achieved in marketing the emirate, was great for them but it was beneficial for all the UAE and even the entire GCC, who are all benefiting from the experiment of Dubai." RAK is embarking on a similar marketing campaign, and Sheikh Tariq is active in the push to attract business to the emirate.

Given the change in marketing strategy, and basing it on the success of the Dubai model, the RAK government "decided to open its minds and horizons towards investors," says Sheikh Tariq. "When an investor looks at RAK, he finds that the legal framework that exists in the emirate provides an ideal base that caters to all their interests, the laws protect investors, and the government ensures that investors are attracted to RAK," he adds.

The final ingredient for success, according to Sheikh Tariq, is the development of the freehold real estate sector in RAK. The population growth in the emirate over the past three years has been consistent at 12% per year, and this growth is expected to continue for the next five years. RAK has not developed much real estate capacity in the past 20 years, so the developers are building at a lightening pace.

RAK as a tourist destination has already been popular for some time with Russians, but for the past four years an increasing number of Germans have been making the journey to RAK. Over the past three years the average hotel occupancy rate has hit 87%. More hotels are coming up, and existing hotels are expanding. Tourism also fuels the real estate boom, and most of the attraction is due to RAK's natural beauty.
As Sheikh Tariq puts it "RAK has the highest point in the UAE, a summit reaching 2000 metres. Mountains are abundant; we have a long beach and green areas. Naturally it is a nice place."

Not only is the natural beauty attractive, RAK is also rich in resources. Most of the fresh water in the UAE comes from RAK. (Masafi, one of biggest bottled water suppliers in the Gulf is based in RAK). It has mountains replete with limestone; more than 75% of the cement produced in the UAE comes from the emirate. Rocks from the mountains are used for roads and construction, and large rocks are used for reclamation projects including Palm Island in Dubai and RAK's Saraya Islands.

Some of the factors that made Dubai successful for the past five years also exist in Ras Al Khaimah.

The past performance of the emirate could be an indicator for future success. There are two RAK business stories to look at: Sheikh Tariq's holding company and RAK Ceramics. Union Group was formed in 1985 by Sheikh Tariq Alqassimi. Upon his return from the US with a degree in engineering, he worked with the federal government for a year and then set up his first shipping business. While he was building his holding company, he also worked for the RAK government for 10 years, holding several positions, and finally heading the civil aviation department. In 1998, he restructured the Union Group of Companies (UGC), left his government post, and focused on business full time.

UGC is involved in three main areas including shipping, real estate, and IT services. The first business the group started was in shipping. UGC has a complete integration of companies that provides full logistical support in the sector. But it did not start that way. It was a staggered investment.

Sheikh Tariq identified an opening in the market in 1986 and started a stevedoring business. Stevedoring is the loading and unloading of ships. One of UGC's subsidiaries is the official stevedores for the ports of Ras Al Khaimah and Ajman, and the leading stevedores in Fujeirah. This one part of the shipping business could have been enough to build an empire upon, but UGC established and acquired companies that completed the vertical. Its activities now includes port management, ship repair, transport, and shipping services.

UGC, along with Dubai-based ETA manage the Ajman port in the UAE. In ship repairs, the holding company has capabilities in repairs and renovation including ship conversion to alternate uses. To fulfill the rest of the logistics chain, UGC operates a fleet of specialised trucks for bulk transport, and shipping services in chartering, clearing and forwarding.

Eyeing an under serviced segment in the market and building companies to support the demand is a shared trait among all successful entrepreneurs. Giving future businessmen advice, and displaying pride of his accomplishments, Sheikh Tariq says "I always tried in all my business ventures to be a pioneer, I never wanted to come and duplicate what others are doing. When we first started in the shipping market, we were the first local shipping company in RAK. We have now had a presence in the international shipping community for the past 20 years."

