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Gulf ـ Africa: Time to Forge a Powerful New Economic Relationship

By Michael Preiss

11 May, 2009

2008 was one of the most traumatic years for the world economy on record. The first half of 2008 could not have been better for Africa, as African stock markets boomed to be the best performing equity class in the world ـ oil and commodity prices were at record levels. There was a massive increase in small and medium enterprises and growth seemed destined to continue to increase at around +5 percent for the foreseeable future.
 
Then, our friends on Wall Street, due to their sheer greed and incompetent mismanagement, engineered the burst of the subـprime credit crisis and with it global wealth destruction in the trillions of dollars. The United States and mostly the United Kingdom, having lived beyond their means for too many years, were tottering and their governments threw the freeـmarket manuals in the dustbin as they nationalized financial institutions on a scale never before contemplated.
 
The Western elite privatized all the gains and the socialized the losses, to burden the average taxpayer. Especially for Islamic investors it should not be that way, as the emphasis tends to be on equal profit and loss sharing and to avoid misleading and economic activities that are not "halal" in the true sense.
 
As we work our way through this global economic crisis, many investors are reconsidering the approach and investment philosophies. Capitalism should not only make bankers and securities lawyers rich but should also help to lift millions of people out of poverty and help them to create a better lives for their families and communities.

Africa so far often overـlooked and underـresearched in the quest for quick speculative profit in inflated assets and derivative instruments now stands to gain as more and more investors realize the longـterm implications and potential of the last investment frontier.
 
Africa is still expected to grow at around three percent this year while the United States and Europe and Japan are expected to shrink and register negative figures. Growth in Africa is also higher than Asia and Latin America.

Many GCC investors lost much more money in previously considered "safe" investments in the West than in Africa where many thought it was highly risky to invest.

Africa''s growth is largely coming from domestic consumption of domestically produced goods, assisted by wide ranging banking reforms which have unlocked previously idle capital at the bottom of the pyramid. Africa''s middle class has been growing at around 30 percent per annum. The economic crisis in the West has opened the door for other players, mostly the GCC to stake a proper claim in the African market.

One example is Kuwait''s ZAIN Telecommunications, visit any African country and you see ZAIN advertisements everywhere and perhaps more important for shareholders, large increase in its domestic market share. Today, the number of mobile phone subscribers in Africa is higher than the whole of North America.

You also see it in the direct air links; Air Arabia recently started direct flights to Nairobi, Kenya. Emirates commenced daily flights to oilـrich Angola and Qatar Airways is also increasing its flight frequency to Africa.

On the global stage, each region alone is relatively weak; together however, Africa and the Gulf can form a new era of economic, strategic and political coـoperation. The fit, from the economic, political and cultural aspects, is excellent.

Having said that, the opportunities are in Africa and large pools of capital are in the Gulf. It is up to us to make the most out of it and help lift millions of people to a higher quality of life while achieving longـterm profits for shareholders.

About the Authors

Chief Investment Strategist
African Asset Management