Bridging investment between the Gulf and Africa

Building investor confidence in Africa as a viable business destination is paramount

By Simon Penney

October 20, 2023

Gulf investment in Africa includes renewable energy such as wind farms — A herdboy near the Lake Turkana wind farm in Kenya. Gulf states such as the UAE are increasing their investments in sustainable energy in Africa

Gulf countries are taking on a more substantial role in Africa’s development, driven by several compelling factors that promise to foster deeper and long-lasting partnerships.

These partnerships will be forged at the government level, positioning Gulf nations and their companies at the forefront of Africa’s future.

The recent reduction in Chinese investment in Africa from $60 billion to $40 billion has widened the funding gap, offering Gulf countries an opportunity to expand their presence and exert soft-power influence.

Notably, investment between the GCC and Africa has been significantly one-sided.

The GCC has invested more than $100 billion in Africa over the past decade, while African investment in the GCC has only amounted to $3 billion. The majority of this foreign direct investment has been concentrated in North Africa.

However, the dynamics have shifted as a result of the impact of Covid 19, the Ukraine conflict and broader geopolitical changes. These shifts are likely to give rise to new partnerships in Sub-Saharan Africa.

Focus on energy

The urgency of investing in energy transition cannot be overstated.

Gulf states are establishing investment platforms such as Masdar’s Infinity and forming similar partnerships such as Qatar’s collaboration with Enel.

Just last month, the UAE announced $4.5 billion in clean energy investments in Africa during a landmark climate summit in Kenya. This commitment complements the UAE’s Etihad 7 initiative, aimed at securing funding for renewable energy projects with the goal of providing clean electricity to 100 million people by 2035.

In particular, Lake Turkana stands as Africa’s largest operating wind farm, significantly contributing to Kenya’s target of achieving 100 percent renewable power by 2030.

While the need for energy transition is clear, many African countries face challenges related to insufficient base load power generation, where the source of power becomes secondary to availability and cost.

Balancing the demands of net-zero ambitions with the basic need to provide energy remains a delicate act and a major focal point of Cop28, hosted in the Gulf for the first time.

Mining for vital materials

Beyond energy, mining has become a shared interest for Gulf interest.

Recent reports indicate that Saudi Arabia’s state-backed venture intends to acquire mining stakes valued at $15 billion in countries such as the DRC, Guinea and Namibia.

This strategy serves both to secure access to precious metals crucial for energy transition and to align with Saudi Arabia’s Vision 2030 development of its mining industry.

The UAE’s Emirates Global Aluminium, for instance, owns a Guinean bauxite mine, investing more than $1.4 billion into the domestic economy while securing a critical mineral supply for its UAE aluminium plants.

Gulf states are increasingly influential in infrastructure development and ownership, with a focus on connecting Africa through ports and logistics hubs.

The UAE, primarily through state-owned DP World, leads the way in port development with projects spanning Djibouti, Rwanda, Angola, Somaliland, Mozambique, Nigeria, and Senegal.

Improving food security

Food security is another critical area where GCC countries have a vested interest. These states import approximately 85 percent of their food, making securing food supplies a top priority.

The drive among GCC states to invest in Africa began in earnest after the 2007-08 global food price crisis, primarily targeting agricultural land and commodity production.

Leading players in this effort include agribusinesses, sovereign wealth funds and other agri-investment vehicles, and they continue to be instrumental in shaping the landscape.

Qatar’s sovereign wealth fund is expanding its influence, including through “impact investments” with social and environmental benefits.

In the years ahead, environmental, social and governance investing will become increasingly important. However, financing these ambitious partnerships in Africa will remain a significant challenge.

Addressing issues such as political risk, regulatory complexity, and environmental concerns is crucial, as Africa’s track record of completing projects remains inconsistent. McKinsey & Co estimates that only one out of 10 projects in Sub-Saharan Africa progresses from concept to financial closure.

Building investor confidence in Africa as viable business destination is paramount, considering that global capital is highly mobile, and Africa competes with other global markets.

In conclusion, GCC states are poised to play a pivotal role in paving the way, opening up markets, raising awareness and instilling confidence in global financiers that Africa is a prime destination for business.

We are witnessing the beginning of a new era, with the GCC occupying a front-row seat in Africa’s journey towards sustainable development.

Simon Penney is head of Middle East at Gemcorp and former UK trade commissioner for the Middle East and Pakistan