As the GCC crisis erupted in the summer of 2017, it surprised audiences around the world with both the suddenness of escalation and the intractability of the ensuing conflict.‍[1] As analysts and policy makers scrambled to interpret the causes and consequences of the unfolding conflict, governments in the Horn of Africa were amongst the first, and the few outside the Middle East, to publicly take a stance.‍[2] Although the Horn of Africa is generally considered in its African context, the speed and intensity with which developments in the Middle East translated to the opposite shore of the Red Sea should come as no surprise. The Gulf and the Horn share a long and rich history. In recent years the Gulf states have become increasingly active in the Red Sea, partly in response to the war in nearby Yemen.‍[3] They — especially Saudi Arabia, the United Arab Emirates (UAE) and Qatar — are again influential, capable and active actors in the Horn of Africa.‍[4]

Some of the ties between the regions, such as the establishment of military bases on the Red Sea coast and the involvement of Horn states in the Yemeni conflict, have attracted significant attention, while others remain less examined.‍[5] Specifically, the Horn of Africa is seeing increasing investments by international businesses, including from Gulf countries, which rank amongst the most significant export and import partners for many countries in the Horn. Although China dominates the fossil fuels segment (mainly from South Sudan) and thus tops aggregate statistics on Horn exports, the Gulf states are the main trading partner for goods other than fossil fuels from the Djibouti, Somali, South Sudanese and Sudanese economies (see figure 2). This picture of trade fits neatly into Vision 2030 and Africa Rising narratives, which stress the need for Gulf states to diversify their economies and the emerging opportunities in African states, but Gulf countries have been known to mix political, business and religious motives in their interactions.‍[6] In addition, modalities can vary considerably, as can be seen in the contrast between investments through the Qatar Sovereign Wealth Fund, direct financial support to candidates in the most recent Somali elections‍[7] and alleged displacement due to substantial land acquisitions across Sudan and Ethiopia by Saudi Arabia.‍[8]

USD billions, excluding fossil fuels exports. Data drawn from Chatham House (2018), ‘resourcetrade.earth’, link, based on UN Comtrade data (accessed 7 March 2018). Inclusion of fossil fuels would move China to the top spot as export destination, mainly based on South Sudanese oil exports.

Horn actors themselves have hardly remained passive recipients.‍[9] Economic drivers have been central to the outbreak, continuation and cessation of conflict in the region, and actors have at times actively courted Gulf countries for financing.‍[10] A significant amount of the politics of the Horn of Africa can be understood through the metaphor of the political marketplace: political allegiances are traded for various resources, and additional sources of rent are quickly captured to support or alter the prevailing political settlement.‍[11] In this context, combined with the Horn’s strong patterns of cross-border trade, the implications of the resources mobilised through investments, trade flows and political allegiances can have significant consequences on regional stability, and thereby on trade through the Gulf of Aden, migration patterns and security.‍[12]

However influential, the extent of Gulf economic interests in the Horn is rarely explored; assessments of the impact of these activities are even more limited. This report looks into the extent of economic engagement by Gulf states in the Horn, and the linkages between these financial streams and prospects for stability in the Horn region. It sets out a comprehensive overview and political-economic analysis of Gulf-Horn economic relations, but does not purport to be exhaustive given the opaque nature of the business relations and financial transfer this includes. The report begins with an overview of historic ties between the regions to place current developments in context. It then examines the determinants of Gulf aid, investment and trade in the Horn from the perspective of the Gulf investors. Next, it maps the scope of Gulf investments in the Horn since 2000, comparing it with the more public official development aid (ODA) instruments before moving on to approach Gulf investments from the perspective of a recipient country in the Horn, Ethiopia, to highlight both motivations and implications. The report concludes with an assessment of Gulf-Horn economic relations and some of the implications for analysts and policy makers active in the region.

The report defines the Gulf as Kuwait, Qatar, Saudi Arabia and the UAE‍[13] and the Horn of Africa as Djibouti, Eritrea, Ethiopia, Somalia, South Sudan and Sudan, but an in-depth exploration of the business ties between each of these highly diverse countries is beyond the scope of this report. As a consequence, examples are mainly drawn from Ethiopian, Sudanese, Saudi Arabian, United Arab Emirati and Qatari contexts. Such examples may be generalisable to a certain extent, but neither the Horn nor the Gulf forms a homogenous block. Extrapolations not taking into account the local context on either side of the Red Sea may therefore obscure important differences.‍[14] The report focusses primarily on Gulf funding mobilised through foreign direct investment and foreign portfolio investment against the backdrop of the wider trade patterns, official development aid, macroeconomic support to Horn governments and direct individual payments. Although analytically distinct, these instruments are frequently mixed within individual projects or transactions, and cannot be neatly separated in most cases.