China-Djibouti Relations

China-Djibouti Relations

 Djibouti is the only country in the world that hosts military bases for both the United States and China. As a small and poor country, Djibouti’s foreign policy aims to maintain good relations with a diverse range of foreign partners. By early 2016 three foreign military powers, the United States, France and Japan, had military forces positioned in Djibouti and another two, China and Saudi Arabia, were set to establish bases there soon. During his 1998 visit, China’s President Jiang Zemin commented on the smooth development of Sino-Djiboutian relations despite the changes in international and domestic changes in both countries. China provides aid to Djibouti for a variety of improvements. Djibouti values its relationship with China and supports China’s reunification with Taiwan

History of diplomatic relations

After Djibouti gained independence from France in 1977, China quickly moved to develop the Sino-Djiboutian relationship, mostly through large construction projects. Since the establishment of diplomatic relations China and Djibouti, bilateral economic and trade cooperation has witnessed a steady development. The two countries signed an agreement on economic and technical cooperation. Since 1979, China has provided Djibouti with aid projects including the 10 million “People’s Palace” conference centre in 1983 and the 11 million sports stadium in 1991. Smaller grants financed a new wing of the main public hospital in 1997, and a new building for the Ministry of Foreign Affairs in 2001.

Cooperation between the two countries began in 1982. By the end of June of 2002, there had been 478 contracts for service cooperation signed between the two countries. China’s companies working on projects in Djibouti are the China Construction Engineering Co., China Civil Engineering Corp and some other Chinese companies. They have undertaken such projects as the construction of school and bank in Djibouti. In 1998, China and Djibouti signed an agreement on trade between the Government of the People’s Republic of China and the Government of the Republic of Djibouti. The trade volume between the two countries in 2002 stood at US$ 49.83 million, among which China’s export was US$49.81 million, and import US$20,000.

President Guelleh’s 2001 visit to China with a group of government officials and business people significantly boosted Sino-Djiboutian business links. Djibouti has invested heavily in Chinese communications technology, working with the Chinese companies ZTE and Huawei on fixed and mobile phone networks and Internet technology. Chinese construction companies are also active in Djibouti’s building boom. While Chinese companies and products often are extremely competitive in the Djiboutian market based on price alone, there have been some complaints about poor-quality after-sales service and follow-up by Chinese suppliers, especially from state-run telecommunications monopoly Djibouti Telecom.

By 2008 the Chinese influence in Djibouti was nowhere near as strong as the French or the U.S. influence, but it was visible, continuous and growing. Chinese influence was prevalent in both private and public sector projects. On the government-government level, each year in July/August the Chinese government invited officials from different departments of the Djiboutian Government for a 15-day tour in China. Travel and accommodations are paid for by the Chinese government. Members of the Defence Ministry, Parliament, the Presidency, and the Ministry of Foreign Affairs have visited China on these trips.

Key Areas of trade and cooperation

China has important economic interests in Africa and the Middle East. A significant percentage of China’s trade with the European Union, valued at over US$ one billion a day, passes through the Gulf of Aden and 40 per cent of China’s total oil import passes through the Indian Ocean. Additionally Beijing’s Maritime Silk Road initiative aimed at enhancing regional connectivity between China, the Indian Ocean, the Gulf of Aden and the Mediterranean Sea, requires security infrastructure to shield it at critical points on the trade routes. China will not be the only beneficiary from the agreement. The military base will increase Djibouti’s reputation as a premier hub in international security and strengthen its relationship with the world’s second largest economy. Beijing additionally followed up the agreement with other financial, development and investment trajectories. Beijing agreed to set up a US$ 3.5 billion free trade zone which Guelleh claims will bring about 15, 000 job opportunities to Djibouti. The trade zone which is expected to herald a new push for economic opening will be a link between Africa and China under the framework of the one belt one road initiative.

Furthermore, China signed an agreement to promote China-Djibouti bank clearing and related services to boost avenues for currency and trade clearing between both countries. This will help develop Djibouti’s financial infrastructure as the country currently lacks a national payment system, and relies on cash transaction only. China further agreed to invest US$ four billion in the construction of a railway line from Djibouti to Addis Ababa, capital of land-locked Ethiopia. The 450 kilometre line built by China Railway Engineering Corporation (CREC) become operational in 2016. This will increase economic activity as 70 per cent of all Ethiopia’s trade passes through Djibouti’s port, and will enable Africa’s fastest growing economic region to exploit its growing business ties with China, the US, India and Europe. Additionally, a US$ 590 million concession for the expansion in transit and trans-shipment of Chinese goods and containers in Djibouti’s port was agreed upon.

This will expand Djibouti’s role as an intermediate destination and a container hub with the associated benefits, which the country will reap through custom and duties fees. The World Food Programme (WFP) subsequently announced the establishment of a logistics hub in Djibouti to enable it access to the port and respond effectively to crisis in the region such as the conflicts in South Sudan and Yemen, and drought in Eritrea and Ethiopia caused by El Nino. China also agreed to bankroll two new airports at a cost of US$ 600 million as part of its effort to transform the Red Sea nation into a regional travel hub. The airports, with an annual capacity of more than two million passengers per year, will handle about two hundred thousand tonnes of cargo annually, and is expected to provide one thousand jobs. It will enable Djibouti to vie for lucrative aviation routes between the Middle East and East Africa.

Furthermore, Beijing is building a water project to transport water from Ethiopia to Djibouti in the largest cross-border water project in Africa. Djibouti suffers from chronic water shortages with 95 per cent of its water coming from underground sources. This project undertaken by CGC Overseas Construction Group (CGCOC), a Chinese construction firm, is expected to supply 80 per cent (about 750,000) of the population clean portable water. Chinese firms are also making investments inroads into Djibouti. POLY-GCL petroleum group, a Chinese based energy firm, announced early this month its intention to build a liquefied natural gas (LNG) plant and export terminal in Djibouti.

The US$ one billion gas project will enable Ethiopia to export liquefied gas to China through pipelines from Ethiopia to Djibouti. This will create jobs and increases Djibouti’s energy security as it reduces its dependence on international fuel sources. Additionally, Djibouti stands to collect rent and fees for rights to operate the military base, with the International Business Times reporting an annual fee of US$ 100 million. This is a substantial amount for a country with a Gross Domestic Product (GDP) of US$ 1.58 billion and a per capita income of US$ 1229. These funds will enable it to reduce its national debt and invest in human capital development, education and infrastructure. Lastly, the facility will hire local employees for non-essential tasks and engage in military contracting, as the bases will demand intermediate inputs for their effective operations from defence contractors in areas such as waste disposal, general administration amongst others.

Djibouti further expects Chinese investments of within US$ 12-14 billion between 2016 and 2020. A large chunk of these investments will be nonconcessional loans. These investments in Djibouti will act as a catalyst for economic growth and development with the World Bank already forecasting growth of 6.5 per cent for the Djibouti economy in 2016. China’s military base has the potential to serve as a catalyst in the stimulation of Djibouti’s economy. If these initiatives bring about the intended multiplier effects, it will put Djibouti in good stead and provide a platform for further growth and development in years to come.