DP World’s deal set to double Somalia port capacity

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By TSIM reporter

Somalia is set for yet another huge infrastructure transformation with one of its busiest shipping lanes set to make it a key trade point along one of the world’s busiest shipping lanes. The Berbera container terminal which is the main transport hub in Northern Somalia recently signed a $442 million contract with Dubai’s giant global port company, DP World, which will see the port developed into a class of its own.

The Dubai port investment is not only a financial windfall of hundreds of millions of dollars, but also seen as a vote of confidence in the stability of the horn of Africa nation- Somalia.

“We’re going to make Berbera one of the world’s busiest ports and also have it become a gateway for the Horn of Africa,” said port director Ali Mohamed.

While exact details of the agreement with DP World are yet to be finalised, the deal is set to increase the port’s capacity by five times after its completion. “In a year, we will be able to process 200,000 containers (the port currently handles 40,000 containers). This port Berbera is as strategic as Djibouti,” Mohamed said.

On the southern coast of the Gulf of Aden, Berbera offers an African base sitting at the entrance to the Red Sea and the gateway to the Suez Canal, at the crossroads for cargo traffic between the Arabian Peninsula, Asia and Europe.

Somalia itself is far from being a major international trading partner, but offers another route into neighbouring, landlocked Ethiopia, with a growing market of 96 million inhabitants. Expanding the port could help bypass the congested port of Djibouti.

Plans to boost the port have long been in the works: France’s Bollore Africa Logistics had hoped to win the contract, but Dubai clinched the deal amid wider investment and expanding influence in Somalia by Gulf nations.

Kuwait has already financed the renovation of the airport in Hargeisa, as well as construction of religious schools, while Emirates is one of the few airlines providing daily flights.

“The DP World bid was the best,” said port chief Mohamed, adding that Bollore may have “a second chance” as Berbera will undoubtedly need further development if the port is a success.

The most pressing challenge will be building a road able to handle the Lorries carrying containers to Ethiopia.

For Somaliland region, with a population of some four million, the port offers a chance of taking a bigger role in the region.

Without legal recognition Somaliland is in limbo. The government has a budget of $250 million but cannot directly access the World Bank or IMF loans needed to develop infrastructure without the approval of the Federal Government of Somalia.

The administration in Hargeisa hopes that the port might offer economic independence, even if political recognition remains a distant dream.

“We did all that was possible politically and it did not work,” said Hanad Hashi, a councillor in Hargeisa. “We have to try the economic way. We need investors.”

Somalia’s neighbour, Ethiopia, lost direct sea access in 1993 when Eritrea gained independence after a three-decade civil war. It is heavily reliant on the port of Djibouti.

In July 2014, Djibouti’s government   rescinded DP World’s concession at the Doraleh Container Terminal after finding evidence of corruption. The 30 years deal had been running for 14 years.

The agreement was cancelled after an investigation that showed an accord signed with the company “unfairly favoured” Dubai-based DP World, according to a statement e-mailed by Consulum, a London-based communications consultancy, on behalf of the government. DP World rejected the accusations and vowed to vigorously defend its position during arbitration.

The loss of the Djibouti operations, if confirmed during arbitration, would be its second loss in the Horn of African region which is strategically located, reducing the ambitious company’s regional footprint. In September 2012, DP World ended operations at Aden’s container terminal in southern Yemen after “amicably” divesting its stake in the Indian Ocean port. The divestment came after Yemeni officials accused DP World of failing to meet its contractual commitments at the port.

The past records of the giant port operator now imply that Somalia must be keen before sealing the deals with DP world with a lot of restructuring needed at this and other ports to accommodate different services for its ports.

There is need for specialization with Service ports, container terminal port, Livestock dedicated port, Oil and Gas import/export port well marked to boost revenues from this crucial source.

Any such contracts in the future will also require due diligence beforehand and consider shorter Build, operate and Transfer while ensuring training and skill for its people to manage such national facilities after transfer.

Such concessions must also include additional investments in supporting infrastructure including national roads to expand its internal economy through ease of transport.