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Africa

Djibouti’s “International” Free Trade Zone is really just for one country

Samantha Maloof

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For the past quarter century, Djibouti has flourished as the Horn of Africa’s most strategic port, serving as a lifeline for landlocked Ethiopia’s $3.13 billion in exports at the mouth of the Red Sea and Gulf of Aden. So on the face of it, the Phase 1 opening last month of the Chinese funded, multi-billion dollar Djibouti International Free Trade Zone (DIFTZ) appears to position the tiny nation as a growing trading hub for the entire East African region. But is that just wishful thinking?

The DIFTZ is a sprawling complex meant to house four industrial clusters specializing in trade and logistics, export processing, business and financial support services, as well as manufacturing and duty-free merchandise retail. It’s touted to provide employment for tens of thousands and solidify Djibouti’s reputation as a business-friendly place.

The geopolitical calculations behind China’s generous financing in Djibouti are part of its Belt and Road Initiative, an aggressive economic plan designed to open up and create new markets for Chinese goods and technology by strengthening the traditional Silk Road trade route. That rationale is rooted in the fact that Ethiopia uses ports in Djibouti for about 95 percent of its external trade and pays around $1.5-2 billion in port fees. With the Ethiopian economy growing fast, obtaining better access to Addis Ababa is a crucial objective for the Chinese leadership.

But Djibouti should hold the champagne for now. Despite the glowing press releases, there are at least three major partners who have serious reasons for doubting the trustworthiness of the country’s leaders and its viability as a new axis for regional trade.

First, many U.S. analysts are expressing concern that the DIFTZ is financed by loans from state-backed financial institutions from China, dulling Djibouti’s triumphant expansion as a critical line between the export-rich Ethiopia and vital shipping lanes. In East Africa, the Export-Import Bank of China is the major investor in at least eight infrastructure projects, including an ongoing $322 million water pipeline project from Ethiopia and the $490 million Addis Ababa-Djibouti railway. Yet critics have described the Belt and Road Initiative as a method of entrapping poor countries to Beijing as “economic vassals.” For instance, a major report from the Washington-based Center for Global Development released in March cautions that the Chinese iniatives raise “serious concerns about sovereign debt sustainability in eight countries it funds,” including Djibouti.

Even more worrisome, Chinese commercial investment in Djibouti has been paralleled by the construction of a major Chinese military base, a mere six miles from the United States’ long-established Camp Lemonnier — the only permanent U.S. military base in Africa. The Chinese base is the first outside its borders and gives Beijing a military foothold on the African continent, an outcome that previously led to American political and military leaders pressuring the Djibouti government to block the construction of the base. U.S. military experts have expressed concern that a Chinese presence would hinder U.S. interests and its counter-terrorism missions, tensions that remain as American allies France, Japan and Italy also have bases of various sizes and capabilities in Djibouti.

The second reason: Ethiopia. Until a few months ago, Djibouti represented the country’s only way to access the sea and, as a stable partner, reaped the benefits of a near-monopoly on thriving Ethiopian trade. While ports exist in Sudan, Somaliland, and Eritrea, Djibouti’s developed facilities, political stability and investment-friendly atmosphere have proven more attractive than anywhere else in the region.

Now, however, a new player is coming to town: according to reports from Bloomberg, Eritrea is now mulling building a port on its coastline to export potash from its own mines as well as from Ethiopia. The port will be based at the Bay of Anfile, close to Eritrea’s potash mine at Colluli, which contains large quantities of potash that can be used as fertilizers for fruits, vegetables, and coffee trees. Most significantly, the development follows a historic rapprochement between Ethiopia and its former province of Eritrea in July, which has left Djibouti scrambling to protect its market share.

The third issue: the United Arab Emirates (UAE). Djibouti illegally seized a leased port container terminal from the UAE-based DP World company over a dispute dating back to at least 2012. Earlier this month, Dubai successfully sued the Djibouti government in a London-based international arbitration court over the seizure. Eyebrows were raised when Djibouti issued a statement dismissing the ruling as inconsequential, and the country is now trying to negotiate damages. But the scandal has already cast a shadow over Djibouti with potential foreign investors, as large shipping clients such as DP World publicly advocate for an additional 10 to 12 ports from Sudan to Somalia and continue to make a number of investments in East Africa, including in Somaliland.

The Emiratis also have close ties to Eritrea, where they established a naval base in 2015 that has been used to support the Saudi-led war against Houthi rebels in Yemen. And it was the UAE that helped broker a peace deal between Eritrea and Ethiopia, a further indicator that UAE businesses may favor Eritrean ports over those in Djibouti.

