For centuries, Europeans were the masters of countries in Africa, Asia and the Americas. Countries including Great Britain, Spain, Portugal and France all played their part in colonialism. They split the continent at their whim and exploited copious resources for domestic needs.
After years of suppression many colonies have gained independence. When the European sovereign debt crisis hit some of the EU members were compelled to take actions previously inconceivable – namely, to seek help from their former vassals.
Portugal & Angola
Portugal’s failure to find a way out of its financial crisis has forced it to revert to drastic measures; the once highly commercial, colonial power had to swallow its pride and ask ex-vassal Angola for a bailout. Angola’s President Jose Eduardo Dos Santos told Portuguese Prime Minister Pedro Passos Coelho during a state visit at the end of December that Angola is prepared to help Portugal cope with its financial crisis. But he said solutions must be advantageous for both countries and be “in a spirit of solidarity and mutual help.” Figures published by the Portuguese Institute of International Relations and Security showed that investments by Angolan authorities in Portugal rose from $2m in 2002 to $156m by 2009.
Angola’s extraordinary image makeover from a war-torn southern African nation to a burgeoning global oil authority has been remarkable. Angola has become Africa’s second largest oil producer after Nigeria. And it seems it is now prepared to invest its budding petrodollars in Portugal to help it meet privatisation obligations ordered by the IMF under its €80bn bailout. The country’s state-owned oil giant, Sonangol, which effectively serves as its sovereign wealth fund, is so powerful that shares in Lisbon’s largest private bank, Millennium, soared 37 percent in December on an unverified report that Sonangol intended to increase its stake.
Angolan companies, the majority of which are state-tied, have already invested extensively in Portugal and have bought large shares in oil company Galp, banks Millennium BCP and Banco BPI and cable operator Zon. It is estimated that Angolan investors own around 3.8 percent of the telecoms, banking and energy businesses in Portugal’s stock exchange, which makes them the country’s biggest non-European investor. In comparison, Portugal has seen unemployment levels rise to over 12 percent while its GDP dropped by 0.4 percent in the last quarter. Analysts even speculate that Portugal’s economy will contract by 2.8 percent in 2012, while resource-rich Angola’s will grow by 12 percent.
But life has not always been rosy for Angolans. The country gained independence in 1975, following 500 years of Portuguese control, and almost 15 years of armed struggle between the Angolan nationalist movement and Portuguese colonisers. Yet, since going their separate ways, the two countries have enjoyed uncommonly strong links, with around 7,000 Portuguese companies operating in Angola and over 100,000 expatriates working in key sectors such as oil, banking and construction. Trade relations between the two nations have also been healthy, with Portuguese exports to Angola totalling over €1.9bn by the end of last year. Angola is in fact Lisbon’s fifth-biggest export destination currently.
It remains to be seen how Eduardo dos Santos will help kick start the economy of his former colonialists. Speculators believe the most direct route would be for his country to partake in Portugal’s privatisation programme, which includes the off-loading of state holdings in grid operator Redes Energeticas Nacionais, utility group Energias De Portugal, airline TAP, and further shares in Galp. But one thing is certain; thanks to its former colonial masters this will provide the African nation a great chance to boost its foreign investments and prestige at a bargain price.
Spain & Chile
Spain finds itself in a similarly desperate position as its neighbour Portugal. But the fundamentals that will mark Spain’s new political and economic association with Chile are different. Its future will depend on whether Spain can demonstrate to Chile that it is still worth doing business with. This is particularly due to China’s emergence as a key commercial investor and the effect of the ongoing sovereign debt crisis in Spain. The relationship between the two countries has reached a crucial juncture following Spain’s change of government. José Zapatero’s socialist party was defeated in November by Mariano Rayoy’s more conservative People’s Party, paving the way for new diplomacy. Rayoy, who is due to visit Chile for the EU-Latin America and Caribbean Summit in the spring, will likely remind the Chileans of their bond to Spain with regards to culture, language and heritage.
