Pushing ahead: Developments are spurring on projects in several new segments

Although the recent global economic downturn affected Ras Al Khaimah’s construction industry, the sector is moving forward and remains a key component of the emirate’s growing economy. While the recession has had an impact, industry players are taking steps to overcome many of these difficulties. Further, the focus on these challenges does not overshadow the range of positive developments taking place in the sector.

RAK provides construction companies with a number of advantages, including low-cost living and its proximity to Dubai, about a 45-minute drive to the south-west. A relative lack of regulatory red tape is another benefit. The local government is making an effort to minimise regulation while still ensuring necessary standards are met. In 2009 the RAK Investment Authority (RAKIA), a government-linked free zone owner and investment advisory in the emirate, created the RAKIA Real Estate Regulatory Authority (RERA) to ensure that construction projects in the emirate comply with RAK’s building standards. In addition, the relatively new authority is responsible for ensuring that RAKIA developments fully adhere to contract conditions.

REGULATION: RAKIA RERA enforces regulations by tasking a group of engineers to inspect projects and check compliance with health, safety and environmental standards as well as urban planning ordinances. In 2008, RAKIA RERA supervised the enactment of the new escrow account law, which allows developers to open an escrow account and sell units only after approval has been granted for the project design. The purpose of this is to give more protection to real estate investors and prevent the misuse of construction funds.

The oversight body is also responsible for monitoring escrow accounts as well as any similar procedures. RAKIA RERA tracks account cash flows to ensure that finances are spent in accordance with master plans and to avoid the potential misuse of project funds. As of late 2010, a number of developers had registered with RAKIA RERA. These include the Blue Mirage Group; Manazil Real Estate, which is developing the Marbella Bay area on Al Marjan Island; and the Select Group, which is managing the development of a section of the island.

BY THE NUMBERS: The construction and building sector contributed an estimated Dh1bn ($272.2m) to the emirate’s GDP in 2010, according to the RAK Department of Economic Development’s (RAK DED) “2011 Statistical Yearbook”. This represents a slight decrease from 2009, when the industry contributed around Dh1.26bn ($342.98m) to the GDP. In comparison to other economic sectors in RAK, the construction and building industry made up about 5.7% of the total economy in 2010, down from roughly 7.6% the preceding year.

Furthermore, the RAK DED estimates that the production value of the construction and building sector reached Dh2.28bn ($620.62m) in 2010. At about 10% of the overall economy, this makes the construction and building industry one of the largest contributors. In terms of gross fixed capital, construction and building activities totalled Dh235m ($63.97m) during 2010, contributing around 3.8% of the total gross fixed capital formation in the emirate’s economy.

While the number of workers employed by construction and building firms fell in 2008 and again in 2009, the downward trend was reversed in 2010. Employment within the sector grew by about 1293 workers in 2010, from 15,255 employees in 2009 to 16,548 in 2010, according to recent data from the RAK DED. This suggests that although the sector’s contribution to overall GDP fell slightly between 2009 and 2010, the industry is headed in the right direction.

A total of 5355 building permits were issued by the RAK Municipality during 2010, according to the RAK DED. This represents a moderate decline of about 100 issuances from 2009 levels. However, the municipality supplied more building permits in 2010 than in 2008, 2007 and 2006. The largest category of permits issued was for villas, indicating the residential construction market was particularly strong throughout 2010.

TRANSPORT UPGRADES: A number of construction projects in RAK are focused on improving transport infrastructure. Ground, sea and air links are being improved to accommodate the emirate’s growing population as well as to facilitate the movement of goods through RAK. In 2008 local authorities announced an emirate-wide road improvement programme, which should provide Dh3bn ($816.6m) in investments.

One of the major projects is a ring road that will connect all external and internal road networks in the emirate after its completion by 2020. Further resources have been spent on the construction of the Sheikh Khalifa Highway, a Dh1.7bn ($462.74m) motorway stretching between Fujairah and Dubai and passing through RAK, which was inaugurated in December 2011.

