Sub-Saharan Africa boom creates opportunities for GCC investors
Sub-Saharan Africa boom creates opportunities for GCC investors
The IMF’s latest World Economic Outlook forecasts that Sub-Saharan Africa will grow at a rate of 5.7 percent in 2013-18, which would make it the second fastest growing region after Developing Asia (largely driven by China).
This compares with the 4.2 percent rate forecast for the MENA region. Growth prospects are also broad based across Africa— two thirds of the countries are forecast to grow faster than 5.0 percent in 2013-18 and all but two above 3.0 percent.
Africa’s growth is mainly driven by a youthful population, which is growing at a rapid rate of 2.5 percent and becoming increasingly urban and middle class. Economic growth is also being supported by the expansion of mobile communications (nearing a 70 percent penetration rate) and improving transport infrastructure, much of it built with Chinese support.
This is helping to harness Africa’s resources which include metals and minerals, oil and agricultural products.
The continent is also benefiting from the lowest level of conflict in decades and improving governance in several countries.
Out of the 45 countries in Sub-Saharan Africa, three — South Africa, Nigeria and Angola — represent about 60 percent of the region’s $1.3 trillion GDP, and so attract much of the attention from foreign investors.
Also companies in South Africa and in the Maghreb, which have regional operations, can serve as routes for investment in the continent.
The GCC has long established links with countries in the Horn of Africa and the Sahel, and is also increasingly connected with other parts of the continent.
Some of the countries experiencing the strongest growth in Africa are benefiting from the exploitation of their natural resources or are rebounding from a low base after a period of conflict. Both factors contributed to Angola’s rise over the last decade and for similar reasons South Sudan, the newest and one of the poorest country on the continent, is expected to see 21 percent growth in 2013-18, as it restarts oil exports.
However, many of the continent’s most dynamic economies have been driven by other factors. For example, Rwanda, one of the top 3 performers over the last six years with an 8.1 percent growth rate, has no oil resources and instead has attracted investment due to efforts at improving its business environment, which is now ranked third in the region and 52nd internationally by the World Bank.
Some GCC companies are already engaging in parts of Africa in sectors such as transport infrastructure, telecoms, real estate, banking and agriculture.
The major GCC airlines operate flights across Africa, serving as a natural hub linking it with Asia. DP World has port operations in Senegal, Mozambique and Djibouti.
In telecoms, Ooreedoo is bidding for a controlling stake in Maroc Telecom, which would also give it exposure to 13m customers across four Sub-Saharan countries where the firm operates. Etisalat already owns stakes in operators in Tanzania, Nigeria and other parts of West Africa.
In real estate, Kingdom Holding of Saudi Arabia, for example, owns hotels in Kenya, Zambia and Ghana.
In banking, QNB Group has branches in two Sub-Saharan countries, South Sudan and Mauritania (aside from its extensive presence in North Africa).
Gulf investors have also taken stakes in various local banks, such as Istithmar in Kenya’s Shariah-compliant Gulf African Bank.
Around 250 million Muslims in Sub-Saharan Africa, 30 percent of the total population, are potential customers for both conventional and Islamic banking.
Agriculture is a particular area of interest to GCC investors, to support the Gulf’s food security. The continent has large amounts of underutilized land, substantial water resources, and low yields on much of the land that is cultivated. In this context, well placed and socially responsible capital investment could boost productivity.
At the same time, research and cooperation on suitable crop varieties and cultivation techniques, such as that planned under the Qatari-led Global Dry Lands Alliance, could help farmers working marginal land.
QNB Group expects that Africa will continue to experience strong growth for many years ahead, gradually closing the income gap with wealthier regions.
This will create further opportunities for GCC companies and investors.
All-American banker heads back to the Kingdom
- "The implementation and execution of Vision 2030 will produce global companies for Saudi Arabia, and we can help in that process," said Citigroup CEO
- "The government has a lot on its plate and privatization takes a long time to set up. Privatization is one of those things that you only want to do once,”
If anybody deserves the description “all-American”, it is surely Mike Corbat, chief executive officer of Citigroup.
New England origins, a Harvard education, Ivy League American footballer and a Wall Street career are all evidence of the fact he was very definitely “born in the USA”, as is the in-bank nickname of “Clark Kent” — the alter-ego of Superman — due to his athletic physique and spectacles.
But last week Corbat was turning his mind away from the USA and toward Saudi Arabia, as the bank formally ended a 14-year self-imposed exile from the Kingdom with a ceremony at its new offices in Riyadh, symbolizing its return to the lucrative markets it first entered in the 1950s, among the first American banks to do business in the region.
Corbat took some time out of the day’s celebrations — a formal ribbon-cutting alongside Ibrahim Al Omar, governor of the Saudi Arabian General Investment Authority, and an elite dinner in the ballroom of the Four Seasons Hotel in Kingdom Tower — to talk exclusively to Arab News about Citi’s plans for the Saudi business at a time of rapid transformation in the Kingdom and the region.
“I am absolutely positive about the economic prospects for this region. We are in 13 countries here, with 2,500 employees, focusing on trade and business, with some consumer presence. The implementation and execution of Vision 2030 will produce global companies for Saudi Arabia, and we can help in that process. Citi can service some of their needs as they expand globally,” he said.
Citi withdrew from Saudi Arabia in 2004 in the aftermath of the 9/11 terrorist attacks in the USA, in a decision later described by executives as “a mistake.” Even before the enormous opportunities of Vision 2030 persuaded the bank it had to have a formal presence again in the Kingdom, and a license from the Capital Markets Authority (CMA) to pursue investment banking and other business there, the bank was back on the scene.
