* European, U.S. instability pushes investors toward Africa
* Rise of African middle class is a pull factor
* Continent's arable land resources are major attraction
* North Africa is springboard into sub-Saharan countries
* But some firms underestimate political risks, competition
By Mirna Sleiman
DUBAI, Jan 2 Wealthy Gulf Arab companies are
boosting their investment in Africa's vast lands and untapped
resources, marking a shift for investors who have traditionally
directed their money towards assets in the United States and
One reason for the shift is negative: with government debt
problems weighing on U.S. and European markets, those regions no
longer look as attractive to some Gulf investors as they did
just a few years ago.
But there are also a string of positive motives, including
Africa's fast economic growth, the rise of a free-spending
African middle class, and a sense that much of the continent is
becoming better governed and more stable politically.
Also, Africa has two special attractions for the arid desert
countries of the Gulf: it is a source of food and arable land,
and it is launching an infrastructure building boom that recalls
the Gulf's own construction spree in the past decade. The Gulf's
expertise in developing airports, ports and communications
networks at breakneck speed can be used in Africa.
The result, corporate executives say, is a flow of Gulf
money into Africa that has accelerated over the past year, and
which could become an important contributor to African growth.
"I can see Gulf investors warming up to Africa. Any
opportunity there grabs their attention," said Ahmed Heikal,
chairman of Citadel Capital, one of the Middle East's
largest private equity firms with $9.5 billion of assets under
"Africa is becoming more interesting because of the natural
resources it has, its demographics and better governance."
The timing of Africa's economic boom is fortunate for the
Gulf: it is occurring just as high oil prices give Gulf
countries plenty of money to invest in it.
The Middle East's oil exporters posted a combined surplus in
trade in goods and services of about $400 billion last year, the
International Monetary Fund estimates. Much of that money is
being ploughed back into foreign assets; while the bulk still
goes into Western assets such as U.S. Treasury bonds, more is
going to emerging markets such as Africa.
Although complete, timely data on Gulf investment in Africa
is not available, analysts believe it follows the same general
trend as bilateral trade, with a time lag.
Annual trade between the Middle East and Africa has grown
fivefold to $49 billion over the past decade, from $10 billion
in 2002, according to Standard Chartered Bank.
In the past, most Gulf investment in Africa has been in the
north of the continent, because of linguistic, cultural and
political ties. For example, Citadel Capital last year put
together a $3.7 billion financing package for an Egyptian oil
refining project, with Qatar Petroleum International becoming a
Increasingly, however, Gulf investors are venturing into
sub-Saharan Africa - in some cases using North Africa as a base
to do so.
Private equity firm Abraaj Capital invested $125 million
last year in Morocco's Saham Finances, which has interests in
insurance operations across Morocco and francophone West Africa.
It aims to tap into an anticipated pick-up in demand for
insurance in Africa.
In November Abu Dhabi-based asset manager Invest AD launched
a fixed income fund that will focus on Africa as well as the
Middle East. Along with Morocco's Attijariwafabank, it
also said it would launch a fund to invest in African companies
listed on stock markets.
Some of the Gulf's big infrastructure operators have been
players in Africa for years. Dubai port operator DP World
, which has had a presence on the continent since 2000,
now runs the port of Dakar in Senegal and port operations in
Mozambique, Algeria and Djibouti.
In addition to investments in Egypt and Nigeria, the United
Arab Emirates' telecommunications giant Etisalat has
built sizeable stakes in Atlantique Telecom, which operates in
about six countries in West Africa, as well as Tanzania's Zantel
and Sudanese fixed line operator Canar.
Gulf companies have sometimes overestimated the attractions
of doing business in Africa. Etisalat's chief executive Ahmad
Julfar said in October that his company had no plans to fully
exit any of its foreign markets, but the record of its African
investments has not so far been impressive, partly because of
fierce competition from other operators.
Excluding Nigeria and Egypt, Etisalat spent around $522
million on its African investments, according to Reuters
research, but those operations have made little contribution to
its bottom line. They posted revenue of 689 million dirhams
($188 million) in the third quarter of last year but generated a
net profit of just 4 million dirhams - a profit margin of about
1 percent, compared to 27 percent for Etisalat's UAE operations.
Egypt and Nigeria are large, potentially wealthy markets
which appear strategically important to the company's long-term
Another major focus of investment for Gulf firms is African
agriculture; oil-rich, water-poor Gulf states such as Saudi
Arabia and Qatar have been buying large areas of farmland
overseas to ensure access to food supplies.
Qatar's Hassad Food, an arm of the country's sovereign
wealth fund, agreed in 2009 on a $1 billion farmland development
joint venture with the government of Sudan.
Some other agricultural ventures, however, may risk
involving Gulf States in the socio-political and water scarcity
problems of African countries, if they displace local people
from their land or disrupt local farming patterns.
"We are very concerned that the land deals will lead to
increased violence at the local level, as we have seen already
in several parts of Africa," Henk Hobbelink, coordinator of
GRAIN, an international, non-profit organisation which supports
small farmers, said last year.
In a research report published in late 2011, Standard
Chartered said Gulf countries had tended to focus their
agricultural investment on seven countries: Sudan, Mozambique,
Ethiopia, Tanzania, Kenya, Mali and Senegal.
But it added that debate in those countries over the role of
foreign investors was growing. "Transparency, sustainability,
and a meaningful return for local communities will be
fundamental elements," it said.
As long as African economies continue to grow considerably
faster than much of the rest of the world, however, the trend of
increasing Gulf investment in them looks set to persist.
"Investing in Africa is like diving into dark waters.
There's an equal chance of finding pearls or getting stuck with
empty shells and garbage," said an executive at one of the
Gulf's biggest family-owned conglomerates, declining to be named
because of the political sensitivity of his remarks.
"But there's also high risk investing in the top European
markets these days - so why not go to Africa where the return is