Untapped opportunity: Deepening trade and investment between sub-Saharan Africa and the GCC

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Economic Development

Untapped opportunity: Deepening trade and investment between sub-Saharan Africa and the GCC

October 12, 2021

Global

Melanie Noronha
Melanie Noronha

Untapped opportunity: Deepening trade and investment between sub-Saharan Africa and the GCC

October 12, 2021

Global

Melanie Noronha
Melanie Noronha
Melanie Noronha

Principal, Policy & insights

Melanie is a principal at Economist Impact. She has over ten years of experience delivering consulting and thought leadership projects to public, private and not-for-profit organisations. Based in Dubai, she leads the Middle East and Africa team on research across a range of sectors including food sustainability, recycling, renewable energy, fintech, trade and supply chains. She is a specialist in advanced recycling technologies and international trade. She is a seasoned moderator, having chaired numerous panel discussions and presented Economist Impact's research at global in-person and virtual conferences.

Before joining The Economist Group, she was a senior analyst at MEED Insight, a research and consulting firm serving Middle East and North Africa. At MEED, she developed expertise in bespoke market studies and financial modelling across a range of sectors spanning construction, finance, power and water, oil and gas, and renewable energy. She held previous posts at the Office of the Chief Economist at the Dubai International Financial Centre and at the San Francisco Center for Economic Development. Melanie has an MSc in International Strategy and Economics from the University of St Andrews and a bachelor’s degree in business administration.

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Executive summary

Sentiment on the economic promise of Africa seems to ebb and flow. African economic growth has been anaemic over the past decade, and the continent continues to grapple with fundamental challenges around improving transport infrastructure and electrification. Since the start of the covid-19 pandemic, some of these development priorities have been pushed further down the agenda.

The continent’s governments must recognise that addressing these challenges will be pivotal in realising Africa’s potential. But to achieve these goals with limited resources, African governments must cultivate relationships with other regions, not just as potential investors in African businesses and infrastructure but also as markets for their products and services.

This report, following on from a series of reports prepared by The Economist Intelligence Unit over the past seven years, examines the potential for Africa to deepen ties with the Gulf Co-operation Council (GCC) countries, in the context of sectors currently poised for growth as well as those that are greatly in need of external support.

 

The key findings of this report are:

 

  • Africa must get the basics—including regulation and infrastructure—in place to spur growth in key sectors. ‘Burdensome regulation and bureaucracy’ was the top impediment to business growth in our survey, cited by 59% of respondents. In addition, addressing the continent’s transport, electricity and digital- infrastructure deficits will be critical in delivering growth in key sectors. Executives in financial services and fintech (90%), healthcare (89%), agriculture and food (87%) and retail and e-commerce (74%) are expecting revenue to expand in 2022.

  • The digital economy will be an essential component of African growth. In 2022, 35% of respondents to our survey are expecting online channels to generate the bulk of their revenue, compared with 22% in 2019. All the sectors poised for expansion in 2022 have strong digital delivery links— from fintech to telehealth, and from digital platforms for farmers to e-commerce for broader retail. There are some lessons that Africa could learn from regions such as the GCC, which have led strong digital transformation programmes domestically.

  • The GCC region can support Africa in addressing critical infrastructure deficits. GCC-based companies such as DP World and ACWA Power are making progress on transport and energy infrastructure in Africa. Etisalat is operating on the continent, expanding their telecommunications infrastructure, which is vital in enabling e-commerce, fintech and education, among other sectors, to thrive.

  • African businesses can help the GCC’s strategic initiatives too. Healthcare companies such as Mediclinic have been operating in the UAE since 2007, helping to expand services in this vital sector. Meanwhile, efforts to efficiently deliver agricultural products from Africa to the GCC can help with the latter region’s food security.

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The GCC’s pivot to Asia has yielded some strategic partnerships with the region’s giants, including China and India, but the relationship with the ASEAN countries remains underdeveloped. Imports from the ASEAN countries made up just 6% of the GCC’s total imports between 2016 and 2020. Although exports from the GCC to ASEAN have been on the rise, they mainly consist of crude oil and plastic polymers.

This research report highlights areas for deeper collaboration, particularly among ASEAN’s growth sectors of food and agriculture, e-commerce and fintech.

