Africa Benefits From BRICS Investments

With trillions of dollars of investable wealth, the Gulf states have identified Africa as a profitable investment destination. This is excellent news for a continent poised for rapid economic growth.

BRICS states are already the largest investors in Africa and a mega-deal between new members the UAE and Egypt indicates a growing interest in African investments that go beyond energy and mining projects typically favoured by countries like Russia and China.   

After joining BRICS at the beginning of last year, the UAE pledged a whopping $35 billion towards a new development in Egypt, another new BRICS member states that joined the grouping in 2024.

The deal is both the biggest ever inter-BRICS investment and the largest foreign direct investment in Egypt’s history. Financed by Abu Dhabi’s ADQ sovereign wealth fund, the commitment is over three times larger than Egypt’s total net foreign investments and equates to an estimated 7% of the UAE’s annual economic output.

The agreement sees the development of a cutting-edge city in Ras al-Hekma, a popular coastal tourist spot 200km west of Alexandria. Structured to address immediate financial concerns, the deal involves an $11 billion deposit with Egypt's central bank, a figure surpassing Egypt’s recent $8 billion IMF bailout without the conditions. This suggests BRICS co-operation extends beyond trade to include financial stability, while avoiding political interference.     

The remaining $25 billion will go towards constructing the new city which is planned to include various amenities from theme parks to infrastructure like airports and marinas. Spanning some 170 square kilometres, construction has already commenced this year.

Once the project has been completed, the UAE will relinquish its deposit with Egypt’s central bank, with the initial $11 billion figure effectively acting as both a retainer and a bailout for the strained Egyptian fiscus.    

With Egypt retaining a 35 percent stake in the Ras al-Hekma project, Prime Minister Mostafa Madbouly envisions investment in Ras al-Hekma eventually reaching as much as $150 billion, transforming the area into a fully functional urban community rather than just a beach resort.

This is an example of the kind of transformative investments taking place within BRICS, with developing countries no longer having to rely solely on Western financial support.  

Critics will argue that this is exactly the sort of mega-project that has precipitated Egypt's woes to begin with. Ambitious plans, including the construction of a new administrative capital, have increased Egypt’s national debt without generating commensurate economic returns.

This is a fair concern. A major issue with relying on big construction projects to fuel economic growth is that interest must be paid on these debts even when projects are yet to be completed.

However, if foreign investors are contributing cash to finance projects, Egypt stands to benefit economically without accruing debt or assuming significant risk. As such, the partnership with the UAE may prove more economically viable compared to the new administrative capital as it stands to attract tourists and international property investors with the UAE taking on the risk.

While the UAE-Egypt deal is groundbreaking in both scale and character, most of the BRICS-led investments into Africa remain focussed on the mining and energy sectors. This remains crucial as roughly half the continent still lacks access to electricity. Saudi and Emirati investment have begun to rival Chinese projects, while Russia remains focussed on nuclear and natural gas.     

This is certainly evident in South Africa with Russia’s Gazprombank and PetroSA reached an agreement to restart its gas-to-liquids refinery in Mossel Bay. The refinery (offline since 2020 after running out of feedstock) can produce 46 000 barrels of fuel per day when operational.

The deal has attracted plenty of scrutiny with 19 of 20 bidders disqualified as a result of strict criteria which favoured Gazprombank. Concerns have also been raised that South Africa could face secondary sanctions by working with a sanctioned entity.

That said, the arrangement does have some technical merit. Gazprom is the largest natural gas producer in the world and in addition to refurbishing the refinery, the gas giant plans to provide PetroSA with gas condensate to run the plant until natural gas becomes available from local sources. This forms part of the ANC’s strategy to avoid an over-reliance on the West.  

South Africa has also announced plans to build more nuclear plants, with Russia expected to be the ANC-controlled GNU government’s preferred partner. This remains a contentious issue for a state balancing the need for electricity with crucial Western trade ties. That said, many analysts still view nuclear as an important component of the decarbonised energy systems of the future.   

It remains to be seen if such large projects with Russia ever get off the ground, especially in light of the new coalition government. However, South Africa might not end up being that important to Russia’s nuclear ambitions on the continent, with several other African countries, including Burkina Faso, Mali, Zimbabwe, Rwanda, Burundi, Ethiopia and Egypt, having all inked nuclear power agreements with the Russians.

While Russia focusses on natural gas and nuclear co-operation, the Gulf states have recently emerged among the largest investors on the African continent with their interest directed at the renewable energy sector.

Until a few years ago, China was the undisputed leader in this space, developing over 10 gigawatts of clean energy capacity across Africa since 2000, with over $13 billion in investments. But states like the UAE and Saudi Arabia are emerging as new front runners.

These states are committing financial resources towards renewables as part of a hedging strategy as forecasted declines in global oil demand threaten their primary source of revenue. For these BRICS aligned Gulf states, Africa represents a golden opportunity to finance energy projects, gain access to critical minerals, and boost oil demand through higher levels of economic growth.

AMEA Power LLC, based in Dubai, plans to expand renewable projects in over a dozen African nations, aiming to invest $1 billion, while Masdar, another UAE company, acquired a share in Lekela Power, one of Africa's leading green energy firms. Meanwhile, Riyadh-based ACWA Power has signed a memorandum of understanding to invest $10 billion in South Africa's renewables sector over the coming decade.

With copper, lithium, and cobalt from Africa remaining crucial to the green-energy transition, competition for these strategic resources is producing a modern day scramble for Africa. This has attracted the interest of oil producers determined to diversify their economies.

Africa is also one of the few remaining regions still forecast to experience increased oil demand, which means investment-led economic growth in Africa could create multiple revenue streams for these Gulf state investors.