Djibouti is the capital of the Republic of Djibouti and a strategically located port city overlooking the southern entrance to the Red Sea. Despite considerable income from ports and foreign military bases, the majority of the country’s population—around one million people, most of whom live in the capital city—is extremely poor. The state gained its independence from France only in 1977 and established diplomatic relations with the People’s Republic of China two years later. Until the late 2000s, there was little that was remarkable about Sino-Djiboutian ties. A low-key aid program saw China construct the state’s main sports stadium (which opened in 1993 and is named after the country’s first president, Hassan Gouled Aptidon) and provide limited economic assistance. Djibouti’s naval significance increased only in 2008, when China launched its first anti-piracy missions in the Indian Ocean and Gulf of Aden. People’s Liberation Army Navy (PLAN) vessels increasingly used Djibouti’s port facilities alongside Western navies.
In 2012, China financed and began construction of a railway linking Ethiopia’s highland capital, Addis Ababa, to Djibouti’s main port. In July 2012, Djibouti’s President, Ismaïl Omar Guelleh (in office since 1999), attended the Fifth Forum on China–Africa Cooperation (FOCAC), which led to the establishment of a bilateral Joint Ministerial Commission and the deepening of civil, naval, and military ties. Before Beijing’s formulation of the Belt and Road Initiative (BRI) in 2013, China Merchants Group (CMG) had already invested in Djibouti. In December 2012, CMG announced it had bought a 23.5% equity stake in Djibouti’s hitherto entirely state-owned Port Authority. CMG has since invested heavily in Djibouti—notably, the Doraleh Multi-Purpose Port (MPP) and several smaller regional ports. It also has a major stake in the Djibouti International Free Trade Zone (DIFTZ) alongside other Chinese investors. Djibouti is also a hub for undersea fibre-optic cables, including a Chinese-funded link to Gwadar in Pakistan.
In August 2017, the PLAN opened its first ‘overseas logistics base’ in Djibouti, which was effectively an armed annex of CMG’s MPP. China thus joined the United States, European Union, France, and Japan in having a permanent military presence in Djibouti. A few months later, in November 2017, Djibouti’s prominent position as an important diplomatic partner was reflected in China’s high-profile reception during a state visit to Beijing of the Djiboutian President—the first African head of state to be received by President Xi Jinping—following the Nineteenth National Congress of the Chinese Communist Party.
Overall, Chinese investment has transformed the Red Sea state into a key logistics hub for a wide range of Chinese trade, investment, and naval activities in East Africa. Despite this, people-to-people ties remain limited; the small size of Djibouti’s rentier economy and hot, arid climate mean that links between large Chinese investors and ordinary Djiboutians are limited, and opportunities for small-scale trade are negligible. Chinese investment has brought little long-term job creation. An authoritarian, patronage-based political state, coupled with a tightly controlled media, means public criticism of China’s economic presence or environmental impact is hardly heard.
Djibouti signed a Memorandum of Understanding to cooperate with China on the BRI in September 2018, following a meeting between Presidents Guelleh and Xi in Beijing at the seventh FOCAC. In April 2019, the two countries further signed a ‘Cooperation Plan’ for co-constructing the BRI.
Current Economic Relations
Trade: Economic statistics for Djibouti are unreliable and trade data are doubly problematic. This is because the bulk of Djibouti’s international trade are goods in transit to neighbouring Ethiopia (for which Djibouti is the principal port) and Somaliland. The transhipment of containers, which arrive from China and are reshipped to smaller East African ports, further complicates trade data. Djibouti exports almost no local produce but partially covers its trade deficit from port fees. China accounted for around 45% of Djibouti’s imports in 2019. Alongside consumer goods, the bulk of these were imports for Chinese-financed infrastructure projects. Saudi Arabia, the United Arab Emirates (UAE), and India are Djibouti’s other main trading partners, with the Arab states importing Somali livestock that transits through Djibouti’s ports.
