A Common Wealth: Building Gulf-CIS ties

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A Common Wealth: Building Gulf-CIS ties
A report by The Economist Intelligence Unit
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1 © The Economist Intelligence Unit Limited 2016
Contents
About this research 2
Executive Summary 3
Chapter 1: The CIS: A fragmented landscape 5
Chapter 2: The CIS and the Gulf 9
Chapter 3: Gulf-CIS commerce: Sector analysis 15
Chapter 4: Navigating the business environment 21
Conclusion22

About this
research
“A Common Wealth: Building Gulf-CIS ties” is an Economist
Intelligence Unit report, commissioned by Dubai Chamber. It
examines trade and investment between the Gulf countries and
the Commonwealth of Independent States (CIS) and maps the
existing and potential role of Gulf-based investors in the CIS
region. The findings are based on desk research and interviews
with experts, conducted by The Economist Intelligence Unit.
The Economist Intelligence Unit would like to thank the
following experts who participated in the interview programme
(listed alphabetically):
l Prasad Abraham, CEO, Al Hilal Bank Kazakhstan
l Yury Barmin, Middle East consultant, Russian International
Affairs Council
l Jean Claude Farah, president, Middle East, Africa, APAC,
Eastern Europe CIS, Western Union
l Ghaith Al Ghaith, CEO, flydubai
l Theodore Karasik, senior adviser, Gulf State Analytics
l Abdul Jaleel Al Khalifa, CEO, Dragon Oil
l Gerald Lawless, CEO, Jumeirah Group
l Robin Mills, CEO, Qamar Energy
l Jahed Rahman, director of hospitality leisure, Aldar
Properties
l Sultan Ahmed bin Sulayem, chairman, DP World
The Economist Intelligence Unit bears sole responsibility for
the content of this report. The findings and views expressed in
the report do not necessarily reflect the views of the sponsor.
Iain Douglas authored the report and Melanie Noronha was the
editor. Additional research was provided by David Dalton.

Executive
summary
As regional groupings reliant on hydrocarbon
exports, with large Muslim populations, the
countries of the Gulf Co-operation Council
(GCC) and the Commonwealth of Independent
States (CIS) share several similarities. While
flows of trade and investment between the two
regions have been hampered by complexities
in geography and geopolitics, there are more
extensive links than is generally realised. The
downturn in oil prices since mid-2014 presents
challenges for both regions, but there is room for
increased co-operation.
This report reviews the economic and business
climate of the CIS, examines its links with the
GCC and maps the engagement between the two
regions in key sectors.
Key findings
Bilateral relations between GCC and CIS states
are well developed. In recent years there has
been an uptick in high-level diplomatic visits in
both directions, as well as legislative alignment
in the form of treaties on investment protection
and double-taxation agreements. This builds
on a long history of commercial connections,
particularly with the region’s Muslims, and
provides the bedrock for increased investment
activity in the future.
Key bilateral pairings for trade and investment
include the UAE and Russia, Abu Dhabi and
Kazakhstan, Dubai and Turkmenistan, and
Qatar and Tajikistan. This is led by close
relationships between heads of state and high-
profile investments, such as the Abu Dhabi Plaza
in Kazakhstan’s capital Astana, the oil field
development in Turkmenistan by Dubai’s Dragon
Oil, and Qatar’s Diar Dushanbe project in the Tajik
capital. Trade between the regions is dominated
by Saudi Arabia and the UAE with Russia and
Ukraine.*
Gulf transport and logistics companies,
particularly low-cost airlines, are playing a
vital role as regional connectors. Gulf transport
firms are linking CIS countries that were
previously closed off to the Gulf states. Combined
with onward flights from key cities in the Gulf,
these airlines are connecting the CIS with other
parts of the world, such as Asia and Africa.
The development of a north-south trade
corridor should facilitate more physical
trade. Trade opportunities have so far been
limited by geographical challenges, as many CIS
countries are landlocked and overland transport
infrastructure extending to the Gulf is weak.
In addition, both regions have largely focused
* Ukraine is currently in the
process of withdrawing from
the CIS.

on hydrocarbons resources. Opportunities for
greater trade exist in agriculture—primarily
wheat—and aerospace and defence.
Gulf firms are engaged in the hospitality,
retail and real-estate sectors in the CIS.
This includes direct project investments from
public- and private-sector companies as well as
co-investment from the Gulf’s sovereign wealth
funds. Investment in hotels shows the most
promise, focusing on leading cities such as Baku
in Azerbaijan and Astana in Kazakhstan for the
luxury segment, and smaller CIS cities such as
Almaty in Kazakhstan for the four-star segment.
Sizable opportunities may emerge in the
coming years with privatisation programmes
in the CIS, particularly in Kazakhstan and
Russia. Cash-strapped governments, especially
those negatively affected by the fall in global
commodity prices which began in 2014, will
look to raise funds through a sale of assets to
the private sector. Recent devaluations of CIS
currencies may make these assets more attractive
to investors. However, these opportunities are
likely to materialise slowly.
While the economic slowdown in the region
has reduced the number of CIS tourists in the
Gulf, it has increased migration. Fewer job
prospects in their home countries have led some
CIS migrants to turn to the Gulf states, where the
currency is pegged to the US dollar, in search of
better economic opportunities. This is reflected
in an increase in remittances from the Gulf to CIS
countries.
The CIS is undergoing an expansion in Islamic
finance. Recent and planned laws, including
in Russia, should facilitate Islamic banking
operations in the CIS. Gulf banks have been
involved primarily in an advisory capacity, but
new entrants will need to take a long view of their
investments.

