China’s Experiment in Djibouti

http://thediplomat.com/2016/10/chinas-experiment-in-djibouti/

China’s role in Africa is changing from resource extractor to long-term strategic partner. Djibouti is a prime example.

By François Dubé, October 05, 2016

On April 8, 2016 China’s Ministry of Defense reported that construction of China’s first oversea military base had begun. The naval military base – officially a logistics support base – is located in Djibouti, a small but highly strategic country on the Horn of Africa. The deal ensures China’s military presence in the country up to 2026, with a contingent of up to 10,000 soldiers.

China and Djibouti have had diplomatic relations since January 8, 1979, but China’s footprint in the small country has only become ubiquitous over the last few years. Since 2012-2013, Beijing has firmly taken roots in Djibouti through numerous multibillion infrastructure projects including a new port, two new airports, the recently completed Ethiopia-Djibouti railway, a bulk terminal (for potash) at Tadjourah, a salt extraction plant at Lake Assal, water, gas, and oil pipelines, and a liquefaction plant. The establishment of China’s first overseas military installation, which will be located at Doraleh (next to the new port terminal) and Obock, only further demonstrate what was economically already evident: Beijing gives utmost importance to its relations with Djibouti.

This large-scale footprint represents a significant departure from China’s traditional role in Africa, often described as a mere resource extractor. Although Beijing’s presence on the continent is everywhere to be seen, and no African country is now without a least a few major projects involving Chinese companies, nowhere else is this footprint so concentrated – and in so many critical industries – as it is in Djibouti. The sheer scale of these projects, combined with the facts that they are concentrated on a relatively tiny territory (roughly the combined size of Beijing and Tianjin Cities in China) and affect a small population (810,000), make China’s presence in Djibouti unique.Enjoying this article? Click here to subscribe for full access. Just $5 a month.

Indeed, Djibouti can be seen as a microcosm of China’s experience in Africa, with its benefits, its drawbacks, and its controversies. It can also be viewed as an experiment – for China as much as for Africa.

Strategic Gamble

For Beijing, its growing presence in Djibouti is an experiment in terms of how well the country can establish a long-term presence that is welcomed by – and benefits – local populations. Only by securing local communities’ support can China realize its bigger ambitions in the region: rolling-out the “21st Century Maritime Silk Road” strategy. Beijing envisions the Maritime Silk Road as a vast international network of sea infrastructure aimed at securing its trade routes, ensuring the undisturbed travel of China-bound raw materials and energy vessels, as well as of its transformed products back to Europe through the Gulf of Aden.

Djibouti is at the very core of this strategy, as evidenced by the decision to establish China’s first oversea military base in the country. This naval base represents the “first pearl of a necklace” unfolding along the sea route that connects China to the Middle East. “In this context, the naval base in Djibouti should be seen as a step, albeit a modest one, in a longer and more significant journey toward realizing China’s national, global, and military aspirations,” says Assaf Orion, analyst at Israel’s Institute for National Security Studies.

As Africa’s main trading partner since 2008, China is also interested in securing a long-term “foothold” on the continent, where it is able not only to do business, but also to ensure the security of its citizens and companies. The military base will allow China to provide a protection shield for its citizens in Djibouti and the greater Horn of Africa region, which it cannot do now in other parts of Africa.

Chinese authorities have been careful not to overemphasize the military aspect of the base. Li Weijian, professor at the Shanghai Institute for International Studies, explains that “the facilities in Djibouti serve to protect China’s economic interests in Africa and to help safeguard regional peace,” while denying the base would be used to project China’s influence through military means in Africa.

But Li, much like other Chinese observers on this issue, is adamant in saying that this strategic gamble can pay off only if Beijing is able to secure the support of local stakeholders and engage directly with local communities – not only with unstable and unreliable political elites. Li noted that “some Chinese firms need to improve their practices” as they face increased criticism for what some call “resource grabbing,” their refusal to use local workers, and other issues. This will be a challenge for China’s bigger state companies, who are not used to “negotiating” and sharing power with social stakeholders when their interests are at stake.

If Beijing is serious about expanding its role in Africa, it must give precedence to local interests and make sure to positively engage and share profits with local communities. This is true for Chinese interests in Djibouti as much as for its overall presence in Africa

Enthusiasm for Investments

As of today, China appears to have won hands down the battle for public opinion in Djibouti. Indeed, there is an undeniable enthusiasm for Beijing’s investments among stakeholders and professionals in different key industries in Djibouti. These investments are viewed as a lifeline that could lift Djibouti out of its present situation.

This is not surprising considering that, as the least populous country on the Horn of Africa, Djibouti has so far been unable to truly transform its strategic position into real benefits for its population. According to UNICEF, the country remains plagued by a high poverty rate (over 40 percent of the population is under the poverty line), a catastrophic unemployment rate (over 60 percent) and risk of famine threatening almost 25 percent of the population.

