Kaliningrad has been prevented from receiving goods from Russia via Lithuania. AFP
Kaliningrad has been prevented from receiving goods from Russia via Lithuania. AFP
Kaliningrad has been prevented from receiving goods from Russia via Lithuania. AFP
Kaliningrad has been prevented from receiving goods from Russia via Lithuania. AFP

Lithuania defends ban on some goods to Russia’s Kaliningrad


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Lithuania on Monday defended its decision to bar rail transit from Russia to a Russian Baltic Sea enclave, where movement of goods has been hit by European Union sanctions, in a move that drew Moscow’s anger amid high tension in the region.

Lithuanian Foreign Minister Gabrielius Landsbergis said his country was simply implementing sanctions imposed by the EU, of which it is a member. He said the measures were taken after “consultation with the European Commission and under its guidelines”.

“Sanctioned goods [will] no longer be allowed to transit Lithuanian territory,” Mr Landsbergis said.

Goods such as steel are already on a list that it is set to be expanded to cover items from coal to alcoholic drinks.

The Kaliningrad exclave, home to 430,000 people, is surrounded by Lithuania and Poland, another EU country, to the south and isolated from the rest of Russia. Trains with goods for Kaliningrad travel via Belarus and Lithuania. There is no transit through Poland. Russia can still supply the exclave by sea, without falling foul of EU sanctions.

Russia has demanded that Lithuania immediately lift the ban, with the Foreign Ministry in Moscow saying that if transport links are not restored in full, then “Russia reserves the right to take action in defence of its national interests”.

Kremlin spokesman Dmitry Peskov condemned the “unlawful” ban.

“This decision, indeed unprecedented, is a violation of everything and then some," he told reporters on Monday. "We understand that it is connected to the relevant decision of the European Union to extend the sanctions to transit [of goods]. This we also consider unlawful.”

The ministry summoned Lithuania’s chief diplomatic representative in Moscow for a formal protest and alleged the Baltic nation was acting in breach of international agreements. Lithuania has not had an ambassador in Moscow since April, when it downgraded diplomatic ties in protest over the killing of civilians in Ukraine by Russian troops after the invasion on February 24.

Lithuania later summoned the Russian envoy in Vilnius to tell him the ban was in line with EU sanctions and that there was no blockade of Kaliningrad.

The EU’s foreign affairs and security chief Josep Borrell said Lithuania’s move should not be compared to the situation in Ukraine. “The rest of the world will not be affected by what is happening in Kaliningrad but the rest of the world is very much affected by what is happening in Ukraine,” he said.

He said Lithuania did not take any unilateral national restrictions and denied that land transit between Kaliningrad and other parts of Russia had been stopped, or banned.

“There is no blockade,” Mr Borrell said. Transit of passengers and goods that are not sanctioned was continuing, he said.

Ukrainian Foreign Minister Dmytro Kuleba tweeted: “Russia has no right to threaten Lithuania. Moscow has only itself to blame for the consequences of its unprovoked and unjustified invasion of Ukraine.”

On Monday, Lithuanian customs said the sanctions, which took effect in mid-June, were part of the fourth EU sanctions package imposed on March 15.

Lina Laurinaityte Grigiene, a customs spokeswoman, said affected items include Russian steel “that cannot be transported over the territory of European countries”.

“The land transit between Kaliningrad and other parts of Russia is not stopped or blocked,” she said. "All goods that are not under sanctions travel freely."

Starting from July 10, she said, similar sanctions will be imposed on concrete and alcohol, from August 10 on coal and from December no Russian oil will be allowed into EU territory.

Anton Alikhanov, governor of the Russian exclave, has estimated that the ban would affect 50 per cent of all goods flowing towards Kaliningrad by rail. He said he would call on Russian authorities to take measures against Lithuania and would seek to have more goods sent by ship.

Kaliningrad, which is home to the Russian Baltic Fleet, is Russia’s only ice-free Baltic port. Moscow has stationed nuclear-capable Iskander missiles in the enclave.

As part of its economic sanctions, the EU has imposed a number of import and export restrictions on Russia. The bloc said it has been careful not to harm the Russian population with its packages of measures and therefore excluded products related to health, medicine, food and agriculture. The list of products under sanction include up to 90 per cent of oil imports, coal, steel, iron, wood, as well as caviar and vodka. Bans are impose by EU customs authorities.

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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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Updated: June 21, 2022, 10:10 AM