Following his pioneering philosophy, and making use of property ownership restrictions in the GCC, Sheikh Tariq naturally steered his investments towards real estate. Throughout the past two decades, UGC was involved in land sales and developments around the UAE. When freehold laws were established, UGC was prepared to make the most of it.
UGC's property division is involved in development of real estate and construction through four subsidiaries that cover land ownership and brokerage; an infrastructure contactor involved in sewage and water pipelines, road works, and land reclamation; a RAK real estate development company involved in large scale developments of townships; and a joint venture with Saudi investors to develop properties in the UAE.

The crown jewel of UGC's real estate activities is Yasmin Village, a US$218m development in RAK. It will create a complete community comprising apartments, lakeside villas, townhouses and villas. It will also have a mixed use tower with commercial and residential units.

Most of the fresh water in the UAE and more than 75% of the cement produced in the UAE comes from the emirate.

The entire region is awash with new developments, but as usual, Sheikh Tariq targets an under served segment of the market: affordable housing. Even though property prices in RAK's luxury sector are more competitive than that of Dubai or Doha, Yasmin Village undercuts the competition significantly in its pricing strategy. The Sheikh says "I think that most of the property in the UAE is directed towards the luxury or expensive market. We thought that we want to be different, why should we always follow the same model."

While this is a perfectly suitable business plan, he continues to explain other motives for providing affordable housing. "I think that we are also serving a social objective, as most of the industry has the luxury or tourism objective, and the prices are too high, so I think we are serving a very good social cause by providing affordable accommodation for people, plus I think it is a good market. So, we make money and people find affordable accommodation."

The third sector that UGC is active in is in services, including IT. Here Sheikh Tariq takes the idea of integration to its logical conclusion: support services for the portfolio companies should fall under the holding company.

UGC has companies that support the other verticals, such as a company that tracks fleets of trucks, enabling access live information regarding fuel, speed, and location, which optimises fleet utilisation. A variety of marketing and construction companies have been established or acquired to complement all of UGC's activites.

On the softer side, UGC has made a significant investment in Ittihad University, a RAK-based college that was launched in 1999.

While UGC is highly successful, it has maintained a low profile over the years. This strategy, however, will change as Sheikh Tariq plans to restructure the holding company and to float one of the subsidiaries on a local exchange. He stresses that this decision will not be made in haste. "We have plans to go public somewhere down the line. We don't want to go public in the short-term. We haven't created the system for it yet for the entire holding company.

"We are considering taking one of the subsidiaries public, on the construction or the shipping side... and that company will go public in less than five years."

When Sheikh Tariq's role changes from being the chairman of a private empire to that of a publicly listed company, he will join other high profile RAK-based public companies including RAK Properties, RAK Cement, RAK Ceramics and RAK Bank. It is clear that RAK Ceramics (see box on page 37) is a major homegrown industrial giant, but the most shocking fact is that the company was established in 1991. It is a testament to the seriousness of RAK's leaders that 16 years was all it took to establish a major global company. What is even more promising to investors looking at RAK today is the fact that the people behind RAK Ceramics success are currently spearheading the emirate's expansion plans.

Prosperity in porcelain

With annual sales exceeding US$400m, and producing over 300,000 square metres of tiles a day, RAK Ceramics is one of the largest manufactures of ceramic and porcelain tiles in the world. It has plants in China, Sudan, Bangladesh, India, Iran, and a massive production facility in Ras Al Khaimah. The company's distribution network spans the globe, reaching more than 135 countries, with subsidiaries in Germany, France, UK, Italy, Australia, China, India, Saudi Arabia, Sudan, and Bangladesh.

Its RAK operations are just outside the city, and is housed in a one million square metre facility. The company recently expanded its capacity, and expects to be world's largest ceramics manufacturer in the world by the end of this year.

RAK Ceramics listed on the Abu Dhabi Securities Market in 1998, and 49% of its shares are open to all investors regardless of nationality. Its assets exceed US$1bn, while its current market capitalisation hovers around the US$500m mark.

Although its stock has suffered along with the rest of the UAE's equities over the last year, it revenues increased almost 30% for the year.

