Issue No. 410

Published 22 Jun 2022

The success story of Berbera port and how it could realign regional relations

Published on 22 Jun 2022 23:39 min

The success story of Berbera port and how it could realign regional relations

The port of Berbera will soon be the second-largest port in the Red Sea-Western Indian Ocean region, after Mombasa. With the first phase of its expansion completed last year and the second phase underway, Berbera port is expected to transform commercial trading patterns throughout the Horn. 

An initial $442 million investment deal to renovate and expand the port, and construct associated port infrastructure, was signed in 2017 between the UAE parastatal DP World and the government of Somaliland. DP World would own a 51% stake in the port, while Somaliland and Ethiopia would have 30% and 19%, respectively. Work began in 2018, with DP World taking over management of the port. Just five years later, the port’s container capacity has increased from 150,000 Twenty Foot Equivalent Units (TEUs) to 500,000 TEUs annually, thanks to a new container terminal with a quay of 400m and three ship-toshore (STS) gantry cranes. Berbera is now ranked 184th on the World Bank’s port efficiency rating index, meaning it is one of the most efficient ports on the African continent.

Once the second phase – which involves extending the quay from 400 to 1,000m and installing a further seven STS gantry cranes – is complete, the port’s container capacity will increase four-fold (to two million TEUs a year) and it will be able to handle multiple large container vessels at the same time. Berbera will then be larger than the port of Djibouti.

Besides the port infrastructure, DP World is also developing the Berbera Economic Zone (BEZ), modelled on the UAE’s Jebel Ali Free Zone in Dubai. The BEZ is envisioned to host a range of industries, including warehousing, logistics, traders, manufacturers, and other related sectors. And, though not funded by DP World, there is also the Berbera Corridor road upgrade project, funded by the Abu Dhabi Fund for Development (ADFD) and the UK’s Department for International Development (DFID), and the Hargeisa Bypass Road, funded by UK Aid. The rehabilitation and expansion of the existing 270km road will facilitate the transport of cargo between Berbera and Ethiopia via the border crossing at Tog Wajaale.

With a deep draft of 17m, Berbera port will be capable of handling the world’s largest ships; a critical feature, because the initial investment was mainly intended to offer landlocked Ethiopia – Africa’s second-most populous country – an alternative to the port of Djibouti. Ethiopia relies almost exclusively on Djibouti for port access: 70% of the cargo at the port is shipped to or from Ethiopia, accounting for over 95% of Ethiopia’s foreign tradeHowever, Ethiopia’s precipitous economic decline – driven by global factors combined with the disastrous war in Tigray – as well as tensions with neighbouring countries have shaken up the initial Berbera port agreement. According to a statement made by the  Somaliland government earlier this month, Ethiopia forfeited its 19% stake due to its failure to remit its financial contribution for the construction of the port. Last week, Somaliland’s finance minister, Saad Ali Shire, told the Puntland Post, “Ethiopia failed to meet the conditions needs to acquire the stakes before the deadline. So it has no stake now, but it needs to note that ownership does not matter.” He added, “Under the Berbera Port Agreement, DP World owns 65% shares, Somaliland Administration has 35%.” According to Saad, there had never been a signed agreement regarding the shares, only a verbal agreement that had been made in the UAE. 

The implications of Ethiopia’s loss of its stake and, by implication, its exit from the deal, remain unclear. The Ethiopian Government has not yet officially responded to thisdevelopment. Because the details of the deal reached between Ethiopia, Somaliland, and DP World were never made public, the lack of transparency is likely to make the issue even more contentious and could strain diplomatic relations the two states.

The Brenthurst Foundation, a South African think-tank that seeks ways to fund African development and improve African competitiveness, held a two-day conference on security and state-building in Hargeisa earlier this month. While lauding Berbera port’s efficiency and the success of the project despite the various challenges it faced, it noted that many barriers to foreign investment remain: Somaliland is not recognised as an independent country, its currency is not convertible, its banking system is not part of the SWIFT network, and its telephone system does not have an international dialling code. Yet, by partnering with an international operator like DP World, Somaliland was able to unlock Berbera’s potential.

The success of Berbera port has also affected dynamics and relations across the Somali political spectrum. In 2018, the FGS rejected the agreement between Somaliland and DP world and banned DP World from operating in the country, stating that “DP World openly violated the independence and unity of Somalia.” At the time, DP World was already managing the port of Bosaaso, through its P&O Ports subsidiary, which in 2017 had signed a 30-year concession with the government of Puntland worth $336 million. From the FGS perspective, P&O Ports’ continued presence in Bosaaso was illegal and became one of several sources of tension between Puntland and the FGS.

On Monday, President Hassan Sheikh Mohamud arrived in the UAE and reportedly one of the main agenda items will be the status of DP World in Somalia. In 2018, Somalia’s then foreign minister, Ahmed Isse Awad, told Reuters that he urged the UAE to respect Somalia’s sovereignty: “We are asking DP World to reconsider these agreements, particularly the one in Berbera port since Somaliland is claiming to be a state independent from Somalia.” It is unclear whether Somalia’s position on the matter has changed, though circumstances certainly have. Now, Somalia is seeking Emirati financial assistance, in part to rebalance its foreign policy away from dependence on Qatar, and it may be willing to make concessions. Meanwhile, DP World’s independent dealings with Somaliland and Puntland are reportedly hampering the company’s plans to take over the management of other Somali ports, such as the port of Kismayo. 

Whatever deal emerges as a result of HSM’s visit to Abu Dhabi will indicate how his administration plans to handle a host of thorny issues: adopting a more neutral policy of international relations while, at the same time, finding alternatives to Qatari financial support; negotiating the status of Somaliland; and managing relations with Federal Member States (FMSs), especially in terms resource sharing and the rights of the FMSs to conduct foreign policy.

The Somali Wire Team

 

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