A sudden and unexpected rapprochement between the governments of Ethiopia and Eritrea could allow Ethiopian trade to return to the Port of Assab, potentially bringing new competition for Ethiopian transit trade with Djibouti. Meanwhile the government of Djibouti has rejected the latest arbitration judgement regarding its long-running dispute with DP World
The chronic dispute between the two countries centred on control of the border town of Badme, but Ethiopia has now accepted Eritrean sovereignty. The governments have exchanged ambassadors and telecommunications links have been restored. There have been unconfirmed reports of troops withdrawing from the disputed and militarised borderlands.
Ethiopia’s new Prime Minister Abiy Ahmed and Eritrean President Isaias Afewerki have agreed to resume transport sector relations. After talks, the two leaders announced that the war was over and “a new era of peace and friendship has been opened.”
The government of the United Arab Emirates is believed to have played a big role in the dialogue, which adds yet another element to the dispute between Djibouti and the UAE’s DP World!
Eritrea has one of the world’s weakest economies, with an authoritarian government and largely isolated from the rest of the world. Assab was the main port for Ethiopian trade when Eritrea was an Ethiopian province. However, secession in 1993 and the subsequent 1998-2000 border war saw newly landlocked Ethiopia forced to look elsewhere, most notably Djibouti. Ethiopia has also been keen to see more Ethiopian trade pass through Lamu in Kenya, Port Sudan in Sudan and Berbera in Somaliland.
The deal has obvious ramifications for Djibouti, which handles more than 90% of Ethiopian trade. Assab and Djibouti are near neighbours and located roughly the same distance from Addis Ababa. Competition between the two would be good for Ethiopian traders in the long term, but a wholesale switch to Assab seems unlikely in the near future.
Doraleh Container Terminal in Djibouti is a modern facility that is connected to Addis Ababa by a new electrified railway. Assab lost the lion’s share of its business following the border war and is in urgent need of rehabilitation. Road and possibly rail development would be required to allow it to compete after 20 years in the cold.
As it happens, in early August the London Court of International Arbitration (LCIA) ruled that the government of Djibouti acted illegally when it unilaterally ended DP World’s concession to operate Doraleh Container Terminal in February this year. It stated that the concession “remains valid and binding.”
Subsequent to Djibouti’s unilateral move, several attempts at bilateral mediation failed and the case was again referred by DP World for arbitration.
The government of Djibouti has rejected the latest ruling, arguing that the court has no jurisdiction over its sovereign rights and that it had the power to cancel the deal under a law that it passed in 2017. A government statement said: “a fair compensatory settlement is the only option, which is in line with the principles of international law.”
Djibouti said that DP World’s continued operation of Doraleh Container Terminal was “seriously prejudicial to the country’s development imperatives and to the control of its most strategic infrastructure” and added that terminating the contract was “necessary and unavoidable and done in accordance with international public law.”
The government had wanted to renegotiate the terms of the concession, but a previous LCIA tribunal found the terms of the original deal to be “fair and reasonable.” According to DP World, the terminal has operated at a profit every year since it was built under a concession awarded in 2006. The three-berth container terminal has handling capacity of 1.2M TEU/year.
DP World responded in a statement: “The statement by the Djibouti government that it does not acknowledge the decision of the London Court of International Arbitration demonstrates that Djibouti does not recognise the international rule of law.
"The Court’s decision upholding the continuing validity of the Concession is based on recognised principles of international law and is internationally binding both on the Djibouti government.
“In the absence of an express term to that effect, an English law contract cannot be unilaterally terminated at will. The contract therefore remains in full force and effect.”