Economic diversity helping Ras Al Khaimah weather oil price slump

The diversity of Ras Al Khaimah’s economy is helping it to weather the downturn caused by the oil price crash, credit ratings agencies say.

Although the northern emirate has not totally escaped the effects of the spending brakes applied by the UAE and other regional governments because of lower oil and gas revenues, it will be bolstered by continued spending on infrastructure projects as a countermeasure to the economic slowdown.

“We still expect real GDP [the value of all goods and services produced domestically, after adjusting for inflation] to expand by 4.5 to 5 per cent per year in 2015 to 2017, driven by construction, rising tourist inflows and manufacturing growth,” Fitch said Friday in a report that affirmed RAK’s long-term credit rating at A.

Last year, RAK’s economy grew 4.6 per cent, according to the government.

The emirate’s tourism sector has expanded rapidly recently and the RAK tourism authority last week reported a record number of visitors for the third quarter – up 14 per cent quarter-on-quarter to about 200,000.

Ras Al Khaimah’s hotel revenue grew 22 per cent quarter-on-quarter to about Dh205 million in the third quarter.

RAK is among the smallest emirates in the federation, with a population of about 300,000. Its wealth rests on real estate and the hospitality sector, as well as a handful of export-focused industries – with companies such as RAK Ceramics, RAK Cement and Gulf Pharmaceuticals among them – which also experienced robust growth recently.

The tourism sector is making efforts to expand into business events, a plan designed to attract foreign investment to the emirate’s industrial free zones.

The UAE was hit hard by the global financial crisis seven years ago but has followed a fairly conservative fiscal path since.

Standard & Poor’s affirmed its debt rating on RAK last month. “RAK’s relatively diverse economic base and strong public finances will offset slower regional demand and lack of monetary policy flexibility,” it said with references to the emirate’s membership of the federal budget process and the dollar-pegged currency.

Ras Al Khaimah has just a small direct exposure to the hydrocarbons sector through RAK Gas, from which the government derived 15 per cent of its revenue last year, down from 26 per cent in 2013. But it is exposed more broadly via the federal budget and implied central government guarantees.

Fitch, which had forecast a budget deficit for Ras Al Khaimah, estimates that the emirate’s budget would rise to a surplus this year of 1.1 per cent of GDP, from 0.8 per cent last year. Fitch and S&P criticised Ras Al Khaimah’s lack of government transparency and bureaucratic development. According to Fitch, RAK’s budgeting process “is not yet methodologically mature”, so there are many gaps that can only be filled in via federal data interpolation.

Improvement on that front might help improve the emirate’s debt ratings, said Fitch and S&P.

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