Stable Outlook

Sovereign rating and the ease of doing business

S&P Global Ratings affirmed a positive A/A-1 sovereign credit rating for the Emirate of Ras Al Khaimah (RAK) on January 19, 2018. This was followed by Fitch Ratings’ affirmation of […]

S&P Global Ratings affirmed a positive A/A-1 sovereign credit rating for the Emirate of Ras Al Khaimah (RAK) on January 19, 2018. This was followed by Fitch Ratings’ affirmation of its A rating in February. Both rating agencies indicated a stable outlook for the Emirate based on their assumptions of stronger growth, a robust fiscal position, and stability within the UAE generally.

During 2017, growth in RAK had slowed to 1.5% resulting from weaker regional demand and the effect of the trade embargo on Qatar. After what S&P expects to have been a temporary dip in growth, the agency predicts that RAK’s economy will accelerate in the medium term, with real GDP growth averaging 2.5% between 2018 and 2021.
The higher anticipated growth comes on the back of regional and local developments. A modest increase in oil prices will drive improvement in regional demand, while higher capital spending in Dubai ahead of Expo 2020 is likely to lead to increased sales of construction materials, an important segment for the RAK economy. In addition, the local government has made significant strides in expanding exports to markets further afield such as in India and China following recent tensions in the Gulf region, which had contributed to the slowdown.
Weaknesses in the policy framework and the poor availability of macroeconomic data are cited by Fitch as factors which somewhat detract from its generally positive findings. Like in most countries in the Middle East, political institutions in RAK are in a developing phase. However, considering the rapid and sustained growth experienced in RAK and more broadly in the UAE, it is clear that stable leadership has been a key factor in this achievement, and will also be the basis of attaining the Emirate’s long-term social development and economic objectives. According to S&P, the Ruler of Ras Al Khaimah, Sheikh Saud bin Saqr Al Qasimi, has been instrumental in the successful implementation of the Emirate’s development plans since 2010, and the agency does not expect significant changes in government policy in the foreseeable future.
By virtue of being in a monetary union with the other Emirates, monetary policy is the purview of the UAE monetary authority. This lack of monetary policy flexibility is considered a negative feature by rating agencies. However, the use of the UAE dirham which is pegged to the USD also bestowed great benefits to RAK, including reduced currency risk and improved certainty for potential investors in RAK.
RAK’s government has a track record of prudent fiscal management, manifested in consecutive fiscal surpluses since 2010. The Emirate maintains low debt levels (currently 20% of GDP) which should decrease further to 17% by 2021 as the economy expands and some outstanding borrowings are retired.
Fiscal expenditure is expected to remain stable, with capital expenditure making up 23% of the total expenditure. The RAK government’s main fiscal responsibilities are those related to infrastructure, services, and the development of Emirate-level projects. Spending envisaged in these areas will contribute to the long-term growth of the Emirate.
Apart from the recently introduced VAT, RAK has a zero-tax policy with no income, sales, or wealth taxes. Through the Ras Al Khaimah Economic Zone (RAKEZ), the Emirate offers five free trade zones with no taxes, tariffs, or quotas.
The government of RAK attaches great importance to being able to attract new business and investment in support of its growth objectives. It offers a stable, secure, and low cost environment for investors, which many cite as reasons for selecting the Emirate as their preferred investment destination.
In addition, establishing a business in RAK, is a remarkably easy and fast process. RAKEZ offers a three-step online process for obtaining a business licence within a matter of days.
By pursuing sound long-term economic and social development policies, RAK will be able to attract and provide opportunities to those willing to take advantage of the business-friendly environment that this Emirate has to offer.