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March 2018

Viewing posts from March , 2018

Exciting Job Opportunity at ADG

Exciting Opportunity for a Senior Associate in Dubai

We are looking for a Senior Associate to join our thriving and ambitious team.

The ideal candidate will be 8+ years qualified (with an emphasis on litigation, but ideally also some corporate experience). You must be technically excellent and fluent in both English and Arabic.

You must have at least three years’ experience practicing UAE Law in the civil courts (criminal and/or Shar’ia experience is a bonus).

You will lead a friendly and collaborative team, ensuring that it continues to provide high quality, responsive and commercial advice.

We strive to maintain a positive working environment. We embrace diversity and gender balance in our employment practices, and actively encourage talented fee-earners who wish to strike a balance between work and family life, to work on a part time basis.

Please contact Rewa Cooper (rc@adglegal.com) with your CV if you are interested in joining us.

Somalia – The Next Investment Opportunity?

By Jan-Carl Stjernswärd

Somalia – not your typical travel destination. “Black Hawk Down”, tv footage of dead bodies, pirates and starving children flash through the mind. Yet the disastrous civil war and American intervention occurred more than 25 years ago. Piracy was largely eliminated around four years ago. Today’s Somalia is a very different place and is currently undergoing an economic renaissance. Bustling ports, modern highways, mineral deposits and fresh seafood entice investors and adventure-seekers alike. This millennia-old civilization is once more taking its place on the world stage.

What has led to this interest? In short, its location and Ethiopia’s growth. This, and some of the opportunities available are discussed below.

Strategic Location

Real estate agents always say location is the single most important factor when choosing whether to buy a property or not. Geopolitics is no different.

One of the miracles of economic growth over the last decades has been Ethiopia. This thriving consumer economy of 120 million has had its GDP increase by six fold from around USD 12 billion in the year 2000 to around USD 72 billion as of 2017. Yet this landlocked economy has not had a port of its own since Eritrea seceded as an independent state in 1991. Relations deteriorated, leaving the country dependent upon neighbouring Djibouti. This in turn led to Djibouti’s remarkable development.

As well as hosting one of Africa’s busiest and most efficient container terminals, Djibouti has a major oil terminal and now a mixed use port, the latter built with Chinese money. It also hosts French, American, Japanese, Chinese and EU bases, with Spanish and other Europeans also permanently based there.

Although relationships between Ethiopia and Djibouti remain strong, relations between Djibouti and certain other nations – particularly the UAE – are more fragile. In part this (and the strategic need for Ethiopia to have more than one route to the sea) have led to an increased interest in Somalia and Somaliland.

DP World signed to develop Berbera (Somaliland) in 2016, and recently agreed to develop a free zone there. Its subsidiary, P&O Ports, then signed with Bosaso, Somalia, in 2017. Meanwhile, Chinese and Turkish interests are developing other parts of the country – with Turkey a major investor in Mogadishu. Currently, Berbera and Bosaso are seen as the two most strategic plays, both being on the Red Sea, through which flows some 60% of the world’s shipping.

Each of Berbera and Bosaso could serve Ethiopian demand – as well as help Somaliland and Somalia develop themselves – both via Djibouti (if transit is permitted) and directly through various overland routes.

In short Somalia sits on some prime geopolitical real estate. As Ethiopia continues to grow, it will require several ports to service it. The only other potential player – Sudan – requires over 1,500 km of transit over non-asphalted roads. While this has led to rivalry between the three ports, outside commentators would note that Ethiopia’s economy will (and may already) be strong enough to sustain all of them.

Goods will not only be flowing in. As Ethiopia imports vehicles, wind turbines and machinery, it exports agricultural produce, leather goods and – soon – oil and gas. Again, each of Djibouti, Somaliland and Somalia are vying to host the export terminal. Reports of Djibouti being chosen appear premature.

Foreign Players

Somalia was once shunned by the international community as a pariah state. Now it is being courted as a bride by many a wealthy prince. The UAE, Turkey and Saudi Arabia all seek to establish military bases in Somalia. Even the US is reported to have a semi-covert presence in the country.

What all this means is that the security situation is rapidly improving. The most problematic region remains the capital, Mogadishu, with Puntland (Bosaso Port) and Somaliland (Berbera Port) both being stable and relatively safe.

