Perched on the edge of one of the world’s busiest shipping lanes, the tiny nation of Djibouti has long reigned supreme, deriving the vast majority of its wealth from positioning itself as the indispensable trade gateway for giant neighbor Ethiopia. However, Djibouti’s dominance of this lucrative role is facing a looming challenger emerging from the south.
The autonomous region of Somaliland has set its sights on usurping Djibouti’s trade throne, courting Ethiopia’s business with a lavish upgrades to the Port of Berbera. With foreign investors pouring in billions and infrastructure rising to ease Berbera’s access to the landlocked economic powerhouse next door, Somaliland aims to gradually steer Ethiopia’s cargo ships to its docks.
As the climactic battle for Ethiopia’s trade unfolds, the future economic and geopolitical fortunes of these Horn of Africa rivals hangs in the balance.
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For decades, Ethiopia has been locked away from the sea and at the mercy of coastal powers. None have profited more from Ethiopia’s landlocked status than tiny Djibouti. Ethiopia’s decades-long dependence on Djibouti’s docks has greatly enriched the tiny nation, evidenced by consistent economic growth since 1998. Prior to 1998, the country had experienced recessions, recording only 0.6 percent growth in 1992.
revenue from Ethiopian cargo represents approximately 25 percent of Djibouti’s total income. Ethiopia’s port traffic annually pumps between USD 1.5 to USD two billion into Djibouti’s economy through tariffs and fees.
By some estimates, revenue from Ethiopian cargo represents approximately 25 percent of Djibouti’s total income. Ethiopia’s port traffic annually pumps between USD 1.5 to USD two billion into Djibouti’s economy through tariffs and fees. Djibouti has come to rely heavily on its port operations with the sector alone accounting for approximately 85 percent of the country’s entire GDP.
Ethiopia has relied heavily on the port of Djibouti to handle its imports and exports, serving as its primary trade gateway. The lifeline connecting Addis Ababa to Djibouti has served as the principal conduit for over 95 percent of Ethiopia’s international trade volume.
However, in recent years Ethiopian stakeholders have voiced dissatisfaction with port conditions in Djibouti. Logistics operators and exporters allege Djiboutian authorities have put in place unnecessary barriers that inhibit their business operations. High costs and inefficiencies associated with Djibouti’s port services have also prompted Ethiopia to explore alternatives.
Despite geographical proximity, ports in Djibouti are more expensive compared to facilities in Kenya, Sudan, and the autonomous region of Somaliland. Recent regulatory shifts, such as lowering the permitted cargo stay time from 45 days to eight, have further raised port tariffs. With concerns over infrastructure and security along the key trade route, Ethiopia appears increasingly keen to diversify its options.
Ethiopia has set its sights on diversifying its maritime outlets and chopping its reliance on Djibouti through the rise of competing corridors. Evidence of this shift emerged in 2022 as import volumes traversing Djibouti’s docks dropped nearly 15 percent compared to the previous year.
In May 2023, senior Ethiopian officials, including Transport and Logistics Minister Alemu Sime (PhD), visited the ports of Berbera, Somaliland and Lamu, Kenya to evaluate these potential alternative trade gateways.
According to Ethiopia’s new 30-year national transport policy and strategy outlined by the Ministry of Transport, while the Djibouti corridor had long served as the primary freight artery, the country’s evolving trade mix demands a more flexible logistics network, necessitating port diversification.
On New Year’s Day 2024, an accord inked by Prime Minister Abiy Ahmed’s (PhD) administration with Somaliland triggered regional and global indignation. The agreement, though remains at the MOU stage, Somaliland President Muse Bihi Abdi anticipates it will explicitly recognize Somaliland sovereignty upon full ratification—a step met with swift rejection by Somalia.
As the autonomous region of Somaliland pursues legitimacy internationally, it spies a blue-ocean opportunity next door — tapping into landlocked Ethiopia’s immense market potential. President Bihi has made clear his intent to leverage Ethiopia’s trade currents, positioning Berbera Port as the principal outlet for Ethiopian imports and exports. Meetings with Ethiopian trade envoys have spotlighted Berbera’s modern facilities tailored to Ethiopia’s maritime freight needs.
This strategic vision forms Somaliland’s design to plant Berbera as Ethiopia’s premier trade partner, gradually siphoning Djibouti’s long-held market stronghold. While Djibouti reigned supreme over Ethiopia’s global commerce, rising costs now compel Addis Ababa’s explorations for alternatives—an opening Somaliland means to exploit in its quest for both economic and political preeminence.
