DP World: the winner in Ethiopia's Somaliland port play

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Everywhere you look across supply chains, one geopolitical play after another is forcing hands, calling bluffs, always bringing consequences, intended or otherwise.

The latest is the signing of an MoU between Ethiopia and Somaliland, essentially exchanging official recognition of the latter as an independent state in return for control of a parcel of land at Somaliland’s port of Berbera, which is operated by DP World.

Details of the deal remain vague.

The Guardian reported Ethiopia was to be granted a 50-year lease on 20km of coast by the port, for both commercial and naval development, and it would become the first country to officially recognise Somaliland, which broke away from Somalia in 1991, as well as offering Somaliland a stake in Ethiopian Airlines.

Africa’s fifth largest economy, averaging a growth rate of nearly 10% for the past few years, Ethiopia has been on a desperate hunt for access to the sea since its war with Eritrea ended with it becoming landlocked. Since then, it has relied on the port at Djibouti for some 95% of its containerised trade and the MoU is another attempt by its government to introduce some supply chain resilience to its potentially vast export-based economy.

This is not the first time Ethiopian prime minister Abiy Ahmed has been involved in Berbera.

The 2016 concession to develop and operate the port’s container terminal was originally awarded to a consortium comprising 51% DP World, 30% Somaliland government and 19% the Ethiopian state.

According to this post from The Conversation, in 2022 Somaliland revealed the 19% had never been transferred to Ethiopia, which had apparently “failed to meet its conditions” – what those were now appear pretty clear, and someone’s had their hand forced. Or perhaps it was a bluff?

(Meanwhile, DP World’s ownership of the facility has grown to 65%.)

The simple fact is that the $442m that DP World has ploughed into the port* is only going to be recouped if it handles Ethiopian cargo.

(*Along with an undisclosed investment by the Abu Dhabi Development Fund – $23m also came from the UK taxpayer in the form of its sovereign wealth fund CDC, now imaginatively renamed British International Investment, and part of an African investment package it formed with DP World – to build the Berbera Corridor, a 250km road linking the port and economic zone to the highway and a dry port at the Ethiopian border.)

It’s geared up to do so, with a depth alongside of 17 meters and cranes able to reach across 24 rows of containers, the dimensions of the largest ships afloat, and it is not a big leap of imagination to envision carriers (in normal times) including a main line call at Berbera on an Asia-Europe service, for example, located as it is on the approaches to Suez. It already offers an annual capacity of 500,000 teu since inauguration in 2021, and a second phase will take it to 2m teu per year.

While it’ll be a good earner for DP World, it also ought to act as a massive spur to the Ethiopian economy – as DP World chairman Sultan Bin Sulayem excitedly explained in a column in The Loadstar itself shortly after  the opening of the adjacent free trade zone. As much as Berbera needs Ethiopia, the converse is also true – its 120m population and abundant agricultural capacity deserve more port options than Djibouti.

The latter is set to be the loser in all this, especially if estimates that 70% of the port’s circa 1.25m teu annual throughput is Ethiopian are correct – Berbera reasonably has the capacity to capture half of Djibouti’s Ethiopian 875,000 teu business and more at a later stage. It is no coincidence that Ethiopian Airlines is Africa’s largest combination carrier and probably largest freighter operator; it needs better supply chains.

There will be little sympathy in Dubai for Djibouti, where DP World was the erstwhile terminal operator until it was ejected from the facility by government decree. Its operation was later taken over by Beijing-controlled China Merchants, which bought a 23.5% stake in the port for $350m. A series of court cases have been heard in London since 2018, and as of late 2022 the Djibouti government and China Merchants had been ordered to pay $700m in damages, and interest.

(For the full lowdown on the case check out The Loadstar’s archives here.)

Interestingly, it also appears that following DP World’s ejection, prime minister Abiy approached Djibouti about acquiring a stake in the port but was rejected over fears of sovereignty. These were possibly well placed given how much bigger Ethiopia is than its neighbours.

Via the lens through which Premium views the world, this is power diplomacy played across ports with all the finesse of a bareknuckle brawl. And it clearly has serious geopolitical implications. The Somali government continues to claim sovereignty over Somaliland and terms the MoU “an act of aggression”; the Chinese are hacked off because Somaliland is one of the few authorities that has recognised Taiwan and you probably know where that goes… essentially, its another dollop of uncertainty into an already highly volatile region.

But from a purely trade and supply chain perspective, it’s probably pretty good news because unlocking the physical barriers to Ethiopian trade would be a nice bounce for transport providers and logistics execs.

(Gavin van Marle is The Loadstar managing editor and can be reached at [email protected].)