Djibouti Free Trade Zone Causes Concern Over China Expansion

Last week, Djibouti hosted the Africa-China Economic Forum which gathered various regional leaders including: Ethiopian Prime Minister Abiy Ahmed, Rwandan President Paul Kagame and Sudanese President Omer al-Bashir.

Last week, Djibouti hosted the Africa-China Economic Forum which gathered various regional leaders including: Ethiopian Prime Minister Abiy Ahmed, Rwandan President Paul Kagame and Sudanese President Omer al-Bashir.

The event also coincided with the inauguration of the first phase of the Djibouti International Free Trade Zone (DIFTZ), a 3.5 billion dollar project that will ultimately span an area of 4,800 hectares.

The recently inaugurated 370 million dollar pilot zone covers an area of 240 hectares and consists of four main industrial clusters: trade and logistics; export processing; business and financial support services; manufacturing and duty-free merchandise retail.

The DIFTZ will be managed by Djibouti and three other Chinese companies: China Merchants Group, Dalian Port Authority and IZP. In addition to creating new employment opportunities for young Djiboutians, Djibouti also hopes that the DIFTZ will help position itself as a trade and logistics hub in region. Thanks to its geostrategic location, it might just be able to make this goal a reality.

Not only is the small country in the Horn of Africa located at the intersection of the Red Sea and the Gulf of Aden, it is also just ahead of the Suez Canal. This means that Djibouti has a commercial shipping presence near one of the busiest trade routes in the world. The country also has the ability to act as an important entry point to African markets. In fact, according to Reuters, Ethiopia, Djibouti’s landlocked neighbor, already relies on it for 95% of its imports.

During the inauguration of the DIFTZ, Djibouti’s President Ismail Omar Guelleh praised China’s efforts in Africa and called the new trade zone “a zone of hope.” Recently, however, this “zone of hope” has created quite a stir.

President of Djibouti Ismaïl Omar Guelleh
President of Djibouti Ismaïl Omar Guelleh

But why would the construction of a free trade zone in a small, resource-poor country in Africa with a population of less than 1 million people and a GDP of less than 1.8 billion dollars cause a stir in the international community?

The concern is not necessarily with Djibouti or the DIFTZ specifically, but rather with China’s involvement. The commissioning of the new trade zone signifies another step in China’s attempt to achieve its Belt and Road Initiative (BRI).

The BRI is a Chinese initiative that aims to promote development on a global scale by investing trillions of dollars in hard and soft infrastructure in Asia, Africa and Europe. Currently, it is estimated that BRI projects span 70 countries and impact more than two-thirds of the world’s population. While China’s increasing presence throughout the world is no secret, its rapidly growing presence in Djibouti is putting the US on edge.

Earlier this year, Djibouti ended the concession contract (defined by Investopedia as a “negotiated contract between a company and a government that gives the company the right to operate a specific business within the government’s jurisdiction, subject to certain conditions”) it awarded Dubai-based DP World to run its Doraleh Container Terminal citing its failure to resolve a 6-year-old dispute.    

In response, DP World, one of the world’s biggest port operators, called the move an illegal seizure and referred the case to the London Court of International Arbitration. However, the main concern that dominated a US congressional hearing that took place at time of the incident was that Djibouti might have seized control of the port to give it to China as a gift.

This suspicion, coupled with the construction of China’s first overseas military base in Djibouti, is making Washington D.C. nervous. Even though China claims that the military base is only a “support facility.”

During a press conference in July 2017, Foreign Ministry Spokesperson Geng Shuang stated that “the establishment of the Djibouti logistics support base” would enable China to “better perform the international obligations of the UN escort missions in the Gulf of Aden and Somali waters as well as humanitarian relief.” He also claimed that the base aims to help “Djibouti’s socio-economic development and allow China to make greater contributions to the peace and stability of Africa and beyond.

US officials’ concerns with recent events in Djibouti are two-fold. Firstly, it is afraid that if Djibouti is lured into China’s “debt trap” that they might be strong-armed into giving up Camp Lemonnier. A US military base in Djibouti with more than 4,000 American personnel stationed just 8 miles from China’s military base.

Secondly, the US is also afraid of losing access to Doraleh Container Terminal. According to the Marine General Thomas Waldhauser, the top U.S. military commander overseeing troops in Africa, if China placed restrictions on the use of the port, it could affect the overall operations of the U.S. military base in Djibouti.

It is important to note, however, that China is not the first foreign country besides the US to establish a military presence in Djibouti. In addition to being the home of French, Italian and Japanese military bases, Djibouti also hosts an active contingent of Spanish and German militaries. These militaries regularly partake in counter-piracy operations in the Gulf of Aden and UN peacekeeping efforts in Africa.

While China continues to maintain its public stance of non-interference, the physical proximity between the Doraleh Container Terminal and China’s military base continues to raise doubts about the country’s real agenda.

Has China been emboldened by its recent experiment in Djibouti to use its economic influence to advance its security interests elsewhere in Africa? Will China replicate this experiment in other countries around the world? Only time will tell what impact China’s attempt to become an economic and military super power will have on the state of geopolitics in the developing world and beyond.