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Can Middle East Investments Unlock Africa's Economy?
In the midst of the difficult economic situation in African countries and the obstacles they encounter, the collaboration between the Middle East and Africa has become a promising source of hope. This alliance has the potential to provide crucial support to communities that have been neglected.
As Chinese investments become less prominent in Africa, the Middle East's increasing engagement in the continent's progress has become crucial in meeting important economic and infrastructure requirements.
Countries in the region of Sub-Saharan Africa are currently dealing with a significant increase in their debt, which now stands at approximately 60 percent of their gross domestic product. This level has not been observed in the past twenty years.
This is leading to a change towards more expensive private sources, increasing costs for repaying debts, and the potential for risks when it comes to renewing them.
In the midst of the economic chaos, the Middle East-Africa alliance is gaining prominence. With China scaling back its investment, nations in the Gulf Cooperation Council (GCC) such as Saudi Arabia, the United Arab Emirates, and Qatar have come forward to occupy the space left behind. This surge in GCC investment, amounting to a significant $8.3 billion in 2022, shows promising prospects for the partnership.
"The increasing significance of these nations as essential allies in Africa's progress is evident in this trend," commented Ryan O'Grady, the CEO of KI Africa, an investment company. O'Grady, who frequently travels between Dubai and East Africa, stated to Arab News, "The long-established bond between the Middle East and Africa is thriving, which indicates the enhancement of trade connections."
According to specialists, the Gulf Cooperation Council (GCC) has a keen interest in the progress of Africa, which is driven by strong economic growth and ample financial resources in the region. The GCC has historically had close connections with North Africa due to shared cultural and linguistic backgrounds, but now attention is shifting towards sub-Saharan Africa, creating fresh opportunities for cooperation. Mashreq Bank, headquartered in the United Arab Emirates (UAE), is taking the lead by investing in 14 African nations. Additionally, GCC investors are actively seeking alliances with local financial institutions to support the development of infrastructure projects.
The Gulf Cooperation Council (GCC) has been making efforts to move away from relying solely on natural resources and has instead started investing heavily in different industries such as infrastructure, telecommunications, and ensuring food security. A prime example of this can be seen with Qatar's IAS International, which intends to contribute a significant $1.6 billion towards development initiatives in the Central African Republic. Additionally, countries like Saudi Arabia, the UAE, Qatar, Bahrain, and Kuwait are actively purchasing agricultural land in Africa as a response to growing concerns over food security.
This is the reason why connecting the Middle East and Africa is not only a practical move in terms of transportation but also supports the goals of both areas. African countries are looking for significant investments from abroad, while the Middle East has abundant financial resources and an advanced Islamic finance industry that can effectively serve the needs of Africa's increasing population.
As reported by CNBC, the combined value of assets managed by the leading 10 sovereign wealth funds in the Gulf area amounts to approximately $4 trillion. To give you an idea of its magnitude, this amount goes beyond the Gross Domestic Product of the United Kingdom.
According to O'Grady, due to the significantly smaller African market, the differences in the size of banks, market reach, and transaction volume in these areas create difficulties for collaborating across regions. O'Grady also highlighted the important problem of ensuring financial access for all in Africa.
"According to him, a mere 37 percent of females and 48 percent of males in Africa possess proper access to formal financial services. This unjust disparity highlights the necessity for creative remedies that can close the divide, particularly for groups that have historically been excluded."
Highlighting the advancements happening in Dubai, O'Grady emphasized the increasing focus on financial technology and innovative solutions. The goal is to break down the old-fashioned obstacles in the finance industry and establish improved, economical, and community-centered approaches. This deliberate change in direction is in sync with the impressive achievements of the GCC in service industries, banking sectors, and trade finance.
"By harnessing the expertise of the GCC's financial industry and the growing fintech scene, the region can address the existing gaps in operating within Africa," O'Grady stated, foreseeing that these progressions, along with inventive approaches to distribution, will facilitate a wider and more cost-effective access to the African market.
