DP World's breakdown of relations
COMMENT: DP World must be rueing the day it got involved with Djibouti. After more than a decade of positivity and significant investment in the country, its government has decided that the relationship has run its course and seized control of Doraleh Container Terminal, writes Carly Fields.
DCT was designed, built and operated by DPW under a concession awarded by the government in 2006. Opened at the end of 2008, DCT claims to be the most technologically-advanced container terminal on the African continent. DPW owns a 33% equity stake in the terminal.
The move is the culmination of an orchestrated campaign to get shot of DPW, which first surfaced in 2012. Djiboutian authorities claim the concession deal violates its sovereignty and has alleged that the port operator used bribes to secure the concession. The mention of ‘sovereignty violations’ smacks of the ridiculousness of DPW’s rejection from the US through its purchased P&O assets back in 2006. Are we really still wallowing in that mud bath?
DPW has already taken part in arbitration to prove the legality of its contract terms, with a London Court of International Arbitration tribunal led by Lord Leonard Hoffman and Sir Richard Aikens finding the terms were “fair and reasonable”. The operator has opened a new arbitration to address what it describes as the “illegal” seizure of DCT.
DPW claims that the terminal is the “largest employer and biggest source of revenue in the country”, and that the port has operated at a profit since it opened. Unsurprisingly, the UAE government has come out in support of DPW, with Anwar Gargash, the UAE’s Minister of State for Foreign Affairs, tweeting that the seizure of control of the terminal is “regrettable”.
More poignantly, Mr Gargash has pointed out that any damage will be far more significant for Djibouti than for DPW. In support of Mr Gargash’s words, there was a muted response on the stock exchange to the news with only a slight decline in DPW’s stock, following a downward trend that began towards the end of January, well before the seizure. Adding salt to Djibouti’s wounds, DPW parent Dubai World has also invested substantially in the country through its other companies, including in a hotel, a free zone and customs operations. With DPW slighted by the Djibouti government, government-owned Dubai World will be reviewing these investments in protection of its own.
DPW chairman HE Sultan Ahmed bin Sulayem evidently had high hopes for the relationship describing it previously as “a lasting model for largescale public-private partnerships in Africa”. Much emphasis has been placed on local talent with DP World using Djiboutian trainees to help build up operations at the company’s other African terminals, including at Dakar, Senegal.
It’s likely no co-incidence that Djibouti Ports and Free Zones Authority has its own designs on its port operations and has committed to a sizeable multi-billion-dollar investment programme to expand its operations, adding five ports to a sprawling complex incorporating a new free trade zone.
Investments in emerging markets come with inherent risks, usually directly tied to the level of reward available. DP World is no stranger to emerging markets, or investments in terminals on the African continent, but in an era where protectionism is more prevalent, is it time for port operators to re-assess external investments in emerging markets? Whatever the result of the current arbitration, Djibouti will struggle to convince international investors to put their money in its assets in the future. What will that mean for its future port development programme?
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