Among proponents of more Chinese involvement is Ali Elmi Ahmed, the CEO of MCA Djibouti SARL, one of Djibouti’s premier construction material companies. Ahmed believes Chinese investments’ biggest contribution is the significant improvement of road and railroad linkages with Ethiopia, Djibouti’s bigger neighbor and main target market of local companies. “I sincerely believe that China can bring a lot to Djibouti, by enabling it to meet the growing demand of our neighbor Ethiopia, and other countries in the region without access to [the] sea,” he said.

Indeed, for the most part, local producers and logistics companies have few opportunities to benefit directly from China-sponsored infrastructure projects – for example, by supplying Chinese companies established in Djibouti or targeting the Chinese market. They hope rather to benefit indirectly from the regional integration resulting from improvements in the logistics industry, the backbone of the Djibouti economy.

Ahmed, like many other business leaders in its field, believes that this new-found friendship between China and Djibouti will ultimately have a positive impact on both: “This geopolitical strategy coupled with China’s economy is a win-win approach for both countries.”

This enthusiasm among industrialists does not surprise Charmarke Abdoulkader, a Djiboutian now living in Shanghai, where he is a consultant for China’s Ministry of Foreign Affairs and also secretary general of the Association for China-Djibouti Friendship. A staunch supporter of Chinese involvement in his country, he does not hesitate to praise the “win-win” partnership between the two countries.

For him, the Chinese presence is an opportunity for young people in Djibouti, and a possible solution to the omnipresent unemployment that awaits graduates of the country. Abdoulkader has developed expertise in this area through his work for the China-Africa Summit, where he oversees hiring modes and contracts by Chinese companies in Djibouti. “The companies involved in these projects are answering young people’s needs by creating jobs,” he said.

According to Abdoulkader, far from putting all Djibouti’s eggs in one basket, this Chinese preponderance will have long-term beneficial impacts, thanks to the direction set by the current authorities of Djibouti. “Due to its geostrategic situation, everyone wants a share of the pie in Djibouti, which explains these loans and investments. The Djibouti government is committed to ensure sustainable development for its people in the long term,” said Abdoulkader. Much like the actual Djibouti administration, he argues that infrastructure is a prerequisite for development, and Chinese involvement in the region may be the key to long-term growth.

Fear of Dependence

But others disagree, arguing that for Djibouti, letting China play such a major role in all key aspects of its national economy – its military, naval, airport, road, and railroad industries – can also be viewed as a kind of gamble. Experts warn that by relying too much on China’s infrastructure projects, Djibouti could become trapped and enter a state of quasi-dependence on Beijing.

Philippe Danieau, General Manager of CMA CGM Djibouti S.A., one of the biggest logistics companies and an ex-high ranking official in the French military, argues that too great a Chinese presence may result in overdependence problems in the future.

This is due to the fact that Djibouti’s economy itself is dependent on port activities. Over 80 percent of port traffic already comes from Ethiopia, which has no coastline. Chinese investments, including the commissioning of the railway between Addis Ababa and Djibouti, will strengthen the position of Djibouti as Ethiopia’s number one logistics gateway.

“These new facilities will actually allow Djibouti to remain competitive in the face of Berbera, in Somaliland, where DPWorld has just signed an agreement with Somaliland and Ethiopian governments to build a new container terminal, aimed mainly at the Ethiopian logistics flow,” Danieau said.

By significantly increasing the share of port activities in Djibouti’s economy, Chinese projects will increase Djibouti’s vulnerability. A slowdown in Ethiopia’s growth and a reduced demand for logistics services could have catastrophic consequences for the country.

Moreover, this dependence on China may strengthen the country’s debt, which could reach 80 percent in 2017, according to the IMF. If Djibouti was previously able to rely on relatively diversified funding sources (namely from the U.A.E., Saudi Arabia, Kuwait, Europe, and Turkey), it is no longer the case today. China has become the sole player able to cover the country’s financial needs.

“Unfortunately, with the Chinese grip on all investment projects due to its financial conditions and near unbeatable implementation costs, alternative funding sources are drying up,” Danieau deplored. “The risk is great that, [if Djibouti is] unable to repay loans on time, infrastructure ownership will fall into Chinese hands, together with the income generated.”

Chinese military presence in the country – far from being just another base among others – reinforces and ‘locks down’ the relationship with Beijing. “The coming Chinese military presence with the naval base is bound to influence Djibouti’s foreign policy,” warns Danieau.

Looking Forward

Is China’s presence a key that could open the door leading to long-term sustainable growth, or is it just another dead end, or worse, a path to long-term overdependence and loss of sovereignty? These questions are acutely relevant not only for Djibouti, but for Africa as a whole. Reports from the ground clearly point to a grey picture, where different stakeholders have radically different point of view as to Beijing’s impact.

Whatever the outcome will be, Djibouti’s experience teaches that China’s diplomacy in Africa is inseparable from how local communities view their own interests in dealing with Beijing. This, in its turn, will have significant consequences for the future of China’s “Maritime Silk Road” strategy, and for its broader presence in Africa.

François Dubé is a Journalist at ChinAfrica Magazine, based in Beijing, China.