Gulf investors set to increase share of African infrastructure projects, says study

The survey shows that investment over the past decade amounts to up to 10% of total inflows from the Gulf, of which about $15bn was in loans and grants from Gulf development agencies and around 15bn in direct investments.

The study said efforts by African regulators effort to “deepen Islamic financial systems” created an opportunity to encourage further Gulf investment in Africa’s infrastructure.

“The sukuk market in Africa is modest, accounting for just 0.6% of total global sukuk issuances outstanding,” the study said. “However, several institutions, including Standard & Poor’s and the Malaysia International Islamic Financial Centre have indicated potential for growth.”

According to the study, drawn up in collaboration with the Economist Intelligence Unit ahead of the Chamber’s Africa Global Business Forum, to be held in Dubai on 1 and 2 October, annual contributions to Africa are likely to average $5bn in the coming years.

Gulf funding for African infrastructure to date has focused on North Africa, “which has received the bulk of aid (about 65% of the total) and also a large share of the direct private investment”, the study said, with a “focus on countries such as Djibouti and Senegal”.

To date, “there has been relatively little Gulf investment in the continent’s fast-growing economies of Angola, Ethiopia and Nigeria, which have attracted considerable infrastructure funding from Brazilian and Chinese entities, as well as in the case of Nigerian companies based in the US and Europe”, the study said.

However, “while Chinese entities have invested far more in African infrastructure, a direct comparison is problematic”, the survey said. “For Chinese companies, infrastructure deals in Africa are often part of broader commercial engagements with an eye on African resources”. As such, the infrastructure “is often a sweetener to win resource concessions, but Africa’s natural assets are not of such vital interest to Gulf countries, although some Gulf firms are investing in the sector,” the study said.

Gulf aid and investments are spread among diversified infrastructure projects in Africa, according to the study, which said that more than half of Gulf aid has gone to transport projects, mainly road building, with about 30% on power, “ranging from hydro-electric dams to rural electrification” and 15% on water projects”.

By contrast, “the telecoms sector has been the main infrastructure focus of the Gulf Cooperation Council private sector, followed by ports and, increasingly, power generation”, the study said. Gulf investors “have been less involved with roads and water infrastructure because of a lack of potentially profitable projects”.

According to the study, Arab funding in 2012 for both public and private investment in Africa “was equivalent to more than 10% of total external funding”. “This was comparable to funding from European donors and more than the $4bn from the World Bank (but) dwarfed by Chinese spending of $13bn”.

The president and chief executive officer of the Dubai Chamber Hamad Buamim said: “Opportunities are not limited to public and large companies, small companies are also well positioned to invest. Dubai Chamber’s study has revealed that given the perceived risks associated with mega-projects in several African markets, smaller-scale projects have becoming increasingly more appealing, especially in the energy industry.”

Buamim said: “Gulf investors must take care to differentiate between the region’s many countries, rather than view them as a homogenous ‘African’ market. The Africa Global Business Forum will further highlight the economic and investment realities and opportunities in the different African markets.”

The Islamic Development Bank’s annual report for 2012 (201-page / 4.34 MB PDF) said that, together with the Arab Bank for Economic Development in Africa, it was cumulatively co-financing 59 operations for $4.8bn in African countries, focusing mainly on transport, agriculture and rural development.

A report published this year (80-page / 2.4MB PDF) by consultancy Ernst & Young said the number of foreign direct investment projects in Africa grew 27% from 2010 to 2011 and the trend is set to continue.