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DE RUEHDE #0013/01 0381044
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R 071044Z FEB 10
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC 0054
INFO GULF COOPERATION COUNCIL COLLECTIVE

C O N F I D E N T I A L DUBAI 000013 
 
SIPDIS 
DEPARTMENT FOR NEA/FO 
NEA/ARP BMCGOVERN 
INR/NESA 
 
E.O. 12958: DECL: 2020/02/07 
TAGS: ETRD KIPR EFIN ECON PREL AE
SUBJECT: UAE's RAS AL KHAIMAH: OPEN FOR BUSINESS, BUT STRUGGLING TO 
GROW 
 
REF: 09 DUBAI 447 
 
CLASSIFIED BY: Justin Siberell, Consul General; REASON: 1.4(B), (D) 
 
¶1. (C) SUMMARY:  Ras Al-Khaimah's (RAK) effort to grow its economy 
by offering incentives to international investors has attracted 
primarily small-scale traders, including from Iran, and thereby 
drawn scrutiny from UAE federal authorities concerned about illicit 
Iranian activity in the country.  On a recent visit to the Emirate 
by Consulate Dubai officers, RAK authorities insisted adherence to 
UAE and international export control measures to control illicit 
trade and denied strenuously facilitation of illicit Iranian trade 
or the notorious arms trading Bout brothers, as alleged in reports 
circulated in Washington, D.C. by lobbyists employed by a deposed, 
former Crown Prince of RAK (ref a).  The Head of RAK Customs has 
requested USG training to build local Customs capacity.  DHS/ICE 
and regional EXBS officers followed up with RAK's request in early 
February.  END SUMMARY. 
 
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RAK AIMS TO INCREASE PROFILE IN UAE AND BEYOND 
 
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¶2. (SBU) In a December 23 meeting, H.H. Sheikh Faisal Bin Saqr Al 
Qassimi, Chairman of RAK's Free Trade Zone and son of the Ruler 
told Consul General and CG Dubai Econoff that RAK is working hard 
to carve out a niche within the UAE economy, long dominated by 
neighboring emirates Abu Dhabi and Dubai.  With a total population 
of 300,000, of which 50 percent are Emirati nationals (highest 
concentration in the UAE according to RAK Government Officials), 
and located at the northern edge of the UAE facing the Persian 
Gulf, RAK's economy has traditionally been driven by industrial 
activity that exploits the limestone-rich Al Hajar mountains 
separating RAK from Oman.  Stones from RAK are exported throughout 
the Gulf as foundation for off-shore developments such as Dubai's 
Palm Islands.  Other stone-related industries also prosper in RAK 
-- RAK Ceramics is the world's largest ceramics company; while six 
cement plants are currently in operation in the emirate. 
 
 
 
¶3. (C) But RAK aspires to more than producing rock and cement. 
RAK's leaders chafe at their traditional dependence upon Abu Dhabi 
and believe that the Emirate's northern location, just beyond the 
Straits of Hormuz, offers advantages for traders and merchants 
heretofore unexploited.  Sheikh Faisal said that RAK has had to 
seek comparative advantage in order to compete with Dubai and Abu 
Dhabi and does so by offering investors the "fastest and most cost 
effective platform" to set up a business in the UAE.  He said it 
takes just three days to register a company in the RAK Free Trade 
Zone, which compares favorably to longer wait times in Dubai and 
Abu Dhabi.  Costs associated with establishing a business in RAK 
(registration, office space, housing, etc.) are estimated to be 50 
percent less than Dubai and Abu Dhabi.  As a result, he said, RAK 
has seen a large rise in small company registrations, in particular 
first-time foreign company registrants to the UAE.  Foreign 
investors are attracted, in particular, by guarantees of 100 
percent ownership of their companies, permanent "tax holidays", and 
a fast and easy path to obtain coveted UAE residence visas for 
staff. Sheikh Faisal conceded that many new RAK registrants view 
RAK as simply a low-cost "back door" to doing business in Dubai and 
Abu Dhabi, and the Emirate is therefore developing strategies to 
orient such companies towards doing business locally.  A failure to 
do so, he said, would feed opposition among traditionalist RAK 
citizens who already oppose the government's aggressive 
business-oriented strategy. 
 
