Monday March 12, 2018

When Djibouti makes international headlines, it is usually in connection with the many superpowers that have built military bases on its shore. France, the United States, China, Italy and Japan all have a major military presence in the tiny East African nation. But for Djibouti’s government, there is another major power that is even more important: Ethiopia.

It is difficult to overstate just how dependent Djibouti’s economy is on its much larger neighbour. There is almost no fresh water in Djibouti, so it must import water from Ethiopia. Most of its electricity comes from Ethiopia too. Little grows in Djibouti’s arid desert landscape, so fresh fruits, vegetables and grains are trucked across the Ethiopian border every day.

Economically, by far Djibouti’s most valuable assets are its ports. But these too are almost entirely reliant on a healthy trading relationship with Ethiopia, which, being landlocked, requires an outlet to the sea.

More than a century ago, when the old Port of Djibouti was built by the French colonisers, it was connected with a railway that linked Addis Ababa to Djibouti City. Given the size differences of the two countries – today Ethiopia’s population is more than 100 million, while Djibouti’s is less than 1 million – the port was never about trade with Djibouti, but trade with Ethiopia. It is no coincidence that today, the new Doraleh Container Terminal is the end of the line for the new Chinese-built Addis-Djibouti standard gauge railway.

If trade from Ethiopia dries up, ships will no longer be queuing at sea for their turn to dock at these ports. This is significant because there are two separate situations that threaten the trading relationship between Ethiopia and Djibouti. The first is the brewing political crisis in Ethiopia.

In February, Prime Minister Hailemariam Desalegn unexpectedly submitted his resignation. Immediately, the ruling party declared a state of emergency, which was recently ratified by Parliament. Despite this, the widespread anti-government protests continue, especially in the Oromia region which surrounds the capital Addis Ababa, as well as in Amhara Region. At the same time, a power vacuum within the ruling coalition has created uncertainty about Ethiopia’s political future, prompting fears of further instability. A new prime minister is expected to be announced soon.

This is potentially very bad news for Djibouti. Any disruption to Ethiopia’s economy will have a knock-on effect on Djibouti, while a political crisis may precipitate a humanitarian emergency that would result in an increase of refugees across the border. Although Djibouti has recently reformed its refugee laws, earning praise from the United Nations Refugee Agency, it remains ill-equipped to deal with a major refugee influx.

Ethiopia is considered an anchor in the Horn of Africa, so any disruption will have knock-on effects. ‘Unrest in Ethiopia has serious implications for regional stability,’ says Emily Estelle, a senior analyst for the Critical Threats Project at the American Enterprise Institute.

The second situation of some concern to Djibouti’s government is Ethiopia’s recent acquisition of a 19% stake in the Port of Berbera in neighbouring Somaliland. Berbera is positioning itself as a rival to Djibouti, and is clearly making a major play to handle more Ethiopian freight. Somaliland is also in the process of building the Berbera trade corridor, which will eventually link Berbera to Addis Ababa by road.

Historically, one of Djibouti’s strategic advantages has been its stability. In an inherently unstable part of the world – its other neighbours include Eritrea, Somalia and Yemen – Djibouti represents a relatively low-risk investment destination. But Somaliland is providing competition on this front.

The self-declared republic operates entirely independently of Somalia proper, even though this independence is not formally recognised by anyone else. Nonetheless, Somaliland has successfully established a peaceful democracy marked by regular transitions of power – in marked contrast to President Ismaïl Omar Guelleh’s long rule in Djibouti (19 years and counting).

Therefore Somaliland too is becoming an attractive investment destination on the coast of the Horn of Africa – and Ethiopia, in acquiring its Berbera stake, clearly agrees. What does this mean for Djibouti? Will Ethiopia incentivise local freight traffic to run through the port in which it retains a financial interest? Or is there enough cargo to go around?

That’s the view of port operator DP World’s chairman and CEO Sultan Ahmed bin Sulayem. ‘I am so excited about the prospects of working with the Ethiopian government. Ethiopia is home to approximately 110 million people. The ports of Berbera and Doraleh will provide significant capacity to the region. Both these ports and more capacity will be needed to serve the region’s growth potential in the future,’ he said.

Sulayem’s comments came even after DP World suffered a dramatic setback in Djibouti. Until recently, DP World operated both the Berbera port and the Doraleh Container Terminal in Djibouti. But in February the Djibouti government unilaterally cancelled the DP World contract and seized its stake in the port, claiming that DP World had obtained the contract in a corrupt manner – a charge the company denies.

If all goes according to plan, Sulayem is right – a rising Ethiopia should provide more than enough trade to keep both Berbera and Doraleh busy, and fill the coffers of both the Djibouti and Somaliland governments. But against a background of increasing political instability in Ethiopia, there can be no guarantees that the plan is going to work – and tiny Djibouti may pay the price for hitching its wagon so close to Ethiopia’s train.



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