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Why Getting Assab Port Back Matters to Ethiopia

By Eidmon Tesfaye
Published on Addis Fortune
January 11,2015

According to the United Nations Human Development Report of 2013, Ethiopia is one of the eight countries in the world with the lowest human development index (HDI) and one of the two countries, Niger being the other, with the highest multidimensional poverty index (MPI). Despite the much publicised double-digit economic growth over the last 12 years, Ethiopia has one of the lowest per capital gross domestic product (GDP) in the world, just a little ahead of Burundi, Niger and Central African Republic (CAR), based on the 2012 World Economic Outlook Database of the International Monetary Fund (IMF). Further, compared to its immediate coastal neighbors, it has the lowest per capita GDP, less than those of Somalia and Eritrea; the highest MPI; and the lowest HDI, excepting Eritrea.

The country is also one of the most populous in the league of landlocked countries, with a population size fast approaching above 90 million. It was officially rendered landlocked by a dubious and ignominious decision of the government in power and its international backers.

Since most of the country’s import-export trade is conducted through sea transport, and because Massawa and Assab are no longer viable options, Ethiopia is forced to rely on the ports of neighboring countries, especially Djibouti, Kenya, Sudan and occasionally, Somalia. However, the costs of transportation to most of the destination ports are very prohibitive in view of the long distances and poor land transport facilities.

About 90pc of the country’s import-export trade is now conducted through the port of Djibouti. Reports show that even the Ethiopian Ministry of Transport (MoTr) acknowledges relying on a single port has become a bottleneck for the development of import-export trade.

In the mid of the year 2008, the cost of using the port of Djibouti increased alarmingly. Until the 2008 fee increase, Ethiopia used to pay more than 850 million dollars to DP World Djibouti in port fees, annually. The port is administered by DP World Djibouti, a part of DP World, formed in September of 2005 with the integration of the terminal operations of the Dubai Ports Authority (DPA).

According to July 6, 2008 edition of Sudan Tribune, the sudden and unexpected new rates involved an increase of up to 25pc in marine charges, cargo port dues and storage charges, and a 15pc increase in the cost of container stevedoring. This added an additional cost of at least 210 million dollars for the use of the port by Ethiopia.

To put this all in context, a 2010 report by the United Nations Conference on Trade & Development (UNCTAD) has shown that the amount landlocked countries spent for the payment of transport and insurance services was more than twice the average spent by developing countries, and more than three times the average for developed economies.

Paul Collier (Prof.), a renowned development economist, argues that while the majority of the five billion people in the “developing world” are getting richer at an unprecedented rate, a group of countries (mostly in Africa and Central Asia) are stuck with some sort of development traps and suggests that development assistance should be focused heavily on them.

According to Collier, these countries typically suffer from one or more development traps: conflict; natural resources; bad governance and landlocked with bad neighbors. Poor landlocked countries with bad neighbors find it almost impossible to tap into world economic growth.

Collier explains that countries with coastline trade with the world, while landlocked countries only trade with their neighbors. Landlocked countries with poor infrastructure connections to their neighbors will necessarily have a limited market for their goods.

Thirty two of the forty-five landlocked countries belong to what is called the Land-Locked

Developing Countries (LLDCs), with Africa contributing half of them. These thirty-two LLDCs collectively account for only two of the world’s GDP, while occupying 12.5pc of the world’s total land surface area.

Economic and other disadvantages experienced by these LLDCs make the majority of the landlocked countries Least Developed Countries (LDCs) and their inhabitants occupy the bottom billion tier of the world’s population in terms of poverty. The sea-borne trade of the landlocked countries largely depends on transit through other countries.

Additional border crossings and long distances from the market substantially increase the total expenses for the transport services. Therefore, the economic performance of landlocked countries reflects the direct and indirect impact of geographical situation on their key-economic variables.

For example, based on the 2012 World Economic Outlook Database, the average GDP per capita for the world is about 15,000 dollars. Of the forty-five world’s landlocked countries, only eight have GDP per capita that is higher than this average; and all of these eight countries are in Europe.

The average of all landlocked countries is only about 13,000 dollars. It may be noted that even this average is further distorted by the inclusion of countries like Switzerland, Luxemburg and Lichtenstein, which have per capita GDP as high as 118,000 dollars. Excepting Hungary and Kazakhstan that have 12,736 dollars and 11,774 dollars, respectively, all of the other landlocked countries have much smaller GDP per capita ranging between Burundi’s 282 dollars and Botswana’s 9,893 dollars.

