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The political economy of geo-strategic location and infrastructure development in Djibouti: National and regional ramifications

Djibouti is a small country with a physical size of 23,200km2 and a population of 830,000[1].The population are mostly subsistence pastoralists and has trade relations with regional neighbors and Arabian Peninsula. The country has a harsh climate and lacks arable land, fresh water, significant mineral and vegetation resources[2]. Estimates show 70% of the population as living in poverty and 50% of the youth as unemployed. The economy is dominated by the public and service sectors. Transit business and associated logistic services as well as banking and telecommunications are the key pillars of the economy, while economic sectors such as fisheries, tourism, and mineral resources have yet to be optimally exploited. The industrial sector is backward and constrained by availability of raw materials and production costs. The primary sector remains marginal in contribution to the GDP due to the dry climate, lack of water resources, little arable land and weak fishery and irrigation[3]. Consequently, the country is viewed as economically dependent, politically fragile and victim of influence from its former coloniser France. The country is poor and aid dependent yet experiencing high economic growth.

Djibouti’s geo-strategic advantage and infrastructural development initiatives

Against this backdrop, Djibouti generates income induced from its geo-strategic location and resultant infrastructure expansions. The country has derived benefits from its position as a gateway to the Red Sea between the Indian Ocean and the Mediterranean Sea and as a trade route for landlocked Ethiopia. Around 86 % of government revenue comes primarily from its International Port serving Ethiopian trade. Likewise, Djibouti possesses military strategic significance due to its proximity to the Arabian Peninsula. Djibouti earns US$30-36 million per annum from the US and French military bases[4]. Djibouti’s accelerating economic growth can be attributed to the following factors:

Factors Boosting Djibouti’s Revenue and Economic Growth

The incidence of Ethiopia-Eritrea Conflict

Djibouti has benefited from the regional political and economic developments during the past decade. The most important event was the conflict between Ethiopia and Eritrea which increased Djibouti’s strategic importance for Ethiopia. Ethiopia uses Djibouti as its primary sea outlet for its international trade thereby boosting Djibouti’s economy. The leading foreign investor in Ethiopia Sheikh Alamoudi also contributed in financing and handling facilities in the old port. Since 1998, the volume of Ethiopian cargo and petroleum products has quadrupled[5]. These developments pushed both countries to cooperate in the economic, social, and security spheres shifting from the uneven and dependency relationship characterised by tensions and frictions of the past.

As a result, Djibouti has become the sole cost-effective port for both import and export goods[6]. Consequently, it has started expanding and upgrading its port facilities and related infrastructure to increase cargo and container capacity[7]. Since 1998, Djibouti has earned more than US$3 million per day from Ethiopia[8]. These realities make the recently emerging Ethiopia-Djibouti cooperation a viable alternative way to tackle the economic and political animosities between the two countries.

Revenue generated from external powers due to geo-strategic importance

The attacks of 11 September in the United States and piracy along the Somali coast led to a shift of US strategy towards the region[9]. In 2002 Djibouti allowed the establishment of a US military base on its territory. In so doing, Djibouti earned US$38m per a year from the US coupled with additional financial and development assistance[10]. Furthermore, the US invested US$70 million per annum including economic aid[11]. Djibouti’s strategic importance to global political and economic security attracted further foreign investment from countries such as Spain, Japan, Dubai and China. From 2004 to 2009, the country witnessed a great amount of FDI inflows[12]. This is testimony to the fact that the key driver for Djibouti’s economic growth emanates from the political and economic security interests of external economically and politically dominant powers particularly the USA, China and Japan.

Japan paid $30 million for its base facilities in Djibouti not including other forms of assistance[13]. Likewise, China continuously supported Djibouti since 1979. Many of the infrastructure projects located in Djibouti are funded by China[14]. Currently, China and India are expanding their presence in Djibouti not simply due to economic considerations but also for security reasons. The above facts reveal the growing economic and political competition between the powerful states over Djibouti for their economic and security goals.

