The tiny country on the Arabian Peninsula saw about $1.5 billion of trade with Africa each year, barely enough to register on government statistical reports. Other exchanges were also rare: Aside from the occasional international meeting, African ministers rarely had an occasion to frequent the Emirates.
Fast forward just about a decade later, however, and the situation couldn’t be more different.
With two of the continent's major trading partners, the European Union and the United States, struggling to climb out of recession, African economies – many of which are booming – have increasingly looked elsewhere to buy and sell goods. China has been an obvious beneficiary. Less visibly, African countries have dramatically boosted economic ties with the Gulf.
Between 2000 and 2009, trade between African countries and the Gulf Cooperation Council, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates, rose by 270 percent, to more than $18 billion annually. UAE-Africa trade grew even faster, 637 percent – to $14.5 billion annually. The numbers for East Africa are particularly striking: More than 10 percent of imports for both Kenya and Tanzania now come through the UAE, as well as an increasing number of exports. Uganda saw trade volumes rise from $118 million in 2004 to $643 million in 2008, the most recently available year for statistics. Exchange with the UAE now makes up 10 percent of that country’s total trade.
The links don’t end there: The UAE is also increasingly an investor in African infrastructure, technology, and industry.
“Africa is like a goldmine in terms of what’s out there,” UAE Minister of Foreign Trade Sheikha Lubna al Qasemi said recently at a conference at New York University in Abu Dhabi. Already, the UAE holds a host of investments and projects across the continent, from a $400 million investment in Nigerian telecoms to more than $200 million in foreign direct investment in Rwanda. Lubna vowed that the number would only rise further: Africa “represent[s] a considerable opportunity for trade that my ministry is excited about… There are major investments [from the UAE] that have gone toward Africa and more will come.”
Increasing economic ties are an indication of how both the emerging markets of Africa and the UAE itself have changed in recent years. A decade ago, many African economies seemed locked in stagnation; commerce was sluggish even in the resource-rich countries that could rely on oil or minerals to boost their GDP growth rates.
These days, governance on the continent has improved, regulations are stronger, and entrepreneurs can be found at every turn – all facts that have boosted confidence in the region’s markets. “Finally, you’re getting political stability that is just sweeping across Africa, and you can see it,” says Jonathan Auerbach, managing director of Auerbach Grayson, a New York-based investment firm that focuses on emerging markets. So diminished are the risks that he notes how even Western investors have started buying African countries’ treasury bills – something that would have been unheard of just a few years ago.
Plus, with the West in a slump, many countries in Africa are booming. The continent is expected to be home to seven of the 10 top global growth rates between 2011 and 2015, according to predictions released in January by the Economist Intelligence Unit. And while resources have been a big part of that expansion, so too have industries such as telecoms.
Punching far above its weight
The UAE has also come of age over the past decade – in a way that seems particularly suited to the African continent. The country’s two largest emirates, Abu Dhabi and Dubai, have spent massively on infrastructure, building roads and increasing port capacity such that the country now ranks No.1 globally in road infrastructure and No. 4 for its transport infrastructure more broadly. The country has captured a massive chunk of global trade in its ports and airports. Today, it is the world’s 19th largest exporter – punching far above its weight with a population of a mere 7.5 million.
The UAE’s newfound infrastructure was of interest to African countries for two reasons: use and example. Most immediately, the UAE was an obvious clearing house for imports and exports from the region. “African countries look to Dubai in terms of export routes, and even import routes,” Kenya’s Central Bank governor, Njuguna Ndung’u explained from the sidelines of the conference in Abu Dhabi Feb. 12.
More than 60 percent of the imports that arrive in the UAE are re-exported elsewhere. Louis Kasekende, deputy central bank governor in Uganda, said used cars in his country, for example, are almost exclusively sourced through the UAE.
The other thing UAE excels at ...
But perhaps even more crucially, the UAE has developed expertise in a field that African countries themselves are now eager to engage in: infrastructure development.
In January 2010, the Ministry of Foreign Trade recognized the incredible opportunity, explaining in a policy paper on Africa that “The very lack of development, especially in infrastructure, means that over the next several years there will be massive demand by African nations for precisely the types of development that the UAE is skilled at providing and is world famous for.”
A key example is port infrastructure, an area where African countries have struggled to keep pace with the rest of their economies’ growth rates. Products trying to enter ports often sit on the docks for days or even weeks before they can offload. In Dubai, it takes just 10 minutes for products to clear that system. That example, said Ndung’u, is admired – and sought after – back home. Dubai Ports World, the company that attempted to buy six US ports in 2006, now holds stakes in Djibouti, Algeria, Mozambique, and Senegal.
Resources are another key area for shared expertise. The UAE, which is home to approximately 10 percent of the world’s oil, invested $16 billion in Nigeria’s oil and gas sector in 2009, and has expressed interest in investing in Ghana’s newly-discovered petroleum reserves. Uganda, which also recently discovered oil offshore in Lake Victoria, reportedly asked Dubai-based firm Africa Middle East Resources to consider investing in new projects in 2010.
With all these projects, it’s also not just expertise that the UAE brings to the table. “A principal advantage UAE firms coming into Africa will have is the access to Capital,” the 2010 Ministry strategy notes. Home to the world’s largest sovereign wealth funds, the UAE has, as the Ministry of Economy Sultan Al Mansoori told a summit of the Common Market for Eastern and Southern Africa in Dubai earlier this year, banks that are “full of money.”
To be sure, risks still remain; Abu Dhabi invests only a tiny fraction of its sovereign wealth fund in Africa – an indicator of the caution it still maintains toward the region. Trade ties, meanwhile, carry far fewer risks than direct loans or investments, since both supplier and buyer share the cost if business falters. Meanwhile, the UAE’s direct business ties tend to be in industries that are either government backed (such as port infrastructure) or have established a reputation for being lucrative in Sub-Saharan Africa, such as telecoms and commodities.
But in coming years, the UAE hopes the ties will grow. Auerbach’s portfolio, which is heavily weighted toward African markets, offers some sense of the potential. He says managers who focus on emerging markets can expect double-digit growth if managed right. “You’re not getting anything even close to that in the developed world,” he points out.
“It is not just us because of geographical access [of the UAE],” agrees Lubna, “Worldwide, everyone is looking at Africa.”