When Ras al-Khaimah Investment Authority (Rakia) invested in Georgia’s Poti port project in 2008, it could not have envisaged that just four months later the port would be centre stage of a military conflict.
We have … instructions not to invest in any new projects abroad, but will continue with projects under way
Khater Massaad, chief executive officer, Rakia
Rakia bought a majority stake in the Black Sea port in April 2008 for $90m and began developing an industrial free zone on 300 hectares of land. In August that year, a 12-day war broke out between Georgia and Russia, with the Russian forces gaining occupation of Poti port for the latter part of the conflict.
The confrontation did not derail Rakia’s plans in Georgia. Later in 2008, Rakia bought the remaining shares of the port for $65m, and the investment body is planning an initial public offering for the port in 2011.
But the economic crisis and the collapse of the UAE’s property market has proven a tougher obstacle for Rakia’s other overseas schemes. Ratings agency Standard & Poor’s forecast in February that Ras al-Khaimah’s economy will grow some 4 per cent in 2010, after contracting by 1.3 per cent in 2009 as a result of the financial downturn.
In light of the negative economic climate, Rakia has pledged to curtail its foreign investment plans and focus on stabilising the local economy through investment within the emirate.
“We have clear instructions not to invest in any new projects abroad, but will continue with projects under way,” says Khater Massaad, chief executive officer of Rakia. The authority’s overseas investments include an aluminium mill in India and coal mining operations in Indonesia, in addition to the port project in Georgia.
Sheikh Saud bin Saqr al-Qasimi, crown prince and deputy ruler of Ras al-Khaimah, says the two most important areas for investment in the coming years will be the local industrial and tourism sectors.
Ras al-Khaimah has one of the largest bulk handling ports in the region with the capacity to handle 50 million tonnes a year, and Rakia is currently developing two large industrial parks in the emirate to try to attract more investment from local and international firms.
The Al-Hamra Free-Zone and Industrial park covers a total area of 5.8 million square metres, and the development includes free zones and non-free zones. Al-Ghayl industrial park comprises a 3.7 million sq m free-zone and a 17.3 million sq m industrial zone.
Rakia says the number of business licences it has granted has increased tenfold in the past five years. As of the end of May 2010, the authority had issued 3,030 licences.
Rakia hopes to attract more international investment by offering full foreign ownership in the free zones and no tax restrictions.
“There is no personal or corporate tax and no VAT. This makes Ras al-Khaimah an attractive proposition for international investors,” says Massaad.
The tourism sector is another area Ras al-Khaimah is keen to develop further. “Last year we had about 400,000 tourists. We expect these numbers to double over the next couple of years,” says Massaad. To support this growth, several tourism-related projects are under construction in the emirate.
One of the largest schemes is the Al-Hamra Palace hotel, a five-star 200-room development that is expected open by the end of 2010. Despite Rakia having to cut its activities overseas, the emirate is bullish that the multibillion dollar real-estate projects launched during the boom years will still all go ahead.
“No real-estate projects have been cancelled or scaled back, everything will go ahead as planned,” says Massaad.
One of Rakia’s largest real-estate developments is the $1bn Al-Marjan island. The project comprises four man-made islands designed as a coral-shaped formation. The total development will cover an area of 3.1 million sq m.
On 24 July, local developer Khoie Properties signed a memorandum of understanding (MoU) with Dubai-based Arabtec Construction to build the AED2.5bn ($680m) La Hoya Bay development on the island. Rakia expects construction of the island’s $272m Bab al-Bahr residential development to be completed by the end of 2010.
The Gateway City development off the UAE’s Emirates Road is another of Rakia’s large real-estate projects. It includes a $400m convention centre, the designs of which are expected to be completed in the next six to 12 months. Another part of the Gateway City scheme is the City Towers project. When completed, the development will comprise 15 high-rise towers.
Ras al-Khaimah was not immune to the property market crash in Dubai. Many of its local businesses and industries were affected by the sharp downturn in its neighbour’s construction activity.
Rakia’s decision to hold back on further foreign investment and concentrate on domestic development comes as little surprise in the current economic climate. But with the ongoing depression in the global economy, Ras al-Khaimah may also be forced to set more realistic targets for some of its planned development schemes before too long.