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The Globe and Mail

UAE acts to bridge northern economic divide

Less than 300 kilometres separate Ras Al-Kheimah from the United Arab Emirates' capital territory of Abu Dhabi, but its neighbourhoods of low cement buildings and dusty cars feel as if they are in a different country.

While Dubai has its glitz and Abu Dhabi its oil and cultural ambitions, Ras Al-Kheimah - known locally as RAK - churns out the cement and glass that helped turn its southern neighbouring emirates into internationally known cities.

Those contrasting images have taken on new significance as uprisings across the Arab world have highlighted the potentially damaging effect of economic divisions being ignored by governments.

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In March, amid turmoil in Tunisia, Egypt and Libya, Abu Dhabi announced an unexpected investment of more than $1.5-billion (U.S.) in much-needed power and water supply improvements in RAK and other poorer emirates.

Taufiq Rahim, a visiting fellow at the Dubai School of Government, says the money was a sign of the "particular responsibility" of Abu Dhabi, the UAE's politically dominant territory, for "stewardship of the nation." Mr. Rahim adds: "They're playing their role and that of course has a financial cost."

The announcement of the government's RAK investment came after Sheikh Mohammed bin Zayed, crown prince of Abu Dhabi, toured the northern emirates in February.

Abu Dhabi also doubled the funding for a small business development program to try to increase job creation in the north.

While the government never linked the new money to the unrest across the Middle East, many commentators saw it as a politically meaningful gesture to a territory that is more important to the UAE than its small size might suggest. For all that it is overshadowed commercially and politically by Dubai and Abu Dhabi, RAK is an industrial powerhouse that is home to the world's biggest ceramic tile maker, vast limestone quarries and a nascent tourist industry.

It is also one of the more traditionally Emirati parts of a nation that employs vast numbers of foreign workers, who greatly outnumber locals. As of 2005, nationals accounted for more than 40 per cent of its 210,063 inhabitants, according to official figures, a proportion four times higher than that of Dubai.

The money was also seen as a tacit acknowledgment that the emirate's development has been hampered by infrastructural problems that have undermined the very businesses on which it depends.

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Perhaps most damaging have been electricity shortages that have pushed new factories to rely on generators whose power costs twice that purchased from the government.

"The power was really an obstacle," says Oussama El Omari, chief executive officer of the RAK Free Trade Zone.

The Abu Dhabi investment could help local companies by linking a new free zone, RAK Maritime City, to the UAE electricity grid, and increasing the electricity provided to the adjacent Saqr Port, says Alan Pollard, business development manager for the free zone.

"It's about ensuring that it [the Maritime City]is supported from the centre," Mr. Pollard says of the Abu Dhabi initiative.

Another problem, according to local businesses, is that RAK prioritizes power for domestic users. That means industrial groups have to rely on diesel or coal-powered generators, the cost of which has been rising and is particularly heavy during the hot Gulf summers when cooling systems are required.

"Sometimes we face power cuts or are asked to reduce our electricity consumption in the summer. We switch to our back-up diesel electricity generators," says Bart Muller, CEO of the international division of Arc Ceramics, which operates a glass-making factory in one of the emirate's industrial zones. "This switch, however, is decreasing the efficiency of our plants."

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Some developments, such as shopping malls, have delayed opening as tenants balk at the prospective cost of electricity from generators, says one person close to a property developer with projects in RAK. "You will pay a fortune for summer bills," he says.

Even before the Abu Dhabi money was announced, RAK had begun to invest in renewable energy in an effort to attract new industries and meet domestic power demand.

CSEM, a Swiss research group with an office in one of the area's industrial parks, was given land for an open-air research centre to test solar thermal power generation.

The group aims to be marketing renewable energy technology within five years, says Hamid Kayal, the institute's director, adding that the emirate wants both the extra power it would bring and the highly skilled jobs it would create.

As with the other promised developments in RAK, investors are waiting to see if the big plans for this little publicized but significant part of one of the region's richest nations will be followed through.

The Financial Times Ltd.

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