Is Chinese investment in the DIFTZ and other infrastructure projects enough to make up for all of this disruption? Perhaps not. Beijing had already started to cool on Ethiopia as an investment destination, and if the Ethiopian market finds multiple alternative ports in Eritrea or Somaliland, the promises of a thriving DIFTZ may end up being little more than hype.

Samantha is a freshly minted graduate in International Relations based in Cairo, currently working as a research assistant in a small think tank looking at development and inequality in Africa

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Africa

Ethiopia and Russia Need to Catch Up

Kester Kenn Klomegah

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“There is a need to catch up. We agreed to hold meetings regularly,” Foreign Minister Sergey Lavrov said at a media conference after diplomatic talks with his counterpart, Gedu Andargachew in Moscow. According to official reports, Lavrov and Andargachew held wide-ranging talks that were constructive and substantive, and focused on broadening cooperation between Russia and Ethiopia.

Ethiopia is one of Russia’s main partners in Africa. Both countries are tied by years of solidarity with the African countries in their fight for independence and decolonization. The creation of the African Union headquartered in the capital of Ethiopia, Addis Ababa, was the culmination of the decolonization processes in Africa.

Throughout their partnership, they have gained extensive experience in mutually beneficial cooperation that meets the interests of both countries in various areas. As a result, Lavrov said they both agreed to stimulate the work of the joint economic commission and to encourage it to implement joint investment projects across a variety of fields, including energy, such as hydrocarbon energy, hydroelectric energy and nuclear energy.

They further noted the importance and interest of companies such as Rosatom, Inter RAO, GPB Global Resources, Russian Railways, KAMAZ and UAZ in working in Ethiopia.

There is a potential for cooperation between Russia and Ethiopia in science and education. Russia pledged to support biological research under the Joint Russian-Ethiopian Biological Expedition, which has been operating there for more 30 years.

Many Ethiopian students study at Russian universities, including civilian universities and those operated by the Defence Ministry and the Interior Ministry. Russia will expand this practice. And at the request from the Ethiopian government, Moscow will conduct two specialized courses for Ethiopian diplomats at the Foreign Ministry’s Diplomatic Academy next year.

With regard to other promising areas of interaction, which has a rich history, include military-technical and military cooperation. Ethiopian Minister of National Defence, Aisha Mussa, took part in the talks as part of the delegation. Discussions here was about agreeing on additional regulatory documents which will allow more effectively to promote cooperation in supplying military equipment and in other areas.

Lavrov and Andargachew exchanged views on regional and global questions. “We are on the same page on most issues, consistently advocate for strengthening fair and democratic principles of international relations, and searching for collective answers to large-scale challenges and threats, and respecting the right of each nation to independently determine its future,” top Russian diplomat said.

With regard to the African countries and the African continent, Lavrov and Andargachew strongly support the idea that Africans should have the decisive role in deciding on the paths to resolve African problems. There is no alternative to resolving these crises, or crises in any other part of the world, through peaceful political means, while relying on an inclusive national dialogue. The situation in Africa and the goals that need to be vigorously addressed in order to overcome several crises and conflicts, primarily, on the Horn of Africa, South Sudan and Somalia. 

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Africa

Africans Must Focus on What Unites Them Not What Separates Them

MD Staff

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The majority of South Africans are appalled at the attacks on African migrants and refugees in the country by South Africans, said its Finance Minister Tito Mboweni at the opening plenary of the World Economic Forum on Africa.

“We welcome all Africans who have come to this conference; we welcome all Africans who live in South Africa. We are all Africans. We need to tell our people that what they are doing is wrong. These artificial barriers we have created and the hatred among ourselves must really become a thing of the past,” he said.

Responding to a question about the African Continental Free Trade Area, Mboweni said if Africa wants the free movement of goods, it also needs to ensure the free movement of people. “If free movement is supposed to happen, one cannot be in a position where you allow this person and not the other.”

Mboweni was standing in for Cyril Ramaphosa, President of South Africa, who was at Parliament to address protestors demanding action from the government on violence against women. Elsie Kanza, Head of Africa at the World Economic Forum, said that addressing systemic violence against women is a top priority for the meeting and she urged all leaders to act against the problem.

Amina Mohammed, Deputy Secretary-General of the United Nations, said leaders at all levels, not just at the political level, must “dig deep to bring back social cohesion. We need to look at what binds us and not what separates us.”

Speaking on the issue of the Fourth Industrial Revolution, Mohammed said that, while advances in technology are exciting, “the picture has shadows as well as light.”

