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Djibouti: Small country, big stakes

By Eromo Egbejule in Djibouti
Posted on Tuesday, 21 August 2018 15:35

It is one of the most significant attempts to open up the Red Sea since 1250 BC, when Moses allegedly parted the waters to help the fleeing Israelites. Three new ports opened last year in the tiny country of Djibouti and another one is on the way. In May 2017, the Doraleh Multi-purpose Port, with a capacity to handle as much as 8m tonnes annually, including container traffic and bulk cargo, was launched. Doraleh’s bulk terminal can handle 2m tonnes of cargo a year, with space for 100,000tn of fertiliser, 100,000tn of grain, and warehouses for other goods. Already, heavy ships are docking, with thousands of containers unloaded onto feeder ships from Mombasa and other smaller ports in East Africa.

Then, in June, the $64m port of Ghoubet and the $90m port of Tadjourah – with the capacity to export more than 5m tonnes of salt per year from Lake Assal and 4m tonnes of potash respectively, were launched. They are part of an ambitious programme funded with loans from China and Middle East countries to establish what has been termed ‘Africa’s largest free-trade zone’. It will handle a projected $7bn of goods annually and tie in the large-scale manufacturing zones opening in East Africa to Asian economies.

An important element is the Chinese-financed, 754km long Addis Ababa-Djibouti standard-gauge electric railway line that opened to the public in January 2018 (see page 87). The new rail replaces the old one built in 1917. With a capacity to haul 3,500tn, it connects landlocked Ethiopia and its 95 million citizens to its smaller neighbour, which sits strategically at the entrance to the Red Sea on the route to the Suez Canal.

All these logistics investments fall into a wider strategic jigsaw: Beijing’s One Belt, One Road initiative unveiled in 2013, which intends to link 60 countries across three continents and effectively connect the world’s most populous country to the world. In East Africa, Djibouti, a gateway to Asia and the Middle East, is crucial to China’s grand blueprint – a conscious echo of the historic Silk Road trade route.

Banks and banners

And it is more than just an echo. In January 2017, a branch of the Silkroad International Bank opened its doors in the capital, Djibouti. The Export-Import Bank of China is setting up shop too, with its headquarters under construction nearby. On the streets, some of the public buses already bear Chinese inscriptions, just like the coloured flags on the dusty footpath leading up to the Nagad train station.

Aboubaker Omar Hadi, chairman of the Djibouti Ports and Free Zones Authority (DPFZA), tells The Africa Report: “We sit on two of the world’s busiest maritime trade routes […]. With 90% of global trade being carried by sea, our location makes us the gateway between Africa and the world. Djibouti has the potential to be the access point to the global economy for up to 13 landlocked African countries. All of this means that Djibouti is at the forefront of the rapid growth which we are experiencing in the East African region. In particular, we are supporting Africa’s fastest-growing economy, with over 90% of Ethiopia’s goods transiting through our country.”

Funding for three of the new seaports, along with the new airports and railway, comes from Chinese loans. In nearby Ethiopia, China Civil Engineering Construction Corporation is building a new airport terminal. Djibouti-China cooperation also includes a naval base on which China holds a 10-year lease at a cost of $20m annually. This allows Beijing to project power outside of Asia.

However, another case shows that this could become a bone of contention if Djibouti is unable to repay its loans. Sri Lanka gave China a 99-year lease to the strategic southern port of Hambantota, after Colombo failed to pay down a loan of $8bn in December 2017. The South Asian country also granted numerous tax concessions to big Chinese multinationals, a path that Djibouti seems to be treading as well.

Some analysts point to the transformative nature of Djibouti’s China-backed projects. The rail line could one day be part of a trans-continental network reaching all the way to the Gulf of Guinea, in West Africa, connecting the Red Sea to the Atlantic Ocean.

Meanwhile, Djibouti is getting on with it. In Ali Sabieh, the second biggest city, the first of two new airports being built at a combined price tag of $599m is nearing completion. There is also a liquefied natural gas terminal that is due to be operational in 2019.

