Djibouti: A Nodal Hub in Search of a Role Model

Photo: Djibouti city and port, February 2021, iStock

Authors: Amina S. Chiré and Abdirachid M. Ismail.  IRICA,  University of Djibouti

Djibouti, a small country located on the northeast coast of the Horn of Africa, was formed as the result of rivalry between great and regional powers with imperial ambitions. Present-day Djibouti shares borders with Eritrea, Ethiopia, and Somaliland,[i] and with access to the Gulf of Aden and thus the Indian Ocean, making Djibouti a gateway to the Horn of Africa and the wider region of East Africa. By the end of the 19th century and until the end of World War II, France only reluctantly invested in this land, as its main ambition was to consolidate its presence in the Gulf of Aden and to resupply its ships during long-distance trade.[ii] The country as we know it today was born around the port infrastructure initially installed in the port city of Obock, and by the end of the 19th century transferred to the current capital city Djibouti. Its strategic location made Djibouti an ideal gateway to the Ethiopian empire, long fantasized by imperial European powers as the “Eldorado”[iii] of eastern Africa.  Djibouti gained independence from France in 1977. Since independence, the development of Djibouti has relied on its port and its location at the Red Sea corridor, which carries nearly 30% of the world’s maritime trade. The country’s geostrategic position, and its reliance on foreign investments to develop its infrastructure, continues to draw the country into the centre of international power politics.

Since its independence, Djibouti’s economic and strategic outlook was altered by several international and regional factors. First, the Ethiopian-Eritrean war of 1998-2000 has led Ethiopia to channel most of its imports and exports via Djibouti. Second, urbanization and infrastructure development has transformed Ethiopia’s economy in the last two decades prompting significant trade flows and increasing demands for the expansion of the port. Third, after 9/11 Djibouti became a logistical hub for the United States and allied military operations in East Africa. Djibouti hosted naval missions from the USA, Europe, and China, and is a centre for anti-piracy operations in the Gulf of Aden and the Indian Ocean. Djibouti became a logistical hub for trade and military flows in East Africa.

These developments necessitated a major expansion and upgrade of port facilities and investments in transport infrastructures, including road and rail networks. In 2000, the UAE company Dubai Ports World (DP World) signed a management agreement to manage and upgrade Djibouti’s existing port facilities. This partnership was of mutual advantage. It provided needed investments into the ageing infrastructure of Djibouti, while is served as a steppingstone for the expansion of DP World into the Horn of Africa.  The Yemen war and threat of terrorist attacks had increased the costs of using Aden’s port and container facilities. DP World aimed to establish Djibouti as a nodal hub in its global network of container transhipment, allowing trade from Asia to Europe to avoid the costly detour through Dubai’s Jebel Ali port. This partnership led to the construction of the Horizon Oil Terminal at Doraleh in 2004-2005, which handles Djibouti’s oil and most of Ethiopia’s oil and gas imports. It also supplies the national and international military forces in the country. In 2002, an additional 20-year concession for the management of the international airport was signed. By 2006, DP World had overhauled the management structure of Djibouti’s Port authority and expanded the Djibouti Free Zone, following the model of Dubai’s own Jebel Ali Free Zone. In 2009, DP World entered a joint venture with the state-owned Port of Djibouti Authority (PDA) and invested $400 million into the development of a container terminal in Doraleh, of which DP World holds 33.3% and PDA holds 66.6% of the shares. Doraleh is the only deep-water port in the region.

This economic partnership worked until February 2018, when the Republic of Djibouti unilaterally terminated the concession granted to DP World. Multiple reasons were identified for this termination: Djibouti authorities seem to have reacted to increasingly restrictive conditions imposed by DP World, among it that Djibouti was prohibited to establish new ports in its territory unless they were managed by DP World.[iv]  The tensions between the partners reached a new level when Djibouti entered into another partnership with China. The diplomacy of the pendulum, a major characteristic of Djibouti, has played its full role in allowing the state to pull its weight in difficult moments. In 2013, Djibouti sold 23.5% of its 66.6% share in the Doraleh Terminal to the Hong Kong-based China Merchants Holdings International, a decision that did not sit well with DP World. By 2017, China had financed and built the multi-purpose port of Doraleh, but the expansion and modernisation of the old port have further escalated the conflict with DP World. On 22 February 2018, Djibouti terminated the contract with DP World through a presidential decree and took over all assets at the port and nationalised it a few months later, in September 2018. DP World has taken the issue to international arbitration, but the rulings in favour of DP World were rejected by Djibouti.

After the contract with the Emirati partner was terminated, Djibouti’s ambitions to follow the Dubai model became elusive, but the country found inspiration in yet another country: Singapore. Alain Gascon (2005) had described Djibouti as the ‘Singapore on the Red Sea,’ a comparison that was repeated by Djibouti’s former port president when he inaugurated the Doraleh Multipurpose Port (DMP) in 2017. Djibouti authorities have more recently used another image when they promised to transform the city into ‘the Lighthouse of the Red Sea’ by 2035.

One milestone on the developmental path of Djibouti has been reached with the inauguration of the DMP. The port has received a $580 million investment, among it for twelve giant gantry cranes which were deployed on a new, 1,200-meter quay. The DMP is capable of handling ships carrying up to 15,000 containers and of processing nine million tons of cargo per year. As such, it is considered one of the most efficient deep-water ports (18 meters) in the world. Its performance is also linked to the railway line that connects the port with the Ethiopian capital Addis Ababa, inaugurated in 2018, and to the delineation of a free trade zone specializing in logistics, trade, and light industry. The Djibouti Free Trade Zone is hosting around 30 foreign companies. Another milestone was achieved with the inauguration of three further ports around the Gulf of Tadjourah and in Damerjog: the port of Tadjourah is specialized in exporting of Ethiopian potash, the port of Goubet used for exporting salt from Lake Assal, and the port of Damerjog is supposed to become a heavy industrial hub with a gas liquefaction plant, an oil storage plant, an oil refinery, a cement plant, and a ship repair yard.

By capitalizing on its geostrategic position, Djibouti was able to create the conditions for economic development centring around its port and the related services provided to Ethiopia and foreign militaries.  Since 2000, the annual economic growth oscillated between 4 and 5.5%. Despite improved economic indicators, Djibouti continues to be characterized by high unemployment rates, and significant socio-spatial as well as gender inequalities. The country is characterized by an overall low level of human development,  and economic growth is concentrated in the capital city while living conditions outside the capital remain precarious.

[i] Somaliland declared independence from Somalia in May 1991 but is internationally not recognized.

[ii] In 1862, the French acquired the Comptoir d’Obock after signing a treaty with the Afar chiefs in the region. The so-called “Colony of Obock and Dependencies” was only formally under French rule. In 1883, during the Tonkin War, France eventually set up a sea stop and a supply depot.

[iii] An Eldorado means “the golden country”, where everything exist in abundance and life is comfortble.