Gateway to Northeast Africa

Photo: Adobe Stock

The Port of Djibouti has attracted large investment and is strategically located at the crossroads of one of the world’s busiest shipping routes, linking Europe, the Far East, the Horn of Africa and the Persian Gulf

Northeast Africa encompasses the African countries situated around the Red Sea. The region is located between North Africa and East Africa, and mainly encompasses the Horn of Africa (Djibouti, Eritrea, Ethiopia and Somalia) and the Sudans (Sudan and South Sudan).

The combined population of Djibouti, Ethiopia, Eritrea, Somalia and the Sudans is almost 200M people, which accounts for 15% of the continent’s total population.

Geographically, these easternmost African countries are strategically located.

However, while the economies of Djibouti and Ethiopia are progressing well, Eritrea, Somalia and the Sudans are among the 10 poorest countries in Africa.

Road infrastructure and rail networks are also poorly developed, which makes logistics and transport costs expensive and unattractive for private investment. In addition, constant armed conflicts and civil wars in this region have resulted in instability, creating a risky environment for trade and foreign investors.

Among these five countries, Djibouti has attracted large port investment, especially from China and the United Arab Emirates (UAE). The Port of Djibouti, located in Djibouti’s capital – Djibouti City The Northeast African nations of Djibouti, Eritrea, Ethiopia, Somalia and Sudan are strategically located as inland gateways but poor road and rail infrastructure, armed conflicts and economic constraints have held back development Fatima Zaharah

– is strategically located at the crossroads of one of the world’s busiest shipping routes, linking Europe, the Far East, the Horn of Africa and the Persian Gulf.

Investments have also facilitated other infrastructure developments in railways and roads, connecting Djibouti Port to Addis Ababa in Ethiopia. This port has become a trade gateway to land-locked Ethiopia.

The services sector is the main GDP contributor in these five countries and accounted for 30-70% of total GDP.

Agriculture is the source of livelihood and income for 80% of these populations but the sector is poorly developed, relying heavily on rain but with seasonal drought affecting the progress of farming. Only Somalia is dependent on agriculture as its main source of income, and the sector contributes more than 60% to the economy, with livestock export the main source of the country’s foreign exchange revenue.

In Ethiopia, agriculture contributes 38.5% to the country’s GDP, with coffee exports as the main source of export earnings. Other agricultural products that earn foreign exchange include oilseeds, dried pulses, hide and skin, as well as live animals. The flower industry is also becoming a source of foreign revenue.

Consumption and imports

Djibouti, Ethiopia, Eritrea and Somalia and the Sudans are home to 200M people and their consumption of oils and fats per capita is between 5–9 kg, with total consumption of at least 1.2M tonnes.

Ethiopia is the market leader for oils and fats due to its sizeable consumer market. Its 115M population consumes around 500,000 tonnes/year of oils and fats, a relatively low volume as per capita u

Photo: Malaysian Palm Oil Council

u consumption is only 5kg.

Sudan – with 50M people – is also an important market and currently absorbs almost half a million tonnes/year of oils and fats. Until 2011, Sudan was one country but its southern area seceded that year after decades of civil war to become South Sudan.

The market potential in this northeastern area of Africa has not been fully maximised and can be further expanded.

These markets have always been dependent on imports of oils and fats to supplement domestic requirements due to limited agricultural land to grow oilseeds. While consumption is growing in tandem with population growth, imports have always been influenced by financial constraints.

Over the last five years, imports of oils and fats have trended upwards, with palm oil accounting for the bulk of vegetable oil imports, with a market share of more than 80%. The remaining balance comprises sunflower oil (17%), soyabean oil (1%) and corn oil (1%).

Of the total oils and fats market size, Malaysian palm oil exports into the market supplement 50% of requirements.

Ethiopia has emerged as an important Malaysian palm oil export destination in Northeast Africa and the country relies on Djibouti to receive Malaysian palm oil as it is a landlocked country. Djibouti handles almost 90% of Ethiopia’s palm oil imports from Malaysia.

Somalia and Somaliland (an autonomous region in northern Somalia) are also important Malaysian palm oil export destinations. Most palm oil comes into Somaliland through the Port of Berbera, which also serves as an entry point into Ethiopia. For Somalia, the Port of Mogadishu serves as an entry point to the market.

Port facilities

There are six major ports in the Northeast African region – the Port of Djibouti, the Port of Sudan; Massawa and Assab ports in Eritrea; Berbera in Somaliland; and Mogadishu in Somalia.

The centre of this maritime trade is Ethiopia, which has stakes in the ports of Djibouti, Berbera and Sudan. The proximity of Eritrean ports to Ethiopia also offers the opportunity to divert some Ethiopian trade to Eritrea ports.

Port of Djibouti

Currently, Djibouti is the main entry port for palm oil into Ethiopia and the country relies on the Port of Djibouti to handle about 95% of its foreign trade turnover, with 70% of the cargo at the port for Ethiopian trade.

The port handles an estimated 7M tonnes/year of freight, of which around 20% is bulk food. However, due to other competing demands, vessels offload food commodities only at four berths at any one time. In addition the port does not always operate at full capacity due to different technical and logistical problems that are directly related to the port itself (such as discharging difficulties) and those related to logistics capacities in Ethiopia.

