The study, commissioned by the Dubai Chamber to examine Africa’s growth
drivers outside of the historically dominant natural resources and raw
commodities sectors, shows that the sub-Saharan African countries that
have attracted the largest number of Gulf investors — between 10 and 25
firms each — are Nigeria, South Africa, Kenya and Uganda. PHOTO | FILE
By CHRISTABEL LIGAMI, TEA Special Correspondent
In Summary
- Uganda and Kenya are becoming more appealing destination for investors from the Gulf region, according to a new report by the Economist Intelligence Unit.
- Retail and hypermarkets, vehicles, commercial banking and tourism are key sectors of interest, predominantly in areas in which companies have experience and comparative advantage.
- While consumer spending is increasing, large-scale retail centres are lagging behind, partly because of the difficulties of developing commercial real estate in crowded capital cities.
Uganda and Kenya are becoming more appealing destination for
investors from the Gulf region, according to a new report by the
Economist Intelligence Unit.
Retail and hypermarkets, vehicles, commercial banking and
tourism are key sectors of interest, predominantly in areas in which
companies have experience and comparative advantage.
The study, commissioned by the Dubai Chamber to examine Africa’s
growth drivers outside of the historically dominant natural resources
and raw commodities sectors, shows that the sub-Saharan African
countries that have attracted the largest number of Gulf investors —
between 10 and 25 firms each — are Nigeria, South Africa, Kenya and
Uganda.
Gulf investors established one of Kenya’s first Islamic banks, Gulf African Bank, in 2007.
“These banks are also active in commercial deals, such as Ibdar
Bank of Bahrain’s sharia-compliant purchase, and lease-backs of planes
for Ethiopian Airlines and RwandAir,” says the report.
The most significant vehicle development is the $86m purchase by Majid Al Futtaim (MAF) Group of the UAE, in 2014, of Kenya’s CMC, which has dealership rights for brands like Ford, Volkswagen and Suzuki.
A branch of a family business owned by Abdullah Al Futtaim, MAF,
was already operating Honda and Toyota dealerships in Egypt. The firm
now plans to expand across East Africa. Al Ghandi Auto (UAE), one of the
world’s largest General Motors dealerships, opened an office in
Ethiopia in 2014, to explore opportunities in the East African market.
MAF has also entered into hypermarkets, leasing one-sixth of the
new Mall of Kenya, which will be the biggest shopping centre in “Middle
Africa” (the central part of the continent, excluding Southern Africa
and North Africa), to open a French Carrefour outlet.
This follows a 2013 extension of its franchise agreement with
the hypermarket chain, which it represents in the Gulf, giving MAF the
rights to develop outlets in East Africa.
“This is a bold strategy, given that Kenya’s supermarket chains
are among the most developed on the continent, and have a presence in
other East African countries,” said Roze Philips, the managing director
of products for Accenture South Africa.
She said acquiring a Kenyan firm is a possible way for Gulf
investors to enter the market, although only one, Uchumi, is publicly
listed, and past attempts to acquire others have failed, notably a 2014
bid by Massmart of South Africa to buy the family-owned Naivas
Supermarkets.
“Gulf firms that are considering making an acquisition in the
retail sector should not overly brand it, as local products are the ones
that sell best,” said Ms Philips.
While consumer spending is increasing, large-scale retail
centres are lagging behind, partly because of the difficulties of
developing commercial real estate in crowded capital cities.
“Gulf companies have a comparative advantage thanks to a track
record in franchising and adapting brands to local tastes and cultures.
These firms are also skilled at managing the logistics of multicountry
distribution,” says the report.
“Africa needs improved logistics in fast moving consumer
goods. This sector is growing rapidly in many of Africa’s lower-middle
to middle income countries, but logistics and distribution remain
challenging because of weak infrastructure. Gulf firms have experience
to share in this field, but only a few are exploring investments in
Africa.”
Dorothy Kelso, head of strategy and research at the African
Private Equity and Venture Capital Association said, “Increasing
harmonisation, notably in East Africa, is enabling private equity firms
to scale up local companies to regional or pan-African players. This is
crucial because there are relatively few large companies, and so
investors need to develop the platforms themselves by capitalising on
the huge opportunities in mid-to-lower sized deals, where demand for
capital outstrips supply.”
Abraaj is one of the largest private equity investors in Africa;
in April, it closed its third Africa-focused fund with $1 billion in
subscribed capital, although only a minority of these funds originated
in the Gulf. Other Gulf private equity firms active in Africa include
Swicorp of Saudi Arabia and Kappafrik Group in Dubai.
“A number of private equity funds on the continent are coming to
the end of their fund lives and are looking for exits, so it is
important to knock on their doors because if they have done a good job,
then their investee companies could provide a good entry point,” Jacob
Kholi, the chief investment officer for sub-Saharan Africa at Abraaj,
said.
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