China Merchants, a Beijing-based logistics company, plans to bring international standards in its redevelopment plan for Djibouti’s old port.
The state-owned corporation confirmed plans to redevelop the old port of Djibouti in early July 2018.
“Djibouti, one of the developing countries along the Belt and Road, has a similar infrastructure with Shenzhen Shekou, when it became the pioneer of China’s historic journey of reform and opening up,” China Merchants Port (CM Port), a subsidiary of China Merchants Group said in a statement.
Shekou is an area at the southern tip of Nanshan, Shenzhen in China’s Guangdong Province.
China Merchants Port is a major conglomerate based in Hong Kong and is involved in a range of businesses such as port operations, general and bulk cargo transportation, container and shipping business, air cargo, logistics park operations and paint products.
China Merchants said in July that it had strong support from Djibouti’s government and would soon commence work to regenerate the old port in Djibouti’s downtown area. The company has promised to bring world-class standards to the project, which serves to benefit both nations.
The firm added that its presence in the country would bring jobs and industry, and the free-trade zone (FTZ) alone would add some $4 billion to the country’s GDP. This an amount equal to more than double its entire GDP in 2017.
According to Apex Group, a Mumbai-based international logistics firm, the company has equated its redevelopment plan for Djibouti to the development of southern China’s Shekou and Shenzhen.
However, China’s influence in Djibouti has attracted a lot of criticism, especially from the United States, which is wary of China’s growing influence in the region.
Djibouti’s deal has opened the possibility for China to take full control of Djibouti’s powerful infrastructure, giving the Asian nation access to the vast Ethiopian market.
Djibouti has also borrowed more money from China than it can pay back and some market analysts believe it may suffer a similar fate to Sri Lank, which also owes China billions in debt.
In both countries, the money went to infrastructure projects under the sponsorship of China’s Belt and Road Initiative, a development strategy proposed by the Chinese government which focuses on connectivity and cooperation between Eurasian countries.
Sri Lanka racked up more than $8 billion worth of debt to Chinese sovereign-backed banks at interest rates as high as 7%, reaching a level too high to service.
With nearly all its revenue going toward debt repayment, last year Sri Lanka resorted to signing over a 70% stake and a 99-year lease to the new Chinese-built port at Hambantota.
Meanwhile, Djibouti is projected to take on public debt worth around 88% of the country’s overall $1.72 billion GDP, with China owning the lion’s share of it, according to a report published in March by the Center for Global Development, a United States-based non-profit think tank.
It has also emerged that China is setting up military bases to allegedly strengthen its foothold in the strategic region.
Despite these criticisms, Djibouti’s government has been keen to focus on the economic potential that a partnership with a powerhouse like China has to offer.
Djibouti opened the first phase of its Chinese-built International Free Trade Zone this past July. The project is scheduled for completion within the next 10 years and will be the largest of its kind in Africa.
The zone will cost $3.5 billion and will span 4,800 hectares. It will enable users to operate without paying property, income, dividend or value-added taxes. It will be jointly run by the Djibouti Ports and Free Zones Authority and China’s Merchants Holdings Company, according to Reuters.
The opening, which coincided with Djibouti’s hosting of the Africa-China Economic Forum last month, was attended by regional leaders including Ethiopian Prime Minister Abiy Ahmed and Rwandan President, Paul Kagame.
It has since emerged that 21 companies have already signed agreements to operate in the trade zone, which is expected to considerably enhance the trade in the Horn of Africa while strengthening Djibouti’s position as a trade and logistics hub.
Djibouti’s President, Ismail Omar Guelleh believes that his country’s partnerships with Chinese companies will help make this dream a reality.