Large multinational companies, attracted by its relative proximity to Europe and the Middle East, have begun exploring the country as a basis for manufacturing textiles and machinery. However, transport costs are high and remain a barrier to investment.
In response, the Ethiopian government launched a five-year Growth and Transformation Plan (GTP) in 2010 of which the National Railway Network of Ethiopia (NRNE) is a major element. The plan aims to gradually transform the land-locked country into an interconnected economy with efficient high capacity transport links to adjacent countries and ports.
Ethiopia's Council of Ministers established Ethiopian Railway Corporation (ERC) on November 28 2007 with a mandate to develop an integrated and high-capacity railway providing competitive and affordable passenger and freight transport services.
By providing the gateway to overseas markets, Djibouti's ports are of high importance in Ethiopia's transport master plan.
While implementation of the plan has not exactly gone to schedule, some railway construction programmes are now up and running and ERC is on the verge of introducing a regular service. Eight corridors are under development in two phases, with phase 1 already underway while phase 2 encompasses expansion projects (see panel below).
Finance
Given Ethiopia's still limited access to world financial markets, funding infrastructure and transport projects is proving challenging. Previously organisations such as the US Exim Bank have helped to finance the delivery of Boeing 787 Dreamliners to Ethiopian Airways, for example. And according to the UN, Ethiopia is now Africa' third largest recipient of foreign direct investment (FDI) as its small but burgeoning manufacturing industry is beginning to attract overseas investors.
China is providing much of this investment and the railway projects are inevitably dominated by Chinese contractors. Comparable civil construction companies from Brazil, India and Europe have struggled to identify financial instruments to meet the country's needs. Yet the tide appears to be turning.
With certain countries now directly supporting the development of access to financial markets - Switzerland recently committed $US 15m for the sustainable development of developing countries' financial markets - and with Ethiopia securing its first sovereign credit ratings from agencies in 2014 - a B1 from Moody's and a B from both Fitch and Standard and Poor - the country is becoming more independent and experiencing a fall in financing and refinancing costs.
A case in point is the Weldiya - Kombolcha - Awash railway. Here Yapi Merkezi, Turkey, Credit Suisse and ERC set up a financial package that is providing a viable alternative to the Chinese approach.
However, securing this package was far from easy and has held back the start of construction. The financing package finally agreed in June 2014 consists of a $US 450m seven-year loan from a consortium of European, Middle Eastern and North American lenders, and a $US 415m 13-year loan backed by Turkish Exim bank, Sweden's Exportkreditnamnden, Denmark's Eksport Kredit Fonden and Swiss Export Risk Insurance.
With funding in place, a ceremony was held in February to mark the start of construction of the railway. Work is expected to take three years to finish and Yapi Merkezi said last month that 75% of the mobilisation for construction is in place.
The goal of the 375km line is to support the economic development of the Ethiopian hinterland. The link between the fertile south and the resource-rich north starts in Awash, 986m above sea level, climbs to Kombolcha at 1842m and finally reaches Hara Gebeya, close to Weldiya at 2122m above sea level.
In the south, the line will connect with the double-track railway from Addis Ababa to Djibouti harbour, in the north it will connect with the new line from Mekele to Djibouti's northern harbour at Tadjourah via Weldiya, Semara and Elidar. The line will reduce journey time by more than 50% and provide a reliable means to transport containers. In the future, the line will become the crossroads of the Shire - Mekele line from the north and the Metema - Werota line from the west. This will eventually link with the cross-African line to Dakar, Senegal.
The operations centre will be located in Kombolcha, a city with over 100,000 inhabitants in the Amhara Region and situated at 1842m above sea level. Major employers located here include a metalworking factory specialising in steel products and a textile plant. At present the majority of export goods are transported along a 500km road winding down from the mountains to Djibouti port.
CSR Zhuzhou is supplying locomotives, with ERC ordering 35 HXD1C 7.2MW electric units, 32 of which will support freight operations and three for passenger services. The order was placed in June 2014 and delivery is set to begin in October. Passenger trains will consist of first and second class coaches, dining cars and potentially sleeping cars. Freight trains will mostly use flat-wagons to transport containers.
Molinari Rail is responsible for organising and managing finance and supplies from Switzerland and Austria worth in excess of $US 140m for the project, including the equipment specification, selection and delivery of the maintenance workshop equipment.
