EXPO-2020: the potential of investment cooperation between Russia and the Gulf countries
On February 14, as part of the Russian Agriculture Week, organized by the Russian Ministry of Agriculture and the Federal Center “Agroexport” at the World Exhibition “EXPO 2020” in Dubai, a panel discussion “Russia – the countries of the Persian Gulf: the potential for investment cooperation” was held, The DairyNews was told in the press service organizations.
As part of the event, representatives of Middle Eastern investment companies and heads of leading Russian enterprises exporting agricultural products discussed possible areas of partnership, potential joint projects, as well as the criteria that they must meet. In addition, Russian companies spoke about a number of projects and initiatives being implemented in the UAE and other countries of the Middle East.
The discussion was moderated by Dmitry Musatov, Partner, Head of Investments and Capital Markets in the CIS at JSC KPMG.
For a long time, the Russian agro-industrial complex developed based on the domestic market, and now only 6% of the total investment in the industry falls on foreign capital, said Dmitry Krasnov, head of Agroexport. “However, in recent years, the situation on the Russian agro-industrial market has changed significantly. We are expanding the sales market through external supplies, thus increasing the investment attractiveness of our agro-industrial complex,” said Krasnov. At the same time, competition in foreign markets is forcing Russian companies – even those that are not export-oriented – to improve business processes, become more technologically advanced and efficient. “In this regard, it seems to me that it is necessary to carry out some kind of reassessment of the role and place of the Russian agricultural complex in terms of its investment capacity,” Krasnov suggested.
At the same time, the processes of mergers and acquisitions are actively going on in the Russian agro-industrial complex, and new major players are being formed. “And we are convinced that investments from the Persian Gulf countries in the Russian agro-industrial complex can be effective and mutually beneficial. In Russia in recent years, there have been several major transactions involving investors from Kuwait, the United Arab Emirates and Saudi Arabia,” he recalled.
The expansion of Arab investments in Russian agriculture will strengthen cooperation in the field of trade in food and agricultural products, and Russian companies’ investments in the Persian Gulf countries to create logistics complexes and processing facilities may also be potentially interesting. Currently, 57 investment projects are being implemented in Russia, focused on deliveries to the countries of the Middle East, with a total investment of about $6 billion.
President, Chairman of the Board of Directors of the Arab Agency for Agricultural Investment and Development (AAAID) Mohammed bin Obaid Al-Mazroui presented the international financial institution, as well as the existing priorities for investment in the agro-industrial complex. The department unites 21 states, and the volume of investments in the Arab countries in 2021 amounted to $673 million. Almost 50% of investments were in projects in the food industry, 24.5% in animal husbandry, 22% in crop production, 3.5% in the service segment for the agricultural industry. However, the organization does not invest outside of the Arab region. “There is potential and opportunities for cooperation with Russia. We are interested in Russian technologies and Russian raw materials. Now we import quite a lot of raw materials from Russia and we can shorten the supply chain by manufacturing products at joint ventures in the Arab region. We will be glad to welcome Russian investors to participate in our agricultural projects,” he emphasized.
The Abu Dhabi Investment Office (ADIO) is dedicated to attracting investment in Abu Dhabi through financial and non-financial incentives, said Seren Shalan, Head of Business Advisory and Strategic Partnerships at ADIO. “Agrotechnologies are a very important sector for us. We are looking for companies that are ready to settle in Abu Dhabi, and we are ready to cover up to 70% of CAPEX and OPEX,” Shalan said. “As for non-financial assistance, it covers virtually all the needs of investors – from licensing and finding an office to enrolling employees’ children in school.”
Magnitt, the largest regional platform for raising venture capital in the Middle East and North Africa, has also recently recorded a significant increase in investment in agritech. This trend was strengthened by the pandemic: if from 2017 to 2020, $37 million of venture capital in the region was directed to agricultural technologies, then only in 2021 – more than $120 million, said Jamil Diab, business development manager at Magnitt. “The opportunities I see for Russian business today are in knowledge transfer and co-investment. Russia is one of the leading grain producers and exporters in the world and I think the UAE and Saudi Arabia can gain valuable experience in building sustainable food security systems while the Gulf countries can become a hub for Russian suppliers who can then re-export their products around the world,” commented Diab.
