Gulf investors continue to see light at the end of tunnel

[LRE]

By Jane Ferguson, Business Features Writer
Published: August 26, 2009, 22:22


There are a number of company logos across Africa that Gulf residents would recognise. Over the past few years, there has been a notable turning of attention towards Africa by major Gulf investors.

The recent economic downturn, however, has cast doubts over the future growth of such investments. Experts still say that while a contraction of some foreign direct investment is certainly happening, a Gulf focus on the continent will continue.

"The sovereign funds of the GCC have big interest in Africa, especially in infrastructure," said Baldwin Berges, Director of Business Development at London-based financial services firm, Silk Invest. "On the corporate side, almost every single GCC company has an African strategy."

Although Africa is currently experiencing a withdrawal of some ambitious investments across the continent, says Berges, in the long run companies will continue to expand there. "In the current challenging environment some companies are refocusing their strategies on a more limited number of countries within the area but the long-term trend is still positive," he said.

Across a number of sectors, Gulf investors lately have varied widely in their commitment to Africa. Kuwaiti telecommunications giant, Zain, has been the most prominent example of a recent reversal of intent regarding the continent. Long heralded as the perfect example of Gulf money moving into Africa, Zain invested $12 billion (Dh44 billion) across 16 countries as the mobile phone revolution took off. In July however, the company confirmed they were hoping to sell their African arm of the business.

Similarly, tourism investments have been hit. This summer Dubai World announced it would be significantly scaling back their previously announced plans to invest over $1.5 billion over five years through their Dubai World Africa arm. In May, the chairman of the holding company, Sultan Ahmad Bin Sulayem, said that it expected double-digit growth from the African market.

Dubai World reportedly said it would go ahead with only two of the eight projects planned for Rwanda. Earlier, it had planned to invest $230 million in Rwandan tourism and $100 million in Ethiopia. Other projects included a wildlife game reserve in Zimbabwe, and three others in South Africa.

Some experts however stress that investments in tourism are not as vital as those in infrastructure, in terms of Africa's ability to grow economically. Putting hotels on hold is one thing, but if investors were to pull out of infrastructure projects, this would be of a much graver concern.

"Those are marginal investments," said Gijon Jose, Head of the Africa and Middle East Desk at the Organisation of Economic Cooperation and Development (OECD), regarding the stalling of tourism investment. "The big investments in agriculture and infrastructure are important. Of course there is an overall fall in foreign direct investment [in Africa], not just from the Gulf but also across the world. The only major long term effect is in the ports. The others are marginal."

Further investment however is needed to improve infrastructure beyond the waters of a port. Africa is renowned for the expense and time it takes to move goods around. It takes on average 48 days to get a container from the factory to the ship in sub-Saharan Africa, according to the World Bank. DP World, who operate six terminals on the continent, admit this affects their choice in business ventures there, and say they are working to improve such problems.

"The state of internal transportation is a key factor in our decision to manage a new facility," said Joost Kruijning, Senior Vice-President and Managing Director for the Africa region.

"Poor road and rail links lead to bottlenecks and inefficient use of resources. DP World's partners on the ground in Africa understand the need for a holistic approach to supply chain development."

DP World's investment in Djibouti's container terminal has ambitious plans for expansion. At the time of opening in February of this year, it was announced that the first $330 million phase of the development would accommodate a capacity of 1.2 million TEUs (20 foot equivalent units) per year. The second phase of the terminal's development is due to start later this year and was expected to increase capacity to three million TEUs.

However, the effects of the global economic crisis are likely to impact this, as shipping is hit hard globally.

"It's important to note that while our investments are for the long term, we scale capacity to meet market demand," said Kruijning. "This equilibrium is very important in terms of controlling costs and offering the best value to our customers. We work closely with the shipping lanes and our suppliers to identify areas we can jointly increase and reduce costs."

Other Gulf companies have recently announced expansion plans despite the economic gloom. Low cost airline FlyDubai announced earlier this month that it would be flying three times a week to Djibouti. In June, a delegation from Dubai's Multi Commodities Centre (DMCC) traveled to Angola to discuss increased trade between the two governments. Angola is DMCC's largest trading partner in rough diamonds, noted Peter Meeus, Chairman of the Dubai Diamond Exchange, at the time.

Beyond the big names, a number of lesser-known Gulf entities are doing business in Africa. "Less obvious examples like Red Sea Housing services of Saudi Arabia also show what is possible," said Berges. "It is the world market leader in the manufacturing of modular buildings, providing a broad range of commercial and residential applications suited to the lack of infrastructure in Africa. It's production facility in Ghana, services the whole of the African continent."


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