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Reputational Risk: Troubles when Doing Business with Dictators

If your company has conducted business with Libya during the Muamar Gaddafi era, chances are your senior management and corporate lawyers are probing deep to find out if the company has been involved in anything that Western authorities or international media could question. The bigger the company, the more probing and no one is safe. In neighboring Algeria, there are ongoing probes in the questionnable dealings involving international companies who worked with state-oil giant Sonatrach or took part to the East-West motoway project.

Consider some of the names that are on the radar screens of investigators and legal authorities around the world: Italian and French energy giants ENI and Total, which have also received formal requests from the U.S. Securities and Exchange Commission. The American enforcer of securities laws is checking whether these companies have broken any law when they delt with the Gaddafi regime under the U.S. Foreign Corruption Practice Act. Interinstingly, recent Libya’s oil minister Abdurahman Benyezza in the government of Abdurrahim El-Keib, used to be an executive at ENI.  There is no proof of wrongdoing yet, but these companies, like many others are on the defensive, just like Yara International in Norway and SNC Lavalin in Canada, two companies that are facing a major damage to their reputation.

In Algeria, corruption probes are moving at slow pace but pressure from the press and investigations abroad are prompting judges to try to do something. Their hands are often tied because these cases involve very powerful men like ex-oil Minister Chakib Khelil and relatives of former Foreign Minister Mohamed Bedjaoui.  Here’s a sample of cases we’ve been following:

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Algerian Government Ministers Implicated in Corruption Cases: All Eyes on Chakib Khelil and Others

The murky nature of Algerian politics and lack of transparency mean that the country is suffering from a major credibility and accountability deficit that is allowing many of its top leaders to abuse their power. As we approach the Presidential elections, more political and financial scandals are making it to the public, dragging with them names of politicians who used to be seen internationally as credible. Foreign justice systems in countries like Italy, Switzerland, Canada and elsewhere are probing cases of illegal payments made by companies to Algerian officials, investigations that are turning out to be a PR nightmare for the Algerian government. Continue here

 

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ENI-Saipem Hit by Corruption Scandal on Algeria Business 

The North Africa Journal | Italian oil and gas industry contractor Saipem is embroiled in a corruption scandal in its Algeria operation that forced the resignation of its veteran CEO Pietro Franco Tali. The company’s engineering and construction Chief, Pietro Varone was suspended pending the ongoing investigation. Energy giant ENI, which owns 40% of Saipem announced the resignation of its own CFO Alessandro Bernini. …   Continue here

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SNC-Lavalin: Collateral Damage of Dealing with Dictatorships

Damage control and reputational risk are a few things the Canadian engineering giant SNC-Lavalin is currently experiencing firsthand. As the company celebrates one hundred years of business, it is facing unprecedented scrutiny related to its dealings with the Gaddafi family of Libya. Key senior executives have already lost their jobs as the company is going through damage control, and construction contracts in other parts of the world are being questioned. Now, a former Canadian ambassador to Tripoli could be dragged down into this affair, as the press continues to dig deep into corporate dealings that have gone bad like a Hollywood movie plot. The cost of doing business in Libya has suddenly increased rapidly for the company and its troubles may not be over…

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Another Deal Gone Wrong in Libya: Yara in the Limelight

In the immediate aftermath of the end of the Gaddafi regime, scandals of all sorts involving alleged corruption, improper payments and bad business practices have began to surface. One of them involves Yara International, the Norwegian company that owns half of the Libyan Norwegian Fertilizer firm (Lifeco), which has been charged in its home country with “aggravated corruption” in connection with its Libyan joint venture.

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Selling the Good and the Evil: Unit of Bull Supplied Internet Interception System to Gaddafi

 Although SNC-Lavalin’s case of dealing with the Gaddafi regime may be the most troublesome to emerge to date, the Canadian company is not only one being scrutinized for exercising bad judgment. Other companies and Western politicians are beginning to show on the radar screens of the media and independent observers, and we suspect many more to come. Among the latest to deal with the hot topic of the Gaddafi liability is France’s Amesys, which has sold spy technology to the Libyan regime at the heights of its dictatorship.