Investment: France, the former colonial power, now has negligible commercial assets in Djibouti and, since 2013, China has become by far the largest investor in the country, primarily in rail and port infrastructure. Arab investors, notably from the UAE, have also invested in Djiboutian infrastructure in the past two decades. The UAE’s largest project was the Dubai Ports World (DPW) Doraleh Container Terminal (DCT), which is not to be confused with CMG’s MPP, which lies just to the west of the DCT. This clarification is important as many analysts and journalists confuse the two ports, which have similar names and are both located on the same strip of coast called ‘Doraleh’. However, CMG’s investment in Djibouti caused three complex and closely interlinked legal disputes. The first was between the Djiboutian Government and Mr Boreh, the Djiboutian appointed to head the DCT. A former close confidant of the president, he was accused of corruption in favour of DPW. This merged into a second substantive dispute, between the Djiboutian Government and DPW, as the former sought to revoke the company’s control of the DCT and its exclusive rights to operate the country’s ports, which were granted in the mid-2000s. The London Court of International Arbitration ruled against the Djiboutian Government twice, in August 2018 and July 2021. The other legal dispute occurred when DPW sued CMG in a Hong Kong court for inducing the Djiboutian Government to breach its agreement with DPW. The case is still pending as of August 2021.
CMG is the leading investor in Djibouti today; it has a minority stake in the state’s Port Authority. When CMG took the 23.5% stake in late 2012, the authority was formally transformed into a private share company. This took the legal name Port de Djibouti S.A. (PDSA), with the Government of Djibouti holding the remaining shares, while the management company is known formally as Djibouti Ports and Free Zones Authority (DPFZA). In 2017, CMG opened its 190-hectare Doraleh MPP, just west of the capital, encompassing container, general, and bulk cargo facilities. Begun in mid-2013, the port was inaugurated in May 2017. The 1.2-kilometre quayside provides deep-water moorings that can accommodate up to six of the world’s largest cargo ships simultaneously. The MPP cost 590 million USD to build and was jointly financed by DPFZA and CMG. CMG, along with Dalian Port Group Corporation Limited—another Chinese state-owned port operator—and other investors, is also the key stakeholder in the DIFTZ, which is linked to the MPP.
In 2017, the president of CMG claimed the group’s aim was to transform Djibouti City and its ports into the ‘Shekou of East Africa’, replicating their ‘Port–Park–City’ model in CMG’s historical home port of Shenzhen. In December 2020, CMG signed a 350 million USD investment deal with the Djiboutian authorities to completely rebuild the old port of Djibouti as part of an ambitious real estate makeover of Djibouti’s historic capital. However, this is not the first futuristic plan for Djibouti’s redevelopment, and CMG’s vision of skyscrapers and a Dubai-style waterfront appears unrealistic.
China’s largest investment in the Horn of Africa is the 750-kilometre-long Addis Ababa–Djibouti railway. The project cost 3.5 billion USD and entered commercial service in 2018. Conceived and contracted before the launch of the BRI, this is a transnational project, with 650 kilometres of track in Ethiopia and the remaining 100 kilometres within Djibouti. The Djiboutian section of the project was covered by a separate, 505 million USD contract, awarded by the Djiboutian Government to the China Civil Engineering Construction Corporation (CCECC), a subsidiary of China Railway Construction Corporation (CRCC), in February 2012. The contract was the subject of a dispute in 2015 over whether the Djiboutian Government or China was responsible for the cost of electrifying the line. This was resolved via the CCECC taking a notional equity stake in Djibouti’s portion of the rail operating company.
Contractually, the Doraleh MPP is separate from the surrounding DIFTZ. When (or if) completed, the DIFTZ will encompass 4,800 hectares and the total investment is estimated to be 3.5 billion USD, making it the largest free-trade zone on the continent. The DIFTZ, which was inaugurated in July 2018, is billed as being central to the African Continental Free Trade Area (AfCFTA).
