Sunday April 7, 2019
By Nizar Manek
The African nation is tiny, poor, strategically located—and deeply in debt to Beijing.
The Doraleh Multi-Purpose Port. Photographer: Sarah Waiswa for Bloomberg Markets
Inside the carriages on the 10-hour rail journey through land-locked Ethiopia into the tiny Red Sea state of Djibouti, the chirping of mobile phones mingles with a mashup of regional languages and the murmur of the devout at prayer. A woman in a yellow frock trundles past maroon-upholstered seats with her cart: “Coffee! Bunna! Tea! Chai!”
At first glance, there’s nothing conspicuously Chinese about the Addis Ababa-Djibouti Railway, but then you spot the train’s Chinese driver and a few Chinese passengers huddled on a bunkbed. In fact, says Ilyas Moussa Dawaleh, Djibouti’s good-humored finance minister, “It’s all about the ‘C.’” The railway wouldn’t exist in its current form without a massive infusion of Chinese loans—indeed, most of Djibouti’s economy relies on Chinese credit. And the Chinese might not have shown as much interest if it hadn’t been for Djibouti’s geostrategic location: About a third of all the world’s shipping steams past this barren land on the northeast edge of Africa en route to and from the Suez Canal, the Red Sea, and the Indian Ocean.
China’s bridgehead here is part of its globe-girding “Belt and Road”
initiative, an amalgam of economic strategy, foreign policy, and charm
offensive that’s fueled by a torrent of Chinese money and is designed to
rebalance global alliances. And as with dozens of other way stations
along this new Silk Road, Djibouti’s dalliance with China is raising hackles from Paris to Washington.
China has no qualms. “China-Africa cooperation is yielding fruitful
results all across Africa, bringing tangible benefits to every aspect of
local people’s lives,” Foreign Ministry spokesperson Geng Shuang said
at a press briefing on March 18. “It is these people who are in the best
position to judge the effects of China-Africa cooperation projects.”
The
railway will eventually string together a necklace of big Djibouti
infrastructure projects in which the Chinese, through state-owned
companies, have substantial interests: the Doraleh Multi-Purpose Port,
the Doraleh Container Terminal, and the Djibouti International
Industrial Parks Operation, a sprawling manufacturing hub. At one point,
the railway skirts within a mile of the two-year-old Chinese People’s
Liberation Army support base, which was China’s first overseas naval
station.
Chinese and Djiboutian flags at the Djibouti International Free Trade Zone. /Photographer: Sarah Waiswa for Bloomberg Markets
China Merchants Port Holdings Co.,
a state-owned corporation, wants to turn Djibouti into “the Shekou of
East Africa,” Dawaleh says, referring to the free-trade zone across
Shenzhen Bay from Hong Kong. Djibouti, whose gross domestic product was
$1.85 billion in 2017, can use the help. According to the World Food Programme,
79 percent of Djiboutians live in poverty and 42 percent in extreme
poverty. Barely larger than Wales, the nation has a population of about 1
million people. Livestock represents the main livelihood of a third of
the population, but the country, whose meager natural resources include
salt and gypsum, has to import 90 percent of the food it needs.
As
clanking machinery and the rising dust of construction activity along
the coast attest, Djibouti is making progress of a sort, but it’s coming
at a steep price. Under President Ismail Omar Guelleh, the one-party
state is partway through what started out as a $12.4 billion
infrastructure development program, much of it funded through loans from
the Export-Import Bank of China.
China has taken major stakes in some of those projects. Take the
sprawling International Industrial Parks Operation, where red lanterns
left over from Chinese New Year celebrations were still hanging in
March. Ten percent of this free-trade zone is owned by the Port of Dalian Authority,
China; 30 percent by China Merchants, which owns about one-fifth of
Dalian port; and the rest by Great Horn Investment Holding, a wholly
owned subsidiary of the Djibouti Ports and Free Zones Authority.
China
Merchants owns 23.5 percent of a Djiboutian holding company that in
turn owns the Doraleh Container Terminal, Djibouti Dry Port, and the
Doraleh Multi-Purpose Port. The latter’s been operational since last
year, built on $580 million in loans from the Chinese EximBank that
Dawaleh describes as “almost concessional.”
China’s grip was tightening as Djibouti’s debts were soaring. In a 2017 report,
the International Monetary Fund said Djibouti’s public debt—the lion’s
share of it owed to China—rose from 50 percent to 85 percent of GDP over
the previous two years. In December the IMF criticized the government
for falling deeper and deeper into debt.
“The Djiboutian
authorities’ strategy of investing in infrastructure to transform the
economy and position the country as a logistics and commercial hub
offers great opportunities for economic growth and development,” the IMF
said. “However, the financing of this strategy through a buildup of
debt has resulted in debt distress, which poses significant risks.
