Gulf Cash & Influence in African States

There is enormous potential for Africa-Gulf relations to propel economic prosperity on both sides of the Red Sea; but only if both sets of leaders can overcome their lack of strategic ambition.

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My 2023 end of year summary listed Gulf cash and influence in Africa as one of five important trends that gained momentum in the year. This post discusses Africa-Gulf relations, with specific attention to economic trends. The broader context of the discussions herein is the general view that the current multipolar moment presents African states with unique opportunities to negotiate their way out of the global economic and geopolitical periphery. In addition, the expansion of options risks increasing the frequency and intensity of conflicts within and across African states. This applies both to the African Union and the various regional economic communities (RECs).

Africa-Gulf relations reflect the tension between the opportunities and risks inherent to the current multipolar moment.

Gulf cash has the potential to catalyze investments in African infrastructure, agriculture, energy, assortment of startups, as well as equity markets. Strategic diplomatic alliances could help amplify the global influence of the African Union, the Arab League, the Gulf Cooperation Council, and individual countries within these organizations.

However, current approaches by leaders and policymakers on both sides of the Red Sea remain hostage to a poverty of strategic ambition driven by entrenched cynicism and the problem of short time horizons. From conflicts in the Horn to state-sanctioned gold smuggling to opaque carbon trading deals to mistreatment of African migrants in the Gulf, at the moment Africa-Gulf relations seem decidedly negative.

In the main, both African and Gulf governments would benefit from developing and articulating clear strategic objectives to guide their relations with one another. This would include investing in knowledge production for mutual understanding and effective communication of the core economic and geopolitical goals that inform cross Red Sea relations. Doing so would be a significant improvement on current approaches founded on cynicism and expedience.

I: The new Gateway to Africa?

The potential economic benefits of closer Africa-Gulf relations are twofold. First, Gulf states are cash-rich and need to diversify their economies beyond petroleum. Africa, a resource-rich continent right next door with a young and growing population, is an obvious investment destination. Second, Gulf financial centers can serve as the global staging ground for global investments in African economies (essentially mirroring Hong Kong and Singapore). In other words, the Gulf could be a “safer” place to domicile company headquarters for those who continue to harbor irrational fears about the risk profile of African economies. This function would benefit from close proximity to the large number of high net worth Africans with property in the Gulf as well as the growing number of African firms registered in the region (with over 26,000 in Dubai alone) for tax planning and to secure property rights.

Either development would be beneficial to African economies which continue to face enormous investments gaps across multiple sectors. Infrastructure alone has an annual funding gap of about $100b. For this reason, it is a good thing that Gulf states and firms are willing to view African economies as viable investment destinations.

African states mostly export raw materials (agricultural commodities, petroleum, metals and precious stones) to the Gulf and import petroleum products and an assortment of re-exported consumer goods. As a sign of the growing economic ties, both Saudi Arabia and the United Arab Emirates have seen an increase in African migrant workers in recent years — even though the African share of the total migrant labor force remains minuscule (see below).¹ Most of these workers tend to join lower rungs of the labor force (with all the horrors that come with that). It is conceivable that this might change as Gulf economies demand more labor in higher-end services and manufacturing. The massive untapped opportunity for African students to study in Gulf universities (including at outposts of leading Western universities) is a potential pathway to this outcome.²

Solid lines indicate total number of African migrants in thousands (right y-scale); while dotted lines indicate total population of migrants in millions (left y-scale). Source: Author’s calculation based on data from the UN.

Among Gulf states the UAE has the most diversified economic links to Africa (with the region accounting for 10.5% of UAE trade). Emirati firms, many with links to the federation’s ruling families, are involved an array of sectors from infrastructure and logistics (DP World and AD Ports), telecoms (etisalat — Moov brand in 10 countries), renewable energy and climate financing (AMEA Power and Masdar), petroleum and refineries (Alpha MBM Investments), agriculture (Dubai Investments and E20 Investments), technology and critical minerals (International Holding Company and Primera Group), precious metals, and more. These investments span dozens of countries in all of the Continent’s sub-regions.

The UAE is the leading Gulf investor in Africa. Source: Bloomberg

Saudi Arabia trails the UAE, but is slowly catching up on African economies’ strategic importance. Trade volumes are up, but Africa’s relative share of Saudi trade is trending downwards (Africa accounts for just over 2% of Saudi trade). Both volumes and relative shares of Africa-UAE trade trend upwards. At the 2023 Saudi-Africa Summit, Crown Prince Mohammed bin Salman (MBS) announced plans to invest up to $25b in African economies in addition to $5b in development financing. Just under 50 Saudi firms (led by the Public Investment Fund, Ma’aden, and ACWA Power) have a small but growing footprint in Africa, including in agriculture, mining and critical minerals, infrastructure, renewable energy and carbon credits, and tourism.

