Arab-African trade ties date back to antiquity, and the two regions share a common spirit of trust and brotherhood. This deep relationship offers plenty of opportunities for business, says Dr Carlos Lopes, the Executive Secretary of the Economic Commission for Africa (ECA) at the level of UN Under Secretary-General.
“As one of the fastest expanding economic regions, dubbed the new investment frontier, Africa is an integral component of this new world of foreign direct investment,” he says. “My message is simple – come invest in Africa.”
It’s a message he’s bringing to the sixth Annual Investment Meeting, which opens today at the Dubai World Trade Centre today. In an interview ahead of the event, he laid out the case for Africa, from its development and infrastructure needs to the challenges posed by the commodities cycle, and the opportunities ahead for investors. Excerpts:
How do you evaluate trade, economic and investment relations between the UAE and the African continent?
There is no doubt that UAE is an important trading partner of Africa. For instance, total merchandise trade between Africa and UAE has increased from $5.6 billion in 2005 to $17.5 billion in 2014 (Dh64.38 billion, the latest year available). That represents more than a threefold increase within a decade and shows a clear trend towards deepening economic relations between Africa and UAE. In addition, the share of UAE in Africa’s total trade with the world increased from 1.0 per cent in 2005 to 1.5 per cent in 2014.
The future looks bright, we can expect these trends to continue given that businesses and investors based in UAE are just starting to engage in Africa and more so in countries beyond just North Africa.
How important are UAE investments for Africa’s economy?
Traditionally economic relations between GCC countries and Africa were concentrated in North Africa, but more recently the focus has been expanded to include other sub regions as well. For instance, the Investment Corporation of Dubai has invested $300 million in Dangote Cement of Nigeria; Etihad has bought a 40 per cent stake in Air Seychelles; and Rani Investment, based in Dubai, is a key investor in Mozambique’s tourism industry operating a number of luxury hotels. Also, recently Ethiopia has opened an Embassy in UAE, which is another sign of deepening economic relations between Africa and UAE.
In addition, the Afro-Arab partnership is one of the oldest, bound by history, geographical proximity, ancient trade links, and other economic, social and cultural ties that have been nurtured by trust as well as a spirit of brotherhood. One in two Arab League member countries are in Africa; about two-thirds of Arabs are also African; Arab countries make up more than a third of the African continent; and almost a quarter of the world’s Muslims are in Africa. This interconnectedness reinforces the strong bonds that the two regions share. In the light of today’s complex geo-political configurations, we have a unique opportunity before us to intensify and leverage our linkages through investments to tackle the challenges we face and come up with solutions for a sustainable future.
Where do you see investment opportunities for the UAE and GCC countries in general in Africa?
Africa is a vast continent with 54 countries each offering a variety of individual opportunities to foreign investors. For example, there are tremendous opportunities to scale up investments in trade and business. For instance, given the high degree of sophistication of the finance and banking market in GCC countries and the role of GCC as an international financial hub, on the one hand, and the rapid development of the banking sector in Africa, on the other hand, the banking sector seems like a natural area for investments. In fact GCC countries have already started to invest in the banking sector: The Qatar National Bank has acquired banks in Egypt, Libya and Tunisia, and set up branches in Mauritania, Sudan and South Sudan, as well as acquired a 23 per cent stake in Ecobank in 2014. The Union National Bank and the Abu Dhabi Islamic Bank are active in North Africa. Other GCC based banks are looking to expand their engagement in Africa.
Other areas with investment opportunities include infrastructure, telecommunications, tourism, construction, real estate development and renewable energy to name a few.
What were the total investments Africa attracted in 2015? And how much did the GCC countries invest?
Total FDI inflows to Africa in 2014 amounted to $54 billion (latest year available). There are no exact figures on the share of GCC countries in African FDI, but anecdotal evidence suggests that investments from GCC countries to Africa have been growing. I have already mentioned a number of UAE-originated investments in Africa. Other GCC countries are also increasingly discovering the vast investment opportunities that exist in Africa. For instance, the Qatar National Bank has investments in several African countries; The Saudi Telecom Company holds a 75 per cent stake in Cell C of South Africa; and Oman's State Government Reserve Fund has invested in a huge port construction project in Bagamoyo, Tanzania.
You recently said that Africa’s need for real structural transformation has passed. What makes you think that?
What I said was that the time for a wake -up call on the need for structural transformation had passed. I said this during the African Union Summit’s Executive Council earlier this year. Let me elaborate. A period of good economic performance on the continent had captured and dominated the ‘Africa rising’ storyline. Now a combination of factors such as renewed conflict, drops in commodities demand and prices, including oil, high currency volatility, rising interest rates, to the disastrous effects of climate change are once again dominating the African story line. This is despite the fact that the continent’s economic prospects are still there and intact. For example, the highest growth continues to be registered within a global slump; while on one hand international reserves took a beating, on the other hand the continent has internationally low debt levels; public deficits are still under control, and steady increase in investments from many.
Factors shifting the mainstream narrative back to the past are largely attributable to the fragility of perception and the lack of deeper structural transformation (the need to combine higher agricultural productivity, adding value to natural resources, modernised services associated with urban and youth bulges, powered by strong industrialisation). So it’s important that we get the story straight. Part of the solution is to deal with die-hard perceptions upfront as African priorities, for instance to deal with the causes of conflict, or everybody will pay the price for the fragility perception. The call is for boldness, establishing a common security framework and to squarely accept the challenges of exclusion and managing diversity.
