Uganda and Kenya are becoming more appealing destination for investors from the Gulf region, according to a new report by the Economist Intelligence Unit.
Retail and hypermarkets, vehicles, commercial banking and tourism are key sectors of interest, predominantly in areas in which companies have experience and comparative aantage.
The study, commissioned by the Dubai Chamber to examine Africa’s growth drivers outside of the historically dominant natural resources and raw commodities sectors, shows that the sub-Saharan African countries that have attracted the largest number of Gulf investors — between 10 and 25 firms each — are Nigeria, South Africa, Kenya and Uganda.
Gulf investors established one of Kenya’s first Islamic banks, Gulf African Bank, in 2007.
“These banks are also active in commercial deals, such as Ibdar Bank of Bahrain’s sharia-compliant purchase, and lease-backs of planes for Ethiopian Airlines and RwandAir,” says the report.
The most significant vehicle development is the $86m purchase by Majid Al Futtaim (MAF) Group of the UAE, in 2014, of Kenya’s CMC, which has dealership rights for brands like Ford, Volkswagen and Suzuki.
A branch of a family business owned by Abdullah Al Futtaim, MAF, was already operating Honda and Toyota dealerships in Egypt. The firm now plans to expand across East Africa. Al Ghandi Auto (UAE), one of the world’s largest General Motors dealerships, opened an office in Ethiopia in 2014, to explore opportunities in the East African market.
MAF has also entered into hypermarkets, leasing one-sixth of the new Mall of Kenya, which will be the biggest shopping centre in “Middle Africa” (the central part of the continent, excluding Southern Africa and North Africa), to open a French Carrefour outlet.
This follows a 2013 extension of its franchise agreement with the hypermarket chain, which it represents in the Gulf, giving MAF the rights to develop outlets in East Africa.
“This is a bold strategy, given that Kenya’s supermarket chains are among the most developed on the continent, and have a presence in other East African countries,” said Roze Philips, the managing director of products for Accenture South Africa.
She said acquiring a Kenyan firm is a possible way for Gulf investors to enter the market, although only one, Uchumi, is publicly listed, and past attempts to acquire others have failed, notably a 2014 bid by Massmart of South Africa to buy the family-owned Naivas Supermarkets.
“Gulf firms that are considering making an acquisition in the retail sector should not overly brand it, as local products are the ones that sell best,” said Ms Philips.
While consumer spending is increasing, large-scale retail centres are lagging behind, partly because of the difficulties of developing commercial real estate in crowded capital cities.
ALSO READ: Global retailers eye EA market but informal shops dominate
“Gulf companies have a comparative aantage thanks to a track record in franchising and adapting brands to local tastes and cultures. These firms are also skilled at managing the logistics of multicountry distribution,” says the report.
“Africa needs improved logistics in fast moving consumer goods. This sector is growing rapidly in many of Africa’s lower-middle to middle income countries, but logistics and distribution remain challenging because of weak infrastructure. Gulf firms have experience to share in this field, but only a few are exploring investments in Africa.”
Dorothy Kelso, head of strategy and research at the African Private Equity and Venture Capital Association said, “Increasing harmonisation, notably in East Africa, is enabling private equity firms to scale up local companies to regional or pan-African players. This is crucial because there are relatively few large companies, and so investors need to develop the platforms themselves by capitalising on the huge opportunities in mid-to-lower sized deals, where demand for capital outstrips supply.”
Abraaj is one of the largest private equity investors in Africa in April, it closed its third Africa-focused fund with $1 billion in subscribed capital, although only a minority of these funds originated in the Gulf. Other Gulf private equity firms active in Africa include Swicorp of Saudi Arabia and Kappafrik Group in Dubai.
“A number of private equity funds on the continent are coming to the end of their fund lives and are looking for exits, so it is important to knock on their doors because if they have done a good job, then their investee companies could provide a good entry point,” Jacob Kholi, the chief investment officer for sub-Saharan Africa at Abraaj, said.
SOURCE: THE EAST AFRICAN