Somalia - Significance of the New Berbera Port to Global Bri...| MENAFN.COM

Thursday, 19 May 2022 03:19 GMT

Somalia - Significance of the New Berbera Port to Global Britain


(MENAFN- SomTribune)

For centuries, Berbera has been a vital seaport for traders traveling through the Gulf of Aden, which in the Middle Ages was known as the Gulf of Berbera. Traders would use this port to access the wider Horn and central Africa. As early as the 25th century bc, the ancient Egyptians were travelling this route and trading with people at the Land of Punt to purchase frankincense and myrrh.

In the 15th century ad, China was one of the most advanced naval countries in the world and built ships that were 10 times larger than its European rivals. The great Chinese Muslim explorer Zheng-He travelled extensively around east Africa, including a voyage to the Somali coast, where in the year 1415 he developed diplomatic relations with the Ajuran Empire. During that voyage, he was given a giraffe, which by some accounts symbolised the first diplomatic agreement between China and an African nation. China is once again a new superpower in the 21st century and spearheading developmental projects in Africa at a scale never seen before.

One of the primary motivations of Boris Johnson's global Britain is to counteract China's new global dominance and to make direct trade deals using the new freedom gained from Brexit. In this new foreign policy, Johnson believes that the UK will be unshackled from the EU-centric trade and make new deals with far-flung countries across the world to become a truly independent global nation.

To understand why global Britain is significant to Berbera, we first need to understand what has been happening in Berbera's recent history.

Berbera's first modern port was built by the Russians in 1969, with further investments by the USA in the early 1980s, when it became Somalia's main exports port and a vital part of the economy, which to this day is still dominated by livestock trade with Saudi Arabia.

In 2016, a break-through deal was brokered between the Somaliland government, DP World (an Emirati global port terminals operator) and the Ethiopian government. The deal was to rehabilitate the port of Berbera at an estimated cost of $442 million USD, which is significant by Somaliland standards, but the final cost is likely to be much higher, as comparable ports cost a lot more in other parts of the world. Alongside the new port, DP World plans to set up an economic 'free zone' in Berbera and optimise trade though zero taxes.

This newly formed company was widely reported to be owned by the three parties, with DP World retaining the lion's share of the profits at 51%, whereas Somaliland will take 30% and the remaining 19% is to be given to Ethiopia. However, according to the Berbera ports authority's general manager, Mr Said Hassan Abdullahi, in an interview with the Financial Times, Ethiopia has not yet signed the full agreement, possibly due to their focus on fighting a civil war with the Tigray rebels.

Berbera is a delicate matter for the new Ethiopia under prime minister Abiy Ahmed. On the one hand, it needs to seek new ports as its economy grows and to stop relying too much on Djibouti, which currently handles about 90% of Ethiopia's imports and exports. The Berbera port will bring it much needed relief from the risks associated with a single corridor. On the other hand, Abiy Ahmed has struck an alliance with President Mohamed Farmajo of Somalia and is wary not to make major deals with Somaliland behind Farmajo's back. The current civil war in Ethiopia has further complicated the Berbera port deal for Ethiopia, as the Tigray rebels have threatened to seek independence like Somaliland, which will likely influence Abiy Ahmed's support for a new independent nation in the horn. 

When the deal was first announced in Somaliland, there was a lot of domestic debate about whether the 19% stake was a good deal for the country. There were even complaints from disgruntled opposition parliamentarians requesting more transparency, as the actual contract signed with DP World was not shared with parliament. 

As an internationally unrecognised country and lacking adequate business regulations, there will always be concerns regarding corruption, especially when it comes to business deals between the government and private companies. However, President Muse Bihi knows this too well and has taken steps to crack down on corruption as soon as he entered office. He was even given the nickname Mr Padlock for his unwavering stance to protect the public purse. Nevertheless, this is Africa and it's easy to throw around accusations of corruption without evidence. Even President Mohamed Ibrahim Egal did not escape these accusations when it came to public–private partnerships.

Egal was the much respected second president of Somaliland since its re-independence in 1991. He was once embroiled in a controversy involving a deal he struck with a French oil company to manage the Berbera fuel storage facilities. In that deal, he was reportedly paid by the French company a proportion of the monthly fuel storage fees as special 'Presidential payments'. Recently, there was public outrage about a private insurance company being given a monopoly by the government to insure all vehicles coming through the port. The case was taken to court by a competitor of the insurance company and the monopoly was reversed. This shows that Somaliland has come a long way and there are now good checks and balances for businesses to compete.

