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Ukrainian agro-cooperation prospects with MENA-countries

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The Ukrainian agro-industrial complex (AIC) has been traditional subject of both interest and scare for foreign investors. Despite high-yielding black earth lands, sufficient water resources, agricultural traditions and cheap yet qualified labour force, foreign companies are scared off by corruption and unfavourable business climate.

In addition, ownership of Ukrainian agricultural lands still may not be acquired – the government has not yet adopted the land sale moratorium. However, this does not prevent investors from working under long-term lease schemes, accumulating vast land banks and promptly earning money due to export of agricultural products.
There are at least 15 companies in Ukraine having farmland bank that exceeds 100,000 hectares. These are large latifundia that actively develop both plant production and storage and processing of animal products. As a rule, these are companies where Ukrainian stock prevails. However, even today large western companies, as well as Arabic companies operate both as traders and manufacturers in Ukraine. Such companies have adapted to the Ukrainian reality.
Firstly, it is important to mention NCH company with its headquarters in NY, as well as its regional offices in other countries within the region, in particular, Russia, Latvia and Romania. According to expert assessments this company cultivates 400,000 hectares of Ukrainian land. The Ukrainian Agrarian Investments Company founded by Russian Renaissance Partners Company has land bank of no less significance. This company has approximately 240,000 hectares of land under lease.

Swedish companies are also active market participants. Thus, Alpcot Agro controls 93,000 hectares of Ukrainian land concentrated mostly in the country’s West. In 2012 this Swedish company has focused on maize and wheat production and has harvested thousands of tons of grain and oil crops in 2012. In addition, there are also other Scandinavian participants on the market. Thus, Trigon Agri, with its headquarters in Copenhagen, operating also in Russia and Estonia, controls approximately 55,000 hectares of Ukrainian land, and the world known Swiss Glencore Company grows agricultural products on over 80,000 hectares of land.

French businesses are also among active market participants and one of them is AgroGeneration Company that has control over approximately 52,000 hectares of land. Recently it has decided to merge with the American SigmaBleyzer Company that also invests in the Ukrainian agro-industrial complex. As a result, Ukrainian market will meet a company cultivating approximately 120,000 hectares of the country’s land.

There is also a number of small agricultural enterprises with foreign stock that cultivate few thousands hectares of land. Thus, foreign companies control approximately more than 1 million hectares of high-grade lands while Ukraine has 40 millions of cropland in total. In addition, latifundia being considered large by Ukrainian standards and having land banks exceeding 50,000 hectares of land, controls about 5.5 million hectares of land. The rest of lessees are represented by small companies with performance decreasing every year, which are forced to sell their businesses to larger market players.

It is AIC market consolidation that is the main Ukrainian trend within the last 3-4 years. In 2012, 7 companies have increased their land bank by more than 20,000 hectares by way of purchasing smaller and weaker businesses. The leader is Kernel Company, which specializes in oil crops and has increased its land bank by 120,000 hectares in 2012.

Meanwhile, Eastern companies are only examining the Ukrainian market, first market entry attempts being made by Arabic companies. Their potential interest may be cultivation of more than 1 million of Ukrainian land. However, nowadays they only try to adapt to Ukrainian reality and follow the way of Western corporations.
Interest of Arab companies is easy to understand as Ukraine is one of the serious trade partners for Arab countries supplying grain crops to them. According to the 2011/2012 marketing year results Arab countries are apparent leaders in grain import in total share of Ukrainian export. Thus, their share in export of Ukrainian barley is 87% with fair share of 69% belonging to Saudi Arabia. Ukraine also exports 44% of wheat in these countries, and Egypt is its largest importing country with a 22% share. There is also 41% of maize export falling on Arab countries. The largest export share also falls on Egypt and comprises 26%.

Naturally, under such import performance entry of foreign companies to the production market is only a matter of time as Ukraine fits excellently the national foreign investment strategies to ensure food security.
However, Arab investors are now only beginning their entering the market. Thus, businessmen from UAE expressed their interest in entering the Ukrainian market already during Yushchenko’s presidency; however, these were just talks. At the same time, investors from Saudi Arabia are more decisive. This year consortium of Arab investors including such largest companies as Almarai and Al Rajhi, purchased Continental Farmers Group Company having small land bank in Ukraine and Poland (23.7 thousand hectares and 2.5 thousand hectares of farmland, respectively). It should be noted that, having production capacities in Agypt, Jordan and UAE, Almarai with its specializing in dairy, baking, juice and other types of production markets 65% of its products in Saudi Arabia. In its turn, Al Rajhi has been operating in Ukraine since 2006 through International Investment Co LLC., and is engaged in grain trade.

