Packed with potential: GCC investment in Africa

The World Trade Organisation’s (WTO) Ministerial Conference took place in Abu Dhabi in February this year, underlining the importance of existing and potential trade links between the Gulf region and the 54 countries on the African continent.

Cultural and linguistic ties have long strengthened bonds between the GCC and North Africa, but the opportunity for collaboration is now shifting further south into continental sub-Saharan Africa. Given the continent’s staggering economic potential, it should come as little surprise to anybody that the GCC’s interest in Africa’s continued growth is gathering pace.

But where does that potential lie? For a start, Africa accounts for 60 per cent of the best solar-energy resources in the world, is home to a large share of the world’s critical minerals needed for its energy transition and for the world’s energy transition, and has 60 per cent of the world’s uncultivated arable land. What’s more, it boasts six of the world’s 10 fastest-growing economies on a continent where 70 per cent of the population is below the age of 30.

In short, Africa is the world’s largest consumer growth market. With favourable conditions, the potential for trade-driven growth and investment is phenomenal.

GCC investment past and present

According to the World Economic Forum (WEF), deepening trade and investment relations between Africa and the Gulf Cooperation Council (GCC) are on the cusp of major additional growth, driven by a shared interest in diversification, investment and sustainable development.

In 2023 alone, companies in the GCC committed to more than 70 projects in Africa worth over $53 bn in foreign direct investment (FDI) flows.

Africa’s economic potential in areas such as minerals, land development, food production, transport and clean energy represents vast untapped potential for Gulf countries to unlock. Yet, the main obstacle to unlocking that potential is often finance, with a funding gap thought to be somewhere between $150 bn and $200 bn.

As an example of the growing trade links between Africa and Gulf nations this century, Uganda increased the volume of its exports to the Gulf region by over 8,000 per cent between 2000 and 2016.

The region now takes around 15 per cent of Uganda’s exports, of which over 90 per cent go to just two major economies: the United Arab Emirates and the Kingdom of Saudi Arabia.

Africa today: present reality and future potential

In today’s world, the critical watchword across the continent is speed. Africa has the fastest rate of urbanisation, the fastest rate of growth in internet use, the fastest rate of funding for startups and the fastest-growing economies. The world’s first mobile money network was developed in Kenya, and last year, it completed over two bn fintech-enabled transactions.

Africa’s seemingly insatiable appetite for tech innovation and clean power – and the vast potential of those two sectors alone – has seen significant capital inflows.

Nigeria is home to several technology unicorns (a unicorn generally defined as a startup under 10 years old and valued at more than $1 bn), and Kenya is now a global leader in renewable energy, satisfying almost 90 per cent of its power demand, and is on track to hit its climate target of 100 per cent clean power by 2030.

Countries such as the Democratic Republic of Congo (DRC) are major producers of critical minerals required for electrification and the net-zero energy transition. These countries are taking advantage of their local natural resources to rapidly develop a mature green-tech sector. As a case in point, DRC produces 70 per cent of the world’s cobalt and sits on more than 50 per cent of the world’s cobalt reserves.

African countries already represent a critical investment market for the Gulf region, but the true potential of future investment opportunities on the African continent by 2050 is likely to be driven by Africa’s consumer market as well as its own development goals, as stated in the African Union’s Agenda 2063.

Africa and the GCC: The hard economic facts

With Africa being home to the world’s largest and youngest working population and 20 per cent of the world’s consumers, the GCC really cannot afford to ignore its investment potential. That requirement for investment is particularly acute for the many African nations tackling development challenges in the form of sovereign debt.

According to the International Monetary Fund (IMF) and World Bank, in 2021 the average sovereign national debt across all African countries sat at a staggering 68 per cent of GDP.

Nine of Africa’s 54 countries were in debt distress in 2021, 15 were at a dangerous risk of debt distress, and 14 were at moderate risk.

The Gulf region and wider Middle East, however, is well positioned to continue its long history of investment in and trade with the African continent, but with investment from China now down almost 35 per cent on its previous high, the Middle East and Gulf region is well placed to take advantage of this widening funding gap to exert yet more soft power and influence in what has become an important trade corridor.

African economies need vast inward investment, and the Gulf, where the collective assets under management (AUM) of the top 10 sovereign wealth funds stand at around $4tn – greater than the UK’s entire GDP – is in a unique position. Abundant capital and a mature finance market can easily meet the funding needs of African sovereign and private projects.

Last year, Gulf countries poured more than $53 bn into projects on the continent, a considerably greater sum than the $10bn investment from the US over the same period. However, the financing gap remains substantial.

Destination: consumer growth market

The Gulf states are in the driving seat on a journey down a vast new highway in trade and sustainable investment in Africa.

Both logistically and culturally, stronger bonds in trade will bring phenomenal rewards both to Africa and the Gulf, as ever-growing trade links continue to draw in many of the Gulf’s private and sovereign investors who fully appreciate the potential of deeper GCC-African connections.

The writer is the CEO of Creative Zone.

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