Ras Al Khaimah has much to offer manufacturers

From the limestone quarries at its northern tip to the multinational manufacturing plants near its southern borders, primary and secondary industry is flourishing in Ras Al Khaimah.

The man-made islands, skyscrapers and modern highways that have put the UAE on the global map in recent decades have all been built using rock and cement from RAK. At the same time, a solid manufacturing base serving the UAE and beyond has sprung up on the emirate’s industrial and business parks thanks to free zone terms that have seen more than 15,000 international companies take advantage of RAK’s strategic position as a gateway to the GCC market.

Indeed, the emirate has carved its own niche in the country’s economic diversification drive and has been key to national efforts to reduce dependence on oil and gas. It has also paved the way for manufacturing growth and the country’s “Made in the UAE” label.

Economic Importance

Although oil and gas represented 5.5% of GDP in 2013, according to the RAK Department of Economic Development’s (RAK DED’s) 2014 Statistical Yearbook, its contribution was overshadowed by the combined impact of quarrying, which stood at 3.7%, and manufacturing, which accounted for 25.1% of the total.

The limestone quarried in the emirate’s mountains feeds into the manufacturing process at RAK’s cement, ceramics and glass works, but over the last decade the manufacturing base has broadened considerably.

The contribution made by quarrying grew in both value and proportion of total GDP from 2009 to 2013. In 2009 quarrying produced Dh564.4m ($153.6m), or 3% of the total, but by 2013 this had grown to Dh958.9m ($261m), representing a 70% increase. This growth is even more remarkable because it took place against the fall-out from the global economic crisis, which put many construction projects in the region on hold.

RAK’s manufacturing sector also grew year-on-year during that time. In 2009 it produced goods valued at Dh3.87bn ($1.05bn) – or 23.3% of GDP – but by 2013 the value of goods made in RAK had grown by 68% to Dh6.5bn ($1.77bn), and for the first time RAK could claim to have a Dh6bn ($1.63bn) a year manufacturing sector. Measured by gross fixed capital formation, quarrying grew by 17% from Dh159m ($43.3m) in 2009 to Dh186.7m ($50.8m) in 2013, when it represented 2.7% of the total, while the manufacturing sector expanded by 23% from Dh2.6bn ($707.7m) to Dh3.2bn ($871m), representing 45.7% of the total capital formation of all sectors in the economy.

Jobs In Industry

Although the proportion of RAK’s workers employed in quarrying declined from 2% in 2009 to 1.7% in 2013, nominally the quarrying workforce increased from 2700 quarrymen in 2009 to 3621 in 2013.

Manufacturing, on the other hand, has seen a significant transformation in its role in RAK’s employment. In 2009 manufacturing employed 17,010 workers, exactly the same number as those working in agriculture or fishing, and in each case representing 12.6% of the total.

Ahead of those two sectors, 17,820 people were working for businesses categorised as other services. The government services sector employed 18,090, and there were 27,000 workers in retail, wholesale and repair.

By 2013, manufacturing was employing 27.3% of the overall workforce and 41,139 new jobs had been created, taking the total number of people in RAK’s manufacturing sector to 58,149, a 242% increase over five years.

The growth of these private sector businesses also meant government services were playing a less significant role as an employer. Although the number of people working in government services increased from 18,090 in 2009 to 22,578 in 2013, it went from being the second-biggest source of jobs, and 13.4% of the total, to the fourth-largest, employing 10.6% of the labour force.

The “Made in the UAE” vision has come to life in RAK, where manufacturing is the dominant sector, followed by wholesale, retail and repair with 39,831 workers, or 18.7%, and construction employing 25,986, or 12.2%.

Recent figures suggest significant growth in the number of new enterprises. RAK DED reports that it issued 1791 new licences covering industrial, commercial and professional activities in 2014, compared to 1353 new licences in 2013, a 32.4% increase. Among those new licences in 2014, 858 were issued to professionals, 832 to commercial enterprises and 71 to industrial companies.

