Somalia’s attempted cancellation of Berbera deal

Somaliland could use this dispute as an opportunity to assert its independence from Somalia

Somalia’s attempted cancellation of Somaliland-UAE-Ethiopia Berbera port deal unlikely to be extended to other existing Emirati contracts

Berbera port deal

On March 16, 2018, Somaliland’s president, Muse Bihi Abdi (left), underlined the non-applicability of Somalia’s parliamentary vote, citing Somaliland’s “sovereign rights” and adding that that the sale of an ownership stake to Ethiopia is an extension of the already approved agreement between the Republic of Somaliland and DP World, rather than a new deal requiring further ratification. DP World CEO Ahmed Bin Sulayem (right) further stated that Somaliland has been an “independent country for 28 years”, and that the original project was already endorsed by Somaliland’s president.

March 21, 2018 – Somalia’s lower house of parliament voted to nullify a deal between Somaliland, the United Arab Emirates’ DP World, and Ethiopia to manage and develop Berbera port in Somaliland on 12 March. A ban on DP World operating in Somalia is unlikely to be broadened to other UAE assets.

Outlook and implications

Somalia voted to nullify a tripartite agreement between Somaliland, United Arab Emirates (UAE)-based DP World, and Ethiopia, and banned DP World from operating in Somalia. The ban is unlikely to be broadened to other UAE assets in the country given the UAE’s key financial role in Somalia. The Berbera port dispute highlights the growing regional rivalry over investments and military presence in the Mandeb Strait within the context of the Saudi-led coalition against Qatar.

Risks

Somalia’s lower house of parliament overwhelmingly voted on 12 March to nullify the granting of a stake in Berbera port to Ethiopia in a tripartite agreement between Somaliland, United Arab Emirates (UAE)-based container handling company DP World, and Ethiopia. The lower house also called for DP World to be banned from doing business in Somalia. The proposal is currently pending approval by the upper house of parliament and ratification by Somali President Mohamed Abdullahi Mohamed.

This decision was in response to an announcement on 1 March by the self-declared independent region of Somaliland of an agreement with DP World, granting Ethiopia a 19% stake in Somaliland’s Berbera port and DP World a controlling 51% share, with the remainder (30%) held by the Somaliland government. Notably, DP World had previously secured a 30-year concession with the right for an additional 10-year extension to manage and develop Berbera port in 2016, over the objections of the Federal Government of Somalia (FGS). On 15 February 2017, Somaliland also agreed to allow the UAE to build a military base alongside Berbera port, which Somalia’s attorney-general deemed “illegal”, but which was also supported by Ethiopia’s representative in Somaliland. Ethiopia had signed a trade deal with Somaliland in 2016, allowing them to divert 30% of their trade through Berbera port. Ethiopia had previously opposed the UAE’s control of ports in Somalia and Djibouti, which process 95% of Ethiopia’s trade, and the recent decision to include it in the Berbera port deal.

The FGS has now declared the Berbera port agreement to be unconstitutional and has formally requested mediation by the Arab League. The FGS has also threatened to file a complaint with the African Union. The Somaliland government has responded by rejecting the FGS’s right to impede the agreement. On 16 March, Somaliland’s president, Muse Bihi Abdi, underlined the non-applicability of Somalia’s parliamentary vote, citing Somaliland’s “sovereign rights” and adding that that the sale of an ownership stake to Ethiopia is an extension of the already approved agreement between the Republic of Somaliland and DP World, rather than a new deal requiring further ratification. DP World CEO Ahmed Bin Sulayem further stated that Somaliland has been an “independent country for 28 years”, and that the original project was already endorsed by Somaliland’s president.

