According to the IMF, sub-Saharan public debt had, by mid-2022, reached about 60 percent of GDP, which is a level last seen in the early 2000s. The composition of this debt has been steadily shifting toward higher-cost private sources, increasing debt service costs and rollover risks, with 19 of the region’s 35 low-income countries now considered to be either in debt distress or at high risk of distress.
Following a clear retrenchment from China—the region’s largest inbound investor in recent history—policymakers across the region now face a sobering task to set a stabilizing course against the backdrop of geo-economic turmoil. After two decades of robust and ever-growing investment and engagement, President Xi Jinping announced in January 2022 that China would cut the headline amount it supplies to African nations by a third, from US$60 billion to US$40 billion. In the wake of China’s retrenchment, opportunities have arisen for increased investment from the states within the Gulf Cooperation Council (GCC) comprising the Kingdom of Bahrain, Kuwait, the Sultanate of Oman, the State of Qatar, the Kingdom of Saudi Arabia and the United Arab Emirates (UAE). For the GCC nations, in particular Saudi Arabia, the UAE and the State of Qatar, the Middle East/Africa corridor has become an increasingly prominent investment strategy over the past few years. Between 2017 and 2019, prior to the COVID-19 pandemic, investment volumes through capex and FDI from GCC nations into Africa increased steadily. Now, as the world rebounds from the effects of the pandemic and manages geo-political instability, GCC investment has continued to climb, reaching US$8.3 billion so far in 2022, which is almost back to pre-pandemic levels.
GCC investment into Africa does not appear to be limited to ad hoc purchases of strategic assets by state-owned enterprises. The commitment to developing ongoing, sustainable trade is demonstrated by recent diplomatic and policy-driven decisions, too. In summer 2022, we saw the UAE and Kenya issue a joint statement announcing their intention to negotiate a comprehensive economic partnership agreement (CEPA). This is recognized as a precursor to increase the overall value of non-oil bilateral trade between the UAE and Kenya, which rose to US$2.3 billion last year. Private companies are also seeing the benefits of the strengthening relationships, with African businesses increasingly choosing the UAE as a base of operations, with 1,600 new African member companies registering with the Dubai Chamber of Commerce since October 2021, demonstrating the opportunities for such companies to use the UAE as a base for outbound engagement and a platform for utilizing global opportunities for export.
GCC states have had a consistent diversification away from sole reliance on natural resources for years, and have been heavily investing in infrastructure, telecoms and food security, and Africa has been a large recipient of this focus