Free Zones

A key factor in the growth of the manufacturing sector over that time, and in its ongoing expansion in 2015, is the system of free zones in RAK. The zones are placed strategically around the emirate and offer competitive advantages to companies targeting the GCC and MENA regions with both goods and services.

RAK Free Trade Zone was the first zone to be established by emiri decree in May 2000 and since then more than 8000 companies have been registered there. The zone offers businesses a tax-free location and 100% foreign ownership; outside of the emirate’s free zones 51% ownership by a UAE national is mandatory.

In 2005 RAK Investment Authority (RAKIA) was formed, and it now operates two free zone industrial parks located to the south of the commercial centre of RAK, Al Hamra and Al Ghail.

By 2014 RAKIA was home to 7000 companies from around the world and was voted Best Free Zone in the GCC by London-based International Finance Magazine, with 95% of the land leased out at its Al Hamra park. RAKIA’s international tenants include India’s Ashok Leyland, US’s Guardian Glass, France’s Saverglass and Arc International, Germany’s Duscholux, South Korea’s Posco, and UK’s Vesuvius and Ahmad Tea.

RAK Maritime City

In 2009 RAK Maritime City was created by emiri decree as a free zone for enterprises, companies and branch offices of both local and national companies.

The venture will also be home to a $950m integrated diammonium phosphate facility after definitive agreements were signed by Zuari Agro Chemicals, a subsidiary of India’s Adventz Group, and the management of RAK Maritime City in March 2014. The signing ceremony came around two years after an initial memorandum of understanding was agreed to by the two parties.

In December 2014 the French multinational company Air Liquide opened a manufacturing facility at RAK Maritime City, which is located to the north of RAK City.

Another transport hub offering free zone opportunities to businesses is RAK International Airport, which is due to open an expanded cargo centre in the first quarter of 2016.

“Certain parts of the airport are being developed as Special Investment Zones, and so the cargo and logistics zone will accommodate the new state-of-the-art facility, enhancing the whole cargo offering for our clients,” Mohammed Qazi, CEO of RAK International Airport, told OBG. “And there are other parts of the airport that we have developed into an industrial free zone and training Special Investment Zones.”

“The industrial clusters are the backbone of RAK’s economy, and I expect this to continue to enhance and strengthen the emirate’s prospects,” Abdallah Massaad, CEO of RAK Ceramics, told OBG.

Rock Stars

Although free zone companies have had a significant impact on RAK’s economy in recent years, companies in the Al Hajar Mountains in the north of the emirate have been supplying large projects with rock for much longer.

A 100% owned subsidiary of Dutch engineering firm Volker Stevin began quarrying rock there 35 years ago, and between 1975 and 1980 it supplied 5m tonnes of rock to build Jubail Commercial Port in Saudi Arabia. A further 5m tonnes was supplied to Qatar for the building of Ras Laffan Port.

In May 1996 RAK’s Sheikh Saud bin Saqr Al Qasimi purchased Stevin’s rights, and since 2004 the company has been operated as Stevin Rock LLC, a 99% government-owned entity. In 2007 Stevin joined forces with RAK Rock Company to form one of the biggest mining companies in the world, employing around 2500 people.

The company has the capacity to produce 45m tonnes per annum (tpa) of rock, and between 2005 and 2010 the firms jointly produced some 250m tonnes of material. Dubai International Airport’s expansion, Dubai Mall and Burj Khalifa, the world’s tallest building, were all built using rock supplied by Stevin Rock.

Quarry Kings

With a capacity of 27m tpa, Khor Khuwair is Stevin Rock’s largest quarry and is capable of producing 5000 tonnes per hour of high-quality limestone. This is shipped from its seven-berth harbour and can be used in concrete, cement, lime and steel processes.

