Gulf cautious on food security



DUBAI // GCC countries must consider the infrastructural challenges of any agricultural investments abroad if they are to ensure the region's food security, a new report says. The study, released yesterday by the Gulf Research Centre, said countries including Mozambique, Sudan, South Africa and, to a lesser extent, Pakistan and Central Asian nations held significant potential for farmland investments.

However, greater diversity in food security strategies was imperative to future stability, it added, particularly as many of the countries cited were facing food shortages and inflation issues at home. "Just as an oil consumer tries to diversify supply, [countries] should think along these lines with regard to their food strategies," said Eckart Woertz, the economic programme manager at the Gulf Research Centre.

"Most of these countries are food net-importers themselves. There are shortcomings in the infrastructure and political framework, as well as the self-sufficiency of these countries and it is irrational to think that with their growing population, which they already cannot produce enough food for, that it will not affect these agreements." Last year, GCC food imports hit US$10 billion (Dh36.7bn), of which $3bn went to the UAE, the Gulf Research Centre reported. The UN Food and Agriculture Organization (FAO) said food constituted a considerable part of imported dependency, set to reach 60 per cent in the GCC by 2010.

The UAE imports nearly 85 per cent of its food, a situation which poses a major challenge for all of the GCC countries as their population will double to nearly 60 million by 2030 from 30 million in 2000. The Abu Dhabi Government has finalised a scheme to purchase 29,400 hectares of farmland in northern Sudan, a project that will commence by the end of this year. However, according to Dr Woertz, underdeveloped roads, ports and farming equipment are major problems, particularly with investments in sub-Saharan Africa, that must be prioritised in all future agreements.

The report also cautions that GCC countries must carefully assess the potential of production increases via irrigation and mechanisation in Pakistan and Central Asia, as these countries may not be able to overcome constraints of climate and arability. "It is basically like a guy with one limb goes to another guy with one limb and they try to run together," said Dr Woertz. "With regards to Central Asia, it is not a match made in heaven as they lack water like the GCC. Africa has large unused water resources, but needs a lot of infrastructural investment."

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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.”

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