Mohammed said technology is moving faster than the world’s ability to manage its impact and it is adding to the uncertainty of a world already unsettled by challenges such as climate change. “If governments cannot proactively manage the impacts, it will make our growth less inclusive with severe security implications.” Partnerships will be critical in addressing the challenges emerging from this new world.

Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, said the rapid pace of technology requires renewed frameworks for cooperation to be developed to deliver an inclusive and sustainable future for Africa.

“Africa cannot afford to be left behind. The Fourth Industrial Revolution can solve many of the issues that came with the first, second and third industrial revolutions. It is a catalyst for Africa to leapfrog into the 21st century,” said Schwab.

Cyril M. Ramaphosa, President of South Africa, in remarks read on his behalf by Mboweni, said Africa, along with the rest of the world, is dealing with the same question: how to harness the potential of the Fourth Industrial Revolution in pursuit of development and economic growth. “And importantly, how to ensure that, as we take this quantum leap into the future, we do not leave society’s most marginalized behind.”

“Disruptive trends and technologies are changing the way we live, the way we work and do business, and the way we govern. We must respond with agility to craft a roadmap for navigating this new environment. We must ensure that our citizens are prepared, and, if necessary, that they are shielded from any adverse consequences. Our response must be collaborative, multisectoral and inclusive,” said Ramaphosa.

Ramaphosa said South Africa is not only working with its neighbours to develop a continental strategy led by the African Telecommunications Union, but it has also established a Presidential Commission on the Fourth Industrial Revolution to position the country as a competitive global player in this new space.

Three new Forum initiatives were also announced at the plenary session: platforms dealing with youth and employment, risk resilience and e-commerce.

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Africa

Youth and Women Key to Making This Africa’s Century

MD Staff

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Africa can achieve a step change in economic growth by addressing shortfalls in governance, reducing barriers to trade and – crucially – embracing the potential of its youth and women, heads of state from across the continent told the World Economic Forum on Africa today.

“We have the wherewithal to be able to reach for higher levels of growth,” said Cyril Ramaphosa, President of South Africa. “The future is great. It looks very bright for the African continent. If there ever was a time when Africa definitely could be said to be on the rise, this is the time.”

Optimism about intra-African trade is on the rise following the creation of the African Continental Free Trade Area (AfCFTA), which includes nearly every country on the continent.

However, Botswana’s President Mokgweetsi Eric Keabetswe Masisi warned that leaders must now focus on the practicalities of easing cross-border commerce. “We need to remove all the barriers and put in the enablers to facilitate free trade, beginning in our neighbourhood,” he said.

If countries deliver on this, Ramaphosa said, AfCFTA could be “the greatest opportunity for economies on the continent to generate growth through trade.”

In a world where Europe faces shrinking workforces due to ageing and much of Asia soon will, Africa’s fast-growing population also offers a “demographic dividend” to drive future growth. Crowds of young Africans represent a huge resource to man the factories and service industries of the future, as well as a big potential market.
But that demographic dividend will only pay out if the young can find jobs – and that, in turn, will depend on skilling up the young.
“We need a rebirth of education for the 21st century,” said Amina Mohammed, Deputy Secretary-General of the United Nations.
At the same time, women must be brought into the fold to a much greater extent, requiring a root-and-branch fight against gender discrimination. This must include opening up previously restricted areas of education such as science to women, said Ethiopian President Sahlework Zewde.
“The important thing is to invest in our young people … and empower women,” said Mandulo Ambrose Dlamini, Prime Minister of Eswatini, formerly known as Swaziland. “I learnt that if you include women in leadership in your team, the level of intelligence increases.”
Hopes for Africa’s economy have been raised before. The continent enjoyed boom times prior to the financial crash of 2008, thanks to a commodities “super cycle” that saw sustained high prices for its raw materials. But prices for Africa’s minerals are well down on those heady days, while few countries have yet to escape the extractive model by managing to add value to their commodities. Now, however, there is a growing determination to achieve this, with Zimbabwe’s President Emmerson Mnangagwa and Namibia’s President Hage Geingob both calling for value to be added to their country’s minerals before they are exported.

“The problem of investors or foreigners who come to Africa is that they come on their own terms. From now on, Africa must tell investors when they come, they come on our terms,” said Geingob. “Why should my diamonds go out in raw form?”

Mnangagwa, who said he is striving to rebuild Zimbabwe’s “collapsed economy”, said it is vital to understand the needs of the private sector for investment in technology that could add value locally.

The over-arching requirement is for African countries to reassure their own populations and investors that they can offer a framework for stable growth, said Seychelles President Danny Faure. “We need to deepen the reform that we are doing to better reflect the need for Africa have what is necessary in terms of good governance, transparency, accountability and the rule of law,” he said.

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