Risk Assessment | Alaco
Investors have struggled to make headway in resource-rich Mongolia
obtained them in accordance with the law; others have no business whatsoever holding themselves out as potential partners. But they do, and it is no easy task working out which is which. Add in an election in 2016, some succession issues surrounding the President and the uneven rule of law and you have a potentially rewarding business environment massively complicated by circumstances that are unique to Uganda. We continue to monitor developments.
of the tenders, regardless of the merits of their bids. One European member of a successful consortium has found itself at the centre of major controversy when initial environmental concerns sparked wider scrutiny of the bidding process. Tenders for remaining sections of motorway are still being held; foreign bidders should exercise caution.
In Poland, the outlook has been more positive. A political football since the concession was first awarded in 1997, the highway project was very publicly smeared by various politicians with allegations of corruption in order to discredit their political opponents and the business elites associated with them. This had serious ramifications for the international firms involved in consortia bidding for the project. But as we explored the detail, and spoke to political analysts, journalists, civil servants and civil engineers associated with the project, it became clear that despite the regular political point scoring, the underlying integrity of the project was robust and unlikely to be the cause of any material reputational damage long-term, whichever party was in charge. Politics is clearly always a risk. Regime change across the Arab world, or in Ukraine, shuffles the deck and brings in a new cadre of ministers, each with their own advisers and vested interests. Even subtle changes in the political
landscape can have significant effects on foreign direct investment. Turkey’s $5 billion Public Private Partnership (PPP) healthcare programme, long touted as a national success story, saw the construction of numerous hospitals across the country. The rapid development of the healthcare sector went hand in hand with the growth of the economy, creating a virtuous circle that led observers to overlook the extent to which contracts were awarded to supporters of the ruling AK Party. A nascent opposition has turned the spotlight on some of the PPP contracts, a scenario largely unthinkable even a year ago. Fortunately, we had made it pretty clear to our client who their prospective local partners were and they had opted not to engage. Companies considering infrastructure projects in the mining or energy sectors must be prepared to deal with a whole host of other risk factors. In Uganda, for example, international mining companies are still struggling fully to understand the minutia of the 2003 Mining Act. The Act effectively made it illegal for foreign companies or individuals to own mineral rights. The legislators’ intention was to encourage overseas investors to partner with local companies in order to exploit Uganda’s rich natural resources. But selection of a local partner is a fraught process: some have the licences they say they have and
60 GLOBAL OPPORTUNITY 2014 | ISSUE 01
A similar picture has emerged across the globe in resource-rich Mongolia, where investors who flocked to the country several years ago, hoping to reap the benefits of the projected economic boom, have instead encountered a series of frustrating developments, from overnight revocations of mining licences to unfavourable amendments to the legislation on foreign direct investment. In the turbulent election year of 2012, some foreign companies left Mongolia altogether. Others were ejected. Those who stayed continue to struggle to find a common language with the government. We visit Ulaanbaatar regularly to keep channels of communication open. Whatever the question, the only way to make an informed decision is to combine detailed insight on the ground with an overview of the commercial and political forces at work, and an ever changing cast of characters. All of these cases required a combination of meticulous desk-based research and in-country investigation first to identify, then investigate and finally reach a judgement on the relevant issues. Each case Alaco undertakes is unique. However, the issues at stake can be remarkably similar. Can the risks inherent in a project be identified, understood and managed? If the right mix of resources and talent are brought to bear, we believe they can.
GO
FURTHER INFORMATION Oliver Gorton is a Director of Alaco Ltd, a leading business intelligence firm. Alaco investigates prospective business partners in established and emerging markets globally. Tel: +44 207 529 1280 Email:
ogorton@alaco.com www.alaco.com
global-opportunity.co.uk
RISK ASSESSMENT
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ALACO
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