Africa’s commodity flows are changing. Its exporters are looking to reduce reliance on buyers from Europe, North America and China, and exploring new avenues to add value to the continent’s abundant raw materials. This trend represents a unique opportunity for the UAE to position itself as a hub for goods moving in and out of the region. John Basquill reports.


Forecasts for global trade and economic growth remain sombre. The World Trade Organization warned in March 2023 that merchandise trade growth “appears to have lost momentum” in the face of unpredictable demand, price concerns and geopolitical tension.

“Weakness in trade is broad-based, impacting many sectors,” it said, pointing out that almost all drivers of goods purchases remain below trend, including export orders, container shipping and movement of raw materials.

But the six GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – are bucking that trend. Growth across the GCC during 2022 is expected to be more than double the worldwide average according to World Bank forecasts.

The UAE in particular is thriving, with government figures showing 41% growth in global merchandise exports last year. The country has grown to become the 11th largest exporter of goods worldwide, with sales totalling US$599bn in 2022, while import volumes grew by 22% to US$425bn.

This increase is no accident. The government has long sought to reduce the country’s dependence on exporting oil and petroleum products, and in November launched ‘We the UAE 2031’, an ambitious social, economic and political strategy that aims to double GDP to more than US$800bn within a decade.

The country’s minister of state for foreign trade, Thani bin Ahmed Al Zeyoudi, says these efforts are “building the foundations of the UAE’s new economic model”, with diverse goods and services trade at its heart.

The vision is a global one. The UAE continues to pursue new trade deals, inking comprehensive economic partnership agreements with India and Turkey, and participating in GCC talks over potential pacts with the European Union, Japan, Korea, China and others.

But it is trade with Africa – particularly in commodities, both unprocessed materials and value-added goods – that arguably holds the most potential for the UAE.

“There are more and more synergies between the Middle East, particularly the Gulf region, and Africa,” says Robert Besseling, founder and chief executive of Pangea-Risk, a political and risk intelligence company focused on the Middle East and Africa.

“If you’re looking at African trade hubs today, people talk about Paris or London, but you can’t ignore Dubai, or even places like Abu Dhabi, Turkey and Saudi Arabia.”


Shifting trade flows

There are several factors driving the UAE’s emergence as a centre for African commodities trade. A growing number of African commodity-producing countries have been seeking to diversify export destinations, moving away from a reliance on buyers in Europe, North America or China.

“The traditional supply chains currently in place have been very much focused on exporting raw ore or unprocessed goods from Africa, and those were originally geared towards colonial times, pre-independence,” Besseling tells GTR.

The problem that creates is there is little opportunity for African companies to be involved in adding value to those raw materials, or have any role in re-exporting processed goods.

With China, for example, the Belt & Road Initiative (BRI) had provided African exporters with an alternative destination market since its launch in 2013. Over the past decade, China had become the largest single source of inbound investment in the country, forging strong commercial ties in sectors from infrastructure to consumer goods.

“But again, that has been largely focused on exporting unprocessed goods,” Besseling says. “In return, African markets are flooded with processed goods from China. Neither of those setups are particularly advantageous to the continent.”

There are also signs the influence of the BRI could start to wane as China scales back investment into the continent. Though trade with Africa is still cited as a priority for China, in early 2022, President Xi Jinping said the country would invest a headline amount of US$40bn in infrastructure projects – down a third from the amount promised at forums in 2015 and 2018. For the UAE, this shifting economic and political picture has a sizable potential upside. Historically, the UAE’s largest trading partners have been China, Saudi Arabia, the US and India, but the country is increasingly positioning itself as a trade hub for goods moving in and out of Africa.

The Dubai Multi Commodities Centre (DMCC), the UAE’s largest free zone and a vital part of global trade in energy, metals and agricultural goods, is already “looking to Africa to help fuel further growth and says it has a clear Africa strategy to encourage more companies from the continent to use the centre to aid their commodity exports”, says a Pangea-Risk report published in February 2023.

African governments are opening offices within the DMCC, driven by a “desire to take greater control over the distribution of their natural resources, potentially bypassing western European entities”, the report adds. Bolstering those trade ties could paint a different picture for African commodity producers.

A greater African presence in the UAE could prove advantageous to both markets. In addition to exporting raw commodities, companies looking to process materials domestically and export finished goods would gain access to ready buyers in the Middle East.

“What we’re seeing now is refined products coming out of Africa and using the UAE, Dubai in particular, but other ports and facilities in the region as well,” Besseling says.

“The UAE certainly sees this as an active area of competition and is facilitating this new way of doing trade with the African continent, which neither Europe nor China have been able to exploit yet.”

For raw materials that are not processed domestically, African companies that establish entities in the UAE can remain involved in adding value once they depart the continent, or can play a role in re-exported processed goods to other markets – notably across the GCC, or back to Africa.

“In the same way the GCC has been using the UAE as a trade hub into Africa, African corporations are increasingly using the UAE to step into the rest of the GCC, or even elsewhere,” says Claire Matheson Kirton, a partner at White & Case in Dubai.

