Can Africa help itself? The question might seem condescending, but its relevance is undeniable. Reversing centuries of colonialism, lackluster development and uneven economic growth, developing countries around the world are transforming thanks to unprecedented connectivity infrastructure, a growing global middle class and rapid urbanization – and Africa is at the heart of the changes. It is the world’s youngest continent, with a median age of 19, but it also has the world’s oldest leaders.
Nevertheless, young Africans are increasingly connected, urbanized and eager for work. Yet, Africa still suffers from vestiges of colonialism in a modern form. Through China’s Belt and Road initiative, a global economic project that aims to redraw international trade patterns, Beijing has spread its clout across Africa. With infrastructure projects and development loans to a number of African states, it has carved out a remarkable sphere of influence. The good thing is that Chinese technology companies have ridden the coattails of government infrastructure and aid projects to offer Africans cheap mobile phones and access to Chinese internet platforms such as WeChat. The problem is that several African countries are bootstrapped by debt.
Good or bad, or a combination of the two, China’s influence is not going anywhere anytime soon. Thus, it would be prudent for African countries to diversify their pool of investors. Finding eager partners up to such a task could actually be the easy part. Changing legislation and maintaining sound regulatory environments designed to attract and maintain foreign direct investment is a much more difficult task. Recent actions by the government of Djibouti to nationalize a key port on its coastline underscore the challenges several African countries face. The episode is a cautionary tale for nations looking for investors outside China and the West.
Maritime traffic is crucial to the African economy. By 2040, maritime traffic is expected to increase to 2 billion tonnes, thanks to increased demand and improved infrastructure. Historically, Africa’s ports have been ill-equipped to deal with the expanding volume but several international partners have remedied the situation, with Dubai Ports World (DP World) taking the lead. The port operator owned by the Dubai government manages eight terminals in five African countries – Egypt, Mozambique, Senegal, Algeria and Djibouti – along with stevedoring operations in South Africa.
The Doraleh Container Terminal operated by DP World in Djibouti is under fire as President Ismail Omar Guelleh nationalized an entity with a majority stake in the port. Situated on the Horn of Africa, Djibouti is a critical waypoint for the international economy and geopolitical considerations in the region. Several countries, including the United States, operate military facilities in the country, and trade moving from Asia through the Suez Canal to Europe flows through its waters.
The dispute over the Doraleh Container Terminal boiled over in February when the government took over the facility and informed DP World it had terminated a 2006 concession that granted the Dubai company control. Port de Djibouti, an entity that effectively controls a two-thirds share in the terminal, terminated its shareholder agreement with DP World in July, according to the Wall Street Journal. In September, Djibouti’s president nationalized Port de Djibouti.
The matter is further complicated by an injunction DP World received from the High Court of England and Wales ruling that Djibouti was unlawful in pushing DP World out of the project. DP World sought international arbitration on the port dispute at the London Court of International Arbitration. After two decisions in its favor, it moved the case to the High Court for a third decision on the matter. For its part, the Djibouti government has said DP World’s fight over the port was an attempt to oppose the will of a sovereign state. The statement along with the government’s actions amount to shooting the country in the foot at the start of a marathon.
As the High Court of England and Wales ruled in its decision, Djibouti’s actions against DP World are unlawful and go against the terms of the commercial agreements signed by all parties related to the port. The bigger concern is that other African countries will follow Djibouti’s misguided example.
Africa’s best strategy to counterbalance Chinese and Western economic interest is through a diverse portfolio of FDI flows from smaller countries. Given its historical ties to the continent and investment power, the Arabian Gulf is a natural economic partner for many African nations. The UAE, in particular, has shown a keen desire to invest in Africa, but such an appetite will soon disappear if the rule of law is not maintained or respected.
Some might be quick to defend Djibouti’s government line concerning nationalism and the power of a sovereign state, but the fact is that the country has been selective in its understanding of sovereignty. While attacking DP World, the government has said or done little about Chinese projects in the country.
If African governments like Djibouti want to get serious about nationalism, the best way forward is to create and maintain a strict regulatory environment that encourages FDI inflows. Changing the rules midstream, as exemplified in the Doraleh saga, does nothing except to dial up the risk for investors in ways that are almost impossible to calculate. Indeed, the calculation they might ultimately make may be to just stay away. Banging populist drums might be helpful for politicians in the short term, but for African countries to prosper economically and achieve true independence they should adopt a prudent strategy to attract foreign investment.
Joseph Dana, based between South Africa and the Middle East, is editor-in-chief of emerge85, a lab that explores change in emerging markets and its global impact.
AFP PHOTO/Yasuyoshi CHIBA
