DP World : Dubai Opens Door for Ethiopia in Somaliland

August 22, 2016

DP World’s landmark deal with authorities in Somaliland to jointly develop the Port of Berbera is a welcome development for Ethiopia, according to a senior Ethiopian government official.

The Dubai-based company has signed an agreement with the Government of Somaliland, a self-declared breakaway republic of Somalia, to co-invest 442 million dollars in the Port, to manage it under concession for 30 years. The deal was made early last week in Hargessa, the capital of Somaliland, between its Foreign Minister, Saad Sli Shire (PhD), and Sultan Ahmed Bin Sulayem, chief executive of DP World, one of the world’s largest port operators.

The company first came to the region in the early 2000s, after signing a 20-year concession to run the Port of Djibouti, Ethiopia’s lone outlet to the sea. Since then, DP World has invested hundreds of millions of dollars developing brand new oil and container terminals in Doraleh, 13Km south of the Port of Djibouti. Eventually, relations between the company and authorities in Djibouti soared, thus prompting Dubai to search for an alternative destination in which to invest.

The businessman who persuaded Dubai to invest in Djibouti, the dissident Abdurahiman Boreh, is believed to be behind last week’s deal, brokering it with Somaliland officials, according to a person knowledgeable of the process. Boreh’s hand in the process is marked by his presence in Hargessa at the signing on May 9, 2016.

Located 937Km east of Addis Abeba, the Port of Berbera is seen by Addis Abeba as the second nearest port to serve its growing volume of cargo which has now congested Djibouti, following massive imports of food aid and fertilizer shipments. Nearly 98pc of Ethiopia’s import and export cargo is shuttled via the ports in Djibouti. Less than two per cent of this cargo, largely of food aid, come through Berbera, with only five berths, compared to Doraleh’s 15 and Djibouti’s 18.

The Port of Berbera was first established by the Soviet Union in 1968 and expanded by the Americans in 1984. It now operates 10 mobile cranes for cargo handling, with a capacity of 70tn and two forklifts of 32tn. Its warehouse area covers 5,760sqm with a storage capacity of up to 120,000tn and open storage area covering 64,000sqm with an additional container storage yard. Two years ago, the port had the capacity to accommodate 35,000tn of cargo, a far cry from Djibouti’s mammoth capability.

“Port Berbera operates low cargo shuttling cost to these areas than from Port of Djibouti,” said Mekonne Abera, general director of Ethiopia’s Maritime Affairs Authority. “The engagement of DP World in Berbera will help us have access to modern services.”

It is this view of Ethiopia which led a senior Administration official to travel to the United Arab Emirates (UAE), in October 2015, to meet Dubai’s rulers and deliver words of encouragement that his country is positive of DP World’s prospects in Somaliland, sources told Fortune. It is a policy informed by geopolitical development in the region where the UAE is putting resources in Assab, in its bid to help its engagement across the sea in Yemen.

“We’re better off having the UAE investing in Somaliland than in Eritrea,” said an official of the administration with foreign affairs involvement. “We have also informed our Djiboutian friends of our dual-track policy.”

Beyond geopolitical considerations, though, those in charge of the nation’s logistics had aspired to see a jump in Ethiopia’s cargo transiting through Berbera to 20pc. The two sides signed a Memorandum of Understanding four years ago to cooperate in improving the corridor and agreeing on tariffs. Nonetheless, poor road infrastructure linking mainland Ethiopia to Berbera remains a bottleneck.

“We hope to benefit from modern facilities that come with Dubai,” Werqneh Gebeyehu, minister of Transport, told Fortune. “We welcome the agreement DP World has now signed.”

This is not lost on Dubai.

“[The Port] will provide an additional gateway for Ethiopia that is needed for its growth,” DP World said in its official statement, released last week.

Founded in 1972, DP World has a portfolio of 77 operating marine and inland terminals across six continents. In 2015, it handled 61.7 million 20ft containers and currently its gross capacity of handling stand at 79.6 million TEU, the unit of the capacity of a container ship. The capacity is expected to rise to more than 100 million units by 2020.

Freight forwarders who have been heard lamenting about the congested services in Djibouti are teased by the deal.

“Ports in Djibouti are no longer sufficient especially now as the volume of goods we transport has been increasing,” Mulugeta Assefa, president of the Ethiopian Freight Forwarders & Shipping Association, told Fortune. “Certainly, we need alternative ports other than those in Djibouti.”

Mulugeta sees DP World a force behind the modernization of Djibouti’s Doraleh container and oil terminals and hopes to see it doing as much in Berbera.

“If we get better services, it could be reasonable to pay more, if they demand,” he said.