In November, China announced plans to open its first overseas military outpost in Djibouti, the tiny African state strategically situated on the Horn of Africa. Citing the need for a logistics hub to resupply Chinese Navy ships for anti-piracy missions, Chinese officials have avoided the term “base,” although this is how U.S. officials have characterized it. This move provides Djibouti with outside options and brings new competition to the market for access in the Horn of Africa. The competition, however, is not just between governments: it also includes directed commercial spending tied to military access.
Djibouti’s Camp Lemonnier is the only official U.S. base in Africa, housing around 4,000 U.S. personnel. After signing a 20-year lease deal in 2014, it also became the most expensive overseas U.S. base with annual rents of $63 million. Djibouti’s geostrategic location and relative stability provide an ideal toehold on the edge of two continents for major powers looking to conduct counterterrorism missions, combat piracy, and protect shipping routes. This gives Djibouti the upper hand in (re)negotiating terms as new consumers bargain for access.
Base rents are a major cash flow for Djibouti, but they aren’t the only resources pouring in. Both the United States and China are pursuing broader economic strategies that use commercial and developmental incentives to win influence and buy access. Djibouti, with a gross domestic product of just under $1.6 billion in 2014, receives large foreign aid donations. Between 2010 and 2013, Djibouti received official development assistance (ODA) amounting to 10.1 percent of its GDP—$10 million from Beijing, more than $45 million from Washington, and more than $522 million from other donors reported by the OECD.
Both the United States and China are pursuing broader economic strategies that use commercial and developmental incentives to win influence and buy access.
Yet, this highly conservative estimate doesn’t include non-concessional forms of aid such as other official flows (OOF) that target commercial objectives. Most of China’s aid to Africa is non-concessional, commercially oriented aid that creates opportunities for Chinese and African companies. Even though U.S. ODA dwarfs China’s, adding each country’s OOF and other state flows creates a total level of Chinese aid that rivals America’s across the continent. In Djibouti, for example, looking at all reported official aid (including ODA and OOF) between 2010 and 2013 adds nothing to the U.S. figure, while Chinese aid increases by a whopping $134 million.
Achieving political goals with economic incentives isn’t new, and Beijing is not the only power using this playbook. Washington is test-driving its own program in Djibouti—a socio-economic procurement policy called “Djibouti First.” Commercial strategies are increasingly attractive because they distribute economic benefits to the broader host population, creating diffuse ties and goodwill that can outlast specific regimes. Yet, this effort in Djibouti raises two questions: does pumping money into foreign economies lead to results, and how? And does this change if the host has outside options?
Host-Nation First
The American version of commercial incentives—“host-nation first” procurement policies—emerged from the counterinsurgency campaigns in Iraq and Afghanistan. The idea originated with military commanders in Iraq who realized that massive amounts of U.S. government spending could be used for multiple purposes. Hoping to create jobs and stability, commanders began directing U.S. military contracts for goods and services to local businesses in 2006.
The “Iraqi First” and “Afghan First” policies were codified in January 2008 in the Fiscal Year (FY) 2008 National Defense Authorization Act (NDAA) and extended to include Central Asian states in FY 2014 (later amended after domestic backlash). These authorize U.S. government procurement to limit competition or give preference to local products and services within the targeted countries. They represent one mean to diverse ends, using U.S. contract spending to quell violence, build market economies, increase cooperation, and secure access.
Last year, the policy leapt from contingency zones to new horizons. As part of base access renegotiations, the Administration announced its intent to pursue a “Djibouti First” policy designed to achieve mutually beneficial economic development in Djibouti. Congress agreed, authorizing special procurement authorities in the FY 2015 NDAA, directing U.S. contracts to Djiboutian businesses as a strategy to “maintain its basing access and agreements.”
Yet, this effort in Djibouti raises two questions: does pumping money into foreign economies lead to results, and how? And does this change if the host has outside options?
User’s Manual: Read Before Use
The logic behind host-nation first procurement policies seems intuitive. In addition to currying local favor, one might expect economic growth and development to correlate with stability, benefiting everyone—a rising tide lifts all boats. Yet, there are three reasons why it’s too soon to tell whether these policies will work as intended: unclear economic benefits, limited control over outcomes, and the problem of outside options.
Economic benefits. Socio-economic procurement policies hinge on the assumption that contracting can enhance local capacity for viable market economies. Yet this requires the ability to identify who benefits locally as well as the short- and long-term impacts on growth (including what happens when the contracts end). If a small handful of firms receive most of the U.S.-generated business, then there may be no diffuse benefits. Moreover, evidence from congested or austere contracting environments suggests that contracting can skew local economies and lead to “contract fratricide” between U.S. agencies inadvertently bidding against each other for the same assets.