In 2012 and 2013, foreign direct investment grew. Construction of Doraleh container terminal and geothermal plants are examples[15].  In 2012, the China-Africa Development Fund declared a US$6.4 million soft loan to Djibouti[16]. Currently, Djibouti is working to produce geothermal energy around Lake Assal at a cost of US$240 million partly funded by China that is expected to produce 60MW by 2018. The US has also shown interest in supporting this project[17]. China has funded the port facility at Khor Ambado and recently agreed to construct a new airport. China’s reconstruction of the 460-mile railway from Djibouti to Addis Ababa is almost complete[18]. The above overview allows us to infer that both the economically and politically strong countries USA and China are deepening their presence in Djibouti to protect their economic and security interests. Nonetheless, their involvement could erode independence of Djibouti in pursuing its regional cooperation and integration plans in the Horn of Africa especially with Ethiopia. Furthermore, the US-led “War on Terror” may have its own adverse effects on the political stability and economic relations among the Horn countries.

Likewise, Djibouti has partnership and a flow of capital from the Middle East. Trade has significantly increased as a $400 million container terminal has been planted at Doraleh supervised by Dubai Ports World (DPW). Consequently, the Horizin Oil Terminal owned by Emirates National Oil Company was constructed at Doraleh in 2004-2005 satisfying the fuel import demands in Djibouti, Ethiopia and of the French and US military forces. Since 2009, Doraleh has become the only deep-water port in the region handling 15,000 tonnes[19]. These developments illustrate Djibouti’s emphasis on bilateral cooperation arrangements irrespective of geographic proximity to harness economic benefits. These initiatives have strengthened the country’s infrastructure targeting its geo-strategic location making it a hub of port services to other countries in Africa as well.

Regional cooperation on infrastructure development

Djibouti is showing a growing interest in regional integration. Particularly, Ethiopia and Djibouti are engaged on infrastructure expansion activities on energy, water, port, and transport. Both countries are incrementally integrating their economies by building a strong cross-border economic zone hoping to enjoy mutual benefit and expand foreign direct investment[20]. In so doing, they are working to ensure economic growth and alleviate poverty in line with their respective policies. Nonetheless, both countries face numerous economic, political and security challenges requiring their joint engagement.

As the main sea outlet for Ethiopia, Djibouti is building mega port and rail projects targeted to meet the increasing demand[21]. Other trade agreements are also being arranged with Kenya and Saudi Arabia. Likewise, Djibouti seeks wider markets to link itself to the Great Lakes region countries[22]. But more importantly, the independence of the oil exporter South Sudan has paved the way for new realms of cooperation between Djibouti and other countries in the region. This has resulted in a tripartite agreement among South Sudan, Ethiopia and Djibouti on a logistical corridor port service: a US$3 billion oil pipelines project crossing through Ethiopia[23].

Furthermore, Ethiopia has exported 50 megawatts to Djibouti since 2011. It covers 60 percent of their customers at a cost lower than diesel electric supply. An additional power connection arrangement was agreed between the two countries in 2013 that will allow importing an extra 70MW. The energy interconnection is the least costly option for addressing the energy constraint in both countries[24]. After energy connection to Ethiopia’s power grid, retail and industrial domestic tariffs were cut significantly, easing pressures on household and business budgets. This has also enhanced economic interdependence between the two countries[25], not to mention reducing the country’s trade deficit by lowering oil imports[26]. Again this shows the infrastructure development cooperation is a win-win situation, economically benefiting both countries.

Likewise, the rail and road expansion, construction of new ports and water projects are expected to provide immense benefit for the two countries. The projects include the Ethiopia-Djibouti railway and upgrading the capacity of the old ports in Djibouti. Recently, Djibouti has allocated a $9.8 billion budget for port developments targeting Ethiopian import-export. Furthermore, Ethiopia signed a bilateral agreement with Djibouti in 2013 to supply 103,000 cubic meters of water per day[27]. Both countries also agreed on a gas pipeline project and to cooperate in the mining sector[28].

Conclusion

Djibouti’s revenue increments and fast economic growth is the outcome of its geo-strategic location and the resultant infrastructure developments. Port services to Ethiopia, its geo-strategic importance for external powers, and cooperation on infrastructure development with Ethiopia are key sources of revenue for Djibouti. Consequently, Djibouti has registered 5% GDP growth on average for the last five years and is expected to maintain the same rate of growth in the years to come[29]. Nonetheless, Djibouti’s economy lacks diversification as the agricultural and industrial sectors are marginal[30]. Economic growth has yet to result in the reduction of poverty and job creation.