The Port of Doraleh was inaugurated in 2017 with a total annual capacity of 8.779M tonnes/year. It is an extension of the Port of Djibouti. The multi-purpose port has terminals for handling oil, bulk cargo and containers. It is owned and operated by DP World and China Merchants Holdings and has a total of 15 berths over a 4km long quay. All the terminals have direct access to the Addis Ababa–Djibouti Railway, which was inaugurated in 2017 and provides landlocked Ethiopia with rail access to the sea port. The capacity of the port includes a 20ha bulk terminal area and a 57ha general cargo yard. The mass terminal can handle 2M tonnes/year of cargo. It also offers space to store 100,000 tonnes of fertiliser, grains and warehouses for other goods, as well as handling 6M tonnes/ year of cargo.

Berbera Port, Somaliland

There are four major operational ports in Somalia – Mogadishu, Berbera, Kismayo and Bossaso. Three of these are deep water ports, and all four operate throughout the year. Mogadishu and Berbera are two active ports while very little activity is registered at Kismayo. Despite years of civil unrest and war, the infrastructure at the major ports appears to be in reasonably good condition but operating performance is poor with low handling speeds.

In 2015, Ethiopia started using Berbera Port based on an agreement reached between the two countries. This port serves Somaliland and the eastern parts of Ethiopia. The port has an annual cargo capacity of 1.2M tonnes and possesses nominal capacity to accommodate up to four bulk grain ships of 25,000 tonnes at a time.

Figure 1: Djibouti, Ethiopia, Eritrea, Somalia & Sudan oils & fats consumption

Source: Oil Wold

Figure 2: Djibouti, Ethiopia, Eritrea, Somalia & Sudan oils & fats imports (‘000 tonnes)

Source: Oil World

Country 2014 2015 2016 2017 2018 2019

Somalia Ethiopia Djibouti Sudan Eritrea

TOTAL

55,765 51,435 29,266 3,801 1,820

542,99

61,306 94,050 54,764 5,377 4,816

498,724

80,381 136,232 80,213 3,422 7,512

527,464

82,322 173,591 137,995 14.647 9,563

666,379

77,929 148,647 216,190 4,359 5,940

571,911

93,456 64,757 52,316 7,457 4,936

346,182 Table 1: Malaysian palm oil exports to selected North African markets (tonnes)

Source: Malaysian Palm Oil Board

However, realising this potential is restricted by its limited discharge capacity, which has a bagging capacity of only 1,200 tonnes/day. The absence of other quayside bulk offloading equipment is another constraint. As a result, the port practically handles only one 25,000 tonne bulk grain ship at a time. Nevertheless, this port is often used by the United Nations World Food Programme (WFP) and the government of Ethiopia, with the latter having plans to increase its use of the port.

Port of Sudan

The Port of Sudan has a handling capacity of 9M tonnes/year of bulk cargo and is a well-equipped facility. It is divided into three areas. The North Port with 15 berths handles bulk cargoes including grain, cement, oil and molasses.

The South Port – with four berths – handles bulk grain, containers, and oil products, and a roll-on-roll-off berth.

The third area (Green Harbour) has four berths and handles dry bulk (fertiliser and grains), seeds and containers. These areas also have storage and discharge facilities.

Ethiopia started using the Port of Sudan for the import of 50,000 tonnes of fertiliser in early 2015. Since then, it has been increasingly used for importing bulk chemical fertilisers and some other commodities, including petroleum.

Massawa Port, Eritrea

The Eritrea and Ethiopian war took place between May 1998 to June 2020, with a final peace agreement only signed in 2018.

The peace agreement between the two countries will be an added advantage to Ethiopia as Eritrea will be an important outlet for the development of the northern region of Ethiopia through Massawa and Assab ports, as well as the Port of Sudan.

Massawa port is the primary port for the import of cargoes into the Eritrean market. The port is based around a natural and protected series of bays with safe anchorages and good connections to the Eritrean hinterland.

The port was founded during the 19th century and was initially developed by the Italian and British during colonial times. It is currently under the management and control of the Eritrea government and is undergoing major rehabilitation and restoration of facilities and services.

Despite these initiatives, it is unlikely that Eritrea will become the centre of maritime commerce unless its internal conflicts are resolved and infrastructure is further developed.

Development potential

The Northeast Africa region has a strategic location which has attracted large investment from Gulf State investors especially the United Arab Emirates (UAE), as well as China, Turkey and the USA.

The port of Djibouti and its extension – Doraleh – currently have the most advanced infrastructure, which could be expanded and further developed to connect with the ports of Dar Es Salaam in Tanzania, Maputo in Mozambique or as far as Durban in South Africa.

China, France, Japan, Saudi Arabia and the USA have established military bases in Djibouti for piracy control and protection, especially around the Somali coast.

Despite several ports along the coast of Sudan, Eritrea, Djibouti, Somaliland and Somalia, the potential of vegetable oil entering the area is heavily dependent on the overall economic progress of the region. ● This feature is based on an article written by Fatimah Zaharah of the Malaysian Palm Oil Council published in August 2021