GCC governments spur investment in Africa

Investor interest in Africa from the Arabian Gulf continues to gain momentum as government-backed investments encourage private-sector entities to enter the continent. Heba Hashem reports.

With strong historical trading links, Africa is becoming an increasingly vital partner for the countries in the Gulf. With its strategic position at the nexus of Asia and Africa, Dubai has established itself as a regional hub for transport, logistics, trade and increasingly finance.

With stakes in all four corners of the continent, the UAE is the second-largest investing country in Africa, second only to China, according to the Financial Times’ fDI Intelligence. Abu Dhabi Fund for Development (ADFD) has been at the forefront of this activity, having funded more than 66 projects in 28 African nations to a value of $16.6bn.

In 2018, the state-owned fund allocated $50m for UAE companies that want to invest in the Central African nation of Chad and a $3bn development aid package for Ethiopia to boost the country’s economy.

Khalifa Fund for Enterprise Development, an independent agency of the Abu Dhabi Government, has also signed a $100m partnership agreement with Ethiopia’s Ministry of Finance to help fund prominent projects in the country.

Untapped land

Agribusiness in East Africa is also luring GCC investors. One of the biggest investments in recent years has been Saudi Arabia’s acquisition of 500,000 hectares of arable land in Tanzania in 2009.

Food security remains a major concern for the GCC as demand is expected to grow 3.3% annually over the next five years, research from Dubai-based investment bank Alpen Capital shows. While countries in the region are increasing their local food production, they still import most of their food needs given the scarcity of arable land and water resources.

With 60% of the world’s arable land and its geographical proximity, the continent becomes an interesting partner for the GCC countries. “Africa in general, from Uganda, Rwanda and South Africa to Nigeria and Zambia, is very promising,” Khadim Al Darei, vice chairman and co-founder of Abu Dhabi-based agribusiness firm Al Dahra told UAE daily newspaper The National.

“Currently, only 5 percent of African land has been utilised for agriculture and there is a large local consumer base.”

Beyond traditional sectors

While agro-investments remain a priority for the GCC, investors are looking at numerous other sectors.

In the last two years, Dubai Islamic Bank, the fourth-largest bank by assets in the UAE, launched operations in Kenya; Abu Dhabi’s satellite company Yahsat expanded its broadband services to 19 African markets covering 60% of the population; Abu Dhabi funded the construction of renewable energy projects in the Seychelles; and Emirates Global Aluminium, the UAE’s biggest industrial company, said it had begun exporting bauxite ore from its mining project in Guinea.

Dubai-based investment banking advisory Nimai Capital has also ventured into Africa by launching a $150m fund in partnership with Kenya’s Victoria Bank Commercial to invest into financial services across emerging and frontier markets in the continent and elsewhere.

The fund will focus on technology and mobility-enabled emerging financial services opportunities, including banking, insurance, retail and housing finance, and microfinance.

In Mozambique, the UAE has so far invested $3.3bn in 52 projects across agriculture, education and other sectors, and overall trade between the two countries reached $25m in 2018, according to Isaias Elisio Mondlane, Mozambican consul-general in Dubai. This makes the UAE the second-largest trade partner of Mozambique in the Gulf.

A total of 33 UAE companies currently operate in the southeast African country, against seven Mozambican companies in the UAE. The countries have also entered into agreements on the promotion and reciprocal protection of investments and on avoiding double taxation on income and tax evasion.

Expanding into West Africa

West Africa, too, is attracting considerable investment from the GCC region. In Senegal, for instance, Dubai-based global ports operator DP World is expanding its operation by building an integrated port, logistics and economic zone in the capital Dakar. The new Port du Futur will provide seamless movement of cargo to neighbouring countries.

In addition to Senegal, DP World has operations in Mozambique, Somaliland, Rwanda and Algeria, and recently signed agreements with Mali for a logistics platform and with the Democratic Republic of Congo to develop and manage a $1bn deepwater port that will be the country’s first.

In Nigeria, which accounts for about half of West Africa’s population with nearly 202m people, UAE-based retailer LuLu Group intends to set up a sourcing and logistics facility to export local agricultural produce to its various operations across the GCC, India and Far East.

Yusuff Ali, chairman of LuLu Group, said that the company plans to sign contract deals with Nigerian farmers and entrepreneurs to help supply fresh vegetables and fruits to its hypermarkets worldwide. The retail giant has more than 164 supermarkets and shopping malls and employs over 50,000 people.

Furthermore, the governments of the UAE and Nigeria are currently in talks to establish a trade zone for small and medium enterprises in the West African country, UAE consul general in Lagos, Abdulla Al Mandoos revealed in September.

Africans in the UAE

African businesses are also keen to do business in the UAE. Today, there are 12,000 African businesses registered with the Dubai Chamber of Commerce and Industry, and many of them have been using Dubai as a base to attract investment into their own countries.

According to the Dubai Chamber of Commerce and Industry, Dubai has increased non-oil trade with Africa by as much as 700% over the past 15 years. “When you look at the trade, today it stands at around $35bn. It is quite a sizable number,” Hamad Buamim, president and CEO of Dubai Chamber of Commerce and Industry told Gulf News in November 2018.

“But what is also important to us, is that in the past 10 years it has grown almost three times. It was three percent of Dubai’s total trade. Now it is 10 percent. And is growing not only in percentage figures but volume as well. We believe that this 10 percent is going to grow to 15 or 20 percent in the coming five to 10 years.”

Bright outlook

Like the UAE, Saudi Arabia aims to become a global investment powerhouse, and this ambitious plan has been driving more of its investment towards Africa. Saudi Arabia is now the fifth largest investing country in Africa, with nearly $4bn dollars in investments across the continent.

Recent Saudi investments in Africa have focused on agriculture, water, energy, and housing. According to Dr Bandar Hajjar, president of Islamic Development Bank (IDB), these projects will go a long way in addressing the development challenges of its member countries and will provide an enabling environment for the growth of the public and private sectors. Headquartered in Jeddah, IDB has pledged to fund the expansion of electricity infrastructure in Gabon and has facilitated $805m worth of finance deals in countries such as Burkina Faso, Senegal, Mali, and Tunisia.

A new initiative by the African Development Bank (AfDB) is also expected to boost investor confidence in Africa. Launched in late 2018 by AfDB, alongside Islamic Corporation for the Insurance of Investment and Export Credit, African Trade Insurance Agency, and GuarantCo, the Co-Guarantee Platform is a de-risking instrument that will address the perceived high risk across the continent and the lack of capacity of traditional lenders to provide risk mitigation for projects. The objective is to mobilise greater amounts of investment that would otherwise not take place in Africa.

With oil prices falling, GCC countries will most likely continue to build economic ties with the continent to accelerate business that does not rely on volatile oil revenue.