Syria, what is really at stake?

Recent events draw me into writing an opinion about Syria. It has mostly been the abundance of misinformation on the topic that motivated me to start the writing.

As we all know, in spite of the rhetoric of the media, the whole point is not about protecting neither the lives of the innocents nor US national security.

Since the beginning of time the super powers at play, although changing over time: from the Persians to the Roman Empire, through to Great Britain and now the USA, have given proof over and over that what counts is not justice but POWER: its acquisition or its protection. 

We therefore need to look at history, even recent past to be able to use the “right” yardstick to measure the reach of the events, and to look at them behind the right “lenses”.

Therefore, lets wear the “power” glasses and start analyzing some of the interests revolving around Syria. I believe that this approach is going to get us quite a bit more perspective than the usual “freedom” arguments.

The government of Syria is one of the last allies of Iran, supported by Hezbollah, and an official ally of Russia. The latter has a military base in the country that gives access to the Mediterranean, and still the latter is providing military supplies.

The country is small with negligible oil supplies. The population numbers unappreciable as its overall size economy.

It happens to be sitting on the path of a potential gas line connecting Qatar to Turkey which would be a game changer both for Turkey and eventually for Europe (news among others: http://www.thenational.ae/business/energy/qatar-seeks-gas-pipeline-to-turkey). Please don’t forget that Turkey’s cost of petrol is some of the highest in the industrialized world (#4 highest prices as of the latest available stats: http://www.fuel-prices-europe.info/index.php?sort=4).

There are current many attempts to carry gas and oil into Europe bypassing Russia, but so far the ability to turn those into reality have met significant challenges. Please refer also to the Nabucco pipeline that is supposed to connect Azeri oil with Turkey via Georgia. 

Let’s also identify some of the key factors defining who is supporting who in the conflict:

1. Gas & Oil: Qatar & Saudi Arabia on the supply side and Turkey and France/UK on the demand side against the Syrian government;
2. Access to the Mediterranean: Russia is supporting the Syrian government to preserve key assets in an important geography;
3. Containment of Iran and protection/appeasement of Arabian Gulf States (Qatar, Saudi Arabia & UAE mainly): USA in contraposition to the Syrian government.

Let’s analyze point 3 in a little bit greater detail because I believe that some of the current discourse is failing to point out the true geopolitical reach of the shale gas development in the USA and its implications for the Middle East. 

We all know that the discovery and exploitation of shale gas in the USA is accelerating by the month. This is a significant variable that is bound to change the geopolitical strategy of the USA moving forward.

News are telling us that the USA is bound to be energetically independent by 2020, just 6 years away.

At that point the USA will no longer need oil resources coming from the Middle East changing radically some of the key relationships with the Gulf States that are currently supplying the US with their oil (although not as much as thought by mainstream people).
The players that will require most of Middle Eastern oil will remain China, India, few countries in South East Asia. 

The US involvement in the region is not bound to lessen though as it will be necessary for the superpower to exercise its political and military influence to control the oil supply into third countries like China and India, the former perceived as a country to contain. Price and access will be defined by many factors, and political stability in the region will be a key factor. The ability to influence the stability (or instability) of the region is going to act as a price gauge and therefore an economic control over the countries that are bound to import energy resources.

Therefore, instability in the region might be considered an advantage for the US on two counts: manage the cost of economic resources for the countries to contain: China as well as continue selling all necessary military hardware to the players in the region: see Saudi Arabia, UAE, Qatar, Bahrain.

Russia and China are completely aware of the stakes and can’t let go of Syria. Too much at stake after having let the Libyan affair take place.

To our readers: please go behind the surface. 

Sirya is just a symbol of a new geopolitical order in the making. Energy resources and control is the name of the game. 

Russia's involvement and diplomatic leadership shown recently is bound to bring stability to a very volatile situation. The red line after all seems to have been drawn by Mr. Putin more than by Mr. Obama in this case. A resolution of the latest tension is bound to benefit the stability in the region.

We reassert our opinion that while the Middle East remains a complicated region it is also one of the regions that mostly favor foreign direct investment and that has been successfully shaken off the 2008 crisis showing proper growth over the past few years.

Important news: today Affinitas joins hands with Norange Capital Markets to finance infrastructure project in the emerging markets.

Dear All,

it is with pleasure that I am finally able to announce a joint venture that has been in the making for some time now.

Affinitas and Norange Capital Markets have signed a Joint Venture Agreement to identify, qualify and finance key infrastructure projects in selected emerging market economies.

We are really looking forward to working together and make a difference in many geographies.

For additional information, please follow this link:

• Affinitas Consulting and Norange Capital Markets join hands to offer structured financing for key infrastructure projects in emerging markets

Cyprus: a dangerous precedent. Another step forward toward the end of the EURO.

Dear all, after reading the latest news arriving from Cyprus I couldn't help but getting onto the blog and share these few lines.

