The Economist - UK (2022-05-07)

62 Business TheEconomistMay7th 2022

Warandfood

Palmroiled

W

henvladimirputin’stanksrolled

intoUkraineinlateFebruary,crude­

oilmarketsreactedinstantlytotheuncer­

taintyand,inshortorder,tothesanctions

imposedonRussia, theworld’s second­

biggest exporterof the blackstuff. The

war’s impact on another set of crucial

oils—theediblevegetablefatssuchassun­

floweroil,ofwhichUkraineandRussiaare

theworld’stwobiggestexporters—hastak­

enlongertodigest.It isnowcausingheart­

burnfortheconsumer­goodsgiantsthat

usethembythetonnetomakeeverything

fromsnackstolipstick.

Exportsfromwar­tornUkrainehaveall

butstopped.Russiahasplacedanexport

quotaonitssunfloweroil.Worriesabout

scarcesupplieshaveledcountriesinclud­

ingEgyptandTurkeytobanexportsofed­

ibleoils.AndfromApril28thIndonesia

hasbannedexportsofpalmoil,another

widelytradedvariety.

The archipelagic country sold$18bn­

worthofthestuffabroadin2020,account­

ingforhalfofallpalm­oilexports.Sothe

movesentprices,whichhaddippedafter

the initial war­induced spike, soaring

again(seechart).Atonneofpalmoilfor

deliveryinMayistradingatover$1,700,

70%higherthantheaveragespotpricein

2021.Thisispilingmoreinflationarypres­

sure on global producers of consumer

goods—andsabotagingtheirenvironmen­

talbonafides.

Unilever,asoap­to­soupgroup,spent

$2.7bnonpalmoillastyear,around15%of

itstotalspendingoncommodities.Procter

&Gamble,a similarlysprawlinggiant,and

bigpackaged­goodsfirmslike Mondelez

andNestléareina similarpickle.Everyone

ispayingmoreforsoyabeanandotheral­

ternativeoils,too,sosubstitutingonekind

foranotherwouldbringlittlefinancialre­

lief.Investorstypicallyviewthebigcon­

sumerfirmsasbeingresilienttoeconomic

shocks.Butasinputpricesrisesomemay

bebeginningtodoubtthecompanies’abil­

itytopassontheextracoststoshoppers,

whoarebecomingfedupwithrisingbills.

Theban,whichdoesnothavea speci­

fied end date, will also complicate the

companies’effortstopresentthemselves

asenvironmentallyresponsible.Palm­oil

productionhashistoricallyoftencomeat

the expense of rainforests, which were

razed in places like Indonesia to make

room forplantations.TodayNestlésays

that90%ofthepalmoilitpurchasedin

2021 was certified as deforestation­free,

thanks to close monitoring of supply

chains, fromtheplantation to theport.

Suchcapacityhastakenyearstodevelopin

Indonesia andwill be hard to replicate

elsewhereatshortnotice.If theSwissgiant

anditsrivalshavetoresorttobuyingoils

frommoreopaqueplaces,thatcouldleave

a greasystainontheircarefullymanicured

greenreputations.n

S INGAPORE

Consumer-goodsgiantsrisk

goinghungry

Fatoftheland

Sizzling markets

Sources:S&PCapitalIQ;RefinitivDatastream;OEC

400

300

200

100

0

2019 20 21 22

Commodityprices,January1st2019=100

$ terms

Sunfloweroil

Palmoil

Restofworld

PapuaNewGuinea

Guatemala

Netherlands

Malaysia

Indonesia

20151050

Palm-oil exporters, 2020

$bn

BusinessinAfrica

Ottomanpower

S

elim borahas had quite a run. In March

his company, Summa, won a contract to

rebuild and run Guinea Bissau’s new inter­

national  airport.  Months  earlier  it  had

completed a 50,000­seat national stadium

in  Senegal,  after  less  than  18  months  of

work—a sprint­like pace for such projects.

The company’s résumé also includes con­

vention centres in the Democratic Repub­

lic  of  Congo  and  Equatorial  Guinea,  a

sports  arena  in  Rwanda,  and  airports  in

Niger, Senegal and Sierra Leone. “Ten years

ago we had no projects in Africa outside of

Libya,”  recalls  Mr  Bora,  taking  in  the  view

from his office in Istanbul. “Today 99% of

our work is in Africa.”

Turkey’s  construction  industry  is  an

international  heavyweight.  Of  the  world’s

250 biggest contractors, 40 are Turkish, be­

hind  only  China  and  America.  Many  have

long had a big footprint in north Africa. Of

late they have begun making inroads in the

continent’s south. Last year alone the value

of projects undertaken by Turkish builders

in sub­Saharan Africa was $5bn, or 17% of

all  Turkish  building  projects  abroad,  up

from a paltry 0.3% before 2008. The region

has overtaken Europe (10%) and the Middle

East (13%), and is second only to countries

of the former Soviet Union. In parts of Afri­

ca Turks are even giving Chinese builders,

which continue to dominate construction

in Africa, a run for their money. 

Many of the Turkish construction firms

got their African start in Libya in the 2000s,

where they locked up billions of dollars in

contracts.  The  toppling  of  the  country’s

dictator,  Muammar  Qaddafi,  in  2011  and

the  ensuing  civil  war  forced  them  to  flee.

They found new opportunities south of the

Sahara,  where  their  reputation  regularly

preceded them: many African leaders who

had visited Libya and admired Turkish pro­

jects  there  were  eager  to  work  with  the

companies responsible for them. 

Some  assistance  for  Turkish  projects

comes  from  Turkey’s  export­credit  bank

and public lenders from Japan. Both coun­

tries  are,  for  their  own  strategic  reasons,

keen  to  check  Chinese  interests  in  Afri­

ca.  Still,  the  Turks  concede  that  they  can

rarely  compete  with  Chinese  rivals  on

price.  “We  cannot  match  the  Chinese,  be­

cause they come in with their own financ­

ing and we have to go to the markets,” says

Basar  Arioglu,  chairman  of  Yapi  Merkezi,

another big construction firm. 

The Turkish firms are therefore stress­

I STANBUL

Turkish builders are taking on the

Chinese south of the Sahara