Archive for March, 2011
Djibouti’s troubles
By Wee but worrisome
Foreigners fear for influence and access in a tiny African country
WITH only 860,000 souls, Djibouti is a miniature state in a big, bad neighborhood. Yet the country is vital for the arid region around the Horn of Africa. Its port is a lifeline for its giant neighbour, Ethiopia, which is hemmed in by Somalia and lost its access to the sea when Eritrea became independent in 1993. France keeps the 13th demi-brigade of the Foreign Legion there—about 2,600 troops and airmen. And over the past decade, America has set up counter-terrorism and counter-piracy bases with 2,200 men and women.
Most foreigners are warmly welcomed by President Ismail Guelleh, who is conspicuously seeking to model his country on Dubai. He came to power in 1999 and his People’s Rally for Progress has ruled Djibouti since independence from France in 1977. On billboards in the capital, Djibouti Ville, he declares, “nous croyons” (we believe). Increasingly, the president seems to believe in his own abilities. He changed the constitution last year to allow himself at least six more years. Elections are due in April.
Djibouti’s fractured opposition was buoyed by the revolutions in Tunisia and Egypt as well as the protests across the Red Sea in Yemen. On February 18th it demonstrated against the government’s grasping ways, hoping to exert pressure on Mr. Guelleh to level the playing field before the election. But a peaceful protest turned nasty after police arrived. At least two people died and opposition leaders were briefly imprisoned.
If protests got more serious and the port shut down, Ethiopia might be tempted to invade. The French would probably beat them to it though. That would make the small state even more brittle.
Djibouti is ethnically Somali and it serves as a refuge for Somali money, intellectuals and clan leaders fleeing their capital, Mogadishu. Ethiopia is said to run a network of spies. Somaliland, another neighbor, has increasingly close trade links with Djibouti. Relations with Eritrea, on the other side, are tetchy. The two countries have a border dispute.
The pressing question on the minds of outsiders is whether they should continue to back Mr. Guelleh or allow history to take its course. It is not clear to what extent the events in North African countries are affecting the rest of the continent. But it is perhaps telling that, in addition to Djibouti, Arab-influenced Sudan has had to bow to demands for greater accountability. Its president, Omar al-Bashir, announced this week that he would not stand for re-election. But after more than two decades in power, Mr. Bashir might find it all too easy to renege on his pledge.
Source: The economist
Winds of Political Risk
The fast-moving events that have ousted long-standing dictators in both Tunisia and Egypt are a wake-up call to global companies that they may not have been paying sufficient attention to yet another kind of risk—this time, political.
“I wouldn’t say that it’s a matter of companies having ignored political risk,” says Roger Schwartz, national political lead at Aon Crisis Management. Companies have just been self-insuring themselves on political risk, he adds. “I think that after Tunisia and Egypt, they may be reassessing their exposure and reassessing that approach.”
This is particularly true for American companies, Schwartz says. “As a rule, European companies have been more proactive about insuring against political risk. American firms have tended to take a more roll-of-the-dice attitude of dealing with things when they happen.”
“Whenever you have a significant world event like we’ve just seen, interest increases among business managers in how you can mitigate perils, including political perils,” says Ken Moyle, executive vice president of Coface North America, a division of Coface, the Paris-based global insurer.“Of course, when these things happen, it’s too late to think about insurance in those markets where it’s happening.”
Until recently, companies could have insured against political risk in Tunisia or Egypt at low rates, notes Sam Wilkin, assistant director of global analysis at Oxford Analytica, a U.S.-based risk consultancy. “Now it would be very costly.” He compares the situation to a homeowner who waits until the wind is knocking down trees to try to buy hurricane insurance.
Wilkin warns that political risks don’t go away. They just change in character, and risk managers shouldn’t think that because one type of risk seems to have faded, all political risk is lessened. “In the 1970s, you had a huge wave of expropriations. In the 1980s, it was debt risks,” he says. “In the 1990s, there were a lot of big infrastructure contract defaults and cancellations. In the last decade, it was expropriations again.
“Now, in 2011, it looks like political unrest may be the thing, though it’s too early to say,” Wilkin adds.
Companies with global investments, global markets or global supply chains need to undertake a process of identifying their political risks and deciding how to mitigate them, Wilkin suggests, using a five-step process.
