How Djibouti is Maximizing its Strategic Position in Maritime Trade

One of the stark distinctions between Djibouti and other African nations is its characteristic barrenness. Its natural resources are limited, and a tiny proportion of its land is arable. Coupled with a harsh climate, agriculture is almost inconceivable, and Djibouti has to import most of its food from foreign markets. These realities mean that the services sector commands Djibouti’s economy - especially services in shipping and logistics – and this limits production diversification, leading to over-dependence on foreign markets.

Despite these challenges, Djibouti’s strategic position at the connection of the Red Sea and the Gulf of Aden has given it an immense advantage in international maritime trade. Djibouti Port remains the most important asset that this small nation of about one million people has, and it powers Djibouti’s $4 billion city-state economy. Thus, Djibouti pegs its economic transformation on improving the competitiveness of its ports. This is evident in its ongoing $14 billion infrastructure expansion, whose large component is going into establishment of new ports and terminals across the country’s coastline.

The high headline growth rate of Djibouti’s major trading partner, Ethiopia, will see the country reap a relatively higher return on investment on port expansion as demand for export and import soars. According to estimates by World Bank, 85 percent of Djibouti port throughput is either going to or coming from Ethiopia. From 2010 to 2019, Ethiopia’s real GDP growth has averaged 9.5 percent - one of the highest rates in the world - and it’s expected to have a knock-on effect to Djibouti’s economy.

To this effect, Djibouti has crafted an ambitious national strategy towards its socio-economic transformation, dubbed Vision Djibouti 2035, which aims to position the country as a global trade, logistics and industrial hub. This centers on ports and intermodal infrastructure development to increase the size of the hinterland served in East Africa and the Horn of Africa. The key component of this strategy includes development of a network of specialized ports: one for containers, one for dry-bulk cargo and another for liquid bulk.

This specialization of ports is especially important given Africa’s reliance on commodity exports. Inadequate purpose-built bulk ports in Africa makes it difficult to compete in the world of bulk exports with the likes of Brazil and Australia, despite the mineral abundance in the continent. Djibouti so far has two operational bulk ports, Tadjourah and Ghoubet, specialized in potash and salt respectively. Tadjourah Port can handle 2000 tons of potash per hour while Ghoubet port can handle 5 million tons of salt annually, sourced from the world’s largest salt deposit at Lake Assal in Djibouti.

In addition, Djibouti’s capacity to handle liquid bulk destined for Ethiopia is severely constrained by the limitations of Horizon Djibouti Terminals, where oil storage facilities are concentrated. The port’s current storage capacity stands at 379,000 cubic meters, not enough to handle a throughput of refined products hitting more than 3.5 million cubic meters in recent years. In response to this operational deficit, Djibouti last month launched the construction of Damerjog Liquid Bulk port, which will have an annual throughput capacity of over 13 million tons. The construction is being undertaken by a Moroccan company, SOMAGEC, that specializes in port infrastructure. This is one of the phases of Djibouti Damerjog Industrial Park (DDIP) intended to ensure Djibouti’s industrial development. The rest include the ongoing construction of Djibouti Liquefied Natural Gas port, a $4 billion project consisting of an 800-km pipeline that will connect the gas extraction areas in Ethiopia’s Ogaden basin to the coast of Djibouti, as well as a gas liquefaction plant and export terminal. The plant is expected to be operational by the end of this year and have a capacity to export three million tonnes of natural gas per year. The export terminal will be able to handle LNG carriers with a capacity of up to 267,000 cubic metres.

Djibouti’s geographical position near world’s busiest shipping routes creates a strong imperative for China’s Belt and Road Economic Initiative, which explains colossal investments by China in Djibouti’s port facilities. This China-Djibouti nexus has created Africa’s largest free zone, the Djibouti International Free Trade zone (DIFTZ) and the world-class Port of Dolareh. So far, 90 local and multinational corporations have been registered by DIFTZ and an online B2B (business to business) transaction platform, Djimart.com, launched recently to support business operations in the Covid-19 context.

However, there are a few bottlenecks that could hinder Djibouti ports transformation into a hub - key among them its smaller hinterland access due to an over-reliance on serving Ethiopia, and (as a result) its lower liner connectivity.

Brian Gicheru Kinyua is a freelance writer based in Mombasa City, Kenya where he researches and writes on logistics and the African Blue Economy.