8/6/2020
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Berbera Port: prospects and potentials on the regional economy

by Yassin Abdillahi Ahmed
Sunday, 26 July, 2020


The Port of Berbera in Somaliland (AFP)

Berbera port is among the few corridors in the Horn of African region, which serves for both military and commercial purposes. 

The Berbera Port was built in 1964 by the Soviet Union and further expanded by the United States of America (USA) in 1982. It has served for both the Soviet Union and the U.S military within 20 years. However, it has lost its strategic[i] military importance after the Gulf war: the desert operation. The Gulf war facilitated almost all of the Gulf countries to award military bases to the U.S.—an event that coincides with the disintegration of the Soviet Union that turned the world politics from multipolarity to unipolarity.

Currently Red sea plays major role on Global trade, serving the Western demand of Hydrocarbons and facilitating the follow of goods between Europe and flourishing Asian markets. At least, 10% [ii] of World trades, equivalent to 700 billion US Dollars, moves through the Red sea each year.

The capacity of this port city has a fuel depot of 46,000 cubic meters [iii] added to the ongoing expansion of additional 20K cubic meters, it will make 66,000 cubic meters far less than the Djibouti Oil Terminal, whose capacity is: 330,000 cubic meters. Furthermore, Berbera port has an LPG terminal with 1200MT [iv] with portable storage tanks. By contrast, the Djibouti LPG terminal is 600MT, making Berbera’s LPG terminal as the largest in the Horn of Africa region. The LPG per capita consumption in Somaliland is 2 per person, while Ethiopia is 0.12 per person. The ongoing multi-layer sport developmental projects in Somaliland are meant to strengthen the economic integration between Somaliland and the Greater Horn of Africa countries. Perhaps, a caveat to the table is that the success of this aspiration will depend on the Somaliland -Ethiopia relation and developmental brashness of these countries.

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Somaliland has made headlines with news of 30-year concessions agreement with reputable global port managers Dubai Ports World in June 2016, a global port operator. It has taken six months to complete the deal, which is hitherto one of the highly kept secrets for the last 30 years of Somaliland existence. A commercial contract between this global port operator and de facto State but with elected leadership. In March 2018, Dubai Ports World (DPW), Somaliland Government, and Ethiopia signed a shared agreement for the port management and with 51% DPW, 30% Somaliland, while the remaining 19% was reserved for Ethiopia.

An arrangement with a state that is landlocked, a population of 110 million, and a heavyweight neighbour was needed. It was an investment with a guaranteed customer and right environment even though non recognition can be an issue; however, sustained peace, liberal economic policy, and political stability in Somaliland offset these challenges—and serves as the right mantra. 

Somalia has clashed, and within an hour of sighing fascinatingly enough, the Prime minister of Somalia was dispatched to the United Arab Emirates when the deal was signed. UAE officials who have not briefed that tripartite Agreement between Somaliland, DPW, and Ethiopia is in the offing. After holding hastily arranged press conference in his arrival of Mogadishu that the deal is null and void without their consent. The political temperature has increased, Somalia’s houses parliament both approved resolutions cancelling the commercial contracts for the Berbera port, and President Mohamed Abdullahi Farmaajo made an emotional speech that claims his administration was not involved but will cancel the agreement at any cost. As a result, planned Somaliland and Somalia meeting in Djibouti was cancelled by Somaliland Government this has made confrontation to an all-out investment battle.[v].

DPW was handed over the port management in March 2017. it has [vi]embarked on large developmental programs, from staff training to system development and large equipment endeavoring. Almost all equipment was replaced with new once incorporated into the system, including Forklifts, Stackers, Mobile Harbor Cranes, Dozen of Internal transfer Vehicles, and Tugboat.[vii] This and other embarked developments have helped the port to become within a couple of years from Traditional port to promising modern port; container terminal capacity has increased from 100,000 to 150,000 TIU per annum.

The number of containers the port handles increased from the 70,000 TIU in 2017 to 120,000 TIU in 2019, while general cargo increased around [viii]40%. The mobile Harbour Cranes can handle containers on vessels not exceeding 15 rows full and containers on deck not stacked more than five containers high.

With the expansion of 400 meter Quay and 250,000 Square meter Yard set to end on September 2020, will help Berbera port to berth large vessels which currently dock Djibouti widely known mother vessels. This new development will not only eliminate the existing sea-leg cost disadvantage, but as well it increases the volume of goods the port will handle. All eyes are with potentials of the Berbera port new capacity utilization plan with a further 400,000 TIU capacity set to be ready in 2021. In 2021 Berbera Port Capacity will reach 550,000 TIU and 4 million tons of General Cargo.

To facilitate seamless utilization of the new capacity, an all-out diplomatic engagement must be made to complete the necessary trade and transit agreement between Somaliland and Ethiopia as well as handling agreement between Ethiopia and Dubai Port World. It must be agreed how far Ethiopian Government managed shipping lines will channel to Berbera Port and how fast. All these and others will play in part. Trans shipment can also fill part of the gap as DPW is a global port operator with catastrophic commercial relations with Djibouti—a situation that might work well for Somaliland’s competitive advantage, at least at the start of the competition with Djibouti ports.