In spite of the relative quiet stand taken by the European media the bailout news is HUGE and deserves to be absorbed in all its frightening details.

If approved by the Cyprus government tomorrow this is going to be first time that the European authorities are going to apply a levy on account holders regardless of income but purely on the amount of deposits held: 6.75% for all account holders with up to 100,000 EURO in deposits an 9.99% for all account holders with deposits above 100,000 EURO.

It is hard to say whether this measure was passed onto Cyprus citizen because the European authorities wanted to collect as much money as possible out of the deposits of Russian citizen holding cash in the country. Regardless, the implementation of such measures are bound to have significant ripple effects in other countries of the periphery. Nonetheless it will be interesting to see the Russian reaction to these measures after they contributed more than 5B EURO in previous bailout money to preserve a special status with Cyprus (please note that Cyprus and Russia have a taxation treaty and Cyprus has been the not too hidden destination of much of the money taken offshore by Russian oligarchs). Perhaps the real reaction we will see only next Winter when Russian gas will need to flow into Europe.

In consideration of the following:

• current record bottom interest rates'
• real risk of government appropriation of funds, whether mandated by the European Union or the IMF truly doesn't matter;

Most people in Greece, Spain and Italy are better off rushing to their bank and pick up as much cash as possible to keep it under the pillow or in the mattress. Better yet convert it into gold or buy diamonds with it....

As our reader generally know when have always been bearish against the EURO and we keep on holding our ground. The lack of proper planning and proper imagination is pushing all periphery countries into the same deflationary spiral that is currently in place. Bailout like Cyprus is nothing but another stepping stone of the same policy: austerity -- contraction -- austerity -- contraction and so on.

As we repeated in other occasions the reaction to this will be political and will not be of conciliatory nature. It doesn't matter how many EUROs the ECB will keep on printing.
This is a deck of cards destined to failure.

Livestock industry in Georgia - investment opportunities

Preamble

The issues revolving around the ecological impact of food supply are one of the topical problems in the 21^st century world. That is why Affinitas Consulting regularly provides articles about the situation and the opportunities in different directions of agricultural sector in Georgia, one of the countries in the Caucasus that is seeing a revival in agriculture interest. This article is dedicated to the livestock sector and will provide information about:

• The current situation of this business in Georgia;
• The challenges related to the production process;
• Statistical and economic data;
• Specific information about pork, beef and mutton production in Georgia;
•  Existing livestock project implementations and potential opportunities in the Georgian industry.

Current Situation

Livestock was and is one of the major sectors of the agricultural sector in Georgia. Archaeological excavations together with Georgian monuments prove that even in the ancient times this sector was highly developed in the country.

However, nowadays this sector while offering a lot of potential to foreign investors it is suffering from some internal issues.

Problems date back to Soviet Union times when farmers were only asked to grow the animals and the government guaranteed price and guaranteed all other steps of the supply chain. Nowadays free market conditions force small farmers and entrepreneurs to face competition with foreign investors at a disadvantage due to a chronic lack of credit and therefore investments as well as knowledge.

Therefore this sector is currently proceeding by virtue of inertia. In order to accelerate development process almost every government of Georgia initiates some initiatives, however the problems stay the same and is mostly linked with the lack of financial resources.

The table provided by Georgian Statistics Department is great proof of such opinion. According to the department only 8.8% was the share of agriculture in the country’s total GDP in 2011. Such percentage is especially alarming after taking under consideration the fact that 50% of citizens are employed in the agricultural sector.

 The Share of Agriculture in Total Georgian GDP:

But the fact that livestock takes about 50% of the total agriculture share is quite interesting:

Livestock’s Major Sectors

Sheep Breeding

Sheep breeding is one of the most interesting and ancient sectors in Georgian livestock. The legend of Argonauts, according to which sailors (Argonauts) visited Kolkheti (Georgian territory) to get the so called Golden Fleece – Sheep leather is quite a good evidence of that.

There are two types of Georgian sheep: Tushuri and Imeruli.

So called Tushuri sheep is mostly spread in Eastern part of the country. Such breed is very popular, mostly because of its main characteristic: endurance. Tushuri can walk about 600-700 kilometers per season, it has strong leg and can easily be adapted to environmental conditions.

Tushuri doesn’t need high quality food, it can be fed in semi-desert lands and weights about 60-80 kilograms.

Imeruli sheep is mostly spread in Western part of the country, has more rude wool and its uniqueness is in its reproduction functions.

It can be bred any time of the year, it breeds about 2-3 sheep per gestation period and its pregnancy period is shorter, about 137-143 days.

Such variety of sheep weights about 35-45 kilograms and its meat actually doesn’t consists of fat and so is dietary kind of food.

It should be emphasized that during Soviet Union about 2,000,000 sheep was recorded in the country, however nowadays the number came down to 800,000 units.

Such decrease is the result of different factors, however it’s mostly linked with finances. Since the taxes on pastures increased, the farmer that had limited financial abilities had to sell even such sheep that in future should have lambs.

