EU Chamber Panel Spotlights Ethiopia’s Logistics Gambit Sailing Red Sea Row

At a high-profile CEO networking event hosted by the European Chamber in Ethiopia last month, experts dissected the economic fallout of the Horn of Africa’s escalating port rivalry, centered on the Berbera corridor and the Red Sea crisis. Ethiopia, the sixth largest landlocked country in the world, which relies on Djibouti for around 90% of its port needs, looks to wean off its logistical dependence. A move which has sparked a geopolitical chain reaction and emboldened competing port projects in Djibouti, Somalia, and beyond 

Against a backdrop of shifting alliances and logistical bottlenecks, the discussion underscored how Ethiopia’s quest for sea access, via its pact with Somaliland, could redefine trade flows, regional stability, and supply chain costs across East Africa.

The monthly session zeroed in on two decisive trends: Ethiopia’s deep reliance on Djibouti for port access, and its cautious but significant overtures toward alternatives like Berbera in Somaliland. 

Moses Chrispus Okello, Senior Researcher at the Institute for Security Studies, characterized the recent developments in the Horn as symptoms of deep political pressures. He suggested that countries in the region have begun exhibiting “transactional state behavior” to navigate the confluence of demographic shifts, economic stress, and climatic disruptions.

Farhan Adem Haibe, General Manager of Alfa Enterprises and former Civil Aviation Minister of Somaliland, discussed the implications of the Ethiopia-Somaliland Memorandum of Understanding (MoU), the evolving dynamics around the Port of Berbera, and the broader geopolitical situation across the Horn of Africa and the Red Sea Corridor.

Both speakers underscored the volatility of the Red Sea shipping crisis, caused by the Houthi disruptions along the Yemeni coast.

Over the course of 18 months, the Houthis carried out attacks on over 250 military and commercial ships, causing maritime traffic in the Gulf of Aden to drop by 70% in two years. In early May, the Houthis agreed to stop attacking vessels after an agreement with the US.

The speakers also noted that Ethiopia’s heavy dependence on a single port corridor presents both economic and strategic vulnerabilities. According to various estimates, the country spends between $1.5 billion and $2 billion annually on port and transit services through Djibouti. These costs have direct implications for Ethiopian businesses, particularly in manufacturing, import-export trade, and agriculture, as they translate into high logistics expenses and reduced competitiveness. The reported decline in the quality of the Ethio-Djibouti transport corridor infrastructure has also introduced a new dimension in recent years.

The Port of Berbera, currently operated by UAE-based multinational logistics company DP World in partnership with the Somaliland government, presents a viable alternative for Ethiopia. 

Meanwhile, Somalia has explored alternative port offerings to Ethiopia and the USA, including Hobyo and Kismayo, highlighting the delicate interplay between economic power and logistics linkages in East Africa.

Despite these developments, Ethiopia continues to face structural logistics challenges. In the World Bank’s 2023 Logistics Performance Index, Ethiopia ranked 126th out of 139 countries. The report cited issues such as low infrastructure quality, customs delays, and weak international shipping integration. Experts note that logistics costs in Ethiopia can reach up to 30% of the total value of traded goods, significantly above the global average.

During the EuroCham session, it was also stressed that accessing an additional port alone will not resolve the logistical challenges and inflated logistics costs that Ethiopia currently faces.