The CIS: A fragmented landscape
1
Since the fall of the Soviet Union, the Central
Asian states have been caught between
Russia and the rest of the world. In 1993 the
Commonwealth of Independent States (CIS) was
established with a charter—a loose association
of 11 Eurasian states, all former republics of
the Soviet Union. Its role is largely political, as
a forum for regional dialogue. However, nine
of its members signed a free-trade agreement
in 2011, with the exception of Turkmenistan
and Azerbaijan. There are closer ties between
some countries through various organisations
and treaties, but other bilateral relations are
complicated by long-standing border disputes
dating back to the Soviet era.
As a result, there have been some changes in
the CIS membership over the last decade, with
Turkmenistan downgrading its status to associate
membership in 2005 and Georgia withdrawing
in 2008, after a brief war with Russia. Ukraine is
currently in the process of withdrawing from the
organisation in view of Russia’s annexation of its
Crimea region in 2014, after which it resigned as
rotating chair of the CIS.
The closest ties are between Russia and Belarus,
which formed a loose confederation—the
Union State—in 2000, with a joint parliament,
notional common citizenship and a customs
union. At various times other CIS states, such as
Kyrgyzstan and Moldova, have expressed interest
in joining the Union State. There have also been
suggestions, mostly from Russia, of a deeper
integration, with Belarus joining the Russian
Federation itself.
More recently, in 2010 Kazakhstan formed a
customs union with Russia and Belarus, which
paved the way for the establishment of the
Eurasian Economic Union (EEU) in 2015, along
with two new joiners, Armenia and Kyrgyzstan.
Tajikistan is currently the most likely candidate
for expansion of the EEU; but, its accession
has been hampered by border disputes with
Kyrgyzstan. Further expansion of the EEU is
unlikely, given Ukraine’s and Moldova’s desire
to join the European Union instead and other
states’ concerns about Russian influence
and competition. As Yury Barmin, a Middle
East consultant at the Russian International
Affairs Council, a Moscow-based think-tank,
explains: “There are lots of disputes now because
companies from Russia are flooding the other
countries with their products. For countries like
Tajikistan, their economies are just too weak to
join the EEU now, and they don’t have much to
gain from the Union.”

The macro economy
The CIS countries are diverse in size, wealth
and economic structure. Broadly, they can be
categorised as oil-exporting and oil-importing
nations, the former comprising Russia,
Kazakhstan, Azerbaijan, Turkmenistan and
Uzbekistan.
Russia is the dominant economy by far,
representing 72% of the estimated total regional
GDP of US$5trn in 20151
. This compares with
the GCC’s US$3trn. In terms of GDP, Ukraine’s
economy is comparable to that of Qatar,
Azerbaijan’s to Oman and Turkmenistan’s to
Bahrain.
1
Expressed in terms of
purchasing power parity
(PPP) to avoid distortions
caused by recent currency
devaluations.
Gross domestic product (GDP) and GDP per capita for GCC and CIS countries, 2015 estimates
3,584
Russia
63
Turkmenistan
176
Uzbekistan
20
Kyrgyz
Republic
18
Moldova
420
Kazakhstan
329
Ukraine
23
Tajikistan
26
Armenia
174
Azerbaijan
164
Belarus
$20,000 - $40,000
GDP/capita
($ PPP)
Nominal GDP
($bn PPP)
$10,000 - $20,000
Above $80,000
$40,000 - $80,000
$5,000 - $10,000
Below $5,000
1,654
Saudi Arabia 615
UAE
171
Oman
268
Kuwait
64
Bahrain
333
Qatar
Source: The Economist Intelligence Unit.
Figure 1

In general, the oil and gas producers have the
highest GDP per capita; the exceptions are
Belarus, which lacks oil but is wealthier as a
result of its industrial base and close links to
the Russian economy, and Uzbekistan, which
remains poor despite its hydrocarbons. All of the
CIS countries are considerably poorer relative
to the GCC states—the average GDP per capita in
terms of purchasing power parity (PPP) in the CIS
states is US$22,000, barely half the level of that
of Oman, the GCC country with the lowest GDP per
capita, and one-third of the GCC average. The gap
was wider when oil prices were higher.
Aside from hydrocarbons production, important
areas of economic activity include manufacturing
and agriculture. The smaller and poorer
economies in the region are highly dependent
on remittances from migrant workers in Russia
and Kazakhstan, similar to the relationship of
the Middle Eastern oil-importing countries to the
GCC.
This reliance on Russia has become more evident
following a recent series of economic and
political crises. The combination of falling oil
prices and Western economic sanctions from mid-
2014–the latter in reaction to the annexation of
Crimea–triggered a decline in the Russian rouble,
which intensified in late 2014 and eroded its
foreign-exchange reserves, forcing a sharp rise
in interest rates. This currency turbulence spread
to the wider CIS region via lower remittances
and cheaper Russian goods outcompeting local
products. “If Russia sneezes, the whole CIS is
going to catch it. If the rouble is strong, you are
going to find the whole CIS region is stronger,”
notes Jean Claude Farah, president for the
Middle East, Africa, APAC, Eastern Europe CIS
at Western Union, the US financial services and
communications company. Low oil prices have
pushed most of the hydrocarbon producers, with
the exception of Turkmenistan, into fiscal deficits
that will persist for some years.
The knock-on effect has been a series of currency
devaluations, notably of Kazakhstan’s tenge and
Azerbaijan’s manat–both of which have been
devalued twice since the start of 2014. All CIS
currencies have declined against the US dollar
since the start of 2014, ranging from 16% for
Armenia to 66% for Ukraine as of end-2015.
Source: Bloomberg.
Major CIS currencies against US$
(Indexed, end-2014 = 100)
Figure 2
20
30
40
50
60
70
80
90
100
110
20
30
40
50
60
70
80
90
100
110
BelarusAzerbaijanUzbekistanUkraineKazakhstanRussia
Jan
16
DecNovOctSepAugJulJunMayAprMarFebJan
15
DecNovOctSepAugJulJunMayAprMarFebJan
2014

The Economist Intelligence Unit expects that
2015 will have seen the peak of the regional
crisis, with Russian GDP contracting by 3.8%
and dragging down the economies of its closest
partners, particularly Belarus. Ukraine’s economy
has suffered even more as a result of the conflict.
Turkmenistan and Uzbekistan, where production
expansion in the hydrocarbon sectors will have
delivered relatively strong growth in 2015, are
notable exceptions. Looking ahead, the outlook
for growth remains stable across most of Central
Asia on the back of plans to boost investment,
despite weakness in Russia.

