Africa-Middle East : from development assistance to investment

Once seen as a continent of famine and misery, Africa was of interest to Middle Eastern countries only for charitable purposes. Today, as it is on the verge of becoming the world’s largest market with the creation of the AfCFTA, Africa is highly coveted. Including by Middle Eastern countries, between which, like other world powers, a war for influence is being waged on the continent. Meanwhile, more and more institutions in the region, like BADEA, are getting involved in and are financing projects with a high socio-economic impact in Africa. At a time when global geopolitics is undergoing many upheavals, the relationship between Africa and the Middle East is accelerating and could be a game-changer.

By Dounia Ben Mohamed

To mark half a century of « brotherly » relations with sub-Saharan African countries, the United Arab Emirates, on Tuesday, 27 December 2022, took a more than symbolic initiative. « In celebration of 51 years of exceptional relations between the UAE and Africa, the UAE gifted 51 Ghaf trees (known for ability to withstand and thrive in challenging environmental conditions) to its partners on the African continent« , said Minister of State Sheikh Shakhbout bin Nahyan Al Nahyan. 

He said: « This reflects strong and prosperous relations with African countries based on cooperation, friendship and mutual benefit.”  The planting of these trees represents the investment by UAE and its partners in future generations, reflecting the State’s strong commitment to the African continent.

He recalled that during the 51 years of partnership with African countries, the UAE has continued to support prosperity and contribute to joint efforts to promote sustainability and environmental responsibility. Relationships that continue to develop in different areas, based on social, cultural, economic and developmental ties. This initiative is symbolic, but it reflects the UAE’s desire to strengthen its partnership with African countries. 

« Africa…a land to be cleared for a region looking to diversify”

The United Arab Emirates is now one of the largest investors in Africa, pouring billions of dollars into development projects that support the continent’s infrastructure. And they are far from alone in their commitment to the continent’s future. Like the United Arab Emirates, Africa, long perceived by Middle Eastern countries as a continent of misery to be donated to, now appears to be a land to be cleared for a region looking to diversify. The Gulf Cooperation Council (GCC), among others, has forged strong ties with African countries in crucial sectors such as agriculture, health and energy. According to a recent report by the Dubai Chamber of Commerce, the Gulf state accounted for 88% of GCC investment in sub-Saharan Africa.

Saudi Arabia is also a major investor in African agribusiness, particularly in East Africa’s vast arable potential to address such critical issues as food security. The Kingdom’s sovereign wealth fund has invested around $4 billion in various sectors across Africa, including mining, telecommunications and energy. This strong GCC investment interest is expected to continue given Africa’s growth prospects.

« Since its inception in 1975, the Fund has supported 46 African countries by financing more than 408 projects across the continent, with a value of USD 10.47 billion” 

This was confirmed on Friday, 20 January 2023 at the 2nd edition of the African High Level Forum of South-South second edition of the African South-South and Triangular Cooperation for Sustainable Development, held in Kampala, which saw the participation of a delegation from the Saudi Fund for Development (SFD). The delegation recalled that since its establishment in 1975, the Fund has supported 46 African countries by financing more than 408 projects in the continent with a value of US$ 10.47 billion. They represent about 60% of the total projects financed by the Fund and cover various sectors such as education, health, transport and communications, agriculture, energy and others. 

Saudi Arabia also announced in February 2022 more than US$6.4 billion in investment in future technologies and entrepreneurship to accelerate the Kingdom’s digital transformation and develop its digital economy. Another significant impact of GCC investment in sub-Saharan Africa will be skills development and job creation as we close the infrastructure and energy gaps.

With the establishment of the African Free Trade Area (AfCFTA), the continent, on its way to becoming the world’s largest market, is confirmed as an investment destination for investors from the region across a wide range of sectors in Africa. 

« BADEA, both a symbol and actor of this trend, multiplies initiatives dedicated to financing intra-African and Afro-Arab trade”

The Arab Bank for Economic Development (BADEA), headed by Sidi Ould Tah, is both a symbol and an actor in this trend, multiplying initiatives to finance intra-African and Afro-Arab trade. Between 2020 and 2024, the institution – which in 2002 became the second-highest rated development bank on the continent, with an AA2 rating awarded by Moody’s in April 2022 and confirmed by Standard and Poor’s in November 2022, thanks to a 376% increase in its capital to $20 billion – will allocate an annual budget of $1 billion in financing. Three-quarters of the latter will go to the private sector and the financing of intra-African and Afro-Arab trade. The multiplying leverage effect (by 4) means that $1 from BADEA will mobilize $4 from its partners in the group of Arab institutions.

Better still, at the African Union Summit on Industrialization in Cairo in November 2021, BADEA – whose member countries, including Saudi Arabia, the United Arab Emirates, Kuwait and Qatar, together control 61% of the bank – will launch a $1 billion initiative to support micro, small and medium-sized enterprises with four guarantee funds: FSA, FAGACE, AGF, ATI-ACA.

« An extra card to play in international power game…”

This would promote the consolidation of relations between the two regions with the support of Islamic financial institutions, all the more so, as the regional situation is extremely favorable.  According to experts, the economies of the countries of the Middle East are set for regular growth in 2021-22, driven by the global economic recovery and the rise in oil prices. Although they still face major challenges in the coming years, the rapprochement with African countries should be beneficial. For Africa, these fruitful new partnerships, if done well, could give it an extra card to play in the international power game…