In a significant move aimed at strengthening trade ties, Saudi Arabia’s Export-Import Bank (Saudi Exim) signed a $25 million credit agreement with South Africa’s Standard Bank Group Ltd. This deal, announced at the Saudi-South African Business Forum in Johannesburg, is expected to enhance trade between Saudi Arabia and South Africa, Africa’s most industrialized economy. This agreement will facilitate the export of Saudi goods to South Africa, further solidifying the already robust relationship between the two nations.

Naif Al-Shammari, Deputy Chief Executive Officer of Saudi Exim, emphasized the long-term impact of the agreement, stating that it would “build bridges that will last far beyond today.” The forum also saw Saudi Exim signing another significant agreement with South Africa’s Absa Group Ltd., although details of that partnership have yet to be disclosed.

Saudi Arabia’s Growing Influence in Africa

This deal is part of Saudi Arabia’s broader strategy to diversify its economy away from its traditional dependence on oil, in line with Vision 2030, the country’s long-term economic blueprint. By fostering deeper economic ties with African nations, particularly South Africa, Saudi Arabia aims to open up new markets and investment opportunities in non-oil sectors such as renewable energy, mining, and manufacturing.

One prominent example of Saudi investment in Africa is Zahid Group’s ongoing talks to acquire Barloworld Ltd., an African distributor of Caterpillar Inc. equipment. Additionally, Riyadh-based ACWA Power has signed a memorandum of understanding to invest $10 billion in South Africa’s renewable energy sector over the next decade. This aligns with South Africa’s energy transition goals and efforts to reduce its reliance on coal while shifting towards sustainable energy sources.

Trade and Investment Between Saudi Arabia and South Africa

Saudi Arabia has emerged as a key trading partner for South Africa, ranking as its 14th-largest in 2023. Trade between the two nations is steadily growing, with exports to Saudi Arabia increasing by 23% in 2023 to 8.1 billion rand ($462 million). However, the trade balance remains in Saudi Arabia’s favor, as South Africa imports a large share of its oil from the kingdom. In 2023, Saudi investment in South Africa amounted to $1.6 billion, making it the largest foreign investor in South Africa’s renewable energy sector, according to data from the South African government’s news agency.

South Africa is eager to capitalize on this partnership. Trade and Industry Minister Parks Tau highlighted the country’s ambition to advance the export of services to Saudi Arabia, especially in key sectors like technology, skills transfer, minerals beneficiation, and agro-processing. These sectors align with Saudi Arabia’s growing interest in diversifying its imports and establishing value-added industries. To this end, the two nations have agreed to consolidate their lists of investment and trade opportunities in the coming weeks and will develop an action plan over the next two years to strengthen these sectors.

Renewed Focus on Renewable Energy and Economic Diversification

One of the key areas of collaboration is renewable energy. As part of Saudi Arabia’s Vision 2030 strategy, the kingdom is rapidly expanding its investments in clean energy. ACWA Power, Saudi Arabia’s flagship renewable energy company, has been a central player in this transition. By committing $10 billion to South Africa’s renewable energy sector, ACWA Power aims to play a pivotal role in the country’s ambitious plans to meet its energy demands through sustainable sources.

South Africa, which continues to face electricity shortages and rolling blackouts due to its over-reliance on coal-powered plants, is seeking global partners to help revamp its energy sector. Saudi Arabia’s expertise in renewable energy development, particularly solar and wind power, could significantly contribute to solving South Africa’s energy crisis. Moreover, Saudi investments in renewable energy align with South Africa’s Integrated Resource Plan (IRP), which aims to increase the share of renewable energy in the country’s energy mix to 40% by 2030.

ACWA Power’s previous projects in Africa, such as the development of large-scale solar and wind farms in countries like Morocco and Egypt, underscore the kingdom’s growing interest in the continent’s renewable energy market. These projects also highlight Saudi Arabia’s efforts to position itself as a global leader in clean energy—a key pillar of Vision 2030.

Expanding Beyond Energy: Opportunities in Technology and Infrastructure

The credit deal between Saudi Exim and Standard Bank also opens up new avenues for cooperation in sectors beyond energy. According to Standard Bank’s Deputy CEO Kenny Fihla, the funding provided by Saudi Exim will support companies from Saudi Arabia looking to invest in South Africa. This financial backing is expected to drive investments in sectors such as infrastructure, technology, and manufacturing.

Saudi Arabia’s focus on Africa has been evident in recent years, with numerous initiatives aimed at boosting trade and investment across the continent. Beyond renewable energy, Saudi businesses are increasingly interested in Africa’s infrastructure and technology sectors. The construction of transport networks, ports, and telecommunications infrastructure presents significant opportunities for Saudi investors. South Africa, with its well-developed financial and legal systems, serves as an ideal entry point for Saudi companies looking to expand their footprint in sub-Saharan Africa.

Technology transfer is another key area of interest. South Africa has a well-established tech industry and is a leader in fintech and digital services on the continent. By partnering with South African firms, Saudi Arabia can gain access to innovative technologies and expertise that will be crucial for its digital transformation under Vision 2030. Conversely, South African tech firms can benefit from Saudi investment and access to the kingdom’s growing digital economy, which is projected to contribute more than $100 billion to Saudi Arabia’s GDP by 2030.

Enhancing Trade Cooperation Through Policy and Diplomacy

In addition to economic cooperation, South Africa and Saudi Arabia are working to strengthen their diplomatic ties. This includes increased dialogue on trade policies, economic cooperation agreements, and strategic partnerships aimed at boosting bilateral trade. Parks Tau, South Africa’s Trade and Industry Minister, underscored the importance of “intensifying cooperation” between the two nations in value-added sectors, a sentiment echoed by Saudi officials during the business forum.

This growing cooperation is expected to be formalized in a series of bilateral agreements in the coming months, aimed at reducing trade barriers and promoting the free flow of goods and services. The two countries are also exploring opportunities for co-investment in other African markets, further enhancing the reach of Saudi investments on the continent.

Strategic Implications for Saudi Arabia’s Global Economic Ambitions

Saudi Arabia’s engagement with South Africa reflects the kingdom’s broader strategy of diversifying its economic partners and expanding its influence in key global markets. Africa, with its growing population and untapped economic potential, is a focal point for Saudi investments, particularly as the kingdom seeks to reduce its dependence on traditional Western markets.

By forging stronger ties with African nations like South Africa, Saudi Arabia is positioning itself as a key player in the continent’s development trajectory. This is especially important in light of shifting global economic dynamics, where emerging markets like Africa are becoming increasingly central to global trade and investment flows. The strategic partnership between Saudi Arabia and South Africa is a testament to the kingdom’s commitment to this vision and its desire to play a leading role in shaping the future of the global economy.

Conclusion

The $25 million credit agreement between Saudi Exim and Standard Bank is just one example of the deepening ties between Saudi Arabia and South Africa. Through increased trade, investment in renewable energy, and cooperation in technology and infrastructure development, the two nations are paving the way for a future of shared prosperity. As Saudi Arabia continues to diversify its economy and expand its global reach, Africa, and South Africa in particular, will remain a key partner in this journey. The agreements signed at the Saudi-South African Business Forum mark a significant step toward realizing these goals, signaling a new era of collaboration between the kingdom and the African continent.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

15th October, 2024