Data on results from host-nation first policies in Iraq and Afghanistan are limited, and little to nothing is publically available on Central Asia or Djibouti. Where available, data typically include dollars awarded by contract and firm. The figures seem impressive; according to a 2012 Special Inspector General for Afghanistan Reconstruction (SIGAR) audit, DoD, State, and USAID awarded $654.4 million in reconstruction funds between 2008 and 2011 to 214 Afghan companies for 356 contracts.
Yet, surprisingly, the report found that while U.S. agencies collected data for various purposes, these didn’t include “the intention of measuring increases in Afghan employment.” Often unclear is who gets the jobs or what gets measured. A report by an Afghan First implementing partner listed $60 million in contracts awarded to local businesses that claimed they’d never won a contract or for which no record could be found. Meanwhile, even defining employment was a challenge in Iraq and Afghanistan. The U.S. Army Corps of Engineers, which awarded 80 percent of the contracts reviewed by SIGAR, non-concurred with the recommendation to develop a process to measure employment, calling the data “difficult to collect and validate.”
Policy outcomes. Local procurement policies designed to increase host population support will only work if the right people get jobs (hard to determine) and if local incentives change to support the donor (contingent on the former). The arguments in favor of these strategies are that as average citizens see economic gains, a broader segment of society gains a stake in an ongoing American presence.
Yet, linking policies to outcomes is tricky. Economic effects take time, are hard to measure, and rely on unverifiable counterfactuals such as the number of jobs that would have been created via contracts awarded to non-local firms. Moreover, strategies that use private sector channels for public sector ends can lead to limited governmental control and unexpected consequences. Policies that benefit many people can anger them just as easily if things go wrong.
As a case in point, when a U.S. company was awarded a new base support contract for Camp Lemonnier in 2013, they decided to lay off hundreds of local Djiboutians to bring in cheaper, third-country national labor. The decision was within their contractual rights: a Navy spokesman admitted in the controversy that followed, “We don’t tell them how many people to employ or how to employ them.” The result was weeks of strikes, base protests, and tense U.S.-Djiboutian relations in the run-up to basing rights renegotiation.
Economic effects take time, are hard to measure, and rely on unverifiable counterfactuals such as the number of jobs that would have been created via contracts awarded to non-local firms.
Outside options. The existence of outside options can transform bargaining dynamics between states. In regions with multiple “sellers” of access, Washington can credibly threaten to relocate if the costs of staying exceed those of moving. However, in Djibouti, the outside options are on the seller’s side, with multiple consumers trying to buy access.
This was less of a concern in Iraq and Afghanistan, where U.S. and NATO spending dwarfed other options by all measurements. Yet in Kyrgyzstan, for example, the spending initiative failed to prove attractive enough to buy the desired cooperation. Instead, the United States found itself in a thinly veiled bidding war with Russia over Manas Air Base. Local contracts weren’t enough to maintain favor after a change in government; outbid and unsupported, the United States had to relocate operations to Romania in 2014.
Djibouti is different in some ways, similar in others. Unlike Central Asia—Russia’s “near abroad”—the great powers are on relatively equal footing in terms of jockeying for access and influence. Like Central Asia, Washington is negotiating for access without an overwhelming advantage in resources. It is operating in a competitive market where outside options may both increase the amount of money it has to spend and decrease the quality of access it can get.
Implications
As currently designed, these tools may not be enough to yield results, but decisions to either scrap them or double down could lead to unexpected consequences. Some aspects of targeted procurement policies will never be within the donor’s control—other actors always have a say. Yet, there are ways to improve the user’s manual, identifying where uncertainty can be reduced and where it can only be managed.
Assessing economic effects—positive or negative—should be a priority. Data may be hard to collect, but there is no excuse for not trying. At a minimum, a process should exist to identify and obtain the data needed to measure effects. Obstacles to getting data are less likely to exist in non-contingency environments like Djibouti, but without guidelines in place, important data may go uncollected. Moreover, though limited and fragmented across agencies, ten years of data now exist. More can be done with sources already available.
Policy outcomes are never fully predictable. The United States can only influence, not dictate, recipient incentives—but this is true for potential competitors as well. Where Washington may face a disadvantage is in implementation. China’s other official flows include funds that support Chinese companies as long as they achieve Chinese diplomatic objectives. There is no neat analogue on the American side, where the Federal Acquisition Regulation’s complex rules are not designed to operate as flexibly. Issues like privity of contract—where the government only has a binding legal relationship with the prime contractor—contribute to scenarios like the Djibouti base support controversy.
Outside options are perhaps the most likely to undercut use of economic tools for security goals. Even without direct competition, other financial flows make U.S. aid less valuable. The United States still enjoys absolute military and economic advantages, but the international order is increasingly multipolar economically. Washington could very well choose to refrain from participating in an incipient bidding war; willingness to pay is no guarantee of access, if cases such as Kyrgyzstan are any guide. But in a market for access, it must do so with the knowledge that other buyers may fill the void.