Ukrainian experience of these companies may become a litmus paper for activation of Arab investors on the market. Such investments have quite many potential stakeholders. Among Saudi Arabic companies one may mention Foras International Investment Co. This company has experience of work in Tatarstan (Russia) and Bosnia and Herzegovina and meanwhile develops AIC direction in African countries such as Mali, Senegal and Sudan. Among UAE companies we may mention Al dahra Agricultural Company as potential investor. This company has subdivisions in Egypt and Pakistan. In addition, governmental Abu Dhabi Fund for Development (ADFD) also is potentially interested in investments in Ukraine. This company has agricultural assets in Morocco, Mauritania, Senegal and Egypt. Among other Qatari companies with potential interest in entering the Ukrainian market we may mention national structure, the Hassad Food Company. This company is an active participant of land and AIC company sale and purchase markets in Pakistan, India, Australia, Turkey, Brazil, Nigeria, Ghana, Sudan, and, what is important for future work in Ukraine – in Russia. Among potential Kuwaiti investors to the Ukrainian AIC one may call Kharafi Group. Food industry is not primary business for this company; however, it has experience of successful work in this direction.

It should be noted that there will be no mass entry to the Ukrainian market of governmental structures from Arab countries which could purchase agricultural business directly as they do in Eastern African countries. In case of large inflow, investments shall be made by investors entering the existing Ukrainian companies with further increase of land bank in case of adaptation to social and economic reality.
There are also many talks in Ukraine about investments from China. However, there are currently no obvious practical steps by Chinese investors towards coming to the agricultural production sector observed.

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Eastern Europe

Quality of Life in Latvia is not a priority

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Four presidents, 14 governments and eight Seimas have changed in Latvia over the past 20 years. The country joined the European Union and NATO, and then switched to the euro. But have Latvians become better off? Has their quality of life improved? Statistics shows that the general well-being of population remains very low. Political turbulence only worsens the situation.

Thus, according to Numbeo.com portal, one of the largest databases on the cost of living and quality of life worldwide, Lithuania and Latvia are the worst Nordic countries for quality of life.

Quality of Life Index by Country 2019

The leaders of the rating are Denmark, Finland and Iceland. Latvia showed the lowest result, the quality of life index here is 149.15 points. In Lithuania, the result is slightly higher – 156.36 points.
Numbeo experts took into account the purchasing power of the population, safety, health care, the cost of living and some other factors.

It is noted that the world ranking of countries for the quality of life is led by Denmark, Switzerland and Finland. Estonia took 11th place, Lithuania – 29th, and Latvia – 34th.

The more so, experts said that the proportion of shadow economy in Latvia rose by 2.2 percentage point last year to 24.2 percent.

The shadow economy proportion in Latvia has risen for the past two years in a row.

EU-SILC survey gives another frightening indicator. According to eurostat.ec.europa.eu, Latvia, as well as Estonia and Lithuania are top three EU countries in terms of poverty risk among pensioners.

Political and economic short-sightedness has lead to the state when the Baltic States have become the first battlefield in case of war between NATO and Russia.

The United States is preparing for the use of nuclear weapons in Europe along with non-nuclear countries, said Vladimir Ermakov, director of the Department for Non-Proliferation and Arms Control of the Russian Foreign Ministry. Experts point out that military airfields in the Baltic States and Poland have already been prepared to receive NATO aircraft that can carry tactical nuclear weapons. If take his words seriously, this means the end of the Baltic States’ existence.

The behavior of the authorities guaranteed Latvia, Lithuania and Estonia the status of the first battlefield, despite the fact that in the event of war, economy would be completely destroyed and population would disappear.

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Eastern Europe

How the Caspian Sea joins the Black Sea

Asim Suleymanov

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In the development of international cooperation and the deepening of industrial cooperation, the leading role belongs to the formation of a network of international transport corridors. It has a special place in solving transport problems associated with the expansion of interstate transportation, economic, cultural and other ties, with the creation of an international transport infrastructure that has common technical parameters and ensures the use of a single transportation technology as the basis for the integration of national transport systems into the global transport system.

Developing corridors are to play a system-forming role in the economic and social development of the territories along which they pass. Their creation is directly related to projects for the development of sectors of the economy and social sphere.

If a modern transport corridor connects the Caspian Sea and Black Sea, it will lead to uninterrupted cargo transportation between Asia and Europe. New opportunities for the regional states will be opened up. This was confirmed by the first meeting of the foreign ministers of Azerbaijan, Romania, Georgia and Turkmenistan, held in mid-March 2019 in Bucharest.

According to its results, a political declaration was signed. The document reflects the determination of the four states to implement the project of an international freight route between two seas by joint forces.

As expected, the corridor between the two seas will have a real impact on the standard of living in the participating countries and cause a sharp surge in business activity in neighboring regions.

The idea of the project is to make full use of the geographical proximity of Romania, Georgia, Azerbaijan and Turkmenistan, as well as the capabilities of the ports of Constanta in Romania, Poti in Georgia, Baku in Azerbaijan and Turkmenbashi in Turkmenistan.

New transport route will allow establishing a direct connection between the port of Constanta and the Danube River, and then the rivers and canals on the European continent, that will open access to Central and Northern Europe.

In general, the Caspian-Black Sea region is becoming links of a single Eurasian transport network.

The main question is how to direct the necessary volumes of cargo along this route, which would make its work profitable and profitable. To meet these challenges, in the near future four countries have planned to create an expert working group, optimize working procedures, harmonize tariffs, identify remaining infrastructure and legal constraints, and jointly promote the project at the international level, including in the course of interaction with the European Union. But it will not be easy for them to achieve all these ambitious goals.

