Africa and the Middle East: a new front; Middle East money is pouring into Africa as investors turn away from traditional Western markets to take advantage of the continent's huge potential. Mark Sorbara reports.

Since the 11 September 2001 terrorist outrages, Middle East citizens have felt less welcome than previously in the tourist spots of Europe and North America. As a result, they have tended to search out alternative leisure destinations. In addition, Middle East businesses, keen to invest massive oil windfall revenues, have been looking for new opportunities.

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From Kuwaiti-based Mobile Telecommunications Company's $3.4bn purchase of Celtel, Africa's largest mobile operator, to Qatar-based Noor Petroleum's $2bn memorandum of understanding to construct an oil refinery and pipeline in Tanzania, Middle Eastern investors are becoming increasingly involved in the continent south of their traditional North African back yard.

Next in line after their European and American counterparts, and the emerging more aggressive 'Bric' giants of Brazil, India and China, Gulf States such as United Arab Emirates (UAE), Kuwait and Saudi Arabia are leading a significant investment drive into sub-Saharan Africa (SSA) as they search for alternative markets to bank their billions.

In real estate and telecommunications UAE-based companies are quickly becoming a competitive force in the SSA foreign direct investment (FDI) market. A consortium led by Istithmar, an investment company controlled by the government of Dubai, has bought Cape Town's V & A waterfront. The R7bn ($1bn) deal for Africa's most prestigious piece of ocean-side real estate, will give Istithmar a 24.8% stake, while the other main partner, London & Regional Properties will get 50.1%, with the rest going to Black Economic Empowerment investors. The deal, completed in 2006, involved over 600,000sqm of real estate and was South Africa's largest property transaction to date.

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The UAE is also looking at non-traditional SSA markets. Dubai-based real estate investment company Nakheel Hotel and Resorts is constructing a $150m hotel and resort complex in Djibouti. President Ismail Omar Guelleh transferred, free of charge, over 650,000sq m of land to Nakheel for the seaside resort that will include conference facilities, a shopping centre, apartments, villas and a hotel.

SSA's telecommunications sector is also attracting investors from Dubai. Mubadala Development Company was the most recent winner of a licence under the Nigerian Communications Commission new unified licence regime. At a cost of N51.4bn ($400m) Mubadala will have the ability to offer a range of fixed line and mobile, voice, data and multimedia services in the rapidly growing Nigerian telecommunications sector. Al Warid, another Dubai-based communications firm was recently issued an operating licence in Uganda that will enable the company to offer a similar broad range of services.

UAE-based Etisalat has a 20% stake in the East African Marine System, a fibre-optic cable which will connect East Africa to Fujairah in the UAE and offer stiff competition to the controversial East African Submarine Cable System. Beyond its equity stake, Etisalat will also be involved in the construction of the cable, greatly reducing the cost of bandwidth access throughout East Africa.

Kuwaiti firms have been on the move in the property, telecommunications and resource sectors throughout SSA. IFA Hotels and Resorts, a Kuwait-based developer recently entered into a joint venture agreement with Ohlthaver & List Group to develop a R550m ($78m) Zambali Coastal Resort which is expected to be completed by 2009. IFA, which is listed on the Johannesburg Stock Exchange, has also purchased several South African luxury resorts over the past few years.

Mobile Telecommunications Company (MTC) is the largest Kuwaiti firm operating in Africa and even after its $3.4bn purchase of Celtel it still has an appetite for investment in SSA. Recently, MTC announced that it will invest over N185bn ($1.4bn) in its operations in Nigeria. The new investment plan will bring the total investment by MTC in Nigeria, since its purchase of a controlling 65% stake in V-mobile, to over $2.5bn.

Kuwaiti firms are also trying to take advantage of SAA's increasingly crowded and very competitive resource sector. Wealthy Kuwaiti businessmen have talked about investing in Uganda's nascent oil and gas sector; in 2006 the Kuwait investment bank, Aref Investment Co, acquired a 51% stake in the Sudanese oil services company Higleig Petroleum Services. The Kuwaiti Foreign Exploration Co also paid $128m for BG Group's interest in oil and gas properties in Mauritania.

