Vehicles and pedestrians are seen at the busy Muthurwa market in Nairobi, Kenya. AFP
Foreign investment has become a cornerstone for many governments and businesses. It is a key element of globalisation and the world economy.
By investing in other countries and regions, businesses can rapidly acquire new products and technologies, penetrate new markets, drive employment, allow technologies to progress, improve productivity, and ultimately help the economy to grow. With the opportunities come challenges. Therefore, in today's write-up I aim to provide an overview of the opportunities and challenges that may face UAE’s businesses when investing in Africa, Asia, and Latin America.
Many opportunities exist around the world. Therefore, it is essential that the UAE through its businesses take its steps to explore them and whenever possible to invest in them. Investing in other countries will give the UAE a stronger image, reputation, and access to different regions of the world. Hence, allowing it to position itself strongly in numerous initiatives and mega projects.
An ideal illustration of these opportunities is the One Belt, One Road initiative (OBOR). It was launched six years ago by the Chinese president Xi Jinping. The scale of its infrastructure is a feast in itself. “The initiative could potentially cover 65% of the world’s population, 1/3 of global GDP and a quarter of all the goods and services in the international economy.”
This initiative holds an opportunity for UAE’s Aviation Industry — that can bring connectivity to China. As China looks to connect with the world, the UAE by establishing and increasing non-stop connectivity between the Chinese market and the rest of the world, can well support the Chinese economy, trade, as well as provide an access to different markets and routes. By doing this, the UAE through its carriers can fill the connectivity gap, establish a strong network across Africa, Europe, Central Asia and Middle East, henceforth be the connector of people and trade.
Africa holds great opportunities for UAE's businesses. Africa is the world’s second largest continent after Asia, and it has 54 independent countries with an estimated total population of 700 million and by 2030, 1/5 people in the world will be African. By 2034, it will have a larger working-age population than both India and China combined. So, UAE’s opportunity can exist in drawing attention to the population trend in Africa.
‘The expanded UAE economic and trade relationship with Africa will further strengthen UAE's push for economic diversification.’
Also, Africa is a hugely untapped market, with impressive stores of resources being located in it, and 60% of the world’s uncultivated arable land is found in it. Africa remains hungry for new products and services, and it is providing a wide range of business opportunities for world businesses.
There is an increased appetite for investments in Africa. Figures mentioned in the World Investment Report 2019 show that the FDI flows to Africa rose by 11 per cent to $46 billion in 2018. Additionally, EIU showed that “between 2005 and 2014 Gulf companies invested at least $9.3 billion into sub-Saharan Africa”, and between 2008 and 2017, the UAE alone invested around $108 billion in Africa.
An interesting thing to notice is that the region itself is very diversified. East Africa is an attractive market for non-commodity investments, Ethiopia — for the manufacturing industry, Kenya and Mozambique — for the retail and the tourism businesses, and Uganda — for the education sector related investments.
Africa holds aviation sector related opportunities as well. UAE carriers such as Emirates have been particularly active, and have been directly involved with the African carriers. Additionally, Etihad already purchased 40% of Air Seychelles.
Indeed, the expanded UAE economic and trade relationship with Africa will further strengthen UAE's push for economic diversification.
On the opposite side of the spectrum, the UAE businesses would also face challenges if they were to invest in these regions. These challenges may affect businesses' investment decision.
Political instability is a very important factor to consider prior to any investment decision, especially in countries with conflicts such as (Sudan), high political risks (Ethiopia), and very high political risks (Libya).
The presence of the local extremist groups; for example: the Daesh in West Africa, Boko Haram, AQIM and al-Shabaab can be a very destabilising factor for such countries. The outbreak of such groups in a country may affect its tourism, people movement and increase the military budget and spending needs of that country. Latin America provides a good example of such a region too.
Occurrence of economic crises in a country or a region is another challenge. In fact, it is the most important factor to be mentioned in different analysis such as PESTEL or SWOT or any other market analysis. Moreover, the continued overcapacity in key industries, environmental pressure, demographic change, the failure of national governance, increased unemployment, low network readiness, gross public debt, and currency depreciation coupled with growing protectionist trade policies can slow down any economy, hence present a significant difficulty for a foreign penetration.
A final line to start a new discussion with you is: what do you think is the potential socio-economic impact of UAE’s investments in the Space industry?
Saif Al Ghurair was born in 1924 in Deira, Dubai.
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