Spain’s economic status has suffered a battering from credit agencies, which continue to predict a negative outlook ahead. Because of this, Spain will now have to rely more heavily on political diplomacy to convince Chile that a business partnership is still beneficial to both. In some respects it is. Chile, a growing force in renewable energy for instance, can benefit immensely from Spain’s expertise in the field. In return, Spanish companies are encouraged to invest, which will be advantageous to both nations. The same can be observed in other sectors, including finance and transportation.
Spanish companies realised early on that Latin America represents an incredible opportunity for growth and entered the market at a phenomenal rate during the 1980s and ‘90s. In Chile this was particularly evident in the transportation, tourism, finance and telecoms sectors. The move proved a highly lucrative one as the latest financial data from Spanish multinationals reveals profits in Chile and other parts of Latin America, and losses at home and in Europe. In telecoms specifically, Telefónica de España affiliate, Telefónica Internacional, has been one of the most aggressive companies. The group invested in the national phone companies of Chile and other Latin American nations, and now derives over 90 percent of its income from those operations.
A serious role reversal can also be observed in the migration patterns of the two countries. For many decades Spain was an attractive employment hub for poorer immigrants from its former colonies. Now, the one-time empire builders are witnessing legions of their frustrated home grown talents head to old dominions in pursuit of a better life. Chile, a country that has maintained close cultural and commercial ties with Spain, has drawn people in with its liberal residency requirements, low income tax, and economic rewards.
Spanish as the common language makes Chile the perfect hub for Spain’s first time job seekers and aspiring students. Chile is not unfamiliar business territory for the Spaniards thanks to mutual partnerships and associations. Mergers and acquisitions, joint ventures, and strategic plans have long replaced the sword and the cross. But it is clear that Spain once more regards its former colony as a potential source of wealth. Rayoy will now try to win Chile over by selling the idea that economic cooperation will lead to greater prosperity for Chile. It remains to be seen, however, if he will be more convincing than the Chinese.
Britain & India
India, once considered the jewel in the British crown, has come a long way since its days as a British colony. Similar to its European counterparts, Britain has gone from coloniser to underdog in less than 65 years. India achieved independence in August 1947 and has become one of the most exciting prospects in the Commonwealth – a fact that has not escaped the British. In light of this, the British have done well to play on the strong historic links between the two nations which has helped it maintain ongoing trade relations.
Once considered an underdeveloped country, India today provides the second largest labour force on the globe, a GDP of around $4trn, and has a vast number of Britons of Indian descents residing in the UK. Conveniently for their former colonisers, India remains a vital ally on all fronts, and the scope of development between the two nations is endless. It was just over 200 years ago that the rise of the cotton trade in the mills of Manchester and the port of Liverpool spelled the end for the Indian textile industry.
But things have changed since that era. Nowadays, and to the surprise of many, Indian companies essentially own large chunks of Britain’s old industrial north-west. For instance, India’s conglomerate Essar Energy purchased the Stanlow oil refinery near Halewood in 2011 for $350m, while Tata Chemicals made the 138-year-old Brunner Mond Group its largest overseas subsidiary in 2006. But it is not restricted to trade; founder member of the English football league Blackburn Rovers is owned by VH Group, an Indian poultry company.
Another sign of India’s growing economic muscle and the power shift became obvious in 2008 when India’s Tata Motors bought the once prestigious British automaker Jaguar Land Rover for a mere third of the original price. But India does not plan to stop there. At the end of 2011, around 20 Indian corporations, mainly from the energy, infrastructure and financial sectors, announced plans to set up base in Jersey – an area which already has an increased Indian presence.
Britain welcomes these oversees ventures which seem to have become part of a larger shopping spree by emerging market corporations. According to a recent World Bank report India’s share of cross border M&A’s climbed to 17 percent in the seven years to 2010, up from just four percent in the previous seven years. But despite these figures and several bilateral interactions, Britain is no longer India’s leading trading partner. China yet again has put a spanner in the works, having raced past the US, Japan and Britain to become India’s key nation for trade. Britain has a mammoth task on its hands trying to work its way back up to the top spot and the window of opportunity may well be closing rapidly, as India realises that, at least for now, they are holding all the cards.