Saudi Arabia has no intentions of missing out on the potential returns of SSA either. In 2005, Prince Al Waleed bin Talal, one of the richest individuals in the world, partnered with HSBC to form HSBC Kingdom African Investments, in which both Al Waleed (through his Kingdom Holdings company) and HSBC would each contribute $200m to invest in SSA. Recently, Kingdom Holdings began construction of a $60m luxury hotel in Uganda.

Al Waleed was also involved in one of the largest foreign takeovers in Kenyan history. In 2005, Lonhro PLC sold five hotel properties to Kingdom Holdings in a deal worth over $35m. Included in the deal were Lonhro's 100% stake in the Norfolk Hotel and Mara Safari Club and its majority stakes in the Mount Kenya Safari Club, the Aberdare and the Ark. In the same year, Kingdom Holdings also purchased a 96% interest in the 251-room Movenpick Royal Palm Hotel in Dar es Salaam. It also owns the Ghion, one of the oldest hotel in Addis Ababa and is looking to expand its holdings throughout East Africa.

Like any savvy investor, Middle Eastern countries and businesses understand that it is not just about making money but also about giving money away.

In 2006 Saudi Arabia donated $10m to the West Africa operations of the World Food Program which it intended to be shared between Ghana, Guinea Bissau, Liberia, Mali, Mauritania, Niger, Senegal and Sierra Leone. Saudi Arabia has also announced that it will construct a university in Kenya's Coast Province and fast track the construction of the Garissa-Modogashe-Wajir road.

Kuwait channels most of its bilateral assistance to African countries through the Kuwait Fund for Arab Economic Development. From loans to technical assistance to infrastructure development and agricultural assistance, since its inception in 1961, the Kuwait Fund has completed 75 projects, presently has 27 active projects and six in the pipeline, throughout East, Central and Southern Africa. In West Africa it has completed 68 projects, has 52 still active and 10 in the pipeline.

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Most other Middle Eastern States use regional multi-lateral institutions such as the Islamic Development Bank (IDB), the Arab Bank for Economic Development in Africa (Abeda) and the Opec Fund for International Development. In November 2006 the IDB, based in Saudi Arabia announced that it will to raise $10bn over the next 10 years to combat poverty in Africa. Saudi Arabia has also committed $1bn and Kuwait pledged $300m to the new fund. Abeda, which is linked to the Arab League and headquartered in Khartoum, has budgeted $900m over a five-year period ending in 2009 for assistance to African countries.

In 2005, 43 countries benefited from Abeda's technical assistance and 41 countries benefited from its project loans. Between its creation in 1975 to 2005, Abeda has distributed over $2bn to African countries with Ghana, Guinea, Mali, Mozambique and Senegal each receiving over $100m.

In 2006, the Opec Fund distributed over $180m in research grants, loans, public sector project support, debt relief and technical assistance to 18 SSA countries. The Opec Fund which is made up of voluntary contributions from Opec member states, has distributed over $8.5bn since its inception in 1976 and by the end of 2006 had pledges of over $3.4bn.

From a development practitioners' point of view, such increases in funding from alternative sources should be a positive, but in a November 2006 report, the IMF and World Bank questioned the large increase in non-Paris Club creditors in Africa such as China, Brazil, India, Korea, Kuwait and Saudi Arabia. Saudi Arabia and Kuwait have become key emerging creditors in Mauritania, Eritrea, The Comoros, Sudan and Guinea-Bissau. As the report states with regard to these new creditors in Africa, of which Kuwait is the second largest with claims of $2.5bn: "Many have non-traditional financial structures that hamper the assessment of their impact on debt sustainability."

Such debates will increase as the Middle East becomes a more avid player in SSA in the near future.

Angola made international headlines when it became the 12th full member of Opec in 2006, but it is increasingly clear that SSA-Middle East relations are set to move rapidly beyond just oil. As Amre Moussa, former Egyptian minister of foreign affairs and current Secretary-General of the Arab League wrote: "All these factors point to Africa's increasing importance on the global stage and the time has never been better for our two regions to develop a formidable strategic alliance in which we aid each other, rather than compete."