Ethiopia currently relies on Djibouti for about 90 per cent of its maritime trade, paying more than $1.5 billion a year in port and transit fees alone. Berbera could slash this cost by up to 30 per cent, according to analysts. Dean Mikkelsen, an independent maritime and logistics analyst, said Berbera is “increasingly seen as a viable option to Djibouti, particularly amid the instability” in the Red Sea.
With a rise in investments, the port is emerging as a feasible alternative to current trading hubs in Africa such as Djibouti, experts say
While Houthi attacks in the Red Sea pose a clear and present danger to the vital trade artery and the rising port congestion in the region throws another spanner in the works, Africa needs another trade hub. Could Somaliland’s port city of Berbera be the answer?
Analysts and officials see it as a feasible alternative to current trading hubs in Africa such as Djibouti, and say the port city is a buffer against regional and global supply chain disruptions.
Recent investments from the UK and the UAE’s DP World are reflective of that view. With mounting security concerns and congestion forcing longer docking waiting time in other regional ports, the flow of investments to Berbera is rising. DP World, one of the top global port operators in the world, alone has invested more than $400 million in Berbera’s expansion since 2017.
The port is located near the Bab Al Mandeb strait, which connects the Red Sea to the Gulf of Aden and is a choke point for global shipping. Nearly 10 per cent of global trade, including a significant share of oil and container traffic between Europe and Asia, passes through this corridor.
The significance of this part of the region cannot be understated, as it accounts for up to 12 per cent of global oil transported by sea, according to data from the International Chamber of Shipping.
However, Berbera currently accounts for only about 0.06 per cent of global container traffic, so it has handling capacity to offer more to shipping lines, the engine of global trade.
Ethiopia’s new trade lifeline
With the rise in investments, Berbera has started to relieve some pressure in the strait. It has also given landlocked Ethiopia a second maritime gateway, reducing its dependence on Djibouti and providing the country with an alternative trade route to skirt disruptions in the Red Sea.
Last year, Somaliland signed an agreement to lease a 20km stretch of coastline to its neighbour, a move that caused a diplomatic row and prompted Somalia to summon the Ethiopian ambassador in protest. Mogadishu does not recognise the breakaway Somaliland, which seceded amid a civil war in 1991.
“The vision of the Somaliland government and DP World is to make Berbera a regional marine trade and industrial hub,” Supachai Wattanaveerachai, chief executive for DP World’s Horn of Africa operations, told a Somaliland-UAE investment conference in June.
“We know Ethiopians need multiple gateways to connect to world trade and for us, with Somaliland, we need to provide services.”
Ethiopia currently relies on Djibouti for about 90 per cent of its maritime trade, paying more than $1.5 billion a year in port and transit fees alone.
Berbera could slash this cost by up to 30 per cent, according to analysts.
Dean Mikkelsen, an independent maritime and logistics analyst, said Berbera is “increasingly seen as a viable option to Djibouti, particularly amid the instability” in the Red Sea.
“Its position near Bab Al Mandeb enables direct access to one of the world’s busiest shipping corridors, while remaining just out of the immediate range of Houthi attacks,” he told The National.
With its structural challenges, expensive pricing and geopolitical concentration Berbera is a better option than Djibouti in terms of trade resilience, “even with Somaliland’s uncertain political status”, Mr Mikkelsen said.
“Djibouti’s geopolitical congestion is a result of the fact that many foreign countries operate military bases from the US, China, France, Japan, Italy and Saudi Arabia and that it is located near conflict-scarred areas such as Yemen – a complex geopolitical environment that can impede the safe flow of goods and add operational risk.
Djibouti, he said, still matters, but it certainly suffers from crowding. The country’s overdependence on Chinese debt to fuel growth also makes it vulnerable to sudden shifts in economic fortunes, he explained.
“Berbera’s growth under DP World has brought new deepwater berths and better container capacity, offering shippers a credible alternative that reduces exposure to geopolitical risks. Ironically, it is Djibouti’s own limits that are pushing the change along.”
