Sitting on the horn of Africa, Djibouti is located at a key point on trade lanes linking Africa, the Far East, the Middle East and Europe.
Its position lends itself to future ambitions of becoming a key transhipment hub on these lanes. At present it is somewhat unique in that it mainly handles transit freight for its landlocked neighbour Ethiopia. Its annual volumes total around 1m TEUs. According to the World Bank, 85% of cargo traffic in Djibouti is either going to or coming from Ethiopia.
When Djibouti seized control of the Doraleh container terminal from DP World earlier this week, declaring a “unilateral termination” of the concession contract, many parties were left angered and disappointed.
The government of Djibouti took action citing “the recent poor performance’’ of the port and said it hoped “to rectify irregularities in the agreement covering its operation.’’
DP World responded in a press release, stating, “The illegal seizure of the Terminal is the culmination the Government’s campaign to force the DP World to renegotiate the terms of the concession. Those terms were found to be “fair and reasonable” by a London Court of International Arbitration tribunal … DP World has commenced arbitration proceedings before the London Court of International Arbitration to protect their rights, or to secure damages and compensation for their breach or expropriation.” It also noted that the “Terminal is the largest employer and biggest source of revenue in the country. It has operated at a profit every year since it opened.”
DP World has operated the Doraleh container terminal since 2006, and the action by the government is the latest in a long-running dispute dating back six years. Notably in 2014, Djibouti launched a suit against DP World after alleging that it had made improper payments to the former head of the nation’s port authority, in exchange for favourable terms for the concession. Djibouti sought to exit from the deal, but DP World denied any wrongdoing after arguing that Djibouti’s parliament had approved the agreement. Djibouti lost the suit last February.
Given its previous record, one might expect DP World’s case to be upheld, but the issue comes to highlight the wider problems in developing infrastructure across the continent.
Proven and respected operators are needed in order to improve the fortunes of African trade and such disagreements will surely only deter those seeking to invest in the region. The African Export-Import Bank estimates that intra-African trade accounts for only 20% of the continent’s total trade. For comparison, intra-EU trade is approximately 60-70% of total EU trade.
Just last year, the Addis-Abba – Djibouti railway was opened, the first standard-gauge, international railway in Africa. The FT reported at the time that this would help drop the time to transport a container from Addis Ababa to Djibouti from three days to 10 hours and the cost was expected to be slashed by a third. At the time, Ethiopia’s President stated how he hoped railways could soon extend across the continent to West Africa.
Whilst projects like these could prove highly beneficial to African trade, ongoing conflicts such as the DP World episode only serve to hold back its development.
Source: Transport Intelligence, March 1, 2018
Author: Andy Ralls
