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Chinese investors to make the port of Djibouti the ‘Shekou of East Africa'

CMG, which is based in Hong Kong, has transformed shenzhen from a small fishing village into a sizeable city.Now CMG has already operated in Nigeria and Togo in Africa.

According to CMG president Li Xiaopeng,CMG now are in the process of making Djibouti the‘Shekou of East Africa by making full use of its geographical advantages.He stressed that they will use their experience in Shekou and adjust the model to local conditions.CMG has bought a 23.5% stake in the Port of Djibouti and 67% equity in nearby Doraleh Container Terminal earlier this year for $185m. 

It should have the financial muscle to invest heavily in the country. On 4 April, its port subsidiary, China Merchants Port Holdings, announced a post-tax profit for 2016 of $706m, up 14% on 2015, fuelled by growth in both container and bulk volumes.

The company began developing a 50-square km free trade zone at Djibouti in November 2016. It expects to invest $400m in the project, although tenants are expected to invest far bigger sums.

In common with Ethiopia, Djibouti is keen to attract manufacturing investment, including in the automotive sector, from companies that are being affected by rapidly rising wage costs in China. It has also mooted the possibility of attracting financial services companies to the zone.

CMG completed the first phase of Doraleh Multipurpose Port at the end of March at a cost of $590m. It is owned and operated by CMG and Djibouti Port SA. It will have 15 berths spread over four terminals: container, bulk, breakbulk and roll on-roll off. Crucially, given the growing size of container vessels in particular, the berths will have a draught of 16-18 metres. Two Chinese firms, XCMG and ZPMC, have provided the cranes used at the port.

Djibouti’s growth has also been aided by the completion of the $4bn electrified railway from the port to Addis Ababa last year. It already acted as the main port for landlocked Ethiopia but the new line cut the travel time from two days to ten hours. Apart from being more efficient, the railway should help Djibouti maintain its position as the Ethiopian entrepôt in the face of expected competition from the planned new port at Lamu in Kenya.

Government strategy

The government seems to be basing its economic strategy on its port capacity and the free trade zone, taking advantage of its location at the entrance to the Red Sea, on the shipping lanes between Asia and Europe. It calculates infrastructural investment in the country over the period 2014-16 at $2bn, with $15bn planned over the next five years. This is a huge sum given the size of the country.

It could be argued that while Djibouti can function as a transhipment hub, it does not have the population – skilled or otherwise – to support a large city. With a population of just 950,000, it seems unlikely that the scale of its ambition can be achieved without immigration, although the government denies this.

However, the same could be said of Abu Dhabi and Dubai just 50 years ago. Indeed, Shekou – which lies near Shenzhen in Guangdong Province – has itself been transformed by CMG from a small fishing village into a sizeable city.

Corruption claims rejected

The future of Djibouti’s ports seems a lot clearer after the conclusion of a legal dispute. The government had submitted a claim to the Court of Arbitration in London that DP World paid money to the chief executive of the port and free zone authority, Abdourahman Boreh, for the concession to operate Doraleh Container Terminal. The Court rejected the claim and ordered the government to pay all costs, ruling: “Mr Boreh did not at any stage breach his duty of probity to Djibouti.”

London Commercial Court had already rejected civil claims against Boreh brought by the government. DP World is expected to remain involved in operating both Doraleh and Djibouti, which lie just 11km apart, although its concession for the latter runs out in 2020. CMG is now heavily involved in both projects.
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