South-south economic, political and security ties between the Middle East and Africa are growing rapidly, bringing ever-greater opportunities for financial collaboration between banks, non-bank financial institutions and bilateral government relationships.
Also improving is country risk. Africa’s country risk ratings deteriorated significantly during the pandemic, with around 80% of nations in sub-Saharan Africa (SSA) placed in the high or severe risk categories according to Pangea-Risk quantitative risk scores. This picture is reversing – and quickly. As of February 2021, that 80% figure had fallen to around 65%. This is likely to improve over the coming year as global economies recover and demand for African exports increases. A simultaneous reduction of country risk across SSA and the Middle East would boost outsider confidence in both regions and help stimulate a rebound in Arab-Africa trade.
But it is not just an improving risk profile that paints a positive outlook for African economies. Despite 2020 marking the African region’s first recession in 25 years, several countries are forecast to grow significantly in 2021, with Mauritius on course for 9.9% GDP growth, followed by Botswana at 8.7% and >5% in Djibouti, Niger, Guinea, Rwanda, Cote d’Ivoire, Chad, The Gambia and Eritrea. The International Monetary Fund (IMF) predicts that nine African countries will see their GDP’s rise by more than 6% in 2021. An expected growth in intra-regional African trade is also supported to some extent by the launch of the operational phase of the African Continental Free Trade Area (AfCFTA).
Regional trade integration will undoubtedly, over time, ease the movement of goods between different parts of the continent, removing red tape and providing for faster, cheaper export-import activity. In turn, this provides new opportunities for African businesses to grow outside of their home markets: a powerful precursor to value chain enrichment around the region. For companies in the Arab region, these developments represent new investment opportunities – which is good news for the Gulf Cooperation Council (GCC) countries seeking greater diversification of asset classes.
As the AfCFTA works to break down trade barriers and trade finance is further democratised, there will be an increased need for technology solutions to open up access and make it efficient. A digital transformation to reconfigure trade finance comes at the right time as the global economy recovers and African exporters seek fast financing solutions to meet growing demand.
The first port of call for African traders is often the bank. However, many banks are slow to digitise and are seeking help to move away from manual processes not only because of speed but because digital financing delivers a better customer experience, reduces costs and helps to facilitate secure global trade practices. For African businesses looking to take advantage of an improving economic landscape, fundraising networks optimised with fintech will accelerate growth and help CEOs tap into markets further afield – including those in the Arab world.
A number of key players are advancing Africa’s increasing role as an investment destination for the Middle East – these include the Abu Dhabi Global Market (ADGM), which is an influential platform for structuring international investments in the Middle East and Africa. Middle East giants like DP World are extending their African footprint to maintain a wide network across Africa, including port assets in Algeria, Senegal, Mozambique, and dry docks in Rwanda.
Although the UAE alone rivals French and Chinese companies for marine sector dominance in Africa, other Arab Gulf states are capitalising on economic opportunities on the continent. Saudi Arabia is funding billion dollar energy projects in South Africa, Qatar is involved in cross-regional renewables and Kuwait is firmly embedded within a number of telecoms networks. Gulf economic diversification strategies make African infrastructure projects in energy, agribusiness, aviation, healthcare and transport sectors especially attractive. With the AfCFTA specifically focusing on boosting investment in these sectors to increase intra-African trade and investment, it is a win-win for both regions.
Economically, what is good for Africa is good for the Arab region, and as the global recovery gathers pace, the stars are aligned for African businesses and investors to do very well from the growing strength of relations between these two very dynamic regions.