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While China slaps tariffs on the US, it's also championing free trade in Africa

Key Points
  • Djibouti, a tiny state in East Africa, opened a Chinese-built International Free Trade Zone on Thursday.
  • The area enables users to operate without paying several types of tax.
  • Once complete, the $3.5 billion project will be the largest of its kind in Africa.
A container truck passes the main gate of Djibouti International Free Trade Zone after an inauguration ceremony in Djibouti on July 5, 2018.
Yasuyoshi Chiba | AFP | Getty Images

Despite China’s rocky trade relationship with the U.S. dominating headlines, it has also just seen the opening of a strategic free trade zone it has built in East Africa.

Djibouti, a tiny state located on the Horn of Africa, on Thursday opened the first phase of its Chinese-built International Free Trade Zone. The project, scheduled for completion in a decade, will be the largest of its kind in Africa.

Costing $3.5 billion and ultimately set to span 4,800 hectares, the zone enables users to operate without paying property, income, dividend or value-added taxes. It will be jointly run by the Djibouti Ports and Free Zones Authority and China’s Merchants Holdings Company, according to Reuters.

The opening, which coincided with Djibouti’s hosting of the Africa-China Economic Forum, was attended by regional leaders including Ethiopian Prime Minister Abiy Ahmed and Rwandan President Paul Kagame.

Djibouti is propositioning itself as a strategic trade hub in the Horn of Africa area. Its landlocked neighbor Ethiopia, an economic powerhouse in the region, already relies on Djibouti for 95 percent of its imports, according to Reuters.

Djibouti’s location just ahead of the Suez Canal, which serves as a gateway for trade traveling between eastern and western markets, means that it offers commercial shipping a presence close to one of the world's busiest trading routes.

The state is also home to Chinese, American and French naval bases.

The new free trade area is a “zone of hope for thousands of young jobseekers,” said Djibouti President Ismail Omar Guelleh at the inauguration ceremony. Djibouti’s population is 865,000, according to the Central Intelligence Agency's 2017 estimate, over half of whom are under 25.

The opening also signifies the latest step in China’s Belt and Road Initiative, Beijing’s scheme to redevelop ancient trading routes centered on itself.

Free trade is a hot topic in Africa. Earlier this month, South Africa, the continent’s most developed economy, signed on to the African Union’s free trade agreement that proposes continent-wide borderless trade. 49 out of the African Union’s 55 members have now committed to the scheme although Nigeria, Africa’s largest economy, is yet to do so.