Ripples of discontent shake Gulf and Western investors in Africa

US Navy personnel at the opening ceremony of an oil terminal facility in Djibouti. A decision to terminate a contract that allowed Dubai’s DP World to operate the Doraleh container terminal is being watched closely by Gulf investors. (Reuters)
Updated 26 February 2018
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Ripples of discontent shake Gulf and Western investors in Africa

LONDON: Djibouti’s decision to terminate a contract that allowed Dubai’s DP World to operate the Doraleh container terminal has once again focused attention on resource nationalism in Africa.
It coincided with the Gabonese government’s seizure last week of the water and electricity distribution unit of French utility group Veolia in the country.
Both events may give Gulf investors pause for thought.
Djibouti’s ousting of DP World from Doraleh was linked to long-standing disagreements between the two sides and growing Chinese influence, London-based Chatham House told Arab News.
Ahmed Soliman, research associate of the Africa program at the geopolitical think-tank, said that the move was in part related to a deal between Djibouti and China Merchants Holdings in 2013 when the Chinese acquired a 23.5 percent stake in the Port de Djibouti for $185 million.
That transaction also gave the Chinese rights to two thirds of the Doraleh terminal, leaving DP World with a third. China later helped to bankroll a huge extension called the Doraleh Multipurpose Port to provide additional capacity for 8.2 million tons of non-containerised goods, he said.
A second issue harked back to February 2017 when Djibouti lost a long, drawn-out arbitration case that threw out claims that DP World made illegal payments to win the Doraleh concession.
Soliman told Arab News: “Given that arbitration case, you could say the relationship between DP World and the Djibouti government soured some years ago. Additionally, Djibouti is now able to look at a wider number of strategic alliances, particularly with the Chinese government, and China Merchants Holdings,” he said.
DP World is not the only company facing issues related to country risk in Africa.
French environmental services group Veolia said it was “examining the legal consequences” of the Gabonese government’s seizure last week of its water and electricity distribution unit, SEEG.
The government has complained for years about frequent water cuts in the capital Libreville and threatened to freeze Veolia’s concession.
But Paul Melly of Chatham House, whose brief includes Gabon, told Arab News: “The political climate in Gabon is edgy, after president Bongo’s highly contentious re-election in 2016 and just months before legislative elections where the opposition could aspire to major gains. Against this testing context, the president has sought to rebuild his popularity through a renewed focus on essential services and public services. This may explain his decision to take a tough line over SEEG.”
He added: “But in taking such a confrontational stance toward Veolia, the government does risk jeopardizing wider investor confidence in Gabon, even if a compromise outcome is eventually negotiated with the French utilities group.”
Country risk has long been viewed as an issue for investors in Africa, especially in the mining sector. Only last year, London-listed Acacia Mining found itself in conflict with the government of Tanzania over disputed tax payments. Barrick — Acacia’s largest shareholder — eventually agreed to cede 16 percent of Acacia’s three gold mines in Tanzania to the government and pay $300 million toward resolving the row.
This year, the Democratic Republic of the Congo (DRC), the world’s biggest cobalt producer, has confirmed it will increase the royalties miners pay on exports of the metal to 5 percent from 2 percent, a move that is opposed by mining groups such as Randgold and Glencore. They claim the measure may deter future investment.
However, Anver Versi, editor of London-based Africa Business, told Arab News that he did not think there was an upswing in populist nationalism in Africa, describing Djibouti and Gabon as “localized” issues.
He told Arab News: “Djibouti is ranked quite high in the World Bank’s table of ‘ease of doing business.’ So it would fly in the face of what they have been doing for a long time, which is trying to attract international investment.”
He added: “Returns from Africa are excellent. Cobalt prices are sky-high and if you are a cobalt producer, you will want to be in the DRC. And if the royalties go up, I think that’s a price most companies would be prepared to pay, given the high price of cobalt.”
Versi said resource nationalism and an appetite for nationalization in Africa was more of an issue in past decades when a popular view was that nationalizing resources would create huge profits that would flood into the country, but it never happened, he said.
Nor does Versi envisage a sovereign debt crisis in Africa as interest rates rise.
He said Africa has turned the corner mainly because oil prices have gone up, “so that is going to change the picture in Nigeria, Ghana and Mozambique.”
On debt, Gambia and Liberia were talking to the IMF to try to reduce their debt burden.
“But it’s not crippling debt. Six out of the ten fastest-growing economies in the world were in Africa in 2017, so the curve is upwards, Versi said.


