Dubai port operator keeps adding pieces to empire


DORALEH, Djibouti (AP) - The hulking, modern cargo port unveiled here over the weekend with song and dance honoring Djibouti's Somali and Afar heritage looks out of place in such a hardscrabble landscape.

Camels and goats graze on surrounding scrubland. A sign at the port's entrance warns visitors that their stash of the intoxicating plant qat, a popular afternoon chew, is not welcome inside.

Barefoot children play in dusty shanty towns that line the road from the nearby capital.

Yet from the viewpoint of Dubai-controlled port operator DP World, the site for its latest project - number 49, by its count - could hardly be better, even as it grapples with the effects of the global financial crisis.

Executives point out that Djibouti overlooks the mouth of the Red Sea - the shortest route, via the Suez Canal, between Europe and Asia.

It is also poised, they say, to capture growing traffic up and down the African coast, and has a ready-made market in landlocked neighbor Ethiopia, sub-Sahara Africa's second most populous country.

The added security - and business - provided by U.S. and French military bases in the country only adds to the appeal.

"A lot of economies around the world are mature, so the growth potential is small," DP World Chairman Sultan Ahmed bin Sulayem explained.

"This place - whether it's Djibouti or it's Nigeria, or any part of Africa - still they have growth potential. ... And we wanted to be ahead of everybody."

The $300 million Doraleh Container Terminal, a joint venture with the Djibouti government, is the latest outpost in an empire DP World is amassing as it pushes deeper into what it hopes will be the growth markets of the future.

Key to those plans are the emerging economies of South Asia, the Middle East and Africa.

But with global trade drying up and its hometown reeling from the financial crisis, even company officials acknowledge they may need to slow their expansion and cut expenses.

"We are looking at each and every project ... to see where can we save costs," Chief Executive Mohammed Sharaf said.

"We know that the need (for new port projects) is going to be there, but it may take a little bit longer than anybody thought."

For many in the West, the term "Dubai Ports" - from which DP World takes its name - meant nothing before 2006. That is when a political firestorm broke out in the U.S. over the company's planned oversight of American cargo terminals.

The experience eventually led DP World to back away from the U.S. market.

Even so, the company has managed to claw its way into fourth place in the cargo terminal business - well ahead of its nearest competitor.

Its holdings now touch six continents, from Sydney to Vancouver, British Columbia.

"They are in the premier league," said Neil Davidson, director of ports research at Drewry Shipping Consultants in London.

"They're a big player and a serious player." Dubai, one of seven semiautonomous states that make up the United Arab Emirates on the Persian Gulf, began its overseas expansion into the port business only a decade ago.

Before that, Dubai's interest in shipping was limited to the emirate's two man-made harbors: the downtown Port Rashid and the far larger Jebel Ali, now a sprawling free-trade city within a city hugging the coastal highway to Abu Dhabi.

The growth of Dubai's hometown ports has tracked the explosive mushrooming of the city-state itself.

Anwar Wajdi, senior vice president for corporate strategy for DP World, recalled the milestone Dubai celebrated in 1991 when its two ports first handled the equivalent of 1 million standard 20-foot shipping containers per year.

Today, he noted, the city's Jebel Ali port alone handles nearly that many containers each month.

By 2003, Dubai's international port operator had added its first operations in Djibouti, India and Romania.

Two years later, the company - which would eventually be combined with a local port authority to form what is now known as DP World - plunged into the booming Far East market with its $1.14 billion acquisition of Jacksonville, Florida-based railroad operator CSX Corp.'s international cargo terminal business.

The deal gave Dubai its first access to China - coveted both as the world's dominant export market as well as a fast-growing import destination - and added ports in Australia, Germany, the Dominican Republic and Venezuela.

In 2006, DP World beat out Singapore's PSA International Ltd. to acquire the U.K.'s Peninsular and Oriental Steam Navigation Co. As the deal neared completion, some U.S. lawmakers and commentators raised concerns about handing over American port operations to the Dubai-based company.

Critics' objections stemmed partly from fears that a company linked to an Arab country where some of the 9-11 hijackers came from might offer an inroad for terrorists.

The concerns came despite the fact that the Bush administration had signed off on the deal, noting that the UAE is an important U.S. ally in the Middle East.

U.S. Navy ships frequently dock at the company's ports.

To silence the criticism, DP World eventually sold off P&O's U.S. assets to a unit of American International Group Inc. Executives quietly say the decision not to enter the U.S. market may have been a blessing in disguise, at least for now, by allowing the company to avoid the effects of the economic downturn there.

Still, DP World faces tough times ahead.

Because it sits at the heart of global trade flows, the company is likely to be hit hard by the economic slowdown.

"Now with what is happening globally, we are ... facing challenges everywhere," Wajdi said.

The International Monetary Fund recently predicted that the global economy would grow by only a half percent this year, its slowest rate since World War II.

World trade volumes are expected to decline by 2.8 percent.

That slowdown is sure to hurt container shipments, the biggest part of DP World's business.

Drewry, the shipping consultancy, predicted in December the container industry would grow by about 3 percent this year, its slowest rate ever.

But Davidson said even those numbers now may be optimistic.

Even so, DP World remains hopeful.

The company is planning to complete the expansion of one of its terminals in Dubai by the end of the month.

A new port in Vietnam's Ho Chi Minh City is due to open later this year. Nearly a dozen other projects are in the pipeline.

"We are in growth mode. And it's a business we believe is going to continue to grow," Sharaf said.

"The world economy is not going to just shut down. It's slowing down a little bit."

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