Investors from Dubai in Somaliland: A safe haven on the Horn

One truck after the other rolls along the blue hull of the deep-sea freighter and comes to a halt. Three cranes tower over the ship. A gripper arm slides down to one of the trucks, encloses a container and lifts it up. The cargo is already stacked up to five containers high on the deck.

Mohamed Atteye, a bearded man in a safety vest, is watching what is happening. He is shift manager at the port of Berbera in Somaliland for the 400-meter section that just opened in June 2021.

It reassures him that his workers are no longer tumbling around on the containers. Until recently, they had to use the cranes mounted on the ships, Atteye reports. “You can imagine the risk of getting too close to the gripper arm while the crane operator was moving it back and forth. We had broken bones and deaths.”

Today, the crane drivers control from a safe distance. This also speeds up loading. “Today we manage thirty containers an hour. Back then it was seven. That’s a big leap!” says Atteye. At that time, the port was only able to load 150,000 containers per year. Today there are more than four times as many. Further expansion phases should increase the capacity thirteenfold.

capital versus control

The money for this comes from DP World in the United Arab Emirates, one of the largest players in the construction of port logistics worldwide. The private company is active in 34 countries, 12 of which are in Africa and the Middle East.

Goods are to be produced and transshipped in a free trade zone in Berbera, which will be transported in and out of neighboring Ethiopia via newly developed roads. DP World wants to invest up to 442 million US dollars in the port project – and in return manage it for 30 years. A deal that also brings economic risks. Politically, however, Somaliland could make for a respectable success. The rulers need it. Because even though they declared independence from Somalia in 1991, international recognition is still pending.

Pressure on Djibouti

Through the glass façade of his air-conditioned offices, Supachai Wattanaveerachai can look out over hundreds of unloaded containers, with cranes towering behind them. Slim man in a shirt is training for a marathon in his free time. Born in Thailand, Wattanaveerachai has made a career as an IT expert within the logistics industry in Brazil and the Netherlands. At DP World he now manages the business in the Horn of Africa. A growth region.

More than a hundred million people live in Ethiopia alone, says Wattanaveerachai: “Ethiopia is a country without access to the sea. You need several ways to supply the country”. Berbera has a “very strategic position” there – at a distance of around 900 kilometers, just as far from Addis Ababa as Djibouti. Today, 90 percent of Ethiopia’s freight traffic is handled via the competing port, says the manager of DP World.

Somaliland could significantly increase its market share. That would bring growth and prosperity, says Wattanaveerachai: “In order to be able to make a profit in the long run, the people around us have to have a better life and support us. You can see what the impact has been in the last five, six years gave”. He points to a table that a projector throws on the wall: 2,700 jobs have been created, 116 million dollars have been spent on social and local communities. $87 million goes to the state as direct revenue.

Duty-free to the neighboring country

Just outside of Berbera, Joseph Oguta dons his white helmet in the blazing sun. Born in Kenya, he is to lead DP World’s free trade zone, which will start operations here at the turn of the year. To his left is a little house that has a roof like a gas station: the goods inspection station. Oguta runs to a large gray hall on his right. It is divided into 20 identical storage rooms, each 500 square meters in size, which can be stocked with goods from the port. More are to follow.

“Whatever gets here, no taxes have to be paid on it,” explains Oguta. So they want to attract companies from all over the world, manufacturing and logistics companies. “When a product goes out, it depends on the destination. If it’s intended for export, then there are no taxes.” Only if it stays in Somaliland will it be taxed.

Only 4.2 million people live in Somaliland itself. DP World therefore estimates that a good two-thirds of the goods are transported further to Ethiopia: wheat, rice, processed food, machinery and building materials, for example.

Economically risky, politically explosive

May Darwich is Lecturer in International Relations at the University of Birmingham. Her original focus: the Middle East. She is currently researching infrastructure investments in the Gulf States on the Horn of Africa. She was recently in Berbera, shortly before that in Djibouti. Economically, the port project in Somaliland has its pitfalls, she says: “The risk is very high. The Somaliland government earns a lot of its income from taxes that are now being abolished. That’s a big loss of income.” It is a consideration. In return, the country hopes for development.

However, that didn’t go as planned. Originally, Ethiopia had wanted to participate in the project with 19 percent. But the country fell into an economic crisis with the war in Tigray. Covid-19 continued to affect international trade. Ethiopia got out. And so DP World now holds 65 percent of the shares. With shares of 35 percent, Somaliland no longer has decision-making authority.

This also increases the risk of external political influence. DP World is a private company, and the rulers of the United Arab Emirates are likely to stay out of day-to-day business. Still: “They are not completely independent of the government’s foreign policy. For example, when DP World invested in the port, the Abu Dhabi investment fund invested in the airport and the road link. It goes hand in hand,” says Darwich.

The cash cow is discarded

Fully loaded trucks leave Berbera in a south-westerly direction. They do not go directly to Ethiopia. They first have to cross a dusty, one-lane asphalt road through Hargeisa, the capital of Somaliland.

There, Saad Ali receives Shire in a brightly lit office. Files are piled high on his wooden desk. The current Minister of Finance has been instrumental in driving the project with DP World in his previous role as Minister for Planning and National Development.

He describes the port as a “gold donkey”: 63 percent of Somaliland’s total state revenue comes from local customs. These revenues are likely to collapse in the future, because the goods destined for Ethiopia will get there duty-free via the free trade zone. However, Shire isn’t worried about government revenue, because in addition to DP World, Somaliland also earns money from the joint venture: “Any profit made is shared in this ratio. If the company makes money, the government also receives revenue. Every ship that docks has to pay additionally to the Port Authority of Somaliland”. There would also be loading fees. “The more goods come, the more we earn,” says the minister.

On the way to recognition

The truth is that Somaliland has never really had much of an option, says International Relations Lecturer May Darwich. In principle, DP World only becomes a majority shareholder in port projects in Africa. Darwich explains it like this: “In the government of Somaliland one must have said to oneself: Either we give up those rights of participation or we will not be able to develop the port at all”.

Economically, the deal isn’t the best. But politically it has weight. Somaliland is striving internationally to be recognized as an independent state. The cranes that are now towering in Berbera, the containers that are stacked up – all of this should show the world: Somaliland is a safe haven.