Commercial operations under way on Djibouti-Ethiopia railway

Oxford Business Group, Mon, Nov 27, 2017

Commercial operations under way on Djibouti-Ethiopia railway

The 750-km electric railway, which runs from Addis Ababa to Dire Dawa in Ethiopia and on to Djibouti city, began operating on November 8, following the successful conclusion of test runs in May.

Long in the offing, the rail link is expected to reduce freight and passenger carry times from several days to just 10 hours.

Its opening stands to significantly enhance links between Djibouti and its biggest trade partner, while marking a step forward in the country’s plans to position itself as a prominent logistics gateway for the region.

China a major investor

The $3.4bn project – some five years in the making – was majority funded by a loan from the Exim Bank of China, with construction carried out by the China Rail Engineering Corporation (CREC) and China Railway Group.

Lengthy negotiations between Djibouti and Ethiopia for management of the line and its electrification delayed the start of commercial operations; the official inauguration took place in Ethiopia at the end of 2016 and in Djibouti in January 2017.

The two governments signed an agreement at the end of last year to create a joint company to manage the line, formed from the two state-owned railway companies – the Ethiopian Railway Corporation (ERC) and the Société Djiboutienne de Chemin de Fer – with a six-year contract to oversee operations awarded to a consortium of the CREC and the China Civil Engineering Construction Corporation. According to the ERC, the consortium will train Ethiopian and Djiboutian personnel, who will take over the management of the line when the contract ends.

The railway line is now fully electrified, with Ethiopia agreeing to provide the electricity needed to power the system, according to ERC officials. Tariffs for passenger and freight services have not yet been confirmed.

Reduced freight carry times and costs

With a freight capacity of some 3500 tonnes per day and a speed of 90 km per hour, the railway will reduce freight carry times from the Red Sea to Ethiopia from three days by road to around 10 hours, with one train able to carry the same freight as 200 trucks, according to officials.

The line will carry an estimated 6m-7m tonnes of cargo annually in its first year of operation, according to the ERC, a volume that is expected to be scaled up to 10m tonnes over time.

Increased capacity will allow Djibouti to capitalise on anticipated demand for imports from Ethiopia and its growing population of 92.7m. Ethiopia’s economy is projected to expand by 8.5% this year, according to the IMF, the highest growth rate in the region, ahead of Côte d'Ivoire, at 7.6%. Djibouti, meanwhile, is forecast to grow by 7%.

Djibouti currently handles more than 90% of goods bound for its neighbour. Imports and exports for the Ethiopian market represented 85% of total dry merchandise traffic in Djibouti’s ports in 2016, according to data from the Central Bank of Djibouti.

That year 8.9m tonnes of dry goods headed to Ethiopia were imported through the ports of Djibouti, and another 630,000 tonnes from Ethiopia were exported.

Transport development pivotal to regional competitiveness

As well as being a significant standalone development, the new railway will be a key component of a strengthened logistics chain, dovetailing with the opening of the Port of Doraleh – a new extension at the Port of Djibouti.

Jointly financed by Djibouti Ports and Free Zones Authority and China Merchant Holding, the multipurpose port, launched last summer, includes terminals for handling oil, bulk cargo and containers, and has a total capacity of 8.8m tonnes.

These transport developments form part of Djibouti’s efforts to maintain its competitiveness as a trade gateway to East Africa in the years to come. Currently, billions of dollars are being invested elsewhere in the region – on projects such as Kenya’s estimated $25bn LAPSSET corridor and Tanzania’s $10bn Bagamoyo Port – for similar purposes.

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