Aid: China has supplied aid for a growing number of diverse projects in Djibouti since 2012. These include extensive educational and medical support. By 2020, China had sent 20 medical teams to Djibouti as part of its foreign aid program. China gifted new buildings to the Ministry of Foreign Affairs in a major infrastructure project signed in 2011. More recently, it constructed research centre facilities, including the building for the National Library and Archives, which was opened in 2020.
Other finance: In January 2013, China’s CGCOC Water Company Ltd was contracted to construct a 339-million-USD pipeline to supply water from Ethiopia to Djibouti. This has the capacity to supply 100,000 cubic metres of drinking water daily to Djibouti City from a source 70 kilometres inside Ethiopia. Djibouti reportedly borrowed 322 million USD in preferential export buyer’s credit from the Export–Import Bank of China (Eximbank) to cover the project.
Eximbank was also the key financier of the 100-kilometre Djiboutian section of the Addis Ababa–Djibouti Railway, to the tune of 491 million USD, in the form of a commercial loan (85% of the total cost of 578 million USD, with the remaining 15% to be funded by CCECC). Also, in 2013, the Eximbank of China provided mixed loans of 405 million USD for port infrastructure (the rest of the total 580 million USD cost was to be funded by the Djiboutian Government). However, the actual disbursed debt remains somewhat unclear, although a significant debt rescheduling occurred in August 2019.
In 2013, CMG also announced a potential 70 million USD investment in a livestock port at Damerjog, close to the eastern frontier with Somaliland. However, construction of this appears to have been delayed. Damerjog, just to the southeast of Djibouti’s capital, is also the proposed site for a gas pipeline terminal. If constructed, this would handle gas from Chinese-managed fields in Ethiopia’s Ogaden region, significantly increasing China’s involvement in Djibouti’s economy.
Djibouti is a small, authoritarian, patronage-based state. Official media and political discourse are tightly controlled. Public controversy over the rapidity and scale of China’s engagement in Djibouti is therefore negligible, particularly given that Djiboutians have long been used to French, US, and Arab presences in the country.
Private criticisms tend to be limited to the fact that China’s investment has brought minimal stable job creation. However, there are growing concerns over the potential impact of further port developments in the Gulf of Tadjourah, which has a unique maritime ecosystem, with pristine coral reefs and breeding grounds for whale sharks. There have also been complaints about factory fishing by Chinese vessels off Djibouti’s coast. This is formally illegal, yet the small artisanal fishing communities in Arta, Tadjourah, and Obock recorded incursions by Chinese fleets in 2017.
References to Djibouti in the so-called debt diplomacy debates increased in 2018, when US officials trumpeted allegations that the country was falling into a ‘debt trap’. However, there is no evidence that China is intent on seizing control of the Doraleh Container Terminal, while comparisons with Sri Lanka, where CMG obtained equity stakes in the Hambantota Port at a time when the Sri Lankan Government was in urgent need of foreign exchange to repay its foreign debts, appear misplaced.
Djibouti has nevertheless seen a sharp rise in its debt burden occasioned by the scale of Chinese infrastructure lending, with loans for railway, port, and water infrastructure since 2011 topping one billion USD. Given the reality of the country’s very weak fiscal system and limited income, further rescheduling of debt appears likely. China negotiated an initial, substantive rescheduling of Djibouti’s debts in 2018–19. While Djibouti’s new terms were not published, they are believed to mirror those offered to Ethiopia, with repayment periods extended from 10 to 30 years and interest rates lowered from 3% to 2.1% above the London Interbank Offered Rate. Nevertheless, one expert estimates Djibouti’s annual debt service payments to be 104 million USD for 2021. While the debt is significant in relation to Djibouti’s tiny economy, in absolute terms, it is dwarfed by Beijing’s exposure to the debts of Ethiopia and other major African states, such as Angola and Kenya. As such, debt rescheduling for Djibouti is likely to follow the financial concessions made to Ethiopia and be informed by Djibouti’s symbolic and strategic value to Beijing.
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Cover Photo: (CC) Coastal Djibouti (Archive: NASA, International Space Station.