Ethiopia Searches for Alternative Outlets

Ethiopia used to rule all ports on the western side of the Red Sea, until it lost its last one to Eritrea in 1991, joining the pack of landlocked African economies. Over 90Pct of Ethiopia’s international trade—forecasted to almost double from the current 17.1 million tons to 30 million metric tons by 2030—has been utilizing the Port of Djibouti.

However, Ethiopia is currently exploiting additional ports in Kenya, Somalia, Djibouti, Sudan, and Eritrea. Following the opening of the Ethiopian logistics sector to foreign investors, these ports are planned to be linked with dry ports and economic and logistics facilities across Ethiopia. To that end, the Logistics Transformation Office, is currently finalizing the first Ethiopian logistics masterplan, which envisages interconnecting the nation through infrastructure including ports, roads, rail, aviation, pipelines, and transboundary rivers. Ashenafi Endale explores.

By any measurement, it is extremely difficult for a poor nation to stay afloat without direct access to a port, let alone climb the income ladder to achieve middle-income status. What is at stake for landlocked Ethiopia and its close-to 120 million people and an economy largely dependent upon imported goods, is much loftier. Although top officials of the EPRDF-led government—including the late Prime Minister Meles Zenawi—used to downplay the issue and claimed that a port is just like any other commodity that can be purchased, the lack of a coastline has impeded Ethiopia’s vision of industrialization.

In fact, the issue goes beyond the economy. It is humiliating for the second-most populous nation on the continent and its proud people to depend so heavily on a small country like Djibouti and its population of less-than a million. In the past, numerous Ethiopian soldiers died to save themselves and nation from such humiliation and ensure Ethiopia’s access to Assab and Massawa ports before the separation in 1998.

Although totally avoiding the shame is impossible, Ethiopia is now trying to reduce the humiliation by divesting from its almost single-port stance. Especially after Prime Minister Abiy Ahmed (PhD) assumed power three years ago, concrete actions have been taken by the government to reduce Ethiopia’s excessive dependency on Djibouti.

“The government is working to diversify Ethiopia’s options and use ports in Kenya, Somalia, Eritrea, and Sudan,” Debele Kabeta, Commissioner of the Ethiopian Customs Commission, told EBR. “For instance, the Moyale One-stop Border Post (OSBP) recently began operations. This will vitally contribute towards the facilitation and use of Kenyan ports.”

According to Debele, the plan is to install OSBPs with all neighborly countries in the next ten years. “Ethiopia will soon install a similar system with Eritrea, for the use of Assab Port. Ethiopia has completed preparations to access the port and the government has submitted customs protocol documentations to the Eritrean Ministry of Foreign Affairs. We are now expecting their response.”

There are three factors that influence port selection. The first is geopolitical alignment. Countries prefer ports located in friendly nations and those in the same political and economic bloc. In 2020, Ethiopia, Eritrea, and Somalia began establishing a new regional bloc—Horn of Africa Cooperation. Under this situation, Berbera and Assab are the best options and are easily accessible to Ethiopia.

The second factor is logistics transit time. In this regard, ports located in Djibouti and Eritrea are the best options because of their proximity to Addis Ababa. Though a bit further, Kenyan ports are ideal for southern parts of Ethiopia ever since the Moyale OSBP shortened the transit time between Ethiopia and Kenyan ports by at least 30Pct. Inaugurated by Prime Minister Abiy Ahmed (PhD) and President Uhuru Kenyatta in December 2020, the Moyale OSBP started operations in June 2021. Being the only transit point between the two nations, Moyale is also planned to house an economic zone.

However, ports located in Djibouti and Eritrea might not be the best options when the third to-be-considered factor is taken into account. And this relates to port fees as well as loading and unloading charges at sea gates like the Port of Djibouti, which are expensive.

After selecting the best available port, the next stage is to choose which modalities to implement, with leasing or renting being one option. Ethiopia uses Djiboutian ports to handle 95Pct of its external trade by paying USD2 billion every year.

Ethiopia also applies other modalities such as part ownership and port development. In 2018, Ethiopia bought a 19Pct stake in Berbera Port. In the same manner, Ethiopia signed a deal to develop and operate a port in Djibouti in 2019, allowing for the utilization of the port through a rent-free lease modality.

It is not only Ethiopia that is endeavoring to diversify its port options. Neighboring countries with ports are also eager to attract Ethiopia’s attention owing to its huge external trade volumes and the possible revenue that the exercise could generate. The total external trade of Ethiopia reached 17.1 million metric tons and is expected to reach 30 million metric tons in the next ten years.

Kenya is moving better in this regard by smoothing out its logistics systems, clearing the way for Ethiopia to use the Lamu and Mombasa ports. In July and September 2021, a delegation from Kenya which included government officials and businesspeople came to Addis Ababa to inform the business community residing in Ethiopia about recent developments. “There is competition amongst coastal nations of east Africa to influence Ethiopia towards using their ports,” said Wilson Njega, Kenyan Internal Security Secretary and leader of the delegation to Addis Ababa in mid-September 2021. “Djibouti, Somalia, Kenya, and now Eritrea are competing to provide port services to Ethiopia.

However, fundamental challenges still remain. “After the Moyale OSBP started operating, Kenyan drivers and traders began coming to Ethiopia. However, Ethiopian banks are not willing to accept the Kenyan shilling,” complains Mercy Ireri, Secretary of the Kenyan Transporters Association.

“For Kenya and Ethiopia to trade in goods and services, they don’t need to use the dollar as a medium of exchange,” advises Elizabeth Getahun, President of the Ethiopian Freight Forwarders and Shipping Agents Association. “The two governments can set rules to use the birr and shilling.”

According to Elizabeth, Kenya and Ethiopia only need to duplicate what the latter does with Djibouti where though Ethiopia pays for port fees using the dollar, Ethiopian drivers can use certain amounts of birr for their trips to Djibouti.

Ethiopia and Sudan have also introduced a currency swap mechanism allowing traders from the two nations to exchange in goods and service using their own currencies up to a certain amount. Transactions above the set limit are paid in US dollars held at the Commercial Bank of Ethiopia’s Khartoum branch.

The other basic problem is the different road policy and vehicle driving mechanisms of Kenya and Ethiopia. Based on Kenyan traffic laws, the norm is to drive on the left side of the road, with the opposite prevailing in Ethiopia. “For now, we are discussing on ways to solve this by making Kenyan drivers drive on right side of the road while in Ethiopia and vice versa for Ethiopian drivers,” said an official at the Ethiopian Ministry of Transport, who spoke to EBR on the condition of anonymity. “But for the future, African countries need to have similar driving and road policies.”

The divergent driving mechanisms in east Africa also threatens the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor project—the infrastructure project allowing east African nations’ utilization of Kenya’s Lamu Port—as well as other multi-nation trade initiatives like the African Continental Free Trade Area (AfCFTA).

“South Sudan relies heavily on Mombasa, even though it is 1,900 kilometers away from Juba and its cargo requirements are substantially increasing by the year,” said Lado Tongun, Director General for South Sudan’s Road Transport and Safety, while in Addis Ababa in July for the LAPSSET assessment meeting. “For these reasons, South Sudan is eagerly awaiting the corridor project.”

LAPSSET is also expected to benefit Ethiopia which “can generate revenue by hosting South Sudan’s interlinking roads and pipeline,” explains Debele. “South Sudan is already planning to use Modjo and other dry ports as a logistics hub for its international trade via Kenya.”EBR

9th Year • Nov 2021 • No. 101