AFRICA’S TIES WITH THE MIDDLE EAST

The Gulf States play important role in Africa’s outlook

Sylvain Kluba, head of Agility’s Global Integrated Logistics business in Africa.

Sylvain Kluba, head of Agility’s Global Integrated Logistics business in Africa.

Africa’s Middle East trade ties, dating to first millennium caravan routes and shipping lanes, connected the continent’s interior to merchants in the Arabian Peninsula and Asia over the centuries. Today, much of Africa still connects to the world through the Middle East, which acts as a gateway, facilitator, trading partner, logistics hub and banker.

Standard Chartered Bank says annual trade between the Middle East and Africa has grown fivefold over the past decade from $10 billion to $49 billion.

African countries are a major source of raw materials for Gulf Cooperation Council (GCC Services) countries pushing to diversify through manufacturing. At the same time, economic growth is fueling demand for Gulf oil in Africa, which is on the cusp of its own energy boom following recent discoveries of huge oil and gas deposits in several countries. GCC Services exports to Africa have grown 15% a year in recent years; imports from Africa have been growing at nearly 28% a year.

“Africa’s importance to the Dubai economy is growing with the UAE’s emergence as a multi-modal global logistics hub and transit point,” says Sylvain Kluba, head of Agility GIL Africa. “Dubai’s Jebel Ali port is the most important trans-shipment hub for East and southern Africa. A lot of multi-national consumer companies are running African distribution from Dubai while they build up regional hubs in places like Nigeria, Kenya and South Africa.”

Dubai has made itself an aviation crossroads for Africa. Emirates Airline is leading the charge into Africa and has invested $7 billion on a dedicated fleet and a further $2 billion for operating costs to service the continent. Emirates flies to 22 African countries, more than any other airline in the world and has plans to add another 10 countries by 2025, as well as raising the frequency of flights on some existing routes.

Business community

The Gulf’s business community is using Dubai as a base to pursue opportunities across Africa in areas ranging from logistics to telecommunications and banking. The city’s import-export operations and “free zones” are drawing African entrepreneurs. Dubai’s extensive pool of expertise in infrastructure, logistics, transport, finance and trade is a strong attraction to African businesses that want to reach out to potential customers in Europe, North America and Asia.

Banks in the Gulf are serving as invoicing and procurement centers for operations in Africa. Gulf bank revenues from Africa have almost doubled over the last five years. Demand for Islamic finance tools and expertise, strong in the Gulf, is increasingly in demand in Nigeria, Kenya and Tanzania. All have expressed an interest in issuing sukuk, a form of bond permissible in Islam, targeted at the Middle Eastern investment market.

Investment in Africa

Gulf investment in Africa was $144 billion from 2003 to 2012, and another $61 billion has been earmarked for projects in infrastructure, telecoms, logistics, agriculture and energy.

DP World, the Dubai-based port infrastructure firm, operates container shipping marine terminals in Djibouti in the Horn of Africa, Senegal in West Africa and Mozambique in the southeast. Private equity firm, Abraaj Group recently acquired a 51% stake in Fan Milk, a Ghana-based dairy business. This Abraaj-Fan deal is believed to be the largest-ever private equity purchase of a consumer goods company in Sub-Saharan Africa, outside of South Africa. Dubai’s sovereign wealth fund, Investment Corporation of Dubai (ICD), recently bought a $300 million stake in Nigerian firm Dangote Cement.

In telecoms, UAE giant Etisalat has built sizeable stakes in Atlantique Telecom, which operates in six countries in West Africa, as well as Tanzania’s Zantel and Sudanese fixed-line operator Canar. Kuwait’s Zain Telecoms played a major role in building up Africa’s mobile network, investing heavily in the region.

Africa’s agricultural potential has prompted Gulf States to invest heavily in that sector. Qatar’s Hassad Food, an arm of the country’s sovereign wealth fund, spent $1 billion as part of a farmland development venture in Sudan. A consortium of Saudi agricultural firms invested $40 million in food production in Sudan and Ethiopia, while another Saudi group, Hadco, is reported to have acquired 25,000 hectares of Sudanese cropland. Standard Chartered says Gulf countries have tended to focus their agricultural investment on seven countries: Sudan, Mozambique, Ethiopia, Tanzania, Kenya, Mali and Senegal.

In infrastructure, Abu Dhabi’s Royal Group committed to $16 billion in road and rail projects across Africa. Oman’s Hasan Juma Backer Trading & Contracting is developing a $700 million dry-port in Ferkessedougou, Ivory Coast.

Improvements needed

Despite long-standing regional ties, Africa’s deficient infrastructure, bureaucracy, human resources constraints and corruption are no less formidable for its Middle East partners. Red tape in Africa is among the worst in the world: A recent report from the African Development Bank says the average customs transaction involved 20-30 parties, 40 documents, 200 data points and the re-keying of 60-70% of data at least once. Border bureaucracy impedes the supply chain, stretching lead times, forcing companies to tie up working capital in extra inventory and adding to costs. Africa’s regional trading blocs acknowledge the problem and pledge improvements.

“Trade between the Middle East and other regions – Southeast Asia and Europe, for example – still dwarfs its trade with Africa,” Kluba says. “But that is changing fast.”

Warehousing and distribution

Agility manages Africa logistics for a number of customers from Dubai. It distributes apparel and sporting goods to 20 African countries for one of the world’s leading athletic brands and manages warehousing and distribution of more than 24,000 spare parts for a leading automotive manufacturer with a network of dealers throughout Africa. Agility’s Dubai team also helps a top global mobile phone provider distribute 800,000 handsets each month from four manufacturing locations in Asia to 14 African destinations.