Djibouti nationalises DP World’s stake in Doraleh Container Terminal

The arguments over the port of Djibouti rumble on. In the latest development, the Djibouti government has enacted a decree to ‘nationalise’ the joint venture ‘Port de Djibouti S.A’ (PDSA), effectively confiscating the shareholding of DP World and taking control of its principal asset, the Doraleh Container Terminal at the port of Djibouti.

DP World has been in dispute with the government of Djibouti since February, when Djibouti forced DP World’s staff at Doraleh to leave the country and took physical control of the facility. DP World brought the case to the High Court in London as the contract between the two was written in English Common Law. The court found for DP World, but the government of Djibouti has not obeyed the judgement. Rather, Djibouti sought to implement a sort of reverse takeover, with the Doraleh Container Terminal company taking over PDSA.

The origins of the dispute date back over 10 years, with Djibouti pressing DP World to renegotiate the terms of the initial contract.

It is worth noting that 23.5% of PDSA is owned by China Merchants, a very large ‘State Owned Enterprise’ quoted on the Hong Kong Stock Exchange. China Merchants bought the equity in PDSA for US$185m in 2012. Presumably this holding has now been acquired by Djibouti along with DP World’s.

The background to the argument is the economic revival in the region. After years of war and extreme poverty, much of the ‘Horn of Africa’ is experiencing growth, in part driven by increasing exposure to the world trading system. The Chinese in particular are attempting to transfer low value-added activities from China to economies such as Ethiopia, hoping to utilise the region’s low-cost labour resources. Logistics infrastructure is key to this development and Djibouti has one of the few viable ports in the region.

Several nations perceive Djibouti as a strategically important location, with France, the US and China having developed naval bases there. Consequently, the political pressures on Djibouti are considerable. 

The grabbing of assets at the port of Djibouti has implications for the wider region. If political instability threatens investment in major logistics infrastructure, the Horn of Africa’s vigorous economic growth could be imperilled. Bearing in mind that the Chinese government has been heavily involved in the building of related projects, notably the railway linking Djibouti to Addis Abba, it will be interesting to see what the reaction of the Chinese will be to the confiscation of assets at Doraleh Container Terminal.

Source: Transport Intelligence, September 13, 2018

Author: Thomas Cullen


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