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

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.

Dubai rents may be bottoming out as ‘green shoots’ appear

Updated 20 January 2020

Dubai rents may be bottoming out as ‘green shoots’ appear

  • An estimated 45,000 homes were completed in Dubai in 2019 according to Chesterton estimates

LONDON: Confidence may be returning to Dubai property despite a bloated market for off-plan homes, according to a report from Chestertons, the real estate broker.

Although apartment and villa sales prices were down 2 percent and 3 percent respectively in the fourth quarter of 2019 compared to the previous quarter, rental rates are stabilizing.

But supply issues continue to represent the biggest challenge facing the market, with 45,000 new units completed in 2019 and that expected to double this year.

“The Dubai residential market in Q4 2019 is alluding to a more positive outlook for 2020 thanks to the slowdown of sales price declines and the leveling of rental rates,” said Chris Hobden, of Chestertons MENA. “This does, however, have to be tempered by the volume of new units scheduled for delivery in 2020, which makes the short-term recovery of prices in the emirate unlikely.”

In the rental market, no movement was witnessed in the fourth quarter with the market supported by a draft law which would fix rental rates for three years upon the signing of a contract. 

“To ensure high occupancy in 2020, landlords will have to be realistic in the face of tough market conditions. The incentives previously offered to tenants, such as rent-free periods, multiple cheques and short-term leases, will continue, with an increase in tenant demand for monthly direct debit payments also likely” added Hobden.