Rise in western backing and security concerns
Somaliland is also deepening its strategic defence co-operation with the US, which bodes well for its prospects of growth.
“This includes collaborations with US Africa Command to enhance security in the vital shipping lanes of the Gulf of Aden,” Mr Mikkelsen said.
“Somaliland has publicly offered to host an American military base, reinforcing its position as a stable and co-operative partner in the region.”
Quoting data from British International Investment Projects, he said by 2035, the Port of Berbera will enable trade equivalent to about 27 per cent of Somaliland’s gross domestic product and 8 per cent of Ethiopia’s GDP.
The development of Berbera port is becoming “increasingly important” in the regional trade perspective, Saeed Al Zari, group vice president for government affairs at DP World, told The National.
DP World is already working on bringing new infrastructure to Somaliland, including edible oil tanks in Berbera, a move that has led to the opening of the International Finance and Food Company’s edible oil plant and the soon-to-be-launched Essa Al Ghurair plant, he said.
The future plans aim to improve “the quality of edible oil available in the region, reducing the price of this essential commodity and now supplying both Ethiopia and Puntland”, he said.
A rise with limits
However, Berbera’s emergence is not without limits. Somaliland’s lack of international recognition presents legal ambiguity and curbs access to funding. But investors appear to be warming to the region.
“A big investment has already been made in Somaliland,” said Abdirahman Hassan Nur, Somaliland’s Minister of Trade and Tourism. “DP World is an example. I believe many other investors are already in the pipeline.”
Mr Wattanaveerachai said that when DP World took over the port, it could handle less than 100,000, but the capacity has risen to 500,000.
“Today, we have transformed the Berbera port, not just in capacity but in efficiency. All run by locals – Somaliland people,” he said.
The vision of Somaliland is to develop Berbera as a hub of economic development where companies can open offices without being physically located in Berbera, he added.
The UAE-Somaliland investment conference in June brought together regional stakeholders including Dubai Chambers and Al Marzooqi Group of Companies. The aim was to attract more investment and highlight Berbera’s potential.
“Despite the lack of international recognition, Somaliland has demonstrated the ability to manage critical infrastructure and ensure a level of operational stability. The Somaliland Port Authority, as the governing authority of Somaliland ports, manages the interaction with the security forces responsible for security in Berbera,” Mr Al Zari said.
“Berbera is revolutionising the logistics network in the Horn of Africa and reducing the cost of importation for some of the poorest people in the world.”
Analysts urge caution
Carl Sykes, group managing director of Neptune P2P Group, however, cautioned against hopes of Berbera attaining total regional dominance.
“Berbera port is emerging as a viable alternative to Djibouti, but it remains modest in scale at under 500,000 twenty-foot equivalent unit annually, compared to Djibouti’s multimillion-TEU capacity,” he told The National.
“While Berbera has made impressive gains in efficiency and cargo growth, it lacks the regional security guarantees enjoyed by Djibouti, which is protected by multiple international military bases.”
He said Berbera had the potential to serve as a modest buffer in regional supply chains but said its affect on global supply chain shocks was “likely to remain limited given its relatively small scale, emerging infrastructure and geopolitical sensitivities”.
Mr Mikkelsen, however, argued that the second phase of Berbera Port’s expansion will begin once 75 per cent of current capacity is utilised, with plans to boost throughput to 2 million TEUs annually, following DP World’s completion of the first phase that increased capacity to 500,000 TEUs.
“Djibouti’s restraints are forcing the push for alternatives. Berbera’s location and continual improvements are meeting this need,” he said.
“At a time when supply chain resilience is a global imperative, Berbera is well-placed to be a powerful trade facilitator between Africa and the Middle East.”
In addition, international recognition of the region or a stable deal with Somalia would allow Berbera to realise its full potential as a central hub for regional trade, he said.