Ground links will be further improved with the Etihad Rail national rail project that will eventually link up with the wider GCC rail network. The first phase of construction is scheduled for completion in 2014 and will accommodate only freight traffic. Passenger transport will be introduced after the completion of the second phase. According to Etihad Rail Company, after completion, the network will cost Dh40bn ($10.89bn) and will stretch up to some 1200 km.

PORTS & PLANES: RAK’s fifth port, RAK Maritime City (RAKMC) was inaugurated in May 2011. The China Harbour Construction Company won a bid to develop the new Dh520m ($141.54m) port in 2008. Functioning both as a harbour and as a free zone, RAKMC covers an area of around 8m sq metres, and close to 5m sq metres of land was reclaimed for the project, according to the Saqr Port Authority. A second phase of construction on RAKMC has already begun and focuses on infrastructure work such as electricity services, roads, telecoms, lighting and drainage. Construction of ship repair facilities for 12 medium-sized vessels has also been completed at Al Jazeera Port in RAK.

Further construction is taking place at the emirate’s airport, RAK International Airport. Since 2010, the airport has funded upgrades of around $27m with construction plans, including additional runways and the extension of cargo facilities and passenger terminals.

HEALTH CARE EXPANSION: With the population in the emirate, as well as in the UAE, rapidly increasing, the federal government aims to expand health care facilities. Currently, two projects to develop this sector are under way in RAK. Construction on the Sheikh Khalifa Specialist Hospital (SKSH) began in May 2009, and as of early 2012 97% of the project had been completed, according the Ministry of Public Works (MoPW).

The six-storey facility has a 248-bed capacity and covers an area of 57,000 sq metres. Two car parks with space for 640 cars and two helicopter pads have also been built at SKSH. Costing Dh1bn ($272.2m), the hospital is a significant project, involving a number of architecture firms and contracting companies, including Perkins Eastman (an international architecture and design firm) and Abu Dhabi-based Al Bayaty Architects. While mechanical, electrical and plumbing work was contracted out to the UAE’s ETA Ascon Star Group, the general contracting is being worked on under a joint venture set up between the China State Construction Engineering Corporation and MCM Group Abu Dhabi.

Another large hospital is being built in the Al Digdaga neighbourhood, located outside RAK City. Construction on the Abdullah bin Omran Hospital (ABOH) was in the final stages in 2011 and the new institution is scheduled to open in 2012. With building costs around Dh50m ($13.61m), the ABOH covers 150,000 sq metres and will provide 82 beds. Sharjah-based Mazaya Consulting Engineers acted as consultants during the project and Rashid Abdullah Omran, a local businessman, footed the bill for construction.

TOURISM INFRASTRUCTURE: Also driving a significant part of construction growth is the emirate’s growing tourism industry. The local government hopes to welcome 1.2m tourists 2012, up from 800,000 in 2011 and 600,000 visitors in 2010, according to recent information from the RAK Tourism Development and Investment Authority (RAK TDA). The rapid increase in tourists is pushing the hotel market to expand, and a number of hotel construction projects are currently under way.

Scheduled to open by the end of 2012, the Waldorf Astoria Hotel is being developed by the Al Hamra Group, a local development and real estate company. The new 349-room hotel is being built in the Al Hamra district, just outside RAK City. All the rooms will be at least 72 sq metres, and a helicopter pad for guest use is planned to be built, along with eight bars and restaurants.

A member of the Hilton Worldwide brand, RAK’s Waldorf Astoria is part of a mixed-use development project, which includes a convention centre capable of holding up to 3000 people, a golf course, other hotels, residential housing, a mall and a 600-metre private beach. The hotel shares a building with the already completed Al Hamra Palace Beach Resort.

Another significant tourism construction project is Al Marjan Island, a cluster of five manmade islands being developed near the Waldorf Astoria and Al Hamra Palace Beach Resort Hotels.

Moreover, government-backed property developer Rakeen is currently building a mixed-use project, known as the Bab Al Bahr Family Resort, which so far consists of three residential buildings and a five-star resort. The first part of the project was handed over to investors in March 2011 and consisted of 136 studio apartments, 356 one-bedroom apartments, 236 two-bedroom apartments and 104 three-bedroom apartments. The second phase will include a five-star beachfront hotel. The project is scheduled to be finished by October 2012, and, according to an early estimate by Rakeen, the development will cost about $330m.

