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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

The phenomenon of the Islamic world- Ilham Aliyev

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At the end of the twentieth century – at the beginning of the 21st century, world politics differ by its complexity and diversity. It is too important that Azerbaijan, which proclaimed independence twice during the twentieth century, maintained its this independence during the period full of globalization, international integration and social contradictions. Under such complicated historical circumstances, the prominent politician and statesman, the well-known and respected person in the world – Ilham Aliyev’s commitment and successful realization of this responsibility can be characterized as the golden age of modern Azerbaijan history. Conduction of successful foreign policy during his term as head of state has had a significant impact on the future life of Azerbaijan.

The Republic of Azerbaijan, established normal international relations with all the countries of the world after gaining independence, and in the frame of good relations with the Muslim countries, it also protects the interests and interests of the Islamic world within the Organization of Islamic Cooperation and continues to cooperate with these countries in accordance with the requirements of international law. In this regard, strengthening of Islamic solidarity in the world is one of the priority issues in the foreign policy of Azerbaijan. Namely from this point of view, declaration of 2017 year as “Islamic Solidarity Year” by decree of the  President Ilham Aliyev dated January 10, 2017, is an indicator of  humanistness of our state leader and at the same time it is a positive example of our country’s sensitive attitude to the Islamic Countries Union. Islamic solidarity does not only mean the solidarity of Islamic countries. This is a kind of challenge, regardless of religion, to the world’s people to live in friendship, brotherhood and multiculturalism conditions.

It is well known that sectarian wars, civil wars in the Middle East and as a result, emerged certain socio-political tensions indicate that Muslim countries are in great need of moral solidarity. The controversial political processes happening in the world, the emergence and increasingly widespread of warlike states in different countries, the strengthening of religious confrontation, and the deepening of the prejudiced attitude towards Muslims emphasize the necessity level for solidarity among people, nations and states. It can be said that one of the main reasons for exacerbating the myth of Islamic terrorism, the threat of Islamophobia, and strengthening the oppression of Islamic countries should be sought in the absence of unity and solidarity among these countries. Faith differences, contradictions in interests and positions and etc. leads to serious disagreements, and sometimes severe confrontations. Islamic religion, its sacred values, are insulted by the Islamophobia and those who are exposed to the poisonous propaganda against Islam. The bloody events that took place in the Islamic countries during last years, especially in Iraq, Bahrain, Yemen, and Syria are confirmation of our opinions. Cradles of ancient Eastern culture such as Baghdad, Damascus, Aleppo, Kirkuk, Basra and other cities are subject to serious destruction as a result of wars in Iraq and Syria and constant clashes, monuments of Islamic culture in these cities are destroyed. Caricatures of the Prophet Muhammad are given in the Western media, mosques, the holy book-Koran is burnt. The Western world’s official structures do not just condemn the acts of vandalism, but on the contrary, they protect, honor, and appreciate the performers of those acts.

The main purpose of the “Islamic Solidarity Year” is to strengthen the unity of the Muslim world and to show that Islam is a religion of peace and culture, and to achieve this goal, as President of the Republic of Azerbaijan Ilham Aliyev said, first of all, reconciliation between different sects that have historically damaged Islam should be established. The announcement of the year 2017 as the “Year of Islamic Solidarity” in Azerbaijan is a challenge to the West, which is strengthening its attacks on the Islamic world annually and promoting a new “crusades” in the 21st century. This is also a call for Islamic countries to be vigilant against the crafty intentions of the West, to demonstrate unity and solidarity. Ilham Aliyev made this important step and expressed the his own position and the position of the state of Azerbaijan. As Azerbaijan has distinguished from other states with its multicultural and tolerant values throughout its history. Islamic solidarity is also a part of this context, and this shows that President Ilham Aliyev gives great importance to the solidarity of the Islamic world. As political scientists point out, some initiatives have been made to call Muslim countries to get unified around religion. For the first time in history, the head of our state has sent a political message to the Islamic world, pointing to the importance of acting from unified position, to achieve unity and at the same time integrate into the world. It should be noted that the Order of the President of the Republic of Azerbaijan on the declaration of 2017 year as“Year of Islamic Solidarity” states: “The Republic of Azerbaijan has established mutually beneficial relations with the Islamic world by being selected as a member of the Organization of Islamic Cooperation, ISESCO and other respected organizations joining muslim countries and has been an organizer of a number of important cultural forums of global importance. Azerbaijan has made a great contribution to the founding of tolerance environment, multiculturalism, intercultural and intercivilizational dialogue, and the promotion of Islamic values in the world. The prestige gained by Azerbaijan in the Islamic world got its expression in this results that Baku and Nakhchivan cities declared as a capital of Islamic culture in 2009 and 2018 respectively. And the decision to hold the IV Islam Solidarity Games in Baku in 2017  create favorable conditions for our country to take the next practical steps in strengthening the Islamic solidarity. ”

