China's Presence in Djibouti is Not a National Security Threat—Yet

September 27, 2017 Topic: Security Region: Africa Tags: ChinaDjiboutiMilitaryWarTechnologyThreat

China's Presence in Djibouti is Not a National Security Threat—Yet

China may use its military facility in Djibouti for more than just logistics, and the facility could be the first of many overseas outposts for China’s military.

On September 22, Chinese troops staged their first live-fire exercises at China’s first overseas military base, which opened in Djibouti on August 1. Ever since Beijing publicly acknowledged in November 2015 that China was building a logistical support facility in Djibouti, the home of the only permanent U.S. military installation in Africa, much ink has been spilt detailing China’s growing involvement in the Horn of Africa nation. The conventional wisdom holds that China has spent billions of dollars building infrastructure in Djibouti, which might prompt the government to prioritize China’s interests over those of the United States and other countries with a military presence in Djibouti. Moreover, it is suspected that China will use its military facility in Djibouti for more than just logistics, and that this facility will be the first of many overseas outposts for China’s military.

This article examines four key elements of the generally accepted view of China’s activities in Djibouti. Some are accurate; others are less so. The amount of money Chinese firms have spent in Djibouti is just a fraction of what the headlines routinely state. Although this money has engendered considerable goodwill toward China in Djibouti, it is simply too soon to tell whether and to what extent China will be able to translate its financial largesse into influence. Meanwhile, as some analysts suspect, China’s logistics facility in Djibouti probably will be used for more than just refueling and resupplying Chinese navy ships conducting counterpiracy operations in the Gulf of Aden. Moreover, while it is likely that Djibouti will not be China’s only military outpost abroad, it may be some time before China establishes another one given China’s cautious approach to Djibouti.

Assumption: China has provided billions of dollars for the development of infrastructure in Djibouti.

Fact: No, the amount of money that China has provided for infrastructure projects in Djibouti is just a fraction of what is often reported in the media.

Many press articles state that China is supplying the majority of the capital for fourteen planned infrastructure projects in Djibouti, which are valued at $14.4 billion. This figure first appeared in an Agence France-Presse story in May 2015 and has been repeated many times since then, apparently without verification. Although China is Djibouti’s largest creditor, the scale of Chinese financing is actually much smaller than many media reports claim. China has only provided $1.4 billion for major infrastructure projects in Djibouti, primarily in the form of loans from the Export-Import Bank of China. (This is a substantial amount of money for a country whose GDP is around $2 billion, but only 10 percent of the $14.4 billion routinely cited in the media.)

Even Djibouti’s finance minister, Ilyas Moussa Dawaleh, has acknowledged that the capital Djibouti has received from China for infrastructure projects falls far short of $14.4 billion. In an interview with a prominent Chinese business publication in July, he stated that China’s investment in Djibouti is anticipated to exceed $10 billion, but only if all of the proposed projects are completed.

This might be a big “if.” Some of the projects routinely included in the laundry lists of projects journalists use to explain the breadth of Chinese involvement in Djibouti have yet to make it off the drawing board. For example, plans for China to build two new international airports remain grounded. When Djibouti’s president, Ismail Omar Guelleh, laid the foundation stones for both airports in January 2015, the country had not yet secured financing for either project. Indeed, China Railway Construction Corporation, whose subsidiary had signed a contract valued at $590 million for the construction of one of the airports, made this clear in a filing with the Hong Kong Stock Exchange that same month. The Chinese firm stated that the project would officially launch after the government of Djibouti secured a loan for the project, which has yet to happen. This may be difficult to do because Djibouti’s high debt-to-GDP ratio (estimated by the International Monetary Fund to be 85 percent at the end of 2016) leaves little room for the country to initiate new infrastructure projects financed by external borrowing and the fact that airports are expensive projects that do not necessarily generate high rates of return.

Similarly, an Ethiopia-Djibouti natural gas pipeline remains in the planning stage. Estimated to cost $3 billion, the project is to be developed and financed by a Hong Kong-based firm, POLY-GCL. The company has detailed an ambitious scheme to develop natural gas fields in Ethiopia and construct the pipeline and a liquefied natural gas export terminal in Djibouti. Although the governments of Djibouti and Ethiopia signed a framework agreement for the project in February 2015, a final agreement has yet to be written. The main reason is that POLY-GCL, the sole financier of the pipeline, has not decided whether it wants to move forward with this project. The company’s representative in Ethiopia told the World Bank that the pipeline and liquefied natural gas export terminal was one of several options for development.