The fast-moving events that have ousted long-standing dictators in both Tunisia and Egypt are a wake-up call to global companies that they may not have been paying sufficient attention to yet another kind of risk—this time, political.
“I wouldn’t say that it’s a matter of companies having ignored political risk,” says Roger Schwartz, national political lead at Aon Crisis Management. Companies have just been self-insuring themselves on political risk, he adds. “I think that after Tunisia and Egypt, they may be reassessing their exposure and reassessing that approach.”
This is particularly true for American companies, Schwartz says. “As a rule, European companies have been more proactive about insuring against political risk. American firms have tended to take a more roll-of-the-dice attitude of dealing with things when they happen.”
“Whenever you have a significant world event like we’ve just seen, interest increases among business managers in how you can mitigate perils, including political perils,” says Ken Moyle, executive vice president of Coface North America, a division of Coface, the Paris-based global insurer.“Of course, when these things happen, it’s too late to think about insurance in those markets where it’s happening.”
Until recently, companies could have insured against political risk in Tunisia or Egypt at low rates, notes Sam Wilkin, assistant director of global analysis at Oxford Analytica, a U.S.-based risk consultancy. “Now it would be very costly.” He compares the situation to a homeowner who waits until the wind is knocking down trees to try to buy hurricane insurance.
Wilkin warns that political risks don’t go away. They just change in character, and risk managers shouldn’t think that because one type of risk seems to have faded, all political risk is lessened. “In the 1970s, you had a huge wave of expropriations. In the 1980s, it was debt risks,” he says. “In the 1990s, there were a lot of big infrastructure contract defaults and cancellations. In the last decade, it was expropriations again.
“Now, in 2011, it looks like political unrest may be the thing, though it’s too early to say,” Wilkin adds.
Companies with global investments, global markets or global supply chains need to undertake a process of identifying their political risks and deciding how to mitigate them, Wilkin suggests, using a five-step process.
1. Determining your exposure. This process, says Wilkin, can range from the simple, as in creating a listing of property holdings, to complicated, such as looking at supply chains, to very complicated, such as considering reputational risk. “Look at Google,” he says. “They’ll need to examine what the impact on their global operations will be of the role played by their manager in Egypt” in the popular uprising. “People Power and social media add a whole new layer of complexity to the political risk equation,” Wilkin adds.
2. Quantifying the risks. Companies need to estimate the dollar value that a risk poses to their operations before they can decide how to mitigate the risk, or, if they’re buying political coverage, how much to buy.
3. Mitigation. It’s very hard to calculate any probability of political risk, Wilkin and other experts say, so companies should focus instead on steps to mitigate the risks. That could mean deciding to develop a kind of foreign policy for the company, as many oil companies do. It could involve restructuring or relocating operations. (In the ’90s, Enron began putting its power plants on barges, so that if a country was experiencing political problems, it could just tow its property away.) Mitigation might also mean diversifying suppliers in the supply chain.
4. Supplementing with insurance. Companies can add riders to existing property policies or buy political risk policies that protect against things like expropriation or damage from riots, terrorism or political violence. Companies should consult a broker and a lawyer in this process, because the terminology is important. For example, is a unionization campaign a labor problem, or was it politically motivated?
5. Staying alert. Once a company has decided what kinds of mitigation measures to take, it should continue to monitor political risk. The degree of risk, as well as the potential damage to a company’s operations or bottom line, can change dramatically, Wilkin says, and so it’s important to keep reassessing, and adjusting coverage and mitigation measures. It’s also crucial to be aware of how risks interact. For example, he says, if you have major commodity inflation, that can lead to political instability.
A number of global insurers, such as AIG and Coface, provide political coverage. And smaller national insurance companies can offer political risk coverage for domestically domiciled companies. Often, says Aon’s Schwartz, it can pay to shop around for coverage in what is a competitive market. “European and U.K. companies, for instance, are more comfortable insuring against political risk in Eastern Europe and Africa, while American insurers may feel more comfortable insuring against risk in Latin America,” he says.
U.S. companies can also do business with the Overseas Private Investment Corp. (OPIC), a government-run insurer that provides competitively priced coverage for many types of political risks, including expropriation and currency controls.