Only state leader of the country like Azerbaijan,  where multiculturalism and solidarity are established, and citizens of different nationalities, religions and sects live in peace, has a moral right to give such a decree. The promotion of the Islamic Solidarity initiative is related to the challenges of the present and controversial processes that take place because of various reasons in the Islamic world. As it is seen here, the importance of Azerbaijan’s reputation in the Islamic world, as well as the need to strengthen the solidarity of Islamic countries, as well as the actuality of holding the Islamic Solidarity Games in Baku, the capital of the Republic of Azerbaijan in 2017, have been extensively and logically expressed in this decree. With Islamic solidarity policy, Azerbaijan, as unifying facility of the Islamic world, confirms that these religious values are indeed, humanistic, moral values and reinforces belief to being of these ideas are an effective means of creating a shared living and stability environment not only in the Islamic geography but also in the entire world. Azerbaijan, which has created a partnership of cultures and ideas between East and West, fulfills the function of a of solidarity bridge, thus demonstrates its commitment to universal values, as well as its commitment to the highest values of the Islamic religion, which had a special place in the past and continuing to keep its value today. Thus, Azerbaijan uses all the means to establish steady stability in a globalizing world and propagates the peacekeeping, reconciliatory position in a unique way that is essential for today.

We suppose that this humanist initiative of the President of Azerbaijan, Mr. Ilham Aliyev, will promote the expansion of cooperation relationship between Muslim countries in the world and further strengthening of the Islamic solidarity. The strengthening of Islamic solidarity, in its turn, will play an important role in ensuring tranquility and peace in the Middle East and other regions.

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Eastern Europe

Economic Growth of Ukraine Depends on Completing Pending Reforms Quickly

MD Staff

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Ukraine’s economy grew by 2.5 percent in 2017, the second year of modest growth, according to the World Bank’s latest Ukraine Economic Update.  Growth in manufacturing, services, and construction was robust, but weaknesses in the agriculture and mining sectors, together with delays in key reforms to further strengthen investor confidence contributed to the modest overall growth performance.

“Faster growth is needed to improve living standards for the people of Ukraine who continue to hurt from the economic crisis of 2014-2015,” said Satu Kahkonen, World Bank Country Director for Belarus, Moldova and Ukraine. “This will require decisive measures in the next few months to complete pending reforms to bolster investor confidence and safeguard macroeconomic stability.”

Economic growth is projected at 3.5 percent in 2018 if pending reforms in anticorruption, land markets, state-owned banks, and privatization can be advanced in the next few months. This would provide an important signal to investors. If reforms are delayed, growth could drop below current levels in an uncertain macroeconomic environment as financing risks rapidly increase.

Ukraine faces major financing needs to repay public debt and fiscal pressures from higher public sector wages and social benefits in 2018 and 2019. Mobilizing adequate international financing by completing pending reforms in the months ahead will be important to maintain macroeconomic stability.

Meeting the fiscal deficit target of 2.5 percent of GDP in 2018 will require improving targeting of housing utility subsidies, making further wage increases contingent on measures to optimize the school and hospital network and public-sector staffing, and identifying affordable options to update public sector pensions.

Fiscal Pressures and Reform Options …

According to the World Bank’s Special Focus Note on fiscal pressures and reform options, Ukraine has made progress in reducing its large public spending since 2014. However, sustaining these gains while also improving the effectiveness of public services will require implementation of reforms in education, health, public administration, pensions, and social assistance in a fiscally affordable manner.

Public expenditures increased significantly in 2017, by 11.7 percent in real terms, reaching 41.5 percent of GDP, due to the doubling of the minimum wage and over 40 percent increase in wages of teachers and doctors. Spending on social programs also increased.

