5 April 2018

Ethiopia Acquires 19 Percent Stake in Port of Berbera

Photo: Lakmi00/Wikipedia
Port of Berbera

Addis Ababa, Ethiopia — Shipping company DP World and the Republic of Somaliland have agreed to grant Ethiopia a 19 per cent stake in the Port of Berbera.

The trade operator said it would retain 51 percent with Somaliland keeping the other 30 percent. This paves the way for the world's fourth biggest operator to invest $442 million. Financial details were not disclosed but an official statement said the Ethiopian Government would develop a 260-kilometer road from the site to its border. A new company will be formed to manage the shares which will then be divided between all three governments.

"I am so excited about the project," said Sultan Ahmed Bin Sulayem, Group Chairman. "It demonstrates our commitment towards the people of Somaliland and Ethiopia. Our vision is to make Somaliland a maritime hub in the Horn of Africa. The new advancements will create jobs and meet fast-growing demands for logistics and infrastructure."

The positive news comes a week after neighbouring Djibouti ended a contract with DP World to run its Doraleh Container Terminal. This move was deemed illegal by the shipping company and proceedings have begun before a court in London. The six year dispute threatens to damp investor appetite in Djibouti and further disrupt its relationship with the UAE, where DP World is headquartered.

Boasting a portfolio of over 77 marine and inland terminals, DP World is supported by 50 related businesses in 40 countries across six continents. Container handling is the company's core business and generates more than three quarters of its revenue. The new partnership strengthens political ties with the UAE. Up until now, the Port of Berbera has only been importing and exporting on a small scale - but that is soon to change.

"We continually improve our business to make it a safe, efficient and sustainable gateway in Africa," said Xasan Abdullahi, General Manager. "It is our aim to create value for our customers by developing the best logistics, networks and clusters."

Somaliland celebrated its 16th anniversary of independence last year and has been experiencing economic prosperity for over a decade. It can boast of an army, its own currency, legal system and now a maritime hub to compete with the likes of Djibouti. The UAE are constructing a military base in the region and have always been a staunch supporter of independence. Ethiopia are on equally positive terms with Somaliland after officials met in 2017 putting strong focus on peace, security, economy, trade and education.

"Our country views development of neighbouring countries as its own," said Hailemariam Desalegn, former Prime Minister of Ethiopia. "We will continue to work with Somaliland by providing further educational opportunities. Ethiopia will also support the fight in combating Al- Shabaab."

The land along the road into Berbera is barren and empty but its fortunes look set to change following this multi-million dollar deal. Locals and investors believe it is on the brink of an economic boom and there has been more building in the last two years than ever before. Unlike many other major towns in Somaliland, swathes of land around the port are government-owned.

A 12 kilometre trade free zone is planned for Berbera to support trading and generate jobs. Modelled on DP World's Jebel Ali Free Zone (Jafza) in Dubai, it has been put in place to encourage growth. Small and medium-sized companies will be given the chance to locate their operations in an environment conducive to trade. The free zone will target a wide range of businesses including warehousing, logistics, traders and manufacturers. First developments will focus on a 4km2 stretch of land with each further phase starting once the previous has achieved 85% occupancy.

The Somalian Ministry of Ports have dismissed the agreement as "defective" and said it was in breach of Somalia's Provisional Constitution. In its response, Somaliland said the oppositional stance was not helpful in creating an effective environment for dialogue and had no bearing, whatsoever, on the commercial agreement in place.

Somalia's attack hasn't slowed down operations with workers already being sent to Thailand for training. These include operators, planners and administration professionals. Upon arrival, staff will be equipped with the required know-how in world class terminals and container handling. Broadening communication skills is another key priority.

"DP World wants to equip workers at the Port of Berbera with enough skills to create productive, efficient and safe trade solutions globally," said Sulayem. "This is an ambitious project so the best processes need to be in place."

Once complete, the port will be an additional asset in Ethiopia's ever increasing import and export demands. Improving the Berbera corridor, a 250-kilometre road to the border town of Wajale, will provide strong transport links. Although Somaliland is not yet connected to Ethiopia by rail, investment in the corridor is estimated at an extra $200 million.

The total length of the road linking Berbera to Addis Ababa is 937 kilometres, 241 kms within Somaliland 696 kms within Ethiopia. Traffic volumes are high but it is in great need of resurfacing and general maintenance. It was originally constructed by a Lebanese company. Developing access to and from the site will improve profitability of the port, even though figures are already impressive.

Djibouti are aware that if Somaliland can tap into only a portion of Ethiopia's import needs, then this could divert hundreds of millions of dollars in customs revenue away from them. The Port of Berbera is much closer to Ethiopia's main commercial centres so will have an adverse impact in Djibouti's current monopoly on Ethiopian trade. In response, Djibouti announced they were in talks with French shipping firm CMA CGM to develop a new container terminal at an initial cost of $660 million. CMA CGM failed to comment.

New advancements in the Port of Berbera offer a unique window of opportunity for Somaliland and foreign investors. With UAE backing, the country can leverage its strategic location and seriously compete with Djibouti. Foreign direct investment is at an all time high for Somaliland and if things continue as they have, this is definitely a small nation with big ambitions to watch.

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