Learning tricks of the trade

Gulfnews | April 25, 2009

Some Gulf countries may now be realising the importance of offering direct loans to African countries as a means to increase Arab investment.

By Trevor McFarlane, Special to Gulf News

As leaders discussed how to rescue the international financial system whilst also help low income countries in Africa at the G20 summit last month, the Chinese Ministry of Commerce was preparing its first guidelines for overseas investment. Africa, where Gulf attention is ever increasing, is one area where Chinese interests and Gulf ambitions will be in direct competition.

One would expect the contest over African opportunities to be a closely tied affair, but as long as Chinese aid is linked with project finance deals, Gulf business will lag behind Sino-investment in the second largest continent.

For decades Africa looked to the West as a trading partner and aid giver. Nowadays African countries, ranging from Kenya to Guinea, are sourcing different partners for development initiatives.

For instance, at the beginning of the year, relations between Nigeria and Dubai were significantly strengthened when Dubai World announced plans to invest $16 billion (Dh58.7 billion) in the country's energy sector to develop its oil and gas reserves. The deal, which is just one of many involving Gulf investors in recent years, highlights the various commercial opportunities in Africa. Besides Nigeria, Dubai World has also invested in ports in South Africa, Senegal and Djibouti.

It is not just energy and transport where investment opportunities lie though. Kuwait's mobile operator Zain and the UAE's etisalat are both involved in the African telecommunications sector, while Mubadala and Dubai Aluminium joined hands to buy into a $3 billion alumina refinery in Guinea. Qatar evaluated the potential of investing in the agricultural sector of many African countries and has an eye on leasing arable land for crop production in North Kenya.

Sino-African relations are even deeper than those of their counterparts in the Gulf. African projects in nickel and copper feed China's manufacturing requirements, while oil fields in Sudan fuel its growing fleet of cars and industry. Notwithstanding China's sometimes controversial willingness to bypass international sanctions, such as in signing mining and energy deals with Zimbabwe, it is its investment model that is catching the eye of Gulf countries.

Traditionally, aid or financial support was extended to Africa via soft loans usually offered by the West, with varying conditions attached. The Gulf, although on a much lesser scale, helps through national development funds, established to lend a hand to less fortunate countries with ambitions to move forward, usually through infrastructure and social services projects.

However, this form of assistance, along with that sourced from Western donors, is now in direct competition with Chinese investment. In the Democratic Republic of Congo, for example, China has plans to invest billions of dollars that will directly improve the lives of the country's citizens. They are constructing thousands of kilometres of railways and roads, 145 health centres, 32 hospitals, two hydro-electric dams and two airports. Naturally, state-controlled Chinese companies are making such investment in Africa for their national interests, in this case, in exchange for access to huge amounts of copper and cobalt resources.

Critics of China say they are taking advantage of some of the poorest countries in the world. Whether this is true or not, China has wiped the debt of 32 African countries and the recipients seem keen for the no-nonsense mixed model of aid and project financing deals.

Some Gulf countries may now be realising the importance of offering direct loans to African countries as a means to increase Arab investment. Kenya benefited greatly from a loan extended by Qatar worth $3.5 billion to build a modern port facility at Lamu and to develop road infrastructure in the surrounding area. It just so happens that the port is located close to where Qatar is hoping to lease land for crop cultivation - an important issue and area for Qatar.

Of course, actions such as these are relatively small fry in comparison to the scale of what the Chinese are doing. Nevertheless, if Arab investors can show a willingness to rethink aid as a means for investment they can set up long term strategic operations that will be advantageous to both Arabia and Africa.

However, there is still some way to go if the GCC is to compete with the Asian giant though - China is already the biggest trading partner of resource rich states such as Sudan and Angola and by its own account China forecasts that its African trade will reach $100 billion by 2010.

Trevor McFarlane is the editorial manager of Oxford Business Group, Abu Dhabi.

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