The recently adopted reforms in education, health, and public administration seek to improve compensation for teachers, doctors, and public servants to strengthen incentives and attract quality personnel. Achieving this in a fiscally affordable manner will require coordinating further increases in salaries with time-bound measures to optimize staffing and the school and hospital network.

The social assistance package in Ukraine is not only fiscally costly—costing 5 percent of GDP in 2017, but is also poorly targeted—with only 30 percent of assistance going to the bottom 20 percent of the population. Fixing this will require improved targeting of the large HUS program.

The recently adopted pension reform helped improve adequacy of benefits and stabilize fiscal costs. Additional initiatives going forward should avoid undermining these core objectives of the pension system. The timeline to create a funded pillar system by January 2019 needs to be reconsidered since this will undermine contributions to the pay-as-you-go system, create contingent fiscal liabilities, and face inadequate availability financial instruments.

Background

Since May 2014, the World Bank Group has provided a total of more than US$5 billion to Ukraine (including 4 development policy loans, 7 investment operations and 1 guarantee) from the International Bank for Reconstruction and Development (IBRD).

The World Bank’s current investment project portfolio in Ukraine amounts to US$2.5 billion.  Investments support improving basic public services that directly benefit ordinary people in areas such as water supply, sanitation, heating, power, roads, social protection and healthcare, as well as private sector development. Since Ukraine joined the World Bank in 1992, the Bank’s commitments to the country have totaled over US$12 billion in about 70 projects and programs.

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Eastern Europe

Baltic States: Missed opportunities in global politics

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We are living in the world where the facts “who makes” and “where it is made” are much more important than “what for” issue. Nowadays the world political scene is divided between superpowers supported by their allies. In order to punish each other for having opposite views the sides criticize any step made by the opponent.

Unfortunately, this happens even in case of evident necessity. It is not the secret that the modern system of international security is unable to perform all demanded functions any more. It needs to be reformed. Another question is who and where will decide.

The most likely political platforms for this are the United Nation Organization and OSCE. But the preparatory stage for any new decision should become different forums and conferences, such as the Munich Security Conference and the Moscow International Conference on Security.

This year the Munich Security Conference took place on February 16-18. More than 30 heads of state and government and over 100 cabinet ministers from across the globe came together at the forum for discussions on major international security challenges. As far as the Baltic States concerns, President of Estonia, as well as Lithuanian and Latvian ministers of defence did not miss the event because it was of great importance for the future of their countries and all Europe.

Just another situation developed in March. In Moscow an annual International Conference on Security was held on April 4-5. The fight against terrorism and other pressing security challenges were one the agenda. There is not a single person who is not affected by the discussed topics.

Many European countries considered it unnecessary to visit the event. It makes no sense to blame them for this choice. They have a strong and common view on what is happening in the world. But if abstract from the current geopolitical situation and confrontation between Russia and the West, politicians should see such kind of forums as a chance to find even weak possibilities to make the world safer. Probably the main reason for not attending the event is in the fact that politicians forgot how to listen to each other. They forgot that only discussing controversial issues makes possible to reach a consensus.
Another issue that deserves attention is the list of participants, which is of great interest to the analysts. According to the Russia’s Defense Ministry, representatives from at least 95 countries, three deputy prime ministers, 30 defense ministers, 15 chiefs of staff, 10 international organizations and military delegations have come to participate in the International Conference on Security. They include defense ministers of India, South Africa, Iran, Iraq, Pakistan, Vietnam, Azerbaijan, Belarus, China, Armenia, Mozambique, Serbia, and Israel. Thus, almost half of the UN member-states (total number is 193) sent representatives to the Conference.

It becomes evident that Russia really has powerful partners and allies that are ready to discuss even difficult questions and find mutually beneficial solutions. Those who came do not necessarily agree with Moscow and support its foreign policy but they clearly understand that unfortunately without Russia it is impossible to improve the International Security system.

This fact admitted Thomas Greminger, secretary-general for the Organization for Security and Co-operation in Europe. He stressed that Russia is a key partner in issues of the European security. But the Baltic States blinded by hatred to Russia ignore ignored the event thus putting political ambitions higher than common sense.

It is obvious that Russia is not satisfied with NATO’s actions near its borders. NATO in its turn disputes the lawfulness of Russia’s behavior. Every day confrontation becomes harder and leads to the arms race. The only way out is to discuss things and find the way out. The Baltic States as usual lost the possibility to express their position on key international security issues and be the active actors in global politics.

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