Relations between the two regions have
strengthened in the post-Soviet era, drawing
on deep-rooted historical ties. An important
component of the relationship has been a shared
Islamic identity, not only in Central Asia and
Azerbaijan but also in Russia. An increasing
number of CIS Muslims also visit Saudi Arabia on
pilgrimage.
Cultural similarities with Central Asian people,
not least a shared love of falconry, have also
contributed to close relations between the
political elite in both regions, out of which
a number of commercial initiatives have
evolved. According to Jahed Rahman of Aldar
Properties, an Abu Dhabi-based development
company, “Emiratis love going to Kazakhstan
primarily because of falconry, and also it’s a
Muslim country with similar kinds of culture
and traditions.” Looking in the other direction,
Theodore Karasik, senior adviser at Gulf State
Analytics, a Washington DC-based geopolitical
risk consultancy, explains: “The Central Asian
states have an affinity with the GCC states
because both areas have a transregional identity
based on tribes, clans and religion. When
the Soviet Union collapsed, Central Asia and
Azerbaijan wanted to emulate the GCC. This
identity issue helps bond them together.”2
As
some of the investments discussed later in this
report indicate, there are particularly close
The CIS and the Gulf2
relations between Abu Dhabi and Kazakhstan,
Dubai and Turkmenistan, and Qatar and
Tajikistan, among other bilateral pairings.
Diplomatic linkages have increased between
the two regions in recent years, as illustrated in
Figure 3. However, Russia is the only CIS country
that has embassies in all GCC countries and also
hosts ambassadors from across the GCC. On the
GCC side, the UAE, Saudi Arabia and Qatar have
the most extensive diplomatic links with CIS.
Even where there are no embassies or non-
resident ambassadors, there are still diplomatic
initiatives, and delegations bringing together
chambers of commerce.
Relations with Russia have been complicated by
geopolitical tensions, most recently over the civil
war in Syria. This, however, has not prevented
trade, investment and visitors flowing in both
directions. A resolution to the Syrian crisis
and co-operation in areas of shared concern
would create a more conducive environment for
commerce between the GCC and Russia.
As it stands, the closest business ties are those
between Russia and the UAE. Mr Barmin of the
Russian International Affairs Council explains
that “at about the same time as the Soviet Union
collapsed, the UAE started developing into a
2
RAND, Azerbaijan, Central
Asia, and Future Persian Gulf
Security, 1992.

business hub, and so in the 1990s people began
visiting the UAE, first for leisure and then [for]
setting up business.” Kuwait and Bahrain also
have relatively good diplomatic relations with
Russia. During 2014-15 there was a noticeable
uptick in visits by Gulf leaders to Russia—
including the emir of Kuwait, the king of Bahrain,
the crown prince of Abu Dhabi and the deputy
crown prince of Saudi Arabia—amidst efforts to
both boost economic ties and advance diplomatic
efforts related to Syria.
Investment promotion
Economic relations are underpinned by periodic
governmental visits, including at the highest
level, often focused on developing trade and
investment. Discussions have focused on
petrochemicals, real-estate investment and plans
for additional flight routes.
Noteworthy aspects of co-operation are
investment protection and double-taxation
treaties. There is now an extensive network of
such agreements, many only recently ratified,
which should support future commerce. Belarus
has been the most proactive CIS country in
developing commercial treaty relationships with
GCC countries and has a full slate of both kinds of
agreements, followed by Russia and Uzbekistan.
On the GCC side, Kuwait and the UAE have been
the most proactive. While there are no bilateral
trade agreements, Russia and six CIS countries
are members of the World Trade Organisation
(WTO), alongside the GCC. Overall, the number
of treaties in place with CIS countries is more
extensive than with many other regions with
which the GCC conducts greater volumes of trade
and investment.
Despite having the requisite treaties in place,
this has not yet translated into high levels of
investment activity. The Central Bank of Russia
recorded only US$37m in net foreign direct
investment (FDI) inflows from the GCC in 2014,
Diplomatic representation
Top triangle indicates presence of GCC embassy/consulate/non-resident ambassador in the CIS state,
while bottom triangle indicates CIS presence in the GCC
Figure 3
Armenia
Bahrain Kuwait Oman Qatar Saudi Arabia UAE
Azerbaijan
Belarus
Kazakhstan
Kyrgyzstan
Uzbekistan
Ukraine
Turkmenistan
Tajikistan
Russia
Moldova
Embassy Planned Non-resident
ambassador
Sources: Foreign ministry websites for most countries; third-party listings.

mainly from the UAE, down from a peak of
US$49m in 2013.3
FDI from Russian companies
in 2014 was higher at US$165m in the UAE alone,
although this was down from a one-time spike of
US$902m in 2007.
These data probably do not account for Gulf
investments in the Russian Direct Investment
Fund (RDIF), a state-owned entity established
in 2011 to channel local and foreign capital into
growth companies and infrastructure projects.
Gulf sovereign wealth funds have made the
lion’s share of commitments to RDIF, totalling
at least US$19bn.4
These include commitments
from the Kuwait Investment Authority, Saudi
Arabia’s Public Investment Fund, the Saudi
Arabian General Investment Authority (SAGIA),
Abu Dhabi’s Department of Finance and the
Mubadala Development Company, and the Qatar
Investment Authority. Bahrain’s Mumtalakat has
not committed funds, but it has a co-operation
agreement under which its CEO sits on RDIF’s
advisory board.
Despite sizable commitments, it is unclear how
much has actually been invested so far. Kuwait
Investment Authority appears to automatically
invest alongside RDIF, with a 5% share in
projects, but the other Gulf funds determine in
which projects they will participate. Mr Barmin
says that “[pledging to RDIF] is just a way of
showing good relations and suggesting that they
may do business in the future”, and in the case
of partnerships with Saudi Arabia he adds that
nothing will happen until there is a resolution to
the Syria conflict.
Yet the intent to secure funds from the Gulf
remains. In 2014 RDIF launched an Arabic version
of its “Invest in Russia” website to encourage
investment from the region. The site’s catalogue
lists only a few private sector investors from
Bilateral investment promotion and double-taxation agreements
Top triangle represents investment protection agreement; bottom triangle represents double-taxation
agreement.
Figure 4
Armenia
Bahrain Kuwait Oman Qatar Saudi Arabia UAE
Azerbaijan
Belarus
Kazakhstan
Kyrgyzstan
Uzbekistan
Ukraine
Turkmenistan
Tajikistan
Russia
Moldova
Ratified agreement Signed agreement, not ratified
Sources: World Bank; International Centre for Settlement of Investment Disputes (ICSID); UNCTAD; Kluwer Arbitration;
Treatypro.com; government websites. Where sources differ, the most recent is assumed to be correct.
3
The Central Bank of the
Russian Federation
4
Russian Direct Investment
Fund: Partnerships

