UAE’s ever-expanding portfolio in Africa

Expanding Portfolio

Typically dominated by the US, EU & BRIC nations, investment into Africa has been in decline with the World Investment Report 2018 showing Foreign Direct Investment (FDI) flows into African nations falling by 21% over the past year. Yet despite the international downturn, one nation outside the aforementioned investors into Africa continues to defy this trend. Jumore Global spoke to Joseph Brazier from Trade Finance Global’s Shariah Finance team to find out more.

The United Arab Emirates has long punched above its own weight internationally, investing a large amount of its sovereign wealth abroad. Throughout the past ten years, large amounts of Emirati capital have found their way into a wide array of projects across Africa. Dangote Cement, a Nigerian multinational publicly traded cement manufacturer headquartered in Lagos received a $300 million investment from the Investment Corporation of Dubai for a 1.4% stake in 2014. At the time of investment, the cement manufacturer comprised around a third of the Nigerian stock market. Etihad Airways also acquired a 40% equity stake in Air Seychelles in 2012.

According to a 2015 Dubai Chamber of Commerce study, South Africa, followed by the East Africa region are the most attractive places for investment in Africa. The diversity of opportunity continues to excite Emirati investors, from the tourism in industry in Mozambique to the manufacturing sector in Ethiopia.

Investment from the UAE isn’t just restricted to East Africa however, it’s pan-continental. Etisalat for example is now one of the largest telecoms companies in West Africa. The Emirati based corporate has taken advantage of its majority ownership and purchase of telecoms giant Maroc Telecom, as a gateway into West Africa, thus helping strengthen the position of Etisalat.

The decline of traditional banking in North Africa has led to the rise in modern forms of banking, albeit with an outlook that still complies with Islamic Finance, and this has allowed Emirati financial services to integrate within North African economies. Compliant with Shariah finance already, Abu Dhabi Islamic Bank and Union National Bank were some of the first Emirati companies to be active in North Africa. As conventional banking continues to grow in areas like Egypt, their influence will increase.

The domestic needs underpin UAE’s Africa strategy

Motivated not only by monetary gain, but rather by commodity needs, the UAE’s investment portfolio continues to diversify. UAE has to import around 90% of its food and has little land space to use for arable farming, so any opportunity to invest into agricultural space is of commercial interest. The lack of arable land is not unique to the UAE, especially in the arid climate of the gulf, and thus Africa offers not only an opportunity to secure the UAE’s own food demands, but also to be used as a diplomatic tool, potentially leveraging any surplus when neighbouring nations face food shortages. Emirati agribusiness leader Al-Dahra has holdings in Egypt, Morocco and Namibia, where it grows raw commodities such as fruit and vegetables which are then exported back to the UAE for consumption or further international export.

In the almost rabid effort to diversify their economies, gulf countries have used Sovereign Wealth Funds as a way to distance themselves from an oil reliant system. Al-Dahra has used profits for domestic transportation and infrastructure projects, which have had positive impacts in the local economy. At the upcoming Dubai Expo 2020, over USD $8bn was committed for this infrastructure investment, a clear move into this investment. From this, demand for domestic labour increases, and provides the UAE with the infrastructural stability for continued, sustainable growth.

Unlike the west, business in the UAE is often hegemonic, nepotic and intrinsically tied to the state and its institutions. Many of the examples in this article at the very least have some governmental representation in its stakeholders, such as Etihad, Emirates, Abu Dhabi Islamic Bank, Al Dahra and Etisalat. This means most Emirati business have a unique dual obligation, unlike that of a typical Western capitalist arrangement. Linked to the government, these businesses have a mandate to increase profit and revenue, but also to fulfill certain domestic employment obligations.

UAE’s global acquisitions are part of a 6-approach strategy which was released by UAE’s Soft Power Council (SPC), which aims to increase Emirati’s international influence. The Qatari diplomatic crisis revealed the deep rifts and heightened volatility of a sub-region which had seemed peaceful for many years, as well as the need to build open, global relationships.

A cornerstone of this strategy is to build links with the developing world, introducing receptive nations to the model of development which has transformed the Emirati kingdoms into the metropolitan powerhouses that they are today. Indeed, Sheikh Mansour stated just that when he said, “We have developed in a remarkable way and can offer a model for development for many other countries around the world”.

The UAE’s path to African domination has begun to face several challenges however. In an effort to balance multiple diplomatic interests, the balance of power in the Horn of Africa, long a key strategic point for Emirati maritime interests. Having already built a shipping port in Djibouti in the 90’s, Djibouti rejected their offer to build a military base there, despite previously granting permission to China, France and the US, so straining relations with UAE. The reason for this denial was likely due to the UAE’s ties with Djibouti’s neighbour and rival, Eritrea. With this snub, the UAE began the construction of its military base in Assab, Eritrea in addition to a shipping port in Berbera, Somaliland, with the intent of rivaling Djibouti’s now close to full capacity port. The move has not only soured relations with Djibouti, but also angered Somalia, who claim the unrecognised state of Somaliland as their own, viewing the construction of a port in Berbera as “belligerent and illegal”.

With further infrastructure development planned until at least 2020, the outlook for UAE FDI in Africa appears bright, yet heavy-handed policy in East Africa threatens to disrupt the long-planned efforts of increased Emirati cooperation with the countries in the Horn. With successful business and power politics entwining in the UAE’s growing influence in Africa, Abu Dhabi would be wise to proceed with caution as it attempts to weave its way into the fabric of the African economic and political scene.

Despite the increased guts and bravado on show in the UAE’s Africa policy, the future for the Emirati’s in Africa appears bright. Big wins in both politics and power have helped accelerate UAE’s continued foothold into Africa, but it would always be wise for Abu Dhabi to step carefully as it weaves its way through the African political and economic scene.

Written by Joseph Brazier, Editor at Trade Finance Global

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