Public and publicly guaranteed debt is expected to be around 104 percent
of GDP at end-2018.”
An unfinished rail line near the Chinese People’s Liberation Army support base. é Photographer: Sarah Waiswa for Bloomberg Markets
The government here takes a different view. Dawaleh says the IMF
shouldn’t include the debts of Djiboutian state enterprises in its
assessment because those enterprises “are overperforming or have the
capacity to overperform.” “This should not harm us,” he says in his
office in Djibouti City, having just returned from meetings with Vice
President Wang Qishan and other Chinese officials in Beijing, where he
sought to restructure Djibouti’s EximBank loans.
Dawaleh was there
to talk about two loans in particular—$460 million for Djibouti’s share
of the railway and $340 million for a water pipeline. (The
750-kilometer [466-mile] railway is a joint project of Ethiopia and
Djibouti, built with more than $4 billion in EximBank loans; 656
kilometers of track run through Ethiopia, providing it with a valuable
trade link to the sea.) Djibouti wants to refinance the loans because
neither project is generating the revenue it should at this stage. The
railway began operations last year, a year and a half behind schedule,
and is running one freight train a day instead of three as planned.
Power supply problems have prevented the pipeline from operating at all.
Djibouti’s grand expectations, Dawaleh says, do “not always match the
reality.”
At sunset one day in March, a dozen
schoolchildren are playing along the tracks on the outskirts of Djibouti
City. They’ve got a great view of the city, the port area, and, in the
distance, the Gulf of Tadjoura. The most fun to be had on the tracks,
says Hamza Mahamad Osman, 14, is when a slow-moving train from Ethiopia
rolls by with empty containers. “You can jump on it and hide away,” he
says. “But you have to jump off before ending up in the port and in a
ship!”
Farther along the tracks, from the train station at the
Doraleh Multi-Purpose Port, you can see the high walls that hide much of
the Chinese People’s Liberation Army support base from view. The roofs
of several large three- and four-story buildings look like something
vaguely out of the Forbidden City in Beijing. “Yes, it’s very nice,”
says the port’s commercial director, Habon Abdourahman Cher. “But don’t
take a picture.”
China is hardly the only country with a military
presence in Djibouti. The U.S. Africa Command is headquartered at Camp
Lemonnier, a naval expeditionary facility that’s the only permanent
American base in Africa. The Japanese, Italians, and Spanish are also
here. The Saudis are planning a base. France has had a foothold since at
least 1894; what is now Djibouti was French Somaliland, a colony, until
1977.
When French President Emmanuel Macron visited in March, he did more than highlight France’s intention to spread its influence
in East Africa and beyond. He also chided Djibouti for its overreliance
on Chinese largesse. “What can look good in the short term,” he said,
“can often end up being bad over the medium to long term.” Paris, he
said, “wouldn’t want a new generation of international investments to
encroach on our historical partners’ sovereignty or weaken their
economies.”
The U.S. has been beating this drum even more loudly than the French.
“China uses bribes, opaque agreements, and the strategic use of debt to
hold states in Africa captive to Beijing’s wishes and demands,” John
Bolton, President Trump’s national security adviser, said in a speech
in Washington in December. Geng, the Chinese Foreign Ministry
spokesperson, dismissed such talk as “groundless accusations filled with
cold war mentality.”
A discarded Chinese newspaper serves as a place mat at a Yemeni restaurant. éPhotographer: Sarah Waiswa for Bloomberg Markets
Bolton warned of the consequences if, as has
been rumored, China Merchants were to gain control of the Doraleh
Container Terminal via a debt-for-equity swap. “Should this occur,” he
said, “the balance of power in the Horn of Africa—astride major arteries
of maritime trade between Europe, the Middle East, and South Asia—would
shift in favor of China.” Aboubaker Omar Hadi, chairman of the Djibouti
Ports and Free Zones Authority, described Bolton’s assertion as
“propaganda.” “We have local expertise,” he says. “Why would we look at
importing other entities to operate our ports?”
Near the shores of
the Gulf of Tadjoura, meanwhile, an office tower, a hotel, and
warehouses are rising at the Djibouti International Industrial Parks
Operation. The vast free-trade zone sits beside an array of key
commercial operations: the Doraleh Container Terminal and the Doraleh
Multi-Purpose Port.
Neima Abdillahi Ahmed is the industrial park’s commercial manager. She
says she’s seen photos of Shekou, the Chinese free-trade zone, from the
last century—and recognizes the changes she’s living through. “Thirty
years ago, Shekou was like Djibouti,” she says. “There was nothing.”—With Han Miao
Manek covers Ethiopia and the Horn of Africa for Bloomberg in Addis Ababa.