The Hospitality Sector

At present, there is no international hotel operator in Somalia, but companies from Europe, Turkey and China have all been recently eyeing the market. It is rumoured that a new hotel may open in Bosaso, Puntland, and Garowe, Puntland, as port engineers, oil prospectors, geologists and surveyors all flood the city. The highway from Bosaso to Garowe is 500km but takes only about 4.5 hours to drive – Garowe, a pleasant leafy garden city and the capital of Puntland, is only a short distance from the Ethiopian border. A dry port is planned for the border area as well as a free zone in Bosaso.

For the non-business traveller, virgin mountain ranges, deserts, geothermal springs, bush and pristine beaches await to be explored. Combine this with ancient architectural sites, organic cuisine and friendly locals and you have a growing market for tourists looking for a fresh experience.

A Flat Society

Somalis have for centuries been nomads. As with other nomadic societies that this correspondent has visited in Central Asia and Africa, there is an ingrained sense of hospitality and trust between people. There is no real class pyramid, and pauper and businessman alike often share the same table at restaurants, political meetings and social gatherings. For a foreign investor, this is refreshingly different from many other sub Saharan countries, underpinned by a strict pecking order of rent seekers.

This sense of grass roots democracy is reflected in some of Somalia’s political life. No President in either Puntland or Somaliland has ever been elected for two consecutive terms – transition of power has been peaceful and uncontested, as this correspondent can attest to having attended the inauguration of the current Somaliland President in Hargeisa in December of 2017.

Also enriching Somalia’s economic and social life are its large diaspora community (stemming mainly from people fleeing the civil war of the early 1990s). Somali communities exist in the UK, North America and Scandinavia. Encountering an otherwise normal looking Somali with a heavy Mid Western drawl peddling his wares in a lively provincial town is becoming an increasingly more frequent experience as educated diaspora members return to Somalia to capitalize on new opportunities. Large sums of cash are remitted through this network, using the Islamic finance system of hawala, in and out of the country. Indeed, in the absence of banks, Somalia has developed some cutting edge solutions to cater for payment solutions, including e-wallets on your phone through which most payments can be made.

 

All in all, while inter clan rivalry remains an issue, foreign guests are invariably shown respect and friendship by the ordinary Somali.

The Future

Even though political and security challenges remain, it seems likely that Somalia’s economic boom will iron out these problems over the next few years. Meanwhile, for the investor seeking potentially triple digit returns and with a healthy appetite for risk (and seafood), Somalia offers many interesting opportunities in the energy, hospitality, finance and infrastructure sectors.

Jan-Carl Stjernswärd, 27 February 2018
jcs@adglegal.com

Djibouti and DP World – Only Mediation Can Really Solve What Is A Political Dispute

By Peter Gray, Co-Managing Partner

That Djibouti have now acted suggests their belief that the sphere of influence in East Africa lies with China. It would be better for everyone if they did not test that belief.

Current news coverage of Djibouti’s termination of its DP World Concession focuses on whether it was “unlawful” or not. In my view, that misses the point. The dispute between the parties is now a political one, reflecting Djibouti’s perception of a change in the balance of power in the region, combined with its belief that its relationship with the UAE has broken down irretrievably.

Starting with the issue of legality, if Djibouti lost the initial arbitration, we can assume it will lose any subsequent arbitration also, whether or not the first award was open to challenge. Any repeat of allegations previously made (and I make no comment on them) will likely be held to be res judicata and will not be considered.

As a sovereign state, Djibouti cannot be prevented in practice from retaking control of a strategic asset, meaning that the question will be how much compensation it will be required to pay for what would be deemed an unlawful act – and whether it will pay that sum.

So far, so obvious. But, having international advisers, Djibouti can be presumed to have known all of this before it made its decision and calculated that, politically, it will prevail. It is clear that their relationship with the UAE was at a low ebb. They would have felt they had lost face as a result of the adverse publicity emanating from the arbitration and the Boreh litigation (critics will say that is not DP World’s fault, but that is not the point). Equally, DP World and the UAE may have seen the past allegations and the termination of the agreement as a potential loss of face on their part. Those based in the region know that “face” is as important in the Middle East and East Africa (to say nothing of more widely afield) as it is in Asia. Once the parties felt they may have lost face, only a skilled mediator was likely to resolve the matter. Formal dispute resolution – such as arbitration – allows only one party to be vindicated, meaning the loss of face with the other remains. That is inevitable in a regular commercial dispute, but has consequences when the parties are nation states.

