Saturday, April 20, 2024
CommentaryDiversifying Ethiopia's port options: A strategic necessity for trade and economic growth

Diversifying Ethiopia’s port options: A strategic necessity for trade and economic growth

Ethiopia, a landlocked country since Eritrea gained independence in 1991 and took control of the Assab port, has faced significant challenges in accessing maritime trade routes. The situation worsened after the Ethio-Eritrean border conflict from 1998 to 2000. Despite the Algiers peace agreement ending the conflict, some are of the view that Ethiopia’s efforts to secure access to the sea have been hindered by inconsistent application of the Transitional Charter regarding the Red Sea. This situation, some argue, has become a self-imposed obstacle that jeopardizes the country’s economic performance.

Regardless of how one approaches this issue, the reality remains that Ethiopia urgently needs access to ports to ensure its economic growth. To address this need, the country has relied on neighboring ports, recognizing the importance of robust economic engagement. However, the volatile nature of the Horn of Africa region has created uncertainties, necessitating Ethiopia’s pursuit of a sustainable outlet for global economic participation.

The recent conflict between the Federal Government and Tigray People’s Liberation Front (TPLF) forces in the northern part of Ethiopia has further strained the country’s economy. Nevertheless, there appears to be a growing recognition by the government of the importance of enhancing economic engagement.

Optimistic predictions from international financial institutions, such as the International Monetary Fund, indicate that Ethiopia’s real GDP is expected to grow by 6.1 percent in 2023, offering hope for improved economic prospects. With its position as the second most populous country in Africa and the largest in its sub-region, Ethiopia’s improved growth rates could enable more effective participation in international trade and better management of foreign exchange reserves.

According to the United Nations Commission on Trade and Development (UNCTAD), modern economic progress requires rapid, reliable, efficient, and cost-effective international trade. The organization emphasizes that the lack of access to the sea poses a significant obstacle to economic and social development. The fact that Ethiopia continues to raise the issue of sea access highlights the necessity of this requirement for the country’s ongoing economic development on a level-playing field.

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Since losing direct access to the coastline in 1993, Ethiopia’s plans to achieve middle-income status through export-oriented industrialization have been delayed. As a result of strained relations between Addis Ababa and Asmara, Ethiopia has relied heavily on neighboring Djibouti for the majority of its trade (95 percent).

However, the government has recently recognized the dangers of such dependence on a single country. The diversification of port accessibility is now being seriously considered, particularly after Djibouti temporarily refused to release cargo bound for Ethiopia in 2013 due to delays in payment transfers.

Prime Minister Abiy Ahmed (PhD) has recently emphasized the importance of ensuring sea access in the sub-region to address economic problems and over-dependence. Recognizing the significance of neighboring countries’ ports and promoting a spirit of solidarity, Ethiopia aims to secure sustainable outlets for its economic progress.

In line with the demand for sea access and the possibility of diversification, Ethiopia signed a Memorandum of Understanding (MoU) with Somaliland on January 1st, 2024. Although specific details of the agreement have not been disclosed, it is expected to grant Ethiopia access to the sea on the condition of recognizing Somaliland’s statehood. This issue has raised concerns among various regional and international actors, leading to further tensions.

The international legal standard for landlocked and transit states is defined by the UN Convention on the Law of the Sea. The convention recognizes the right of landlocked states to access and from the sea in order to exercise their rights related to the freedom of the high seas. To achieve this, landlocked states are entitled to freedom of transit through the territory of transit states using all means of transport.

The convention emphasizes that the terms and modalities for exercising this freedom of transit should be agreed upon through bilateral, subregional, or regional agreements between the landlocked and transit states. In return, transit states are obligated to take necessary measures to ensure that the rights and facilities provided to landlocked states do not infringe upon their legitimate interests.

Considering the geopolitical factors involved, the issue of proper access to sea outlets in the sub-region/region is of great importance. Ethiopia was in a high-risk and vulnerable position until the rapprochement between Ethiopia and Eritrea in 2018. The Joint Declaration signed between the countries put an official end to the border conflict, restored diplomatic relations, and opened their borders to each other for the movement of people, goods, and services.

This agreement aimedto change the nature of their relationship in economic, social, and political spheres. And in doing so, Ethiopia could invoke its right of access to the Red Sea through the transit state of Eritrea. However, as mentioned earlier, this right can only be exercised through an agreement between the two states. Thus far, the re-established relations have not resulted in an agreement on this particular issue.

There is precedent for countries establishing maritime access agreements. In 1929, landlocked Ethiopia concluded a deal with Italy (then controlling Eritrea) granting Ethiopia a free trade zone and warehouses at the Port of Assab in Eritrea. The countries also agreed to construct a road connecting Assab to Ethiopia’s city of Dessie.

