Arab investment spans far and wide. Recent reports suggest investors from the region are looking as far afield as the Balkans for new opportunities, specifically Croatia, where Agrokor, the giant agribusiness company, has been courting foreign funds. But this would be a colossal mistake for Arab investors, who might not appreciate the region’s political complexities.
The Agrokor case represents a wider trend of how Russia is exploiting regional corruption to expand its leverage over Europe and, in the process, subvert the interests of other foreign investors in the country.
Last week, a Kremlin-backed bank, Sberbank, announced it was receiving offers for its 39.2 percent stake in Agrokor. In 2017, Agrokor was bailed out under government supervision after revelations that the conglomerate, which comprises about 15 percent of Croatia’s entire gross domestic product, was about to collapse due to debt. A collapse would have crashed the Croatian economy and could have even destabilized the EU.
According to Maxim Poletayev, an aide to Sberbank’s CEO overseeing Agrokor’s restructuring, Sberbank is currently in talks with funds and banks from the Arab world, along with those from elsewhere, to buy its shares in Agrokor and help refinance the indebted firm.
But investing in Croatia comes with unique risks. The country was recently described by Ernst & Young as the most corrupt state in southeast Europe, making it ripe for Russian infiltration.
Indeed, Russia appears to have exploited its involvement in Croatia’s Agrokor scandal to score a victory for Gazprom. When Agrokor almost went bankrupt in March 2017, its total debt was €5.8 billion ($6.6 billion). Of this, €3.5 billion was owed to banks and financial institutions. The biggest creditors were Russia’s Sberbank and VTB, with total liabilities of €1.3 billion. The same banks were the biggest beneficiaries of the bailout, acquiring a total 47 percent stake in Agrokor.
Opposition parties described the Croatian government’s Agrokor bailout as highly corrupt. Leaked emails that emerged exposed alleged conflicts of interest in the restructuring process, with lucrative pay-offs for members of the so-called “Borg Group,” a secretive network of business associates. Martina Dalic quit as both economy minister and deputy prime minister in the wake of pressure from opposition groups over the scandal, although she denied any wrongdoing.
The deep involvement of Russian finance in the largest company in the Croatian economy put the Croatian government in a subservient position. No wonder that shortly after the Agrokor crisis, Russia’s Gazprom moved rapidly to sign a 10-year contract with private Croatian company Prvo Plinarsko Drustvo (PPD). Under the agreement, Gazprom would deliver 1 billion cubic meters (bcm) of gas to Croatia annually, covering 70 percent of the Croatian market.
Meanwhile, Croatia’s state anti-corruption unit, USKOK, inexplicably failed to take any strong action over the Agrokor corruption allegations against the Croatian government. Instead, it exerted a laser-sharp focus on an obscure dispute with Hungary between the two countries’ state-owned oil companies, INA and MoL.
That dispute between INA — Croatia’s largest energy company — and MOL is also the clearest case study of how Russia’s growing economic and political leverage in Croatia was used to strengthen a Croatian-Russian nexus, at the expense of other major foreign investors in Croatia.
After Hungarian company MOL acquired a 49 percent stake in INA in 2009, Croatia sought to annul the agreement in 2013, accusing Zsolt Hernadi, MOL’s chairman, of bribing former prime minister Ivo Sanader. An Interpol arrest warrant was issued for Hernadi in 2013.
Recent reports seem to suggest Russia may have been the force behind this development. Putin ally Gen. Alexander Prokopchuk, Interpol’s vice president for Europe, has been accused of using Interpol to issue arrest warrants for dissidents opposed to Putin.
Lending credence to this suspicion is that the grounds for Interpol’s warrant in the INA-MOL case were rejected in 2014 by UNCITRAL, the UN’s highest trade law body. The agency threw out Croatia’s demand for Hernadi’s extradition because the prosecution’s case relied almost entirely on the flawed testimony of a single witness. These were presumably the same flawed grounds used by Croatian courts to prosecute Hernadi in the first place — a damning indictment on what would appear to be a deeply compromised Croatian judiciary.
The Interpol warrant was nullified shortly after UNCITRAL’s ruling, but was suddenly renewed again this November on the same charges of which Hernadi was previously acquitted.
Russia has hardly been reticent about where it stands on the Croatia-Hungary issue. In 2014, Gazprom offered to buy up MOL’s shares to acquire the Hungarian company’s stake in Croatia’s INA. In 2017, Rosneft followed up with an offer of its own.
Endemic corruption at the highest levels of the Croatian state has been the prime gateway for Russia’s approach. Agrokor was just the lever to get the gate open.
If Arab investors come in under Sberbank’s watch, not only will their finance be at risk — as it was for Hungarian giant MOL — in a country whose judiciary is deeply compromised, they will also end up reinforcing Russia’s consolidation over the Croatian economy, and aiding in its gas conquest of Europe.
That would be bad for the EU, and bad for the Arab world, which could end up on the wrong side in a new Cold War.