Prof Michael Tanchum is a non-resident fellow with the Middle East Institute's Economics and Energy Programme and teaches at Universidad de Navarra in Spain
July 24, 2023
During the 500 days since Russia’s invasion of Ukraine, the Middle East avoided a catastrophic food crisis, thanks in part to the Black Sea grain initiative. Russia’s decision to cancel that agreement is raising fears that the return of supply shortages and skyrocketing wheat prices could quickly plunge the most vulnerable countries of the region into crisis.
Countries such as Syria and Yemen, which are struggling to emerge from conflict and civil strife, may be most at risk. How grim the picture will become for these countries does not simply hang on decisions made in Moscow and Kyiv. A decisive role will also be played by Ankara, not only on account of its central position in Black Sea geopolitics, but because of Turkey’s central role in the Middle East’s wheat-to-bread supply chain.
Prior to the invasion, Ukraine was the world’s fifth-largest wheat exporter and one of the main suppliers to many Middle East countries located relatively short distances from its Black Sea ports. With the outbreak of the war, shipments out of these ports came to a complete standstill, stranding 20 million tonnes of grain. By the end of March 2022, the price of wheat shot to 64 per cent higher than the previous year and bread shortages began appearing across the Middle East.
Turkish President Recep Tayyip Erdogan, right, and UN Secretary General Antonio Guterres lead a signing ceremony at Dolmabahce Palace in Istanbul last July. AP Photo
The Black Sea grain initiative eased the crisis. According to a deal brokered by Turkey and the UN, Russia guaranteed the safe passage of grain-laden cargo ships from Ukraine’s Black Sea ports to Bosphorus Strait in exchange for Russian inspections of the ships in both directions to ensure they were not carrying weapons.
The top three export markets for Turkish flour are, in order, Iraq, Syria and Yemen
During the 360 days that the deal lasted, Ukraine exported a combined 32.8 tonnes of wheat, corn (maize), sunflower oil, and other agrifood products, according to UN figures. Wheat shipments, 51 per cent of the total, made up lion’s share of the exports. Even for the countries that did not directly receive any of these cereal grain shipments, there was an immediate benefit, as the additional supplies in the global market caused a desperately needed easing of prices. From July 2022 to June 2023, the UN Food and Agriculture Organisation’s Cereal Price Index witnessed a 14 per cent drop.
For highly vulnerable nations such as Syria and Yemen, Ukrainian grain also came via the food aid provided by the UN’s World Food Programme (WFP). Yet even under the Black Sea grain deal, the WFP’s cost to purchase grain rose by almost 40 per cent and the organisation sent significantly less food aid. The impact in the Middle East was greatest in Syria and Yemen, countries in which the WFP is most active.
Prior to this year’s earthquake, 51 per cent of the Syrian population (about 12.1 million people, according to UN figures) was deemed food-insecure, making Syria the sixth-highest food-insecure nation in the world. 2.7 million people in Syria live in a state of severe food insecurity. In Yemen, as high as 19 million people are deemed food-insecure, with about 3.5 million acutely malnourished.
Despite the great humanitarian need in distressed nations across Africa and Asia, most of the grain from the Black Sea deal went to high- and middle-income countries, with the top three – China (25 per cent), Spain (18 per cent) and Turkey (10 per cent) – receiving the majority. Turkey’s large portion, however, served to help ensure Iraq, Syria and Yemen’s food security due to its crucial role in Middle East food supply chains. While Turkey is customarily among the world’s top-five wheat importers, it is simultaneously the world’s 10th-largest wheat producer.
Turkey’s unusual profile in the global wheat market stems from the fact that it is the world’s largest exporter of flour as well as one of the largest exporters of pasta. Due to government regulation to safeguard its own domestic wheat supplies, Turkey’s lucrative flour and pasta exports must be made from imported wheat.
