Djibouti Re-shapes Itself as African Trade Hub

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

Trade hubs can prove to be decisive in boosting regional growth. Trade hubs are places where commerce congregates, for a mix of geographical, cultural and economic reasons. Like a bicycle wheel, a trade hub sits at the centre as the spokes of trade routes travel towards it. Throughout history, trade hubs have emerged, from the outposts of the Silk Route running through Asia and Central Asia to the Hanseatic League cities of Northern Europe in the Middle Ages.

Trade is critical to increasing prosperity, and the more efficient trade becomes – and the greater the variety of goods and affordable prices – the higher the standard of living for the nations doing the trading.

With South-South trade the great economic success story of the past decade, new trade hubs are emerging. World Trade Organization (WTO) (www.wto.org) figures show South-South trade accounted for 16.4 percent of the US $14 trillion in total world exports in 2007, up from 11.5 percent in 2000. While the global economic crisis has slowed things down, the overall trend is firmly established.

One country hoping to become a key 21st century trade hub is the tiny African nation of Djibouti, which sits strategically between the Red Sea and the Gulf of Aden. It is surrounded by the nations of Eritrea, Ethiopia and Somalia and is across the Bab al Mandab Strait from Yemen.

It is at the nexus of Africa and Asia. Some of the busiest shipping lanes in the world float by the country’s coastline. Much of the oil shipped to Europe and the United States passes by.

“Djibouti is perfectly positioned to become a services and logistics hub,” said Jerome Martins Oliveira, chief executive officer of Djibouti port, operated by a subsidiary of Dubai World.

PwC (PriceWaterhouseCoopers) (http://www.pwc.co.uk), which recently published its third Transportation & Logistics 2030 Report, predicts that global trade hubs and routes will shift to emerging markets within the next 20 years.

“Trade volumes will move towards emerging markets such as Africa or Asia and competition for future large transport contracts will be determined within the next few years,” said Akhter Moosa, PwC’s South African Transport and Logistics Leader.

This underscores the growing importance of emerging markets. The majority of global trade is forecast to shift to emerging markets by 2030. As the trade shifts, so new trade routes emerge. PwC sees strong links between Asia and Africa and Asia and South America, as well as trade within Asia, transforming global supply chains.

Hot spots for trade are showing impressive growth. Trade between Asia and the former Soviet states grows at 42 percent a year. The volume of trade between South America and Africa is growing by double digits.

“China already owns seven of the world’s twenty largest ports,” said Christopher Siewierski, associate director in Corporate Finance at PwC. “India, Russia and South Africa are also expected to play a significant role as logistics giants.”

Respondents to the Transportation & Logistics 2030 Report
(http://www.pwc.com/gx/en/transportation-logistics/tl2030/tl2030-pub.jhtml ) believe it is unlikely that companies from emerging countries will seek further growth in the developed European and North American markets. Instead, they will concentrate on domestic markets and the strong growing neighbouring countries.

All of this is good news for Djibouti. At present, the population of Djibouti
(http://en.wikipedia.org/wiki/Djibouti) is small at around 864,202 people (2009 World Bank).

Ancient Djibouti traded hides and skins for the perfumes of Egypt, India and China: a classic South-South trade heritage. Djibouti became a French colony and gained its independence from France in 1977.

The geography is harsh: a rocky semi desert of plateaus and highlands. Djibouti has few resources, apart from its large salt reserves – the country has a long history of salt mining. Djibouti must depend on foreign assistance – or innovative trade.

Djibouti has to be clever in increasing income opportunities: the country has an estimated unemployment rate of between 40 and 50 percent. The country is heavily dependent on imports for food and fuel, and over the past decade has experienced recession – in the wake of a 1991 to 1994 civil war – and a growing population.

For years, the tiny state was overlooked and development had proceeded at a slow pace. But now investment from Dubai is pouring in to upgrade the port to make it a regional gateway.

The Djibouti Free Zone (http://www.djiboutifz.com/) was set up in the wake of the country being designated a free-export processing zone in 1995. In practice, this means a company or business working to export products can be designated as an Export Processing Company (EPC).

It was created to re-shape the landscape in Africa when it comes to trade. Push out the red tape, and bring efficiency and plenty of services: the prime habitat for business to flourish free of restrictions. Prospective businesses can find modern offices, distribution, storage and light manufacturing facilities.

Djibouti provides services as both a transit port for the region and an international trans shipment and refuelling center.

And even more ambitious plans are afoot: a multi-billion dollar, 29-kilometre bridge across the Red Sea has been proposed. The Bridge of the Horns (http://en.wikipedia.org/wiki/Bridge_of_the_Horns) will link Djibouti with Yemen and two new cities will be built on either side of the bridge. The new Noor City on the Djibouti side will become the “financial, educational, and medical hub of Africa” according to its developers.

Elsewhere, the United States is funding and operating four regional trade and competiveness hubs in sub-Saharan Africa. They aim to assist, enhance and broaden the flow of trade between the United States and the region, both inside and outside the terms of the historic African Growth and Opportunity Act (AGOA) (http://www.agoa.gov/). The four trade hubs — located in Ghana, Senegal, Botswana and Kenya — provide information and technical expertise to enhance and expand bilateral trade between the United States and Africa.

Resources

  • Port Management Association of Eastern and Southern Africa: Is a regional organisation for the ports and maritime sector in Eastern and Southern Africa. It seeks to promote and nurture best practices among member ports by creating an enabling environment for exchange of information and capacity building to contribute to the economic development of the region. Website: http://www.pmaesa.org/welcome.htm
  • Dubai World: Global holding company Dubai World “focuses on the strategic growth areas of Transport & Logistics, Drydocks & Maritime, Urban Development, Investment & Financial Services. Our portfolio contains some of the world’s leading companies in their industries, including Drydocks World, Economic Zones World, Istithmar World, Nakheel and majority ownership of DP World.” Website: http://www.dubaiworld.ae/
  • West Africa Trade Hub: The USAID West Africa Trade Hub uses a market-driven approach to increase exports from the region – making West Africa competitive in world markets. The Trade Hub provides direct assistance to hundreds of companies in six value chains. That work is complemented by teams tackling problems in transportation, telecommunications, access to finance and business environment that make it difficult for West African companies to compete. Website: http://www.watradehub.com/

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