Evan Freely, global head of Marsh’s political risk and trade credit practice, says while dealing with the government entity can be a bureaucratic headache, having OPIC as a company’s insurer can provide it with added clout in the event of problems like an expropriation or an abrogation of contract on a major infrastructure project, since the full force of the U.S. government stands behind the company.
For more on political risk, see Doing Business in A Volatile World.
Aon’s interactive map of global political risks is here.
There are 1,011 billionaires in the world in 2010.
The top slot in this year’s list was taken by the Mexican telecoms giant Carlos Slim, who has a fortune of $53.5bn (£36bn), an increase of $18.5bn on last year. Mr Slim leapfrogged BIll Gates and Warren Buffett, who held first and second places last year.
Of the 97 new billionaires in the list, 62 came from Asia, demonstrating the shift in the world’s economic engine. Outside the US, China is the country with the most billionaires – 64, and Russia has 62. The US still dwarfs the rest of the world, with 403.
Son of Saudi father and Ethiopian mother, Al Amoudi started investing in Sweden in the 1970s. His construction company Midroc scored contract to build Saudi Arabia’s nationwide underground oil storage complex in 1988; estimated $30 billion project solidified his fortune. Amoudi is close to the Saudi royal family, which sees him as a can-do guy and encourages his growing business empire in Ethiopia, where he is growing rice, corn and other staples on thousands of acres–for export to Saudi Arabia. Also owns a gold mine in Ethiopia, oil refineries in Morocco and Sweden, oil fields off West Africa. His Addis Ababa Sheraton is said to be among the finest hotels in Africa. Brand new: has pledged $250 million to finance factory to build Saudi Arabia’s first car, to be called Gazal.
- Age: 66
- Source: oil, self-made
- Residence: Jeddah, Saudi Arabia
- Country of citizenship: Saudi Arabia
- Marital Status: Married
- Children: 8
#63 Overall
Source: Forbes
Ethiopia is Top UK Aid Recipient
By Peter Heinlein
Britain has chosen Ethiopia to be its biggest recipient of development aid during the next four years. Several donor governments are ramping up assistance as Ethiopia sets ambitious goals for eradicating poverty and hunger.
Ethiopia will receive $2 billion in British development assistance in a four-year period.
Howard Taylor, head of the British aid program in Ethiopia, says the decision to boost assistance was based on need as well as evidence that the country has made major strides in recent years.
Ethiopia Prime Minister Meles Zenawi says his country’s economy has grown at a rate of 10 percent or more during each of the past seven years. International aid agencies question the method of calculating the figure. But Mr. Meles says that even double-digit growth would not be enough because Ethiopia’s population has increased faster than the country’s rate of economic growth. The population now stands at around 80 million people.
Taylor says that although the accuracy of the government data can be debated, there is no doubt that Ethiopia’s economic growth is accelerating. “The precision of the data is disputed, and we have an ongoing conversation ourselves with partners, including the government itself, about some of that data. But the headline issue, which nobody disputes, is that there has been from a low base tremendous development progress in Ethiopia over the last eight to ten years or so,” he said.
Taylor says recent studies show that Ethiopia receives far less aid than it needs – half as much in assistance per capita compared to other African countries. He attributes that partly to donor concerns about the killing of anti-government demonstrators following Ethiopia’s disputed 2005 election.
“It’s a fact that overseas aid to Ethiopia did decrease after the 2005 election. It has since increased. I think the size of the population in Ethiopia is a key factor in why the per capita aid is low because Ethiopia is so populous and still growing so fast,” he said.
A poverty index released by Oxford University and the United Nations last year ranked Ethiopia as the world’s second poorest country, after Niger. But the Ethiopian government’s latest five year economic plan includes the ambitious goal of achieving self-sufficiency in food.
Taylor says international donors are increasing their aid budgets, even as they struggle with their own economic troubles. “They’re certainly in the poorest 10 countries in the world. But I think that’s an obvious argument for continued support and increasing what we do here. We are trying to help the millions of very poor, very vulnerable Ethiopians improve their lives,” he said.
Britain and the European Union are among Ethiopia’s biggest aid donors.
The United States is the largest bilateral aid contributor to Ethiopia, averaging more than $1 billion in assistance per year since 2007. During that time, U.S. aid has included more than $1.5 billion in food aid to prevent famine and alleviate chronic food shortages.
Source VOA
