Gulf investors access Africa via co-investment with private equity funds and invest US$9.3 billion

DUBAI, Capital Markets in Africa — In support of its efforts to highlight attractive investment opportunities in Africa to its members, Dubai Chamber of Commerce & Industry launched new report entitled “Beyond Commodities: Gulf Investors and the new Africa”, which has highlighted that co-investment with private equity funds, purchase of private equity businesses, and direct buyouts or minority share acquisition represent the most significant modes of FDI entry for Gulf investors interested in Sub-Saharan Africa.

The study, produced in collaboration with The Economist Intelligence Unit, analysed Gulf investment into Africa, opportunities available to investors, and the investment vehicles they can use to enter African markets. It also sheds light on the continents’ most promising non-commodity sectors.

The study was launched during a press conference on the sidelines of the Third African Global Business Forum, hosted by Dubai Chamber and currently taking place in the Atlantis Hotel in Dubai. And it revealed a number of factors that make gulf investment into these sectors particularly attractive: Demographic trends, growing consumer markets, economic stability and an improving business environment, as well as a resilience that has allowed it to withstand global recession and the current commodity price slump.

The study also found that East Africa was the most appealing region for non-commodity investment from the Gulf, with retail and hypermarkets, automotive, commercial banking and tourism considered key sectors. Manufacturing in Ethiopia, leisure, retail and tourism in Mozambique and Kenya, and education in Uganda were also popular with Gulf investors.

H.E. Hamad Buamim, President & CEO of Dubai Chamber deemed it a duty towards its members and the wider investment community to make research like this available, given the current dearth of detailed and specialized economic studies, and noted that the EIU study contains insights around sectors that UAE companies hold an eminent and competitive position in, in particular corporate banking, retail, tourism, and logistics. He also noted that the research the Chamber conducts is backed by a significant on-ground presence in Africa, which helps to identify opportunities for UAE companies, helping to increase their presence in the process.

Buamim also noted,: Most studies and global indicators point towards a future that is very bright in Sub-Saharan Africa, and so we’re putting our trust in these markets that we think will drive the engine of growth in the region, ensuring that Dubai Chamber is, once again, at the forefront of the investment community, and committed to ensuring that all our capabilities are being used to reinforce the competitive nature of the private sector in Dubai, mirroring the high reputation that Dubai has managed to build for itself in such a short space of time.

Buamim added also that the Dubai Chamber aims, through the forum, to encourage Gulf investors to expand trust beyond the borders of North Africa, which currently makes up the bulf of Gulf investment, pointing the opportunities in sectors as diverse as logistics, hospitality, retail and corporate banking.

The study showed that Gulf investors Gulf investors have three potential modes of entry into the African market: co-investment with private equity funds, purchase of private equity businesses, and direct buyouts or minority share acquisition. It also found that outside of South Africa, stocks and shares remain of limited interest to Gulf investors

It also found that malls and hypermarkets are emerging in a handful of countries, noting that Gulf companies have a comparative advantage thanks to a track record in franchising and adapting brands to local tastes and cultures. These firms are also skilled at managing the logistics of multi-country distribution.

The study also drew attention to the role Gulf airlines have played a role in opening Africa to international tourists, with Gulf investors owning around 20 hotels and resorts in Sub-Saharan Africa. However, the need to improve logistics in FMCG was also noted- which remains challenging due to weak infrastructure. Gulf firms have experience to share but only a few are exploring investment in Africa at the moment.

The study highlighted data from the African Development Bank which shows that average real GDP growth across the continent was 6.1% in 2010-14 and per capita income rose by nearly 60% to US$1,788, according to EIU estimates. The research forecast a deceleration to 4.1% in 2015, mainly due to the commodity price shock, before a pick up to 5.1% in 2016. In addition, the IMF forecasts average growth of 5.3% from 2017-2020.

The study also underlined the importance of the average rate of population growth across Africa, which is 2.7%, compared with a global average of 1.1% (and 0.5% in China). The mid-case in the latest UN population forecasts see sub-Saharan Africa’s population ballooning from 962m in 2015 to 1.4bn in 2030 and eventually to 3.9bn at the end of the century, when it will host a third of humanity.

The study also found that one widespread economic stabilisation trend in Africa has been reduced debt, thanks to a string of bilateral and multilateral initiatives which cancelled a large part of the external debts of Sub-Saharan Africa, bringing government debt down to 30% of GDP in 2014, from 67% in 2000, according to IMF data. 

Please download the full report at: Beyond commodities: Gulf investors and the new Africa