Peace Deal Sounds Echo at Djibouti Port

Jan 1 , 2023

The November peace deal holds the promise of reinvigorating port traffic for the country handling 93pc of Ethiopia’s import and export trade. According to the IMF report, Djibouti’s highly indebted economy hangs on the delicate peace deal agreed upon in Ethiopia. The peace agreement between the federal government and TPLF forces seems to be taking a positive turn as delegates from the federal government gathered in Meqelle, Tigray Regional State, last week. The declining trade has had an underwhelming yield in the infrastructure investment connecting the two countries. Following a late December visit, a team from the IMF led by Brett Rayner advised on results from infrastructure investments in Djibouti. He forecasted that Djibouti’s 2023 economic growth is contingent upon a concurrent peace and rebound of the Ethiopian side since nearly a quarter of government revenue comes from the logistics sector. He ascribed the heavy debt distress of Djibouti’s economy to be arising largely due to infrastructure investments that were supposed to connect Ethiopia to the global market. Ethiopia provides several agricultural commodities to Djibouti, the main one being Khat which accounted for seven percent of all imports in 2020. The country of one million population relies on port traffic from Ethiopia as a significant contributor to its economy, which stands at 85pc of all its port traffic according to data from the World Bank. “Djibouti used to be a desert 30 years ago,” commented one academic in the Ethiopian logistics sector. He referred to Eritrea’s cessation from Ethiopia in 1993 as being foundational to the economic growth of Djibouti over the last three decades. The IMF report suggests that heavy infrastructure projects that were debt-financed to facilitate the smooth transport of goods are at the root of the debt distress faced by Djibouti. Djibouti's debt-to-GDP ratio stood at 72pc in 2021, compounded by a narrow tax base and a large informal sector. The small-scale liberalization of Djibouti’s economy, evidenced by the offering of minority stakes in its telecom sector, did not attract enough interest suggests the report. The near complete monopoly Djibouti had over Ethiopia’s trade was challenged as the new government sought to diversify its port access by jointly developing access with DP World in Somaliland in 2018. DP World, an Emirati multinational logistics company with 80 inland and marine terminals worldwide, was dismissed from Djibouti by a presidential decree that same year. This expropriation act led to a string of lawsuits by DP World, in which eight court rulings amounted to 686 million dollars in damages. Ethiopia’s war in 2020 led to a simultaneous decline in Djibouti’s port traffic, and the international rise in commodity prices aggravated the economic shock and regional drought, suggests the IMF report