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Sat 19 Nov 2016 10:46 AM

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RAK to the future: Forging a reputation on the global business stage

Ras Al Khaimah, the UAE’s second-smallest emirate, is quietly boosting its tourism, free zones and real estate.

RAK to the future: Forging a reputation on the global business stage

It may not get the international acclaim of Dubai or the media attention of Doha, but Ras Al Khaimah (RAK) is quietly making its mark.

Famed largely for bringing the world RAK Ceramics, the northern UAE emirate is forging a serious reputation on the global business stage.

Be it in tourism, free zones, property or infrastructure, everywhere you look in RAK, something new is springing up. And judging by the figures, tourists and investors both like what they see.

Despite being the second smallest emirate in the UAE with a population of just 300,000, strong real estate and hospitality sectors, as well as corporate giants such as RAK Ceramics and Gulf Pharmaceutical Industries (Julphar) have helped RAK avoid the oil-related economic crisis of its neighbours.

However, it is not immune. The emirate’s budget deficit is forecast to be 1.4 percent of GDP growth in 2016, compared to a small surplus of 0.3 percent in 2015, according to Fitch Ratings.

The emirate’s real GDP is expected to grow by 4 percent this year and again in 2017, down from a high of 7.4 percent in 2014 but up compared to 3 percent in 2015. The economy is being held up primarily by tourism, the export of construction materials and, most recently, activity within its free zones.

Tourism has long been RAK’s strength. Economic issues, the low oil price and sanctions on Russia, one of its key markets, caused a slump in visitor numbers in 2015, but after a shake-up of market sources, the sector is recovering.

However, the Ras Al Khaimah Tourism Development Authority (RAKTDA) has had to pushback its target to attract 1 million visitors to 2018.

To help reach the target, RAK has tapped into existing markets such as Germany — its largest market after the UAE — and Poland by signing agreements with tour operators in 2015 to bring eight additional chartered flights to the emirate. The authority also opened representative offices in Germany, UK and India and is on the verge of establishing an office in China, with Saudi Arabia to come in 2017, according to RAKTDA CEO Haitham Mattar.

“RAK has been the second most sought-after [holiday] destination in the UAE,” Mattar says. “Dubai is the first and now people are asking for RAK more and more. We’re targeting a continued double-digit growth in terms of visitor numbers in 2017.”

Ras Al Khaimah International Airport is aiming to handle up to 30 destinations across the world by 2020.

While the UAE remains RAK’s strongest market, representing about 40 percent of total visitors, Europe is gaining ground. The number of German tourists to RAK grew by 53 percent last year, followed by 28.5 percent growth from the UK, 25 percent from India and 4 percent from Russia.

RAK is also aiming to extend the length of stay of visitors from new markets, including Scandinavia, Poland, Sweden and India. Mattar credits airline partners such as Emirates Airline, flydubai, Air Arabia and Qatar Airways for supporting it with travellers’ growth.

While Dubai International Airport remains RAK’s largest supplier of tourists, with 90 percent of visitors arriving via the world's busiest airport, RAK’s own facility is scheduled to undergo a serious expansion to boost capacity to 3 million passengers by the end of 2019. The project, which is due to begin construction next year, includes a new terminal, VVIP lounge and new additions to its duty free.

The timing could not have been better as RAK welcomes an 11 percent rise in the number of visitors between January and September 2016, compared to the same time last year. Matter says it is thanks to the emirate's value-for-money beachside offering, where five-star hotels are presented with four-star price points. It is also expected to have welcomed 820,000 visitors by the end of 2016 compared to 760,000 visitors in 2015. This will allow RAK to close its 1 million visitors mark by the end of 2018, according to Mattar.

The rise in visitor numbers has also contributed to a 15 percent growth in hotel occupancy, to 71 percent, according to RAKTDA. The emirate is looking at closing the year with an estimated 74 percent occupancy rate, helping revenue to grow by 12 percent.

But the increased demand has presented a challenge.

“One of our key challenges is the fact that we don’t have enough hotel rooms. For some people, that’s a good problem to have,” Mattar says. “At the moment, our growth and demand is outpacing the growth and supply. For example, demand has grown 11 percent, but supply has only grown 5 percent in terms of hotel rooms. We have 5,000 rooms in RAK today. In order to reach 1 million visitors by 2018, we need to have 10,000 rooms.”

To tackle shortcomings, the emirate has signed a number of new hotels scheduled to open by the end of 2019. These include internationally renowned brands Mövenpick, Millennium, Park Inn, Sheraton Four Points, JW Marriott and Anantara, which will open a resort with beach villas located in the RAK Marine Wildlife Reserve where visitors can reportedly spot stingrays and flamingos.

The hotels underway represent around 3,600 to 4,000 hotel rooms in the pipeline, but Mattar says there is yet more work to do.