In 2015 it helped Saudi Aramco to raise multi-billion dollar loans, and advised the oil giant on Asian deals. The following year, which saw the formal unveiling of Vision 2030, Citi was involved in the groundbreaking $17.5 billion bond issue that marked the Kingdom’s debut on global capital markets.
Citi was back, but needed a CMA license to win more lucrative business in the big domestic economic transformation under way. That was finally granted in April of last year, and Carmen Haddad, a long serving Citi executive with extensive experience of the Middle East, was made head of the new Saudi operation.
“We’ve been at the front and center of the sovereign bonds drive Saudi has been doing for the past couple of years, and also with syndicated loans. But with the CMA license we can really show our worth. We can help with all future debt and equity transactions,” Corbat said.
Vision 2030 aims to reduce the Kingdom’s dependence on oil, but also to increase the contribution of the private sector to the national economy, and this is one area where Citi feels it can use its global experience. The bank has advised governments around the world on privatization strategies, and Saudi has a privatization schedule that ranks among the largest in history.
The timing and scale of the program is still unclear. Last year minsters put a value of $200bn on the program, but officials in Riyadh last week were talking more in the $60bn to $70bn range. And investors are still waiting for the first big sell-off of a state company. But Corbat insisted Citi would be ready to get involved when the time is right.
“Privatization is obviously a top priority of the Vision 2030 strategy, and we can bring our expertise to bear in this. I think it is right to take your time over something as significant as the privatization program. The government has a lot on its plate and privatization takes a long time to set up. Privatization is one of those things that you only want to do once,” he said.
By far the biggest element of the drive toward a more private sector-focused economy is the plan to sell shares in the Kingdom’s “jewel in the crown”, Saudi Aramco. Citi is among a small group of top global banks vying for business in the Aramco sell-off.
Originally planned as a big international initial public offering (IPO) by the end of this year, valuing the company at $2 trillion, doubts have begin to creep in over the valuation figure, and over the venue for what promises to be the biggest IPO in history. One suggestion is that Aramco will go only for a listing on the Tadawul exchange in Riyadh.
“I don’t know the timing of the IPO. Maybe they [the Saudi authorities] will want to start locally, in which case they have to be sure the capacity and liquidity are there,” Corbat said.
He believes that recent improvements to the market infrastructure in Saudi Arabia — which look set to see the country included in index provider MSCI’s widely-tracked Emerging Markets index from as early as next year — could make an “exclusive” IPO on Tadawul more attractive.
“The MSCI upgrade to emerging markets status will create more liquidity, and foreign investors will have to play their role,” he said.
“All the big reforms that have taken place on the Riyadh market recently have certainly made it a friendlier place for foreign investors. The CMA has been through more change than ever, and it’s a better place for that. The CMA over the past two years has proven to be progressive and consultative,” he added.
Citi found itself indirectly involved in the big anti-corruption campaign of last year, when their long-term partner and shareholder, Price Alwaleed Bin Talal, was among the businessmen detained in the Ritz Carlton hotel in Riyadh.
Corbat is reluctant to comment on the Kingdom’s internal affairs, though he did say that foreign direct investment would not be hit by the anti-graft drive. “I don’t think FDI has been or will be affected negatively by the anti-corruption campaign. Saudi Arabia is already the biggest economy in the region with only limited foreign investment. Imagine how far it could go with more,” he said.
On Alwaleed, he said: “He has been a shareholder since the early 1990s, and he has been a great shareholder, a loyal voice of support and reassurance. We’ve been fortunate to be able to count him as one of our shareholders. In all our dealings with him I’ve found him to be straightforward and transparent.”
Corbat was one of the top American executives who met with Saudi officials on the recent royal visit to the USA, intended in part to counter any adverse investor sentiment from the anti-corruption arrests, and was impressed by what he saw.
“The visit to the USA by the Crown Prince was extremely well received. The whole Saudi delegation impressed us with their drive and commitment to the transformation process. It was a very successful exercise for Saudi Arabia,” he said.
With 35 years at Citi under his belt, including responsibly for unwinding Citi’s “toxic” assets after the financial crisis, and wide ranging experience of the bank’s international operations, he is well placed to gauge global geo-politcal risk.
He sees some threat to the world financial system from the end of quantitative easing, which he called a “renormalization of the global economy”, and a more limited challenge to world economies from possible “trade wars” between the USA and China.
“I think it’s fair to say that if we did have a serious trade war, it would have an effect. But it would not be the end of trade. I think it’s more likely to redraw the trade lines of the world. Trade flows would move away from the big blocks and go through other areas, like Africa and other places for example,” he said.
On regional risks, always a factor in business and financial decisions in the Middle East, he said: “I think they are within acceptable limits and I don’t think they will go beyond that. The region is the leading center for oil and gas so what happens here has global implications,” he said, though with the caveat that the effects of a prolonged trade was on the “bookend” economies of the USA and China could have a negative impact on global commodity prices.
All-American Corbat may be, but Citi’s return to the Kingdom will just not be an exercise in stuffing US executives into the top jobs in Riyadh. The firm is committed to achieving 85 percent Saudi employment levels at its new office, and is already well on the way to achieving that.
“The market for talent in Saudi Arabia is extremely competitive, but we think we have a very strong appeal for candidates. We are very proud of our ability to invest in and train, and to improve home grown talent,” Corbat said.