The Al Hamra Fort Hotel and Beach Resort, located on the same mixed-use development project as the coming Waldorf Astoria, meanwhile, is set for renovation in summer 2012. The hotel has 266 rooms and is being renovated by the Al Hamra Group before Hilton takes over management of the property.

Although construction plans are currently under design, the hotel has announced that the main building will be closed during the first phase of renovation, which begins in June. The second phase will begin in the summer of 2013 and focus on the hotel’s villas.

AN ALTERED MARKET: One of the most vital industries within RAK’s building sector, the construction materials industry is facing an altered market. Construction projects have decreased overall since the financial downturn, consequently driving up competition, reducing project costs and thus shrinking margins on materials sales. Volatile oil prices have caused additional challenges. Despite these difficulties, the industry is proving able to adapt. A range of diversification strategies is being used, including branching out into new markets, supplying projects overseas and focusing on core business strengths. It appears likely that many of these strategies will be successful.

CONSTRUCTION MATERIALS: Several major players make up the emirate’s construction materials market. Located on the outskirts of RAK City, RAK Ceramics is the world’s largest producer of ceramic products and operates with an annual production output of 115m sq metres. The firm was founded in 1991 by Sheikh Saud bin Saqr Al Qasimi, RAK’s ruler, and has an annual turnover of $1bn. The firm is currently supplying material for the third phase of expansion of the Dubai International Airport and is selling at full capacity.

RAK Ceramics has paired down some under-performing joint ventures and is focusing on expanding a planned production facility in Saudi Arabia. The factory will be used by Laticrete RAK, a joint venture between RAK Ceramics and US-based construction materials manufacturer Laticrete International.

GROWING GAINS: According to recent financial data from RAK Ceramics, the firm had a net worth of Dh2.09bn ($568.9m) and assets totalling Dh5.65bn ($1.54bn) in 2010. Both of these figures are up from the 2009 levels when the company’s net worth reached Dh1.9bn ($517.18m). Net profit also increased in 2010, rising from Dh261.9m ($71.29m) in 2009 to Dh270m ($73.49m) the following year. RAK Ceramic’s net profit grew at a compound annual growth rate (CAGR) of 10% between 2001 and 2010. Revenue increased by a CAGR of 23% during the same time period.

The Union Cement Company (UCC) is another key player in the industry. Established in 1972, the firm was the first cement company to be set up in the UAE and is partially owned by the government. According to recent figures from UCC, the firm produced 3.2m tonnes of clinker in 2011 and operates with a total cement production capacity of over 4m tonnes. In order to offset some of the challenges in the local construction market, UCC currently exports around 60% of its excess production capacity to East and West Africa.

The RAK Company for White Cement and Construction Materials (RAK White Cement) was set up in 1986 and also exports a significant amount of material. The firm has been selling around 25% of white cement locally and exporting roughly 75%. About half of the company’s grey cement is exported, while the remaining 50% is supplied to domestic clients.

RAK White Cement operates with an annual clinker production capacity of around 525,000 tonnes and an annual cement production capacity of roughly 506,000 tonnes. The company recently upgraded one of its kilns and will be improving a further two kilns in the near future. After the kiln upgrades are completed, the firm will have an annual clinker production capacity of around 850,000 tonnes, consequently becoming the world’s second-largest white cement producer.

OTHER PLAYERS: Other cement firms include the Gulf Cement Company (GCCo), which was set up in 1982, and the RAK Cement Company (RAK CC), which was founded in 1995. RAK CC has had some difficulty adapting to the slower construction market and recently announced plans to begin producing oil well cement to diversify products and create a new revenue source.

Established in 1975, Stevin Rock is a quarrying company in RAK focusing on the production of limestone, concrete, gabbro rock and asphalt aggregates. Though margins for the firm have slipped since 2009, the company nevertheless remains confident that profits will increase over the course of 2012.

The company expects production to reach 62m tonnes in 2012, with turnover totalling Dh1.2bn ($326.64m). Stevin Rock has mitigated economic conditions locally by targeting export markets such as India, Qatar, Bahrain and Kuwait as well as Abu Dhabi.

