LONDON: May 22, 2018. A report by risk consultants Allan & Associates says while investors have been attracted to the strategic port of Djibouti in recent years, warning signs as a result of changes to the region’s geopolitical landscape should not be ignored.

Located near some of the world’s busiest shipping lanes, with access to the Indian Ocean and Red Sea, Djibouti has remained a relative haven of stability, unlike its neighbours Somalia, Eritrea and now war-torn Yemen.

‘Djibouti offers an attractive environment for investors in the Horn of Africa, but be careful how you tread,’ said Allan and Associates report author Olivier Milland, a senior analyst and Sub-Saharan Africa specialist.

DjiboutiCurrently pursuing a strategy of becoming a regional transshipment hub, the country's government faces competition to the east from Somaliland, developing its port at Berbera, and Sudan to the west that plans to sell stakes in the management of Port Sudan, the country’s only commercial port on the Red Sea.

This has led to "erratic" policies noted Milland in his study - citing the government’s seizure in February this year of the Doraleh Container Terminal (DCT) from UAE-based port developer DP World, claiming the concession contravened state sovereignty. The case is currently being heard by the London Court of International Arbitration.

The report concludes there are now “significant” investment risks in Djibouti including growing corruption, rising public debt and the over-reliance on Chinese investments; dependence on Ethiopia that sends 95 percent of its exports through the port; the ongoing rift between some Gulf states; and the ‘America First’ policy of Donald Trump.

Last year China replaced the US as the country’s number one source of foreign investment: In 2012 the Djibouti government sold 23.5 per cent of its Doraleh Multi-Purpose Port to state-owned China Merchants Holdings; the China Civil Engineering Construction Corporation is building two new airports in the country at a cost of US$599 million; and Djibouti has three ongoing infrastructure projects with China that are likely to play key roles in the country’s Belt and Road initiative, according to Milland.

And despite the dispute with DP World, he said Singapore-based contractor Pacific International Lines, a member of a Belt and Road consortium, signed an agreement with the government in March this year to develop DCT in order to increase annual cargo volumes 30 percent.

“Changing geopolitical dynamics in the region, amid protectionist policies in the US and a rift between the Gulf countries are posing additional challenges for investors,” Milland concluded.

Pictured: Djibouti president Ismaïl Omar Guelleh (centre) unveils the foundation stone for a new development at the DCT in 2013. DP World chairman and CEO Sultan Ahmed bin Sulayem (left) looks on.