The Gulf-Africa partnership: At the crossroads of internationalisation
This article was produced for the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation.
As trade and investment soars between the Gulf and Africa, member states of the Organisation of Islamic Cooperation (OIC) have been at the forefront of discovering and unlocking new opportunities.
Immediately after the global financial crisis, the Gulf region significantly deepened its economic ties across Africa, resulting in swelling trade and investment flows into the continent. Countries of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) – have expanded engagement at varying intensities.
With GCC members also belonging to the OIC, there is a clear and significant pattern of new trade growth emerging with African members of the OIC.
From a macro-perspective, overall trade between the regions has been largely spearheaded by Dubai’s desire to be an important international gateway into and out of Africa, and total trade between the regions surged to US$56bn by end-2014, a CAGR of 25% since 2010. It appears a symbiotic partnership between Africa and the GCC is taking shape, with the Gulf opening itself up as a strategic gateway attracting the kind of talent, ideas and capital that will propel the next chapter of Africa’s economic growth.
GCC businesses and sovereign wealth funds have ramped-up expansion agendas in Africa. From 2005 to 2014, over $9.3bn worth of foreign direct investment (FDI) have flowed into the continent, while trade has increased from $16bn to $56bn per year.
Meanwhile, African trading companies and multinationals are taking advantage of the Gulf’s world-class infrastructure and global reach as a springboard for accessing more distant markets.
Africa’s Mara Group and Atlantic Holdings have both set up their global headquarters in the UAE, citing the ease of travel, access to capital and comparably more welcoming visa policies as primary motivators.
Furthermore, geopolitical and economic tensions have arisen within the GCC itself as it responds to new regimes taking power across North Africa, highlighting competing strategic agendas and sharp differences between the bloc and its African neighbours.
The GCC has progressed beyond its historically entrenched ties with North Africa and is now exploring new markets in East Africa and across sub-Sahara, enticed not only by a dynamic continent, but its close geographical proximity.
In addition, the GCC has been proactive in making itself relevant within the broader Asia-Africa nexus. By building cooperation with Asian partners, China in particular has begun embracing the GCC bloc as a crucial hub along its silk road as it advances strategic agendas in Africa.
Indeed, the GCC could be an important hub for facilitating interaction and cooperation between the regions, especially as African economies become more integrated into Asia Pacific’s supply chain.
Trade surges between the regions
As the GCC increasingly diversifies investment, adapts business models, and seeks out strategic partners across Africa, the overarching cooperation between the regions has become progressively comprehensive and complex.
Trade flows have flourished between the regions, greatly accelerated in the face of slowing Western markets post the 2008-09 global financial crisis. Total trade during the 2010-2014 period between the GCC and Africa grew by 195%, far outpacing lower double-digit trade growth between Africa and other economic blocs. As a result, the GCC’s share of Africa’s total global trade has nearly doubled from 2.25% in 2010 to 5.31% by 2014.
Across the board, GCC member nations have significantly expanded trade linkages across the continent; however, the UAE accounts for 70% of total inflows and outflows, followed closely by Saudi Arabia. Meanwhile, smaller GCC economies have realised double- and triple-digit growth from 2010-2014, with Bahrain, Kuwait, Oman and Qatar collectively accounting for nearly $5bn in 2014.
Meanwhile, Africa appears to have lost what was a trade surplus in recent years, as 2014 GCC exports into the continent fully eclipsed its imports from Africa. Nevertheless, African exports are increasingly encompassing an ever-widening range of products and commodities as sub-Sahara sales to the GCC continue to ramp-up.
Trade is predictably dominated by oil in certain territories. However, growing populations, urbanisation and the rise of a larger middle class are beginning to translate into demand for a wider array of products and commodities from the Gulf.
Gulf foreign direct investment unlocking new opportunities
In the years following the 2015-16 fall in commodity prices, Africa has had to rethink its outdated economic models. Overdependence on raw commodity exports, and susceptibility to commodity price swings, has given way to a willingness to enhance business environments. For example, Rwanda has maintained its position as Africa’s top reformer, while Kenya has now also been identified in the global top 10 this past year.
In a vote of confidence towards Africa’s long-term economic prospects, the Gulf has poured in at least $9.3bn in sub-Sahara bound FDI between 2005-14.
Hypermarkets and retail outlets have been notable recipients, propelled by the continent’s burgeoning middle class. Large investments into infrastructure development is paying dividends in a more efficient movement of goods, while the creation of the East African Community is beginning to reduce areas of trade complexity.
In response to these positive developments, Gulf businesses have made further in-roads in tourism, manufacturing and financial services across many new territories. On other fronts – financial services in particular – engagement by the Gulf is ramping up as well.
Arab banks across Africa have also been growing where Western players have scaled back, encouraged by favourable exchange rates and an abundance of merger and acquisition opportunities. More specifically, Africa’s Islamic finance space is already bustling with a presence in 21 African countries, with offerings spanning banking, insurance, bonds and capital markets. Given Africa’s large Muslim population and its expected continuous growth, this places Africa’s Islamic finance industry in an enviable position to respond to demand for sharia-compliant products and services.
Member states of the OIC at the forefront of deepening ties
Given these trends, Africa’s Islamic economy has become a prime destination for Gulf trade and investment.
Within the Gulf-Africa trade corridor, a disproportionately greater level of economic activity among member nations of the OIC has emerged. Serving as the collective voice of the Muslim world, the OIC encompasses all six GCC states, as well as 27 nations within Africa, united by common efforts such as to “strengthen intra-Islamic economic and trade cooperation”.