The timing of the FGS’s objection and its willingness to escalate the dispute indicates that its objection is predominantly against the recent decision to include land-locked Ethiopia in the Berbera port deal, rather than the 2016 decision allowing DP World to manage and develop it. Somalia’s parliamentary vote is likely motivated by the prospect of the Berbera deal significantly reducing the country’s leverage over Ethiopia, which IHS Markit has previously assessed to be a primary motivation for endorsing the DP World deal at Berbera…

The self-declared independent Somaliland will probably seek to use this dispute as an opportunity to assert its independence from Somalia and its right to conduct business as a sovereign entity, as indicated by statements to this effect since the FGS’s rejection of the Berbera port deal. Somaliland likely seeks to take advantage of Ethiopia’s vital interest in securing access to a stable sea route, and also the growing political disagreement and potential for commercial rivalry between the UAE and Turkey in Somalia. Turkey has been rapidly expanding its commercial presence in Somalia in recent years and is fast becoming one of the FGS’s most important commercial partners since the FGS’s formation in August 2012. The UAE and Turkey are already on opposite sides of the Qatari dispute, with Turkish and Iranian support undermining the effectiveness of the Emirati-Saudi-Egyptian embargo in effect since 5 June 2017 (see Qatar: 9 June 2017: Diplomatic crisis with Qatar likely to be prolonged and to damage Saudi and Emirati relations with Turkey).

Ethiopia likely has an interest in opportunistically supporting Somaliland’s de-facto independence as a means of weakening the FGS’s leverage and deterring it from supporting Somali insurgents inside Ethiopia. Ethiopia and Somalia are connected through the Ogaden clan (which is a sub-clan of the Darod clan), an ethnic Somali group that inhabits the Ogaden Plateau in Ethiopia and central and southwestern regions of Somalia. The threat is particularly acute as, unlike his predecessor Hassan Sheikh Mohamud, Somalia’s president, Mohamed Abdullahi Mohamed, from Darod sub-clan, has openly criticised Ethiopia’s influence in Somalia …

The prospect of transforming the small territory into a client state that could provide Ethiopia with port access might convince Addis Ababa to set aside some of its concerns about the precedent it would set for its own potentially secessionist Somali state, although it would likely prefer to avoid such an outcome.

Although the FGS believes that these UAE deals support Somaliland’s ambition to gain independence, a ban on DP World operating in Somalia is unlikely to be broadened to other UAE assets in the country, given the UAE’s ongoing financial role in Somalia. Outright expropriation is also unlikely, due to the FGS’s strategic need to retain foreign investments in the logistics and construction sectors, which generate significant tax revenue.

In the unlikely event of an expanding dispute between the FGS and the UAE, the latter is likely to reinforce its investments and military presence in Somaliland since its legal system offers greater protection. On the other hand, Turkey will probably continue to reinforce its investments in Somalia, particularly in the aviation and logistics sectors. An indicator of growing risk to the Berbera port deal, and DP World contracts in the region more generally, would be a ruling against the UAE by the Arab Union. However, this remains highly unlikely because the UAE is the second-most-powerful member of the organisation.
Source: by Jihane Boudiaf, IHS Global Insight Daily Analysis, March 21, 2018
Source Description: Daily Analysis articles cover the political, economic, legal, tax, operational and security environments in 186 countries. Also included are daily articles covering the telecoms, energy, automotive and healthcare industries in over 70 countries. Formerly known as Global Insight Daily Analysis. Country of origin: United Kingdom
© Copyright 2018, IHS Global Insight Limited. All Rights Reserved.

Why US is uneasy about change of ownership of the Horn’s harbours

Berbera-DP World deal

Former president Ahmed Mohamed Mahamoud (left) and DP World Chairman and CEO Sultan Ahmed Bin Sulayem.

March 20, 2018 – In the wake of former US secretary of State Rex Tillerson’s visit to Africa, the White House announced a plan for talks with China on, among other things, that country’s role in one of the continent’s busiest ports.

In February, President Ismaïl Guelleh of Djibouti issued a decree nationalising the country’s container terminal and ending a 30-year lease to Dubai firm, DP World.