The transport sector will benefit momentously on the utilization of Ethiopia for the expanded port services. It will need a marathon effort to conclude the transport agreement with Ethiopia with equal participation of both countries. Specifically, transport standardization from Somaliland side is required well before the kick start of crucial port utilization, empowerment of transport unions from Somaliland side is necessary in order to facilitate no shipment is delayed with transport issue; the issue of insurance is required as Somaliland is a unique country with every aspect of governance but lacks de jure recognition.

Banking issue

Banking is a significant constraint for cross-border trade between Somaliland and Ethiopia. The lack of banking law for Somaliland other than Islamic Banking is not welcoming banks to consider open branches in Somaliland. As Somaliland is not internationally recognized, it can’t be part of what is known SWIFT, but the two Central banks of Ethiopia and Somaliland can agree on how to facilitate the trade of these two neighbouring countries and serve to each other as correspondence banks. The Banking agreement between Somaliland and Ethiopia is required more than before as two countries are heading work together with the utilization of Berbera port and Berbera free zone, which will exploit new opportunities.

Shipping lines

The number of shipping line operate in Berber port is very limited, and it is no more than six shipping lines, unlike Mombasa that is operated 42 shipping lines. A large number of shipping lines increase the opportunity and facilitate seamless sea transport facilitation. The limited number of shipping lines is a bottleneck in Berbera port, and there is a crucial and critical need to develop facilitation policy, which increases the number of shipping lines docking the port before the 2020 year-end.

Infrastructure

The 240Km Road between Berbera Port and Border point of Ethiopia (Wajaale) is currently going under heavy construction, coupled with 6 Bridges, 17 Pipe culverts, and 21 Box culverts. Three different funders are funding, including U.A. E financing the construction of165Km Road with fresh start while GIZ is funding refurbishment of around 60Km while DFID through East Africa Trademark is funding 22 Km of Bypass. This infrastructural development will solve two bottlenecks as per [ix]unpublished diagnostic reports, which termed the passing of Hargeisa City and Bridges between Berbera to Hargeisa as significant bottlenecks. In addition to that, the expected high-quality road to be constructed will not only facilitate seamless transportation for both goods and people between Somaliland and Ethiopia but will also shorten the period for travel, which is a significant deciding factor or competitive edge a vis-a-vis Djibouti. 

Berbera special economic zone management[x] has been awarded to DPW, which has been managing as well Berbera Port for the last three years. It has a vast experience as it has managed [xi] Jafza, which grew from 19 companies in 1985 to 7500 in 2019, which includes many Global fortune enterprises. It has created 135,000 jobs. Construction will take a couple of years, and at least 50 companies have shown an interest. It will accommodate for semi-processing and packaging. This will unlock significant opportunities and will create thousands of jobs and enhance Somaliland’s image at the region and global stage.

Conclusion:

Beyond ample opportunities, there also many constraints, including the high cost of transportation, banking, and customs coordination between Ethiopia and Somaliland; lack of trade and transit agreement might as well contribute delay of seamless and unceasing utilization of Berbera port.

Recommendations:

Somaliland Government needs to concentrate and complete any pending agreement regarding the port utilization, including transport agreement, which will make clear the share of each country will take, 50/50 can be prodigious for Somaliland; it will also solve any insurance issue and how far Somaliland transport can go inside Ethiopia.

As Berbera port locates and in important global shipping line gateway and the regional port has no dry dock, then it wise that the Government establishes dry dock in Berbera. This will give a competitive edge to Djibouti and will create hundreds of jobs. Awarding to a reputable foreign company can make a comfortable ride.

Combining the number of offices serving people at the port is urgently required to be decreased and all offices to be located in one place. This one-stop-shop approach will reduce the clearance of goods from the port, which in turn will save a lot of time for the business community.

Footnotes and citations:

[i] Author of: the Mind of the African strongman: Conversations with Dictators, Statesmen, and Father Figures Herman J. Cohen former US Assistant secretary of state for Africa Affairs.

[ii]www.weforum.org/agenda/2016/02/can-the-red-sea-become-a-global-trade-and-investment-hub

[iii]  Interview with Berbera Oil Terminal Staff

[iv]  Interview with SOMGAS Staff

[v] Interview with Somaliland Finance Minister; Dr. Sa’ad

[vi] DP World Operation staff based in Berbera Port

[vii]  Interview with Ports Director; Saeed

[viii] Interview with DP World operation staff based in Berbera Port

[ix] Unpublished Berbera corridor Diagnostic report

[x] Interview with Somaliland Finance Minister; Dr Sa’ad

[xi] Jafza.ae


Yassin Abdillahi Ahmed can be reach atYassin_abdillahi@hotmail.com


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