The sin of empty pride. Land-locked Ethiopia is now forced to pay tiny Djibouti with 2 Billion Birr annually for port services ($722.5 million in port fees and additional $22.6 million in port tariffs) ever since it ditched the services of Eritrean ports at a meager 250 million Birr per annum, all paid in local currency.
The government of Djibouti has given a deadline of January 15, 2014, for challenging the manner in which cargo is released from its ports.
The new rules will state that no cargo inbound to Ethiopia will be released until the clearing agent in Djibouti produces a note from banks stating that foreign exchange to pay for transport, transit and forwarding services has actually been transferred.
A circular instructing offices in Djibouti to this effect has been distributed by the government, according to diplomatic sources in Djibouti.
The decision will alter the status quo, whereby a clearing agent in Djibouti pays for the services from their own account and bills its Ethiopian counterparts later on. Indeed, there is a port utilisation bilateral agreement that the two countries signed in April 2002, which allows Ethiopian forwarding companies to transfer funds two weeks after the cargo of their clients has been released from the port.
However, Djiboutian transit and forwarding companies have been complaining about delayed payments from their Ethiopian counterparts, while the latter blame the Central Bank for its failure to provide them with foreign currency on time.
“I owe my counterpart in Djibouti close to five million Birr,” said a businessman who runs a forwarding firm in Addis Abeba. “Because I don’t get foreign exchange on time, there is no way I can transfer what I owe.”
There are unconfirmed reports that Djibouti businesses in the cargo transit sector are owed a total of close to 20 million dollars. Working in a country that suffers from a terminal shortage of foreign exchange, their Ethiopian counterparts are struggling to pay their fees on time.
“Neither am I willing to transfer it through the underground market,” said the businessman.
Ports in Djibouti handle 800,000 units of containers per year and eight million tonnes of general cargo, according to recent data from the Ports & Free Zones Authority of Djibouti (PFZAD). Close to 20% of these containers and 85% of the general cargo is inbound to Ethiopia, where the transit cost claims close to one percent of the total cost of the goods, according to industry experts.
There are reports within the industry that Djibouti nationals involved in the transit of goods have been coming to Addis Abeba to collect their money in Birr and invest it here in businesses. Some of them change the Birr to dollars on the underground market and take it out to Djibouti.
“What else were we supposed to do?” grumbled a businessman who owns a ship agency and forwarding company in Djibouti, in a telephone interview with Fortune.
One such incident occurred in mid November 2013, where customs officers at Ethiopia’s border with Djibouti arrested Abdourahiman Elmi, a former port official with diplomatic immunity. Once a resident representative of the Port of Djibouti in Ethiopia, where he had served for over a decade, Abdourahiman now runs a forwarding company, although his employment with the port continues. He was accused of attempting to smuggle 132,000 dollars out of the country and remained under customs custody for two weeks before he was released on bail in the first week of December 2013.
Ethiopian diplomats in Djibouti and many of the industry operators in Ethiopia attribute the subsequent diplomatic tussle between the two countries over the release of Abdourahiman. This was vehemently denied by Djiboutian officials this week. Authorities in Djibouti issued a directive that would stop cargo releases before fund transfers on December 7, 2013.
“It’s depressing to see a country of less than one million being able to twist the hands of a big country, such as Ethiopia, to secure the release of an individual who clearly broke the laws of the land,” said a businessman, who has had a business relationship with Djibouti for over 15 years.
Led by Moussa A. Hassan, minister of Infrastructure & Transport, a high level ministerial delegation from Djibouti were here in Addis to discuss joint railway projects with its Ethiopian counterparts, led by Worqneh Gebeyehu, minister of Transport. Both Illyas M. Dawaleh, minister of Economy, Finance & Planning, and Aboubaker O. Hadi, chairman of the PFZAD, who took part in the one day meeting held at the Sheraton Addis, denied the link between the arrest of Abdourahiman and their decision to force Ethiopian forwarding companies to transfer funds in advance before cargo gets released.
Despite Djibouti’s new requirement, Ethiopian forwarding companies can only get access to foreign currency after submissions of original receipts paid on expenses for port handling, commission to Djibouti transit agents, fees to vessel agents, container demurrage and storage fees for cargo that has remained at the port for more than eight days. They take copies of original receipts to commercial banks to order transfers.
“There is no way for us to pay unless the Central Bank changes its rules on this,” said a CEO of a private forwarding company.
The reaction from Ethiopian officials here in Addis was much more sober than their diplomats in Djibouti, Fortune learnt. Ethiopia’s Ambassador to Djibouti, Sulieman Dedefo, was pushing Ethiopian authorities to take a much stronger position. He believes that Djibouti has violated the 2002 agreement not to take a unilateral move in relation to the port’s operations that affects Ethiopia, according to sources in the administration.
“I want to assure you that nothing would come from Djibouti’s side that could affect what Ethiopia undertakes,” Illyas told Fortune. “We want to move to a deeper relationship, such as economic integration. We want to support Ethiopia’s aspiration to be an industrial nation in the region.”
While Ethiopian authorities were trying to work out a bilateral meeting with their Djiboutian counterparts, Ethiopia’s Prime Minister, Hailemariam Desalegn, raised the issue with President Ismael O. Guelleh, according to sources.
“The issue is being handled at the heads of state level,” an aide of the Prime Minister told Fortune.
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