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Destination Africa, Part II

Destination Africa, Part II

One benefit of the global recession is that it may encourage GCC multinationals to become major investors south of the Sahara, Part II.

April 30, 2009 7:15 by

On the East coast, Djibouti may be the best example of new sub-Saharan investments from the Gulf, with several Dubai-based companies working to transform the country into a major transport hub. But pirates in neighboring Somalia continue to hamper trade through the Red Sea, prompting some shipping firms to divert their vessels around the tip of South Africa. Last year, Djibouti also had to fend off a potential invasion from its northern neighbor, Eritrea, by sending hundreds of soldiers to stand guard along their shared border.

The risks haven’t disappeared. But according to international consultancy Oxford Analytica, the Gulf’s multinationals have proven they’re willing to take chances and operate in environments that many Western firms avoid. Originating from the Middle East, they’re accustomed to working with unwieldy bureaucracies. And the state-owned variety, such as Dubai World, are better equipped to recover from potential missteps because of the large capital reserves underpinning them.

Those capital reserves aren’t as extensive as they were six months ago thanks to lower oil prices and poorly performing sovereign wealth funds. But the recession has also hobbled multinationals in Europe and North America, from which most of Africa’s foreign investment still emanates.

“Outside of China and the Gulf, and a couple of really well capitalized funds, there just isn’t the liquidity to do what are perceived as risky ventures in Africa,” says Philippe de Pontet, Africa analyst at political consulting firm Eurasia Group. “Now a lot of the Gulf-based companies are in a stronger position relative to their competitors in Africa.”

Time will tell whether GCC firms seize that advantage. But in the bigger picture, these are still fairly early days for them south of the Sahara. “Their relationship remains at the experimental level,” Bos says. “Although we see more and more important deals taking place, relatively speaking it’s still not a lot. Obstacles remain – the unstable business environment, the lack of infrastructure and logistics – which forces the Gulf to be cautious.”

First seen in Trends magazine.

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