Gulf investors need to look at CIS market

Gulf News | 5 August 2010

Due to this gap in interest rates, a lot of agricultural projects and fertile lands are neglected

By Mohammad Al Asoomi, Special to Gulf News

Following the global food crisis in 2008 and the subsequent price increase of essential commodities and shortage in food supply, the Gulf Cooperation Council (GCC) countries began to invest in land and food production in other countries, where water resources and agricultural lands are available.

The approach was limited to developing countries, such as Sudan and Thailand. However, it has declined with the easing of the crisis, despite the growing food needs in GCC countries.

In general, this issue should not be addressed from the Gulf food security perspective alone, but rather from capitalising on investment opportunities resulting from current economic and strategic changes in the world throughout two decades.

For example, let's take the opportunity that resulted from the collapse of the Berlin Wall and the emergence of the Commonwealth of Independent States (CIS) in Eastern Europe and Central Asia. Although these countries have development assets such as well-trained human cadre, agriculture land, animal resources and big markets, they suffer from lack of capital and inability of their financial structure to direct investments towards productive sectors. At a time when interest rates reach nearly zero, interest rates in these countries reach up to 30 per cent, such as Ukraine.

Due to this gap in interest rates, a lot of agricultural projects and fertile lands are neglected, which convert these countries into importers of agricultural commodities. This indicates a clear contradiction to the economic conditions of these countries.

Since GCC countries have the required financial capacity and advanced financial systems, they can benefit from investment opportunities in agricultural production in CIS, where Gulf funds may bring about significant changes in the production and trade in food commodities in global markets

Initially, it has been noticed that GCC investments are widely welcomed in CIS countries, since they are not accompanied by any conditions or political pressure. Nevertheless, the GCC countries still have reservations about investing in these countries, due to historical and economic reasons. The historical reasons deal with the absence of commercial and economic relations between both parties, while the economic ones are attributed to the absence of information regarding the marketing of investment opportunities in the CIS countries.

In fact, the chambers of commerce and industry of both groups shoulder the responsibility of coordinating efforts and capabilities to achieve a shift in the economic relations of both regions, especially since current investment opportunities may not last.


This is due to many reasons, first is the very low price of land and financial institutions, which are much cheaper than their Western European counterparts and some developing countries. Second is that most of the CIS countries are striving to join the European Union (EU), which will lead to increasing prices and implementing strict European laws and rules to guarantee foreign investments. This will be in the interest of GCC investors who can make the best use of currently available opportunities.

Furthermore, Gulf banks and financial institutions, which have huge investment capabilities, can contribute to bringing about this qualitative leap in the nature of economic relations. While Gulf financial institutions are present in most global markets, they are totally absent from major and promising markets in the these countries which have a wealth of opportunities.

For CIS countries that are concerned with receiving investments, they should develop their investment legislation and rules to be able to provide the necessary facilities for foreign investors, specifically the Gulf ones.

The writer is a UAE economic expert.
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