At the company’s facilities in Al Ghail, in southern RAK, it produces 10m tpa of dolomite, which is used in the UAE, as well as throughout the GCC and Asia. Its quarry at Kadra produces 7m tpa of hard rock, or gabbro. Four 500-tonne-per-hour crushing lines produce material, which is shipped out through Saqr Port, with 30% being exported to Qatar and Kuwait, according to the company.

RAK Rock produces limestone, aggregates and sand for construction and has an annual production capacity of 22m tpa.

Tarmac Middle East has also been running a quarry in RAK since 2004, and has a total production capacity of up to 10m tpa of gabbro for use in the construction industry as concrete, asphalt aggregate and armour products for coastal protection or reclamation schemes.

Output from the emirate’s quarries is being put to use in a wide variety of construction projects. “The marble business in RAK sees 30% of business activity focused on residential projects, and 50% focused on commercial businesses,” Yousef Al Achkar, the director of Zein Marble, told OBG.

Cement Works

The emirate’s limestone has also helped to create some of the region’s biggest cement companies. Four out of the seven RAK firms listed on the Abu Dhabi Securities Exchange (ADX) manufacture cement.

Analysis of their 2014 financial statements showed Gulf Cement, RAK Cement, RAK White Cement and Union Cement had combined revenues of Dh1.89bn ($514.5m) for the year, up 5.4% on 2013, and combined profits of Dh191.33m ($52.1m) in 2014, up 7.4% on the previous year.

In the first quarter of 2015 collective revenues for the four companies fell by around 4% from Dh495.38m ($134.8m) to Dh475.5m ($129.4m), while collective profits fell by 36% from Dh86.04m ($23.4m) to Dh55.39m ($15.1m).

Differing Performance

However, the four companies had very different performances in the first quarter of 2015.

RAK Cement and Union Cement both saw revenues grow by 9% to Dh61.14m ($16.6m) and Dh150.42m ($40.9m), respectively, as well as significant improvements in profitability.

RAK Cement, which had a market capitalisation of Dh503.12m ($136.9m) in June 2015, turned a Dh1.1m ($299,000) loss in the first quarter of 2014 into a Dh3.86m ($1.05m) profit in the same period in 2015, while Union Cement, which has a market capitalisation of Dh796.63m ($216.8m), saw first-quarter profits jump from Dh18.18m ($4.95m) in 2014 to Dh26.43m ($7.19m) a year later. The company has attributed the emirate’s innate advantages to its success.

“The natural advantage the cement industry in RAK has is its proximity to the mountains and the port,” Sheikh Yasir Ahmed bin Humaid Al Qasimi, the general manager of Union Cement, told OBG. “It is imperative for all stakeholders in the industry to create and expand export markets to stave off the fierce contraction that was witnessed in Dubai during the global financial crisis.”

In 2015 first-quarter revenues fell by 16% at Gulf Cement, which has a market capitalisation of Dh911.42m ($248.1m), and 4% at RAK White Cement, which is valued at Dh660.21m ($179.7m), but in each case profitability fell, not because of a significant downturn in the main business, but because of a fall in the value of other investments.

RAK White Cement’s first-quarter company profits fell by 27.7% from Dh13.79m ($3.75m) to under Dh9.96m ($2.7m), and Gulf Cement’s by 71% from Dh53m ($14.4m) to Dh15.14m ($4.1m).

Gulf Cement reported that the value of its investments had declined dramatically from some Dh41.68m ($11.3m) in the first quarter of 2014 to Dh2.15m ($585,000) a year later, while in the case of RAK White Cement, investment value fell from Dh10.4m ($2.83m) to Dh4.67m ($1.27m) over the same period. In the case of both companies, modest downturns in core business activities appear to have been exacerbated by the wider fall in the value of investments.

Cement Industry Prospects

At RAK Cement, a company which has seen much-improved results in 2015, there is qualified optimism about the short-term prospects.

“I think that in the four years in the run up to World Expo 2020 in Dubai, supply and demand will improve,” Ahmed Ali Al Nuaimi, the company’s general manager, told OBG. “However, although Expo 2020 is good, many other projects have been affected by falling oil prices. Abu Dhabi has cut expenditure by 30% on some projects.”

