Dubai's Growing Importance to Africa

By Asoka Ranaweera

The writer is a managing partner of a company that advises investors on structuring investments and developing projects in West, East and Central Africa.

 

Given the proximity of the Middle-East to Africa in general and East Africa in particular you might be surprised to learn that two way trade between entrepot Dubai and Africa in 2002 was a mere $2.9 billion.

By 2011 even as Dubai recovered from the after effects of the global financial crisis and from its own mini-meltdown trade between it and Africa had risen by 700% to around $24 billion.

These numbers are compelling and tell us a lot about the rise not just of Dubai and the United Arab Emirates (UAE) as a force in the regional and global economy but also much about the rise of Africa as well.

Importantly, it is surely a harbinger of things to come between Dubai and Africa and the UAE and Africa given the relative low base from which the trade relationship has evolved.

A lot has been made of China's involvement in Africa. In fact these days you can hardly mention Africa without mentioning China. In 2013 Sino-African trade is estimated to exceed $200 billion from less than $10 billion in 2000.

And what conversation about African can be complete without mentioning Brazil, Russia and India, you know the rest of the countries that make up the BRICs.

I am sure everyone can agree that the influence of the BRICs on African development has been profound.  

When compared to the BRICs, Dubai has a lot of catching up to do just in dollar terms. Yet Dubai for a number of reasons is poised to grow significantly its trade and investment relationship with Africa.

If you think about it carefully much of the involvement of China and Brazil in Africa is attributed to bilateral projects involving in the case of China state owned companies and/or in the case of Brazil state backed private companies.

In short much of the trade and investment relationship has been driven by loans from China EXIM and/or China Development (CDB) and in the case of Brazil, through BNDES (The national development bank). Loans as we all know are obligations which have to be repaid.

As for the rest of the BRICs, which includes Russia and India most of their involvement is driven by private companies meaning that a lot of the time these entities are making investments and not loans.

In the context of what we know about the trade and investment patterns of the BRICs how can Dubai be different and how can its involvement be beneficial for Africans?

Given that one of the greatest constraints to growth in Africa is the availability of capital and that Dubai is growing in importance as a source of capital then the implications may seem obvious.

Money from Dubai can be deployed productively across Africa and play a catalytic part in the development of business continent wide.

But where Dubai can really play a significant role is in the origination and deployment of Islamic finance. Islamic finance is growing and its influence as well as importance is likely to only increase in the years ahead.

Africa with a large population of Muslims numbering approximately 248 million spread across 54 countries is ideally poised to become a beneficiary of Islamic financing as Dubai is still very much in the early stages of positioning itself to become a global leader in this sector.

If Africans can work with Dubai at this relatively early stage and help define the ground rules for the deployment of Islamic finance then a large pool of additional capital will become available for investment in Africa.

It was not that long ago that when you thought about Dubai and the UAE you only thought about oil. But today Dubai in particular is synonymous with many other things. One area that Dubai has developed successfully is logistics.

From literally no where two decades ago, to being the center of the logistics world, Dubai plays an important role in servicing the flow of goods and now services between the Middle-East and Asia. And increasingly between the rest of the world and Africa.

Dubai companies such as DP World are running world class operations in Africa in countries such as Djibouti, where this small East African country is widely regarded to have one of the best run ports on the continent.

Given that many African countries are still relatively early in the process of developing their logistics infrastructure, Dubai and its companies can play an important role in the development of this critical infrastructure for Africa.

When people talk about the competitiveness of Africa, many believe that the continent can literally serve as the bread basket of the emerging world. Nowhere more is there land that is fertile and available than there is in Africa.

The UAE is a major importer of agricultural products. Current agricultural imports are estimated to be close to 80% of total needs. This presents African countries with big opportunities to export to the UAE a market which is estimated to be worth $7 billion per annum.

Combining investments from the UAE into African agriculture as well exporting to meet market needs of the UAE can be the basis for mutually beneficial long term relationship. Since African agriculture is by far the biggest employer of Africans the implications for employment for many African countries are obvious.

The potential to grow the bilateral trade and investment relationship between Dubai and Africa seems limitless. Islamic finance is still at a relatively early stage in its development meaning that Africans could help grow this industry.

Also Africans could learn from the experience of Dubai in developing its logistics infrastructure and as discussed become a major exporter of agricultural products to the UAE. The importance of Africa to Dubai and vice versa is only likely to grow in the years ahead.