Tuesday, November 26, 2013

Deep roots foster new Mideast-Africa trade ties


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Trade between Africa and the Middle East has deep historical roots. The Egyptian pharaoh Necho first commissioned Phoenician mariners to circumnavigate the continent in 600BC, while centuries later Muslim traders from the Middle East brought Islam to Africa.
And the highly prized camels of Sudan and Somalia, first brought west from Arabia to carry loads across the African deserts, have for centuries been traded back to the Gulf to be raced, milked or eaten at banquets.

The historical relationship remains strong. Go to Jeddah, Saudi Arabia’s port on the Red Sea and before long you will encounter traders from the Horn of Africa. Go shopping in Dubai and you will inevitably find yourself alongside Nigerian entrepreneurs. Venture into Africa’s hinterlands and there are strong odds you will run into a Lebanese trader whose family has done business for generations.
Yet, as Africa’s economy surges, the nature of commerce between the two is changing. If Africa is at a crossroads, then so, too, is its relationship with its oldest trading partner.
The traders of the Middle East have history – and capital – on their side. But in recent decades they have been supplanted: China, Europe and the US now dominate the trade in goods with Africa. And new entrants such as Turkey are making bold forays into the continent: last year, Turkish Airlines launched a twice-weekly service from Istanbul to Mogadishu, the first for more than 20 years.
But although agricultural commodities and raw materials still dominate Africa’s exports to the Middle East and oil the return journey, the traders from the Gulf, north Africa and the Levant who have for centuries built links with their African partners, are focusing on new investments and opportunities.
Gulf private equity groups are buying up African companies with an eye on the future. Banks are seeing opportunities in the rising economies of Africa. Dubai’s DP World has been investing in African ports while Middle Eastern airlines are staking claims on the continent: Emirates, Etihad, and Qatar Airways have all increased the frequency of their flights to Africa in recent years.
They are also positioning Gulf hubs, including Dubai and Doha, as the natural linking points on the flights from Asia to Africa. And Flydubai, a low-cost start-up, is offering direct services to secondary destinations such as Djibouti and South Sudan.
At the heart of the new relationship are the changing fortunes of Africa. The IMF now predicts the region will be the fastest growing in the world in 2014, behind only Asia. Some of its more dynamic economies – such as Ghana and Nigeria – are growing at rates comparable to the big emerging economies of the world.
When Jim O’Neill, the former Goldman Sachs economist who coined the acronym Brics to characterise the economies of Brazil, Russia, India and China, addresses audiences these days he often uses another acronym: the Mint economies – those of Mexico, Indonesia, Nigeria and Turkey.
To leave Africa out of the mix now would be unthinkable.
One of the key features of the changing relationship between the Middle East and Africa is the way African business people are using bases in the Gulf such as Dubai, or Middle Eastern banks, to finance their operations, especially as those banks increase their presence in Africa to serve a growing list of clients from China, Europe and beyond.
However, anyone arriving at an airport in Africa will be painfully aware that the continent still faces challenges and has a long way to go before it catches up with the rising economies of Asia. The ride in from the airport in Lagos is still a more tortured affair than the one investors experience in Jakarta, let alone in Beijing.
But the attraction is strong. Africa is now home to a rising middle class that is beginning to consume with gusto.
When the Dubai-based Abraaj Group in June paid a reported $350m for Fan Milk, which operates in seven west African countries, Arif Naqvi, Abraaj’s founder and group chief executive, was clear on the lure. Africa is “witnessing the rise of a burgeoning middle and consumer class”, Mr Naqvi said, making it “an extremely exciting and compelling investment opportunity”.
Leading the Gulf private equity push into the region, Abraaj has already sunk more than $2.2bn into 70 companies across Africa. And it sees further opportunities, says partner Jacob Kholi, a Ghanaian who is a former KPMG accountant based in Accra. “The African market is still underpenetrated and valuations are good,” says Mr Kholi, who sees the food sector as particularly attractive, but also “fantastic potential” across various other sectors and countries.
For other Middle Eastern investors the appeal goes beyond the increasingly empowered consumer: they are looking to Africa’s infrastructure.
DP World, one of the world’s leading groups, now operates eight marine terminals in five countries, including Djibouti, Senegal and Mozambique. Such port facilities are transit points for the growing volume of agricultural goods exported from Africa to the Middle East, reflecting the growth in Arab investment in African land.
Somalia and its breakaway territory of Somaliland exceeded records last year when they jointly exported about 3m sheep to the Middle East. With goats, cattle and camels added to that, total livestock exports from those territories, which have been recovering from a shattering civil war, rose to 4.8m in 2012.
Africa remains a challenging environment and the barriers to trade are often daunting, even though the mood is one of optimism. Paul Brenton, trade practice leader for the World Bank in Africa and co-editor of the recent book De-fragmenting Africa, says: “People are perceiving a much wider range of opportunities in Africa. A much more diverse set of interests is now thinking of trading with Africa.”
Efforts are being made to address the problems that for so long have made trading with Africa difficult. Governments are reducing waiting times at borders and cracking down on corruption. Yet those efforts are often faltering at best and one of the biggest challenges is to break down barriers within the continent that limit intra-regional trade.
For Africa, even as new partners join long-time players, the real promise lies in trading within the continent, Mr Brenton points out. “Increasing regional trade is still the best way into diversification and away from a dependence on resources,” he says.
More than two millennia after the Middle East and Africa began to trade, the signs are that there is scope for deepening those historical links to make the most of the new conditions.

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