 

Key findings of the report:

The digital economy is going to drive growth in ASEAN’s key sectors. In our survey, executives in the following sectors were most optimistic about revenue expansion in 2022: transport and logistics (90%), agriculture and food (90%), retail and e-commerce (87%) and financial services and fintech (83%). The increasing use of digital platforms, from ridehailing and e-commerce apps to blockchain and robo-advisers in financial services, is expected to enhance efficiency and help companies deliver innovative services to businesses and consumers. A higher share of respondents expects a majority of their revenue to be secured through online channels in 2022 (67%) compared with 2019 (26%). The GCC and ASEAN regions already have a foundation for future collaboration. In ASEAN, GCC companies have invested in establishing oil refineries and petrochemical facilities but have also ventured into food, e-commerce and financial services. ASEAN companies are active in the GCC’s hospitality and food sectors but also have a small presence in financial services. Lessons learned from these endeavours could enable further expansion.  There is scope for increasing trade in agricultural products. The GCC relies on the ASEAN region for just 7% of its total food and beverage imports. Given that ASEAN is known for its production of rice, soybeans and tropical fruits, among others, the GCC could explore a wider variety of agricultural products to import. Strengthening transport and logistics links as well as harmonising rules for halal products may enable greater trade in agriculture, food and beverages between the two regions.  Knowledge sharing in key sectors can provide a framework for deeper collaboration. Regulators aiming to develop the fintech sector in the GCC could learn from progressive regulators in the ASEAN region such as Singapore, for example. Collaborating on the training of halal auditors could facilitate trade in a host of halal products from food to pharmaceuticals.  Download Arabic Report
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Cultivating Ties: Deepening trade and investment between Latin America and the GCC
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As Latin American countries navigate the post-pandemic economic recovery, they are discovering that there are fresh opportunities to seize and new relationships to forge. Companies in the region are riding the surge in commodity prices, which benefits their agricultural and metal exports, and are positioning themselves as the partner of choice for companies that are diversifying their supplier base for products ranging from medical devices to cosmetics. 

In this report we examine the sectors poised for growth in Latin America (LatAm) and opportunities for engagement with international markets. To this end we are taking a closer look at the trade and investment relationship between LatAm and the Gulf Co-operation Council (GCC) to identify areas where the GCC can be a destination for LatAm products, a supplier for key industries, an investor for growing operations, and a knowledge partner for industry best practice. 

 

Key findings of the report:

 

LatAm growth will come from sectors that require engagement with international markets. The highest shares of executives who expect revenue to expand in 2022 are in the healthcare industry and the food and agriculture sector (cited by 97% in each). This includes producers of medical equipment, pharmaceuticals (including vaccines) and a host of food products from coffee to poultry. These products are among the region’s key exports and will continue to rely on external demand for growth.  The GCC and Latin America have a complementary but limited trade relationship. The GCC imports iron ore from LatAm for the production of aluminium, which it then exports to LatAm. LatAm imports fertiliser for its agricultural sector from the GCC, and the agricultural outputs are then exported to the GCC. However, trade levels are low. In 2020, imports from LatAm accounted for just 3.2% of the GCC’s total imports and 1.6% of LatAm’s total exports. LatAm executives are starting to turn to the GCC for investments. Just 5% of the executives we surveyed in 2021 were engaging with the GCC to secure investments, but 28% said they were interested in doing so in the future. Between 2016 and 2021 the GCC invested US$4bn in LatAm countries, 77% of which was sourced from the UAE, 22% from Saudi Arabia and 1% from Qatar.  There is an untapped opportunity for knowledge exchange between the two regions. The GCC countries have successfully executed road, electricity and telecommunications infrastructure projects. LatAm is home to a rapidly expanding fintech industry and has an established agricultural sector. There is an opportunity for sharing best practice in sectors vital for growth.  Download Arabic Report
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Economic Development

The Hinrich Foundation Sustainable Trade Index 2018

Yet the enthusiasm in Asia for trade does not appear to have waned. This broad societal consensus behind international trade has enabled Asian countries to continue broadening and deepening existing trading relationships, for example, by quickly hammering out a deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in early 2018 following the US’s withdrawal from its predecessor in 2017.

Asia, then, finds itself in the unique position of helping lead and sustain the global economy’s commitment to free and fair trade. It is in this context that the need for sustainability in trade is ever more crucial.

The Hinrich Foundation Sustainable Trade Index was created for the purpose of stimulating meaningful discussion of the full range of considerations that policymakers, business executives, and civil society leaders must take into account when managing and advancing international trade. 

The index was commissioned by the Hinrich Foundation, a non-profit organisation focused on promoting sustainable trade. This, the second edition of the study, seeks to measure the capacity of 20 economies—19 in Asia along with the US—to participate in the international trading system in a manner that supports the long-term domestic and global goals of economic growth, environmental protection, and strengthened social capital. The index’s key findings include:

Countries in Asia, especially the richer ones, have broadly regressed in terms of trade sustainability. Hong Kong is developed Asia’s bright spot, recording a slight increase in its score and topping the 2018 index. Several middle-income countries perform admirably, led by Sri Lanka. For the economic pillar, countries generally performed well in terms of growing their labour forces as well as their per-head GDPs. For the social pillar, sharp drops for some countries in certain social pillar indicators contribute to an overall decline. For the environmental pillar, with deteriorating environmental sustainability in many rich countries, China, Laos and Pakistan are the only countries to record increases in scores. Sustainability is an ever more important determinant of FDI and vendor selection in choosing supply-chain partners. Companies are improving the sustainability of their supply chains by restructuring and broadening relationships with competitors and vendors.
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