This, consequently, has the potential to result in enhanced financial inclusion and expanded entry to official financial services for a wider portion of the community.
"Everywhere you invest, you will come across factors that carry risks," he mentioned, highlighting that these risks can be minimized through knowledge, careful planning, and the use of new methods. According to him, important measures like matching currencies for trade settlements and offering insurance products indicate a collective attempt to lower expenses, improve effectiveness, and make business activities more streamlined.
In spite of certain progress made, numerous obstacles persist that impede development.
According to Subomi Plumptre, an entrepreneur with an international presence hailing from Nigeria, Africa's potential is undermined by a lack of infrastructure which has the ability to disrupt business activities.
"Insufficient means of transportation, inconsistent energy provisions, and challenges in communication can lead to increased expenses and put investors' patience to the test," she included.
According to the World Bank, inadequate infrastructure could lead to a significant economic growth decline of up to 2 percent per year. Moreover, productivity may suffer a shocking decrease of 40 percent due to this issue.
Plumptre expressed that the poor condition of roads, railways, and harbors adds to the expenses involved in trading between African nations. As a result, this hampers the important goal of fostering economic integration within the region.
Ports in Africa have a considerably higher cost compared to ports in other parts of the world because their facilities are inadequately equipped and poorly managed. Similarly, the availability of railway infrastructure is limited to only a handful of countries with higher average income per person, leaving large areas with insufficient services.
Despite ongoing difficulties, Plumptre emphasized some encouraging aspects. Particularly, the telecommunications industry has experienced impressive expansion, positioning Africa as the world's fastest-growing and second-largest market for mobile phones.
The implementation of new financial tools and investments from other countries in the area, along with efforts to enhance honesty and managerial practices, has also played a part in creating favorable advancements.
Nonetheless, deciphering Africa's political terrain can feel akin to assembling a jigsaw puzzle with perpetually swaying fragments.
Changes in politics, policies, and regulations can take investors by surprise, making it necessary to have flexible strategies. The lack of peace and stability in different areas is a constant concern for investors, affecting how they evaluate risks and make investment choices.
"It is immensely important to acknowledge that investment strategies and regulations formulated for the region of 'Africa' must take into account the disparities and customize efforts to cater to the distinctive needs of each individual country," stated Arab News in an interview with Metassebia Hailu Zeleke, an Ethiopian corporate attorney.
Given this context, the UAE and Kenya are currently in talks regarding a far-reaching economic partnership agreement aimed at boosting two-way trade. Additionally, private firms are capitalizing on these prospects, as African businesses are setting up operations in the UAE to tap into global markets.
China's financial contributions have generated various outcomes and responses, especially regarding concerns about Africa's increasing debt and Beijing's dominance over resources in African nations.
More and more individuals are requesting, and authorities are seeking, different options to acquire funds that don't involve China. Gulf Cooperation Council countries have the opportunity to make a positive impact and prevent any potential damage to their reputation.
The focus on capitalizing on existing bonds is a crucial idea, as opposed to creating completely fresh avenues. The alliance between the GCC and Africa relies on long-standing connections and close geographical distance. This strategy acknowledges the importance of familiarity, shared interests, and established connections, which lay the groundwork for lasting cooperation.
Plumptre also emphasized the significance of enhancing governance and openness in the investment pathway between the Middle East and Africa. The successful collaboration relies on three major hurdles: involving the local communities, dealing with complicated land ownership issues, and skillfully handling regional disputes.
She highlighted the importance of initiatives driven by the private sector and engagements by the public sector in promoting understanding, communication, and openness between investors and entrepreneurs in both regions.
According to Zeleka, the Ethiopian lawyer, Africa's communities are influenced by a wide range of socio-economic backgrounds and historical circumstances. This requires engaging in open discussions and working together with all parties involved, in order for investments to effectively meet the specific requirements of the local population.
