Development or Debt: China in Djibouti

Devika A

Djibouti is located at the entrance of the Red Sea and holds a position of exceptional geopolitical value. With a population of just under one million, Djibouti’s strategic location between red sea and Gulf of Aden defines its global significance. It is near the Bab-el-Mandeb Strait, an important maritime chokepoint connecting the Red Sea with the Gulf of Aden and the Indian Ocean. It facilitates nearly 10% of global trade and makes it indispensable for trade flows between East and West. Due to its strategic position, Djibouti has become a major player in world affairs. It is now at the centre of China’s Belt and Road Initiative (BRI), which has invested billions of dollars in rebuilding the nation’s economy and infrastructure. China’s first overseas military base increases its standing in Beijing’s foreign policy agenda. Yet, 70% of its public debt owing to Chinese loans signals a shift towards economic dependency, triggering concerns about its weakening autonomy and rising vulnerability to China’s influence.

With limited natural resources and domestic revenue, Djibouti has to turn to its foreign creditors by risking its strategic position against economic dependency. The Country does not have the financial capacity to fund its infrastructural development. Because of that, it has borrowed extensively from external sources, mainly from China, to fund several projects, mainly in transport, port infrastructure, etc, to solidify its position in global trade. As the top lender, China played an important role in making Djibouti severely dependent on its investments for such projects. Under the BRI, China has financed several infrastructural projects, namely, the Djibouti Addis Ababa railway, the Doraleh Multipurpose project and many more. Each of these projects is strategically important in easing China’s economic and military objectives, increasing its access to the African markets, and strengthening its maritime activity in the Horn of Africa. China’s overseas military base, the Chinese Peoples Liberation Army Support Base, supports its growing presence by providing logistical data and increasing its security posture. As the debt burden increases, the country is forced to offer concessions on its strategic assets. One clear example is the 2018 agreement granting China control over the Doraleh port for some time.

One of the outcomes of the BRI is the Addis-Ababa Djibouti Railway system, the first cross-border electrified railway in Africa. This line connects Djibouti’s ports to Ethiopia, a landlocked country. This has reduced transportation costs and facilitated the movement of over 90% of Ethiopia’s trade. Constructed by Chinese state-owned companies, it advances China’s interest in strengthening trade routes and economic influence. Another outcome is the Doraleh Multipurpose Port, which has been constructed mainly with the funding of Chinese banks. This port primarily acts as a shipping hub for goods in the Bab-el-Mandeb Strait. By integrating Djibouti into BRI, China is not only increasing its global chain efficiency but also Djibouti’s economic dependence, giving Beijing leverage over strategic decisions.

In recent years, Djibouti’s external debt has dramatically escalated, and the country’s debt-to-GDP ratio has reached around 76% by 2023, with more than 70% of its debt owing to China. The government borrows more from external sources to repay such a significant amount. This presents a serious challenge to economic sovereignty, giving Beijing a substantial say over its financial policies and curbing its autonomy in other critical domains. Several criticisms have been posed against Chinese loans for their lack of transparency and plausible long-term consequences. These loans are given at an increased rate above regular market price and require frequent refinancing, creating a cycle of debt. This lack of transparency includes not disclosing the repayment schedules and collaterals and raising concerns about its hidden clauses. In extreme cases, defaulting on loans transfers critical national assets to China, as seen with Sri Lanka’s Hambantota Port.

China’s military base gives a new dynamic to the region’s security, which Western powers dominated earlier. Camp Lemonnier, the primary military base of the United States, serves as a centre for counterterrorism operations. France, Japan and other nations also got their military base in the region, reflecting Djibouti’s global importance. With the proximity of these military bases, Djibouti must balance the interests of both Eastern and Western powers, as it is essential for Djibouti’s foreign policy. This coexistence of several military bases has both opportunities and challenges. From an economic perspective, hosting these bases generates significant revenue and other employment opportunities, which will contribute to national development. However, this concentration of military bases will also risk the country’s national sovereignty and the opportunity for Djibouti to become a focal point in geopolitical tensions. Managing these relationships and taking a neutral stance from the government's side is vital in ensuring the country’s national interest is safe without compromising its sovereignty.

Similarly, Kenya’s, Mombasa port, which handles several varieties of cargo, can be used as collaterals for loans tied to Chinese-funded Standard Gauge Railway even though it has been officially denied. Another country that faced similar complications was Zambia’s National Electricity Company. All these cases showcase the dependency pattern in African countries engaged with China’s BRI. However, in Djibouti's case, its complications go beyond the economic factor. Because of its valuable geopolitical location, any concessions involving strategic assets like ports will affect its ability to maintain relationships with major powers. Djibouti’s case reflects the double-edged nature of China’s global strategy, where infrastructural investments promise progress but also increase dependency, which reveals the fine line between partnership and control.

The future of Djibouti lies in reducing its heavy reliance on China by changing and diversifying its funding sources. Support from institutions such as the African Development Bank and the European Union can create a more balanced development. Improving its domestic revenue mechanisms, creating openness in loan negotiations, ensuring accountability in financial dealings and strategically choosing projects with sustainable impacts are key steps toward reducing reliability. Djibouti’s track prompts an important question: Can governments create a balance between international collaboration and safeguarding their sovereignty in an era of escalating geopolitical rivalry? The way this question is answered will shape not just the relationship between Africa and China but also the future of global development.

Djibouti’s story is a clear example of the challenges many African countries face when balancing development with independence. Even though these Chinese investments have contributed to the construction of much-needed infrastructure, their long-term effects have highly damaged these countries' financial stability and sense of sovereignty. The idea of debt-trap diplomacy has been hotly debated, but at the same time, it’s important to note that countries are making choices based on their own developmental needs. African countries must strengthen their ability to manage these partnerships for a better future. This study about Djibouti makes a crucial point that sustainable development is not just about shaping global ties but ensuring that those ties never overcome a country’s capacity to plan and create its future.

Devika A, research scholar, Department of International relations, Peace studies and public policy, St. Joseph’s University, Bengaluru, 560027, India. Email: [email protected] .