“Djibouti is a tiny country with a $ 1.5 billion dollar economy with over $5 billion dollars of investment coming its way. Djibouti does not have a stock market yet, so one option is to invest through US markets and gain exposure to this Horn of Africa country.”
Nestled against the Red Sea strait, a country lies strategically positioned on the Horn of Africa, at one of the world’s busiest shipping canals. Tiny Djibouti is preparing to hit the global stage in a very big way. The country has been paradoxically blessed by an adversarial relationship on its North and South borders that precluded the need for a multinational coalition of security forces preserving its stability and its prosperity. This country with a total of $1.5 billion GDP is being courted by many companies – one of which has already committed $3 billion dollars – twice the GDP of the country – into Djibouti’s economy. And there are more companies investing into infrastructure in Djibouti that creates the picture of a tiny nation with a billion and a half dollar national economy having about $6 billion of capital coming in. That is equivalent to the scenario of little Costa Rica, an economy of only $40 billion, getting $200 billion in investment coming to its shores. Or consider that one company is investing a little bit over half of Nigeria’s entire FDI for 2013. Quite a frenetic change is coming to this Horn of Africa nation, and these 4 companies traded on major exchanges will allow you to gain exposure in your investment profile.
In the interest of good investment research debate, here is contrarian investor Marc Faber’s view on Djibouti and the region in general from one of our Squawkonomics interviews:
Keith also did research work for Wikistrat regarding the outcome of what Djibouti’s economy will look like in the year 2030, and that report is available here.
#1 GCL Poly (OTCPK:GCPEF) ($0.34)
GCL Poly, traditionally known in Hong Kong investment research firms such as Kim Eng and Everbright for its polysilicon solar panels, is having the newest part of their business completely ignored by some traditional investment research firms. GCL Poly is undergoing a multi-billion dollar powerplay and it is going to transform Africa, and GCL Poly’s bottom line.
GCL Poly is currently constructing a gas pipeline, gas liquefaction plant, and a dock that will be used to unload liquefied gas. The project is taking place in both Ethiopia and Djibouti, and $3 billion of the investment is being directed towards Djibouti, with $1 billion being directed towards Ethiopia.
The company has also signed a deal with the Ministry of Energy in Djibouti, which will allow them to transport oil and gas to the port of Djibouti. GCL Poly’s total projected revenue is $3.788 billion and they are slated to clear $1 billion of gross profit for 2015. They also have a little over $1 billion in cash and short term investments, so they have the kind of coin required to make a project like this work.
GCL Poly has a streamlined plan to ink Production Sharing Agreements and Memorandum of Understandings to develop gas fields such as the Calub and Hilala gas fields in Ethiopia, and with constructed infrastructure in Djibouti to ship out the LNG, which is slated for online production by the second half of 2018.
The planned construction of an oil pipeline from the Red Sea port at Djibouti to the capital of Ethiopia is a major development that will benefit GCL Poly in the future.
GCL Poly is a well positioned company with plenty of positive developments in China, with an exciting new market it is opening up for itself in Africa.
The real sweet spot in this LNG development is that has the effect of both a Chinese state-owned firm and a US military contractor benefiting from this play. You can gain exposure to these groundbreaking developments via GCL Poly, and the next stock on the list.
#2 KBR (NYSE:KBR) ($18.86)
The Pentagon has given Kellogg Brown and Root a $56.56 million contract to provide support services to Camp Lemonnier. The work will take place in Djibouti and is expected to be completed in June of 2015. KBR operates in an extremely diverse group of industries, some of which include: public safety, air operations, housing, ground maintenance, pest control, and environmental services. The United States has already secured a ten year lease on Camp Lemonnier, but may extend the lease another twenty years. The lease agreement has been set at $63 million per year, and was originally $38 million a year.
The fact that the price of the lease has significantly increased and that the United States has responded with interest in extending its lease, shows that there is long term promise for KBR to operate successfully in Djibouti. Moreover, KBR operates as a conglomerate, and is overall a very safe investment, due to the large number of industries it operates in.
Although KBR has the potential to operate successfully in a wide variety of industries and has promising ability to continue to operate in Camp Lemonnier, there have been issues with employees that present a potential threat to their success if not resolved. Local workers went on strike in July and August of 2013, due to their discontent with KBR reducing the workforce and hiring too many foreign workers. These issues currently present a threat that could offset KBR’s financial performance in Djibouti in the short term.
KBR has a multi-generational presence in Africa, having been in such markets as Nigeria for over 60 years, and is responsible for putting in 6 LNG trains at Nigeria’s Bonny Island, making it one of the world’s largest oil and gas facilities.
In addition to the American, Japanese, French and Spanish forces stationed there, Germany and China are entering the fold, and making their interests known they too wish to have a military presence in Djibouti. This means Djibouti needs high-speed connectivity for its foreign guests and its own people more than ever. This brings us to the play that is going to truly connect Africa and bring it into the 21st century information economy.
#3 Level 3 (NYSE:LVLT) ($45.41)
American high-speed connectivity provider Level 3 has formed a contract with Djibouti Telecom, which is the sole provider of telecommunication services in Djibouti. Level 3 will provide the company with an affordable high speed IT solution, which will result in increased use of the internet in the region. This is a crucial step for Level 3 communications, as it will allow it to establish a linchpin in Djibouti and expand its operations into Africa, where there is a large unmet demand. The company also formed an acquisition deal with TW Telecom stateside, which is valued at $7.3 billion.
And Tata, conglomerate giant of India, has selected Level 3 to collaboratively assist with operations in Brazil. The two companies will work together to deliver ethernet virtual private line and dedicated internet access to offices throughout Brazil.
Regarding competition, it is slim indeed for Level 3 at the moment. AT&T (NYSE:T), one of Level 3’s largest competitors, is not making a move to develop telecommunications in Africa, allowing Level 3 to have first-movers advantage.
Level 3 has promising ability to expand into Africa to meet significant unmet demand, and investors will be able to position themselves to capture the windfalls of revenues that Level 3 will experience in the next few years.
We believe the country of Djibouti has a flurry of advantages facing it. Kenya’s port export fees are far higher than at Djibouti’s Doraleh port, and Somalia’s port due to 20+ years of strife and civil war is far less secure. Djibouti’s proximity to a thriving Addis Ababa, which needs a logistics and import and export partner to safeguard its newfound emerging middle class, has resulted in increased economic growth through its collaboration with Addis Ababa. The self-starving oil and gas nation of Ethiopia is probably the only country in the world that has had proven reserves, yet has delayed the extraction of these reserves for over 40 years. It needs a partner to ship natural resources, raw materials, and finished goods in and out of Ethiopia, and has found its partner in Djibouti. Additionally, the geothermal World Bank funded developments in Djibouti are slated to be finished to give Djibouti a shot in the arm, as its electricity costs are slated to fall over 50% from .24 cents to only .10 cents a kilowatt. Regardless of Djibouti lacking a stock market, these companies listed are effective ways to gain exposure into the growth story of this sizzling frontier nation.