Ethiopia will enjoy low transport costs as it opens more sea routes. The county became landlocked in 1998 when it fell out with Eritrea, which gave it access to Massawa and Assab ports. This turned Djibouti as the only outlet and a critical lifeline for exports and imports to meet Ethiopia’s imports and exports needs, turning the tiny country into the Horn of Africa’s (HoA) dominant transshipment hub.
Djibouti’s port today handles 95% of inbound and outbound trade from Ethiopia, earning more than $1 billion in port fees per year from Ethiopia alone. This makes Djibouti the dominant port service provider in the HoA and a major player in the Red Sea.
However, this will change in the coming years. In a strange turn of events, and with Arab Gulf States growing interest in the Horn of Africa region, because of geopolitical and strategic considerations, in May 2016, DP World, a global port mega-operator agreed to develop Berbera port and manage the facility for 30 years.
The Ethiopian government gained a 19% interest in the port project. The other partners in the project are DP World with a 51% share; and Somaliland with a 30% share.
The total investment of the two-phased port project will reach $442m. DP World will also create an economic-free zone in the surrounding area, targeting a range of companies in sectors from logistics to manufacturing, and a road-based economic corridor connecting Berbera with Ethiopia.
The port deal with Somaliland, an autonomous region from the main Somali, which, though not internationally recognized by the international community, gave the county the much-needed reprieve by signing a deal with a recognized state. Port Berbera is now the closest sea route to Ethiopia, a journey of 11 hours. It has opened the route needed for the tremendous growth of import and export, largely livestock and agriculture.
The first phase of the Berbera port was launched in May this year after a new terminal became operational as part of an effort to build a major regional trade hub. According to Somaliland and DP World officials, Berbera’s new terminal will increase the port’s container capacity from the current 150,000 Twenty-Foot Equivalent Units (TEUs) to 500,000 TEUs annually.
“With the new terminal, along with the second phase of expansion and economic zone along the Berbera corridor, we are now firmly positioned to further develop and grow our economy through increased trade, attracting foreign direct investment and creating jobs,” Somaliland President Muse Bihi Abdi was quoted saying.
According to DP World, the second phase of the expansion includes extending the new quay from 400 meters to 1,000 meters and enabling the port to handle up to two million TEUs per year. Somaliland broke away from Somalia in 1991 and acts as an independent state.
DP World and Ethiopia’s Ministry of Transport have agreed to a $1bn deal to create a trade and logistics corridor from Ethiopia to Berbera in Somaliland. They will base the corridor on the 250km motorway between Berbera and the Ethiopian border town of Wajaale that got underway in 2019.
DP World and its partners plan to invest up to $1bn over the 10 years in a range of projects on Ethiopian territory that should maximize the value of the highway by adding “end-to-end logistics services”. These will include dry ports, silos, warehouses, container yards, refrigerated depots, freight forwarding, and clearing activities.
The agreement envisages the formation of a joint-venture logistics company to carry out operations along the corridor. Ethiopia will also install IT systems and technology along the corridor to ensure the secure transfer of cargo, DP World said.
With the elevation of Prime Minister Abiy Ahmed, the Ethiopian leader sped up efforts his country had undertaken in the last decade to tackle its logistics nightmares.
The new prime minister forged a truce with Eritrea, an arch-rival player. He struck a deal with President Isaias Afewerki that included restoring Ethiopian access to the ports of Massawa and Assab.
Ethiopia is executing due activities to re-access the Eritrean ports of Massawa and Assab whilst the Eritrean side is currently renovating the ports facilities to handle Ethiopia’s shipment and provide seamless service for future traffic.
The Ministry of Foreign Affairs Spokesperson Ambassador Dina Mufti told the Ethiopian Press Agency that Ethiopia’s re-use of Eritrean ports is part of a comprehensive agreement for trade partnerships between the two countries.
To the south of Ethiopia, the newly completed Lamu Port in Kenya and the Lamu-Southern Sudan-Ethiopia Transport (LAPSSET) regional interconnection project, which would serve the hinterlands of Kenya, South Sudan, Uganda, and Ethiopia, is expected to reduce Djibouti’s share of Ethiopian cargo by 10-15%, according to a World Bank report.
Combined with the possibility that Berbera port could capture 30% of Ethiopia’s cargo volume, this would likely devastate Djibouti’s economy. Lamu port has been critical for Ethiopia, which finished the construction of a highway to Kenya’s Moyale border some years ago.
Lamu port is the country’s second commercial port. China Communications Construction Company undertook the construction of the first of the 32 berths of the 310 billion shillings (about 2.9 billion U.S. dollars) facility. It can handle large vessels with a carrying capacity ranging from 12,000 twenty-foot equivalent units (TEUs) to 18,000 TEUs.
According to the Kenya Ports Authority (KPA), the government will finance the first three berths, while the private sector will finance the remaining 29 berths.
The facility is part of the regional Lamu Port-South Sudan-Ethiopia Transport corridor project that seeks to provide road, rail, and pipeline links between the seaport and Kenya’s northern neighbors of South Sudan and Ethiopia. The government will roll out lower charges for use of the facility for a temporary period in order to encourage more shippers to use the port.
Moses Ikiara, the managing director of Kenya Investment Authority, said that they will build a special economic zone next to Lamu Port to manufacture goods for both local and international markets. Ikiara noted that the port facility is an ideal location to attract investments because of its proximity and convenience to the international markets.
Dr. Kilonzo Mutule, who was a lead consultant in the project’s formative years, developed a concept paper on the LAPPSET project in 2008 and set some parameters for its economic viability. In his concept, Dr. Kilonzo’s paper identified six components of the project.
In order to become a transportation and commercial hub for the region, the concept noted, Kenya would have to, at a minimum, develop: (a) a commercial port of international standards capable of handling high volumes of containers and other goods traffic; (b) a free trade zone along with the port to foster the growth of trade and commercial activity to make the area into a commercial hub; (c) a new beach resort city having facilities of international standards for native and international tourists; (d) an airport capable of being an air hub for the region; (e) a railway network to enable movement of goods from at the port and the free trade zone to other parts of Kenya and the countries of the region; and (f) a road highway network to support the capacity of the railway network and provide for greater movement of goods into more areas.
Lamu port depth has the potential to attract transshipment cargo for Tanzania, Mombasa, Somalia, Indian Ocean Islands of Comoros, Madagascar, Mauritius, Mayotte, Reunion(France) and Seychelles, and South Africa according to Silvester Kututa, Express Shipping and Logistics (ESL) founder, and the only local ship agency in the country that recently won East Africa Maritime Awards of the best Shipping Agency.
Completion of the roads and other infrastructure projects to connect Lamu Port to South Sudan and Ethiopia is just a matter of time since both Mombasa and Lamu are serving underdeveloped countries that will import huge materials, he added.
“The future is dazzling if they extended the corridor beyond South Sudan and Ethiopia. It should also move to reach West Africa’s Douala–Lagos–Cotonou–Abidjan Corridor and run through Cameroon, Nigeria, Benin, Togo, Ghana, and Côte d’Ivoire, creating synergies for a mega-market for the port,” Kututa said.
Kenya hopes to ride on the Africa Continental Free Trade Area (AfCFTA) agreement launched early this year to secure business for the Lamu Port and its open harbour can help the country reduce the cost of freight because of its capacity to handle bigger vessels, Kututa added.