From a global perspective, trade among Africa’s non-OIC member states grew faster as compared to those states within the OIC. However, the situation is reversed in the corridor connecting Africa with partners in the Gulf, suggesting economic linkages among OIC members are playing a role in driving trade between the two regions. When looking at the numbers, the contrast is apparent.
Trade between the Gulf and African OIC member states, imports and exports, grew by 206% over the 2010-2014 period to $32bn as compared to trade with non-OIC member states, which grew slower at 182% to $23.3bn. Furthermore, this is on the backdrop of global trade among OIC member states in Africa at lower double-digit growth rates.
Economic progress between Africa and the Gulf is impressive, and with an apparent tilt towards engaging predominantly OIC members in Africa, there seems to be a preference towards the development of economic partnerships that can be traced along the fault lines of Islam.
Following in the footsteps of the UAE, Saudi Arabia’s engagement with the continent has been increasingly robust and diverse. The greatest intensity of trade has historically been with Egypt; however, its proportion of Saudi Arabia’s total trade with the continent has decreased in recent years from 51% in 2010 to 36% in 2014. Meanwhile, Saudi Arabia’s second largest trading partner, South Africa, a non-member of the OIC, has maintained a steady 13% share of imports and exports.
Across sub-Sahara Africa, newer trade ties between Saudi Arabia and OIC members Mozambique, Côte d’Ivoire and Sierra Leone have developed, while historically entrenched relationships with North Africa and Djibouti continue to deepen.
Oman quietly engaging East Africa, Qatar punches above its weight
Unlike the rest of the GCC, Qatar and the Sultanate of Oman have witnessed greater trade growth among nations outside of Africa’s OIC community. Oman has been quietly but cogently engaging East Africa in an effort to diversify its economy beyond oil and gas.
While the Sultanate’s engagement in Africa is not as robust as other GCC countries, Oman has a historical legacy throughout East Africa that is opening up business opportunities, with many Omanis still maintaining family ties in and around formerly colonised territories stemming from the country’s colonial past in the region.
Kenya has become another steadfast partner, seeing massive increases in trade over recent years. Between the 2005-2009 and 2010-2014 periods, total trade with Oman increased from $117m to $682m, which has been driven by Kenyan exports of agri-products and oils and Omani exports of petroleum oils, stones, machine tools, ships and boats.
Although diplomatic relations have been in place for several decades, Kenya first opened its embassy in Muscat in 2011 to boost tourism, with Oman then reciprocating with the opening of an embassy in Mombasa in February 2014.
Qatar has similarly begun making in-roads into the continent with considerable effort and investment, relative to its relatively lower power ranking in the Gulf.
As evident in trade, investment and diplomacy patterns throughout the continent, Qatar’s engagement appears less robust among partners within the OIC community as compared to the likes of Saudi Arabia. Nevertheless, Qatar wields disproportionately high influence in the international arena and has certainly begun building clout in Africa.
Qatar has adopted a vigorous geopolitical economic agenda. Heavily dependent on oil and gas, the country’s Emir is taking measures towards building a more sustainable future. Africa appears to offer promising potential for improved investment and trade linkages that will play into Qatar’s broader vision and has begun making meaningful forays.
Qatar’s trade with Africa grew rapidly by 400% from 2009-2010 to reach $623m with North Africa and $591m with sub-Sahara. In the years following, trade stabilised with North Africa, but continued growing forcefully in sub-Saharan Africa, nearly doubling to $1.05bn by 2014 as in-roads into new markets began taking hold.
With the proportion of trade with Egypt and South Africa on the decline from 66% in 2010 to 62% in 2014, entirely new trade activity has sprung up in countries where previously imports and exports were nearly non-existent.
Meanwhile, Qatari investments on the continent have largely targeted opportunities in the service, insurance and especially finance sectors, with the “Qatar National Bank having acquired banks in Egypt, Libya and Tunisia, and set up branches in Mauritania, Sudan and South Sudan, as well as acquired a 23% stake in Ecobank in 2014”.
Beyond economic engagement, Qatar has also been proactive on the diplomatic front, playing significant roles in security and conflict resolution in the Horn of Africa, most notably in the mediation of border disputes between Eritrea and Djibouti in 2010 and the Doha Agreement a year later as part of the Darfur peace process.
Asymmetrical relationships and growing rapidly
While relationships between countries within the GCC and Africa are asymmetrical, underlying economic and political ties are growing rapidly and underpinning access to opportunities and a surge of GCC investment alongside imports and exports on both sides.
Africa has benefitted from factors such as greater awareness and familiarity in the Middle East, reduced restrictions on certain industries, and greater linkages through expanding airline routes in its attraction of FDI, as countries in the GCC have attempted to carve out and define their respective roles in being a conduit for improving Africa’s reach into the global marketplace.
Middle East investments are on the rise with the UAE ranking fifth in recent years by capital expenditure into Africa globally. Opportunities in Africa continue to appear attractive, particularly as many markets elsewhere remain subdued.
Moving forward, the OIC is likely to play an ever more important role in encouraging cooperation between the GCC and members in Africa, particularly as Islamic influence gains strength across sub-Saharan Africa as Muslim communities and populations are poised to grow rapidly.
As Africa continues to solidify itself as an ever-important component of the world’s economy, the continent is wisely open to cooperation with the Gulf. Both sides are harmonising economic ties and facilitating greater awareness building and interaction so that businesses on both sides can build informed, competitive and enduring relationships for the future.
The first author, Robert MacPherson, is an adjunct researcher of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. Robert can be reached at [email protected]. The second author, Zubaidah Jalil, is an independent researcher and editor at the Middle East Institute, National University of Singapore. This paper was written specifically for the NTU-SBF Centre for African Studies.