“Dubai: Gateway to Africa”…
…was the catchy theme of the African Global Business Forum held last November in Dubai. Dubai is successfully positioning itself as the main international hub for trade with the African continent.
Assisting Dubai in this is:
- the shift of global economic power to the east;
- the blistering pace of growth of sub-Saharan Africa’s 11 largest economies (51 percent over the last 10 years);
- Dubai’s unique geo-political position connecting Europe, Asia and Africa and its longstanding trading history as a strategic port on the southern silk road; and
- its status as a highly advanced business centre giving Dubai prime connectivity to the African continent through cutting edge technology and supporting infrastructure.
Air traffic between the UAE and Africa is an interesting metric from which to measure the growth of trade and the use of Dubai as a regional hub to the African continent. Emirates, the world's largest carrier, recently became the biggest carrier into sub-Saharan Africa, overtaking Air France. Emirates runs 198 flights a week to 22 destinations in Africa. To take an example of the impact this has on commerce, bilateral trade volumes between Dubai and Nigeria increased by 710 percent between 2004 to 2009 (following the launch of services by Emirates to Nigeria in 2002).
Total non-oil trade between Africa and the UAE is currently valued at about US$24 billion, a number which has grown by 700 percent over the last 10 years, according to the Dubai Chamber of Commerce. This uptick must be the product of rapidly growing African countries (with annual GDP of more than 6 percent against a global average of 3.7 percent) attracting UAE-based corporates and financial institutions.
The regulatory framework is also being established. The UAE now has bilateral investment treaties with nine African states; and agreements for double taxation treaties with eight of them. The proximity and access to Dubai’s lightly regulated “free-zones” has proved to be a real draw to African businesses and Asian investors looking to capitalize on favourable terms for investment into Africa. The Dubai Chamber of Commerce says it has doubled its numbers of African members since to 2008.
Having recently relocated to Dubai from Johannesburg, I have noticed a significant increase in activity levels from clients using the UAE as a hub for their investment into African projects. Anyone keeping track in the region has seen the headlines around the likes of DP World and Etisalat investing in many African countries over the last few years; Investment Corporation Dubai is investing in Nigeria’s cement manufacturing behemoth Dangote; Mubadala and Dubal developing a US$5bn bauxite mine, refinery and port in Guinea; and a number of the international IPP developers such as ACWA Power and Marubeni are investing in power projects in Africa using teams from their Dubai hubs.
It is likely that we’ll see an explosion of activity in the flow of Islamic finance and Takaful (insurance) products into Africa. Africa’s Muslim population is estimated at over 50 percent, however the local market for Islamic finance in Africa is severely underdeveloped. In 2013, there were only 67 institutions in Africa providing Islamic finance products out of just 20 of the 54 countries in Africa. The flow of Shariah-compliant foreign direct investment into Africa is miniscule compared to the total flow of conventional international investment. Islamic DFIs – many of which are based in the UAE – have spotted this and have been working with a number of African countries to develop their legislative and regulatory frameworks to better support Islamic finance products for the future. As these limitations are addressed and other geopolitical barriers come down, this flow of Middle Eastern investment into Africa should pick up very quickly.
Daniel is now based in our Dubai office having recently relocated from Johannesburg.