Japan exports fall for first time since 2016 as trade war fears mount

Updated 26 min 21 sec ago
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Japan exports fall for first time since 2016 as trade war fears mount

  • Japanese policymakers remain wary about the overall economic impact of the international trade frictions
  • The US-Sino tariff row has yet to materially hurt trade activity

TOKYO: Japan’s exports fell in September for the first time since 2016 as shipments to the US and China declined, likely impeding third quarter economic growth and adding to concerns about the broadening impact of an escalating Sino-US trade war.
The data comes days after a Reuters poll showed a third of Japanese companies — not just exporters — have been affected by the trade conflict between the world’s two biggest economies, and more than half worried about its fallout on their business.
Japanese policymakers also remain wary about the overall economic impact of the international trade frictions. A string of natural disasters that struck Japan has added to the strain on factories, disrupting output and physical distribution.
The US-Sino tariff row has yet to materially hurt trade activity, but a slowdown in external demand has bolstered views that Japan’s economy, the world’s third largest, likely slowed sharply in the July-September quarter.
“The economy probably grew only slightly in the third quarter, led by firm consumption and brisk capex. External demand likely made no contribution,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Assuming the US-China trade frictions have widespread effects on global trade, Japan’s exports will struggle to grow.”
Minami said declines in shipments to the US and China — the two key export destinations for Japan — are a source of concern as each of them accounts for about 20 percent of Japanese exports, respectively.
Ministry of Finance (MOF) data out on Thursday showed Japanese exports fell 1.2 percent in September from a year earlier, against a 1.9 percent increase expected by economists in a Reuters poll, and followed a 6.6 percent gain in August.
It was the first decline since November 2016.
In volume terms, exports fell 4.8 percent in the year to September, the first drop in seven months.
Japan’s exports to the US declined 0.2 percent in the year to September, dragged down by falling shipments of construction and mining machinery, auto parts and medicines.
US-bound auto exports amounted to some 143,000 cars, down 7.0 percent year-on-year in a snapback from the previous year’s brisk shipments, a sign that car sales have levelled off.
Imports from the US rose 3.1 percent in September, led by crude oil, liquefied petroleum gas, helping reduce Japan’s trade surplus with the US by 4.0 percent year-on-year to ¥590 billion ($5.24 billion).
The US Trade Representative’s office told Congress on Tuesday it would open trade talks with Japan, describing the country as an important yet underperforming market for US exports.
Tokyo and Washington last month agreed to start trade talks in an arrangement that, for now, avoids the worst-case scenario of an imminent 25 percent tariff on cars.
Trump has made clear he is unhappy with Japan’s $69 billion trade surplus with the US — nearly two-thirds of it from auto exports — and wants a two-way agreement to address it.
Tokyo pushed back on a straight bilateral Free Trade Agreement that Washington had sought, fearing it could put Japan under pressure to open politically sensitive sectors such as agriculture.
Thursday’s trade data showed exports to China, Japan’s biggest trading partner, fell 1.7 percent in the year to September, the first decline in seven months, dragged down by semiconductor production equipment.
Shipments to Asia, which account for more than half of Japan’s overall exports, rose 0.9 percent.
Overall imports rose 7.0 percent in the year to September, versus the median estimate for a 13.7 percent annual increase.
The trade balance was surplus of ¥139.6 billion, compared with the median estimate for a shortfall of ¥50 billion.
“External demand has likely put a drag on Japan’s economy,” said Koya Miyamae, senior economist at SMBC Nikko Securities.
“Going forward, exports may recover from supply constraints, but effects from slowdown in emerging markets, and the US-China trade war remain a source of concern.”