Dubai Chamber in cooperation with Economist Intelligence Unit launched a report titled, 'A Common Wealth: Building Gulf-CIS ties' which showcases the trade relations between the countries of the Gulf Co-operation Council (GCC) and the Commonwealth of Independent States (CIS), and highlights the best investment opportunities in key sectors such as aviation and logistics, Islamic finance, energy, hospitality, retail and real estate. The report was launched during the first Commonwealth of Independent States Global Business Forum (CIS GBF 2016), being held on February 17 and 18 at the Atlantis, The Palm, Dubai.
On the occasion, His Excellency Hamad Buamim, President and CEO of Dubai Chamber, said the report highlights the major role of Dubai Chamber as a source of information and data for the private sector to help develop the business environment in Dubai. HE Buamim said Dubai Chamber has been launching such reports on a regular basis to establish a strong pool of data that can support the business community in the UAE and the GCC in enhancing their investment possibilities in emerging markets.
"The report, 'A Common Wealth: Building Gulf-CIS ties', will serve as a roadmap for GCC investors, and enable them to draw their expanding policies wisely. The report offers substantial insights on the prevailing economic and business environment in the CIS, and examines its relations with the GCC countries. The data contained in the report has considerable significance for investors in both the regions and will enable them to create practical engagement on a number of key sectors," HE Buamim said.
'A Common Wealth: Building Gulf-CIS ties' report sees considerable opportunities for engagement in CIS region by Gulf-based investors, especially in light of the existing diplomatic, cultural and commercial ties as well as the air links developed through low-cost air travel provided by flydubai and Air Arabia, which have connected previously inaccessible markets in the CIS to the Gulf.
The CIS and the Gulf
'A Common Wealth: Building Gulf-CIS ties' report has stated that CIS and Gulf regions have witnessed considerable cooperation in areas of investment protection and double-taxation treaties, many of them recently ratified, to support future commerce. The report has identified Belarus as the most proactive CIS country in developing commercial treaty relationships with GCC countries, followed by Russia and Uzbekistan. On the GCC side, the UAE and Kuwait have been the most proactive, it said.
The report has stated that trade flows between the GCC and the CIS are modest, totalling US$8 billion in 2014. Almost all of this trade is between a few country pairs, mainly Saudi Arabia and the UAE with Russia and Ukraine, as well as the UAE with Turkmenistan. These five sets of bilateral flows, both imports and exports, made up 83% of total trade between the two regions, the report said.
Although trade flows are small, there are some encouraging trends, including a growth rate of 20% over five years during the period 2010 to 2014, although this followed a sharp fall during the global financial and economic crisis in 2009, it said. The report pointed out that GCC trade growth with Russia was particularly strong, averaging 31% over five years and 17% over ten years. Some notable high average growth rates over the past five years are Saudi Arabian exports to Ukraine (up by 90%), UAE exports to Russia (69%) and UAE imports from Kazakhstan (45%), it said.
Navigating the business environment
The report said a challenging business environment in the CIS has restricted the region's economic growth. Although formal measures of the business environment, such as the World Bank's 'Ease of Doing Business Index', record a positive trajectory, the region lags behind potential in some indicators that are vital to investors, such as securing electricity, dealing with construction permits and trading across borders, it said.
Aviation and logistics
The report has highlighted the major role of the UAE's low-cost airlines as major connectors of the regions. According to the report, Air Arabia has five routes to Armenia, Ukraine, Kazakhstan and Russia, but flydubai is dominant, serving 19 destinations across the CIS. This includes nine Russian cities not served by other links, such as Kazan, Rostov-on-Don and Yekaterinburg, as well as ten destinations in other CIS countries, including the only links to Tajikistan and Odessa, Ukraine's fourth-largest city.
As a result of this network, flydubai, combined with onward flights from Emirates, connects many CIS countries with the rest of the world, particularly Africa and South Asia, the report said. Aside from the scheduled routes, there are many chartered flights linking the CIS and the GCC, the report pointed out.
Gulf logistics firms are also active in ground transport, facilitating trade flows. The most significant presence is Dubai's DP World in Kazakhstan, where, in a move away from its core marine expertise, the port operator is managing a new freight route aligning ancient Silk Road trading routes with modern demand, linking China to northern Europe, the report said.
The report has identified an area of growing interest, the Russian Far East, which is being boosted by industrial development, including liquefied natural gas (LNG) export terminals. Furthermore, CIS exporters are interested in the logistical capabilities of the GCC to serve other markets, it said.
One area of particular interest in the CIS is Islamic finance, given that the region has an estimated 82 million Muslims, more than twice as many as the GCC. Many Central Asian countries have a Muslim majority, although Russia with 17 million Muslims, who represent only 12% of its population, has more Muslims than the other countries, with the exception of Uzbekistan.
There has been a greater focus on Islamic banking over the past few years, in part because of a desire to attract capital from the Gulf. Gulf banks, as well as some from Malaysia, have played a role in encouraging the development of Islamic finance in the CIS, it said.
However, GCC investors remain wary of CIS debt considering that many sovereigns and companies in the region are rated well below investment grade, a minimum requirement for GCC sovereign wealth funds. Outside of direct investments, there are many lessons from the GCC for CIS countries aiming to develop their financial sectors, particularly Kazakhstan and Azerbaijan, the report said.
According to the report, the hydrocarbons sector lies at the core of most CIS and GCC economies and has witnessed the most engagement between the two regions. With some Gulf countries facing a shortage of gas to meet domestic power demand, they are exploring new sources of gas from the CIS region, particularly Russia.
Other areas of energy and industry have also recently seen co-operation between the GCC and CIS. In particular, the drive to develop nuclear power in Saudi Arabia and the UAE has given rise to technical co-operation agreements with Russia's State Atomic Energy Corporation, Rosatom, it pointed out.
Hospitality, retail and real estate
GCC firms have been active in consumer-facing sectors in the CIS, drawing on expertise from Gulf markets in areas such as hospitality and retail franchises. Most GCC retail firms have so far overlooked the CIS, focusing on the Middle East and Africa for expansion. Under current economic circumstances, others are unlikely to enter at this point in time as the depreciation of the Russian rouble and other currencies presents a challenge for firms selling imported brands, given reduced local consumer spending power, it said.
In the hospitality sector, Dubai's Jumeirah Group, which already manages a hotel in Azerbaijan's capital Baku, is developing a new hotel in St Petersburg, which will be its first in Russia. While luxury hotels have set their sights on cities such as Baku and Astana, the broader CIS market may offer opportunities for other hotel brands. The hospitality sector sees visitors travelling from the CIS to the GCC as well, it said.
Dubai, with its network of flight connections across Russia and the CIS, is the key driver of CIS demand for real estate. Data from the Dubai Land Department typically place Russians among the main foreign purchasers of Dubai property. However, demand has been negatively impacted recently by the weak rouble, it said.
Dubai Chamber is hosting the first edition of the Commonwealth of Independent States Global Business Forum under the patronage of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai. Organised under the theme, 'Ancient Routes - New Opportunities', the Forum will feature vibrant sessions exploring opportunities on old trading links to neighbouring regions and beyond as well as new Economic Union Eurasian alliances, and offer a platform for investors to hold meetings and sign bilateral business partnerships and investment agreements between companies in different sectors.