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Sahel: As Security in Sahel Worsens, Niger’s Uranium Production Set to Increase

Over the past decades, Niger has attracted foreign investment to increase and diversify their mineral resources sectors – particularly uranium, gold, and iron ore.  Sustained high prices for oil have also attracted companies from Africa, China, Malaysia and Canada to explore potential production centres. Niger has also received international attention from France for its uranium deposits, which fuel France’s nuclear power stations run by Areva SA (OTCOTHER: ARVCF). Niger is the world’s fifth largest uranium producer. More recently, gold deposits are being exploited in southern Niger. There are also minor deposits of oil and coal, which have not been fully developed yet, but which could be important engines for growth and stability. The government wants to attract foreign investment, diversify the economy and implement policies that support sustainable development.

Niger has considerable gold and uranium reserves and some of the world’s largest mining companies from Australia and Canada are expanding prospecting for new production centers. Mining is one of the most important sectors of Niger’s economy, particularly in terms of attracting foreign investment.  Major resources in that country include gold, coal, and uranium, the latter of which is the main resource. SOMAIR, a branch of the French state-owned nuclear power utility Areva, controls most of the uranium mines in Arlit, Tassa and Aouta.

In 2009, Areva received a permit to develop one of the largest single uranium deposits in the world at Imouraren with the potential to produce 5,000 tons of uranium a year.  Areva plans to invest some USD$ 1.5 billion in the project.  The mine was intended to become operational in 2012 but has been delayed. Nevertheless, there is continued demand for uranium, as worldwide power generation prices continue to rise and tensions in the oil producing Persian Gulf show no sign of quelling. The Nigerien government’s drive for economic growth is pushing the Imouraren ahead. Uranium production is slated to begin in 2014 after the government managed to secure a higher extraction price, which reached 73,000 CFA Francs per kilogram (about USD$ 150), up from 70,000 CFA Francs.

The Imouraren project is expected, by itself, to raise Niger’s uranium production by as much as 5,000 metric tons per year or 20%, which would make it the world’s second largest producer. The government of Niger is also very pleased that its uranium will be sold in Euros, which will help boost its economy. Areva is not the only producer of uranium in Niger, demonstrating that global demand for uranium may only be increasing. China’s SinoU, is running a joint venture to extract uranium with the Government of Niger in a project that is targeting an annual production of some 700 tons. Indeed, it is very likely that Niger will see growing interest from companies from all over the world as Areva is losing its almost monopolistic control of the country’s uranium resources. Until a few decades ago, France, the former colonial power of Niger, which produces almost three quarters of its energy from its nuclear power, maintained virtually complete control over Niger’s uranium resources. More recently, the Government of Niger opened the uranium sector to mining and exploration companies from countries such as Canada and China. Several foreign companies continue to prospect for uranium, including Canadian Bayswater (OTCOTHER: BYSWF), Cameco Corporation (NYSE: CCJ), Niger Uranium Limited of South Africa (SEAQ: URU) and Oklo Uranium of Australia (OKU:ASX), among others. Chinese companies are also very interested in competing for uranium prospecting rights.

The China Nuclear International Uranium Company has become the main investor in Niger’s uranium mining sector. To facilitate concessions, China has agreed to improve Niger’s electrical power supply system. China will also deliver electrical power units that will enable Niamey to receive some 30% more electricity. Niger is also expected to boost economic growth thanks to development of its oil and gold potential. The China National Petroleum Corporation (CNPC) has signed an agreement valued at USD$$5 billion to extract oil at the Agadem Block. The agreement includes the construction of a 2,000 kilometer pipeline and a refinery capable of processing 20,000 barrels per day. The Agadem Block is considered Niger’s most attractive asset and there remains intense competition to secure rights to develop its proven reserves.

Why is Mali so Important to Mining Companies

Mali is going through a very difficul phase as the nation faces political infigthing in Bamako following the recent military coup that toppled the President. Mali is also facing the Touaregs in the north who have been seeking independence for the Azawad State. The nation is also the target of AQIM.

