How a Chinese investment boom is changing the face of Djibouti

A growing influx of Chinese visitors in the small East African nation of Djibouti convinced former fruit and vegetable trader Zhou Yi last year that it was an opportune time to buy the best-known Chinese restaurant in the Djiboutian capital, Djibouti City.

She took over the China Town restaurant in the city’s Heron district, home to many foreign embassies and international non-profit organisations, in October after mulling the purchase for nearly four months.

The 59-year-old from Shandong province, in eastern China, lived in a guest room at the restaurant while making up her mind.

Can China really deliver Malaysia’s Singapore slayer?

Zhou said the relatively peaceful environment in Djibouti and an increasing number of Chinese visitors, mostly connected with Chinese-funded investment projects, were the main reasons for her decision.

“I just wanted to find a place to settle down in Djibouti,” she said.

Now the restaurant’s owner and chef, Zhou left China for Africa four years ago. Shandong is China’s largest agricultural exporter and she travelled the Middle East and Africa selling fruit and vegetables in places where harsh climates and a paucity of arable land made local production difficult.

“Djibouti is safer than other countries I’ve been to in Africa,” she said, listing Somalia, Ethiopia and the self-declared republic of Somaliland as other places she had visited.

“We have a [Chinese] embassy here, as well as medical teams, and a naval base. It looks like more Chinese companies are coming too.”

Zhou, the restaurant’s third Chinese owner, is proud of her hand-made dumplings. She imports rice and vegetables from China, saying they “taste better”, and is assisted by a Djiboutian waiter who has worked at the restaurant since it opened and now speaks fluent Putonghua.

About half an hour’s drive west of the restaurant, a Chinese military base is surreptitiously taking shape near the dusty construction site of the China-funded, US$590 million Doraleh Multipurpose Port.

China to further boost military ties with strategic ally Djibouti in the Horn of Africa

The tall, grey walls of the base can be seen after passing security guards at the entrance to the vast port construction site, empty in the middle of the day, with Chinese workers and most Djiboutians taking shelter from the intense heat. In the distance, two dozen red cranes stand beside container terminals, ready for to load and unload goods from around the world.

After months of rumours, Beijing confirmed in 2015 that it would build its first permanent overseas military base in Djibouti, saying it would benefit UN peacekeeping missions, counter-piracy operations in the Gulf of Aden and Somalia’s east coast, and humanitarian relief efforts.

Japan to expand Djibouti military base in eastern Africa to counter growing Chinese influence

Beijing has since tried to play down the significance of the base, which is expected to be completed later this year, but it is widely believed it could play a role in protecting China’s burgeoning economic presence in Africa, which has been under the international spotlight since President Xi Jinping ended his first overseas trip as head of state in 2013 with visits to Tanzania, South Africa and Congo-Brazzaville. On that trip he promised to provide US$20 billion in financing to Africa by 2015.

Such funding is usually attached to infrastructure projects built by Chinese companies, and in Djibouti, a tiny nation on the Horn of Africa with a population of less than 1 million, they are not hard to spot. Examples include new ports, shopping malls, roads and airports and an electric train service to the Ethiopian capital Addis Ababa.

According to an International Monetary Fund (IMF) report released earlier this month, a surge in investment in big infrastructure projects that started in 2015, most of it financed by loans from state-backed financial institutions from China, has been a major driver of economic growth in Djibouti.

The government aims to transform the country into a regional transport hub for East Africa by improving its infrastructure and most of the projects financed by China are infrastructure-related.

Export–Import Bank of China, one of three institutional banks in China charged with implementing the state policies and not subject to Beijing’s recent capital control restrictions, is major investor in at least eight infrastructure projects, including an ongoing US$322 million water pipeline project from Ethiopia, the US$490 million Addis Ababa-Djibouti railway, which was launched in January, and a new, US$450 million international airport in Bicidley, 25km south of the capital.

Chinese Navy logistics base in Djibouti will drive other investment, says adviser

A Chinese engineer surnamed Zhang, from Hubei province, said he had arrived in Djibouti three years ago to work for a Shenzhen-based construction firm and was in charge of workplace safety at the multipurpose port construction site.