To accelerate commerce, businessmen and tourists can apply for visas on arrival, a process that will soon become electronic. “We are opening up our country to anyone willing to visit for good reasons,” says Osman Abdi Mohammed, managing director of the Djibouti national tourist office. “We have seen a more than 14% increase in the number of tourists coming since 2016, and to achieve our stated goal we are working to improve hotel logistics, transport, marketing and diversification,” adds Mohammed.

Investment brings growth

Cumulatively, these strategic moves are helping Djibouti to achieve Vision 2035, its grand strategic plan to triple per capita income by the year 2035, as well as create more than 200,000 new jobs. Unemployment and poverty remain big challenges for the economy. But, according to the African Development Bank’s ‘African Economic Outlook for 2018’, “[Its] economic growth has exceeded 5% in recent years, reached an estimated 6.8% in 2017, and is projected to be 6.9% in 2018 and 2019.” A similar economic outlook from the World Bank in October 2017 predicted 7% growth for the economy as a result of the recent major investments. However, there is still a lot to be done in terms of reforms to make Djibouti attractive for investors. The country ranked 154th out of 190 countries in the World Bank’s 2018 Doing Business survey.

The capital city is dusty and hot, with temperatures sometimes reaching 42°C in February. Across the city, Yemeni refugees forge a living in the country after fleeing a protracted civil war at home. In downtown Djibouti, new electronics stores and mini-marts are opening up to accommodate rising demand from the foreigners and returning citizens who have schooled and worked in the diaspora. Opposite the presidential office, the country’s first mall – funded by the United Arab Emirates – has just opened.

“We don’t care if it is China or Ethiopia helping us”, says Ali Farah, owner of a hardware store in downtown Djibouti, while chewing on qat, a popular local drug. “Things are so expensive in this country that we want progress, from anywhere. I import everything from Ethiopia and France. It’s not good”

Nearby, taxi drivers jostle over two foreigners, happy for the influx of visitors into their country. “We see new people every time”, one of them, Said Ali Said, tells The Africa Report. “They pay well. I carry Chinese, I carry black brothers like you and I carry the French. Money don’t discriminate.” Said also moonlights as a tourist guide in the capital city and Ali Sabieh.

China is not alone in courting Ethiopia and the wider region. Turkey signed an accord in 2002 to use Djibouti’s ports to trade with Ethiopia. And companies from the United Arab Emirates were involved in the Doraleh container port and the Bawadi Mall.

Turkey’s President Recep Erdogan recently stressed that Djibouti is the gateway to the African continent and Ankara would maximise the opportunity to use it. Erdogan even suggested that Djibouti’s free trade zone should be further extended to 5,000ha. Turkey’s ambassador to Djibouti, Sadi Altinok, also mentioned plans for a Turkish economic zone close to Doraleh multipurpose port.

Debt concerns

Navigating the geopolitical and economic challenges that come with increased foreign interest are a big test for the government. For some, the outstretched hand of China’s President Xi Jinping brings the threat of unsustainable debt and undue pressure. Currently, Djibouti’s indebtedness to China represents more than 60% of its national debt. The DPFZA’s Hadi brushes away such concerns and insists that the debt is sustainable: “We are confident about the sustainability of these loans. Our multipurpose port is working at full capacity and the demand for our infrastructure keeps increasing. This proves that our investment strategy is already paying off […]. Most importantly, these are investments for the future generations of Djibouti.”

Suggestions of ulterior motives from the the eastern superpower seem to have angered a number of people in President Ismaïl Guelleh’s cabinet, including foreign affairs minister Mahmoud Ali Youssouf. “Other countries have turned their backs on us when China agreed to help us,” he told media last September, defending the alliance. “We did not reach out to the devil but seized an opportunity.”

This article first appeared in the April 2018 print edition of The Africa Report magazine

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