Posted by: Bixmoor

Chinese-built Ethiopian railway fraught with problems

Ethiopia’s economic progress and attractiveness have recently been measured through the performance of the new Addis Ababa-Djibouti Railway line.

This railway runs for 474 miles from Djibouti on the Red Sea to Ethiopia’s land-locked capital of Addis Ababa and was built between 2011 and 2016 by Chinese engineering companies. It began offering passenger, and much more importantly, freight services in January this year.

China – as we noted recently – has reduced its interest in investing and lending to Ethiopia which was a favored target a few years ago. There are several important reasons for this, but one is the under-performance of freight traffic on the new railway, which had been seen as an economic lifeline.

But is the poor performance directly related to initial investment decisions? The cost, according to the Ugandan government was $5.2m per kilometer. This is not an outrageous price and is similar to other African rail projects. However, Uganda and Kenya chose China Class 1 railway standard and Ethiopia chose China Class 2 standard. Perhaps the cost should not have been similar. It amounts to $4.5bn, or 30 per cent over budget.

This leaves the Ethiopian Railway Corporation heavily indebted and unable to complete the associated infrastructure. Thus, the train stations are not precisely where the commercial users would have liked them. The best example of this is in Djibouti itself, where the rail track does not reach the port.

The Ugandan transport ministry has noted, rather severely, that “developing lower class railways may appear cheaper at investment stage but will be more expensive in operation and maintenance. Because of the construction standard requirement, it is important for railways designed for 100 years and more to look at life cycle costs rather than investment costs.”

The original operating handbook for the Ethiopian line envisaged the service starting with 1-2 million tonnes of freight in the first year, rising by a million tonnes each year. According to the Ugandan government, the designed annual capacity is a rather vague “10-20 million tonnes”.

The railway can get containers from Djibouti to Addis at two thirds of the price of lorry transport. Unfortunately, the lorries can get from the originating point to the ultimate destination without a hitch.

Because each new station required 750 acres of land, it was decided to build them on the edge of cities and towns. It is politically contentious to amass such land parcels compulsorily and this has in the past led to violent confrontations. The stations are accordingly often inconveniently located. Ethiopia’s second city, Dire Dawa, has its station more than six miles out of town – in fact, in Melka Jebdu, another town.

While exports have increased substantially, they are still grossly outweighed – 7.5 times in weight – by imports.

What we are seeing is part of a Stalinist or authoritarian vision by the ruling party of a state-managed transition to large-scale urbanization. The Ethiopian government, believe like the Chinese that this is the road to improving life. Africa, however, seems to be the major example of where urbanization does not improve quality of life. Increased urbanization in Africa does nor correlate with a reduction in poverty. This railway doesn’t seem to touch the lives of many of the communities it passes through.

Then there are other problems. There are an estimated two million camels in Ethiopia, one of the largest such populations in the world. They are mostly in the Afar and Somali regions of the country which the railway crosses to reach Djibouti. Accordingly, it is perhaps not surprising that a substantially unfenced and un-elevated railway should experience camel crashes.

However, greater awareness of the railway’s possibly unwise (and PR-driven) policy of paying $1,000 compensation, or twice the market price for each camel killed, seems to have induced an increasing rate of camel deaths on the line.

The railway track also crosses Lake Besseka on a narrow causeway, which it shares with camels and a highway, and the lake’s level is rising which could eventually swamp the electrified line.

Most of the problems the railway faces seem to have arisen from cost-cutting: the original choice not to have an elevated railway; the initial decision not to complete the associated spur lines and infrastructure to offer a seamless service; and having out-of-town stations.

It also shows that it is not enough to build an infrastructure project. There are a host of subsidiary questions which need to be decided correctly. Although many important mistakes may have been made, it is not clear if the Addis Ababa-Djibouti railway will become a white elephant or if potential users will eventually learn to work with it. The first year’s performance is no guide to the railway’s prospects nor to those of the economy.

Bixmoor
Bixmoor is a primary bespoke research provider to business, governments and the financial community.