As established bigger players settle in, Ras Al Khaimah’s industrial cluster is attracting suppliers and SMEs
For a manufacturer of armoured vehicles there’s an obvious logic to having manufacturing facilities in the Middle East. Streit Group, which produces a range of vehicles for military uses including armoured personnel carriers, has multiple facilities across the region, from Jordan to Iraq. But its factory in Ras Al Khaimah is by far the largest.
Earlier this year it inaugurated the second phase of its factory in the Ras Al Khaimah Free Trade Zone, adding significantly to production capacity (it can produce as many as 500 armoured vehicles per month), and adding a plant to produce safety and bulletproof glass. The Canadian company, which exports to Africa, the Middle East, and Southeast Asia from its RAK base, opened facilities in the UAE due to the “very good export regulations and freezone infrastructure, which allowed us to easily supply our target markets,” says Steven Fletcher, Streit Group CEO. The facility also has a special forces training centre for advanced training on the vehicles, such as assault and anti-terror training for police, or riot control for ministry of interiors.
The global market for armoured vehicles is estimated to be worth $28.6 billion by 2019, according to research firm Markets and Markets; with growth forecast, Streit Group plans to continue its expansion in the UAE. That means more workers (its employees in the emirates already number above 1,000), and buying more products from local suppliers. While steel is imported from Sweden, “the bulk of our componentry is sourced locally,” says Fletcher, whether locally produced or from traders. The company also sources its glass from a local producer to manufacture into safety and bulletproof glass.
Bringing in larger industrial companies has brought wide-ranging benefits for the emirate, says RAK FTZ’s acting CEO Ramy Jallad, attracting international suppliers and SMEs that want to win business from the bigger companies. “It’s a cluster-based approach.”
Attracting SMEs is something that the emirate does well. Most recently RAK FTZ has seen a wave of new SMEs from Asia, especially China and Japan. The companies—whether small industrial outfits, general traders, or companies that manufacture in China and want to have a supply chain closer to their target market—are looking to established an international presence, and for some Ras Al Khaimah is the first step. They’re attracted there by lower costs; many SMEs start by operating from just a desk, or out of offices that start as small as ten square metres. If things go well, they later upscale to a larger office or add warehouse space. Big companies are also able to benefit from lower costs, including building blue-collar labour accommodation adjacent to their industrial plant.
Indian businesses are one group that has recognised Ras Al Khaimah’s value proposition: FDI from India to the emirate accounts for about 30 per cent of the total, compared with 14.2 per cent for the UAE as a whole in 2013, according to Alpen Capital (ME). Major Indian companies operating in Ras Al Khaimah Investment Authority (RAKIA) include Ashok Leyland, which produces around 250 buses a month, and Eternity Technologies, which manufactures a range of industrial batteries.
One large customer in the GCC is the oil and gas sector, and many Indian industrial companies that have set up shop are producing products, such as pipes, that are bought by national oil companies. But there are limitations: Despite higher purchasing parity in the Gulf, Indian firms have typically viewed the GCC market as “sub-optimal” due to its low population base of around 50 million compared with more than 1.2 billion in India, says Avinash Gupta, managing director at Alpen Capital (ME). “In India, if you have the right kind of product or offering, you typically have a very large market size given the base population.”
Gupta says that Indian firms considering manufacturing in the GCC are often looking at a wider play, to supply products to the GCC as well as to higher-population countries including Egypt and Iran, and markets in Africa.
Advantages in setting up a business in the GCC compared with India include simpler structuring of financing due to the dollar-pegged currencies (in India, borrowings in US dollars can only be used to pay for capital expenditure). “Here you can tailor your financing more effectively,” says Gupta.
Another benefit is the propensity for local sovereign wealth funds to provide equity funding for projects which they believe will create jobs or add to the local economy, such as an offer of land in exchange for a minority stake. “[Funds] are quite happy to take a minority stake, unlike some other places where an equity investor might ask for a higher stake, or to be an equal partner.”
Alpen Capital (ME) is currently advising Zuari Agro Chemicals, a subsidiary of India’s Adventz Group, on obtaining funding for a planned $850 million fertiliser plant to be located in RAK Maritime City. The financial advisor seeded the idea to their Indian client, says Gupta, and is currently helping Zuari Agro raise equity funding from a range of partners and raise debt capital from the banking system. The process is going “smoothly,” says Gupta. “You choose the right contractor, the right technology, then you roll this out.” It’s not innovative or new, but it takes time.”
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