The closest allies of Azerbaijan, Turkey and Russia, support all the projects aimed at strengthening economic cooperation between Baku and other countries of the Caspian-Black Sea region. Moscow and Ankara are lobbying for the creation of a transport corridor between the two seas.

Azerbaijan once again demonstrates that it is becoming one of the most important transport hubs of Eurasia – a transit hub in which the East and the West are tightly tied.

This country is interested in East and West, not conflicting with each other, but driven forward by the single energy of partnership.

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Eastern Europe

China’s changing interests in South Caucasus

Orkhan Baghirov

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President Ilham Aliyev and Chinese leader Xi Jinping in Beijing Photo: Azertac

On April25-28,“Second Belt and Road Forum for International Cooperation” took place in the capital city of China. From South Caucasus region only Azerbaijan leader Aliyev was in the list of 36 top-Level attendees (Diplomat, April 27).As the Azerbaijan was participating first forum in 2017 on ministerial level, visit of President in second forum demonstrates intention of both sides for close cooperation within the framework BRI.

Despite fact that China’s strong ambition to enter European market through BRI makes Georgia one of the most important players in the region (it has FTA both with China and EU) its high-level officials did not attend the forum (Emerging-Europe, January 3, 2018).

Generally, South Caucasus region was not in the Chinese focus when the BRI project was unveiled in 2013.Its attitude to the region has changed afterwards. Being part of the Central Asia-West Asia Economic Corridor, South Caucasus has strategic importance for China. At the same time, transportation projects such as Baku-Tbilisi-Kars railway and Anaklia Deep-Sea Port has increased significance of the region.

From geopolitical point of view stability in Azerbaijan and Georgia’s political problems with Russia creates ground for Chinese presence in Caucasus. It is clear that having political problems with West Russia is not willing to confront China. Therefore, using these opportunities and establishing good relations both with Georgia and Azerbaijan China is able to avoid its biggest rival in Eurasia and use shortest way to European markets (Trend.az, April 10).

Importance of South Caucasus countries within the BRI framework is not same. Armenia has less potential for BRI. It does not have enough transportation infrastructure and its borders with Azerbaijan and Turkey closed. Armenia has a potential to become a corridor to markets of Eurasian Economic Union (EEU) and Iran. However, it does not have borders with the members of EEU and  railway project between Armenia and Iran is not viable due its high costs ($3.2 billion) and less importance in commercial means (Vestnikkavkaza, August 25, 2018).Also, China has borders with two biggest members of EEU and could easily reach EEU markets through them. 

In the case of Georgia, China is the biggest foreign investor. China’s Hualing Group controls Kutaisi free industrial zone (FIZ), owns Basis Bank, hotels, wine export enterprise. It also constructs “Tbilisi Sea New City” near Tbilisi Sea in which company has already invested around 150 million dollars (hualing.ge).Another Chinese company CEFC Energy owns 75% of Poti FIZ (Cbw.ge, March 20).

Unlike the Georgia, mostly state-owned Chinese companies have invested in Azerbaijan. One of these companies CTIEC Group constructed biggest cement factory in Azerbaijan in 2014.China also has a great interest on Baku International Sea Trade Port as it is one of the main ports within BRI. Based on intergovernmental grant agreement China transferred $2 million worth equipment to the port (Azernews, April 4, 2018).

Despite fact that Azerbaijan is China’s key trade partner in the South Caucasus (it accounts 43 percent of China’s trade turnover in the region) it has massive investments in Georgia (Azernews, April 25). It mostly related to political orientation of these countries. Georgia follows more western orientation that made it more attractive for China while Azerbaijan implements balanced strategy and it does not want to feel China’s pressure. Besides, Azerbaijan is not in need of financial assistance like Armenia and Georgia as it has enough financial reserves.

However, recent developments of Sino-Azeri economic relations within the framework of the Second Belt and Road Forum creates new perspectives for China’s presence in South Caucasus. During the forum 10 agreements worth of 821 million USD has been signed  (Azvision.az, April 24). These contracts cover different economic spheres of non-oil sector including the construction of a tire factory in the Sumgayit chemical-industrial park, the creation of a 300-hectare greenhouse complex in the Kurdamir region of Azerbaijan, and the construction of agrological industrial parks in the Guba, Goychay and Khachmaz regions (Turan.az April 24).If we take in account that Chinese investors have invested800 million USD in the economy of Azerbaijan since independence, obtained agreements in the forum worth of same amount shows China’s growing interest in Azerbaijan.

Nevertheless, it does not mean that China’s preference of Georgia has changed. Within the BRI project both Azerbaijan and Georgia are of geopolitical importance for China. It is in China’s interest to boost bilateral relations with both of countries. It is apparent that China already has considerable investments in Georgia and now it is time to deepen cooperation with Azerbaijan. At the same time Azerbaijan is not going to cross limits of its balanced policy. Chinese companies that signed agreements in second forum are government affiliated companies as well. It again shows that Azerbaijan is willing to deepen cooperation without creating room for pressure in its domestic economy.

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