Tuesday, May 29, 2018

Port Takeover by Container Shipping Lines May be Portent of Worse to Come

Two New Reports Warn of Risks to Investors in African Country
Shipping News Feature
DJIBOUTI – After what we described as 'another Machiavellian turn' when container shipping lines CMA CGM and Pacific International Lines (PIL) were revealed to be taking over the assets hitherto claimed by DP World in the Port of Djibouti until their staff were expelled by the government leading to some major, and in all likelihood protracted, legal ramifications, come two new reports opining that investment in the country may be a good deal riskier than some investors seem to believe.

This month sees reports from both Hong Kong headquartered political and security risk consultants Allan & Associates and business risk intelligence service EXX Africa, on investment conditions and prospects in Djibouti, and both give pause for thought. The fact that the government could tear up the management contract for the Doraleh Container Terminal with DP World, despite the court rulings made in London in the case, not the first time it has behaved in this manner, must lead to some trepidation.

Djibouti has had a stable political passage in the past few years and the Republic can certainly be considered peaceful compared to neighbours such as Somalia, Yemen and Eritrea. However there have been complaints that human rights are restricted and these have been heightened of late as political tensions increase in recent months, with lack of clarity as regards presidential succession and a variety of interests seeking to gain more political control.

The Hong Kong report outlines how there are growing concerns over the spread of corruption, the fact the tendency toward state projects has seen a rise in public debt to 87% and both reports point out the overdependence on one sector, the ports, and one nation, Ethiopia, which now ships 95% of its export trade via the country. There are also concerns over Arab political stability, Djibouti is an active participant in Arab League and African Union affairs and the current divisive Yemen conflict is particular cause for worry.

Although concerns are expressed about US President Trump’s protectionist agenda having a potential import on the port sector, the fact remains that America, like China, Italy, Japan and France, maintain major African bases in the country with the US controlling many drone operations from the old French stronghold, Camp Lemonnier. Meanwhile, as with much of the continent, China’s influence is growing, China Merchants Holdings (International) Company Ltd (CMHI), which partnered up with CMA CGM in the French Line’s container handling subsidiary, Terminal Link, in 2013, owns 23.5% of said Doraleh terminal bought the year before.

Plans by the government there to sell off shares in the Port Sudan concession also may impact tonnage levels in Djibouti, whilst government borrowing, essential in plans for more state funded projects, comes increasingly from Chinese sources, and a building history of taking over profitable overseas owned businesses by cancelling contracts with no recourse to arbitration, must all be factors considered by international financial supporters.

Although viewed as a stable investment previously, the changing political scene, the state’s actions over the DP World contract, the growing influence of the Chinese, the alleged spread of corruption and the weakness in negotiating terms with its main source of outside income, Ethiopia (after the Ethiopian Government took a 19% share in the Somaliland Port of Berbera in February, causing consternation in Djibouti and Somalia alike), all make the country viewed until now as a safe, stable investment, look a little more risky