Arab investments in Africa

David Morgan - Global Arab Network - Sunday, 05 July 2009

A new UNCTAD report Economic Development in Africa 2009 argues that regional integration in the African continent is essential for sustained development on the continent, especially within the context of the current global economic crisis.

Subtitled "Strengthening Regional Economic Integration for Africa´s Development", the 2009 edition of the UNCTAD annual report on Africa highlights the increasing level of investment from the Arab countries of North Africa in the wider African continent.

Better links between countries, ranging from transport infrastructure such as paved roads to banking cooperation, are needed to spur mutual economic growth, the UN body says. Weak physical and institutional infrastructure is the key obstacle to increasing intra-African trade and investment. This is why, at 9 per cent of recorded flows of total external trade and 13 per cent of recorded flows of total inward foreign direct investment (FDI), Africa currently has the world´s lowest shares of regional trade and investment, the report explains.

The report highlights the trends in “intra-African investment”, of particular interest is the increased investment from some North African countries in the continent. These investments are occurring not only between North African countries, but also in countries south of the Sahara, especially in West Africa.

Libya established a sovereign wealth fund in 2006 called the Libyan African Portfolio for Investment (LAP), which has become a dynamic force through its investments in a wide range of sectors in several African countries. One of its subsidiaries, LAP Green Network, operates telecommunications companies in Côte d´Ivoire, Niger, Rwanda and Uganda.

The LAP also funds the Libyan Arab African Investment Company, which invests in the telecommunications, mining, tourism, real estate, manufacturing and agricultural sectors, in 25 African countries across the continent.

Meanwhile, Morocco has substantially deepened its economic ties with the rest of the African continent from the year 2000. An important signal in this new orientation was its decision to cancel the debt of all African Least Developed Countries (LDCs) and grant them restriction-free access to the Moroccan market.

In the following years, investments from Morocco to other African countries increased substantially, as an increasing number of Moroccan companies set up operations in the region.

Moroccan mining companies are now present, for example, in Congo, Gabon, Guinea, Mali and Burkina Faso. Maroc Telecom, the national telecommunications company, has operations in Mauritania and Burkina Faso while Moroccan banks have established themselves in Tunisia and Algeria.

Ynna Holdings, a Moroccan company active in construction and manufacturing, has operations in Libya, Tunisia, Egypt, Côte d’Ivoire, Mauritania, Gabon, Mali and

Equatorial Guinea.

By far the most important destination of Moroccan investment in the region, however, is Senegal. Indeed, Moroccan companies active in Senegal include public transport companies such as the national shipping company COMANAV and the airline Royal Air Maroc, which have respectively taken over a passenger transport route and set up a new airline in partnership with the Government of Senegal.

Private Moroccan companies are also strongly present in Senegal.

Sectors in which they are active in Senegal include construction and public works, power, telecoms and the pharmaceutical industry. Since 2005, the report says, banks have also started to establish themselves strongly in the country, notably with the establishment of a subsidiary of Moroccan bank Attijariwafa, North Africa’s largest bank.

Egypt has also been establishing a greater presence in Africa through investment, notably with the expansion of the Orascom business group, UNCTAD says. This large group, with a diverse portfolio of activities — including infrastructure development, construction, real estate and telecommunications — is present in several African countries. One of its principal companies, Orascom Telecom Holdings, is one of the largest and most diversified telecom operators in the world. Among other countries, it operates in Algeria, Tunisia and Zimbabwe.

Another company in the group, Orascom Construction Industries, runs production units in Algeria and Nigeria.

The report says that over the last two decades Africa has made progress in creating subregional institutions dedicated to economic integration. However, the establishment of subregional economic communities has not substantially increased intra-African trade, investment and mobility of people as expected. Hence, relative to other regions, Africa has by far the most fragmented market, the report finds.

The creation of several institutions for economic integration in Africa in the last two decades was expected to boost intra-African trade in goods. Such trade increased from 2 per cent in the early 1980s to 9 per cent of total African exports in 2007, but these statistics underestimate the actual flows as they do not include unrecorded trade, which is thought to be very important. Even with this caveat, intra-African trade flows are low in comparison to those in other regions and relative to Africa´s trade potential, the report says.

Analysis of trade destinations reveals that despite the low aggregate level of intra-African trade, such trade is very important for many African countries. At least 25 per cent of exports from 20 countries are absorbed by the regional market. The importance of trading blocs is further highlighted by the fact that over three quarters of intra-African trade takes place within these regional groups.

According to the available data, intra-African investment represents 13 per cent of total inward foreign direct investment (FDI). The report notes that financial liberalization partly explains a recent surge in cross-border investments, particularly in the form of mergers and acquisitions in the banking and telecommunications sectors.

Among the many issues that the report covers, it says that more attention should be given to creating an efficient services sector in Africa.