“There are now African companies opening in Dubai and facilitating trade back to other countries in Africa. Those partnerships and synergies are really developing, in all directions.”

One example is in agricultural goods. Concerns over high food prices and even potential shortages have accelerated efforts to link African agri exporters to the wider Middle East region, notes Premeshin Naidoo, managing director of the Middle East and Asia corridor at South Africa-headquartered bank Absa.

“There is a growing relevance of Africa emerging as an important source of food security for the GCC countries generally, and certainly African countries see this as an important area for further trade development between the two regions,” he tells GTR.


Strengthening ties

These efforts remain in their early stages, however. Though the UAE has agreed to establish free trade areas with Morocco and Sudan, and is a party to the Greater Arab Free Trade Area Agreement, deals between the Middle East and Africa remain few and far between.

The two regions are working hard to forge political ties. In July 2022, the UAE signed a joint statement with the government of Kenya announcing the intention to negotiate a comprehensive economic partnership agreement between the two countries. The deal would be the first bilateral trade deal signed between the UAE and any Sub-Saharan African nation.

The UAE government said at the time that a deal would “deepen trade and investment ties between Africa and the Middle East and boost the total value of UAE-Kenya non-oil bilateral trade”, which grew to US$2.3bn the previous year, touting the “tremendous opportunity for closer economic integration”.

And in April this year, trade minister Al Zeyoudi led a UAE delegation of officials and business leaders to South Africa, a move aimed at widening trade and investment opportunities across several sectors, including logistics, energy and technology.

“Our investment community understands the scale of the opportunity in front of us, and we are ready to work in unison to support new industry sectors, strengthen south-south trade corridors and push our bilateral trade well beyond the US$6.5bn we recorded in 2022,” Al Zeyoudi said.

Moves by African countries to reduce economic dependency on exporting raw materials also remain in their infancy, and currently, commodities trade between Africa and the UAE is still largely dominated by unprocessed goods.

Gold accounted for nearly half of the UAE’s imports from South Africa in 2021, for example, with diamonds and ferrous metals making up another 17% and 14% respectively. Trade flows in the opposite direction were largely processed goods, mainly petroleum products and copper wire.

With Kenya, meanwhile, foodstuffs such as coffee, tea, spices, meat and fruit made up nearly half of the UAE’s imports from the country, whereas refined fuel accounted for around 66% of exports.

Scaling up trade flows between Africa and the Middle East will also require substantial support from trade finance lenders. The African Development Bank estimates that the annual trade finance gap across the continent – defined as the difference between supply and demand of facilities – stands at around US$81bn.

The challenges for banks are complex. Standard Bank’s Africa Trade Barometer for 2022 finds that use of specialised trade finance across the continent stands at just 11%, with a sharp decline in usage of letters of credit (LCs) for both imports and exports compared to the previous year. It attributes this to a perception that risk and high costs often outweigh the potential benefit of providing such services, particularly to SMEs.

But for Pangea-Risk’s Besseling, a shift in African trade flows away from China and towards the Middle East could represent an opportunity for banks equipped to take it.

“Historically, with those trade flows between Africa and China, the financing side was dominated by state entities, so there were few opportunities for the commercial banking sector,” he says.

“In this case, we’re seeing African banks open branches or offices in places like the UAE, specifically in order to facilitate these types of trade flows.”

Nigeria-headquartered United Bank for Africa announced in July last year it would open a branch in the Dubai International Financial Centre, servicing corporate customers across the Middle East. Group chairman Tony Elumelu said the move “will facilitate the financing of trade transactions between the Middle East and Africa”.

The announcement followed a similar move by Morocco-based BMCE Bank of Africa two years previously. Other Africa-headquartered lenders that have launched operations in Dubai or Abu Dhabi include Egypt’s Banque Misr and Arab African International Bank, Sudan’s BOK International Bank and Nigeria’s Access Bank. Absa’s Naidoo notes that African banks are already using local presence, risk capacity and growing levels of innovation to facilitate those flows, and as a result “are benefitting from the increased levels of trade between Africa and the UAE”.

International lenders play an important role in facilitating trade, he says, but concerns over currency, counterparty and sovereign risks means they are “rather selective” when it comes to doing business in Africa.

“Local African and regional banks are therefore well positioned to service the breadth of trade finance opportunities, sometimes in collaboration with Middle Eastern and international banks,” he says.

“Back-to-back structures, export LC confirmation and discounting, risk participation and syndicated financing solutions will all contribute to African banks playing a greater role in the facilitation of UAE trade with Africa.”

African and Middle Eastern banks are also in a position to offer specialised trade finance products that may be less suited to traditional commodity finance lenders.

“What’s interesting is that there are real prospects for local banks to offer the likes of Islamic finance to facilitate more of these flows,” says Matheson Kirton at White & Case.

“For some prospective clients that would work very neatly in that commodity trade finance structure. There just needs to be more comfort among the relevant players in terms of jurisdictions, parties, risks and so on, and we’re working hard to make sure those types of barriers are removed.”