Some researchers even argue that landlocked countries experience weaker growth than oceanside countries. More specifically, controlling for the effects of other factors, being landlocked reduces average growth by about 1.5pc, and on average, landlocked countries have dependence on foreign assistance much longer than coastal countries.

Further, similar studies have reported that, other factors remaining constant, landlocked countries that rely on transoceanic trade tend to incur a cost of trade that is twice the amount incurred by their maritime neighbors, and experience six percent less economic growth compared to their non-landlocked neighboring countries.

Over all, the landlocked countries do worse than their maritime neighbors in each component of the HDI. The average GDP per capita of landlocked countries is approximately 57pc less that of their seaside neighbors. Life expectancy index scores are 0.3 lower on average, equivalent to 3.5 years, and education index scores are 0.36 lower.

Progress in many landlocked developing countries has also been slow. In the Human Development Report, twenty out of twenty-seven landlocked countries with adequate data are considered ‘top priority’ or ‘high priority’ due to their lack of progress towards the internationally agreed-upon Millennium Development Goals (MDGs).

Brining it all closer, according to the aforementioned Sudan Tribune report, the Port of Djibouti is used not only as a gateway for Ethiopian transit cargo, but also as a point of destination. The volume of Ethiopia’s import and export cargo has risen from 3.9 million tons in 2006/07 to 4.6 million tons in 2007/08.

With the volume of this import-export projected to grow by 20pc in 2009/10, the total annual fee would was then projected to be in excess of 1.2 billion dollars – a very huge and unsustainable expense for a resource-constrained country like Ethiopia.

It is thus clear that Ethiopia’s trade flow, as a function of both the cost of using alternative sea ports of other countries and distance traveled, would stifle any genuine policy of economic development. The huge fees paid out annually to the coastal countries for port services are drain the economy of the country, which is a net importer.

This is, of course, money that could instead be invested internally for port service improvement, infrastructure development and other related transportation projects. The latter in turn could immensely improve the trade balance and flow of the country by reducing the cost of exports and imports, and could increase the aggregate demand for domestic goods and services related to the infrastructure development and port services.

The prudent investment of the money paid as port fees could also necessitate increased employment of labor and other resources to meet the accompanying increased demand. With a very conservative estimate of 95pc increased consumption spending (which entails a 0.95 marginal propensities to consume) for any amount of additional income Ethiopians get on the average, one would have a corresponding large spending multiplier of 20.

This implies that the total fees lost in the form of direct payment for the use of the port of Djibouti could add billions of dollars to the GDP of Ethiopia annually. Evidently, the unnecessary leakage in the national revenue reduces the value of export, and increases the cost of imports, thereby shrinking the volume of the GDP and depressing the economic growth and development prospects of Ethiopia for years to come.

In addition, the landlockedness imposed on the country has deprived the people of other economic opportunities. Most notably, the loss of access to the sea was accompanied by the loss of maritime resources, including fisheries, as means of food security, and revenues from tourism. In a country like Ethiopia that has experienced vicious cycles of famine and drought, it is hard to overestimate the significance of healthy fish stock as a critical alternative for food security and for sustaining economic prosperity and social and cultural well-being.

In the backdrop of these unfavorable economic realities, to a degree resulting from the landlockedness of the country, the ruling party in Ethiopia does not appear to be poised to seek a framework that will address effectively the loss of the country’s legitimate access to the sea. Tragically, our beloved country still ranked as one of the poorest nations in the world by almost all measures of economic development.

The deplorable economic condition of the country is expected to continue in this hapless path as long as it remains landlocked and a meaningful and balanced policy of economic development cannot be implemented through good governance. Therefore, it is of paramount importance to revisit the adverse impact of being landlocked on the economy of Ethiopia.

There is mounting evidence that the bogus international treaties that the people of Ethiopia have been forced to accept have no binding force from a legal, historical or economic standpoint. It is, therefore, incumbent upon the international community and the peoples of the concerned countries to seek a lasting solution to the problem that has been an impediment to peace and prosperity in that part of Africa.

In the search for a viable solution, I believe, it is critical that the pros and cons of all available options be explored, taking into account the historical, socioeconomic and national security imperatives in the region. Such a methodical and unbiased approach to the issue is guaranteed to lead to an incontrovertible solution that will affirm the unconditional and rightful return of the port of Assab to Ethiopia, thereby heralding a new era of peace, stability and prosperity for the brotherly peoples of Ethiopia and Eritrea whose common heritage is much more deep-rooted than the shortsighted machinations of politicians that purport to divide them.

Eidmon Tesfaye has a Master’s Degree in Agricultural Economics & Rural Development. This eidmondrdae@gmail.com.



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