the Gulf, including Alshaya of Kuwait, a retail
franchise operator.
Elsewhere in the CIS, data on investment flows to
and from the Gulf are limited, although money is
clearly flowing given the major projects underway,
such as the UAE’s investments in hydrocarbons in
Turkmenistan and Kazakhstan. The central bank in
Belarus recorded inward FDI of US$42m from the
UAE in 2014, up sharply from the previous year, but
little from elsewhere in the GCC.5
Portfolio investments into the CIS on public
record6
include just one small holding, of copper
miner KAZ Minerals by Abu Dhabi Investment
Authority. However, a much larger investment
was made by Qatar Investment Authority in the
majority state-owned Russian bank VTB in 2013,
reportedly buying US$500m in VTB’s capital-
raising round.7
GCC funds are also likely to have
exposure to the Russian economy through the
purchase by AGC Equity Partners, a UK-based firm
representing Middle Eastern sovereign wealth
funds, of US$175m in Russian power company
OJSC Enel, alongside RDIF.
Looking ahead, there may be fresh investment
opportunities in the CIS given a wave of
privatisations, for which the region is looking
in part to the GCC for capital. In November 2015
Kazakhstan’s sovereign wealth fund, Samruk-
Kazyna, announced details of long-discussed
privatisation plans, including the sale of
25% (or greater) stakes in companies such as
KazMunaiGas, Kazatomprom, Kazakhtelecom
and the national rail company, Kazakhstan
TemirZholy, with up to 800 state-owned firms
potentially up for sale.8
Abdul Jaleel Al Khalifa,
the CEO of Dubai’s Dragon Oil, highlights
privatisation in Kazakhstan as an interesting
point of access to the hydrocarbons sector in the
CIS.
Meanwhile, similar plans have been echoed
in Uzbekistan. In late 2015, Saudi Arabia was
invited to the International Investment Forum
in Tashkent, which was designed to present the
privatisation programme to foreign investors.9
Plans for privatisation exist in Russia too, as Mr
Barmin explains: “Given a lack of cash, Russia
is keen to sell stakes in companies including
Rosneft, Gazprom and its electrical power
companies.”
The push to privatise, resulting from the
economic hardships in the CIS, might create
opportunities for GCC investors, but they will
need to look carefully at how the companies
are structured and how profitable they are.
Many due for privatisation have sizeable debt
burdens. Yet some of these opportunities may
prove interesting to Gulf funds or state-owned
companies which already have strong bilateral
relationships with the relevant CIS country. The
free-floating tenge in Kazakhstan and now the
float of the manat in Azerbaijan—which was
announced by Azerbaijan’s central bank in late
2015—mean that Gulf investors operating there
are, for the first time, exposed to exchange-rate
risks, but the sharp devaluation of CIS currencies
in 2014-2015 may make assets considerably more
attractive to newcomers.
Modest trade flows
Trade flows between the GCC and the CIS are
modest, totalling US$8bn 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
(which may largely relate to Dragon Oil). These
five sets of bilateral flows, both imports and
exports, made up 83% of total trade between the
two regions.
The low level of trade is partly because both
regions predominantly export hydrocarbons,
and there is a degree of geographical isolation
owing to weak or non-existent road and rail
networks. Physical trade routes may improve
as plans are implemented to develop a “north-
south corridor”. In 2011, on the initiative of the
Uzbek president, Islam Karimov, the Ashgabat
Agreement was signed between Uzbekistan,
5
National Bank of the
Republic of Belarus
6
Bloomberg holdings
data by source country on
the Russian, Kazakh and
Ukrainian stock markets
7
Reuters, “Qatar Sovereign
Fund Buys Stake In Russian
Bank VTB”, May 2013.
8
Financial Times, “Rule
of law risks weigh on
Kazakhstan’s privatisation”,
November 2015.
9
Arab News, “Saudi Arabia
invited to Uzbek investment
forum”, October 2015.

12
Doha News, “Russia plans
to export halal chicken to
Qatar by year-end”, March
2015.
Turkmenistan, Iran, Oman and Qatar to develop
a trade corridor, including road and rail links.
Qatar appears to have pulled out, but others
signed a Memorandum of Understanding (MoU)
in 2014 to further the plan, and Kazakhstan is
reportedly interested in joining.10
The opening up of the Iranian economy
would facilitate transport infrastructure
development as well as trade liberalisation.
Other initiatives aimed at developing trans-
Eurasian infrastructure, such as the Asian
Highway Network of the UN Economic and Social
Commission for Asia and the Pacific (UNESCAP),
as well as efforts to link Russia and India,11
should
also ease the transit of goods from the CIS to the
GCC, creating the potential for higher trade flows
in the future.
Although trade flows are small, there are some
encouraging trends, including a growth rate of
20% over five years (2010-14), although this
followed a sharp fall during the global financial
and economic crisis in 2009. 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%).
Trade includes food and manufactured goods
from the CIS and petrochemicals from the GCC.
Trade in food has the greatest potential for
growth, particularly as trade routes improve,
given that the GCC is almost entirely dependent
on imports and that Russia, Kazakhstan
and Ukraine are all major wheat exporters.
Saudi Arabia has long been one of the largest
purchasers of Russian wheat, moving to first
place in March 2015 with 28% of shipments,
despite Russia’s introduction of a 15% export levy
to mitigate domestic food price inflation. Russia
also started exporting halal chicken to Qatar
and the UAE in late 2015.12
Prasad Abraham,
the CEO of Al Hilal Bank Kazakhstan, singles out
agriculture as an important sector for the Gulf:
“The arable land in Kazakhstan is greater than
France and Belgium combined, and some Gulf
countries have shown interest under the banner
of food security.”
Aerospace and defence also have promise.
Russian civilian helicopters are used extensively
Source: IMF Direction of Trade Statistics.
Regional trade flows
(2014, US$ bn)
Figure 5
0.0
0.5
1.0
1.5
2.0
2.5
0.0
0.5
1.0
1.5
2.0
2.5
Export from GCCImport to GCC
OtherUAE-UkraineUAE-TurkemistanSaudi-RussiaSaudi-UkraineUAE-Russia
10
Uzdaily, “Kazakhstan
joins to Uzbekistan-
Turkmenistan-Iran-Oman
corridor”, February 2015.
11
Institute for Defence Studies
and Analysis, “International
North-South Transport
Corridor: Re-energising
India’s Gateway to Eurasia”,
August 2015