The operation and the maintenance workshop will be located just outside Kombolcha. The facility will support infrastructure and rolling stock maintenance and will include a 15,000m2 rolling stock maintenance workshop as well as eight tracks. A rescue train is stationed in Kombolcha with suitable equipment to respond quickly in case of emergencies along the line.
Bombardier is installing ETCS Level 1 on the line. The $US 41m contract awarded by Yepi Merkezi also includes the supply of lineside signalling, interlockings, level crossing equipment, and CTC. ABB is supplying substations and power supply equipment in a $US€18.3m deal.
As this project involves the development of a state-of-the-art railway in a country where experience is limited, a significant part of the know-how has to be imported. Systra is playing a critical role in supporting ERC while Yapi Merkezi is aided by Bombardier, Molinari Rail and others to deliver equipment, services and training.
With ERC's first diesel locomotives now working at various construction sites across the country, and electric locomotives scheduled to enter regular operation by the third quarter of 2015 on the Addis Ababa - Dewela line, Ethiopia's bold vision for railway transport is about to become a reality. While this will reduce overall transport costs, it will also initiate a change in the transport landscape from a road-based system to a truly intermodal freight transport network.
Ethiopia’s railway projects
PROJECTS included in phase 1 are now at various stages of development:
• Addis Ababa - Dewela - Durale: The 1067mm-gauge line from Addis Ababa to Djibouti is being rebuilt as an electrified standard-gauge line. The 665km link is currently under construction in two phases in Ethiopia; China Railway Eryuan Engineering Group is carrying out the first 317km phase from Addis Ababa to Me'eso while Civil Engineering Construction Corporation (CCECC) won a $US 1.2bn contract in January 2012 to construct the 340km section from Me'eso to Dire Dawa and Dewela on the Djibouti border. Italferr, the engineering subsidiary of Italian State Railways (FS), is providing consultancy services for maintenance and operations.
The project is estimated to cost $US 4.5bn, with 40% of funding coming from the Ethiopian government and the remainder from China through a soft loan. CNR Dalian has supplied five diesel locomotives to haul construction trains on the route, while a fleet of 30 25G coaches from CNR Changchun, including four sleeping cars and two dining cars, will support future passenger services.
A "considerable portion" is expected to be completed by October 2015, with operations due to start early next year. The final 100km phase from Dewele to Durale on the coast is the responsibility of the Djibouti government. China Railway Construction Corporation was awarded a $US 505m contract in February 2012 with finance again coming from China. The entire project was estimated to be 80% complete in May.
• Mekele - Hara Gebeya /Weldiya: China Communication Construction Company (CCCC) signed a $US 1.5bn contract with the Ethiopian government for the 268km project in 2012, which will link with the Awash - Weldiya line. Issues with securing financing as well as environmental and design studies for the mountainous area has meant that progress has been slow. However, with Chinese funding sources now in place, a ceremony was held in February to mark the start of construction.
• Addis Ababa - Ejaji - Bedele/Jimma: Brazil's National Bank for Social and Economic Development (BNDES) is providing a $US 1bn loan to build the 439km line that will ultimately connect with South Sudan. Andrade Gutierrez Participacoes, Brazil, is responsible for construction which was set to begin soon after prime minister Mr Hailemariam Desalegn laid the foundation stone for the project on May 14.
• Weldiya - Semara - Elidar - Tadjourah: Tendering for this 280km project was postponed for a fifth time in January after bidders requested more time to prepare technical and financial bids. However, one contractor claimed that the tender was delayed because ERC altered its terms to consider contractors which have only worked on projects to build a minimum of 180km of railway or highway worth more than $US 200m.
India's Overseas Infrastructure Alliance is responsible for engineering design and preparing the bidding documents, while the Indian government is contributing $US 300m towards the project. It is expected to take five years to complete and will form the eastern phase of the line to Fentoselam via Werota and Bahirdar.
• Weldiya/Hara Gebeya - Kombolcha - Awash: under construction by a consortium led by Yapi Merkezi.
Phase 2 includes the following projects totalling 2994km:
- Jimma - Guraferda - Dima (301km)
- Ejaji - Nekemet - Assosa - Kumuruk (460km)
- Shire - Mekele (382km)
- Fentoselam - Bahirdar - Werota - Weldiya (454km)
- Metema - Azezo - Werota (244km)
- Mojo - Konso - Shashemene/ Hawasa - Konso/Weyto - Moyale (905km), and
- Adama - Indeto - Ginir (248km).