Wind in their sails: The revamping of its port infrastructure is putting Djibouti on the global logistics map

In an effort to capitalise on its strategic position at the entrance to the Red Sea, significant efforts to modernise Djibouti’s maritime infrastructure are being undertaken. Providing landlocked Ethiopia, which was ranked as Africa’s fastest-growing economy by the IMF in April 2018, with a connection to one of the busiest shipping lanes for global commerce has put Djibouti in an enviable position, handling roughly 95% of its larger neighbour’s imports. In order to expand capacity to meet the increasing operational requirements of its port infrastructure, Djibouti has been building several ports and terminals that are expected to boost its capability as an international trade platform over the long-term. Indeed, after years of planning and securing investment, a handful of large-scale facilities and expansion projects became operational in 2017.

TRADE PLATFORM: Rising international commerce has allowed Djibouti to align itself with modern trade routes, while its role as an entry and exit point for Ethiopia’s growing market has forced port infrastructure to adapt to rising volumes. Inbound cargo, including merchandise and hydrocarbons imports, rose steadily from 12.9m tonnes in 2012 to 15.3m tonnes in 2016, according to figures from the Department of Statistics and Demographic Studies (Direction des Statistiques et Etudes Démographiques, DISED). In 2016 the majority of traffic was headed for its western neighbour, which accounted for 8.8m tonnes of merchandise and 3.1m tonnes of hydrocarbons imports, compared to a Djibouti figure of 1.7m tonnes of merchandise and 545,000 tonnes of hydrocarbons.

GROWING CAPACITY: The volume of containerised traffic has seen continuous expansion, increasing from 193,000 twenty-foot equivalent units (TEUs) in 2005 to 504,000 TEUs in 2009 and reaching 928,000 TEUs in 2017. Much of the increase in maritime activity was supported by the construction of the Doraleh Container Terminal, inaugurated in 2009 and managed by DP World until February 2018, when the government terminated the firm’s concession of the terminal, citing its mismanagement as the cause.

In May 2017 an upgrade to the facility came on-line with the inauguration of the $580m Doraleh Multipurpose Port, funded by the Djibouti Ports and Free Zones Authority (Autorité des Ports et Zones Franches Djibouti, DPFZA) and China Merchant Holding. The port’s bulk terminal can handle 2m tonnes of cargo annually, with storage for 100,000 tonnes of fertiliser and 100,000 tonnes of grain as well as warehouses for other goods. “Djibouti and its ports are reaching a level of maturity that allows them to be secure and be fully aligned with international standards,” Houssein Ahmed Houssein, general manager at Horizon Terminal Djibouti, told OBG. “This compliance allows all actors in the sector to better manage their services and fulfil their contractual agreements with the best quality possible,” he said.

In June 2017 the Tadjourah minerals port, focused on the exportation of potash from mining operations in Tigray and Afar in northern Ethiopia, was inaugurated. The project was financed by the Arab Fund for Economic and Social Development and the Saudi Fund for Development. With a pair of 455-metre quays as well as a 40-ha handling area, the facility has the capacity to move 5m tonnes of minerals annually. A road linking Ethiopia potash mining areas with the new maritime gateway is scheduled for completion by the end of 2018.

June 2017 also saw the opening of the $64m port of Goubet, which is targeting the export of salt resources from Lake Assal in central-western Djibouti. The port has a 400-metre quay, can receive ships with 15-metre draft and will be able to export 5m tonnes of raw salt annually.

The Djibouti Damerjog Industries Development (DDID) is also under way. This includes a livestock port in Damerjog, which will have the capacity to handle 80,000 animals monthly. The $70m project will include a 655-metre quay capable of accommodating five ships, a 50-ha reception area, and facilities for treatment and quarantine. The port will ship livestock from the region to Saudi Arabia, Egypt and Libya. Near Damerjog, another critical infrastructure asset of the DDID is also under development. In order to transport gas reserves from its concession in Ethiopia, China-based POLY-GCL is building a $4bn liquefied natural gas terminal. The structure is connected to Ethiopia’s Ogaden basin, where the gas is extracted by an 803-km pipeline. Both the facilities in the Damerjog area, located 13 km south of the capital, were scheduled to begin operations in 2018. However, no announcements had been made as of August 2018.

TRANS-SHIPMENT POTENTIAL: Reinforcing the existing port network will also permit the country to expand its market presence into other areas of the shipping sector. “One way to diversify is to become a trans-shipment point,” Mamadou Ndione, senior economist at the World Bank told OBG. “At the moment 80% of transport activity is from Ethiopia. But Djibouti is well positioned on the main international maritime routes.” Trans-shipment remains a mostly unexplored facet of trade potential, and of total import merchandise of 12.6m tonnes in 2016, only about 1m tonnes were occupied by trans-shipment cargo. However, this was a 30.5% increase on 2015 figures, according to DISED.

Trans-shipment is a natural extension for the sector, due to its location on the Strait of Bab el Mandeb and link with East African markets. However, Djibouti is likely to face rising competition with other ports in the region, with Somalia and Tanzania also making upgrades to their infrastructure in recent years, such as the Dar es Salaam upgrade, which is projected to increase annual capacity by 28m tonnes by 2020.

According to media reports, Djibouti was looking into partnering with French shipping group CMA CGM to build a new $660m shipping terminal, the Doraleh International Container Terminal. The project is set to receive 85% of its funding from DPFZA, with CMA CGM financing the remaining 15%. Over several construction phases, the new terminal should expand annual handling capacity at Doraleh from 2.4m TEUs to 4m TEUs.

FACILITATING OPPORTUNITY: Although a limited availability of foreign exchange and restrictive business regulations might be preventing faster growth rates, Ethiopia is forecast to see solid GDP growth of 8.2% in 2018, which will remain around 7.8% in 2019 and 2020, with this likely to have a positive ramification for transport and logistics in Djibouti. “If Ethiopia accelerates the development of their exports and can expand their manufacturing activity, this would greatly improve economic conditions in Djibouti,” Ndione told OBG. The investments currently being implemented, despite the weight they are having on Djibouti’s budgetary situation, will enable Djibouti to gain a prominent position in regional trade dynamics. “Even if other ports open up for Ethiopia, there will still be enough trade to help support the Djiboutian economy. Ethiopia needs all of the ports it can access, because it is a market of almost 100m people,” Ndione told OBG.

The ongoing expansion of port infrastructure is setting the stage for the transport sector to take an increasingly larger slice of regional trade flows. In order for these new opportunities to trickle down into the economy, efforts to improve regulations and create a fairer tax regime will need to be implemented, allowing domestic small and medium-sized enterprises to participate to a greater degree. The existence of different taxation regimes for domestic companies and those operating through specialised free trade regimes has skewed the burden of taxation disproportionally onto the domestic sector. To that end, a fairer taxation system will help local companies participate in the rising international trade flows allowed by Djibouti’s new infrastructure.