Gulf firms provide $2.7bn in FDI into SSA in H1 2015

In support of its efforts to highlight attractive investment opportunities in Africa to its members, new research by the Dubai Chamber of Commerce & Industry, has highlighted that co-investment with private equity funds, purchase of private equity businesses, and direct buyouts or minority share acquisition represent the most significant modes of FDI entry for Gulf investors interested in Sub-Saharan Africa.

The study, produced in collaboration with The Economist Intelligence Unit, analyzed Gulf investment into Africa, opportunities available to investors, and the investment vehicles they can use to enter African markets. It also sheds light on the continents’ most promising non-commodity sectors.

The Sub-Saharan African countries which have attracted the largest number of Gulf investors during this time—between 10-25 firms each—are Nigeria, South Africa, Kenya and Uganda.

The study also found that East Africa was the most appealing region for non-commodity investment from the Gulf, with retail and hypermarkets, automotives, commercial banking and tourism considered key sectors. Manufacturing in Ethiopia, leisure, retail and tourism in Mozambique and Kenya, and education in Uganda were also popular with Gulf investors.

H.E. Hamad Buamim, President & CEO of Dubai Chamber deemed it a duty towards its members and the wider investment community to make research like this available, given the current dearth of detailed and specialized economic studies, and noted that the EIU study contains insights around sectors that UAE companies hold an eminent and competitive position in, in particular corporate banking, retail, tourism, and logistics. He also noted that the research the Chamber conducts is backed by a significant on-ground presence in Africa, which helps to identify opportunities for UAE companies, helping to increase their presence in the process.

Buamim also noted,: Most studies and global indicators point towards a future that is very bright in Sub-Saharan Africa, and so we’re putting our trust in these markets that we think will drive the engine of growth in the region, ensuring that Dubai Chamber is, once again, at the forefront of the investment community, and committed to ensuring that all our capabilities are being used to reinforce the competitive nature of the private sector in Dubai, mirroring the high reputation that Dubai has managed to build for itself in such a short space of time.

The study also drew attention to the role Gulf airlines have played a role in opening Africa to international tourists, with Gulf investors owning around 20 hotels and resorts in Sub-Saharan Africa. However, the need to improve logistics in FMCG was also noted- which remains challenging due to weak infrastructure. Gulf firms have experience to share but only a few are exploring investment in Africa at the moment.

The study highlighted data from the African Development Bank which shows that average real GDP growth across the continent was 6.1 percent in 2010-14 and per capita income rose by nearly 60 percent to $1,788, according to EIU estimates.

The research forecast a deceleration to 4.1 percent in 2015, mainly due to the commodity price shock, before a pick up to 5.1 percent in 2016. In addition, the IMF forecasts average growth of 5.3 percent from 2017-2020.

The study also underlined the importance of the average rate of population growth across Africa, which is 2.7 percent, compared with a global average of 1.1 percent (and 0.5% in China). The mid-case in the latest UN population forecasts see sub-Saharan Africa’s population ballooning from 962m in 2015 to 1.4bn in 2030 and eventually to 3.9bn at the end of the century, when it will host a third of humanity.

In 2014, GCC exports to Sub-Saharan Africa totalled US$19.7bn, according to IMF data, which was just 2 percent of the GCC’s total exports. Meanwhile, the GCC only received $5.5bn of imports from Africa, most of which were destined for the UAE, partly for re-export.

However, according to the research, direct investment flows are growing. A number of pan-African companies have relocated their headquarters to Dubai, boosting links between the Gulf and Africa. These include Stallion Group, the second largest conglomerate in Nigeria and active across West Africa, Atlantic Holdings of Ghana and Mara Group of Kenya.

The study also highlighted private equity investment options, where Abraaj continues to lead the way- in April 2015 closing its third Africa-focused fund with US$1bn in subscribed capital. The most prominent Gulf investments into listed African companies so far, both in 2014, have been QNB’s purchase of a 23 percent stake in Ecobank of Togo and the Investment Corporation of Dubai’s $300m investment into Dangote Cement of Nigeria.