across the Gulf, and there are a number of
companies in the region providing servicing and
support for them, notably in Sharjah. There have
been some small Russian defence exports to the
UAE and Oman. Potential deals have been part of
ongoing discussions in recent years, including
between Saudi Arabia and Russia regarding
the purchase of T-90 tanks, Iskander missile
launchers, helicopter gunships and air defence
systems.
Growing migration to the Gulf
The number of CIS citizens residing in the GCC
for study or work, particularly in Dubai, is
considerable. The Russian Business Council in
Dubai estimates that there are up to 100,000
Russians living in the city. Mr Karasik of Gulf
State Analytics says: “There are many CIS migrant
workers in department stores, restaurants and
hotels catering for the Slavic speakers who visit
Dubai. Usually they are from Ukraine, as young
people have been travelling for work given the
situation there.”
Data from Western Union suggest that there
has been an increase in CIS workers in the GCC
in recent years as a result of economic hardship
at home. Mr Farah explains: “When the crisis
hit the CIS, people wanted to check for jobs in
areas that were not hit so hard, and a natural
destination was the Gulf, where the currency is
pegged to the dollar.” As a result, it is no surprise
that remittances from the Gulf to the CIS are
growing at a double-digit rate, mainly to Russia,
Kazakhstan and Turkmenistan. Western Union’s
data further suggest that CIS migrants are better
placed economically in the Gulf than in other
parts of the world—the average transfer payment
from the GCC is US$600, almost double the global
average.
Average remittance value per transaction, 2014 (US$)
Global to CIS
Saudi Arabia to CIS
UAE to CIS
Global to Russia
Saudi Arabia to Russia
UAE to Russia
323
857
572
660
991
831
Source: Western Union.
Figure 6

Gulf-CIS commerce: Sector analysis3
Connecting cities: Aviation and
logistics
GCC airlines are playing a pivotal role in
connecting the CIS region with the wider world.
There are direct flight links with the capitals of all
CIS countries (with the exception of Chisinau in
Moldova), as well as a number of other regional
cities. Five of the Gulf flag carriers fly to Moscow
and/or St Petersburg in Russia; Qatar Airways
has flights to Baku in Azerbaijan, and Etihad
to Astana and Almaty in Kazakhstan. Russia’s
Aeroflot serves the UAE, Bahrain, Kuwait and
Saudi Arabia, and some CIS airlines also fly into
the Gulf, providing direct links to Dubai or Abu
Dhabi.
However, the major connectors of the regions
are the UAE’s low-cost airlines. 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.
Air links are vital for tourism— “very much the
lifeblood of the hotel industry”—according to
Gerald Lawless, CEO of Jumeirah Group, a Dubai-
based international luxury hotel chain and part
of Dubai Holding. Tourism, in turn, is the gateway
to business, he explains, as it “opens up a
country for leisure, [but] you might see the place
also as a business opportunity.”
Aside from the scheduled routes, there are many
chartered flights linking the CIS and the GCC.
Moreover, there has been talk of a joint-venture
(JV) between the Chechen Republic in Russia and
a Bahraini businessman to start an airline linking
Grozny, the Chechen capital, with the GCC.13
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 marrying ancient Silk Road
trading routes with modern demand, linking
China to northern Europe. According to Sultan
Ahmed bin Sulayem, the chairman of DP World, a
42-day journey from China to Europe by sea has
been shortened to 13 days via Kazakhstan. DP
World’s involvement began in 2013 and includes
support for Aktau port, Kazakhstan’s main cargo
and bulk terminal on the Caspian Sea, and the
development of the Khorgos Special Economic
13
The Moscow Times,
“Chechnya to Launch Airline
With Bahrain”, November
2013.

Zone and Inland Container Depot, located on the
opposite side of Kazakhstan.
An area of growing interest is the Russian Far
East, which is being boosted by industrial
development, including liquefied natural gas
(LNG) export terminals. DP World previously
had some exposure to this region through a
25% stake in the largest container terminal at
Vostochnaya port. It sold this stake for US$230m
during a phase of debt consolidation in the
aftermath of the global financial crisis,14
but is
now showing renewed interest in the region,
particularly after a Russian initiative to create
15 free ports in the Far East. In September 2015,
Sultan Ahmed bin Sulayem met with the Russian
president Vladimir Putin, in Vladivostok to
investigate opportunities. Mr Barmin explains:
“The northern sea route in the Artic is now
free of ice half the year, so it’s a good time to
invest, as this is a much shorter route to Europe
than through the Mediterranean.” Another
port operator, Gulftainer of Sharjah, signed an
agreement in 2011, in the presence of Mr Putin,
to invest US$275m in Ust-Luga Port Company,
which operates a terminal near St Petersburg.15
Agility, a GCC logistics firm, has operations not
only in Russia and Kazakhstan but also Ukraine
and Turkmenistan, offering freight forwarding
and industrial logistics. Its projects have
included the relocation of an entire cement plant
from Germany to the Urals region of Russia and
the delivery of 420 rail cars from Spain to Astana
in Kazakhstan. Furthermore, CIS exporters are
interested in the logistical capabilities of the GCC
to serve other markets. Mr Karasik of Gulf State
Analytics comments: “The UAE is increasingly
acting as a hub for CIS countries to get to Africa.
The Russians are opening up a foreign trade office
in Abu Dhabi that will be responsible for the push
into Africa, and they want to build a transit hub
for this in the UAE.”
Fuelling engagement: the energy sector
The hydrocarbons sector lies at the core of most
CIS and GCC economies and has witnessed the
most engagement between the two regions.
There are two significant GCC oil projects at
present in the Caspian Sea, both originating
from the UAE; Russian companies operate
upstream in Saudi Arabia and Sharjah; and
oilfield service firms are active in both regions.
Finally, there is technical collaboration at the
governmental level, and periodic discussions
about market strategy have become prominent
since the downturn in oil prices. Mr Rahman of
Aldar Properties points out that with the UAE and
Kazakhstan, for example, “there’s been a lot of
collaboration, both at the government level and
the corporate level between KazMunayGas, the
state oil company, and Abu Dhabi National Oil
Company.”
Dubai government’s Emirates National
Oil Company (ENOC) acquired a majority
stake in Dragon Oil in 1998, inheriting the
company’s development of the Cheleken field
in Turkmenistan’s Caspian Sea territory. This
marked the first Gulf investment in the CIS
hydrocarbons sector. It is ENOC’s only upstream
investment and has proved to be a shrewd one.
Production at the time of acquisition was only a
few thousand barrels per day (b/d) and oil prices
were low, but production has since increased
dramatically, surpassing 100,000 b/d in 2015.
Dragon Oil’s CEO, Abdul Jaleel Al Khalifa, outlines
the scale of the operation as follows: “We’ve
invested nearly US$5bn since 1999 and employ
about 1,800 staff in the country, 93% Turkoman,
with another 3,000-4,000 contractors providing
direct support.” He attributes part of the
initiative’s success to localisation efforts. ENOC
bought out the other shareholders in a £4bn
(US$5.87bn) offer for the remaining 46% of stock
in September 2015, a plan that had been in the
works since 2009. Robin Mills of Qamar Energy
points to the success of Dragon Oil, suggesting
its structure as a private company contributed to
this, “given its technical competence, backed up
by political support [from ENOC] but not political
interference.”
14
Reuters, “DP World sells
stake in Russian firm for
$230 million”, October
2012.
15
Gulftainer, “$275
million port deal for UAE’s
Gulftainer”, November
2011.
16
Reuters, “Russia’s Rosneft
in talks with Mubadala
on east Siberian fields”,
August 2015.

