November 2, 2017//-The Gulf Co-operation Council (GCC) and African countries have young and growing populations. In both regions, half of the population are under 25 years old.
Worryingly, youth unemployment is forecast to reach almost 11% in Africa and 30% in Arab states in 2017, according to the International Labour Organisation’s latest World Employment and Social Outlook report.
This is happening against a backdrop of only modest economic growth in both regions. In April, the IMF forecast an average GDP growth rate for 2017 of 2.6% in sub-Saharan Africa, well below blockbuster annual rates of 5-6% in the past two decades.
Yet the headline figure masks considerable diversity: countries such as Ghana, Kenya, Rwanda and Tanzania are expected to grow at more than 5% this year. At the same time, the GCC has experienced its own economic challenges, as a result of low oil prices and uncertainty over economic reforms.
This is according to a latest report titled- ‘ Next-generation Africa-GCC Business Ties in a Digital Economy’. The report is an Economist Intelligence Unit (EIU) report which was sponsored by Dubai Chamber of Commerce and Industry.
The report explores the perspectives of young entrepreneurs and investors in Africa and the Gulf Cooperation Council (GCC) countries on building business relationships, identifying challenges to overcome and spotting opportunities that await.
It is report is based on extensive desk research and in-depth interviews with entrepreneurs and investors in Africa and the GCC, with a focus on millennials. The interviews were conducted between June and August 2017.
The IMF has forecast growth in the region of only 0.9% for 2017, although its expectation for 2018 is higher, at 2.5%.5 Coupled with doubt about potential in traditional markets, notably the US and the UK, this is leading GCC investors and businesses to seek fresh opportunities.
Gulf governments and the region’s family conglomerates have been at the forefront of efforts to nurture GCC-Africa ties so far. The UAE (at US$11bn) and Saudi Arabia (at US$3.8bn) were the second- and fifth-largest capital investors in Africa respectively in 2016 , according to fDI Intelligence, a division of The Financial Times.
Among the large corporates to make early forays are Kuwait’s Kharafi Group (which owns hotels in Gambia and South Africa) and the UAE’s Al Futtaim Group (which owns Kenyan car retailer CMC Holdings) and Etisalat (a government-owned telecommunications company that operates in nine African countries).
“Having a leading group like Al Futtaim venture into [East Africa] sent a signal that the business environment is conducive to making investments,” said Paras Shah, a partner at law firm Bowmans, who specialises in mergers and acquisitions in East Africa.
Investors and entrepreneurs are being spurred by a tantalising combination of need, demand and technology in Africa. The statistics are telling: only 54% of people in the region have access to a paved road, whereas 93% can access mobilephone services, according to a survey by Afrobarometer, a research firm.
Africa’s emerging middle class is the key driver behind interest in consumer-driven sectors such as retail (specifically, e-commerce), financial services and food processing.
While definitions of this segment of the population vary, Africa’s middle class (defined by the African Development Bank as those earning more than US$3,900 a year) grew from 27% of the population in 2000 to 34% by 2010.
Africa’s middle class grew from 27% of the population in 2000 to 34% by 2010. The Middle East was the second-largest source of capital investment in Africa in 2015, at US$11bn— although it lagged far behind Western Europe’s US$30bn total, according to fDI Intelligence.
The value of GCC private-equity deals in the continent is thought to be considerable. But the picture is skewed by the heft of a handful of big players, such as UAE based Abraaj Capital and Saudi-based Kingdom Africa Management.
Against this backdrop, the Gulf’s young business leaders are poised to follow suit. Having built up confidence and scale in Middle Eastern markets, some are now poised for expansion into Africa.
GCC startups, such as ride-hailing service Careem and courier app Fetchr, already have Africa—and particularly the regional giants Kenya, Nigeria and South Africa— in their sights.
$ 11bn Investment from UAE investors in Africa in 2016 $ 3.8bn Investment from Saudi investors in Africa in 2016.
Still, awareness of the potential among entrepreneurs is not widespread, hampered by insufficient market data and a lack of understanding of how business is done on the continent. The Gulf and nearby markets—notably India, Pakistan and Turkey—still dominate young business leaders’ priorities.
The practical challenges for those who do venture into Africa remain real, particularly when looking beyond the usual markets of Kenya and Tanzania. Entrepreneurs must contend with volatile currencies, reluctant investors, the need to identify the right partners, and data gaps.
In this report, we talk to some of the young entrepreneurs and professionals who are building business links between the two regions and discuss the rewards—and risks—that await.
African Eye Report/ Economist Intelligence Unit