Equally important is cooperation between Djibouti and Ethiopia on infrastructural projects such as railways, roads, water supply, power, trade and enhancing the capacity of the existing ports in Djibouti. Djibouti might face competition from both the Eritrean and Somaliland’s ports in the years to come. Nonetheless, given the above mentioned investments in port facilities and emerging infrastructure expansion; Djibouti has created greater cost and capacity advantage over regional competitors. Hence, it can be concluded that Ethiopia and Djibouti in a manner of speaking symbolise best practice in the IGAD economic integration process. The economic cooperation between the two countries has boosted the economies of both by enhancing mutual economic benefits paving the way for regional economic interdependence.

Zelalem Tesfay Gebreegzabhere graduated with a BA in Political Science and International Relations in 2003 and a MA International Relations in 2009 from Addis Ababa University (AAU). He is currently working as a lecturer at the College of Law and Governance of Mekelle University. He can be reached at zolatg@yahoo.com.

References 

[1] Muluken Yewondwossen (2014), “Djibouti Africa’s Singapore?” in Capital, Year 17, No. 836, Sunday December 14, 2014.

[2] Brass, Jennifer N. (2008) “Djibouti’s unusual resource curse” Journal of Modern African Studies. Cambridge University Pressdoi: 10.1017/S0022278X08003479 pp. 523–545.

[3] African Economic Outlook (2012) “Djibouti” in www.africaneconomicoutlook.org

[4] Brass, Jennifer N. (2008) “Djibouti’s unusual resource curse” Journal of Modern African Studies. Cambridge University Pressdoi: 10.1017/S0022278X08003479 pp. 523–545.

[5] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[6] Melaku Mulualem (2013) “Democratic peace theory vis-a-vis “energy peace theory”” The Reporter.

[7] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[8] Yakob Hailemariam (2004) To Whom Does Assab Belong? The Question of Ethiopian Access to the Sea. Commercial Printing Press: Addis Ababa.  

[9]  Brass, Jennifer N. (2008) “Djibouti’s unusual resource curse” Journal of Modern African Studies. Cambridge University Pressdoi: 10.1017/S0022278X08003479 pp. 523–545.

[10] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[11] Lee, John (2015) “China Comes to Djibouti: Why Washington Should be Worried.”

[12] African Economic Outlook (2012) “Djibouti” in www.africaneconomicoutlook.org

[13] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[14] ADIT (2014) “China and Djibouti strengthen defence ties” The Bulletin.

[15] African Economic Outlook (2012) “Djibouti” in www.africaneconomicoutlook.org

[16] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[17] Muluken Yewondwossen (2014), “Djibouti Africa’s Singapore?” in Capital, Year 17, No. 836, Sunday December 14, 2014.

[18] Styan, David and HE Ilyas Moussa Dawaleh (2015) “Djibouti’s Strategic Position in the Horn of Africa”, Meeting Summary by Chatham House

[19] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[20]  Muluken Yewondwossen (2014), “Djibouti Africa’s Singapore?” in Capital, Year 17, No. 836, Sunday December 14, 2014.

[21] Ibid

[22] African Economic Outlook (2012) “Djibouti” in www.africaneconomicoutlook.org

[23] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[24] Ethiopia-Djibouti Power Interconnection Project (2011) AFRICAN DEVELOPMENT FUND COMPLETION REPORTOF PROJECT: Ethiopia: P-Z1-FA0-008 & P-Z1-FA0-023 Djibouti: P-Z1-FA0-010 & P-Z1-FA0-025.

[25] Styan, David (2013) Djibouti: changing influence in the Horn’s strategic hub, The Royal Institute of International Affairs, London, UK.

[26] African Economic Outlook (2012) “Djibouti” in www.africaneconomicoutlook.org

[27] Yohannes Anberbir (2014) “if it is the good will of the people, we should implement union” in The Reporter, No. 1526.

[28] Mastewal Bizualem (2015) “Ethiopia and Djibouti Symbolizing the best in IGAD’s economic integration” in Addis Standard, Vol. 5 Issue No. 49 April 2015.

[29] Muluken Yewondwossen (2014), “Djibouti Africa’s Singapore?” in Capital, Year 17, No. 836, Sunday December 14, 2014.

[30] Nkamleu, Guy Blaise (2015) “Djibouti” African Economic Outlook in www.africaneconomicoutlook.org.

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