Tuesday, March 24, 2015

Analyzing Unconfirmed Reports of Ethiopian Bombing of Eritrea

Alemayehu Weldemariam
Washington DC
24 March 2015

The first question that crosses one’s mind while reading reports about the bombing of Eritrea by the Ethiopia Air Force on the night of 20 March 2015 is why Asmara or Nevsun, the Canadian mining company that owns and runs Bisha mining, one of the targets of the bombing, wouldn't confirm or deny the reports?

Because it doesn't make economic and political sense to both of them to admit. For Nevsun, it's not only the stocks that are affected, but also the insurance premium. It seems to me the company has an insurance policy that contains a war exclusion clause or it has a distinct war risk insurance policy with a deductible and the damage it sustained is not substantial . In either case, publicity adversely affects its interests: it raises insurance premium while affecting the stocks in the market. So much for the legal implications. What's more, PFDJ wouldn't let it make the attack public before it makes it and it won't unless it plans to launch counter-attacks, which is tantamount to a declaration of war. Eritrea would rather keep quiet to avoid humiliation. So this I think is why Nevsun prefers to use "an act of vandalism" instead of "an act of war" as a legal euphemism.

Some question the veracity of the reports saying that whistle blowers would bring the matter to the attention the investors. But the problem is no whistle blower of importance seems to have interest in the matter unless such a whistle-blower is an investor. And it seems that investors don’t have the incentive to do that, because the corporate interest in this particular case overlaps with the investors' interest. If the company is lying, it's doing so to maintain the company's interests, its long-run business relationship with Asmara, and its business as a going concern.

What I am saying is, and I have not denied the increased risks to the investment, the company chose to hide such facts, and it did, because both states chose to keep quiet, neither to affirm nor to deny. So it is very likely that the air strikes took place, and apparently the company issued a statement claiming vandalism, while the states kept silent, which is indicative enough that the company is lying. Why lie? Because, it serves its interests and it coincidentally happened to be legitimate, precisely because Eritrea has not made any accusations against Ethiopia of any strikes in the first instance. Nor did Ethiopia claim to have done so. Therefore, under International Law, the air strike is a non-issue for all intents and purposes.

Martin Plaut muses in a tweet: “If the bombing of Eritrea by Ethiopia is confirmed it raises this question: would Addis have acted without informing Washington in advance?” I don’t want to indulge in that kind of unnecessary speculation. However, one thing seems to be increasing certain that, with or without Washington’s blessing, Ethiopia has carried out successful air strikes against selected Eritrean targets in retaliation for its failure to return the MI35 helicopter it hosted after an Ethiopian pilot decided to land it in Eritrea after hijacking. Mesfin Tekle, Canada-based financial analyst, says, “It’s not always about the price, check the volume. The stock price is not a big mover in any case, but the volume tells a story.” In fact, the volume of stocks offered for sale a day before the rumored strike was 371,448  before it jumped to 773,970 on the same day as the strike, reached 778,362, two days after the strike and is 798,109 at the moment. It can reasonably be expected to hit the record high of 800,000 at closing today. Mesfin explains, “the stock has a market cap of less than $1B so I doubt there're a lot of institutional investors who own it. The news seems to have an effect on the volume. Half a million share trades in less than 3hrs may indicate some exiting the stock early but the price has not made an appreciable move yet.”