In turn, the heads of Russian companies presented projects and initiatives that may be of interest to Middle Eastern investors. Thus, the Executive Director of Efko Group of Companies Sergey Ivanov announced that the group had already made a decision to transfer the headquarters of innovative projects and the corporate venture fund to the UAE. “Six months ago we decided to split the business and develop a new separate project. In this business, we attract “smart” money from venture investors,” Ivanov emphasized. He recalled that the company has now decided to focus and is actively developing a number of projects in the field of biotechnology and innovation, including the production of vegetable meat and milk, sweet proteins, products from microorganisms, etc.
The founder of the South Rus Group of Companies, Sergey Kislov, offered foreign investors a joint project to clone horses. “We have a stud farm, probably the largest in Russia. We know the love of the Emirates for equestrianism and horses, so we would like to do a horse cloning project together. This project will be in great demand, and there are already requests from eastern countries,” he assured. And in the grain industry, Kislov suggested thinking about creating the GrainСoin tool. “For example, there is a farm that can grow 200,000 tons of grain every year. An investor buys GrainCoin, that is, in fact, a ton of grain that will be given to him, no matter what prices are on the world market. Why not turn around such “greencoins” on the exchange?” Kislov suggested.
United Grain Company JSC is considering the possibility of creating a grain hub in the Persian Gulf. “It is important to understand that long-term ties, stable contracts and infrastructure in target markets will help regular importers guarantee their food security, without compromising Russian food security,” explained Ksenia Bolomatova, Deputy General Director of OZK JSC. According to her, the company was considering the possibility of creating a hub in the Kizad zone in the UAE, now a similar project is under development to create a grain hub with the Kingdom of Bahrain, with the participation of the Ministry of Industry and Trade and the Chamber of Commerce and Industry of Bahrain. “Also, thanks to EXPO-2020, we met with representatives of flour millers in Oman and negotiated the creation of a hub in this country,” Bolomatova added. In addition, OGC is considering the possibility of creating a trading house in the UAE.
The issue of creating a hub in the Persian Gulf was also studied by Aston Group of Companies, the group’s president Vadim Vikulov admitted. The group recently opened a trading company in Dubai and is ready to invest in projects in the UAE.
As for foreign investments in domestic agricultural production in Russia, domestic companies are often too large for them, Eduard Zernin, chairman of the board of directors of the Bio-Tone company, drew attention. In addition, he recalled that in Russia there is a whole system of state support measures in the agricultural sector, which provides for obtaining loans at preferential rates, so companies have no problems with raising borrowed funds.
Nevertheless, the head of Sberinvest Middle East Andrey Ugarov expressed confidence in the great investment potential between Russia and the Middle East. “For the most part, Russian companies are really not ready or they don’t need outside funding. But we see great opportunities in the creation of new joint ventures in the Middle East,” he said. One such example is the project for the construction of a plant for the refining of vegetable oil by Yug Rusi Group in the UAE. In addition, there are Russian technologies and know-how that may be of interest to Middle Eastern players. Sber is ready to provide financing for such projects and provide consulting support.
However, in order to realize the potential, work is needed to establish links and inform investors about Russia’s opportunities, said Nawar Abdul Wahed, head of the executive division of EurAsia Gulf. To address these issues, he proposed conducting study tours in Russia, business forums in the UAE with a presentation of the potential of Russian regions, as well as the creation of an online investment map of Russia with information about new projects.
Summing up the discussion, Dmitry Musatov noted that there is certainly a potential for investment cooperation between Russia and the countries of the Persian Gulf. “The UAE and other Arab countries can provide a safe haven for Russian investment, and there are already good projects that can bring results for both sides,” he concluded.