Djibouti demands prompt insurance warning over political risks in the African market

The Djiboutian government seized the DCT from DP World in February. Credit: Carolina Eslava
The Djiboutian government seized the DCT from DP World in February. Credit: Carolina Eslava

Ongoing issues at the Port of Djibouti have highlighted the need for the marine market and investors to tread carefully, according to an expert.

Suki Basi, managing director of Russell Group, which provides risk and accumulation data and analysis to marine and cargo insurers, warned that the pressure on the African continent to expand its port facilities comes with political risk.

In May, Ethiopia reached a deal to take a share in the Port of Djibouti following the Djiboutian government’s seizure of Doraleh Container Terminal (DCT) from DP World in February.

Basi said there are many risk factors for Djibouti, which is seeking to become a Horn of Africa transhipment hub.

“There are corruption concerns, as the country has slipped in international indices for transparency and governance,” he said. “There also remains an over-dependence in Ethiopia, and the economy remains challenging, although there has been investment from international markets, particularly China.”

Basi added that, while the aim remains for Djibouti to create a regional port hub, given its strategic location, there are other regional challengers and, like many areas of the world, the rise of protectionism has put port throughput under pressure.

“There is a great deal of political unrest across the Gulf region that will have a negative impact,” Basi explained. “There has been some noise from the United States over its willingness to support Djibouti if there is progress around improved levels of security and the need for greater governance.”

Political and security risk consultancy Allan & Associates recently produced a research report on Djibouti that strongly advised firms to weigh up the risk and reward in the area.

“Djibouti offers an attractive environment for investors in the Horn of Africa, but be careful how you tread,” explained Allan & Associates senior analyst and Sub-Saharan Africa specialist Olivier Milland, who authored the report Investment Risks in Djibouti and the Horn of Africa.

For the maritime sector, it is still a draw, given the high potential for increased future trade, Basi said.

“Africa is rich in oil and natural resources and, hence, it is a continent that holds a strategic position in global trade. Consequently, it is the world’s fastest-growing region for foreign direct investment,” he said. “It has approximately 30% of the earth’s remaining mineral resources, while Sub-Saharan Africa has 6 of the world’s 10 fastest-growing economies.”

Read more exclusive reporting from IHS Markit on the African insurance industry on 16 September.

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