Sheikh Saud bin Saqr Al-Qasimi, Crown Prince and Deputy Ruler of Ras Al Khaimah and the longtime chairman of RAK Ceramics, and his top adviser Dr Khater Massaad, CEO of RAK Ceramics, are also heading RAK Investment Authority (RAKIA). RAKIA has attracted over US$1.2bn in foreign investment to date and been an instrumental contributor to the 50% growth in RAK's GDP over the past four years. Based on the proven experience of RAK's leadership, it is difficult to be a pessimist about its potential for growth.

There is one major impediment to the RAK dream: the continued launch delays of RAK Airways. Launching an airline is not an easy task, and delays of this type are not unusual. What is strange, however, is that the airline has gone through three CEOs in the past year. Given Sheikh Tariq's previous experience in civil aviation, he has a sober view on this issue. "The government, public and businessmen of RAK are waiting for this launch. We would like to invite our customers and tell them come land in RAK instead of picking them up from Dubai. It would be a good effect on the market once the airline starts operating."

Investors have one to three years to take the best of RAK and this is the most suitable time for [investment].

He is not fazed by the delay, however, explaining that it is tough to launch an airline, but he sees the development as integral to the development of RAK. "The airline is not a profit centre by itself; it is part of the overall economy. The added value you get from an operating airline is influx of tourism, business, and easy access to the country - that is what we are looking for more than making profit from the airline itself."

What is clear is that the RAK government will actively back the airline, as Dubai did with Emirates. "Emirates Airline was not really profitable from day one, they were spending money on it, but the hotels, services, and the economy as a whole benefits from an airport and airline."

The airline (and airport) are the main access point to any city, and although the airline is delayed, the airport appears to be in better shape. It sees heavy traffic of cargo planes, and many charter flights from former Soviet republics and Italy. The passenger handling facility is small, but is expanding and now accommodates about 10,000 passengers per day. The systems at the airport are very advanced, all that is required now is for RAK Airways to use its hometown hub.

Sheikh Tariq seriously addresses the issue, but talks of delays and challenges were not part of the agenda.

As his business record shows, he sees obstacles as what they are, just another barrier to overcome. His singularly optimistic message about RAK was reiterated at the conclusion of our meeting. "I think it is high time. You have one to three years to take the best of RAK and this is the most suitable time for investors and for doing business in RAK, for entering the market...I think market entry will be more difficult for those who are waiting. I would advise all investors to look at RAK now and not delay."

Departure delayed

RAK Airlines - a grounded flyer

15 Dec. 2005RAK Airlines prepares to take off early in 2006 (it doesn't)

14 Feb. 2006RAK Airways launches with total capital of US$408m. The airline intends to raise the initial capital of US$232m through private placements with UAE nationals. (Some reports state that the company raised US$177m. An airline spokesman refuses to comment).

4 Mar. 2006Reports suggest that RAK Airways will finalise the acquisition of 10 aircraft within a week. (it doesn't)

9 Sep. 2006RAK Airways appoints Jack Romero as its new CEO. The airline announces that it will launch in January 2007 and operate two used Boeing planes.

9 Nov. 2006RAK announces that its first flight will be to India in February 2007. (it doesn't) The airline seeks to acquire seven planes in the next five years.

14 Feb. 2007RAK Airways plans to launch on March 15, although reports suggest that the date is April 2006.

28 Feb. 2007The board sacks Jack Romero over continual delays. "Jack Romero did not quit the company but he was terminated," says Dr Khater Massaad, RAK Airways managing director. Kishu Teckchandani, takes the top post.

5 Mar. 2007The airline claims that it will launch in May.

30 Mar. 2007Dr Massaad announces that RAK Airways' pilots and crew have been trained, but that the launch date has not been finalised.

2 May 2007"Before we start flying there is much groundwork still to be done," says CEO Kishu Teckchandani.

27 Jun. 2007RAK Airways loses its latest in a long line of CEOs. The airline begins charter flights, and sets its commercial launch target for October. COO Khalid Almeer takes charge.

For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.