*** For Djibouti, It's All About Location

Djibouti's strategic position on the Bab el-Mandeb strait allows the country to rent some of its territory to foreign military bases. 

Given its relative lack of natural resources and human capital, Djibouti's leaders will be pressed to open the country to international powers if they want it to develop. 

China remains the sole long-term strategic partner for Djibouti as trade competition intensifies across the region. 

The tiny East African country of Djibouti has learned how to make money off its location. On June 27, Djibouti will celebrate the 40th anniversary of its independence, and it has experienced profound change since it was called first French Somalia, then the French Territory of Afars and the Issas. After its independence from France, Djibouti grappled with internal ethnic cleavages and a volatile region. But the secret to Djibouti's continued global importance and its success in recent decades lies in its strategic position on the Bab el-Mandeb strait and its status as the lone maritime entry and exit point for its dynamic neighbor, Ethiopia.

Not-So-Humble Beginnings

The rise of maritime trade and, most critically, the completion of the Suez Canal in 1869 drove European powers to seek strategic bases along the banks of the Red Sea and the Gulf of Aden. The British, already implanted in the port of Aden by 1839, began to expand the scope of their possessions in the area. France, on the other hand, was slower to join the scramble for territory, despite previously gaining some limited concessions in the Gulf of Tadjoura, bordered mostly by present-day Djibouti. Instead, it was the French Empire's strategic imperatives in the Far East and Southeast Asia — namely, Indochina — that propelled an intensified French push in the Horn of Africa. The start of the Tonkin War in 1884 and the United Kingdom's refusal to allow the French navy to refuel in its ports, including Aden, compelled France to re-examine its positioning in the broader Indian Ocean. Soon France attached a much greater importance to its small possession in the Gulf of Tadjoura, both for its strategic location and the access it gave France to the natural resources of Ethiopia (then known as Abyssinia).

But Djibouti's lifeblood has always been its port as well as its position in the Horn of Africa and across from the Arabian Peninsula. The completion of the Franco-Ethiopian Railway, which began commercial service in 1901, quickly siphoned traffic away from other transportation routes, including the famed caravan trade, because the railway proved more efficient. Over the decades, Djibouti's growing economy, the salt trade and the colony's (and then the country's) relative stability drew people from across the region looking for work. They helped to increase the population of the sparse land to just over 900,000 by 2016 estimates.

This dynamic growth only increased with the massive escalation of trade passing through the Suez Canal over the course of the 20th century. Moreover, the canal's completion created two major choke points along one of the world's busiest shipping routes. For example, by 2015 roughly 900 million metric tons of goods — including almost 10 percent of the world's maritime oil trade — passed through the Suez Canal and the Bab el-Mandeb strait to the south. While a potential shutdown of the Suez Canal has worried policymakers in Europe and elsewhere (most acutely after the rise of Egyptian President Gamal Nasser and the canal's nationalization in 1956), Egypt has worked to stabilize and improve its most strategic asset in recent decades.

Geostrategic Rent

Consequently, a serious disruption in global trade is much more likely to occur in the Bab el-Mandeb strait, which is only about 32 kilometers (20 miles) wide between Djibouti and Yemen. This critical passage is surrounded by a cluster of sometimes weak or hostile states: Djibouti, Yemen, Eritrea and Somalia. At times, these states have struggled with their own national stability and were in no position to secure an international maritime passage. Indeed, this lack of stability, aggravated by other internal and external factors, has been a key driver of piracy on the Somali coast and a persistent source of concern for international powers, which are focused on securing the area. This fits nicely with Djibouti's needs and has shaped the country's imperatives since its independence in 1977. Without the ability to generate significant economic wealth from its population or natural resources, Djibouti's leaders have sought to capitalize on the country's strategic location at a critical maritime choke point by renting its territory to foreign militaries looking to set up bases.

This explains why France has maintained sizable military facilities in the country for decades after Djibouti's independence. In fact, the French military has kept a near constant presence in the area for almost 150 years. Even as France's relations with its former colonies have weakened in the wake of the Cold War, Djibouti's geographic position has allowed it to retain a special status with Paris. Most notably, in 2008 when French President Nicolas Sarkozy wanted to reduce France's military burden in Africa — including by closing several military bases — Djibouti survived the cuts. In fact, Radio France International has stated that despite Sarkozy's desire to eliminate the automatic intervention clauses in France's secret defense agreements with many of its former colonies, the clause has stayed in effect between France and Djibouti.

