UAE cash could bail-out government from sovereign debt default edge
Gulf countries and rich sovereign wealth funds are upping their game in Africa by bailing out countries facing foreign liquidity squeezes, credit downgrades by Western rating agencies, and crippling cash flow problems.
The other day, a senior National Treasury official informed me that the government had not given up the option of borrowing money from the United Arab Emirates (UAE).
This is how he put it: ‘We will still get the money, but we are not in a hurry since the needed foreign financing requirement for the first half of the financial year has virtually been met’.
That answer left me asking the following questions in my mind: What is the link between the Abu Dhabi parties with whom the government has been negotiating to borrow $1.5 billion and the Adani Group of India?? Is there a risk that the recent Adani debacle may affect the government’s plan to borrow money from the Emiratis?
And an even more pertinent question: What is the link between the two Emirati entities we are hearing about all the time, namely, International Holdings Company (IHC), the Apeiro Group, and the Adani Group?
These are pertinent questions because they touch on a new trend in geopolitics: the recent expansion of economic and political links between Gulf petro states in Africa.
Gulf countries and rich sovereign wealth funds are upping their game in Africa by bailing out countries facing foreign liquidity squeezes, credit downgrades by Western rating agencies, and crippling cash flow problems.
The remarkable thing is that the Gulf entities are coming up with innovative and unconventional support mechanisms and structures tailored for the struggling and mismanaged African countries, including oil and gas in-kind- assistance, direct budget support credit facilities, and sovereign debt purchases.
With European and Chinese banks scaling back in investment on the continent, the Gulf States are enjoying their new status in Africa as ‘donors’ and sources of FDI in Africa. The European retreat is what has opened the doors to Middle East banks.
Another remarkable trend is the fact that the International Monetary Fund (IMF) will almost invariably always come out to oppose the new bail- out and survival deals put together by struggling African governments and Gulf States and their rich sovereign wealth funds.
Here in Kenya, the IMF loudly criticised the oil and gas-in-kind- assistance deal between Kenya and four Gulf parties namely, the Abu Dhabi National Oil Company, Aramco Trading Fujaira and Emirates National Oil Company. This deal is popularly known as the G-to G deal.
Yet when you speak to the main private sector players in this space such as the oil marketing companies and the large and big commercial banks involved in forex trading- the testimonies you get is that the G-to- G deal saved the petroleum marketing system from a biting foreign exchange liquidity problem that was threatening to plunge the country into unprecedented shortages of petroleum products.
Lately, the IMF has come out and spoken out loudly against the government’s plan to take the $1.5 billion loan from the Emiratis on the grounds that the pricing is expensive. Yet we did not hear similar noises when we recently contracted those very expensive loans from entities such as Trade Development Bank and Afreximbank.
The reality is that struggling African governments facing credit downgrades by Western credit agencies, having been locked out from international capitals markets, are forced to embrace deals with Gulf States and institutions out of survival.
They are flocking to the Middle because of the transactional nature of the dealings and the fact banks there are willing to lend without attaching too many conditionalities.
Who is IHC? This is the entity that has committed to give the $1.5 billion bail-out money to the government. One of the largest investment companies in the Middle East and a big player in the international capital markets space, IHC is a publicly- listed company with a market capitalization of $240 billion. It is part of the wealthy group overseen by its chair- Sheikh Tanoon Bin Zayed Al Nahyan- who is also UAE’s security adviser and trouble shooter.
Apeiro, the Emirati entity that is part of the consortium that was contracted by the government to supply a new technology platform to the Social Health Authority is listed as a subsidiary of the IHC group. And IHC is one of the largest investors in the Adani Group.
Technically, and in reality the link between Adani Group and the controversial Social Health Authority’s technology deal is tenuous.
Therefore, it should not surprise us if we hear in the coming months that the government has finally closed the $15 billion dollar deal with the IHC. An infusion of the billions of Emirati cash will essentially be a bail- out of a government on a sovereign debt default edge.
The writer is former Managing Editor of The EastAfrican
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