Ras al-Khaimah is looking to further diversify its growing economy through the Ras al-Khaimah (RAK) Financial City, a massive multi-purpose development, totalling 280,000 sq metres in size. RAK Offshore, located within the financial city, will have a particularly significant impact, as it seeks to capture a portion of the region's growing demand for offshore markets.
The financial services sector in the Gulf Co-operation Council, currently led by Dubai, Bahrain and Qatar, is becoming a notable presence in the $57bn worldwide offshore financial services industry. RAK Offshore, the latest addition in a string of major property developments announced in the emirate, is further testament to the emirate's great ambitions in being a major contributor to the regional investment boom in the United Arab Emirates. Offshore services include payroll, audit, call-centres for banks and other financial back-office services.
The financial city will include "a residential area, hotels and commercial units catering to offshore companies, as you cannot construct a financial city without a full offering of housing and entertainment," Peter-Michael Schuster, general manager of RAK Offshore told OBG.
Currently, over 100 companies have registered for the offshore development. However, Schuster explained, "These companies are all private entities conducting non-financial activities. This is due to fact that we are still in the process of obtaining proper approval and licensing, which requires a federal decree, similar to the DIFC [Dubai International Financial Centre]. Financial business is the next step [for RAK Offshore] upon approval of the financial authorities in the UAE."
After the approval and licensing are received, "We will set the foundation for the offshore hub with trusts, funds and other tools tailored to private investors," said Schuster.
He added, "Due to risks such as sub-prime loans and mortgage issues, more volatile businesses such as hedge funds will be introduced at a later date."
The financial activities in the financial city will look to cater to untapped developing markets.
Schuster said, "We are looking for our niche and do not want to be a competitor with Bahrain, Qatar or Dubai. In the end, Deutsche Bank, Morgan Stanley, Goldman Sachs and other top-level institutions will not come to RAK because they are already in the Dubai. Therefore, we are looking to cater to smaller niche markets in which RAK has business ties. RAK Offshore will consist more of trust funds, foundations, private equity firms and companies involved in private banking activities."
According to Schuster, the RAK Offshore fees are competitively priced. Registering an international business corporation (IBC) in the first year is almost $1100 (Dh 3500 for registration plus Dh500 for certificate of incorporation), then there is a Dh2500 ($680) annual fee beginning the second year. In comparison, Jebel Ali Offshore's annual fee is Dh10,000 ($2723) per year.
Until the agreement with the central bank is signed, RAK Offshore is focused on three main non-financial activities. The first is the setting up of IBCs in the financial city. The second is the setting up of a registry for private yachts and pleasure boats. "A proposal has been sent to the ministry of development for maritime affairs, and the registry is to be completed by the end of 2007. There are a lot of waterfront and marina real estate projects and investors want to set up maintenance businesses to accommodate the boating industry," said Schuster
The third will be assisting companies in finding office space for the setting up of their regional and back office operations in the financial city.
As for the overall effects on RAK's business environment, Schuster said, "We are looking out for the entire emirate, hoping to boost financial sector business and diversify the manufacturer-based economy."
The emirate's two free trade zones have attracted an unprecedented amount of manufacturing, consulting, and trade companies. The financial city in RAK will offer commercial activities and services for these free zone companies such as letters of credit, financing for factories and loans.
RAK Offshore will assist the emirate in continuing to create its own distinct identity, capitalising on its growing economy and attractive business environment. For instance, RAK has high anti-money-laundering compliance standards - appointing three international law firms to make sure that companies that are registering there follow international law and anti-money laundering requirements. It also has a 30% cheaper rate for setting up businesses compared to other jurisdictions, and no red tape.
The rapidly expanding free zones in RAK will require increasing amounts of onshore as well as offshore banking activities and services. "For RAK Offshore, our goal is to have 2000 companies registered in the next three years. The size and scope of the on-shore financial activities will depend more on office space availability, but this will come," said Schuster.