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.
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.
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.
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.
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.”
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.
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.
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.
(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.
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.
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.
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.”
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.”