Julphar is the biggest generic pharmaceutical manufacturer in the MENA region.

“We’re still short by 1,000 rooms which are not signed, agreed, negotiated or even discovered yet. And that’s where we have a real challenge. To overcome this, we’ve become much more vigilant in communicating to investors, demonstrating the value of investing in hotel products, taking the case of growth as well as the fact that some of the hotels like the Cove Rotana are now expanding by 150 new rooms and the Double Tree by Hilton is adding 280 additional rooms. We’re using this as an example of owners who see the benefit from their existing hotels and decide to build more rooms to accommodate more mass,” Mattar says.

But convincing investors to spend money amid low oil prices is not easy. While RAK does not rely on oil revenues, it is a major exporter of construction materials to the Gulf region and demand for building has significantly slowed.

In the first six months of 2016, RAK Ceramics reported a 10 percent drop in net profit to $35.7m from $39.5m in the same period in 2015, including a 24 percent decline during the second quarter.

Still, compared to RAK’s sister emirates, including heavily oil-dependent Abu Dhabi, the sky is relatively blue.

“The drop of oil prices is actually an old story now because we’ve seen oil prices fluctuating back and forth," Mattar says. "It’s come up from where it was at an all-time low. But nevertheless, oil-importing countries are impacted differently than oil-exporting countries, as you can imagine. We depend heavily on oil-importing countries like Germany, UK and India and they benefit from these reductions of oil prices because airlines become cheaper and [the countries] have residual income to save and obviously spend that more on holidays,” Mattar says.

The chief executive says the softer UAE economy also has seen visitors to RAK staying 13 percent longer, with UK travellers now staying an average six nights and Russian travellers staying an average eight nights.

Beyond hotels, RAKTDA has several new attractions in the pipeline, including the world’s longest zipline, due to open by October 2017. Mattar is keeping its length a secret but promises it will be longer than the world’s current longest zipline in Puerto Rico, which is 2.5km long. It will be part of an adventure park with multiple ziplines, as well as other ventures and challenging activities for children and adults, Mattar says.

RAK also expects to benefit from the Expo 2020 in Dubai.

“We’ve become closer and closer to Dubai with the connection of the new highway, the E611 straight to Dubai from RAK, as well as the Sheikh Mohammed Bin Zayed Road. So that makes us even more attractive for those who come to the expo and seek alternative accommodation past the city limits of Dubai,” he says.

Apart from world-class facilities catering to a variety of industries, RAK FTZ offers a completely tax-free status and 100 percent foreign ownership to businesses operating in the free zone.

But it is free zones where RAK is really making a play on the big stage.

Ras Al Khaimah Free Trade Zone (RAK FTZ) hosts more than 8,000 companies from over 100 countries, representing more than 50 industry sectors. The free zone provides a tax-free environment, 100 percent foreign ownership, fast-track visas, freedom to source global labour and materials as well as ongoing business support services. RAK FTZ claims it is also cheaper for a business to setup there than in other emirates - about $4,600 in RAK compared to $13,600 in Abu Dhabi and Dubai.

In addition to price advantage, RAK is now also seeking to attract media companies after one of its free zones signed a deal to support the issuance of media licences. Ras Al Khaimah Investment Authority (RAKIA) said in a statement in early 2016 it had signed a memorandum of understanding with the National Media Council (NMC) which sets RAKIA as the only free zone which services media-related companies.

CEO of RAKIA Ramy Jallad says the expansion of industry activities offered by RAKIA will play an important role in diversifying the emirate’s economy by developing the media sector and opening new doors for foreign and local companies in the media industry, which have traditionally opened offices in Dubai and Abu Dhabi. The new activities that can be carried out with media licences include TV and radio broadcasting, publishing, advertising, communications, media monitoring and services, production and film support, music, entertainment and events management.

“This marks another step for RAKIA towards creating new business opportunities, coming up with unique competitive solutions and encouraging entrepreneurs, SMEs, and other companies from all over the world to set up and expand their businesses in the emirate of Ras Al Khaimah,” he says.

On November 17, Japanese industrial giants Takenaka Seisakusho and GSI Creos Corporation announced they had established a Middle East affiliate based in RAKIA, another coup for the emirate.

Besides successfully evolving its tourism and free zone sectors, RAK is also moving forward in real estate. The emirate’s leading developer RAK Properties reported a 70 percent increase in its net profits during the first half of 2016, to $10.5m compared to $6.1m in 2015, while its revenues increased to $40m in the first half of 2016 compared to $25m in 2015.

The company has not fallen back in projects either, as it revealed it will start the handover of the second phase of its Flamingo townhouses in its $2.72bn Mina Al Arab development in October 2016.

When the rest of the world is going through what many believe is another economic crisis, it seems RAK is going against the tide. The only way for the once sleepy emirate is to look to the future. And the future for RAK is looking quite bright.

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