France & Algeria
Over the past few months, there has been much talk regarding French plans to invest in Algeria. Investments are likely to include ventures from world-renowned companies including Lafarge, Renault and Total. France is hoping to build a cement plant in eastern Algeria with a capacity of two million tonnes per year and a total investment of €360m. Only in December a delegation of French business leaders consisting of around 60 CEOs visited Algeria to try tapping further into the market. It seems business leaders are tired of waiting for their politicians to resolve the country’s differences.
These projects will take place in spite of ongoing political divergences between the two nations. Their dealings have shown time and again that of all the historic relations with former vassals, the Franco-Algerian connection is one of the most politically and emotionally charged. Most blame this on Algeria’s invasion by the French in 1830, a long-lasting battle that led to violence among the indigenous population. The authorities of both countries have not been able to see beyond the shadows of history, which began with 130 years of French rule and came full circle with the war of liberation and Algeria’s independence in 1962.
Notwithstanding, France remains Algeria’s leading supplie, but its market share reached only 15.7 percent at the end of last year, compared to around 30 percent some 20 years ago. The French will thus have to try to strengthen and diversify cooperation through political diplomacy and dialogue; something they may well find tricky. There have been numerous attempts to change relations. Algeria’s President Abdelaziz Bouteflika once famously declared: “Algeria seeks to have extraordinary, non trivial, but exemplary and exceptional relations with France.” On the French side, former French President Jacques Chirac attempted to get affairs back on track in 2005 with a common historic treaty of friendship, but they failed to complete at the last hurdle.
In spite of several endeavours and a persistent readiness to connect, associations have remained somewhat strained. It will be interesting to see if France’s business leaders will now bring the harmony needed to rekindle trade relations with its former colony.
Britain & Hong Kong
Hong Kong, once the home to farmers and local fisherman, is today a buzzing and commercially aware metropolis where western influences meet old Chinese traditions.
The ex-British outpost, which became a special administrative region of China when Britain’s 99-year lease of the New Territories expired in 1997, has become a key banking and corporate centre and a conduit for China’s burgeoning exports.
What’s more, Hong Kong’s distinctive role as the only offshore centre for trading in the Renminbi, mainland China’s currency, will only boost its importance as a financial partner for its former colonial masters. This is an opportunity that has already been recognised by foreign companies including Russian bank VTB, which raised money in China by issuing RMB bonds in Hong Kong, and US corporations McDonalds and Caterpillar; competition that will force the British to work harder on their relationship with its former colony.
Hong Kong has turned into a gold mine in less than 15 years – all the more a reason for the British to keep alive their long-standing historical links with their former vassal. Given the enormous opportunities brought about by the global financial shift from West to East; Hong Kong is now truly competing with the big boys. Not only has it evolved to become a premier international financial centre since its reunification with China, it has also moved away from manufacturing. Gone are the grandeur days of “Made in Hong Kong.”
As well as being a major market in its own right, Hong Kong is also a phenomenal trading gateway to mainland China. Its business friendly environment, straightforward, low tax structure, and its linguistic links to both Britain and China are all advantages to UK corporations. Henceforth, UK companies will also profit from the free trade agreement Hong Kong has in place with China. The Closer Economic Partnership Arrangement (CEPA) allows products of Hong Kong origin to receive tariff-free treatment in mainland China, while Hong Kong service suppliers can enter into the mainland market in a range of service areas.
The beauty of CEPA is that it is nationality-blind, which means, by setting up an operation in Hong Kong, a British enterprise can utilise the city as its platform to enter the infinite Chinese market. Hong Kong with its strong entrepreneurial ethos and a thorough comprehension of both Eastern and Western business cultures may well be the answer to David Cameron’s pledge to double bilateral trade with China by 2015.