That and rising competition has also impacted profits. “Industry margins are being squeezed on the back of increasing competition and rising overhead costs, and the fact that other Gulf countries can produce more cheaply,” Bassam Mohammad, general manager of Pioneer Cement, told OBG.

Ceramics

RAK Ceramics, which is the second-largest of the emirate’s businesses listed on ADX, with a market capitalisation of $780m, is one of the world’s leading producers of ceramic sanitaryware and tiles. In 2014 the ruler of RAK, Sheikh Saud bin Saqr Al Qasimi, sold 30.5% of the company’s shares to Cayman Islands-based Samena Limestone, a subsidiary of private equity firm Samena Capital, which has offices in London, Hong Kong and Dubai. The value of the stake, which saw 250m shares go to Samena Limestone, is estimated to have been $240m.

Since the sale, RAK Ceramics, which has plants in the UAE, Bangladesh, China, Sudan, India and Iran, has announced it is focusing on its core activities, which are sanitaryware, tableware, taps and tiles, and that it has decided to dispose of loss-making parts of the firm or units that are more peripheral to its main business. The firm’s operations in China and Sudan are likely to be sold off.

In contrast, the company is currently expanding production in Bangladesh and India and has ambitions to boost its global output. “In terms of sanitaryware, our goal is to double production in three years, and in tiles we plan to increase volumes in core markets by strengthening distribution channels further,” Massaad told OBG. “The strategy is to invest in and expand core businesses and exit non-core areas. The company is focused on increasing its market share in both existing and new markets globally, and aspires to achieve a global leadership position across all ceramic lifestyle solutions.” RAK Ceramics saw its adjusted profits increase by 14% from Dh296.7m ($80.8m) in 2013 to Dh338.3m ($92.1m) in 2014.

Pharmaceuticals

Gulf Pharmaceutical Industries, better known as Julphar, is the biggest RAK firm listed on ADX, with a market capitalisation of Dh2.66bn ($724.1m). The company saw a modest 2.5% increase in annual profits in 2014, with the total rising from Dh228.1m ($62.1m) to Dh233.8m ($63.6m), but then saw a 14% year-on-year fall in profits in the first quarter of 2015 from Dh70.14m ($19.1m) to Dh60.27m ($16.4m).

In 2014 Julphar had sales of Dh1.4bn ($381.1m), with seven key markets accounting for 80% of all sales. Of total sales, Saudi Arabia was the leading market with 40.5%, followed by the UAE at 12.7%. The rest were divided as follows: Egypt, 6.9%; Iraq, 6.2%; Lebanon, 5.9%; Afghanistan, 5.2%; and Jordan, 3.1%. Sales to both Iraq and Libya fell due to geopolitical uncertainty.

Regional Base

The geographical spread of these target markets, coupled with the dominance of Saudi Arabia and the UAE, mirror those of many international businesses that have opted to locate in RAK. “I think there should be growth in the Middle East and most of that will be driven by Saudi Arabia and the UAE,” Sadiq Pasha, the senior operations manager of Kirby Steel, told OBG.

Mabani Steel, which manufactures, designs and installs steel buildings, sends 90% of its products into the Gulf, with Saudi Arabia and the UAE accounting for 25% and 35% of its sales, respectively. The company is owned by Saudi Arabia’s Al Rajhi Holding Group, has strong sales in Qatar and is growing in other locations, such as Iraq. “Despite the ongoing uncertainty in Iraq, we have seen growth in demand from our Iraqi customers,” Timothy Lefebvre, Mabani Steel’s president, told OBG. “The orders have been concentrated in the south of the country around oil installations. Our results for Iraq in 2014 were the best we have ever experienced.” He said that the lifting of sanctions against Iran would also open up a new frontier.

