Affluent investors hailing from the Middle East are actively pursuing investment opportunities in Africa, particularly in sectors such as agriculture, essential minerals, and renewable energy, as highlighted by Citigroup.

Countries like Kenya are under their radar to enhance food security in the Gulf region, while industrial partnerships and renewable energy initiatives are being explored in South Africa to broaden economic diversification beyond oil, according to George Asante, who leads African markets at Citigroup.

“Emerging deals are surfacing,” Asante stated in an interview, though he refrained from providing detailed information. Citigroup maintains a presence in 15 African countries, with over 70 sales and trading professionals dedicated to fostering new financial inflows from various global regions into Africa, he noted.

Investors from the Middle East are collaborating with firms from the US and China in their pursuit of opportunities across Africa, the world’s second-largest continent, abundant in minerals vital for the transition to cleaner energy sources and rich in arable land suitable for producing grains and other food products. The World Economic Forum reported that Gulf Cooperation Council companies invested $53 billion last year, up from $100 billion over the previous decade.

In South Africa, the Zahid Group from Saudi Arabia and other investors are in discussions to acquire Barloworld Ltd., which serves as the African distributor for Caterpillar Inc.’s machinery. Additionally, Adnoc from Abu Dhabi and Aramco from Saudi Arabia are competing to purchase Shell Plc’s downstream assets in Africa’s most developed nation, as previously reported by Bloomberg.

Asante noted that a substantial decline in asset values in nations like Egypt, Nigeria, and Angola offers a favorable entry point for investors.

Moreover, US investment is on the rise, particularly in the vital minerals sector. Prosper Africa recently reported that the US government facilitated over 400 deals worth $32.5 billion in the first half of 2024.

However, political risks, such as unrest in gas-rich Mozambique, may deter some investors. The detention of foreign executives in Nigeria and Mali raises further concerns for businesses. Recently, the military government of Mali arrested four employees of Barrick Gold Corp. amid rising tensions regarding its local mining operations, while Binance Holdings executives faced detention in Nigeria.

The continent is grappling with an annual funding gap of about $402 billion until 2030, needed to “accelerate its structural transformation and catch up with high-performing developing nations in other regions,” as stated by the African Development Bank.

Direct foreign investment flows are assisting African sovereigns in diversifying their funding sources away from eurobonds and concessional funds, which presents an opportunity for nations to reduce their dependence on dollar-denominated financing.

“The eurobond market is reopening for several African nations, including Cameroon, Kenya, Benin, and Ivory Coast, although many countries are being cautious with their debt management following recent defaults,” Asante remarked.

He highlighted that accruing debt in foreign currencies can impose significant risks for nations. An increasing number of countries are leaning towards converting their debt exposures into currencies that are easier to manage.

Asante remarked that collaboration among governments, the banking sector, and major institutions like the International Monetary Fund and the World Bank is essential to lessen Africa’s reliance on foreign currencies.

“It is crucial for African nations to develop frameworks and tools that enable them to manage their foreign currency debt exposure and the volatility it brings to their balance sheets,” he stated. “Prioritizing the dedollarization of debt is vital for these countries to avert potential debt distress every few years if not addressed timely.”

© 2024 Bloomberg

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