Why Gulf states are investing billions in Africa

The news came out just a few days ago: ADNOC Distribution, a petroleum retailer in Abu Dhabi, the capital of the United Arab Emirates, will take over energy giant Shell's petrol stations and fuel business in South Africa. The price is thought to be around $1 billion (€870 million). With this purchase Abu Dhabi has assured itself of a place in the African continent's fuel market.

This billion-dollar deal is just one example of a larger trend. Even taking into account the occasional small declines, the Gulf states have been growing their economic presence in Africa for years now.

According to the UK-based think tank Chatham House, the countries belonging to the Gulf Cooperation Council or GCC, have invested more than $100 billion in Africa over the past decade. Around $59 billion of that came from the UAE and another $26 billion from Saudi Arabia.

"For the Gulf states, Africa isn't some far away region — it's right in their neighborhood," said Stephan Roll, a senior fellow in the Africa and Middle East division at the German Institute for International and Security Affairs. In eastern Africa, there are central trade routes and the two regions have had social and economic ties for decades. nobody should be surprised by the Gulf states' increasing engagement in Africa, he told DW.

Gulf economies diversifying

"One of the biggest reasons why they started to look at Africa differently, especially over the past 10 years or so, has been the need to diversify away from hydrocarbons and also strengthen their own economic projection," Maddalena Procopio, a senior policy fellow in the Africa program at the European Council on Foreign Relations, explained. "But they started to also see the rest of Africa as an incredible potential market, where they could basically have revenues in sectors that they haven't ventured into."

According to analyses by a number of institutions, including the Brookings Institution, Chatham House and the African Development Bank Group, investment from out of the Gulf is focused on energy, ports, logistics, agriculture and critical raw materials. These investments make sense as they secure trade routes, strengthen food security and ensure access to raw materials like cooper, cobalt and lithium, which are needed for the development of electric vehicles and artificial intelligence.

The countries involved are pursuing different strategies though. Saudi Arabia and the UAE are mainly investing in renewable energies and in the processing and distribution of petroleum products, Procopio noted. Qatar, which has played a less significant role in Africa up until now, is more focused on selected economic cooperation, she said.

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The UAE is seen by experts as the country most involved. "You need to see their policies as a whole package," Roll pointed out. Ports, logistics and economic interests cannot be separated from their foreign policy and security goals, he said.

Having control over strategically located ports doesn't just offer the UAE an economic advantage, it also allows them political influence over important global trade routes. Procopio confirmed that the UAE's economic engagement with African nations was larger than that of other Gulf states because of its foreign policy and security interests.

Saudi Arabia is a lot more selective, Roll added, and is concentrating on certain sectors, particularly energy. The Saudis also played an important role in development financing — on a bilateral basis as well as through multilateral institutions such as the Islamic Development Bank, he said. And he did not think the Saudis were interested in competing with the UAE when it came to investment.

Saudi Arabia- UAE rivalry

Procopio believed that the disparities in investment strategies could be explained by some foundational differences in the economies of those two countries.

The UAE's "development model has been based abroad because the country is very small," she said. "So it needs to trade with the rest of the world to grow. And if it wants to diversify away from oil and gas, it needs to build many commercial relationships abroad, many more than Saudi Arabia."

Saudi Arabia, a much larger country, needed to align foreign trade goals more closely with its own plans for economic transformation, she said.

The UAE's commercial footprint also has a "strong political dimension …  with investments aiming to project power and to challenge Saudi Arabia's regional standing," Procopio argued.

For a lot of African nations, interest from out of the Gulf comes at a good time. According to estimates by the African Development Bank the continent's financial needs are growing even as Western development funding shrinks and China reduces the amount of loans on offer. Direct investment from the Gulf states could help to plug gaps in the financing of things such as infrastructure, energy and logistics.

Procopio also saw another advantage. Unlike China, the Gulf states prefered investment to loans, she said. So in comparison, Gulf financing was often available more easily and didn't come with as many political conditions. And African states were not bound to just one other country; they still had the opportunity to broaden their international alliances.

Africa too dependent?

The Gulf states' financial engagement in Africa doesn't come without controversy. Chatham House has warned that the investments are concentrated on ports, supply chains and raw materials, which mostly serves the strategic interests of the financing states.  The Brookings Institution  has cautioned that some of the investments reduced the role of African states simply to suppliers of raw materials. What would be more helpful, ut has said, would be to aid manufacturing and industry instead.

Roll also saw this as a challenge. The investments themselves were not problematic; it was the new dependencies they created through strategic infrastructure or the export of unprocessed raw materials. Economic interests and geopolitical policy were not necessarily separate, he argued.

Procopio was more cautious. Partnerships between African countries and the Gulf states were really at an early stage, she pointed out. Whether the billions coming out of the UAE, Saudi Arabia or Qatar would eventually lead to more industrialization remained to be seen.

That is where the real challenge lies. The source of the investment alone won't decide how successful any financial partnership is. It will depend on how African nations build value from the money. That is what the Brookings Institution and the African Development Bank both point to: Foreign direct investment can be an important driver of economic development but it will only be sustainable if it supports African domestic industry and long-term growth.

This story was originally published in German.