The Dubai Chamber of Commerce in collaboration with The Economist Intelligence Unit in the United Arab Emirates (UAE) recently published a report that looks at Gulf investment into Africa, opportunities available to investors and the investment vehicles that can be used to enter African markets.
The report, titled "Beyond Commodities: Gulf Investors and the new Africa," sheds light on the continent's most promising noncommodity sectors. The report also examines sub-Saharan Africa's growth trends outside of the natural resource and commodities sectors, and maps the existing and potential role of Gulf-based investors.
"The findings are based on desk research and interviews with experts, conducted by The Economist Intelligence Unit, which was commissioned by the Dubai chamber," Dubai Chamber of Commerce and Industry President and CEO Hamad Buamim recently told the Gulf News Journal. "Given the current dearth of detailed and specialized economic studies, this was our attempt to provide insights about sectors in which UAE companies hold an eminent and competitive position, particularly in corporate banking, retail, tourism and logistics."
Africa is an extremely important region, not just for the UAE, but also for the entire GCC region. For instance, Gulf firms provided approximately $2.7 billion as foreign direct investment (FDI) into sub-Saharan Africa in the first half of 2015, and a total of 9.3 billion from 2005 to 2014.
“Our study highlighted three sectors that are well-developed in the Gulf and could provide a platform for expansion into Africa: automotive sales, hypermarkets and franchise stores," Buamim said. “We have noticed that malls and hypermarkets are emerging in a handful of countries in Africa, and Gulf companies have a comparative advantage thanks to a track record in franchising and adapting brands to local tastes and cultures. The aviation sector and the Gulf airlines also have played a role in opening Africa to international tourists, with Gulf investors owning around 20 hotels and resorts in sub-Saharan Africa."
The report said the financial sector of Africa also offers opportunities for UAE and Gulf banks, since inadequate access to financial services, including banking and insurance, has long been a barrier to development in Africa. Two major GCC banks that have put Africa at the heart of their expansion plans are the Qatar National Bank and the National Bank of Abu Dhabi, which has positioned itself as a central location on a global "West-East corridor" of rapidly growing economies.
“There are also opportunities in Islamic finance, where the Gulf's involvement is most pronounced,” Buamim said. “Kuwait Finance House arranged South Africa's first sovereign sukuk, an oversubscribed $500 million issue in 2014.”
The growth of the middle class in Africa is stimulating demand for private health care and education, and African retail presents a huge opportunity as the continent's population grows and becomes increasingly urban.
A number of factors are responsible for making Africa an attractive investment destination for Gulf investors. They comprise demographic trends, growing consumer markets, economic stability and an improving business environment, as well as a resilience that has allowed it to withstand the global recession and the current commodity price slump.
"All these factors provide an opportunity for exploring new avenues for investment and trade in this dynamic continent," Buamim said.
The average rate of population growth across Africa, is 2.7 percent, compared with a global average of 1.1 percent (and 0.5 percent in China). The latest UN population forecasts see sub-Saharan Africa's population ballooning from 962 million in 2015 to 1.4 billion in 2030 and eventually to 3.9 billion at the end of the century, when it will host a third of the world's population. This growth in population speaks for itself in terms of the prospects it offers to businesses.
"Africa is considered one of the highest growth regions in the world and it also has close proximity to Dubai," Buamim said. "Dubai's trade relationship with Africa has certainly blossomed, representing 10 percent of the Emirate's total trade volume, an increase of 9 percent in just a decade."
Buamim said Africa has a big Muslim population and Dubai has positioned itself as the Capital of the Islamic Economy.
"We see a lot of opportunities that can be worked around Islamic finance, halal foods and Sharia compliance services," Buamim said. "Therefore, I can only predict a bright future for the business and trade relationship between this region and the African continent."