A cooperation deal inked in January between Ethiopia and Somaliland sparked speculation that Berbera Port may start to syphon cargo from its Djiboutian competitor. However, work still must be done – the Berbera trade route currently lacks vital logistics amenities like refueling stations and repair shops that vessels require.
Major infrastructure projects bankrolled by the UAE, Ethiopia and Somaliland now move to boost Berbera’s efficiency. The UAE — a leading investor in Berbera’s expansion — stands to benefit if Ethiopia pivots toward the port. Infrastructure projects are also connecting landlocked Ethiopia directly to Berbera. Initiatives are also forging crucial land links connecting landlocked Ethiopia directly to Berbera’s docks.
A notable USD 400 million highway launched in 2019 exemplifies these efforts. Stretching 234km from Berbera to the Ethiopian town of Tog Wajaale (Togochale), the road received the funding from the UAE and a small amount, USD 16.6 million, from the UK. This project intends to seed an integrated transport corridor upon completion.
In May 2021, DP World—the global logistics conglomerate from Dubai—and Ethiopia’s Transport Ministry signed an MoU to jointly develop the Ethiopian segment adjoining Berbera Port. This proposed road links Berbera to Tog Wajaale at the mutual border, with intentions to establish a premier transregional trade and logistics artery. Upon completion, the highway would seamlessly integrate with Ethiopia’s modern expressway network, further buttressing Berbera’s role as a key trade channel.
DP also has plans to inject a massive USD one billion along the entire Berbera Corridor within the next decade. The corridor aims to be a leading East African trade hub, equipped with advanced dry ports, grain silos, warehouses, container terminals, cold storage facilities, freight forwarding services and customs clearance operations.
The Port of Berbera’s capacity and operational efficiency stand to benefit further from additional private sector involvement, introducing new competition that could eventually entice more of Ethiopia’s cargo volume to Berbera.
One key player entering the fray is ALS Worldwide Group, a global heavy lifting and project logistics firm. The company established operations in Berbera in late 2023, gaining access to port facilities and infrastructure to service regional trades. ALS signed the agreement with the Somaliland government in November.
The sizable investments in upgrading roads and cross-border links indicate a vision for Ethiopia to utilize Berbera as its primary maritime outlet going forward. Berbera Port recently completed a USD 442 million expansion funded by DP World, boosting its capacity to handle up to 500,000 twenty-foot equivalent units annually.
Initially, Ethiopia acquired a 19 percent equity stake in Berbera Port. However, in June 2022, Somaliland authorities announced Ethiopia had forfeited its share due to failure in fulfilling obligations. Should Ethiopia successfully secure participation in Berbera’s operations once more, it could tip the scales towards favoring the port over Djibouti’s offerings.
Ethiopia’s dissatisfaction with rising costs and inefficiencies at Djibouti’s ports, coupled with alternatives developing at Berbera, enhances the prospects of a strategic shift over time.
Another dimension involves geopolitical tensions, as Djibouti ousted the Emirati logistics company DP World from its Doraleh Container Terminal in 2018 amid accusations of Chinese influence, sparking ongoing legal disputes. DP, which was managing the Terminal, says the move was unlawful and that undue pressure by Chinese companies on the government led to the contract termination.
These operational, financial and geopolitical considerations could make Berbera Port a relatively more attractive proposition for Ethiopia’s maritime trade needs. A substantial redirection of cargo volumes from Djibouti to Berbera would significantly challenge Djibouti’s economic preeminence, as port tariffs constitute an outsized portion of government revenue in the tiny nation. Such a transition period poses risks for Djibouti’s fiscal stability and long-term growth trajectory if not properly mitigated.
Somaliland and the UAE are actively courting Ethiopia’s involvement in Berbera to hasten this evolution, a strategy that if successful could accelerate Djibouti’s loss of commercial dominance along the strategic maritime route.
Federico Donelli, a Professor of International Relations at the University of Trieste, Italy specializing in the Horn of Africa, points out that Djibouti’s reliance on the port is nearly absolute, given that it constitutes the backbone of its economy.
He emphasized that while the port of Berbera may not significantly affect Djibouti immediately, given its capacity to handle only a fraction (15% at full capacity) of Ethiopia’s trade, the long-term consequences could be substantial.