The Draw Of Free Trade

For international companies the free zones are attractive, because 100% ownership can be maintained, but also because a base in RAK enables them to take advantage of the GCC’s free trade laws.

“If you want to be a global company you have got to be here,” Steve Makin, managing director of Vesuvius RAK FZ-LLC, told OBG. “People come here because you can have 100% ownership and the rent is cheaper than Abu Dhabi or Dubai.”

RAK’s free zones are also popular with companies from other GCC countries. “What brings us to RAK is land; steel fabrication requires a large footprint,” said Lefebvre. “Land prices are reasonable and it is available in large swathes. We have a 125,000-sq-metre plot, and have made significant investments in developing the site. In 2014 we spent Dh10m ($2.7m) on new buildings, and in 2015 we are expanding fully to occupy the site.”

Labour Costs

Another factor, which attracts manufacturing companies with large workforces, is labour. “It is easy to source labour from South Asia here,” said Lefebvre. “Most of our employees are from India, and it is very straightforward to obtain work visas for them in RAK.”

Ashok Leyland, which manufactures buses that are used to transport workers and schoolchildren, was allowed to build accommodation for its staff on site when the factory opened in 2009.

“We have a good set up for employees that helps us to keep the costs low. There are also flexible labour rules for the recruitment and retention of staff, which is very important because we are then able to keep the right people and the right skillset,” K.M. Mandanna, Ashok Leyland’s head of international assembly operations, told OBG. “We believe it is important for us to take care of our staff, and we have invested in amenities for them. They have a cricket pitch, free Wi-Fi in their accommodation and a shuttle bus service into town,” he added.

Food

An April 2015 report released by Alpen Capital predicts sustainable growth for the food industry in the GCC. The report suggested that food consumption will have a compound annual growth rate of 3.5% between 2014 and 2019, and it estimates that the UAE’s consumption will grow by 4.8%, the second-highest rate in the region.

RAK has already attracted investment from international food companies, and it has also seen many home-grown ventures flourish. RAKIA is home to Almarai of Saudi Arabia, Dabur of India and Ahmad Tea. Allied Gulf Food Industries FZ LLC was founded in 2010 to help meet the demand for new halal trademarks, and the company has grown to a daily production capacity of 150 tonnes at its 33,000-sq-metre RAKIA factory.

RAK Poultry and Feeding Company, which produces both chickens and eggs, reported a 37% year-on-year increase in revenues from sales in the first half of 2015 to Dh34.54m ($9.39m). The company, which is listed on ADX, said it had increased broiler production by 30% compared to 2014.

Power Prices

The major issue that was of concern to RAKIA tenants in early 2015 was the transfer of power supply from Al Ghail Power, which was created to serve the parks, to the Federal Electricity and Water Authority (FEWA). Tenants have been asked to pay an additional FEWA connection fee on the transfer, with instalments spread over four years. However, switching to FEWA will lock them into the grid, give them long-term security in terms of power supply and provide them with cheaper rates.

Lefebvre, who is also co-chairman of the RAKIA Tenants Committee, told OBG that power supply had been a historic problem in the northern emirates. “I think it makes sense for Gulf secondary industries, such as manufacturers, to be here in RAK as the cost base is competitive. Those who require large amounts of electricity or gas may find other locations more suitable.”

Outlook

Although power supply remains a major concern, and a considerable cost factor for many industrial companies operating in RAK, the availability of cheap land and labour in tax-free zones that offer free trade with the GCC means that RAK retains a compelling value proposition.

In the immediate future, government-driven expenditure in the UAE, Qatar and Saudi Arabia shows no sign of abating on big projects such as Expo 2020 in Dubai, the World Cup 2022 in Qatar, or the development of infrastructure. Lower global oil prices may begin to dampen this demand, but all three countries have significant reserves to sustain their expansion plans for some time to come. While there is construction work taking place in GCC countries and further afield, RAK’s quarries, cement works and factories, which make everything from steel buildings to bathroom suites, can still look forward to profitable times.

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