The coup generates considerable business risk as well, especially as far as the mining sector is concerned. Mali aspires to become one of the world’s leading gold producers. Mining giants such as AngloGold Ashanti Ltd. (ANG) and Randgold Resources Ltd. (RRS) have significant operations in the country. However, to their benefit, gold is largely extracted in the south, which is unaffected by the rebellion in the north. Canadian AVion Gold and Iamgold are also operating in Mali. Other Canadian mining companies are indirectly exposed to the intensified Mali risk. They include Kinross which has commitments in Mauritania, LaMancha, which operates in Ivory Coast and Semafo, which still has some operations in Niger.

The greatest risk is to mineral companies operating in and around the Taoudeni basin, which is in the very region seeking autonomy from Mali and the area most exposed to the MNLA of the Azawad. The Basin is believed to be rich in oil as well as other resources. Petroplus and Simba Energy are among those operating in the area. The rebellion has already forced the displacement of thousands of residents and the new leadership in Bamako appears ready to intensify military activity. Our security report on the Sahel region provides details of the investment landscape. Contact us if interested.

A Fast Evolving Landscape

We felt rather guilty for releasing to you an 80+ page issue. For a moment we thought we should split it into two installments, but here’s the problem: North Africa is a never ending source of critical matters at this very important junction of its history. The news and fast developing stories keep on pouring at such a speed that they inevitably require large amounts of reporting. Problems abound and political leaders, including their military patrons are unable to find suitable solutions. There are no groundbreaking creative ideas going around in the region. Although we would love to share the occasional good news, we admit that there is a serious shortage of such positive matters.

Within North Africa itself, events are unfolding at a rapid velocity. Most here see them as part of a greater “revolution” that promises equity, better resource distribution, and more rights and civil liberties to the peoples of the region. So far, although revolutions have toppled a few dictators and frightened Kings and Generals, they have paved the way for the conservatives under the banner of the Islamist movement to take over the political agenda. And for the moment, that does not bode well. Their actions so far are rather disappointing and often alarming as they take over governance. As we report in this issue and in the most recent ones, human rights and civil liberties are taking a beating by the conservatives in Tunisia, Morocco, Algeria and elsewhere. There is no guarantee that the conservatives will win in the long run, as the moderates and liberals are fighting back, but expect a long process and may be some collateral damage along the way.

Speaking of collateral damage, some companies are facing greater scrutiny about their dealings with the Gaddafi regime. In a previous issue we reported about Canada’s SNC Lavalin. In this one, we look at two other companies that are dealing with the same unwanted media and government scrutiny for their work in Libya. More is likely to emerge over time and companies that have conducted business in Libya are advised to revisit the way their executives dealt with the regime.

As the Islamists and conservatives take over the reign of government, they face very difficult economic conditions. High unemployment, soaring food prices in the international market, weather conditions that are destroying crops, greater political demands from citizens forcing governments to increase their subsidies to consumption are some of the many problems facing non-creative political leaders in the region. With expanding budget deficits and worsening finances, these nations’ governments will meet increasing difficulties in meeting their citizens’ demands and that too spells trouble.

As if the take-over of conservatives is not enough trouble, the region is surrounded by an ocean of regional crises. Europe’s economic crisis is another soar point for North Africa, creating problems on at least two fronts: first is the fact that Europe is a heavy weight as an economic partner to North Africa. And when Europe sneezes, North Africa catches a bad flu. In this case, expect reduced economic activity and trade between the two regions, with the strong likelihood of also reduced European investment in the Maghreb.

The second is on the human front. All these boiling problems are having a spillover effect on human and social policies affecting millions of immigrants living in Europe. The financial crisis hurting Europe affects first the lower wage demographics, among them the North Africans living in the EU, and an anti-Islamic backlash in Europe risks creating more drama and insecurity, expanding the gap between the immigrants and the Europeans. France, which is in the middle of a heated presidential election season is reaching out to Algeria to discuss a reduction by half of Algerian residents in France. Although such reaction may be an expected knee-jerk reaction after the Mohamed Merah saga, it may be unbearable for the millions of African immigrants who selected Europe and France as their new home and shelter.