Expansion in the concrete segment is an area not to be overlooked, according to those within the industry. “With the slowdown in the construction market in the UAE, local mixed concrete manufacturers and suppliers are looking to expand their activities abroad,” Fathi Al Issa, the CEO of industry firm RAK Mix, told OBG. “The UAE can benefit from strengthening growth elsewhere in the region, particularly in Oman and Qatar.”

GREEN CONSTRUCTION: While industry growth is a high priority for RAK’s government, authorities want to ensure that construction and building-related activities do not harm the local environment. Allowing the construction sector to thrive, while at the same time protecting the environment, can be a difficult balance, though it is certainly feasible task.

To achieve these two objectives, the RAK Environment Protection and Development Authority ( EPDARAK) was set up in March 2007 under the direction of Sheikh Saqr bin Mohammed Al Qasimi, RAK’s ruler until 2010. The oversight body operates with administrative and financial independence and is the only environment-related regulatory authority in the emirate. One of EPDA-RAK’s primarily responsibilities is to monitor industry behaviour. The body issues environmental licences to any company working in the emirate with operations that have a major impact on the environment. EPDA-RAK also employs inspectors who audit activities at RAK’s industrial parks. According to the oversight body, ensuring compliance with environmental standards has been relatively successful.

“It is only natural that some companies do not welcome environmental regulation and monitoring,” explained Saif Al Ghais, executive director of EPDA-RAK. “By and large, however, companies in RAK have been overwhelmingly supportive of new environmental measures. Indeed, many recognise that protecting our natural resources is of paramount importance and are therefore anxious to help,” he told OBG in early 2012.

In fact, industry has been more than compliant. For example, UCC and GCCo have both invested in waste-heat recovery programmes, which attempt to convert exhaust produced from production activities into useable energy. UCC has invested $30m into waste-heat recovery technology and is now cutting energy costs while reducing the firm’s environmental impact. Both UCC and GCCo are coordinating with EPDA-RAK when it comes to these initiatives.

ONGOING RESEARCH: In addition to regulatory responsibilities, EPDA-RAK carries out research projects. The agency has set up a lab to study air pollution and recently estimated that RAK’s air quality has improved by up to 16% over the last three years. Another research project focuses on studying the environmental impact of pumping water from underground. This has increased over the past several years due to both population growth and an increase in construction projects.

SPREADING AWARENESS: The most significant obstacle for environmental regulation in RAK seems to be a general lack of awareness. “Many individuals simply do not understand the negative impact their actions can have on our natural resources,” said Al Ghais. “Further work must be done in order to increase awareness and encourage environmentally conscious behaviour.”

In an effort to reverse this trend, EPDA-RAK organised the region’s first international conference on water and land use in March 2011. Although the impact of this conference may not be felt for some time to come, the building sector nevertheless appears to already be heading in the right direction.

“I believe the construction industry here in RAK has come a long way in the level of awareness in adhering to environmental practices,” Naser Bustami, group general manager at Stevin Rock, told OBG. “The Ministry of Environment has awarded RAK green status, which, for the local community, greatly reinforces that we are aware of reducing our impact on the environment.”

OUTLOOK: The construction industry in RAK has changed markedly since the economic downturn began in 2008. Despite recession-related challenges prevalent throughout the industry, construction and building have continued, with several notable projects currently under way within the emirate.

A variety of initiatives focused on tourism, health care and transport infrastructure all continue to move forward as well. The companies within the construction materials industry have identified a number of key strategies for new growth.

The pre-engineered building (PEB) segment also may have future potential for RAK. “Enjoying a strategic location close to potential growth markets such as Africa, India, Saudi Arabia and other GCC countries, RAK has the ability to attract PEB businesses,” Faisal Ishaque, the acting president of Mabani Steel, told OBG. “It offers several advantages in terms of efficiency, low-cost freight services, and the ability to reach vital markets overseas. Space is available within RAK to handle large-scale production.”

The local government has also been able to effectively regulate and monitor environment- related activities without upsetting industry expansion. Naturally, difficulties still remain as the construction sector continues to mature and evolve following the financial downturn; however, RAK’s construction industry is forging ahead and further growth is likely to follow.

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