The UAE and Kazakhstan cultivate their relationship through investments in Energy and Agriculture

Nadine Hawa for CNBC, August 2008

First we saw the record price of oil inflate GCC sovereign wealth funds. Then we witnessed SWFs invest in European assets, or lend a helping hand to US financial giants in distress. Today we are seeing the UAE set its sights on a less predictable investment. The Gulf country is eying a nation which calls two BRIC counties (namely Russia and China) its neighbours. The country in question is Kazakhstan.

According to IMF statistics, Kazakhstan is the 54th largest economy in the world. It has a GDP of $167,622 million US Dollars, which has grown steadily at the rate of 9% a year over the past 5 years.

The main pillar of the Kazakh economy is energy. According to the Federation of International Trade Association (FITA) oil exports generate about 40% of the country’s total revenue. Kazakhstan ranks at #9 in the world in terms of oil reserves with 39.8 billion proven barrels of crude.

Kazakhstan is a country full of potential, looking to modernize its economy and improve its competitiveness; and the UAE wants to be a part of it.

The International Petroleum Investment Company, (an Abu Dhabi owned investment fund commonly known as IPIC), together with the Kazakh government, agreed in mid-July to create a $1 billion fund to invest in oil and gas projects in the central Asian country.

Ownership of the Falah fund will be equally divided between IPIC and the Kazakh government, each holding a 50% stake.

In common with the UAE, the Kazakh economy is thriving due to strong revenues from record oil and gas receipts. While both countries reap the benefits of the higher cost of commodities, the distinction between the two is that the central Asian country has a relatively underdeveloped downstream oil and gas sector compared to that of the UAE, and hence welcomes the likes of investments made by IPIC.

The Falah fund is not the only investment made by the Emirates in Kazakhstan. Earlier this year, IPIC announced the creation of a $5 billion petrochemical plant in the western part of the country, added to a large portfolio of investments made by the UAE in a variety of sectors in the Kazakh economy.

In addition to its oil and gas sector, Kazakhstan boasts a healthy agricultural sector, with grain being its most important commodity. The Asian country, which is part of the CIS (Commonwealth of Independent States), is the sixth largest producer of grains in the world.

On the other hand, the UAE is a dry desert country, which imports 85% of its food and spends around $4 billion on food imports every year. But the rising cost of food has been a major driver behind soaring inflation which hit 11.1% last month.

In efforts to curb inflation and secure long term food supplies, GCC countries are hoping to diversify their sources of imported foods. They are also looking to develop farming projects and agricultural land in fertile countries.

Such an equation offers Kazakhstan an opportunity to make the most of its status as a major wheat exporter, and become a key food supplier to the Emirates.

Statistics from the Kazakh ministry of foreign affairs show that trade between the two countries stood at $303 million in 2007, and at $140 million in the first 6 months of this year. These figures indicate that today, the UAE has become the main trade partner for Kazakhstan in the Gulf Arab region.

In parallel, Kazakhstan with its evolving energy sector, its well developed agricultural sector, and its fast growing economy as a whole, offers the UAE a multitude of good investment opportunities.

Looking at the facts, it is evident that the blossoming relationship between the UAE and Kazakhstan is one well worth cultivating.