Basic Information

Chinese Name: 亚吉铁路
Location: Addis Ababa; Dire Dawa; Djibouti 
Type of Project:  Transportation, logistics 
Project Developers:  Ethiopia Railway Corporation (ERC)
Main Contractors: China Civil Engineering Construction Company (CCECC), a subsidiary of China Railway Construction Corporation Limited (CRCC); China Railway Engineering No. 2 Group Co., Ltd. a subsidiary of China Railway Group Limited (CREC) 
Known Financiers: Export–Import Bank of China; Government of Ethiopia
Cost: 4 billion USD
Project Status: Operational

Project Outline

The project was financed by a loan from the Export–Import Bank of China (China Eximbank), which in 2013 agreed to provide Ethiopia with 2.5 billion USD, enough to cover 70% of the project construction costs on the Ethiopian side, and Djibouti with 492 million USD, which covered 85% of production costs on the other side of the border. Contracts were awarded to two Chinese SOEs, China Civil Engineering Construction Company (CCECC) and China Railway Engineering No. 2 Group Co. (CREC2), which constructed a segment of the total route each; CCECC also won the contract for construction for the Djibouti segment of the railway after completion, a six-year operations and management contract was awarded to the two contractors, which formed a joint venture company to oversee management and local capacity building. 

Plans for the railway network begun moving forward in the early 2000s under former Prime Minister Meles Zenawi (in power from 1995 to 2012), as one component of a wider export-oriented industrialisation strategy that would use improved transportation connections to attract foreign investment and develop industrial zones, which in turn would generate revenue for the railway through boosted freight cargo in imports and exports.

Earlier plans for rehabilitation of an older French-built narrow gauge line were negotiated with the European Commission and the French Development Agency (AFD). However, these plans were abandoned after 2009 as the Ethiopian government was unable to secure a loan from AFD or obtain a concession for the railway management. In the early 2010s, through high-level bilateral negotiations with China, the Ethiopian authorities were able to secure a package of funding for new infrastructure projects, including a new standard gauge railway line, conditional on procurement of Chinese railway technology and contractors.

The railway is the first line of a planned national network to be built by the Ethiopian Railway Corporation (ERC). The line’s construction began in 2012 and was completed in 2016, though the railway did not begin commercial operations until January 2018 due to issues in the electrification. Notably, in 2015, the railway line was used to bring in aid in the form of food provision from the port to relieve Ethiopian people from the drought that hit the country that year. Further railway ramp lines are to be completed that will connect the railway directly to the container port at Nagad in Djibouti, and to industrial zones along the route. 

The second line of the network to start construction was the Northern branch from Awash to Mekele, of which the first segment, from Awash to Weldiya, is nearly complete, though not yet operational. This segment’s construction was contracted to a Turkish company, with financing from Turkish and European sources, while the second segment, from Weldiya to Mekele, was awarded to China Communications Construction Company (CCCC), another Chinese Central SOE, though major construction on the second segment was suspended as of 2018 as disbursement of funds for the railway construction was halted from China Eximbank due to the underperformance of the Addis–Djibouti railway.

Project Impacts 

• Land conflict & displacement: The railway has impacted rural landowners, who were displaced by construction. The compensation was determined by the state, which legally owns all land. Railway route extends through the Oromo region, where existing ethnic tensions have been centred on land displacement issues.
• Debt sustainability: Ethiopia’s foreign exchange shortages led to the non-repayment of the loan in 2018, which was deferred for one year, as the project was delayed in its operation.  Ethiopia has since restructured loan terms with China, but the country remains at high risk of debt distress.
• Armed conflict: From late 2018, a growing number of security incidents in the Oromo region has impacted railway operation, halting its running. 
• Impact assessment: It is unclear whether impact assessments were done by Ethiopian or independent actors.

According to interviews with Chinese and Ethiopian staff members conducted in mid-2018 by the author of this profile, the Addis–Djibouti railway employs a majority of local staff in the construction, maintenance, and management of the project, though management and train drivers are still mostly Chinese expatriate staff. The CCECC-CREC2 consortium has funded a capacity building centre outside of Addis Ababa which has been training local engineers to become train drivers, with the goal of building local capacity to eventually take over the operation of the project after six years. With Chinese aid, a new railway academy is also slated for construction outside of the capital, which will eventually support vocational training for railway staff and engineers for the whole network. 

According to stakeholder interviews conducted in early 2019 by the author of this profile, since it began commercial operations in 2018, the railway has struggled to fulfil the operational capacity it was designed for, and uptake of the railway’s use by companies and industrial zones for export has been lacklustre, meaning the vast majority of the cargo freight has been dedicated to import, not export. In addition, the railway faced a number of technical and social challenges in its first year of operation, including power supply issues that would halt service, leading to a delay in commencing commercial operation. 

The way the railway has been designed has also had negative social impacts in the rural areas along the route. As the majority of the track is unfenced at the request of the ERC, this has caused significant numbers of animal collisions along the track during its early operation, which the ERC had to provide compensation for. Local unrest at the end of 2018 and throughout 2019 has also led to security challenges that have halted the service. Continuing ethnic tensions in Ethiopia, which have spilled into regional violence, continue to hamper the railway’s operation. With the ongoing civil conflict beginning in late 2020 in Ethiopia’s Northern Tigray region, it is unclear how the operation of the railway, and the expansion of the wider network (including the Turkish-built section that would eventually extend into the Tigrayan capital of Mekele), will develop. 

Financially, the project’s feasibility has been called into question. Ethiopia’s foreign exchange shortages, along with the lack of revenue generation from the railway’s problematic operation, has led to difficulties in repayment of loans and service fees for contractors. Ethiopia deferred repayments on the railway loan to China Eximbank in 2018, and the loan was eventually renegotiated through high-level bilateral talks, extending the repayment period from 10 to 30 years. The planned line from Weldiya towards Mekele was suspended mid-construction as further railway funding from China Eximbank has not been forthcoming. Given the economic and social impacts of Covid-19, it is likely that Ethiopia’s debt distress will be a prolonged challenge. 

In-depth Sources 

• Chen, Yunnan. 2019. ‘Ethiopia and Kenya Are Struggling to Manage Debt for Their Chinese-Built Railways’. Quartz Africa, 4 June. Link.
• Foch, Arthur. 2011. ‘The Paradox of the Djibouti–Ethiopia Railway Concession Failure’. Proparco’s Magazine 9: 18–22.
• Gardner, Tom. 2018. ‘In Ethiopia’s Bushlands, Promised Riches of a Railway Boom Turn to Dust’. Pulitzer Center, 14 May. Link.
• Tarrosy, Istvan and Zoltán Vörös. 2018. ‘China and Ethiopia, Part 2: The Addis Ababa–Djibouti Railway.’ The Diplomat, 22 February. Link.