Meanwhile, Mubadala Petroleum of Abu
Dhabi has been engaged in exploration since
2009 in Kazakhstan’s Caspian Sea N-block
acreage, in partnership with state-owned
KazMunayGaz. There were discussions in 2015
between Mubadala and Rosneft, the Russian
state oil company, when Mr Putin met with the
crown prince of Abu Dhabi regarding the joint
development of two fields in eastern Siberia.16
According to Mr Barmin, the Russian oil firms are
cash-strapped, which is why they are looking to
sell stakes.
Aside from operators, services companies have
also been active. UAE-based Petrofac Emirates
completed a US$3.4bn development project of
Turkmenistan’s Galkinish gas field, the second-
largest in the world, building a 10bn-cu metre/
year gas-processing plant and employing 14,000
people at the peak of construction. Other oil
services firms that have developed to serve
the local market in the GCC might consider
opportunities in the CIS, and according to Dragon
Oil’s Abdul Jaleel Al Khalifa, there is considerable
local demand for such companies.
The success of Dragon Oil is not universal,
however. The experience of Kuwait Energy, a
private firm which in 2014 sold off its assets and
licenses in Ukraine and Russia, lends insight
into the GCC’s limited involvement in the CIS. As
Mr Mills explains: “The CIS is a very challenging
region for oil and gas investors in general, and
not many companies have done well out of it.”
The CIS sector is structured differently, with
many private and quasi-private producers in
comparison with the national oil companies
that dominate the GCC landscape, and technical
differences abound. Mr Mills illustrates this with
one example: “Technically, [Russia’s] wells are
different from Middle Eastern wells, given the
cold weather in Siberia and mature fields, which
makes it hard to shut them down and start them
up again.”
Conversely, there has been more interest
from CIS companies to participate in the GCC
hydrocarbons sector. Russia’s Lukoil won a gas
exploration and development contract for Saudi
Arabia’s vast Empty Quarter in partnership
with Aramco, Saudi’s national oil company.17
Meanwhile, Rosneft has been exploring for gas
in Sharjah since 2010 in a joint venture with
Crescent Petroleum, but is considering exiting
after drilling has proved unsuccessful.18
It is
also on the shortlist for participation in the new
Abu Dhabi onshore consortium.19
It is up against
Western and Asian majors and “might still get a
share of it”, according to Mr Mills. Other Russian
firms have sought to make investments in the
GCC, but without success. This is most likely owing
to the paucity of opportunities for new entrants
in recent years, given the superior positions of
Western oil majors in the region and the interests
of Asian countries which, unlike CIS companies,
are also important customers for Gulf oil and gas.
Beyond operators, Russia’s Stroytransgaz,
an oil and gas contractor, built a technically
challenging 240 km gas pipeline to transport
Qatari gas from Abu Dhabi across the Hajjar
Mountains to Fujairah, completed in 2011 for
US$418m.20
It also built a 217 km oil pipeline in
Saudi Arabia from the Sheiba field and has had a
relationship with Saudi Oger, a local construction
company, since 2002.21
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.22
However, the viability of
these options is in question, given considerable
sailing distances and closer options such as
Qatar, one of the world’s largest exporters of gas.
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.23
Qatar and Kuwait have
co-operation agreements but no current plans
to develop nuclear plants. Kazakhstan may have
17
Reuters, “Russia’s Lukoil
to drill for tight gas in Saudi
desert”, May 2014.
18
The National, “Rosneft
considers exiting JV with
Crescent in Sharjah”, May
2015.
19
The National, “Remaining
bidders weigh tough terms
for stake in Abu Dhabi’s
prime oilfields”, February
2015.
20
The National,
“Stroytransgaz wins Dolphin
contract”, July 2008.
21
Pravda, “Saudi Oger
and Stroytransgaz ready
for cooperation in Saudi
Arabia”, 2002.
22
Gazprom, “Gazprom
and Kuwait Petroleum
Corporation sign
Memorandum of
Understanding”, November
2015.