The harbour at Doraleh, right next to China’s military base in Djibouti, serves shipping headed for Europe via the Suez Canal.

Djibouti controls the only route from the Indian Ocean to Suez, via the Red Sea. It is through this narrow strait that most of East Africa’s exports are carried north to Britain, France and Germany.

While DP World has announced plans to sue the government, Djibouti said seizure of the port was an act of “sovereignty” and within its rights, accusing the firm of slowing work at the terminal and building rival facilities in neighbouring states.

Analysts say this refers to the port of Berbera in Somaliland, where DP World is building a dock that could take away trade with land-locked Ethiopia, currently Djibouti’s largest client. It could also serve shipping from East Africa.

But it was rumours that Doraleh — already part-owned by a Chinese government firm — could fall under control of Beijing that caused panic in Washington.

Military base

The Pentagon has its sole African military base in Djibouti, with close to 4,000 personnel. From here, American forces work with Kenya and other regional powers to combat groups like al Shabaab who carried out the 2013 attack on Westgate Mall in Nairobi and murdered 148 people at Garissa University two years later.

Chinese control of facilities in Djibouti could hamper visits by US submarines and warships though Mr Guelleh has said his government has no plans to involve Beijing.

However, Mr Tillerson voiced his “concern” over the level of Chinese loans to Djibouti, currently standing at more than 70 per cent of that country’s GDP.

The Trump administration says it plans “a discussion with China in Washington later this year about what their overall goals and operations in Africa.”

While the US routinely criticises Kenya, Uganda, Tanzania and Ethiopia on human-rights and democracy, it has been reticent to speak out on Djibouti where President Guelleh has changed the two-term constitution and has been in power for 19 years.

Since independence from France in 1977, the only two presidents have been Mr Guelleh and his uncle who died in 1999.

‘Committed friend’

Last month, Djibouti’s ambassador to Washington said his country remained, “a committed friend and ally of the United States.” And when Djibouti’s foreign minister met with Mr Tillerson, he ruled out leasing the harbour to China.

But America’s top soldier in Africa, General Thomas Waldhauser, sounded a warning. “If the Chinese take over that port, then the consequences could be significant,” he said.

While East African shipping and the US base rely on the goodwill of President Guelleh, Djibouti is in turn dependent on Addis Ababa.

Most of its drinking water comes from Ethiopia, along with fruit, vegetables and grain. But the Ethiopians are spreading their bets and have bought a 19 per cent stake in the DP World harbour at Berbera.

Berbera harbour

Somaliland is not officially recognised, but its passports are accepted by most countries, including all of East Africa, and its president is treated as a de-facto head of state when he travels.

The country is English speaking, democratic and could provide the Pentagon with an alternative.

A switch by Ethiopia to Berbera would be devastating for Djibouti. If Kenya and Tanzania did the same, using Berbera as their stop en route to Europe, it would be a further blow.

Berbera is cheaper, but Somaliland’s status as a breakaway republic rather than a sovereign state is a problem.

For now, Nairobi enjoys excellent relations with both Djibouti and the US.

Mr Tillerson cut short his Africa visit for health reasons only to be dismissed by President Trump on his return to Washington.

Last Monday, the US ambassador to Djibouti said Mr Tillerson had emphasised “the need for transparency” in meetings with President Guelleh and Foreign Minister, Mahmoud Ali Youssouf.

Mr Andre rejected claims that the US was soft in its criticism of Djibouti, adding that every year, Washington issued “detailed human rights report that is made available widely to the public”.

But he said some discussions were best handled privately between the two countries.

“When we see the government responding to our concerns in a positive way, then that is less reason for us to make public comments,” he said.
Source: by Geoff Hill, The East African, March 20, 2018
Description of source: The East African is an independent publication published by Nation Media Group and covering the East African region including Rwanda, it informs about politics, culture, economy and lifestyle. Country of origin: Kenya
© Copyright 2018 Nation Media Group. All Rights Reserved.

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