The 780 km railway that connect Ethiopian capital city, Addis Abbaba to Djibouti capital city, Dire Dawat was built in early 1900’s by the French government. Thereafter this line has became totally useless, because the lack of railway line and train maintenance and incompetence of the leaders and employee. Therefore the role of trade of railway gradually began to decrease then almost stopped completely by the end of 1900’s, because the delivery fees was so high than it was worth to transport it by trucks to the Red Sea. In 2013 to transport the commodities to the Red Sea from Ethiopia by trucks lasted for 3-4 days, the same by train lasted 10-12 days. Despite this poor infrastructural conditions, Ethiopia can produce significant economic growth each year.
The Ethiopian government have been planned for a long time to renew this railway line to be able to increase better the economic growth. Furthermore they would like to achieve their five years plan (Growth and Transformation Plan), which aim is to be able to increase the GDP with 10 percent by 2015. For this railway reconstruction have been created more scenario. In one they wanted to replace the old trains and to accomplish the most necessary maintenances, in the other they wanted to create a complex railway repair which contain the replace of trains and rails. Nevertheless, the Ethiopian government always run into financing obstacles, but the Chinese government has been approaching to Ethiopian officials to initiate the negotiation about this financing of this railway project. But it worth to notice the Chinese diplomats stick to construct a brand new railway line instead of renovate the existing line. (Dipti,2016)
The feasibility team of the railway project were created in early 2011, that encompass Chinese, Russian and Ethiopian experts. This team goals to examine and create the technical details of the project. The feasibility study was created as the result of eight-month research, that already contained the entire details of the planned railway project. At the same time the Chinese government and companies started to negotiate with the Ethiopian government and the leaders of Ethiopian railway Corporation about opportunities of feasibility of the planned project. (Yewardsen,2016) The governments agree on the payment terms. The 70% of expenses of the project will foot by Chinese Exim Bank, the Development Bank of China and the Industrial and Commercial Bank of China (ICBC), however the remaining 30% of the expenses will have to foot the Ethiopian government. The Chinese banks agreed in 15-years loan with the Ethiopian government, that has a three percent interest rate. The Djibouti government also has been involved to the appropriate parts of the negotiation because the planned railway goes throught Djibouti for 100 kilometers. It worth to remembering the Chinese Exim Bank financed the expenditures of Djibouti and the Ethiopian government shouldered guarantee to the loan of Djibouti. (Maasho,2011)
In addition, the feasibility study encompass a clause that clearly state the planned railway will have to construct by the Chinese technological standards. This means the rails will be created with special gauge, furthermore other special technical conditions will be determined by Chinese assigns. Moreover, solely China will supply technology of construction, build the high-tech communication lines and electrified equipment, they will supply the locomotives, trains and other equipment which are necessary for the operation. Initially the Ethiopian government expressed their complained about the stringent terms but finally the conditions and obligations were accepted. Nevertheless also the local implementers had complain about the adopted Chines technologies and standards, as Wu Xiaoling the responsible for the construction project declares. “When we started to the construction suddenly one local implementers questioned the necessary of reinforced steal rods. However when we introduced the unquestionable evidence of necessary of these Chinese technologies, immediately disappeared the concerns and doubts.” (Ipsos, 2016) The contract also encompass that Chinese employee will provide technical assistance for 2 years after the construction. Furthermore they will contribute to maintenance process, teaches local labor to acquire the appropriate skills for 6 years. Chinese put great emphasis for these process because they could learn from the French railway project which failed because of the lack of maintenance, lack of well-qualified workforce. These deficiency led to this railway has become useless. (Xiaolei, 2016) (Qingfen, 2011) In my opinion the Chinese party would like to avoid this failures with these strict regulations to the Chinese financed railway project-induced economic development over the years will not diminish because of the lack of maintenance and appropriate workforce.
