How Djibouti developed opaque shipping capacities

Djibouti, a largely impoverished Horn of Africa country since the Covid-19 pandemic period has been steadily investing in expanding its naval and maritime faculty and increasing its vessel flags in perceivably unclear circumstances. This is amid an irregularly managed military.

In January 2017, Djibouti-based bunkering services company Red Sea Bunkering (RSB) celebrated the acquisition of the company’s first owned bunker barge, the Red Sea 1, which was acquired for $4.2 million.

President Ismail Omar Guelleh attended the ceremony unveiling the 9,600 dwt (deadweight tonnage) double hull tanker, with a total capacity of approximately 10,000 cbm (cubic metre) and which is equipped with three cargo pumps of 500 cbm/hour each, a bow thruster and a stern manifold. Oil tankers with a double hull strengthen the hull of ships, reducing the likelihood of oil disasters in low-impact collisions and groundings, helping minimize oil spills into the ocean, compared to single-hull ships.

“The purchase of this vessel comes at a key point in Djibouti’s development as a regional center for bunkering,” then said Aboubaker Omar Hadi, the chairman of Djibouti Ports and Free Zones Authority as he launched the vessel that can supply simultaneously both regular and low sulphur marine gas oil (LS MGO).

March 2020 saw Djibouti Shipping Company acquire the M/V African Sun, intended to serve ports across the Middle East and Africa region.

New oil jetty

Morocco-based maritime construction company, Somagec, similarly began work on a new oil jetty at the port of Damerjog, in eastern Djibouti in September 2020. The oil jetty is built as a part of a large storage platform for petroleum products and derivatives in the new Djibouti Damerjog Industrial Development (DDID) free-trade zone.

The development which was touted to be in line with Djibouti's geostrategic ambitions to be a regional hub for trade and logistics, cost $3.8billion in total and is one of the largest such projects implemented by the Djibouti Ports and Free Zones Authority.

The bulk of the financing came from China, and Djibouti's new sovereign wealth fund, though the Sovereign Wealth saw turbulent beginnings with its Senegalese Director ousted to be replaced temporarily by a BCMIR employee.

Somagec which confirmed that it had invested in the project after Aboubaker Omar Hadi, president of the Djibouti Ports Authority, and Roger Sahyoun, CEO of Somagec, signed the agreement, said their MOU involves the first in a series of five terminals set for construction in the complex.

Data from the US Office of Foreign Asset Control and Lloyd’s List Intelligence indicates that despite being deflagged and sanctioned in the past years, five vessels including the infamous Young Yong, now known as Saint Light (IMO: 9194127), which ran aground off the Singapore Strait, have been able to retain their flag or reflag with other registries. A sea vessel is considered flagged when it flies the flag of its current country. It is deflagged when it breaches international shipping laws.

Located between Ethiopia, Eritrea, and Somalia, the tiny east African country that borders the Gulf of Aden and the Red Sea, Djibouti is strategically located within the world’s most dynamic shipping lanes and has considerable commanding access to the Red Sea and Indian Ocean. But poor decisions, financial misappropriation, and lack of accountability on the part of the government have kept the country at the bottom of Africa’s economies.

Questionable financing

There exists a series of questionable financing, with only 5 per cent of formal businesses receiving bank funding. Djibouti has a celebrated renewable energy project but the price of electricity in the country is six times higher than in neighbouring Ethiopia

Djibouti is both an origin and a transit country for illicit goods such as ivory, rhino horn, and wild animal skins. The Global Organized Crime Index shows that wild animals, including cheetahs, leopards, and lions, are trafficked through Djibouti to Yemen on their way to exotic pet markets. Further, illegal, unreported, and unregulated fishing is known to occur in Djibouti’s territorial waters.

While evidence of illicit activity in Djibouti’s diamond, gold, oil, coloured gemstones, and coal trades is limited, the country is fast becoming a transit for gold smuggled between Ethiopia and the Persian Gulf.

Djibouti is ranked 15th out of 47 countries in the Sub-Saharan Africa region, and its overall score is lower than the world average. As a country with no industrial capacity and an agricultural sector that contributes only 3 per cent of GDP, Djibouti has at least 10 registered conventional unordinary banks and three Islamic banks.

Its conventional banks are Bank of Africa, Banque pour le Commerce et l’Industrie Mer Rouge (BCIMR), International Investment Bank, Banque de Dépôt et de Crédit de Djibouti, CAC International Bank SA (Yemeni), Exim Bank Djibouti (Tanzanian via Pakistani acquisition of UBL assets FINCEN FILES), Commercial Bank of Ethiopia Djibouti, Silkroad International Bank Djibouti (high risk alerts AML Intelligence), Bank Of China Djibouti, and the International Business Bank Djibouti, while the Islamic banks are Saba African Bank, Salaama African Bank, and East Africa Bank.

Somali mafia and the Djiboutian president have shares in Salaama Bank, sources say. He has also been accused of using his business partnerships with prominent Somali traders to manipulate Somali elections.

Granted loans

The BCIMR has allegedly granted loans which it considers will never be repaid. According to the list of these 550 bad debts, some customers received several million euros, including the children of president Guelleh.

Bad debts include a loan of 3.5 million euros was granted to ICC, a construction company which is owned by his daughter, says a former leader. Half of it has already been provisioned as a loss. Another debt, Senex, owned by the son, borrowed 1.5 million euros. The BCIMR has also classified it in the category of non-repaid loans. The husband of the daughter of the president, says he is worth $6.5 billion in his Instagram account.

In 2022, French Development Bank Proparco offered financial aid to local companies in Djibouti of 1.5 million euros in a bid to reduce poverty levels in the country. But these funds never achieve the purpose they were meant for, oftentimes ending up in a few individuals’ bank accounts, keeping the country poor.

China is Djibouti's largest creditor, holding more than $1.4 billion in debt — the equivalent of about 45 per cent of the country's gross domestic product. "People in Djibouti are increasingly enthusiastic about learning Chinese and the demand for Chinese learning is growing rapidly, which opens up a broad horizon for the development of Confucius Institutes," Zhao Lingshan, secretary general of the Chinese International Education Foundation was quoted by Xhinua in March this year. Zhang Hongming, an African studies expert at Chinese Academy of Social Sciences said: “Wherever Chinese interests go, means and tools to protect them should follow.”

The country’s GDP could grow by 5.4 per cent in 2023 (source AfDB), but the cost of living remains high, with the budget deficit projected to widen to 2.1 per cent. Meanwhile, general poverty rates stand at 79 per cent, with 42 per cent of the population living in extreme poverty, according to the World Food Programme.

 Shipping vessels

Its growth of its shipping vessels and naval robustness is raising eyebrows given that despite having a contracted economy, the country still affords a range of advanced marine vessels and equipment.

The Djibouti flag is the latest target for bad actors according to leading maritime AI company Windward, which provides an all-in-one platform for risk management and maritime domain awareness needs.  In 2018 and 2019, only two vessels began transmitting the Djibouti flag. From 2020 to mid-2021, 28 new vessels began flying the Djibouti flag, increasing its size by 66 per cent. Flag hopping has become commonplace among bad actors in the country, with systematic flag manipulation showing a similar trend. The Djibouti flag, therefore, has remained on high alert.