June 2023

Using Janes data and analysis, this use case shows how analysis of Chinese project financing in Djibouti delivers a clearer understanding of how China uses its corporations and financial institutions to project power and secure leverage in order to influence local decisionmakers and stakeholders. With an emphasis on economic and financial ties, we examine how the Djibouti-Chinese relationship has developed over time in alignment with China’s commercial and strategic interests, including the establishment of China's first overseas military base.

Background

Located in the East of Africa and on the Bab el-Mandeb Strait, which serves as a gateway to Africa, the Middle East and Europe, Djibouti's geography is strategically important due to its proximity to the entrance of the Suez Canal, Arabian Sea and Gulf, and the Indian Ocean.

About 10% of oil exports and 20% of the world's container shipping pass the Bab-el-Mandeb Strait to and from the Suez Canal.

China's Investments in Djibouti

China has been instrumental in the development of much of the country's infrastructure, which includes ports, special economic zones, and railways that carry cargo from landlocked Ethiopia. Beijing's strategic investments in the country have improved Djibouti's ability to service China's maritime trading and military needs. The importance of Djibouti to China is clear due to its access to major shipping lanes along the strait.

However, questions have been raised over how the debt, that has come alongside Chinese investment, and is estimated to be over 70% of Djibouti's GDP will be repaid.

Some of the transactions related to Chinese activity in Djibouti that Janes IntelTrak has recorded since 2011:

• The first transaction recorded in 2011 was China's financing and construction of the Ethio-Djibouti railway. The project has characteristics of a classic Belt and Road Initiative transaction and was estimated to cost USD $4 billion, financed with USD $2.5 billion in loans from Chinese policy banks.
• In early 2012, a Chinese entity purchased a stake in the Port de Djibouti SA from the Djibouti Ports and Free Zones Authority for USD $185 million. This agreement included a strategic partnership with local companies to develop and operate seaports, terminals and other related businesses in Djibouti. Through this investment, Chinese state-owned organisations derived potential access to information concerning trade flows and other regional activity, improving China's situational awareness in one of the world's most strategic locations.

Chinese investment activity since the launch of the Belt and Road

• The Belt and Road Initiative, China's international engagement strategy, was formally announced in 2013. Early investment and projects at that time were focused on key infrastructure. Today, in addition to engineering and construction projects, other pillars of China's Belt and Road strategy include digital, trade, cultural, and financial connectivity.
• Also in 2013, two Chinese state-owned organisations began construction of the first phase of the Doraleh Multipurpose Port which was intended to be an extension of the Port of Djibouti.

Expansion of the bilateral relationship through security, trade, educational, and energy projects

• In 2014, China and Djibouti signed a bilateral security agreement. The same year, Chinese state-owned organisations were awarded a USD $420 million contract for their first hydraulic project overseas, with capability to accommodate 5 deep-water berths at the Doraleh Wharf. Concerns were raised by Western governments over the project's potential military implications due to the location, near two U.S. installations: Camp Lemonnier and Chabelley Airport.
• 2015 and 2016 were key years for bilateral relations as China aimed to make Djibouti a hub of Chinese activity in Africa with investment in water supply projects, the establishment of China's first overseas military base, and the export of two Chinese aircraft to the Djibouti Armed Forces.
• In 2017, the Djibouti Free Trade Zone broke ground. By this point, the project had already received significant investment, with the intention of Djibouti becoming a trade gateway for Ethiopia, South Sudan, Somalia and the Great Lakes region, having a unified customs system with China.
• In 2019 Africa's first Luban Workshop was established in Djibouti: a Chinese-funded and organized institution dedicated to providing vocational training to the local workforce, with a focus on transport and international trade logistics to support Chinese railway projects.
• There was a refinance of the loan to the Port de Djibouti again in 2019, and Djibouti tried to increase its standing on the international stage in 2020 by running for the regional African seat on the UN Security Council.
• In 2021, Chinese organisations commenced work on a more efficient delivery system of petroleum from Djibouti to Ethiopia.
• In 2023, a USD $1 billion joint agreement was signed by Chinese organisations and the government of Djibouti for the development and operation of an international commercial spaceport, to be located in Djibouti, with a 30 year co-management arrangement in place.

Geoeconmic Statecraft

Janes delivers open-source intelligence on the global business activities of Chinese and Russian companies. Threats to national security have become increasingly varied and dynamic. Our data and analysis improves our customers situational awareness of how governments leverage companies within their jurisdiction, including state-owned and state controlled enterprises, for strategic purposes.

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