RMB: Middle East joins African scramble

• Oil-dependent nations have become less risk averse and are competing with the West and China for commodities needed for green energy transition

Rand Merchant Bank (RMB) says it expects the recent purchase of a large stake in Zambia’s Mopani copper mine by Abu Dhabi’s International Resources Holding (IRH) to herald the beginning of state companies from the Middle East investing in commodities in Africa.

This is as sovereign wealth funds and other asset allocators aligned to governments look to diversify their income streams from oil.

“Typically fairly risk-averse investors, they’re now putting significant capital at risk in African countries. We’ve seen Abu Dhabi coming into Zambia, and I think there’s going to be more to come,” said Julian Grieve, co-head of resources sector solutions at RMB.

IRH outbid Sibanye-Stillwater to seize a controlling 51% stake in Mopani Copper Mine, in a deal worth $1.1bn.

IRH is a subsidiary of the most valuable listed company in the United Arab Emirates (UAE), International Holdings Company (IHC), which has a market value of about $240bn.

IHC is chaired by a senior member of the ruling family, Sheikh Tahnoon bin Zayed AlNahyan. Nahyan, who is also the UAE ’ s national security adviser and deputy ruler, was appointed chair of the Abu Dhabi Investment Authority in 2023, the main sovereign wealth fund of Abu Dhabi, the UAE’s capital.

It is said to manage assets north of $800bn.

Grieve said there was a trade war between Middle East companies and those from the West in securing access to minerals such as lithium, copper and cobalt — minerals crucial to building green economies.

“The Middle East is playing the role of a nonaligned independent party in the middle. They ’ re now buying assets outright, also looking to trade the underlying commodities and secure offtakes of these materials,” Grieve said, stressing that there was a lot of capital chasing assets in Africa at the moment.

“It ’ s an interesting, changing dynamic. You’ve got the Western powers saying to African companies that they will support their production of copper, lithium, whatever it may be, provided that the commodities flow to Western-aligned interests,” Grieve said.

“And then you have the Chinese buying assets outright and now we have the Middle East joining the melée, trying to wean their own economies off oil. They see critical minerals and energy transition as a core part of their ambitions.”

Grieve flagged geopolitical headwinds as a key factor that might see commodities come under pressure in 2024. He said RMB was bracing itself for a “messy year from a geopolitical perspective”. Many countries, including SA and the US, are going to the polls in 2024, adding great uncertainty to the markets.

“We are confident the risk in the geopolitical sphere has not been priced in. This means volatility and surprises lie ahead. There is going to be more divergence in price movements within the commodity complex than we’ve seen in the past.”

While countries such as Zambia have positioned themselves as investment destinations for investors looking for critical minerals, SA seems to have fallen behind.

SA has been consistently declining in the Fraser Institute’s Investment Attractiveness Index, which gauges the mining investment attractiveness of countries around the world.

The country is ranked in the bottom 10 on the index.

Old Mutual Investment Group resources analyst Ian Woodley said SA must get its house in order.

“While the drive towards decarbonisation is considered to be minerals-intensive, the SA domestic equities have limited to no exposure to some of the battery metals that are considered to be the main beneficiaries of this trend (with the exception of Sibanye),” Woodley said.

“This leaves SA investors having to focus primarily on the large mining players, such as Anglo American, BHP and Glencore for exposure to the energy transition. However, the overreliance on these established mining giants poses challenges for sectoral expansion and may stifle the growth of the smaller players, and this cannot be a good outcome for the sector, or the country.”

GRIEVE FLAGGED GEOPOLITICAL HEADWINDS AS A KEY FACTOR THAT MIGHT SEE COMMODITIES COME UNDER PRESSURE IN 2024