The Rent on a Strait
Djibouti has no oil, no ore and almost no rain, and about a million people live in it. What it sells instead is a position on the Bab el-Mandeb — to Ethiopia by the container, and to four foreign militaries by the year.
The lorries start before dawn. They come out of the Doraleh terminals west of Djibouti City and turn onto the RN1, and by the time you are on that road yourself there is an unbroken line of them running south-west past Arta and the Grand Bara towards Dikhil and the Ethiopian border at Galafi. Nothing in the containers was made here and almost nothing in them will be consumed here. The country is a corridor, and it charges for passage.
Djibouti is 23,200 square kilometres of lava, salt and thorn scrub with roughly a million people on it. It has no hydrocarbons, no mineral export worth the name, and so little rainfall that the capital drinks partly from a pipeline built out of Ethiopia. On any conventional reading of what a country is supposed to sell, there is nothing here. What there is instead is a deepwater coast at the mouth of the Red Sea, twenty-odd kilometres from one of the busiest shipping lanes on earth, next door to a landlocked neighbour of well over a hundred million people. Djibouti sells that, under contract, and the contracts are the state.
The landlocked neighbour
Ethiopia lost its coastline in 1993, when Eritrea became independent, and when war broke out between the two in 1998 it lost the use of Assab as well. Since then more than nine tenths of Ethiopian foreign trade has moved through Djibouti — a dependency so complete that it is the single largest fact about both economies. The infrastructure follows the dependency. The Doraleh Multipurpose Port opened in 2017 at a cost of around $580 million. The Djibouti International Free Trade Zone opened in July 2018. And in January 2018 commercial services began on the 752-kilometre electrified standard-gauge railway from Nagad, on the edge of the capital, to Addis Ababa — the first cross-border electrified railway in Africa, built by Chinese contractors and financed largely by a Chinese lender, with China Eximbank alone advancing about $2.49 billion to the Ethiopian side.
The tenants
The second revenue stream is rent. Camp Lemonnier, on the edge of the international airport, is the only permanent American military base on the African continent — about 200 hectares and some four thousand American and allied personnel. In May 2014 the two governments signed a new lease reported at $63 million a year, up from about $38 million, running ten years with options to extend: $630 million across the decade. France, the former colonial power, never left, and its garrison here is now comfortably the largest it keeps anywhere in Africa. Japan opened a facility in 2011, its first overseas military base since 1945. Italy has had one since 2013. And on 1 August 2017 China opened its first overseas base anywhere, a few kilometres from Camp Lemonnier, on terms reported at around $20 million a year.
A country with no ore, no oil and almost no rain has exactly one asset with a price on it. The unusual thing about Djibouti is not that it charges rent. It is that it has managed to have more than one tenant bidding.
The franc that does not move
Underneath both streams sits a monetary arrangement most visitors never notice and every investor does. The Djiboutian franc has been fixed at 177.721 to the US dollar since 1973, held there by a currency board — the central bank, founded in 1977, backs the currency in circulation with dollar reserves rather than managing it — and there are no exchange controls at all. Money moves in and out freely and the rate does not move. For a country whose entire product is somebody else's logistics and somebody else's garrison, that is not a technicality. It is the reason a shipping line, a bank or a defence ministry can sign a fifteen-year commitment here and know what it will cost. The peg has survived more than half a century, two civil conflicts in the region and every currency crisis of the intervening period, and it has done so by being boring on purpose.
What happened at Doraleh
Which is what makes February 2018 the interesting month. In 2006 Djibouti granted DP World, the Dubai port operator, a fifty-year concession over what became the Doraleh Container Terminal; it opened in 2009 and was for years the most efficient container facility in the region. On 22 February 2018 the government terminated the concession unilaterally and took control of the terminal, having passed legislation shortly beforehand allowing it to void infrastructure contracts deemed contrary to the national interest. The London Court of International Arbitration disagreed, repeatedly: successive rulings from 2018 onwards found the concession valid and binding and the termination unlawful, and the tribunal went on to award DP World damages running into the hundreds of millions of dollars, with further claims behind them. Djibouti has not paid. There is a real argument on the sovereignty side and it deserves stating rather than waving away — the contract was lopsided, the country did not write it from a position of strength, and no amount of throughput compensates for a fifty-year foreign grip on the single most valuable thing you own. But the cost is specific, and it lands on precisely the thing being sold. A state whose entire business model is the enforceability of long leases has an unenforced judgment sitting against it, and every counterparty since has priced that in.
The other side of the ledger
The port, the free zone and the railway were largely built on borrowed money, and the borrowing has consequences. Public external debt has run at something over 70 per cent of GDP, the great bulk of it owed to Chinese policy lenders, contracted in a period when the projected freight volumes were considerably higher than the volumes that arrived. Meanwhile the Red Sea itself stopped behaving: attacks on shipping from late 2023 pushed a large share of Suez traffic around the Cape, and transit through the Bab el-Mandeb fell heavily for a corridor economy that had assumed it would only ever grow. Ethiopia, for its part, has spent the last several years publicly arguing that it needs its own port access again, which is the one development that would change everything here.
None of that makes Djibouti a cautionary tale, and the register in which small strategic states are usually written about — as accidents waiting to happen — misses what has actually been done. A government with essentially nothing to sell identified the one thing it had, kept the currency rigid so that the thing could be priced, and then sold it repeatedly, to rivals, at rising prices, without letting any single buyer own the outcome. That is not luck; it is a strategy, executed over fifty years by people who understood their position exactly. The question the Doraleh judgment poses is a narrower one, and it is the question any landlord eventually faces. The value of a lease is the confidence that it will hold. Break one, and you have not just lost a tenant — you have repriced the whole building.