But over the past 16 years, Djibouti has moved beyond France and opened its territory to other powers. The United States rents a former French Foreign Legion facility, which has been renovated since the terrorist attacks of Sept. 11, 2001. Japan, Italy and China also have facilities in Djibouti, and Saudi Arabia has reportedly signed agreements allowing for its eventual presence there as well. Additionally, the nation hosts vessels from numerous countries in its commercial port, providing fresh supplies and maintenance. For Djibouti's leaders, renting out the country's coveted position — and reaping the financial benefits — is a pillar of its grand strategy, which is unlikely to shift amid a leadership change. The country's participation in the African Union Mission in Somalia, in which it has deployed over 900 troops, fits into this strategy as well. Djibouti's presence in Somalia assists nearby Ethiopia, enhances its visibility on the international stage, and ingratiates it to more powerful actors such as the United States, the United Kingdom and the United Nations, which are desperate to see more local troops on the ground to help stabilize troublesome areas.

At an Economic Crossroads

In addition to capitalizing on its strategic location, Djibouti benefits from being almost the sole conduit for maritime trade for its sizable neighbor, Ethiopia. The landlocked East African giant, with a population of over 100 million and a booming economy, has been forced to rely on its tiny neighbor since it lost its former Eritrean province and its accompanying Red Sea ports in 1991. Ethiopia's dependence on Djibouti has continued to grow, and the smaller country now handles an estimated 90 percent of its neighbor's trade. In fact, Ethiopia's explosive growth has strained the capacity of Djibouti's port and rail infrastructure in recent years. However, in October 2016 the Djibouti-Addis Ababa railway was officially inaugurated after more than four years of work. The 756-kilometer line was built and financed by China — reportedly for $3 billion to $4 billion — and has begun to reduce transport times for some Ethiopian goods. The travel time for goods and passengers is eventually expected to drop from two to three days over congested roads to 10-12 hours on the railway.

As Djibouti has received greater international attention in recent years, mainly from China, its ambitions have risen as well. Though resupply and logistic points are critical for China to expand its global reach, the Chinese have gone beyond building their first overseas military base. As Djibouti President Ismail Omar Guelleh noted in a March 26 interview with Jeune Afrique magazine, China is the small country's single long-term strategic partner and has invested in railways, ports, banks, industrial parks and more. At the same time, other countries such as France have turned their attentions elsewhere or have stayed strictly focused on counterterrorism and anti-piracy objectives, like the United States and Japan. Thus the leaders of Djibouti, overseeing a small country with limited resources, will continue to be compelled to work with any power — or ideally, group of powers — willing to invest in multiple sectors of the economy for the long haul.

In the long run, Djibouti's leaders will likely need to deal with intensifying competition from other ports in the region, including in Somalia's breakaway territories. In February, lawmakers in Somaliland, a northern territory in Somalia, approved a bid by the United Arab Emirates to establish a naval base at the port of Berbera. While the deal sparked outrage in Mogadishu, it is only the latest Emirati push to build a bigger military and economic presence along the Horn of Africa. The projects have strained relations between Djibouti and the United Arab Emirates, which cut diplomatic ties in May 2015. But the Emirati expansion actually ties into the broader competition among members of the Gulf Cooperation Council. Saudi Arabia, for example, has stayed away from building ports in Africa and has remained close to Djibouti, while the United Arab Emirates continues to look for investments in other countries nearby.

And other UAE projects have indeed emerged. Last year, Somaliland and the Dubai-based DP World made plans to upgrade port facilities at Berbera, and the company reached an agreement in April with the other semiautonomous region of Somalia, Puntland. In addition, the Dubai-owned P&O Ports signed a 30-year concession to develop and manage a multipurpose port in Bosaso, which lies farther east than Berbera. The United Arab Emirates also has looked beyond Somalia's breakaway regions and set up bases in isolated Eritrea to the north and along the Bab el-Mandeb strait in Aden, Yemen, where it is exerting significant influence.

While the United Arab Emirates is aggressively pursuing projects across the Middle East, Djibouti maintains several advantages in the region, including its relative stability and its current ports and infrastructure. But competition for access to interior African trade and resources will intensify, and the tiny country will be pressed to find additional investment as it tries to hold on to its status as a regional trading hub.