Latest Post

Africa’s Djibouti Launches $3.5 Billion China-Backed Trade Zone


The first stage of a China-sponsored free trade zone in the tiny African nation of Djibouti has formally launched, in what the two countries hope will become the continent’s biggest free trade zone located on a major global trade route.
The 6-square-kilometer (2.3 square miles) Djibouti International Free Trade Zone (FTZ) opened its first phase last Thursday at a ceremony attended by the nation’s president, along with support from leaders of neighboring Somalia, Ethiopia and Rwanda, according to the FTZ’s social media account.
The Horn of Africa nation and Chinese state-owned partners China Merchants Port Holdings Co. Ltd. and Dalian Port (PDA) Co. Ltd. intend to expand it to 48 square kilometers eventually and invest $3.5 billion in its development over the next 10 years, according to the FTZ’s website.
The developers hope the FTZ will become a key hub for shipping, trade and finance that penetrates well beyond Djibouti and into its neighbors, with more than 20 African and Chinese companies showing interest in setting up there. The park could also help the African nation reduce its large trade deficit with China.
“Djibouti exports virtually nothing to China or elsewhere, but it had a trade deficit of $2.2 billion with China last year, and Chinese imports have been growing at 30% annually for several years,” said Jeremy Stevens, chief China economist at South Africa’s Standard Bank. “With the new FTZ, I really hope that part of the story is to develop Djibouti’s, or at least the region’s, manufacturing to aid their growth, and development.”
Djibouti has welcomed a major influx of Chinese infrastructure investment in recent years, with a nonstop string of major deals signed as part of Beijing’s Belt and Road Initiative, which aims to build infrastructure in developing countries with the help of Chinese firms. Djibouti’s strategic Red Sea real estate also led China to set up its first-ever overseas military base in the country.
China is also developing and underwriting storage and port facilities in Djibouti with an aim of shipping natural gas from neighboring Ethiopia. In 2017 the state-owned China Poly Group Corp. signed a memorandum of understanding to invest $4 billion to develop gas pipelines and a liquefication plant in the country.
The same year, passenger trips began on a 750-kilometer (466 miles) railway connecting the port of Djibouti City, the nation’s capital, to the Ethiopian capital of Addis Ababa. The $3.4 billion project reduced travel time between the two cities to 12 hours, down from the previous three days over the patchy regional road network.
“Djibouti places into sharp focus the speed Chinese firms can embrace strategically relevant countries and those that can successfully link themselves to Belt and Road,” Stevens said.
While Chinese funding and investment has flowed into Djibouti, questions remain about the country’s ability to deal with the big debt it is accumulating from such projects, which have total investment of more than $10 billion. By comparison, Djibouti has an annual gross domestic product of about $3.25 billion.
Several analysts have pointed to developments in Sri Lanka as a warning of the risks facing Djibouti and its China-backed port development. There, Colombo took on substantial levels of debt to fund infrastructure projects and then handed China a 99-year lease on the newly-finished Hambantota port to try to reduce the mounting debt burden.

“Djibouti has already leveraged the balance sheet,” said Aly-Khan Satchu, CEO of investment advisory Rich Management. “The open question post-Hambantota is the return on investment on these big-ticket Belt and Road-related infrastructure investments.”