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Algerian hostage crisis underscored high risk in tapping region's wealth of gas, oil deposits

Firms put N. Africa projects on hold

Kyodo

North African countries have been a magnet for Western and Japanese businesses thanks to sizeable gas and oil deposits, proximity to the European market and the potential of their internal markets driven by young, growing populations.

Some firms, however, are re-evaluating the benefits versus the risks, highlighted by the deadly hostage crisis last month in Algeria involving dozens of foreigners, including several Japanese.

Political instability and civil strife since the Arab Spring movement for democracy that started in 2011 have forced a number of Japanese firms to shut down factories or pull out altogether.

“The situation in Egypt is still unstable. We are considering selling our concessions,” an executive of the holding company of Arabian Oil Co. said at a news conference in December, effectively admitting the Japanese company is withdrawing from the country.

A pioneer in oil development, Arabian Oil has been hit by sluggish business since losing its stake in projects in Saudi Arabia and other countries in the 2000s.

“It has become difficult to start production due to political and economic turmoil,” an official with the company said.

North African countries such as Libya and Algeria have rich deposits of natural resources in their desert regions. With high proportions of young workers, they have attracted a growing number of Western companies seeking to establish production bases to supply European markets.

Economies in the Middle East and North Africa grew more than 5 percent in inflation-adjusted terms from a year-earlier level between 2003 and 2008.

Japanese firms have been undertaking major projects in Algeria since around 2006, including construction of highways and liquefied natural gas plants, the Japan External Trade Organization said.

Unlike China, a market fairly well tapped by Japanese companies and close to Japan, African countries “are rich in natural resources and have potential for growth as a market,” a trading house official said.

But given political instability and the long distance from Japan, even big businesses think long and hard about whether to extend into Africa.

In January 2011, Tunisians frustrated by high unemployment and authoritarian rule took to the streets and toppled the government. It set off a series of intensified strikes and riots. Yazaki Corp. had been manufacturing wire harnesses for cars in Gafsa in the central part of the country. Late that November, it halted the factory for months.

In Libya, Sekisui Chemical Co. had been planning to design and build a factory for resin water pipes and other products since 2009. After civil strife between the Moammar Gadhafi government and rebels in 2011, the company decided to pull out.

Before the hostage drama, Algeria had long been seen as a relatively stable country, though some expressed concern about an influx of militants from strife-torn Libya. JGC Corp., whose employees were killed in the hostage crisis, has been designing and building various plants in the Middle East, Southeast Asia and Africa. In the year that ended last March, African projects generated ¥44.3 billion in revenue, or 8 percent of its consolidated sales.

While there may be business opportunities, assessing political risks in the region remains a challenge. “The situation in North Africa often changes abruptly,” a Foreign Ministry official said.

The ministry began advising evacuation from Algeria late last year, while warning about the threat near its border with Mali. It cited possible acts of terrorism as a result of an influx of militants and even anticipated a major operation by security forces.

The hostage crisis came half a month later.