Notice the explosion in Africa-UAE trade after 2016. Source: Author’s calculations based on data from the World Bank.

Notably, Riyadh’s engagement with the Continent is dominated by religious and development organizations — and funded mostly through the Saudi Fund for Development (SDF), King Salman Humanitarian Aid and Relief Center, and the Islamic Development Bank. Since its founding in the 1970s SDF has collaborated in the region with other development partners like the United Nations, multilateral development banks, and bilateral donors. As of 2022 SDF had projects in 46 African countries backed by $10.7b in funding. Despite trailing the UAE, Saudi Arabia has the potential to quickly strengthen commercial ties on the back of decades-long institutional knowledge (not to mention its soft power emanating from being host to Mecca and Medina — about half of Africans are Muslim).

Besides the UAE and Saudi Arabia, Qatar is the other Gulf state with potential to be a major economic force in the region (although Africa-Qatar trade remains flat). Building on its status as a global energy superpower, Doha is making an even bigger bet on gas at the expense of dirtier fuels like coal. This makes it a natural source of investment in African LNG projects, which comprise 40% of gas discoveries between 2010-2020. Even a sliver of Qatar Investment Authority’s $475b would make a world of difference in several African economies. Were it to embark on growing economic ties, Doha would certainly benefit from familiarity with Al Jazeera and its style of centering African and Middle Eastern perspectives.

II: What strategic objectives motivate Africa-Gulf relations?

A defining feature of Africa-Gulf relations is the total lack of strategic coherence on either side of the Red Sea. African states’ export of labor to the Gulf has happened on the back of domestic political and economic failures, and not strategic calculations. As I show below, rampant cynical criminality provides the backdrop for much of the trade relations between the two regions — mostly driven by the UAE. This is especially true for trade in metals, precious stones, and carbon credits. Overall, African elites mostly view Gulf economies as a place to safely store/hide their wealth, rather than as commercial centers through which they can reroute cash in order to amplify and obfuscate beneficial ownership of investments back home (and in so doing protect their property rights). In other words, when African money goes to the Gulf it seldom finds its way back home. This is far from ideal.

So far Gulf states’ economic and security engagements on the Continent do not appear to be informed by any easily discernible strategic thinking. Instead, expedience reigns from Abu Dhabi to Riyadh as Gulf states compete for influence in African capitals. For the most part, the UAE enjoys first-mover advantages on both the economic and security fronts. This has forced Saudi Arabia and others to largely play catch-up on Abu Dhabi’s terms and to lose sight of their own strategic objectives (if they ever had them). While this dynamic is most evident in the conflicts in the Horn, it also explains much of the “scramble” for economic opportunities throughout the Continent.

Take the example of Sudan, where there is credible evidence that the UAE is supporting the Rapid Support Forces (RSF) in its war against the Sudan Armed Forces (SAF). If Abu Dhabi’s strategic goals in the conflict are unclear, it is partially because its journey to becoming a party in Sudan’s civil war was a consequence of procuring the services of RSF mercenaries in Yemen and Dubai emerging as a hub for laundering illicit cash for gold smugglers all over Africa. Naturally, Saudi Arabia and its allies allegedly joined the conflict on the opposing side. With this in mind, the inability of the Jeddah talks to yield any breakthrough — even as Abu Dhabi facilitated meetings with African heads of state for its alleged Sudanese proxy — vividly illustrates Riyadh’s relative diplomatic weakness and lack of initiative.

Gold exports to the UAE from Africa. Source: Reuters

It is hard to understand the UAE’s fledgling commercial relations with African states without appreciating the role of gold smuggling. As of 2021, the UAE imported 95% of gold from 10 major African producers — hence edging China as several countries’ biggest trading partner. In the same year, it’s own gold re-exports hit $33.8b, a third of its non-petroleum exports (see here, here, here, and here on Dubai as a hub of illicit trade in gold). Ominously, a gap emerged between reported gold exports by African countries and UAE’s gold imports from the same countries — which strongly suggests smuggling. The apparent illicit trade in gold goes well beyond conflict zones, with even otherwise stable countries like Ghana, Kenya, and Tanzania being implicated as either producers or transit countries for smugglers.

African economies lose billions of dollars to gold smuggling through the UAE (Source: Reuters). In addition to these gold producing states, countries like Rwanda, Uganda, and Kenya which lack significant gold deposits have emerged as important smuggling transit routes.

