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GCC INVESTORS TAP INTO AFRICA’S RISING POTENTIAL

April 2016

A ballooning population, steadily growing economies and swelling consumer appetite are leading GCC investors to make their mark in Sub-Saharan Africa.

Historically, Gulf investors have turned to North Africa when looking at investing in the African continent. However, over the past decade, the narrative of Africa as a continent on the rise has stood out in contrast to a battered global economy, leading Gulf investors to consider Sub-Saharan Africa and to tap into the continent’s rapidly emerging real estate.

Africa’s growing economies stand apart from the rest of the world. In 2014, USD 87 billion in foreign investment flowed into the region’s 54 economies, according to The Africa Investment Report 2015 by FDI Intelligence.

A recent study titled Beyond Commodities: Gulf Investors and the new Africa by Dubai Chamber of Commerce and Industry found that Nigeria, Kenya, South Africa and Uganda have attracted the largest number of Gulf investors in Sub-Saharan Africa. Gulf firms provided USD 2.7 billion in foreign direct investment into Sub-Saharan Africa in the first half of 2015, and a total of USD 9.3 billion from 2005 – 2015.

Foreign investors are a growing force in the economic transformation of Africa. For GCC investors, Africa’s rise over the last decade makes a compelling business case for investment into the continent.

WHY THE SHIFT?

According to H.E. Hamad Buamim, President and CEO, Dubai Chamber of Commerce and Industry, the shift in investment from the Gulf signifies Africa’s success and the potential it offers.

“Gulf entities have provided at least USD 30 billion of funding, at current prices, for African infrastructure over the last decade with the Sub-Saharan African countries of Nigeria, South Africa, Kenya and Uganda, attracting the largest number of Gulf investors – between ten and 25 firms each,” says Buamim.

“Demographic trends, growing consumer markets, economic stability and an improving business environment, as well as a resilience that has allowed it to withstand global recession and the current commodity price slump,” are a number of factors that make Gulf investment into Africa attractive, says the report from the Dubai Chamber.

The study highlighted a report by the African Development Bank showing that the average real GDP growth across the continent was 6.1% in 2010-2014 and per capital income rose by nearly 60%. The research forecast a deceleration to 4.1% in 2015, mainly due to the commodity price shock, before a pick up to 5.1% in 2016. In addition, the IMF forecasts average growth of 5.3% from 2017-2020.

Coupled with a steady increase in the economy is population. “The mid-case in 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 humanity. This growth in population speaks for itself in terms of the prospects it offers to businesses,” says Buamim.

“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. All these factors provide an opportunity for exploring new avenues for investment and trade in this dynamic continent,” he says.

Matthew Colbourne, Associate, Commercial Research, at Knight Frank agrees. For him Africa’s attractive factors are also leading to a growing demand for all types of commercial and residential property.

“Most Sub-Saharan African real estate markets are extremely underdeveloped and the region has appeal as the last great frontier market for property development, offering higher returns than are available in Western markets,” he says.

FOCUS OF INVESTMENT

The larger economies with fast-growing cities are most attractive but the emerging markets are becoming a greater focus for Gulf investors, says Colbourne.

According to Knight Frank the target of GCC investment includes Nigeria, Kenya, Ethiopia, Tanzania, Ghana and South Africa.

The Dubai Chamber study found that East Africa was the most appealing region for non-commodity investment from the Gulf, with retail and hypermarkets, automotive, 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,” according to the Dubai Chamber report. “Investment from the Gulf region is predominantly in areas in which companies have experience and comparative advantages. Travel and tourism have enjoyed high growth and Gulf brands are among the frontrunners in newer markets like Mozambique,” says Buamim.

Dubai Chamber has been facilitating trade and investment flows by setting up international offices in Ethiopia in 2013, Ghana in 2015 and will soon be setting up offices in Mozambique and Kenya.

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