 
 
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INDIAN COMPANIES LEAD IN FREE ZONE, IRANIANS NO LONGER WELCOME 
 
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¶4. (C) Oussama El Omari, CEO of the RAK Free Trade Zone told CG and 
Econoff that at the end of 2009, seven thousand companies had 
registered in RAK's Free Trade Zone.  Indian companies comprise the 
 
 
single largest component, mostly small traders and merchants. 
Meanwhile, Iranian investment in RAK had declined significantly in 
the last year.  He revealed that the UAE Federal Government's 
increased scrutiny of all new Iranian investors and the overall 
sensitivity to possible illicit Iranian activities has led to the 
decline.  Omari said that even existing Iranian business owners are 
finding it difficult to operate in RAK because of increased 
scrutiny from federal authorities, which is a significant change 
from RAK's previously aggressive courting of Iranian business. 
According to El Omari, to date, 162 U.S. based companies have 
registered in RAK's Free Trade Zone.  (Note: Commerce attachC) has 
not been able to confirm this figure. End Note.)  El Omari noted 
that RAK authorities would like to see more U.S. companies 
established in the Emirate, especially since the slow down in 
Iranian investments has left a noticeable gap in foreign direct 
investment. 
 
 
 
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MINIMAL CONTAINER HANDLING A LIMITING FACTOR 
 
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¶5. (C) Sheikh Faisal noted that RAK's lack of a robust container 
handling capability at its key Saqr port was limiting growth 
potential.  He said that while a major port operation remained a 
long-term objective for RAK, the relative proximity of Dubai's 
world class container port at Jebel Ali made it hard to justify 
significant expenditure on port activities.  Additionally, RAK 
would need to attract new manufacturing to generate the additional 
container business to make an expanded port viable.  Unfortunately 
RAK does not have major projects in the short and medium-term to 
attract large international firms that would require a robust 
container business.  Saqr port, which serves primarily as a bulk 
cargo facility to move RAK's stone and cement exports, currently 
handles approximately just three to four thousand containers a year 
compared to over 11 million in Dubai's Jebel Ali port.  Dr. Khater 
Massaad, CEO of RAK Ceramics, told CG and Econoff that RAK 
Ceramics, the largest ceramics producer in the world, does not 
utilize RAK's major port for the 30 to 40 thousand containers it 
ships per year. Dubai's Jebel Ali, he said, offers superior 
handling service and available routes across RAK Ceramics' export 
markets. 
 
 
 
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RAK CUSTOMS AUTHORITY LACKS RESOURCES 
 
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¶6. (C) Mohammed A. Al Mehrezi, Director General of RAK Port and 
Customs Department told CG and Econoff that although his Department 
lacks resources, in particular adequate levels of trained Customs 
inspectors and other personnel, RAK Customs is effectively 
upholding strict security and export controls as outlined by UAE 
federal regulations.  When questioned whether sufficient control 
was being exercised over RAK's Free Zone and dhow ports to ensure 
illicit items were not transiting the Emirate, in particular to 
Iran, Mehrezi asserted that RAK's ports were more tightly 
controlled than Dubai.  "At least we have a fence around our ports" 
he said, making reference to the curb side (and unfenced) dhow 
wharfages in both Dubai and Sharjah. 
 
 
 
¶7. (C) Mehrezi explained that RAK authorities have been unable to 
retain significant numbers of skilled customs personnel due to wage 
disparities between individual emirates of the UAE and the UAE 
federal government.  Mehrezi said that a RAK customs official could 
quadruple his salary by moving to Abu Dhabi or Dubai to do the same 
job.  He said that the poorer emirate of RAK does not have the 
resources to compete with higher salaries elsewhere and is 
therefore unable to maintain staff continuity.  In 2009, over 70 
RAK Customs officers out of a total of 250 resigned in order to 
take higher paying jobs in Dubai and Abu Dhabi.  (Comment:  In late 
2009, UAE federal salaries were increased by 70 percent, a move 
 
 
seen as bringing the federal salary structure into line with that 
of Abu Dhabi emirate.  The raise only exacerbated the wage 
disparity problem in the far flung emirates like RAK.  End 
Comment.)   Mehrezi lamented that while RAK has invested in costly 
and time consuming training for customs officials, Dubai and Abu 
Dhabi Customs Authorities have been poaching their staff as a 
result of being able to offer higher pay packages.  He said that it 
has become increasingly difficult to operate as result of this 
personnel attrition, and made a case for federalizing Customs 
workers, a move that would lead to comparable skills and pay across 
the UAE.  (Comment:  While a federalization of customs 
responsibilities has long been rumored, Abu Dhabi and Dubai customs 
authorities exercise significant independence and seem to have 
little interest in unification. End Comment.) 
 
