As Ras Al Khaimah’s economy has developed over the past decade, the emirate has built a reputation as a regional centre for small and medium-sized enterprises (SMEs). In 2009, SMEs accounted for 85-95% of all economic activity in the UAE, according to a report released by the Abu Dhabi Council for Economic Development (ADCED). In RAK, the percentage is likely even higher.

Since the turn of the century, the local government has worked to position the emirate as an attractive destination for SME activity. In May 2000, the government set up the RAK Free Trade Zone (RAK FTZ), the emirate’s first FTZ. Today that zone is home to more than 5000 firms from around the world, around 95% of which are SMEs. Similarly, the RAK Investment Authority (RAKIA), which was launched in 2005 and manages two industrial parks in the emirate, has issued more than 3000 licences, a substantial percentage of which are SMEs.

ENCOURAGING SME GROWTH: In an effort to tap into the steadily expanding SME segment, local financial institutions have developed various products and services aimed specifically at these enterprises. When the international financial downturn started in 2008, banks around the world, including many in RAK and the UAE as a whole, cut their lending facilities drastically, and in some cases stopped lending altogether. As of early 2012, however, the situation was steadily improving. According to the Central Bank of the UAE, in the first 11 months of 2011, bank lending in the country expanded at the fastest pace since the crisis. The country’s lenders put forward Dh1.07trn ($291.25bn) in loans from the beginning of the year through November, up 4.2% from the same period the previous year.

The central bank has been instrumental in encouraging banks to continue issuing loans through the downturn in an effort to buoy economic growth. Additionally, both RAK FTZ and RAK Investment Authority (RAKIA) have signed a variety of financing deals with local banks, which has had a positive impact on the SME segment. With banks expected to continue to loosen their purse strings through 2012 and into the future, RAK’s SME segment will likely continue to grow.

A HISTORY OF FOCUSED EXPANSION: The UAE is home to a variety of organisations that work to support SME growth. The Sheikh Khalifa Fund for Enterprise Development, for example, which opened a branch in RAK in July 2011, offers financing for new businesses and a variety of training programmes for young entrepreneurs in the UAE. Over the past decade, RAK has become the leading destination for SMEs looking to set up shop in the UAE, primarily as a result of the successes of RAK FTZ and RAKIA.

The emirate’s development as a centre for SMEs is the result of careful oversight and a series of government investments over the years. Both RAK FTZ and RAKIA were created by royal decree, and both organisations remain government owned today. The industrial zones have played a major role in positioning RAK as a lower-cost investment alternative to Abu Dhabi and Dubai, both of which are also home to a handful of major industrial zones. In fDi sectors around the world, the federal Ministry of Finance and the central bank issued a Dh70bn ($19.04bn) support package for the banking sector. A year later, in 2009, the central bank released another Dh50bn ($13.61bn) as part of an emergency liquidity facility. While these disbursements did not result in an immediate jump in lending, they helped banks shore up their balance sheets sooner rather than later, which was a prerequisite for the recent increase in credit issuance.

BUILDING SMALL BUSINESSES: RAK FTZ and RAKIA both offer a variety of incentives – financial and otherwise – for SMEs looking to establish themselves in the UAE. RAK FTZ registered 2033 new companies in 2011, up substantially from 1740 in 2010. New companies that register with RAK FTZ enjoy tax-free status, 100% foreign ownership and a variety of value-added services, including information and communications technology (ICT), marketing support and assistance.

For manufacturing firms, of which RAK has many, the organisation offers warehousing space and logistical support as needed. The situation is similar at RAKIA’s two industrial zones. In the first half of 2011, around 800 new companies registered with RAKIA, up 31% from the same period the previous year. RAKIA offers SMEs tax-free status, full repatriation of capital and profits, and a wide variety of support services, including office, warehousing and industrial space, competitive energy costs, and easy access to transport and logistical services.

FINANCING GROWTH: RAK FTZ and RAKIA have signed cooperation agreements with a variety of local financial institutions in an effort to streamline the financing process, which remains especially challenging for SMEs. In June 2011, for example, RAK FTZ and the National Bank of Abu Dhabi (NBAD) signed a memorandum of understanding with the goal of boosting NBAD’s support to SMEs in the free zone and across the UAE. “NBAD and RAK FTZ pursue the common goal of cultivating and promoting entrepreneurial spirit and the growth of small and medium-sized businesses,” said Haitham Al Refaie, the head of business banking at NBAD, which is the second-largest bank in the UAE in terms of assets.

Similarly, in October 2011, RAK FTZ signed a memorandum of understanding (MoU) with the India-based Bank of Baroda (BoB), a major foreign player in the UAE. The two organisations will collaborate in a variety of areas. BoB plans to oversee a number of local and foreign currency loans and working capital facilities for RAK FTZ-based companies, many of which are Indian.

RAKIA has also partnered with a variety of local banks. In early 2011, the organisation signed an MoU with HSBC, with the goal of expanding the bank’s reach in the UAE and allowing local firms, including SMEs, to access to new sources of funding. HSBC offers a range of products aimed at SMEs in the UAE. In June 2011, the bank launched a $100m dedicated fund for UAE-based SMEs. The fund was fully allocated by the end of September. This was HSBC’s second SME fund in the UAE – in 2010, the institution launched a $100m SME fund in conjunction with the Ministry of Economy, which was fully allocated within six months. A substantial number of firms in RAK benefitted from financing, including ElectroRAK, which is active in the mechanical, electrical and plumbing services segment. HSBC currently serves around 20,000 SMEs in the UAE. PROVIDING A “LEG UP”: The National Bank of RAK (RAKBANK) – the largest bank in the emirate and one of the leading financial institutions in the UAE – has been a major source of funding for SMEs over the past few years. As many other banks cut back on lending (and in some cases stopped lending entirely) in the wake of the international financial downturn of 2008-09, RAKBANK continued to offer loans to companies with solid fundamentals.

In May 2009, less than a year after the financial downturn began, the bank launched a marketing campaign to promote new collateral-free loans for eligible SMEs. RAKBANK offered financing up to Dh500,000 ($136,10) for qualifying firms. “The SME sector may be seen as a high-risk area by many banks, but we have continued to extend finance services to businesses that demonstrate viable business models and healthy cash-flows,” said Graham Honeybill, CEO. The institution has continued to lend aggressively to SMEs in RAK and throughout the UAE during the downturn. By mid-2011, RAKBANK was one of the UAE’s largest retail lenders.

LOOKING ON: With a strong history and culture of supporting SMEs and the growth of small businesses, the future of these ventures seems to be in good hands in RAK. Programmes like the Sheikh Khalifa Fund for Enterprises and policies encouraging continuing lending to new business ventures will help the SME sector grow. Free trade zones and industrial parks have helped to develop new businesses, and are set to continue to do so in the future.