The Ethiopian Government, the Ethiopian Railway Corporation and the Djiboutian Government agreed with Chinese banks and companies about the financial details of the project. In 2011 the tenders were conducted and as a result two company were chosen for the construction. The right of construction of the first part of the project were won by China Railway Group, then in October 2011 the contract was signed in the Ethiopian Foreign Office. Under the contract 320 km railway should have to be constructed from Sebeta to Meiso by the China Railway Group, the total value of this project was 1.842 billion USD. The right of the construction of the second part of the project were won by the China Civil Engineering Constriction Corporation (CCECC), this contract was also signed in the Ethiopian FO in December 2011. The CCECC had to constructed the railway from Meiso to the Djibouti border, which value was 1.12 billion USD. The right of the construction of remaining railway section were won by CCOCC. This project situated in Djibouti this length was 96 km and total value was 515 million USD. The total railway project that connect Addis Ababa to Djibouti port was 752 km length and costed in 3.5 billion USD. (Yewardsen, 2016)
The most modern, completely electrified 752 km railway line between Ethiopia and Djibouti were handed over in 2016. Then the railway line between Djibouti border and port were handed over in early 2017 on the brand new Nagad railway station. (Addis Fortune, 2017) The railway in Ethiopia was activated after the handover, however only freight transport took place, the passenger transport started only on mid of 2017. On the very first way food cargos were arrived to the strucked by drought fields. Meng Fengchao the Chief Executive Officer of the China Railway Construction declared on the opening that two kind of successful model were adopted by the project, on the one hand that was the first time when railway that based on fully Chinese standards were constructed overseas, on the other hand the constructed railway will positively contribute to the creation of industrial parks, logistic centers, property investments designed by Ethiopian government. (Qingfen, 2011)
The economic impacts of the railway project
This railway project can have remarkable economic impact for both countries. Ethiopia did not yet have direct connection to port of Djibouti where the 90% of Ethiopian export are delivered and where the Ethiopian import are derived. So far Ethiopian export and import are delivered on the neglected and low-grade roads that completely ineffectiveness. But so far they could not organized that another alternative way. The highest proportion of the export-import products between the two countries were delivered by Ethiopian and Djibouti forwarding companies. Nevertheless, this services are so costly especially the Djibouti companies has higher delivery fees. For instance an Ethiopian company delivers the products between Addis Ababa and the port of Red Sea that cost are 1500 dollars. The same way if the Djibouti company delivers are cost 3000 dollars. This main reason why Ethiopian companies dominate the market. Other ineffectiveness problem the bulk of return trucks are empty and that increase the cost of one way cargo. Furthermore it is important to note the road transport is not just costly but also time-consuming. Generally one way carriage by truck from Addis Ababa to the port lasts for 3-4 days and vice versa. Nevertheless the railway will be able to rectify these problems because the average freight cost can reduce it from 45 dollar/ton to 15-34 dollar/ton. It’s important to note the delivery time also reduce from 3-4 days to 10-12 hours. (Dipri, 2016) This is very important factor because it also happens that the freight arrives from Hong Kong to Djibouti port in few days and from Djibouti to Addis Abbaba the freight arrives in the same time. As a result the Ethiopian economy can develop a lot in a future to the effect of the railway construction because of the diminishing freight costs and delivery time and the effect of the railway can create much calculable freights. The Ethiopian foreign trade can be develop between China, Europe and USA. The supreme commodity of Ethiopia are coffee beans, herbs, vegetables, this commodities will be able to more and be able to increase these yields thanks to the auspicious delivery circumstances. (Workman, 2017) The reducing freight cost will be able to diminish the import commodities price and that be able to increase the competitiveness of Ethiopian export commodities compared to foreign economies.
The railway construction has other positive effects the truck traffic will significantly reduce as a result the air pollution from the transport will be decrease and also will be lessen the necessary of the petroleum import. Nevertheless no signal article deal with the truck driver prospects who maybe will lose their job because of the railway expansion. Completely the necessary of the truck drivers will not be disappear because from the railway stations have to be moved the freight to the terminus by trucks. It may happen that the operation of the railway will be absorb the certain proportion of the truck drivers who will be lose their jobs.
The effect of railway project can be created many new workplaces among skilled and unskilled workers. While on the project was working 3000 laborer worked there for daily 4,5 dollar. This means that an average unskilled worker could earn 120 dollar per month although the average wages are 85 dollar. After the construction project it will be needed 1000 workers for the maintenance and other operation works however still not available any information about theirs planned wages. Under construction 2500 skilled laborer worked there and their average wages were 11,5 dollar per day, 290 dollar per month. However after the construction project this 2500 laborer will be needed on the maintenance works but also no available any information about their planned wages. (Dipri, 2016)
Nevertheless the utility of the railway project have to be examined not exclusively from the side of wages, but also have to be emphasis the opinions of the locals about the railway and the future workplaces. For this is a good example what an Ethiopian worker Josef declared for the journalist of the businessinsider. "When you worked for the train, you were considered to be a very important person," said Josef. "If you had a son or a brother working for the railways, the whole family was very proud of this." (Vaughan, 2013)
The indirect effect of the project could be mentioned that this can contribute for the acceleration of the economic growth through to facilitate the subsequent set up projects. The Ethiopian government would like to create more industrial parks and modern agricultural farms, and to be able to carry out that the railway will significantly facilitate the way to reach it. I would like to add my two cents that the effect of inclusive policy of the government the railway would be absolute accelerate the economic growth, this also proves several company have already relocated their production capacity to Ethiopia based on the cheap and unskilled labour. However still several important infrastructure investments are absent from Ethiopia that would be help the country to be able to increase economic growth and complete the Growth and Transformation Plan due to this plan Ethiopia would like to be middle income country to 2025. In my opinion the railway project is a milestone for the future Ethiopian economic growth.
This project is also important investment for China because effect for that they can facilitate the transportation between Ethiopia and Red See and be able to increase their export to 80 millions populous Ethiopia. This investment is just one stepping stone of the greater plan that China would like to connect Kenya, Sudan and South-Sudan with railway and that line would connect to the Ethiopian – Djibouti railway. (BBC, 2016) (The Guardian, 2016)