Djibouti believe their concession agreement, signed in very different times, puts them at a disadvantage compared to the rest of the market. The High Court may have disagreed with that view, but I have seen a number of regional concession agreements – some in places far riskier commercially, politically and in terms of security – which were significantly more favourable to the host nation. Whether that means Djibouti are now entitled to a better deal is another question of course. It is all too common for regional governments to sign long term agreements without taking proper legal advice, only to find out later they have what they consider a very unfavourable deal. Some investors know this and take advantage of a government’s legal naivety, but in practice this only stores up trouble for later.

In practical terms, the dispute highlights the issues associated with long agreements. Concession agreements have to lengthy in order for the investor to recoup their capital, but if there is no flexibility, problems can arise later when the political and economic landscape has changed. Usually of course, the problems are dealt with by private negotiation between the parties. It may be that there is something to be learned from the oil and gas industry, which is far better at allowing flexibility in long term agreements as both oil prices and the economic and political health of the host nation wax and wane.

That Djibouti felt able to act reflects their perception of a change in regional strength. When the Concession Agreement was signed, the other players in the region were France and the US, each having a very significant military presence. Today, however, China is the big player. It has invested more than any other country, having built a large multi-purpose port next to the Doraleh terminal and built the Djibouti-Addis railway, which only recently opened. It also now has its own major military base in the country. If Djibouti has China onside, it may be unlikely that the older vested interests of the US or France (both very strong allies of the UAE) will intervene on behalf of DP World.

The UAE might seek to use economic sanctions, such as persuading shipping lines to move their business away from the terminal, the two obvious hurdles are a current lack of alternative routes into Ethiopia and Chinese control of some major shipping lines (who will wish to keep the Chinese port and railway connected).

The first hurdle is being remedied. It is unlikely to be a coincidence that the day before Djibouti acted, Sultan bin Suleiman met with the Somaliland president to discuss the development of the port there (see news report below – currently only in Somali). Developing Berbera makes sense in its own right, as Somaliland itself is developing fast and strategically, a country of the size of Ethiopia (over 110 million) needs more than one route to the sea. However, if Djibouti perceives Berbera as seeking to take advantage of the situation by taking trade that would otherwise come to them, that may cause issues of its own. One thing is clear – it is nobody’s interests for Djibouti, Somaliland and Somalia (a DP World subsidiary has a concession in Puntland, Somalia) to be at each other’s throats. There is room for them all to develop without one doing so at the cost of another.

Djibouti may also be calculating that the UAE’s principal regional ally, Saudi Arabia, will do little because it wants permission to have a base there from which to conduct its war in Yemen. Turkey is also a growing regional player, and will not be put off by this dispute. Indeed, it can be expected to reaffirm its interest in Djibouti as it vies with the UAE and Saudi Arabia for regional influence.

Those who would be concerned about the termination – western investors – would not seem to be a serious consideration. Their contribution is not seen as being of enough significance.

On the other hand DP World are right to be very upset. There is no doubt that they were the first major investor in the country in recent times and they turned the port into one of the busiest, safest and most efficient ports in the Africa. The UAE has made numerous other major investments in the country both a state and private level. Even if Djibouti thinks its calculations are right, the UAE will do all it can to make an example of the country. Indeed, it must do so in order to dissuade others from following suit in hope of getting a better deal, regardless of merit. One can expect the UAE to deny Djiboutians visas, which will in turn hurt the interests of ordinary citizens (who in turn may then pressurise their own government) given the importance of the UAE to African business generally. Some Djiboutian politicians carry French passports and so – ironically – may be unaffected unless they are named.

The UAE has a great deal to offer what remains a poor region – but one with great potential. Further, the African experience of Chinese investment has not always been a happy one. Chinese investors, being from state companies, tend to stick only to their mandate and not to mix with the locals. On the other hand, the UAE’s investment has encouraged numerous Emirati and other regional businessmen into the region. Their presence was a visible sign of real regional commercial cooperation. Unfortunately, others involved in the matter but outside the UAE and Djibouti appear to have a rather limited understanding of regional political complexities, which can only be gained by spending time in the region and meeting a wide spread of people. Hopefully, those advisors – whose influence can be seen on both sides – will remedy that.

Neither side will truly “win” this war of attrition. The solution is a mediated settlement. Given the level of rancour, it would require a highly skilled mediator, trusted and respected by both sides to resolve this matter. That mediator would have to account for the vested military and commercial interests involved as well as Djibouti’s internal politics, which is more complex than reported. This writer hopes that a mediator is found – and soon – so that the next news story from the Horn of Africa concerns a commercial success rather than yet another dispute.

 

Peter Gray is Co-Managing Partner of Al Dahbashi Gray.

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