Wednesday, February 28, 2024
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Why Ethiopia’s quest for a “controllable” Red sea access is a wicked problem

We often emphasize the significant role geography plays in shaping a nation’s opportunities and challenges. While certain geographical features can offer advantages, they can also present vulnerabilities that hinder a nation’s development. It is important to recognize the complex interplay involved, rather than oversimplifying it as solely favoring or unfavoring nations. The distinction between being a landlocked or coastal country, like any other geographical feature, may initially seem like a question of advantage or disadvantage.

However, the underlying complexity goes much deeper and is more intriguing than it appears at first glance. Thus, it is crucial to approach these complexities with a nuanced understanding.

Due to historical and geopolitical dynamics, Ethiopia finds itself as a landlocked country in the Horn of Africa. This unalterable geographical position presents several challenges, but it also brings along numerous opportunities that should be capitalized upon.

The challenge lies in the fact that it is not easy for a vast country with a population of over 150 million to rely on its neighbors for seaborne trade, especially when the neighboring region is politically unstable and prone to conflicts. However, this should be seen more as a reality than a disadvantage.

Over the years, Ethiopia has successfully navigated this challenge by developing strong diplomatic relations, forging strategic partnerships, and establishing comprehensive port utilization agreements with neighboring countries, particularly Djibouti.

Ethiopia has long relied on Djibouti for its seaborne trade, and this reliance has never hindered its economic growth. On the contrary, the country has experienced remarkable years of sustained growth, with Djibouti playing a crucial role by providing efficient port services. This is due to years of capital-intensive infrastructure development and unique stability, two essential factors that drive rational decisions in the port selection process.

Moreover, Djibouti has revamped its transit policy framework to offer the most favorable transit conditions for Ethiopian cargo. These conditions go beyond the provisions of the United Nations Convention on Transit Trade of Landlocked States.

The Port Utilization Agreement, signed between the two countries in 2000, forms the essence of this policy. It establishes the foundation for an unhindered, uninterrupted, and unrestricted transit regime, effectively granting Ethiopia total control over its maritime trade while ensuring stability in the legal framework governing transit policy. This agreement serves as a solid anchor, enabling a robust, transparent, stable, and “controllable” transit regime for Ethiopia, allowing traders to thrive.

In addition to the stable legal framework that grants Ethiopia quasi-total control over its cargo in transit, Djibouti has also implemented policy reforms to enhance the efficiency of private maritime transport auxiliary companies (PMTAs) and their service pricing.

The objective was to create high-performing PMTAs that align with the modern seaport landscape and establish a predictable corridor in terms of procedures, performance, and cost. By regulating service pricing, Djibouti stands out as one of the few countries to have publicly available tariffs, allowing traders to estimate costs on the Djibouti side of the corridor with remarkable accuracy even before loading cargo.

It is worth noting that any published tariff remains within the boundaries of the 2000 Port Utilization Agreement, making any revision subject to prior consultations. This mechanism not only gives Ethiopia control over transit service costs but also fosters a transparent transit regime, enabling better budgeting and planning for businesses.

Unfortunately, the Ethiopian segment of the corridor has not kept pace with this level of transparency and predictability. Consequently, traders in Ethiopia often encounter unexpected and volatile logistics costs, which impede their ability to budget and plan effectively for their business operations. In fact, the service charge of a Djiboutian freight forwarder does not exceed USD 60 for a 20-foot container and USD 80 for a 40-foot container, whereas charges in Ethiopia can vary significantly and are often undisclosed until the last minute.

This lack of predictability and transparency not only puts Ethiopian traders at a disadvantage but also raises concerns about unfair practices within the logistics industry in Ethiopia, including the artificially inflated freight rates by Ethiopian Shipping and Logistics Enterprise.

One solution could be the introduction of a single invoice that captures the overall logistics costs from Djibouti to the final destination in Ethiopia. This would allow us to determine who is truly driving up prices and placing a financial burden on the country’s maritime trade. Perhaps then, we will uncover where the “billions of Dollars” are actually going.

Regarding the claim of “high costs incurred” due to Ethiopia’s landlocked status, it is important to highlight that the overall logistics costs on the Djibouti side of the corridor never exceed one percent of the CIF value for imports and 0.6 percent of the FOB value for exports.

So, a valid question arises: what aspects are controllable and what are not?

The answers to this query are complex and nuanced, at best, or non-existent, at worst. This is why the question possesses all the characteristics of a wicked problem, signifying the difficulties in defining and solving it due to its interconnectedness and the presence of multiple stakeholders with conflicting interests.

The degree of controllability in this context relies on various factors, including objectivity and the willingness to engage in introspection. Given the abundance of existing bottlenecks and policy challenges, does Ethiopia truly need to divert its efforts towards solving a wicked problem?

Moreover, the pursuit of “controllable” sea access can be attributed to less pragmatic reasoning. A sea outlet is not an end in itself, but rather a means to an end. Ethiopia’s location in the Horn of Africa unquestionably positions it as a potential major transit hub for other landlocked countries, providing them with crucial access to four coastal nations.

With its well-developed infrastructure and extensive road networks, Ethiopia has the capacity to serve as a vital link connecting these landlocked countries, including South Sudan. By leveraging its existing transportation systems and fostering regional partnerships, Ethiopia has the opportunity to establish seamless trade routes. Why not capitalize on this unique potential?

It is time for Ethiopia to conduct a thorough self-assessment and focus less on problems that only fuel unproductive debates. By prioritizing self-reflection and addressing the root causes impeding its ability to fully embrace the opportunity of being a landlocked country, Ethiopia can pave the way for sustainable growth and economic development.

By giving importance to these critical areas, the country can overcome challenges and create a more conducive environment for trade, ultimately benefiting its people and strengthening its position in the global market.

(Aden M. Douksieh is the general manager of SouthCliff Business Solutions, Djibouti. He can be reached at: [email protected].)

Contributed by Aden M. Douksieh

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