a role to play as the world’s largest exporter of
uranium. The UAE has been a major donor to the
development of an international low-enriched
uranium bank in Kazakhstan. Kazatomprom,
the state-owned nuclear holding company, also
produces silicon, and in 2015 became a strategic
shareholder in Qatar Solar Technologies to supply
raw materials for its solar-cell manufacturing
facilities in Doha.24
Developing Islamic finance
GCC banks have been expanding internationally
in recent years as they seek to allocate surplus
capital to growth markets and service growing
commercial links between the GCC and regions
such as the Middle East, Africa and South-east
Asia. One area of particular interest in the CIS
is Islamic finance, given that the region has an
estimated 82m Muslims, more than twice as
many as the GCC.25
Many Central Asian countries
have a Muslim majority, although Russia with
17m Muslims, who represent only 12% of its
population, has more Muslims than the other
countries, with the exception of Uzbekistan.
However, Islamic finance has been slow to
develop in the CIS, possibly because of Soviet
secularism and limited support in the banking
sector.26
There is also a need to educate the
population about Islamic finance, given broad
misconceptions. Mr Abraham of Al Hilal Bank
Kazakhstan says that “among consumers there
are mixed reactions, with some believing that
Islamic banking is free because you don’t charge
interest.”
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, but
also due to concerns about the stability of
conventional banks in the aftermath of the 2009
global financial crisis, which pushed four of
Kazakhstan’s banks into default. Gulf banks, as
well as some from Malaysia, have played a role in
encouraging the development of Islamic finance
in the CIS, alongside efforts from the Islamic
Corporation for the Development of the Private
Sector (ICD), an affiliate the Jeddah-based
Islamic Development Bank, in which the Gulf
countries are major shareholders and which has a
regional hub office in Almaty, Kazakhstan.
Kazakhstan was the first CIS country to introduce
legislation to regulate Islamic banks in 2009. This
provided an opportunity for the establishment
of Al Hilal Bank Kazakhstan,27
a subsidiary of
Al Hilal Islamic Bank owned by the Abu Dhabi
government. It is still the only Islamic bank in the
country, although amendments to the legislative
framework that facilitate the conversion of an
existing conventional bank should result in a
second—Zaman Bank—with support from the
ICD. According to its CEO, Mr Abraham, “higher
minimum capital requirements for banks since
the 2008 crisis, together with the need to
take a longer-term view of the market, may
have discouraged other entrants from abroad,
including in conventional banking.” He also
notes that even in Dubai it took over a decade for
the second Islamic bank to open. Interestingly,
he explains that only about 30-40% of their
customers, who are mainly corporate, pick the
bank for religious reasons: “The others come to
us because of our pricing or liquidity and stay
with us for the service.”
Elsewhere in the region, Kyrgyzstan has Islamic
banking legislation in place, and the first
Islamic bank, Eko Islamik Bank, was formed by
the conversion of a conventional bank in 2010,
with a retail focus. An Islamic banking law is
being drafted in Azerbaijan, where until recently
limited Islamic banking services were available
through an Islamic finance “window” at the state-
owned International Bank of Azerbaijan, which
had US$526m in Islamic assets at end-2014, a
threefold increase from the previous year.
However, the window was closed in October 2015,
seemingly in relation to plans to privatise the
bank.28
ICD is also advising on the conversion
of a bank in Tajikistan, which passed an Islamic
banking law in 2014 but still needs central bank
guidelines to enact it. In addition, the Tajik
25
Based on extrapolating
from the Pew Centre’s
estimates for 2010, using its
growth rates.
26
Private Hochschule
Göttingen, “Islamic Finance
in the States of Central Asia:
Strategies, Institutions,
First Experiences”, 2013
27
http://www.alhilalbank.
kz/en/alhilal/
28
Reuters, “Azerbaijan’s
biggest bank closes Islamic
banking department”,
October 2015.
23
World Nuclear News,
“Russia and Saudi Arabia
agree to cooperate in
nuclear energy”, June 2015.
24
QNA, “Kazakh President
Meets Qatari Businessmen”,
October 2015.

government has had discussions with Qatar,
including a 2014 meeting between the president
of Tajikistan and the chairman of Qatar’s Ezdan
Holding, about launching a potential Islamic
bank joint venture,29
although it is unclear if
anything concrete is in the works. So far, there
does not appear to have been much movement
towards Islamic finance in Uzbekistan and
Turkmenistan.
In Russia, draft legislation was submitted to
parliament in March 2015 but rejected by the
Ministry of Finance in May. However, efforts
are afoot to put a framework in place in 2016,
motivated by current difficulties in accessing
Western financing owing to sanctions.30
There
has already been interest from Gulf banks, with
reports that Bahrain’s Al Baraka Bank is looking
for joint-venture partners in Russia.31
Gulf banks are involved in providing Islamic
financing to the region. In 2013 the International
Bank of Azerbaijan raised US$120m in syndicated
murabaha32
financing, mainly from Gulf Islamic
banks (including Barwa Bank in Qatar and Noor
Islamic Bank in the UAE).33
Russia’s state-owned
Vnesheconombank has also been considering
a sukuk34
issuance and is being advised by
Bahrain’s Al Baraka Bank.
However, GCC investors remain wary of CIS
debt—many sovereigns and companies in the
region are rated well below investment grade, a
minimum requirement for GCC sovereign wealth
funds. There may also be some trepidation given
problems faced by conventional Gulf banks, as
noted by Al Hilal Bank Kazakhstan’s Mr Abraham:
“During the 2008 crisis two of the largest
[Kazakh] banks became illiquid. Bondholders
had to take some fairly significant write-downs,
and many of the investors included GCC-based
banks.”
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 Dubai
International Financial Centre has been advising
Kazakhstan on the development of a similar
concept, the Astana International Financial
Centre, which could become a regional hub for
Islamic and conventional finance.35
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. In retail, one firm that stands out
is Alshaya, a Kuwaiti firm that manages a wide
portfolio of brands across Russia. It manages over
300 stores—including brands such as Starbucks,
Mothercare and Next—spread across a number
of cities. Recently it has begun expanding into
other CIS countries, opening the first Starbucks
in Azerbaijan in 2015, with plans to launch in
Kazakhstan in early 2016.
However, other 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.
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. Its
local rival, Rotana, is thought to be considering
an expansion into Central Asia.
Jumeirah Group’s Mr Lawless explains that links
between the UAE and Azerbaijan have facilitated
the Baku hotel as “there are a lot of people in
Azerbaijan who know Jumeirah, mostly because
they come to the UAE”. Staff of CIS origin have
had the opportunity to transfer to their home
countries within the Jumeirah Group, such as
the Baku hotel’s general manager, who had
previously been working at Jumeirah’s hotel on
Palm Island in Dubai.
29
Gulf Times, “Qatar
planning to set up first
Islamic bank in Tajikistan”,
September 2014.
30
Islamic-Finance.ru,
“Russia looks to lift first
barrier to Islamic finance as
crisis grows”, March 2015.
31
Sputnik News, “Two Islamic
Banks Planning to Enter
Russian Market - Bahraini
Official”, March 2015.
32
A form of credit sale
acceptable under sharia law,
in which the intermediary
retains ownership of the
asset until the loan is paid
in full.
33
AzerNews, “Azerbaijan
enjoys opportunities to set
up Islamic banking center
across CIS”, February 2014.
34
A bond compliant with
sharia law.
35
WAM, “DIFC Courts to
advise on planned Astana
International Financial
Centre”, September 2015.

