Riyal Politik
April 2018
Riyal Politik
The political economy of Gulf investments in the Horn of Africa
Jos Meester, Willem van den Berg & Harry Verhoeven

Abstract

The Gulf and the Horn of Africa share a long history of economic and political engagement. In recent years, following a decade of political disengagement, the Gulf states have become once again major economic and political actors in the Horn region. Horn states have hardly remained passive clients, however, and actively court Gulf states for funding, as economic drivers and remittances have been a key factor for maintaining their domestic political settlements as well as a major determinant of conflict in the region. This report explores the extent and impact of Gulf state economic engagement in the Horn as well as the linkages between these financial streams and prospects for regional stability in the Horn of Africa. It traces the historic ties framing perceptions of the relationship between the regions, describes the determinants and instruments of Gulf investment, trade and aid to the Horn. It maps the scope of Gulf investments across Horn states and economic sectors, identifying approximately USD 13 billion between 2000 and 2017, mainly in Ethiopia and Sudan, across the agriculture, manufacturing and construction sectors. Such financial streams are key to supporting Horn political settlements, providing the working capital required for further co-option, and to several regimes maintaining a degree of macroeconomic stability (especially under sanction regimes). Gulf states’ largesse is frequently driven by political considerations to limit Iranian influence as well as intra-Arabian competition, but as the funding volumes are relatively inconsequential for Gulf states’ budgets they are frequently devoid of a developed long-term strategy for the Horn. Gulf investments come with risks to Horn stability as well: where Horn states co-invest non-performing loans may jeopardize state finances. Moreover, some Gulf funding deepens various pre-existing cleavages within societies and is, as such, worrying and destabilizing. However, evidence that Gulf money is causing religious polarization between states in the Horn seems limited.

Figure 1
Map of the Gulf and the Horn of Africa
Map of the Gulf and the Horn of Africa

Acknowledgements

This report would not have been possible without the funding support of the Ministry of Foreign Affairs of the Netherlands. The authors are especially grateful to all the people willing to share their views on this contentious topic, the Ethiopian Investment Commission being willing to share their data and insights, Dawit Endeshaw (The Reporter Ethiopia) for expertly facilitating the work in Ethiopia and Marjolein Jongman en Annemarie van Bolhuis (Dutch Ministry of Foreign Affairs). A special thanks goes out to the reviewers, amongst others Dereje Feyissa (Life and Peace Institute) and Paula Schindeler (Dutch Ministry of Foreign Affairs), as well as Anette Hoffmann and Erwin van Veen (Clingendael’s Conflict Research Unit), who have invested time in providing comments and suggestions. Finally, we extend our thanks to the respondents who answered our survey.

About the authors


Jos Meester Research Fellow at the Clingendael Institute’s Conflict Research Unit. Jos’ work focuses on the functioning of the private sector in conflict-affected environments. He is in particular interested in supply chains spanning across political divisions, as well as the close relationship of political and private-sector elites and its consequences for the stability of political power structures.

Willem van den Berg – Research Assistant at the Clingendael Institute’s Conflict Research Unit. Willem van den Berg focuses on the interaction of business and politics in conflict-affected environments. He is particular interested in the ports and logistics sector, as well as the role of technology in conflict and international development.

Harry Verhoeven – Assistant Professor at Georgetown University Qatar. Prof Harry Verhoeven teaches at the School of Foreign Service in Qatar, Georgetown University. He is also an Associate Member of the Department of Politics and International Relations of the University of Oxford. His research focuses on elite politics, ideology and international relations. He was founder of the Oxford University China-Africa Network (OUCAN) in 2008-2009 and remains a Co-Convenor of OUCAN.