Regional drive: Foreign financing and cooperation are reshaping the region’s transport capabilities

With the aim of growing its influence in geopolitics and trade, China has been channelling financing into new infrastructure projects across Africa. As part of this, the east of the continent and the countries that make up the Horn of Africa have taken up an increasing role in the Asian country’s long-term plans. Sectors such as transport and logistics, energy generation and housing are all receiving a boost as partnership agreements and investments from Chinese entities reshape the region, while bringing in economic advantages.

The strong push to invest on foreign shores is part of China’s Belt and Road Initiative, a $900bn plan to develop infrastructure assets across the world in order to enhance trading capacity. The strategy was officially launched in 2013 in an effort to create what has been labelled a new Silk Road. Africa in particular has witnessed heightened interest from Chinese construction and infrastructure developers. The continent also received a pledge in late 2015 from China for $60bn in assistance focused on industrialisation, infrastructure, financial services, poverty reduction and security.

For China, Djibouti’s position on the Red Sea, with access to several of the region’s landlocked countries, makes it a unique strategic partner and an important stop on its Road and Belt Initiative. Chinese development in the country is mainly through a two-pronged approach, with the former providing financing through its banks and development through its construction firms. Chinese entities have also moved into acquisition, with China Merchants Holding owning 23.5% of the Port of Djibouti, which was purchased in 2012 for $185m. However, it is the series of multibillion-dollar projects, and their potential to improve regional connectivity, that has underscored China’s role in Djibouti.

KEY PROJECTS: One flagship project has been the recently completed $4bn railway link between Djibouti and the Ethiopian capital, Addis Ababa. The 750-km line was financed with a loan from the Export-Import Bank of China, which paid for 70% of the Ethiopian portion of the line and all of the Djiboutian section. In 2017 Djibouti also inaugurated the new Doraleh Multipurpose Port, budgeted at $580m. The facility was financed under a joint venture between the Djibouti Ports and Free Zones Authority and China Merchants Holding.

Near Doraleh, July 2018 saw the opening of a 240-ha first phase of a free trade zone, which will eventually span 4800 ha and become Africa’s largest such area. Chinese investment is financing the majority of the total $3.5bn enterprise, which is being developed over a 10-year period, and is projected to handle $7bn in trade by its second year of operation and generate thousands of new jobs. Another project, the $64m port in Goubet, which will be used to export Djibouti’s salt, also received financing from the Export-Import Bank of China, as did a $322m pipeline to transport drinking water from Ethiopia into Djibouti.

Additionally, Chinese firms were set to participate in the building of two airports budgeted at a combined $599m. The contract was originally awarded to China Civil Engineering Construction Corporation, which planned to provide financing for the two facilities, but the Djiboutian government announced in 2017 that the projects would be re-tendered. As of August 2018 no further details had been made available.

TRADE DYNAMICS: Chinese investment into East Africa, and Djibouti specifically, has the potential to significantly improve trade flows between the Horn of Africa and other regions of the world. The strengthening links between Ethiopia and Djibouti, for instance, are likely to boost trade performance across COMESA countries. The large volume of investment, however, is adding some budgetary strain. Djibouti’s external debt was predicted to rise from 49.9% of GDP in 2014 to 87.3% of GDP by 2018, according to estimates from the IMF. In order to make the current efforts worthwhile for African countries over the long run, Chinese cooperation must emphasise the need to secure financial returns from the facilities opening up across the region.