Food aid being delivered in Syria. Al Ihsan Charity
The top three export markets for Turkish flour are, in order, Iraq, Syria and Yemen. In Marketing Year 2021-22, Turkey exported 1.31 million tonnes of flour to Iraq and typically supplies about 87 per cent of Iraq’s flour imports. Because of rising oil prices concurrently increasing Iraq’s revenues, the country has been able to cope with the rising price of wheat.
Although Syria is a close ally of the Kremlin and imported about 1.5 million tonnes of wheat from Russia, the war-torn country has yet to restore its flour-milling capacity to pre-war levels. With only half of Syria’s flour mills able to operate at full capacity, the country increasingly relies on Turkish flour imports. In 2021-22, Turkey exported 330,660 tonnes of flour, equivalent to about 43 per cent of Syria’s domestic milling capacity. Despite its ties to Moscow, Syria is partially fed by Ukrainian wheat via its Turkish flour imports. Turkey performs the same role in the wheat supply chain to Yemen, having exported 249,713 tonnes of flour in the same timeframe.
Additionally, Turkey is reported to have exported about 400,000 tonnes of flour for humanitarian purposes in calendar year 2022.
If Ukraine chooses to continue its Black Sea grain exports, Turkey could continue to provide escort and inspections. Under such circumstances, it is unclear whether Moscow would risk a naval confrontation with Ankara. It is equally unclear whether Ankara would be willing to take the risk.
To ensure sufficient supplies of bread in many of the Middle East’s distressed regions, the international community needs to work to ensure an adequate wheat is supplied to Turkey. For Iraq, Syria, Yemen and other countries in the region, Turkey is the indispensable link in the wheat-to-bread supply chain in the Middle East.
Prof Michael Tanchum would like to thank Vicky Andarcia for her research assistance
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
JL, a housewife from India, wrote to us about her husband, who died earlier this month. He left behind an outstanding loan of Dh240,000 and she was hoping to pay it off with an insurance policy he had taken out. She also wanted to recover some of her husband’s end-of-service liabilities to help support her and her son.
“I have no words to thank you for helping me out,” she wrote to The Debt Panel after receiving the panellists' comments. “The advice has given me an idea of the present status of the loan and how to take it up further. I will draft a letter and send it to the email ID on the bank’s website along with the death certificate. I hope and pray to find a way out of this.”
SL, a financial services employee from India, left the UAE in June after quitting his job because his employer had not paid him since November 2018. He owes Dh103,800 on four debts and was told by the panellists he may be able to use the insolvency law to solve his issue.
SL thanked the panellists for their efforts. "Indeed, I have some clarity on the consequence of the case and the next steps to take regarding my situation," he says. "Hopefully, I will be able to provide a positive testimony soon."
MS, an energy sector employee from South Africa, left the UAE in August after losing his Dh12,000 job. He was struggling to meet the repayments while securing a new position in the UAE and feared he would be detained if he returned. He has now secured a new job and will return to the Emirates this month.
“The insolvency law is indeed a relief to hear,” he says. "I will not apply for insolvency at this stage. I have been able to pay something towards my loan and credit card. As it stands, I only have a one-month deficit, which I will be able to recover by the end of December."
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
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Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
The government has taken an increasingly tough line against companies that fail to pay employees on time. Three years ago, the Cabinet passed a decree allowing the government to halt the granting of work permits to companies with wage backlogs.
If wages are 10 days late, the new measures kick in and the company is alerted it is in breach of labour rules. If wages remain unpaid for a total of 16 days, the authorities can cancel work permits, effectively shutting off operations. Fines of up to Dh5,000 per unpaid employee follow after 60 days.
Despite those measures, late payments remain an issue, particularly in the construction sector. Smaller contractors, such as electrical, plumbing and fit-out businesses, often blame the bigger companies that hire them for wages being late.
The authorities have urged employees to report their companies at the labour ministry or Tawafuq service centres — there are 15 in Abu Dhabi.