The same logics of smuggling explain the UAE’s latest forays into mining, renewable sectors, and the green economy in Africa — including through involvement in carbon trading and procurement of critical minerals. Opacity and illicit deals permeate these ventures. Consider the Primera Group, a little known UAE firm that aims to export tons of gold from the Democratic Republic of Congo (DRC) on the back of exclusive rights to export artisanal gold and critical minerals like coltan and tin, tantalum and tungsten (the firm has other industrial mining deals with the government). The firm got a 25-year deal to pay an export tax rate of 0.25% and an income tax rate of 3.25%.

Contrast this with the experience of Congolese firms that have to pay 40 times the preferential export tax rate offered to Primera Group — a reminder that the logics of resource exploitation in Africa remains decidedly against local wealth accumulation. Furthermore, last year the Congolese government annulled the license of Congo Gold Raffinerie Sarl, a firm owned by two Congolese businessmen, which had built a plant to refine artisanal gold. Coincidentally, this happened right before the Primera deal.

Deals like these and a willingness to do business with smugglers at an enormous scale explain the widening gap (attributable to smuggling) between African exports to the UAE and the UAE’s reported imports from Africa (see below).

Widening gap between reported African exports to the UAE and Abu Dhabi’s imports from Africa suggest rise of illicit trade. Source: Author’s calculations based on World Bank trade data.

From an African perspective, it is especially important for Abu Dhabi to recalibrate its model of doing business on the Continent. This is because it is likely to remain a pacesetter for the rest of the Gulf as the region’s states gear up for ever bigger commercial deals in the region in competition with each other. Furthermore, entrenched corruption in the Gulf, especially were it to become major financial gateway to Africa, could undo some of the meager gains made against corrupt resource sector firms subject to anti-bribery legislation in their home jurisdictions. These firms would be able to launder their corrupt practices through Gulf business ventures as they bribed African leaders and made away with the Continent’s natural resources. UK-based firms are already in deals with UAE firms like q

This is not a hypothetical. Neither is the problem limited to the UAE. According to the Wall Street Journal, in 2023 the United States government considered dropping sanctions against Israeli billionaire Dan Gertler (infamous for mining deals in the DRC under Joseph Kabila) in order to access Congolese critical minerals through a joint deal between Gertler and Saudi Arabia. The idea was that the Saudis would buy stakes in Gertler’s Congolese mines (whose acquisition processes triggered sanctions) and share some of the rights with the U.S. government. Recall that since Kabila left office, Gertler has had to return over $2b worth of mineral rights to the Congolese government.

The active courting of Gulf states to evade Western anti-bribery laws and sidestep Western firms’ reluctance to invest in African economies is official policy. According to the Financial Times:

… Washington has welcomed the Gulf’s expanding role in mining for helping to break Beijing’s monopoly over processing critical minerals. The US has been actively brokering Saudi, Emirati and Qatari investment in riskier jurisdictions, such as the Democratic Republic of Congo, where western companies struggle to enter, in order to keep China out, according to executives from mining companies and trading houses, as well as a senior US government official.

This is the level of cynical short-termism that African policymakers must be prepared to deal with. It ought to be abundantly clear that both African and the Gulf states stand to lose if those handling their respective relations are little more than gun-runners and smugglers with diplomatic passports. There is not enough money in the world that can make up for the murderous wars, institutional decay, erosion of state capacity, and amateurish geopolitics that flows from this approach. If in doubt, look at Chad, Sudan, Libya, Ethiopia, Zimbabwe, and the DRC.

IV: Conclusion

States can learn from past mistakes. Despite the inauspicious start to the current chapter of Africa-Gulf relations, there is always time to unlearn bad habits and choose a different path. What is demanded is not perfection, but a good faith effort to build commercial and diplomatic ties that work for the peoples of Africa and the Gulf by creating decent jobs. Arriving at this outcome will require a concerted effort to convince pivotal leaders in both regions that they can play on a higher, peaceful, and much more lucrative plane.

Failure to improve is not an option. Here, some perspective can help calibrate expectations. In the last commodity upswing (2000-2014), China proved to be a much better partner than the region had countenanced in previous commodity booms. It wasn’t perfect, for sure. But Beijing’s commercial forays in Africa yielded significant improvements in infrastructure as well as human development. With that in mind, the fact that *so far* the emerging model of Africa-Gulf commercial relations is clearly a qualitative downgrade relative to Africa-China commercial relations over the last two decades is concerning.

It’s worth noting that the window for learning is closing fast. On both sides of the Red Sea, illicit public and private networks are forming and growing (including in service to war economies) that may soon prove impossible to unwind. At the same time, attitudes are forming in Africa (especially about the UAE) that may prove impossible to undo later and which would get in the way of closer (and more strategic) economic and diplomatic relations. As I argue above, such an outcome would be a big missed opportunity for both regions and their peoples.

1. Figures only include Sub-Saharan African states (UN classification)

2. Full disclosure, my employer runs the Georgetown University in Qatar campus.