GCC Investors warm up to Africa

As fund managers in the GCC continue to face uncertainty as a result of turbulence across the region, many have decided to make inroads into Africa. After a series of prestige investments across US and Europe, without significant returns, fund managers are boosting their investment in untapped resources. As government debt problems continue to weigh on US and European markets, these regions no longer look as attractive to some Gulf investors. Africa, also known as the "last frontier" for returns offers fast economic growth, untapped middle class, and an improving political and business environment. Contrary to popular idea, GCC investments have been far beyond farmlands of Africa into banking, insurance, finance, logistics and real estate.

Industry leaders from the GCC banking industry such as the Jeddah-based ICD, a private sector arm of the Islamic Development Bank, will seek to establish Islamic financial institutions including banks and takaful insurers on the continent. It plans to open two new Islamic banks in Mali and Benin next year as part of efforts to expand the industry's consumer base in Africa. In the last two years the ICD has extended $184 million in financing to borrowers in African countries including Mauritania, Sudan, Gabon, Gambia and Mali. While Abu Dhabi Islamic Bank (ADIB), became the first lender from the UAE to receive a banking license in Sudan. ADIB is also a stakeholder in Bank of Khartoum, Sudan's oldest bank, along with other Gulf lenders such as Dubai Islamic Bank, Sharjah Islamic Bank. Another industry leader, NBAD is also targeting African expansion as it awaits to convert its representative office in Libya to a branch. It has also secured a license for its first branch in Juba, south Sudan with an opening slated for the first quarter of 2013.

Responding favorable to Kenya's call for more investment in tourism,  Dubai’s Emaar Property, one of the world’s most valuable companies has sealed an agreement to build its five star premium hotel brand, “The Address Hotels + Resorts brand” near the world famous national park, Masai Mara (Africa’s greatest wildlife reserve) in Kenya.

South Africa and Saudi Arabia strengthened their political and economic ties by creating a new company – Saudi Arabia-South Africa Holdings (SASAH). The company was launched during the fourth Saudi Arabian African Joint Committee held in Riyadh. The new company is entitled to free 5 percent equity in any joint venture initiated by SASAH. The partnership will help the two countries to invest in profitable business ventures and facilitate joint ventures.

African equities have been an area of interest for quite some time. International investment firms have scrambled to raise money to invest in public and private companies in the region. At home, Abu Dhabi-based asset manager Invest AD has launched two UCITS-compliant funds, to invest in Africa and the Arabian Gulf.  According to the asset manager, In a recent survey of 158 global institutional investors by Invest A.D. and the Economist Intelligence Unit, 51 per cent of respondents believed Africa will be the most attractive emerging market for investment over the next decade. By 2016, all intend to have some investment in Africa, with a third expecting to allocate at least five per cent of their total funds to the continent. Currently, almost half of respondents say they have either no exposure, or less than a one per cent allocation to Africa. Saudi Arabia's, The Kingdom Zephyr Fund ,  a holding company for a number of investment funds focusing on opportunities in regional and pan-African businesses. The fund is managed by Kingdom Zephyr Africa Management Company (a joint venture between the KHC and Zephyr Africa LP).  The fund has already invested more than $100m in private equity opportunities and focuses on investing in multi-country enterprises with good capacity for growth and an ability to compete regionally and internationally.

To tap the growing insurance sector in the region,  Abraaj Capital, the biggest private equity firm in the Middle East, has invested US$125 million (Dh459m) in an insurance firm ,Saham Finances, spanning Morocco and Francophone West Africa to support the firm’s growth and development plans in the wider African continent. Saham Finances, based in Morocco, has majority stakes in three subsidiaries - CNIA Saada, Colina and Isaaf.

The continent offers immense opportunity for GCC investors and firms seeking expansion and returns. From Nigeria to Zambia to South Africa, growth rates topped 5 percent compared with 4-7 percent in the BRICs, 2 percent in the United States and zero percent or sub-zero in major European economies by the year-end. he continent is expected to see 5.4 percent growth this year, and more than six per cent each year for the next decade, approaching or exceeding the growth rate of Asia.

However, it is best to tread strategically in the continent, where growth has not been uniform.  The continent however has its share of risks, political instability, security issues and bureaucratic inefficiencies make business process challenging. However, early stage investors are known to reap higher returns by efficiently managing these risks.  

The writer is an independent cross-border investment consultant and can be contacted at zaidi_nazia@yahoo.com.

This is not an investment recommendation.