Assumption: China will have more influence with the government of Djibouti than other countries because of China’s financial largesse.

Fact: It’s too soon to tell.

Officials and analysts from the United States and other countries have expressed concern that once China’s military facility in Djibouti is operational, the government of Djibouti will prioritize China’s interests over other interests because of China’s outsize role in bankrolling the development of Djibouti’s infrastructure. However, it’s still early days and there might be some limits on the extent to which Beijing can translate loans and investment into political influence.

To be sure, Chinese firms have engendered considerable goodwill toward China in Djibouti by helping to develop infrastructure projects that are critical to Djibouti’s efforts to transform itself into a regional commercial hub. Djibouti has launched an ambitious infrastructure-development plan that seeks to capitalize on Djibouti’s location along some of the world’s busiest sea lanes and as the gateway to landlocked Ethiopia, an economic powerhouse In Africa. China has done more than any other country to help Djibouti work towards its goal of becoming the “Singapore of East Africa.” Specifically, Chinese firms bankrolled and built several key projects, notably the Ethiopia-Djibouti Railway and the Doraleh Multipurpose Port, which are likely to increase the volume of cargo handled by Djibouti’s ports.

China emerged as the main backer of Djibouti’s infrastructure program in large part because other financiers have declined to participate. President Gulleh made clear in separate interviews with a leading French publication on Africa, Jeune Afrique, in 2015 and 2017 that China is filling a void created by Americans, Europeans and international financial institutions, which have largely refrained from participating in the development of Djibouti’s infrastructure. For example, Djibouti and Ethiopia turned to China to finance the railway between Ethiopia and Djibouti only after Western donors passed on supporting the project. Speaking about the railroad in February 2015, President Guelleh said “the IMF has dispatched no less than three missions to tell us not to sign with China under the pretext of excessive indebtedness. What did it offer us in exchange? Nothing. Between this allegedly virtuous nothing and the development of vital infrastructures, my decision was quickly made.” Two years later, in April 2017, he declared that “the reality is that no one but the Chinese offers a long term partnership in Djibouti.”

While President Guelleh’s gratitude certainly suggests that China might be able to use its role as Djibouti’s premier infrastructure financier as a source of influence with the Djiboutian government, it’s worth noting that China and Djibouti are still in the honeymoon phase of their commercial relationship. Although Chinese companies have been active in Djibouti since China and Djibouti established diplomatic relations in 1979, they did not become involved in big-ticket infrastructure projects until after 2010. Moreover, some of these projects only recently went into operation, such as the salt-export terminal at Ghoubet port. Other projects are not fully operational. The Ethiopia-Djibouti Railway, for example, has not been connected to Doraleh Multipurpose Port and is not yet carrying freight. It is expected to begin commercial operations in October 2017.

Meanwhile, bilateral frictions over China’s large role in Djibouti’s economy can’t be ruled out. Chinese entities have already demonstrated that they are not doling out free lunches. When Djibouti was unable to come up with its share of the money for the Djibouti portion of the Ethiopia-Djibouti Railway ($58 billion), it sold a 10 precent stake in the Djibouti-Ethiopia joint venture company formed to oversee the operation of the railway to China Civil Engineering Construction Corporation to help cover Djibouti’s contribution to the project. Although this transaction does not appear to have generated any ill will toward China, enthusiasm for Chinese financing might wane if stakes in other infrastructure projects are similarly acquired by Chinese firms.

Finally, Djiboutian officials have indicated on multiple occasions that firms from other countries are welcome to participate in the development of Djibouti’s economy. As Djibouti’s foreign minister told the Financial Times in 2016, “We don’t want the Americans to leave but the Chinese invest billions of dollars in our infrastructure; that’s what the Americans are not doing.” Moreover, the fact that China is not financing all of the infrastructure projects Djibouti wants to build indicates that there is room for firms from other countries to do business in Djibouti.