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.