 
 
¶8. (C) Mehrezi was open to CG's proposal of assistance in arranging 
training for RAK Customs personnel.  Mehrezi followed up the 
December 23 conversation with a request in early January to 
establish a training program.  In response, Dubai-based DHS/ICE 
attachC) and Muscat-based EXBS officer are meeting Mehrezi in the 
first week of February to discuss developing a cooperative training 
program.  DHS and EXBS are already working closely with Dubai 
Customs on a variety of training programs.  Expanding these 
programs to RAK will give us greater visibility on the flow of 
goods into and out of RAK, helping either to substantiate or refute 
claims made by a former (deposed) RAK Crown Prince that RAK has 
emerged as a center for illicit Iran trade in the UAE (reftel). 
 
 
 
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RAK CERAMICS: BOOMING, BUT NOTHING TO DO WITH MISSILES 
 
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¶9. (C) Consulate officers visited the offices of RAK Ceramics, 
established in 1989 and now the largest producer of ceramics in the 
world.  The company was founded by current RAK Crown Prince Sheikh 
Saud bin Saqr al Qassimi and is effectively run and controlled by 
Dr. Khater Massaad, a Lebanese-origin Swiss citizen.  RAK Ceramics 
exports ceramic products to 135 countries, including the United 
States.  Factories are operating in Iran, China and Sudan.  When 
asked by CG whether there was any truth in allegations that RAK 
Ceramics' Iran facility may be involved in producing high-tech 
ceramics for Iran's missile programs, as alleged by the former 
Crown Prince (reftel), Massad became visibly angry and said, "we 
make tiles, toilets and sinks and don't want any trouble...the idea 
that I would have anything to do with Iran and weapons is totally 
false and outrageous."  When asked why the former Crown Prince 
might allege such things in his folio about RAK circulated on 
Capitol Hill, Massad said he couldn't understand why he would 
denigrate RAK's most successful company that brings more money into 
the Emirate than any other business.  He said that the former Crown 
Prince "never supported RAK Ceramics" during his time as Deputy 
Ruler, even denying RAK Ceramics the energy it required to grow 
operations.  Massad believed the former Crown Prince is hoping 
either to be returned to RAK and cut in on government-related 
revenue, or bought off by Abu Dhabi to stop making his (false) 
claims.  Massad said he planned a counter-campaign to clear his 
name, using a "lobbyist" in Washington (nfi). 
 
 
 
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NO BITE ON THE BOUT BROTHERS 
 
---------------------------- 
 
 
 
¶10. (C) CG raised the allegation of RAK facilitation of the 
activities of the arms-trading brothers Victor and Sergei Bout, 
another among the claims made in the former Crown Prince's folio, 
with Sheikh Faisal and Oussama Al Omari of the RAK Free Zone as 
well as with Khatar Massad of RAK Ceramics.  All either denied 
knowledge of the brothers entirely, or said they were unaware of 
any information that would corroborate the former Crown Prince's 
allegations, including that the Bout brothers continue to maintain 
 
 
interest in a diamond business based in the RAK Free Zone.  Sheikh 
Faisal offered to direct access to the diamond facility if desired, 
and asked for any specific information of concern to the USG about 
RAK, which he pledged would be investigated and acted upon. 
 
 
 
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COMMENT 
 
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¶11. (C) This recent visit to Ras al Khaimah was intended to build 
Consulate Dubai's understanding of the nature of business activity 
ongoing in the emirate and to develop, where possible, 
relationships that will help us continue to build that knowledge. 
In that regard, developing a training relationship with RAK Customs 
provides a potentially valuable avenue for cooperation in an area 
where concerns have been raised about trade with Iran and lax 
export controls.   RAK's strategy to take a larger piece of the 
economic pie in the UAE may appear on its face to be 
overly-ambitious and difficult to implement, but the poor, 
neglected emirate has little choice but to think big if it is to 
employ its growing youth population and wean itself from the 
limited, though reliable, hand outs traditionally provided by Abu 
Dhabi.    END COMMENT 
SIBERELL