Berbera port in Somaliland has the potential to become a real alternative to Djibouti, explains David Whitehouse. East Africa may also be about to see oil exploration off troubled Somalia.
The prospect of a liberalized economy is set to prompt Ethiopia to turn to Somaliland to reduce its dependence on the port at Djibouti. Somaliland, home to the port of Berbera, declared independence as Somalia slid into chaos in 1991 but has never been recognized as a country. Yet the shops are full of goods and the environment “dynamic, safe and stable with people eager to do business”, according to Dr. Seth Kaplan, fragile states expert and consultant to the World Bank. “Give them peace and they will create wealth and trade. It is the best place to be in the Horn of Africa.”
Under European colonialism, Somalis were divided between British Somaliland, which is today’s Somaliland; Italian Somalia, now called Somalia; and French Somaliland, which became Djibouti. Along with Eritrea, the World Bank ranks Somalia as one of the ten most difficult countries in which to do business. That creates pressure for Ethiopia to find alternatives to avoid dependence on Djibouti. Berbera in Somaliland has the potential to become a real alternative, said Dominic McVey, the entrepreneur and former chairman at Hela Clothing, which has textile factories in Ethiopia.
Development of the land borders and systems for smooth trade, such as at Wajale, a city on the Ethiopia-Somaliland border through which imports to Ethiopia from Berbera pass, is essential, McVey said.
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Berbera port was built with help first from the Soviet Union and then the USA in the 1960s and 1980s. Since an agreement in 2017, Dubai’s DP World has owned 51 percent of the port, Somaliland 30 percent and Ethiopia 19 percent. The deal included an investment of USD442 million to develop the port facility and a nearby free economic zone.
Somalia
In February 2020, Somalia passed legislation to allow for petroleum exploration. The country has a long, under-explored coastline. Later in March, the country agreed to explore and develop potential offshore oil and gas with a Shell/Exxon joint venture. Somalia will also benefit from debt relief granted during March by the World Bank and the International Monetary Fund (IMF).
The sale of oil and gas blocks by Somalia means that the petroleum business will increase in the coming years, according to Patrick Gerenthon, head of Djibouti, Ethiopia, Eritrea and Somalia at Bolloré Logistics. A secure zone will be created near Mogadishu to allow the fields to be serviced. Work on the zone will be complicated, he said, and is at a very early stage – completion will probably take two to three years.
Bolloré Logistics has been present in Somalia since 2018 as an agent of Maersk. The port at Mogadishu, Gerenthon explained, is very old and lacks the cranes and equipment needed for volume. It would have to be extended, or a new one built, to give Mogadishu any chance of being competitive. There are also serious security challenges, and a safe corridor to Ethiopia would have to somehow be created. Somalia is “not at all secure”, he stated.
Some doubt that Somalia’s ports will ever be able to compete. The country remains trapped in a “hand-to-mouth existence”, said Andrew Jones, former CEO of Louis Dreyfus East Africa and now a consultant on African market entry.
Mogadishu port is at least functional and receives electronics imports from Dubai, he said. The Turkish are trying to build infrastructure, but there is “little commercial reason” to go to Somalia at present. “Forget it. It is too far away [from Ethiopia] and there is no road or rail network.”
Give them [Somaliland] peace and they will create wealth and trade. It is the best place to be in the Horn of Africa. – Dr Seth Kaplan, World Bank
Maritime security
For the overall region, maritime security is now much less of an issue than in recent years, though armed guards may be still required on vessels for insurance purposes, Jones said. He noted that there has been a tendency to employ cheaper security firms, something he sees as a false economy. “Weak maritime security means the whole supply chain gets broken,” he said.
Attempts to build a stable state in Somalia have mostly been top-down and outside-led. Kaplan contrasted that with Somaliland, which has constructed a functioning government from the bottom up, with little outside assistance. Somaliland may not be recognized as a country, “but that does not matter to Ethiopia,” he said.
Insurance problems
Lack of recognition means Somaliland cannot receive loans and aid from institutions like the IMF or the World Bank, and banks and insurers will not set up branches there. Insurance and other kinds of investment protection are lacking. Kaplan argued that the problems could be overcome: insurance could in theory be provided through Ethiopia, which has always had good relations with Somaliland. “They could get around it if they really wanted,” he added.
According to a Rift Valley Institute briefing paper from August 2019, there has been strong local opposition, including violence, due to the DP World deal among groups that have lost access to Berbera – temporary workers, owners of trucks not meeting safety standards, and clan elders. The old port treasury has lost its powerful role in the local distribution of funds, and the majority sub-clan in Berbera, Issa Muse, is opposed to the agreement.
That makes it crucial to ensure that the development zone creates jobs beyond the port itself to ensure its stability, according to the authors, Warsame Ahmed of the University of Hargeisa and Finn Stepputat of the Danish Institute for International Studies. They argue that upgrades to the transport corridor between Somaliland and Ethiopia are still needed, as are decisions on the port and corridor governance structures. The 270 km road to Ethiopia will need significant upgrades. Delays “may hinder the transformative potential of the new port for Somaliland and the wider region”.
The best opportunities are in places where people are too scared to go, but for no good reason. Somaliland fits that bill. – Dr Seth Kaplan, World Bank.
Potential
However, Kaplan is optimistic. There is “no practical reason” why anyone could not make a deal with Somaliland, he said. “Every problem is solvable but you have to think outside the box.” Somaliland “wants the investment and is open for business.”
“The best opportunities are in places where people are too scared to go, but for no good reason,” Kaplan added. “Somaliland fits that bill.”
This article has been taken from the August/September 2020 edition of Heavy Lift & Project Forwarding International (HLPFI) Magazine
