April 13, 2018

Berbera Port: Influences from Beyond the Horn

By Jos Meester (jmeester@clingendael.org) and Willem van den Berg (wberg@clingendael.org)

The recent joint-venture between DP World, the government of Somaliland and Ethiopia's government - 51pc, 30pc and 19pc stakes, respectively - for the development of Berbera port in Somaliland, has been met with substantial criticism from Djiboutian and Somali politicians.

While the spat has certainly prompted a fair amount of diplomatic firefighting, the noise in the media does not necessarily mean there is substance in the allegations. All Horn actors’ influence in regional politics is dependent to some degree on their alignment with the same wider geopolitical alliances in the region, limiting their diplomatic manoeuvring-space.

From the Ethiopian side, the political and economic business case underpinning the port deal is hard to discredit. Export opportunities are critically important for the continued growth of Ethiopia's economy. While Berbera port may not provide export opportunities at a competitive cost, diversifying away from sole reliance on the Port of Djibouti reduces the risk of export constraints, blockages and potentially allows for scaling up exports in the future.

Nonetheless, the main partner in the venture, DP World, is considered to be a foreign policy instrument of the United Arab Emirates (UAE). As a consequence, Ethiopia’s position within the Berbera port deal can only be understood in the context of the relationship the main regional actors, the Gulf states and China, have with Ethiopia’s coastal neighbours, Djibouti, Somaliland and Somalia.

The Berbera port deal is mostly a result of Djibouti’s shift away from the UAE and towards China. After awarding DP World a 30-year concession for Djibouti’s Doraleh port in 2006, relations between the government of Djibouti and the company quickly soured. Djibouti revoked the contract in 2014, took DP World to court, and in February of 2018 seized control of the port.

Relations between Djibouti and the UAE deteriorated at the same time. While the UAE military operated out of Djibouti during the start of the war in Yemen, in April 2015 UAE troops were expelled from the country over a lease disagreement. The UEA first turned to the port of Assab in Eritrea for a military base, before both DP World and the UAE military set their sights on Berbera in 2016.

Djibouti, in turn, pivoted towards China, which has now invested around 10 billion dollars into the country, including improvements to Doraleh Port, and opened a military base in Djibouti in 2017. Ethiopia’s involvement in the Berbera deal concerns Djibouti, as it is afraid its ports will lose revenue to Berbera. It is also troubled at seeing Ethiopia work together with DP World, the company it has been fighting in international courts.

However, Djibouti ultimately has little leverage and has little choice but to maintain a close relationship with its much larger neighbour. The nation is highly dependent on Ethiopia for its water, electricity, food, and the majority of its income. Moreover, Djibouti’s new Chinese financiers are heavily invested in Ethiopia as well and will push for the two countries to work together. The recently completed Ethiopia-Djibouti railway, built and largely financed by Chinese companies for over four billion dollars, is a testament to this commitment.

Somaliland, which has been de facto independent from Somalia since 1991, has a longstanding economic dependency on livestock exports to Saudi Arabia and the UAE. With a long coastline and landlocked Ethiopia next door, it had been looking for some time for an international investor to develop the port of Berbera and open up the “Berbera corridor” to Ethiopia. It can thereby take a share of the sizeable Ethiopian trade flows going through Djibouti.

Although several international firms were bidding, including the French firm Bolloré, to many people’s surprise DP World was selected in the end. The selection was controversial as the news was accompanied by a Somaliland government reshuffle and allegations that members of the Somaliland parliament, as well as the presidents of Somaliland and Somalia, had been offered bribes for their approval.

The deal with DP World is believed to have been facilitated by Abdourahman Boreh, an exiled Djiboutian businessman who used to be in charge of Djibouti Port and is a former ally turned rival of the Djiboutian president Ismail Omar Guelleh. In addition to the economic reasons for developing the Berbera port, Somaliland has also made a significant foreign policy statement with the 442 million dollar deal.

The announcement that the UAE would build a military base in Berbera can also be seen as Somaliland seeking a security ally in the region, which lends extra credibility to the country’s autonomy and international standing. But regardless of what Somaliland wants out of its new relationship with the UAE, it has little leverage over the Gulf country. This may explain why Somaliland agreed to Ethiopia taking a 19pc share of the port, as it ties its larger neighbour into its economic plans and improves its bargaining position within the Horn.

In the end, however, the Berbera port deal was primarily the result of events that happened outside of Somaliland: Djibouti’s fallout with the UAE and possibly also the UAE’s competition with China as a logistics provider.

Important to understand about the Somali response on the Berbera port deal is the precarious balancing act Mogadishu is attempting to pull off in the Gulf Cooperation Council crisis. Irrespective of significant pressure from the Somali regions, parliamentarians, and the business community side with the Saudi-Emirati camp, Mohamed Farmaajo's government has thus far refrained from endorsing either side in the conflict.

While the Somali government may be bargaining to maintain revenue flows from all GCC states rather than capitalising on one side, the position also reflects an internal divide in Somali politics. Turkish influences predominate in Mogadishu following a port deal and military base, yet the UAE has long been one of the most influential actors throughout the regional states of Somalia.

Shortly after the Berbera deal, DP World signed a similar deal over Bossaso port in the Puntland region with considerably less objection from Mogadishu. Kismayo port in southern Lower Juba in its turn is heavily reliant on trade with Saudi Arabia and the Emirates through exports to Dubai. Additionally, the politically influential of the Somali business community is heavily dependent upon the UAE to access business services such as international banking and to frequently operate their Somali ventures through shell companies in the UAE.

Given these ties, it is hard to argue that the Somali government can make any substantive objections to the port deal or the UAE’s involvement. It is perhaps more likely that opposition to the agreement is Mogadishu using the issue of Somaliland secession instrumentally to either rally Somali politics under a nationalist banner or as a bargaining chip in a bid to mobilise financing from the Gulf states.

Given the regional alignments, it is clear that Ethiopia is in a relatively strong position compared to its Horn neighbours. The main foreign actors in the region are tied to Ethiopia’s economic success through a series of significant investments over the past years. This may be a logical consequence of the fact that Ethiopia is the most significant economic and political power in the region, granting it leverage in Horn politics and manoeuvring space in the wider geopolitical allegiances.

Nonetheless, it should be kept in mind that Ethiopia is not an equal partner in its relation to its Gulf and Chinese partners. Geopolitical alliances can shift rapidly, and the economic ties Ethiopia maintains are significant but not critical to the Gulf and Chinese economies. To keep a favourable position within the constellation of alliances, Ethiopia will need to be able to act rapidly and decisively.

Perhaps the biggest challenge to Ethiopia here is the extraordinary transition the country is going through - three years of public protest, two emergency decrees and the resignation of a Prime Minister. The attention currently required by this domestic realignment may limit attention to international affairs, and thus the country’s ability to swiftly respond to changing geopolitical circumstances.

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