Wealth funds likely to increase African investments

Standard Bank Group

Sovereign investors from the UAE and wider GCC bloc are likely to ramp up investments across African countries, building on a 50 percent jump in capital flows from the Middle East over the past five years, say experts.

Agriculture, energy and infrastructure are sectors likely to benefit from multi-billion dollar deals as the UAE accelerates its investment efforts, according to Premeshin Naidoo, managing director of the Middle East and Asia Corridor at Absa Group, an Africa-focused financial institution.

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He told AGBI there has not yet been anything “substantial” from sovereign wealth funds from the GCC region.

Naidoo expects that to change because the continent offers some of the “most attractive growth opportunities” in the world.

Rassem Zok, CEO, Middle East and North Africa at Standard Bank Group, also believes that Africa is growing in importance for investors and for corporates and remains the last “frontier market”.

New deals

The African Development Bank (AfDB) forecasts that Africa will be the second-fastest growing region in the world after Asia in 2023-24.

“When we’ve reached out to the various wealth funds across not just UAE, but the GCC countries, there’s certainly a willingness to engage and willingness to talk about available assets in Africa,” Naidoo said.

According to Invesco’s latest Global Sovereign Asset Management Study, 10 percent of Middle East sovereigns said they would increase investment into Africa last year. 

“I think what is quite clear is that the UAE is suddenly accelerating its efforts in terms of the government to government relationships,” Naidoo added.

“No doubt it intends to expand trade and investment activities.”

The UAE is close to signing a new free trade deal with Kenya in what will be its first bilateral agreement with an African nation, and Dubai-based airline Emirates has signed an interline partnership with Kenya Airways to boost its access to the continent.

Naidoo said South Africa is likely to be next in line to sit down for official talks – “I understand that announcements may be made in due course,” he revealed.

Zok said that the flow of capital from the GCC into Africa is increasing, spreading from only East Africa initially to Angola, Nigeria, Ghana and South Africa.

He added that over the past five years capital flows from the Middle East into Africa have grown by more than 50 percent.

“We see it as two-way, but predominantly still it's still Middle East into [Africa] in terms of magnitude,” he said.

Infrastructure investments

Last month the AfDB predicted that Africa will consolidate its post-Covid pandemic recovery to 4.3 percent GDP growth in 2024 from 3.8 percent in 2022.

It expects that 22 countries will record growth rates above 5 percent.

The AfDB previously estimated that Africa’s infrastructure financing needs will be as much as $170 billion a year by 2025, with an estimated shortfall of approximately $100 billion a year, presenting opportunities for big-ticket investments from the UAE and wider GCC.

Absa Group's Naidoo described port operator DP World as a “trailblazer” for large-scale UAE investors in Africa.

It operates seaports in Angola, Djibouti, Egypt, Morocco, Mozambique, Senegal and Somaliland while Abu Dhabi Ports announced last month that it is in talks about developing a port in the Republic of Congo.

State-owned energy company Masdar, based in Abu Dhabi, has already invested in Africa after agreements with Angola, Uganda and Zambia to develop renewable energy projects with a combined capacity of up to 5 gigawatts. 

The Africa Investment Forum presented another four renewable energy and sustainability projects worth nearly $1.5 billion to investors on the sidelines of the AfDB’s 2023 annual meetings.

Naidoo said Africa probably presents the “most attractive growth opportunities” in terms of UAE companies looking to expand and is also well placed to support the country’s food security efforts.

The UAE imports up to 90 percent of its food while it is estimated that Africa – with its vast amounts of arable land – could double or treble its output of cereals and grains, crops and livestock with more investment in the sector.

“It comes down to the availability of capital," Naidoo said. "It comes down to new technologies being used to increase yields across some of that land, especially where Africa has a shortage of water and skills."

The African Continental Free Trade Area was launched in 2019, bringing together a bloc of about 1.3 billion people and a combined GDP of $3.4 trillion.

“The opening up of Africa as a single trade bloc will promote UAE direct investment to take advantage of the free trade provisions intra-Africa, as well as providing an opportunity for Emirati investors to diversify their portfolio risk and take advantage of the potential for higher returns given the scale of the opportunities under the African Continental Free Trade Area,” Naidoo added.