Sub-Saharan Africa/UAE politics: UAE continues to seek African markets and alliances

Content Type
Country Data and Maps
Economist Intelligence Unit
No abstract is available.
Politics, News Analysis
Political Geography
Kenya, Sudan, Djibouti, Mozambique, Ethiopia, Nigeria, Somalia, Eritrea, Ghana, United Arab Emirates, South Sudan

Sub-Saharan Africa (SSA) remains a key market opportunity for the UAE, despite the continent's slowing growth on the back of lower commodity prices. Dubai, in particular, continues to position itself as a hub for global investors seeking entry into Africa due to its good flight connections. In addition to economic ties, the UAE is also seeking to extend its strategic presence in the Horn of Africa with plans for a new port and military base.

In early 2017 the UAE's Ministry of Foreign Affairs and International Co-operation held its inaugural UAE-Africa Friendship Day, under the theme "Joint Vision, Mutual Destiny". The Abu Dhabi-hosted event was attended by a number of senior African government ministers and trade representatives and was the latest in a string of UAE initiatives to promote ties between Africa and the UAE. Although the UAE-and its Gulf Arab neighbours-have well-established trade and banking links with countries in North Africa and Arabic-speaking Sudan, it is only in recent years that relationships have started to form with those south of the Sahara. The UAE now has 11 embassies in non-Arabic-speaking African capitals and a visa-processing office in the Kenyan capital, Nairobi.

UAE is encouraging trade and investment in Africa

Helping to enable trade and investment in Africa, UAE airlines Etihad, Emirates and Fly Dubai together serve a relatively large number of sub-Saharan countries. They have capitalised on their country's hub status to attract passengers visiting Africa from Europe, Asia and beyond, and are now trying to use the routes to attract middle-class Africans to visit the UAE as tourists.

Meanwhile, a number of other UAE-based conglomerates are targeting African markets in a number of sectors, such a retail, tourism and manufacturing. A Dubai-based private equity firm, Abraaj, also has a significant African portfolio focusing on a range of areas including healthcare, mining and consumables, and the Abu Dhabi Investment Council (ADIC), the emirate's main investing body, has likewise been quietly expanding its footprint on the continent.

The Dubai Chamber of Commerce has placed Africa at the heart of its global strategy, and in the space of two years has opened up four international offices on the continent, in Kenya, Ethiopia, Ghana and Mozambique. The idea is to help UAE-based firms find out about opportunities within Africa and support them with business set-ups locally. Complex business environments and high levels of corruption, which are endemic across much of the continent, can be a problem for would-be Gulf investors accustomed to a more straightforward approach. Of the African states ranked in The Economist Intelligence Unit's business environment rankings, South Africa is the highest positioned at 52nd of 82 states for 2017-21, with the remainder clustering near the bottom of the ranking, in stark contrast to the UAE, which is ranked 21st. Transparency International, an anti-corruption advocacy group, places the UAE 24th out of 176 countries ranked in its 2016 Corruption Perceptions Index, the highest in the Middle East and North Africa, where as with the exception of a few notable exceptions, Sub-Saharan African states tend to cluster at the bottom of the table (South Africa and Ghana are at 64th but Nigeria and Kenya are a lowly 136th and 145th respectively, and Somalia comes last globally in their rankings).

Shrinking margins

In the past 18 months or so, however, slower economic growth in Africa owing to lower oil and other commodity prices has meant smaller African returns for the UAE and this appears to have dented investor appetite. Foreign-exchange shortages owing to currencies losing values and rising debt burdens have also made the continent a less attractive place to do business. Dubai's Emirates Airline, for instance, announced in late 2016 that it was cutting some of its African flights owing to shrinking passenger numbers and problems over fuel payments, while the Nigerian arm of Etisalat, an Abu Dhabi telecommunications firm, has been forced to restructure loans worth over US$1bn.

Nonetheless, even if growth is slowing in countries such as Kenya, Nigeria, Mozambique and Ghana, these are still largely-untapped consumer markets for UAE-based exporters. There are also plentiful private investment opportunities in still undeveloped sectors such as infrastructure and tourism. Indeed, investing now while markets are subdued may give UAE companies an advantage over their rivals in the longer term.

Moreover, there are opportunities in other areas. With its growing Muslim population, and potentially, in the longer term, increased spending power, SSA is just the sort of market that the UAE's halal food and consumer goods exporters should be targeting. There are also significant opportunities for Islamic finance development, including structuring sukuk (sharia-compliant bonds) to finance infrastructure projects and other large-scale investments, both with sovereign and private borrowers. Despite much talk about these opportunities, take-up has so far been slow. This has been due to a combination of the lack of institutional capacity regarding Islamic finance within African governments and waning liquidity on the side of the Gulf Arab lenders, who have been hit hard by lower oil prices.

Regional influence

In June 2016 DP World, owned by the Dubai government, announced a US$442m agreement with the government of Somaliland (a self-declared independent region of Somalia) to develop and operate a regional trade and logistics hub at Berbera Port. The planned upgrade promises to ease marina congestion in the Horn of Africa, and Ethiopia in particular, and should help boost trade flows to the UAE. Ethiopia, which is landlocked, is in discussion with the Somaliland authorities to secure a minority stake in the Berbera Port. The port plans, however, come with significant risks owing to the continued uncertainty of Somaliland's political status and a difficult business environment without legal protection and certainties. The UAE, through DP World's P&O Ports is also investing US$336m in a new port project at Bosasso in the Puntland state of Somalia. Some 1,400 km north of the Somali capital, Mogadishu, the planned facility is strategically located for maritime transport in the Gulf of Aden at the southern approach to the Red Sea and Suez Canal.

The Horn of Africa is being viewed as an increasingly crucial strategic interest by the UAE and other Gulf states. In addition to these two commercial schemes, the UAE is also reported to be setting up a military base within Somaliland. News of the plans were initially resisted domestically and regionally, and also disapproved of by the UAE's close ally, Saudi Arabia, which is planning its own naval site in neighbouring Dijbouti. However, in late May the Bloomberg news agency cited the Somali foreign minister, Saad Ali Shire, as confirming the 25-year lease of the base, used during the Cold War by the Soviet Union and the US.

All these projects are in keeping with the UAE's growing regional ambitions and give the country a foothold to counter the rising influence of Turkey in Somalia. Moreover, the UAE's armed forces are currently part of the Saudi-led coalition fighting in Yemen, and Berbera Port, some 260 km north, is strategically placed to support that response. Should it go ahead, it will also help the UAE protect its ships from pirate attacks, which have increased in frequency in recent months.

The UAE is facing short-term challenges to its growing business interests in Africa, but even when these are resolved, the difficult operating environment for businesses in much of Africa could stall further opportunities. Nevertheless, UAE firms are likely to persist in cultivating African markets in the longer term, encouraged by a government that also sees a strategic interest in reinforcing its military capacities in the Horn of Africa in particular.

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