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Djibouti launches 'Africa's biggest free trade zone'

Djibouti is located at the southern entrance to the Red Sea, at the intersection of major international shipping lines connecting Asia, Africa and Europe
Djibouti is located at the southern entrance to the Red Sea, at the intersection of major international shipping lines connecting Asia, Africa and Europe Djibouti is located at the southern entrance to the Red Sea, at the intersection of major international shipping lines connecting Asia, Africa and Europe AFP
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Djibouti (AFP)

Djibouti on Thursday launched the first phase of Africa's biggest free-trade zone, seeking to capitalise on its strategic position on one of the world's busiest trade routes.

At a ceremony in the capital, President Ismael Omar Guelleh hailed the scheme as the culmination of infrastructure projects "boosting Djibouti's place in international trade and commerce".

The Horn of Africa nation, located at the mouth of the Red Sea and south of the Suez Canal, in 2017 unveiled three new ports and a railway linking it to landlocked Ethiopia, as part of its bid to become a global trade and logistics hub.

Somalia's president, Mohamed Abdullahi Mohamed, hailed the free-trade zone as a "victory for East Africa", in comments echoed at the ceremony by Ethiopian Prime Minister Abiy Ahmed and President Paul Kagame of Rwanda.

Sudan's President Omar al-Bashir, who is wanted by the International Criminal Court on charges of crimes against humanity and war crimes, was also there.

The zone, which is connected to Djibouti's main ports, aims at diversifying the economy, creating new jobs and luring foreign investment through tax-free incentives and full logistical support.

The pilot phase launched Thursday comprises a 240-hectare (593-acre) site.

On its scheduled completion 10 years from now, the $3.5-billion initiative will span 4,800 hectares -- the largest free-trade zone on the continent.

The project hopes to see foreign companies setting up manufacturing plants within the zone, adding value to products instead of merely importing and exporting raw materials.

"The volume of goods travelling to East Africa keeps increasing. Every time a product arrives in the continent without being transformed it is a missed opportunity for Africa," said Aboubaker Omar Hadi, chairman of the Ports and Free Zones Authority.

- Chinese debt -

A row of Djiboutian and Chinese flags fluttered side-by-side above the freshly painted bright yellow walls surrounding the expansive project -- a symbol of the tiny country's close ties to the Asian giant whose loans have funded its lightning-fast infrastructure growth.

Djibouti -- which is also the site of China's only overseas military base -- is a critical part of Beijing's "Belt and Road" global infrastructure initiative along what has been dubbed the "Maritime Silk Road".

The key policy initiative has seen Beijing loan developing countries across Asia and Africa huge amounts of money to develop their infrastructure and ease trade.

However last year Sri Lanka was forced to hand over majority control of its Hambantota port to China after being unable to repay its debt, raising concerns over the vulnerability of poor nations to such massive debt.

The International Monetary Fund has sounded the alarm over an increase of Djibouti's public debt from 50 percent of GDP in 2014 to 85 percent in 2017.

The US-based China Africa Research Initiative estimates Djiboutian debt to China stands at some $1.3 billion.

In an interview with AFP, the ports chief Hadi brushed off concerns over Djibouti's financial obligations, expressing confidence in the profitability of its ports and the new railway linking its capital with Addis Ababa, which began operating in January.

"We are not at all concerned about our debt rate. It is not taxpayers who will repay this debt, it is those who use the services: the ships, traders," he said.

Authorities like to say that without its ports, the arid, sun-blasted nation would not exist, and that the aggressive infrastructure drive is the only hope to grow Djibouti and lift its citizens out of poverty.

Guelleh said that in its pilot phase, the free trade zone is expected to boost GDP by 11 percent. An initial group of 21 companies moving into the zone were named Thursday.

The zone will be managed by Djibouti as a majority shareholder with three Chinese companies: the China Merchants Group, Dalian Port Authority and big data company IZP.

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