To the south of North Africa is also the long-lasting multiple crises of the Sahel region. Mali with its coup-d’états and Touareg war in the north, Niger with its famine, Nigeria with its religious divide, Guinea-Bissau with its own political meltdown, let alone the nebulous Al Qaeda and the proliferation of criminal gangs in the region. Sandwiched between a troubled southern Europe and an exploding Sahel, North Africa is itself in the limelight dealing with a multi-front crisis of its own.

Then again, as some say, it is in the middle of a crisis that opportunities knock. Not the best ending for an op-ed but consider the fact that for many companies, it is business as usual despite the crises. Many Tunisian firms, as reported here, announced healthy dividends for fiscal year 2011. That is something good considering the turmoil of 2011. More interesting for the future is the fact that many of these companies are in the process of raising capital. This is because business executives are feeling more optimistic about the future and that bodes well.

The mood in Libya is also improving ever slightly. There is still plenty of drama in that country, but with a big budget and foreign companies willing to come back, the economic machine is slowly recovering, and even in a symbolic gesture, the Tripoli Stock Exchange reopened in March 2011.

In Algeria, oil giant Sonatrach is also looking for a way forward. After many years of a multi-dimensional crisis, financial scandals, and numerous jail sentences, the company, which generates the bulk of Algeria’s foreign currency income, has a new CEO who is focused on bringing hope to the tens of thousands of employees. His role is very critical as Algeria plans to expand the scope of oil and gas in the nation’s economy. Not only to up the rate of household penetration of natural gas, but to help stimulate the rest of the economy with such industries as refining, exploration and production.

In Mauritania, small independent foreign oil companies are not hesitating to invest their resources to explore for oil and gas. And that’s good as well.

As these domestic economies and the business leaders look for bright spots toward the future, foreign investors do not remain neutral in this game. And China and India appear competing against one another in getting Africa’s attention. In this game, as we report in this issue, China is the uncontested player, but do not disregard India. Bollywood is knocking on Africa’s door and may already be in a cinema near you. But China, just like Russia does not always find the doors of new markets wide open. Beijing and Moscow’s siding against the Libyan “revolutionaries” is costing them dearly today. They are simply unable to get the attention of the current Libyan authorities because the bet on the wrong horse.

In contrast, we are now seeing the small Gulf state o f Qatar almost everywhere in North Africa. Flush with billions of dollars, the Qataris are spending money to buy influence, including within France itself to get the hearts and souls of North African immigrants.

As we release this 229th issue of The North Africa Journal, we would like to propose a special focus on the crisis in the Sahel.

- First is our view that the solution to securing the Sahel has to include the Touareg people. In fact, we argue here that they are the only ones who can bring peace and stability in the region.  Read here.

- While we see the Sahel as a  source of trouble, we often forget that there is real economic activity. My colleague Alessandro Bruno reports as to why Mali is important to the mining sector (read here) and predicts that despite a worsening security climate in the Sahel, uranium production in Niger will increase (read here).

- The talented Yasmine Wozniak tackles head on two very difficult topics, which I suspect will get a great deal of feedback. The first is about the bad agricultural policies put in place in Algeria that are hurting people’s budgets [read here], and the second concerns the irrational relations between Algeria and Morocco [follow this link].

- Redouane Benhemdi also tackles explosive topics, starting with his views on the Islamists in power in Morocco and while they are unable to solve Morocco’s economic problems, their focus recently has been on imposing cultural changes for ideological purposes [read here]. Equally difficult for Redouane as his own country, Tunisia, is facing some degress of insecurity, here he focuses on Libya, arguing as I did in favor of federalism. [Read here]

For our Premium subscribers, there is plenty to ready with nearly 90 pages of Premium Content.  Please visit the dedicated site where you can either download the PDF or read online. The address is:

http://www.north-africa.com/premium/issues/229.htm

Finally, in our Opinions site [http://www.north-africa.com/premium/opinions/], you will notice on the top right corner a link that says “Submit your Article.” Well, it is exactly what we want and that is to hear from you.

Thank you.

Arezki Daoud
daoud@north-africa.com