Once completed, the port, a joint investment by the Port of Djibouti and China Merchants group, will be one of the world’s largest ports capable of handling containers, livestock, oil and phosphates.

A local official said construction would be finished this month and the port would be fully operational in July.

More than 1,000 Chinese workers have contributed to the massive project. Zhang said they stayed in a camp at the construction site most of the time, where they were provided with food imported from China.

Some local workers, mostly young men, were also hired to do jobs such as cleaning and the firing of bricks, he said.

“We received many Chinese evacuated from Yemen in 2015, and they stayed us in the camp before heading back home,” Zhang said, referring to a Chinese frigate’s evacuation of almost 600 Chinese and more than 200 foreign nationals from Yemen’s port of Aden to Djibouti in April of that year after fierce fighting broke out in Yemen.

It was the biggest evacuation operation by the People’s Liberation Army since 2011, when China sent warships to evacuate 30,000 Chinese citizens from Libya.

The evacuations from Libya and Yemen have often been cited by Beijing and Chinese state media as the main reason behind the building of China’s first overseas military base.

Foreign Minister Wang Yi said in March last year it was “reasonable and in line with international practice” for China to build necessary infrastructure and support facilities in regions such as Africa “where China’s interests are concentrated”.

Meanwhile Beijing has made no secret of its ambition to become a maritime superpower. Its 10th defence white paper, published in 2015, stressed the importance of the “maritime military struggle” and said “the traditional thinking that land outweighs sea must be abandoned”.

Chinese envoy to visit Djibouti, site of nation’s first overseas base

China is planning to quintuple the size of its marine corps to 100,000 personnel, military insiders told the South China Morning Post last month, with some of the new marines likely to be deployed at the Chinese base in the west of Djibouti City.

Djiboutian officials are proud of their country’s role as host of major powers’ naval bases. The biggest is America’s Camp Lemonnier and Djibouti is also home to Japan’s sole overseas military base. The US and Japanese bases are next to Djibouti’s only international airport, about 10km from the Chinese base.

Zhang said he often saw American, French and Japanese jets flying above the port construction site.

“When the location is good for the business, it is also good for the military,” said Aboubaker Omar Hadi, chairman of the Djibouti Ports and Free Zone Authority, which plans to build Africa’s largest international free trade zone, covering 48 sq km.

The project is being built by Dalian Port Corporation, China’s largest public port operation, and Hadi’s authority, which will operate it in a joint venture with China Merchants.

It is one of the projects in Djibouti linked to Xi’s “Belt and Road” initiative to develop trade and related infrastructure along the routes of the old land and maritime silk roads. The maritime route begins on China’s East coast and spans South Asia and the Middle East to Europe, via East Africa and the Suez Canal.

“Djibouti is not only the gateway for East Africa, it is the gateway to Europe,” Hadi said. “We are placed in a very good position as a country and we need to take advantage of the potential and develop the maximum infrastructure … and to allow other countries such as Ethiopia, South Sudan and Uganda, which have no sea access, to trade at our ports by connecting them by rail and roads.

“There’s a market and demand for building more port infrastructure.”

The IMF report warned that Djibouti faced a high risk of debt distress as the government had raised public external debt from 50 per cent of gross domestic product at the end of 2014 to 85 per cent by the end of last year. It also said the economic slowdown in China would have a negative effect on the financing for major projects in Djibouti, but Hadi said China’s economic growth of around 7 per cent a year remained “good to us”, given the size of the Chinese economy.

Another ‘Great Game’: Why China’s PLA is jostling for position with the world’s armed forces in tiny Djibouti

The flow of Chinese capital into Africa has had its critics in recent years, with conspicuous Chinese-funded projects branded a new form of neocolonialism, but Hadi said such arguments were “simplistic and false”.

Chinese companies were “more aggressive” than companies from the United States, Europe or Japan, he said, but the strong demand for infrastructure on the continent would see the Chinese investment repaid.

“Where you borrow the money from is not important, what is important is what are the terms, the conditions for the loan,” Hadi said. “Wherever the money comes from, we have to pay it back.”