However, Ethiopia’s 2018 agreement with Eritrea failed to guarantee long-term port access, indicating creative solutions are still needed. Currently, Ethiopia relies heavily on the strategic Port of Djibouti for imports and exports along the vital Red Sea-Indian Ocean corridor. But the country is strategically reducing this dependence by developing other regional ports in Sudan, Somaliland, and Kenya.

Ethiopia’s most radical investment may be in the Port of Berbera in the self-declared state of Somaliland. Berbera is proximate to Ethiopia and could open its eastern markets. However, Somaliland lacks international recognition since separating from Somalia in 1991, posing legal and political risks.

When Eritrea closed the ports of Assab and Massawa during the 1998 border war, Ethiopia lost access for nearly three decades. It briefly continued using duty-free Assab until 1997 before shifting to Djibouti. But delays in payments prompted port closure threats in 2013, highlighting Ethiopia’s overreliance.

Today, Ethiopia avoids placing all its eggs in one basket by diversifying ports and pursuing broader economic integration amid regional tensions.

The two countries share a close relationship due to their shared interests. Djibouti benefits from Ethiopia’s landlocked status as it serves as a major transit route for Ethiopian trade, contributing to Djibouti’s economy. In turn, Ethiopia relies on Djibouti’s ports and infrastructure for its international trade.

To further enhance connectivity and trade, the two countries have also developed the Ethio-Djibouti Railway, which connects the Ethiopian capital to the Port of Djibouti, providing a vital transport link for Ethiopia’s imports and exports.

Currently, plans are underway to give the Addis-Djibouti corridor an upgrade through the newly approved Horn of Africa Initiative’s Regional Economic Corridor Project. The project, supported with a USD 730 million grant from the International Development Association (IDA), aims to improve regional connectivity and logistics efficiency in Ethiopia along this key trade route.

However, some believe that given the prevalence of international military bases in Djibouti, geopolitically motivated foreign meddling could create significant economic problems.

Besides the Port of Djibouti, Ethiopia has been actively exploring various options to diversify its access to the Red Sea. Discussions and plans have been underway to develop other ports in neighboring countries, such as Eritrea, Somaliland, and Kenya, in order to provide alternative trade routes for Ethiopia.

These efforts aim to minimize the challenges faced by landlocked countries like Ethiopia. Studies in this area highlight the additional transport costs and foreign trade deficits that landlocked countries often encounter. Trade between landlocked and coastal developing states is typically limited, as their economies do not complement each other and often compete for foreign resources in the international market.

Landlocked countries bear economic burdens resulting from their lack of direct sea access, including dependency on transit states for transport policies, the need for warehousing stocks, port delays, and additional costs in itineraries. They also face limitations in accessing sea resources on equal terms with coastal states.

However, relying on foreign countries for port access is complicated by political uncertainties and external influences. The Nile issue and Egypt’s role in the Arab world, for instance, may pose risks to Ethiopia’s security and its ability to use alternative sea outlets. While the planned diversification of port access aims to integrate Sudan, Somalia, and Djibouti, all members of the Arab League, the political ramifications of such cooperation cannot be ignored.

To avoid overdependence, what possibilities exist?

While the ports of Djibouti and Berbera are currently seen as the primary alternatives for Ethiopia, accessing them presents economic and political challenges. The construction of the Djibouti-Addis Ababa railway has long been a focal point for regional and international interests regarding Ethiopia’s access to the sea. The Joint Declaration of Peace and Friendship aimed to establish a new era of peace and cooperation, including the reopening of borders and granting Ethiopia an outlet to the sea. Such cooperation is expected to benefit both countries economically through the joint development of Eritrea’s Red Sea ports. Considering Ethiopia’s ambitions, such cooperative initiatives are likely to be mutually beneficial.

Eritrea is not the only country that has recently attracted Ethiopia’s attention in its quest to diversify ports. In the past decade, Ethiopia has shown interest in developing and acquiring stakes in other ports along the East African coast.

The strategy is gradually yielding results. In 2012, Kenya and Ethiopia agreed to jointly develop the port at Lamu, but the project has faced financing challenges and is only 42 percent complete. Ethiopia also acquired a 19 percent share in the port of Berbera in Somaliland through a deal negotiated by Dubai Ports World, despite the lack of international recognition for Somaliland as an independent state. This demonstrates Ethiopia’s pragmatic foreign policy approach.

Overall, recognizing the long-overdue need for sustainable sea outlets to improve economic performance and global trade presence is a step in the right direction for Ethiopia. Developing strong ties and fostering cooperation with neighboring countries for access to ports is crucial. Instead of adopting a winner-takes-all approach, a spirit of close neighborliness should prevail, where each country stands to gain from the agreements entered into. This approach is likely to bring stability to the economy and lower shipping costs for Ethiopian cargo.

By Eden Tafesework (PhD)

(Eden Tafesework (PhD) Senior Researcher.)

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