The Dubai Chamber of Commerce and Industry (DCCI) has named the Eastern Africa region as the continent’s most appealing area for non-commodity investment from the Gulf, with Ethiopia’s manufacturing industry, Kenya’s and Mozambique’s retail and tourism as well as Uganda’s education sector leading the investment list in the regional market.
“Retail and hypermarkets, automotives, commercial banking and tourism are key sectors,” says the ‘Beyond commodities’ report on the opportunities for Gulf investors in the African market commissioned recently by DCCI.
The study carried out by the Economist Intelligence Unit (EIU) indicates that between 2005 and 2014 Gulf firms injected at least $9.3bn worth investment funds including $2.7bn in the first half of 2015 alone into Sub-Saharan Africa, with Nigeria, South Africa, Kenya and Ugandan markets attracting the largest number of Gulf investors. However, investment from Gulf countries in North Africa has been almost 10 times as much, illustrating closer links with Arab Africa over the same period.
Talking of the space for Gulf banks, the study has revealed that, with the conventional banking sector being less developed and competitive than other regions in the world, there is also a potential for ‘relatively high’ profit margins for Gulf banks in the Eastern Africa bloc, especially within trade and infrastructure project financing, motivating a push of the Gulf’s leading banks into the region.
Currently, preparations are underway for the Gulf’s largest financial institution, the Qatar National Bank and the National Bank of Abu Dhabi to have their way into the region, joining the Union National Bank and the Abu Dhabi Islamic Bank who are longstanding operators in North Africa.
“The Qatar National Bank has acquired banks in Egypt, Libya and Tunisia, and set up branches in Mauritania, Sudan and South Sudan as well as acquiring a 23 per cent stake in Ecobank operating in Tanzania,” the report says.
The report also has identified opportunities for Gulf companies to invest in the continent via private equity given the limited amount of suitable listed equities in many African markets and a trend of family-run businesses.
Other investors in Africa, includes a leading private equity investor in the continent, the Middle East’s Abraaj Group, Saudi Arabia’s Swicorp and Dubai’s Kappafrik. They have joined other Gulf companies including Investment Corporation of Dubai that invested $300m in Nigeria’s Dangote Cement last year, in making direct investments into private African companies.
It is also noted in the report that another option for Gulf firms is to target companies already backed by private equity firms, with many of them approaching exhaustion of their fund lives. Co-investment with private equity firms is also an attractive option for Gulf companies that have limited experience in Africa, but they prefer developing exposure alongside more experience players.
“A number of private equity funds that launched in 2007-2008, with around US$1.5bn in initial capital invested in sub-Saharan Africa, are nearing or completing the end of their fund lifecycles, and could offer opportunities for Gulf investors across countries and sectors as they negotiate exits. The largest of these are the LerekoMetier Capital Growth Fund, the Emerging Capital Partners Africa Fund II and Helios Investors LP,” the report says.
The report further highlights that both business and leisure travels are increasing as connectivity improves, with a room for growth in countries with the most developed tourism sectors such are South Africa, Ghana, Tanzania and Kenya at the time when the sector is actively emerging in other countries including Gambia, Mozambique and Rwanda.
Gulf airlines, such as Emirates, have been especially active on the continent, and have also been directly doing business with local carriers, citing an example of Etihad purchasing 40 per cent stack in Air Seychelles 2013.
On the other hand, Gulf hotel brands are also active in the continent, with Dubai’s Rani Investment’s ownership of four luxury hotels in Mozambique being the largest investor in Mozambique’s tourism industry.
“The Mozambican market is a fast-developing tourism hotspot for other investors too, suggesting that Gulf investors are not alone in identifying its potential,” adds the report.
East African countries are also attracting hospitality groups, with two of the Gulf’s largest hotel chains working out plans to enter the region. Luxury hotel company Jumeriah Group, will open a hotel in Mauritius in 2018, while examining other opportunities in Nigeria, Kenya, Angola and South Africa.
However, poor infrastructure has provided major transport and distribution challenges in Africa, despite the potentials, says the report.
Despite the challenges some Gulf-based logistics companies are also expanding their operations on the continent. They include UAE’s DP World manages ports in Mozambique, Egypt, Algeria and Senegal while Kuwait’s Agility is active in 11 African countries with plans to develop five warehouse distribution parks on the continent.
“Gulf firms have experience to share in this field, but only a few are exploring investment in Africa,” states the report.
DCCI, a private non-profit organization whose mission is to represent, support and protect the interests of the business community in Dubai and promoting the country as an international business hub was established in 1965.
SOURCE: THE GUARDIAN
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