When it comes to regional competition, the modernization of Berbera port by DP World has caused a major disruption to the nearby port of Doraleh in Djibouti. This port was also built by DP World in 2009 and cofinanced by China at a reported cost of $590 million USD. Soon after operations started in the newly revamped Berbera port, the Djibouti government decided to nationalise the Doraleh port and expel DP World, accusing them of diverting traffic to Berbera. DP World ended up taking the government of Djibouti to an international court in the UK and after a lengthy process, Djibouti finally agreed to compensate DP World for losing the 30-year contract they originally signed. This experience has likely motivated the heavy investment DP World is putting behind Berbera.

It's also likely that the Berbera port will strain the relationship between Djibouti and Somaliland, which may escalate to a diplomatic power game, since Djibouti is home to the military bases of both China and the USA. To complicate matters further, Somaliland has recently formed a relationship with Taiwan, but time will tell whether this may actually provide a diplomatic boost and help Somaliland enter the world stage or just bring unwanted attention from China.

Meanwhile, with Brexit repercussions to deal with, the UK now sees Berbera as part of that new global strategy. In October 2021, CDC Group, which is the UK government's developmental finance institution, announced that it will be investing £18 million to build 22.5 km of the Hargeisa corridor, which is part of the road that links Berbera to Ethiopia. Making a strategic trade deal in Berbera is nothing new to the British though, in fact the main motivation for the British colonisation of Somaliland in the late 19th century was to secure the supply of livestock through Berbera to their regional administration in Yemen. 

However, the motivation for this new trade deal is more altruistic, with a developmental agenda. With the global supply and logistics shocks brought on by the COVID-19 pandemic, which is amplified by Brexit problems in the UK, there is now the possibility for British companies to use the port and source cheaper clothes from the newly launched Ethiopian industry parks or for British companies to supply technology equipment to that part of the world. 

An example of a British company that can benefit from the port is Build Works Solutions Limited. This is a medium-sized family business specializing in making machinery for the construction industry. They are based in the small market town of Stourbridge, which is 14 miles west of Birmingham. This is the type of business that made Germany the powerhouse of Europe and a model that Boris Johnson would like to emulate. What makes Build Works Solutions a unique company and of interest to Berbera port is that their machinery does not require electricity or fuel, but is manually operated. This is ideal for places like Somaliland, where the construction industry is booming, but the affordability of high-tech machinery and the cost of fuel is a real problem. 

Oliver Glendenning, the company's sales director, reported they already have some customers in Somaliland and he sees the potential of the new port in reducing time and cost to Berbera:“In terms of challenges with shipping to Berbera, we have found it difficult to find an all in one service who can handle delivery duty paid services to Berbera and door to door to our clients other than via DHL, which is a premium service,” says Mr Glendenning,

“Hopefully more operators will be able to provide a door to door service in the future.”

The port will also make it easier for British–Somali businesses to trade though Berbera. Currently, the process of sending products to Somaliland is either too expensive through the airlines or too slow through the cargo ships. If you are sending anything bulky, the Somali owned courier companies will collect the goods, place them in a warehouse and wait until they can fill a container. The ship then sails to the port of Jeddah in Saudi Arabia, where the cargo gets transferred to a smaller ship that eventually makes the final journey to Berbera. The whole process normally takes three months!

With the new port, there will be direct ships from the UK to Berbera, if the demand is high enough. DP World is confident the demand will be there, since they are planning for the port to take on a total capacity of 2 million twenty-foot-equivalent containers when all phases of the project is complete. This will be the same size as the port of Mombasa and larger than Doraleh in Djibouti.

The main reason why ports in Africa are currently the most expensive to ship products to is the lack of modern port infrastructure. Therefore, this new UK investment will boost Somaliland's development, which is desperate for more foreign direct investment. It will further strengthen the security of the region and facilitate economic growth and prosperity in Berbera and beyond.

By Adil Dirie

Adil Dirie is a member of our Editorial Board and a longstanding member of the Society. He is an experienced business development professional, focusing on the remittances and mobile money industry.

Anglo-Somali Society Journal

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