How is the African continent coping with the drop in commodities demand and prices, including oil, high currency volatility, rising interest rates which the world is facing at the moment?
The prices of oil, natural gas and other mineral resources have been declining over the past couple of years. This has caused losses at stock markets and put currencies of mineral exporters around the world under pressure. However, African economies have proven to be extremely resilient under these adverse conditions. Growth is estimated to remain strong – above world and developing country average. While the drop in commodity prices has not caused an economic crisis in Africa we should see it as a reminder of the importance of reducing the reliance on commodity exports and boosting industrialisation, diversification and economic transformation on the continent – the only way to ensure that value and employment is created in Africa.
The continent is still driven by the commodity sector. Over 80 per cent of total African exports are still linked to commodities, do you think it’s time for the continent to diversify its economy?
Yes indeed – export diversification is high up on the agenda of African policy makers. Diversification is crucial for African transformation for several reasons. An overreliance on a small range of commodities constitutes a risk of externally-induced volatility due to international market developments, which African countries cannot influence. But most importantly, little value is created in the commodities sector. In order to move up the value chain and generate higher incomes and wealth, African countries have no option but to diversify – and African leaders are well aware of this. Some success has already been made, in particular in the services sector, which is now Africa’s largest sector in terms of FDI stock. Other non-commodities sectors, which have seen inflows of FDI in Africa include tourism and construction.
You’ve said Africa needs a commodity index that truly reflects the weight of African commodities in its GDP and projects impacts based on African realities rather than approximations. How would such an index help Africa’s economies, and will it attract more investors to the continent?
If we would have watched the IMF’s commodities price index between mid-2014 and end-2015 and tried to infer Africa’s economic situation solely on this observation we probably would have thought that there is a major economic crisis going on. The reality, however was very different. African economies have been extremely resilient in the wake of this drop in commodity prices. Hence, in order to have a more useful tool for economic analysis and planning it is important to have a commodity index for Africa based on the weight of African commodities in GDP. Such an index would not only be useful for policy makers, but would also provide a better and more accurate basis for investors who evaluate economic prospects on the continent.
Most African countries’ lack of ready infrastructure still poses the biggest obstacle to the flow of foreign investments. What are the total investments needed by Africa to build its infrastructure and are governments making sufficient efforts to overcome the obstacles that foreign investors face?
Africa’s infrastructure requirements are estimated $93 billion annually. Infrastructure is not only an imperative to maintain growth it’s a prerequisite to achieve the goals set out in Agenda 2063. Infrastructure development alone could increase the continent’s per capita economic growth by 2 per cent a year and increase productivity of firms by as much as 40 per cent, so it’s definitely worth investing in.
In the case of energy for instance. Africa is well endowed with all forms of renewable energy resources – hydropower, solar, wind, geothermal, biomass and even marine energy; but yet today we are in a situation where the total installed electricity capacity in Africa is only about 160 gigawatts. By comparison, this is just over half of Japan’s installed capacity. Given the plentiful renewable energy resources of Africa, the energy mix of the continent is still dominated by fossil fuels (gas, coal and oil), with renewables making only 22 per cent of the installed capacity, dominated by hydropower. With more energy – there would be more productive capacity. While investments in renewable energy generation in the continent are less than optimal, some countries are making tremendous progress such as South Africa, Kenya, Morocco and Ethiopia to name just a few.
Turning to the point regarding whether African governments making sufficient efforts. In short, yes. There are a number of number of initiatives on the ground; at the continental level we have the Programme for Infrastructure Development in Africa (PIDA) through which leaders are championing political will to address the inadequacies of infrastructure – it serves as the blue print for accelerating Africa’s infrastructure gaps in priority projects on energy, water, transport, and information and communications technologies. The New Partnership for Africa’s Development Presidential Infrastructure Champion Initiative, led by eight heads of state, is also championing projects with a regional dimension across the continent. There is also the Africa Power Vision; the UN Secretary General’s Sustainable Energy for All initiative; President Obama’s Power Africa; IRENA’s Africa Clean Energy Corridor; and now the Africa Renewable Energy Initiative.
Gains have also been made on other fronts such as in governance. An improved business environment has contributed to investor interest and confidence. More economies in Africa have improved their regulatory environment compared to any other region. Regional integration also offers wider and integrated markets and cost efficiencies can be leveraged by tackling infrastructure deficits collectively.
There is of course scope for more to be done. Already, various financing mechanisms to mobilise resources are taking root, changing Africa’s infrastructure landscape and there are plenty of opportunities for investors to partner in and support Africa lead its own development agenda.
Despite reaching the Tripartite Free Trade Area Agreement, signed in Sharm-el-Sheikh in June 2015, significant structural and policy bottlenecks still remain to be overcome. What are your comments?
Regional integration remains a top priority for Africa. In this regard, the signing of the Tripartite Free Trade Agreement was a major achievement. There is also progress in other sub-regions. For instance, the Economic Community of West African States has launched its customs union in 2015. Of course, regional integration is a continuous process and there remains a lot to be done. Inter-African trade flows are still below what is possible and remaining tariff and non-tariff barriers to trade need to be eliminated quickly. Infrastructure, particularly in terms of transport and logistics is another priority area. Overall, Africa is making good progress in terms of regional integration, but we must make sure that integration efforts continue.