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.
“We would be able to look at developing our
second brand venue, which is a contemporary
lifestyle brand, more in the four-star bracket,
rather than the luxury bracket,” says Mr Lawless.
“So there is good potential for that within places
like Azerbaijan, Kazakhstan, Tajikistan.”
The hospitality sector sees visitors travelling from
the CIS to the GCC as well, particularly to Dubai.
On average, Mr Lawless claims that Russian
nationals spend 25% more than guests from
other parts of the world, including those from the
GCC, the traditional big spenders.36
Dubai, with its network of flight connections
across Russia and the CIS, is one driver of CIS
demand for real estate. This has been high in
recent years in view of sizable capital flight
from the CIS region. Data from the Dubai Land
Department typically place Russians among the
main foreign purchasers of Dubai property.37
However, demand has been negatively impacted
recently by the weak rouble.38
GCC investors have been involved in developing
real estate in the CIS region. Prominent
examples of mixed-use developments include
Aldar Properties’ Abu Dhabi Plaza in Astana,
Kazakhstan, and Qatari Diar’s Diar Dushanbe
project in Tajikistan’s capital. Other real estate
investments supported by Gulf funds and
expertise include Kazan Smart City and a new
university in Grozny—both in Muslim-majority
regions of Russia—as well as a mosque in
Tajikistan. Limited in number, many of these
projects were envisaged at the government level
and have materialised on the back of strong
relationships between heads of state. “It helps
that the number-one guys in each country are
aligned,” explains Aldar Properties’ Mr Rahman,
who emphasises the role governments in the CIS
have to play in the future development of the
real estate sector. “What we see is in line with
a vision that the government has, whether it’s
diversifying away from oil and gas, whether it’s
bringing in leisure and entertainment venues
for the local population, there may be slightly
different avenues of getting to the final point,
but the final point is ‘activating’ the region.”
36
Interview with The
Economist Intelligence
Unit for a previous report,
August 28th 2014.
37
Dubai Land Department,
“AED 53 Billion Worth
of Dubai Real Estate
Investments made by
20,000 Investors in H1”,
August 2015.
38
CNBC, “Russians retreat
from this key property
market”, March 2015.

Navigating the business environment4
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.
Improving scores for enforcing contracts and
protecting minority investors are encouraging,
but may not reflect the reality of companies’
experiences. For instance, although Russia
ranks fifth globally for enforcing contracts, the
Financial Times argues that this rank reflects
the letter of the law rather than its application,
as Russia has “a history of tangling with foreign
investors”.39
The rapid transition from state-planned to
market economies in the 1990s created a
challenging environment for governance, as
state-owned enterprises were sold off and
government contracts were awarded before
adequate systems for fair competition,
transparency and accountability were in place.
These problems have become entrenched in some
countries that are either authoritarian or have
overlapping business and political elites, as in
the case of Ukraine’s powerful oligarchs. This
has fuelled organised crime in some countries,
particularly Ukraine, Kyrgyzstan and Russia.
Aside from the legal and bureaucratic framework,
climatic conditions in some CIS countries pose
operational challenges. Some parts of the CIS
suffer extreme cold spells. Mr Rahman says that,
regarding Aldar’s construction project, “for
four months of the year you can’t actually build
anything on the ground”. However, he thinks that
lessons from the GCC about operating successful
business and leisure destinations in difficult
climatic conditions can be applied in the CIS’s
cold, just “flip the climate equation; we worked
around our climate issues, worked around how we
get people into our countries. Let’s apply it.”
39
Financial Times, “Russia
rises in World Bank’s
‘Doing Business’ rankings”,
October 27th 2015.

Conclusion
The challenging economic climate in the CIS
nations may spur them to act more quickly
to diversify their economies and sources of
financing, implement structural reforms and
privatise state-owned entities. All of this
creates opportunities for participation by
global investors, and particularly for Gulf-based
investors, given existing diplomatic, cultural and
commercial ties.
Until now the relationship has largely remained
one of potential, rather than realisation.
Commercial linkages have been developed
through low-cost air travel provided by flydubai
and Air Arabia connecting previously inaccessible
markets in the CIS to the Gulf. The Jumeirah
Group, followed by Rotana, are growing the
presence of Gulf-based hotels in the CIS. Trade,
however, has been modest, reflecting the
geographical challenges and the duplication of
resources in the core sectors of the GCC and many
CIS states, although there is room for growth,
particularly in food imports from the CIS as
overland transport routes improve.
The prospects for investment by the GGC states
in the CIS are more substantive than the other
way round. Investments have already been made
in some sectors such as hydrocarbons, logistics,
hospitality and real estate. Much of that has been
by state-owned Gulf firms building on bilateral
diplomatic links, but there is potential for more
involvement by private Gulf firms as well. This
could be facilitated by the network of investment
promotion and double-taxation treaties as well as
diplomatic engagement.
An upcoming wave of privatisations, spurred
by fiscal strains, could provide attractive
opportunities for entrants, more so in light of
recent currency devaluations in the CIS. Dragon
Oil’s CEO, Abdul Jaleel Al Khalifa, advises: “The
good deals that you could find today, you might
not find in the future. If someone is smart and
has the funds to invest in Central Asia, then it
would be better to do it now.” However, new
entrants need to weigh carefully both the terms
of such deals and the local business environment,
particularly in relation to concerns about
governance and political stability.

While every effort has been taken to verify the accuracy
of this information, The Economist Intelligence Unit
Ltd. cannot accept any responsibility or liability
for reliance by any person on this report or any of
the information, opinions or conclusions set out
in this report.

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