Chinese firms must be vigilant in Africa
Africa has been called “the coup kingdom.” Although there has been less chaos since the cold war ended, there have been coups in some countries in recent years. Some have seen a fairly rapid return to stability, such as Guinea Bissau. But in terms of doing business in such areas, stability cannot be derived from temporary lulls in hostility, and full preparations are needed before making investments. In other countries and regions, hostilities
have resulted in chronic problems. As a result of territorial disputes with Somalia, two major wars occurred in the Ogaden region of Ethiopia in 1964 and 1977, and conflict has been frequent ever since. In April 2007, armed groups attacked a Chinese-run oil-gas exploration field in eastern Ethiopia, killing 74 people.
Sudan has also struggled to find stability. And although South Sudan achieved its independence in 2011, armed conflicts in the country have never stopped. Nigeria and the oil-rich Niger Delta were the battlefields of the Biafran War, and ethnic conflicts in the area have been so intense that armed violence against oil development has occurred regularly. Chinese
oil enterprises in the region have suffered kidnapping, destruction and other violent incidents.
In recent years, the northern Muslim region of the continent experienced several sectarian conflicts and armed rebellion because of groups such as Al Qaeda. Chinese enterprises in the region have inevitably been affected.
Chinese enterprises should take appropriate measures based on the varying local circumstances.
First, in the places where the local military and police are strong, government protection should be utilized as much as possible. For instance, almost all the Chinese enterprises in Algeria are protected by armed defenses and proper management. This kind of thoughtful protection, coupled with safety education and strict discipline can reduce the risk factor.
Second, while some local military forces and police are weak and ineffective, they can still provide some security cover for investors. In this situation, after fully understanding the local circumstances, business can be carried out prudently.
In some areas of Congo, where the security situation is very complicated, Chinese and foreign enterprises have implemented effective protection by contacting peacekeeping forces and hiring professional security companies to guard offices and residential areas. Of course, this still involves hidden risks and close monitoring of movement in these areas is needed.
Third, the security situation in some areas is highly unstable. In the Niger Delta, multinational oil companies often suspend operations when tense situations arise, and restart production when things have calmed down. Although this causes losses, it is the only prudent course of action.
Fourth, sometimes the only option is to leave. In 1972, US oil company Tenneco took the lead in exploring oil and gas resources in the Ogaden area of Ethiopia and constructed eight wells.
However, after weighing the pros and cons, they decided to give up the project. In the years since, the security situation in Ogaden has not improved, and it has been regarded as a forbidden zone for Western companies. The local government has repeatedly tried to organize tender invitations with favorable terms, but companies have shown little interest.
Another hazard is that some of the newly independent African nations, such as Guinea, Angola and Mozambique, have confiscated foreign capital and enterprises, resulting in massive losses for the companies and investors involved.
In addition, there are some policy risks, such as governments’ decisions to raise tariffs, limit certain investments and forbid certain modes of operation. However, it usually takes a certain period of time for these policies to be carried out, giving investors time to deal with the situation.
So long as foreign investors pay attention to the current affairs in a country, many of the risks can be avoided.