A new study reflects on the challenges and the huge economic potential of the new Addis Ababa – Djibouti rail way corridor and the Chinese investments in Ethiopia.
“An efficient railway network brings a whole host of economic benefits. This means of rail transport has a positive impact on the level of port activities as well. If the government addressed some of the challenges that currently hinder the expected performance of the Addis-Djibouti railway, entities will reap the real value from the project,” stated the report entitled, Sino-Ethiopia evolving partnership along Addis Ababa – Djibouti railway economic belt.
The Ethiopia-Djibouti corridor links Ethiopia to the Port of Djibouti is the main gateway for the country with over 95 percent of Ethiopia’s imports and exports.
“The successful integration of rail and development requires conscious decisions about trade-offs and thus relies on coherent, cross-sectoral planning. Ethiopia’s recent experiences demonstrate these aspirations. Although there is no unique form of rail regulation and optimization for railway operations to face the challenges, the general behavioral rule and main advice from this report is to maintain flexibility, simplicity, and pragmatic policy actions whenever possible at any given time,” suggests the report produced by the Centre of Excellence International Consult (CEIC) under the leadership of Mr. Gedion G. Jalata, CEO, of the Consultancy Firm..
“Experience shows that railways can attract substantial private sector investment and that there are some common elements of successful experiences that Ethiopian can learn. For instance, the government should create a Policy and Legal Environment that protects the interests of different types of investors/key actors in the railway sector. Investors perceive a number of risks to the railway sector because of the legal/regulatory framework, corporate governance, and management control of the railway, strong focus on the state-owned railway, Ethio-Djibouti Railway Corporation, and policy inconsistency and implementation gap.”
“This environment provides limited protection and creates uncertainties for private investors. Investors considering the development of branch lines or product and/or resource-based lines would be particularly concerned about traffic routing and the interface with the rest of the network. The government can mitigate these risks by creating a legal framework for railways that is clear, objective, reliable, compensatory and neutral between public and private suppliers of similar goods or services. This would be an efficient way to reduce private investors’ risk levels and their cost of capital,” it said.
The report stated that rail transport has made varying degrees of impact on the development of the countries where they exist. Many studies described rail transport as historically the most powerful single initiators of economic takeoff, being the main force in the widening of markets and a prerequisite to expanding the export sector. They are staging a comeback around the world as governments are changing policies and strategies to address sustainable development goals.
“The railway system plays a significant role in the development and overall growth of any economy. It is often regarded as the wheels of economic activity because of the crucial role it plays in providing the bulwark upon which production and distribution stand,” it stated.
“It opens up regions, hinterlands, and rural areas by facilitating agricultural development as well as the growth of small and large-scale industries. It also attracts residential, commercial, educational and recreational settlements and developments around its corridor. Due to the role it performs in the growth and development process, rail transport is seen as the mainframe around which an integrated national transportation system is built,” the report of CEIC stated.