Skip to main content
Djibouti ports dispute could be a fatal blow to investor confidence

Djibouti ports dispute could be a fatal blow to investor confidence

Few countries have reaped greater benefit recently from foreign investment than Djibouti, a small African nation whose economy is on the upside. However, its economic diversification is threatened by a lack of confidence on the part of companies in the government’s ability to provide a low-risk business environment.

The East African nation has been labeled too risky by investors following an ongoing dispute between Djibouti and Dubai-based port operator DP World. This is a major setback to its development as a foreign investment hub that was beginning to reap benefits.

Djibouti’s decision to seek an arbitration award against a multi-million dollar contract contradicts talk about wanting to be a nation that welcomes foreign investment rather than an aid-dependent nation. If current investors are being shortchanged it motivates others to look for opportunities elsewhere. This has ramifications not just for Djibouti, but for the entire region’s competitiveness.

In 2018, the government of Djibouti seized the Doraleh Container Terminal SA – a joint venture between DP World and Djibouti in the port of Doraleh– and unilaterally terminated DP World’s contract to run the terminal. The country then sold off a significant stake in the terminal to China Merchants Holdings. In response, DP World filed claims with the London Court of International Arbitration (LCIA), which shortly thereafter ruled against Djibouti, arguing that the port seizure was illegal and that DP World’s 30-year concession couldn’t be unilaterally ended.

Djibouti has never recognised the ruling and has repeatedly refused to abide by other judgments in the case. So far, the LCIA and the High Court of England and Wales has ruled six times in DP World’s favour, all of which have been ignored by President Ismail Omar Guelleh on grounds that the arbitral award supposedly qualifies “the law of a sovereign state as illegal”. The courts have ordered Djibouti to pay US$530-million in compensation.

The country’s location on the Bab-el-Mandeb Strait, between the Red Sea and the Gulf of Aden has driven seven countries to set up military bases and had drawn foreign investors from all over the world. But the ongoing case with DP World as well as what seems like an increasing coziness with China has been a major turn off for those who have already invested in the country and those that were eyeing potential opportunities.

Online publication Devdiscourse suggested that Djibouti handed the Chinese firm the rights to manage the container terminal in exchange for an uptick in Chinese investment and loans. 

China certainly has splashed out cash in the nation in the Horn of Africa, holding more than 70% of Djibouti's GDP in debt. Whether other international investors will be willing to bankroll expensive projects that might be illegally seized by the Djiboutian government at a moment's notice is less clear, with analysts noting that the abrupt cancellation of DP World's long-term contract threatens to undermine the country's overall investment climate," the publication explained.

Djibouti's utter refusal to accept judgments in DP World's favour has made matters worse when it comes to building the confidence of international investors. Moreover, with China having what looks like a very strong grip on the tiny economy, Djibouti risks losing all other countries as investment partners.

Of course there is nothing wrong with endorsing and encouraging Chinese investment, but why are other potential investors deterred and their agreements neglected so that the interest of China is the only priority of the nation?

Unless the nation adheres to the principles of law and order and respect for agreement, it will move backward rather than forward.

Detail’s Note: Samuel Bekele is a communications consultants interested in political, economic and social issues in the Horn of Africa. He can be reached at samuel.b@spotlightplc.com. The views expressed in this article do not necessarily reflect the views of Detail Ethiopia