About eight miles away from the US naval base Camp Lemonnier in Djibouti is a swanky military compound with subtle cues about the country that has built the structure – China. The French, Japanese, Italian, and Spanish naval bases aren’t too far from the Chinese People’s Liberation Army Support Base in the east African country.
The base is operated by the People’s Liberation Army Navy and China is said to have spent $590 million on this military facility and the Doraleh Multipurpose Port.
Djibouti’s location at the Horn of Africa makes the country one of the critical locales for projecting power across Africa and Asia. The former French colony was once crucial to France’s influence in east Africa.
“Djibouti is one node in an economic chain that stretches across the northern rim of the Indian Ocean, from ports in Cambodia to Sri Lanka to Pakistan. They have a grand, strategic plan. We don’t,” David Shinn, former US ambassador to Ethiopia had said about China’s presence in Djibouti.
The five-time president of Djibouti, Ismail Omar Guelleh, was re-elected with 98 per cent of the votes on 10 April.
Quoting the opinion of experts — both on and off the record — a France24 article suggested that the Djibouti-China marriage was ‘slowly unravelling’. But what’s really behind the so-called “Djibouti-China marriage”?
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The Djibouti-China marriage
Beijing now holds majority share of Djibouti’s debt, which accounts for over 70 per cent of the country’s gross domestic product. China and Chinese state-owned firms had invested nearly $10 billion in Djibouti, according to a 2018 article in Caixin.
The strategy behind Djibouti accumulating large sums of debt was to promote the country as a logistics hub between Africa and Asia. China emerged as a willing lender to promote that strategy within its own Belt and Road Initiative (BRI). Some Djiboutian elites understand their country has the potential of becoming the ‘Singapore of Africa’ with the help of Chinese investments.
In 2018, China Merchants Port Holdings Co. Ltd and Dalian Port (PDA) Co. Ltd announced that they will together invest $3.5 billion in development of a new Djibouti International Free Trade Zone, according to Caixin. China had also invested $3.4 billion in a railway line project that connects Ethiopia’s Addis Ababa to Djibouti’s Red Sea port.
The International Monetary Fund said in 2018 that Djibouti’s strategy to promote the country as a logistics hub “resulted in debt distress, which poses significant risks”. “Public and publicly guaranteed debt is expected to be around 104 per cent of GDP at end-2018” added IMF.
Critics have pointed out that China’s investment doesn’t create enough job opportunities for the local population since workers are brought from China.
One of the main findings of the ‘How China Lends’ project at William & Mary was that Chinese investments “contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt”. The study has also found that countries accepting the debt under the BRI have to maintain a large escrow account, which can be used if the country is unable to service the debt.
Xi Jinping said in June 2020 that China will cancel the debt of “relevant” African countries “in the form of interest-free government loans that are due to mature by the end of 2020”.
Beijing’s growing economic presence in Djibouti can be gauged by Chinese state-owned firm China Merchant Port Holdings’ stake in the Doraleh Container Terminal (DCT). In 2018, the Djibouti government nationalised the DCT and terminated Dubai-based DP World’s contract to run the terminal. DP World has alleged that this action gives China Merchant Port Holdings an unrestricted control to the terminals.
Based on the publicly available data, it is unclear if Djibouti has let China Merchant Port Holdings take over the control of port terminals after ending DP world’s contract. But in 2019, The Wall Street Journal quoted an executive officer of a ship docked at Djibouti terminal as saying that the port has started to resemble other facilities where Chinese state-owned firms have majority stake: “At the multipurpose port it’s the same cranes, the same silos for grain, fertilizers and other commodities, it’s very Chinese.”
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A Hambantota repeat?
The story of Djibouti’s Doraleh Port has echoes of China’s investment at Hambantota Port in Sri Lanka. China Merchant Port Holdings – operating in Doraleh Port – is the same firm that had managed to secure 70 per cent stake in Hambantota Port. Sri Lankan government had to lease the port to China for 99 years when the island nation couldn’t service its debt.
US AFRICOM commander Gen. Thomas Waldhouser in a 2019 Senate hearing had claimed that China controls two out of the five terminals at the Djibouti Multipurpose Port.
In March this year, the Commander of the Djibouti Support Base Liang Yang was promoted to the rank of Major General and transferred to an unknown naval base. The promotion is a sign that the Central Military Commission is happy with the work that Liang Yang had started in 2017 as a colonel at the Djibouti base.
“China is a great world power and has expanded its presence in many countries, especially in Africa, in recent years,” said French President Emmanuel Macron on his last visit to Djibouti.
The ‘How China Lends’ study has also discovered that under certain circumstances “Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies”.
China has “become more willing to renegotiate debts because it doesn’t want to look like the bad guy” after learning from the experience in Sri Lanka, an anonymous British expert told France 24.
Djibouti’s debt situation mimics what happened at Sri Lanka’s Hambantota port. Only time will tell if China’s lending practices have changed and can Djibouti save its port — and sovereignty.
The author is a columnist and a freelance journalist. He was previously a China media journalist at the BBC World Service. Views are personal.
Edited by Anurag Chaubey