Markets for Georgian sheep realization

It’s noteworthy that mutton consumption in Georgian is quite low, about 70 tonnes per year and is mostly depended on the Azerbaijanis living in the country.

However the interest towards Georgian sheep, namely in Tushuri is quite high in foreign countries, as this breed is very similar to sheep from Middle East Awassi, which is very popular and quite expensive in Arabian countries.

If the price for Australian Merinos sheep in Arabian countries is about $8 USD and for Syrian Awassi is $15, price for Georgian sheep occupies middle position between them.

Nowdays, Tushuri sheep is exported in Libya, Syria, Jordan, Iran, Saudi Arabia, Egypt, Azerbaijan, Qatar, Kuwait, United Arab Emirates, Oman and in Israel.

About 266,244 live sheep were exported in 2009 year from Georgia, in 2012- 178,000, in 2011 – 150,00 and in 2012 about 120,000.

Domestic sheep is also interesting from wool point of view. If one sheep can give about 2-2.5 kilograms of wool and a lamb about 1-1.5, it comes out that Georgia has capacity to produce about 1,700,000 kilograms of wool per year. While domestic price per kilo of the product is about $6 USD.

Sheep is also attractive in terms of milk production, especially for cheese production. It gives less milk than a cow, about 1-2 liters, however its milk is full of fat and is beneficial for health.

Important to note is the fact that the export can be much more, as the interest towards Georgian sheep is large and considering the current World food trends it will only increase.

Pork and Beef Production

Pork and beef production is more relevant in Georgia, as the demand for them is higher on domestic market also.

Nowadays the retail price for beef in Georgia varies between 9-11 USD, while for pork between 8-11 USD.

Cows average weight is between 350-459 kilograms and price for a cow is 500-718 USD. Pigs weight is about 80-180 kilograms with a price of 270-500 USD.

Despite the high demand on local market, farmers and small entrepreneurs are not able to satisfy the market and this shortage is filled with imported goods.

As for example, about 7,700 tones of frozen beef and 7,500 tone of pork was imported in Georgia in 2009 year, with the total price of 12 million and 16,6 million USD respectively.

According to the experts, the most of this shortage space can be supplied by locally produced meat, that nowadays can not be reached because of existing challenges.

However the Department of the Georgian Ministry of Economy and Sustainable Development released quite optimistic data:

In the first quarter of 2012 the share of agricultural products increased comparing with 2011 year.

Structure of exports according to sectors in the first quarter of 2011-2012 years:

For example, the export of cattle was 9,8 mill USD, that is 112% raise comparing the previous year. And it’s noteworthy that 99.6% of this goes to Azerbaijan and 0.4% to Iraq.

According to this department the share of agricultural products is reduced in the total import in the first quarter of 2012year. From 19% it came down to 16%.

Structure of imports according to sectors in the first quater of 2011-2012 years:

However, the import of beef was increased by 60.3% and was about 6.1 mill USD. And 92% from the total import was from India and the rest from Germany, Turkey and Brazil.

Pork import increased by 80% and consisted of 7.2 mill USD, from which 60% was from Brazil and 40% from Canada, Netherlands, United States and other countries.

Despite of meat, cow gives also milk, about 12-13 liters during Summer and 8 liters during Winter.

Along with the seasons the amount of milk given from cow depends on the quality and amount of food it gets. Considering the financial abilities of domestic farmers, it can be assumed that in case of better quality and more amount of food Georgian cow can be milked better.

The process of milk realization is better organized by domestic dairy producing companies. The company representatives regularly visit the village inhabitants and buy milk from them. Or the peasants go to the special places and sell the product.

The price per liter of milk in case of first option varies between 40-50 cents, while in the second case it’s higher.

Conclusion

Existing local demand is able to support the development of a stronger livestock industry in Georgia provided that private investment likely from foreign countries will be focused in the industry.

Considering the above data, it can be easily seen that if livestock business will be developed in Georgia, the existing and growing demand in the Georgian market can easily be satisfied by locally produced goods.

The reasons that caused the delay of the sector’s development are also clear. Similarly to the agriculture sector in general, also in livestock mostly little farmers and peasants contribute to the industry and all of them are unable to expand the business because chronic lack of financial resources (credit) that prevents them to modernize their technology and create economies of scale.

Direct foreign investments can easily accelerate the development process of this sector, that turns out to be attractive and full of opportunities in terms of both directions like export and of supplying domestic market.

We at Affinitas remain available to help any investor interested in starting up agricultural business in Georgia. For further information please visit our web site at: www.affinitasconsulting.ae. Please direct any query to info@affinitasconsulting.ae or join our Facebook page to keep updated on the latest news: www.facebook.com/Affinitas 

Article by: Kate Lekishvili & edited by Luca Gorlero. All rights are reserved. Total reproduction or partial reproduction of the information above is forbidden unless authorized in writing by Affinitas Consulting.