Ethiopia has deployed its nascent sovereign wealth fund Ethiopia Investment Holdings (EIH) to broker a deal with neighboring Djibouti to ensure the East African country’s energy security.

In a statement on 29th March, EIH said joint infrastructure projects are key to enhance an ever-closer regional integration with the Djibouti Ports & Free Zone Authority (DPFZA). In recent days, the two entities have been discussing investment in a bulk liquid terminal to enhance connectivity and energy security.

This week, EIH, DPFZA and Great Horn Investment Holding signed a Memorandum of Understanding (MoU) to explore joint opportunities for the development of an oil storage facility in Djibouti’s Damerjog Industrial Park. The agreement covers the future joint development of oil storage terminals in Djibouti to supply Ethiopia.

EIH is still gathering itself together as a holding company of state-owned enterprises, with the Commercial Bank of Ethiopia comprising its largest single asset worth US$20 billion or 19% of GDP. Other assets include significant landholdings and telecommunications. EIH is formulated as a strategic investor, looking to support the development of the national economy by improving the functioning and viability of domestic SOEs.

EIH is faced with a range of risks, not least the ongoing conflict in the northern Tigray region and the depreciation of the birr. Nevertheless, the MoU with Djibouti cements the EIH’s strategic role in Ethiopia’s economic development.

Ethiopia lacks access to the sea and forging closer relations with Djibouti is regarded as crucial the East African country’s economic development, particularly energy security. With no domestic refining capacity, Ethiopia imports nearly 100% of its refined products needs. Most fuels are imported from Sudan via Djibouti port. Several proposals have been made to build refineries in the market to meet rapidly rising demand, but none have made progress to date. Meanwhile, extreme tightness in the global LNG market, with Asian spot prices surging to historic highs this year, may add impetus to the Ethiopia-Djibouti gas pipeline and LNG export project. With no domestic refining capacity, the country imports nearly all of its refined fuels needs. More than 80% of its refined fuels imports come by road from Sudan via Djibouti port.

Related funds EIH