Economics – Trade & AfCFTA · Editorial

By Moakanyi Magazine · China-in-Africa · June 2026

Two countries with opposite problems make a market. Ethiopia has more hydropower than its own grid can absorb; Djibouti has almost no generation of its own and already buys about 80 percent of its electricity from across the border. The Second Djibouti-Ethiopia interconnection is the wire that turns one country's surplus into another's supply – and into hard currency.

The project: a second line, more capacity

The new scheme, World Bank project P173763, centres on a 230-kilovolt Nagad-Galafi line spanning 292 km, of which 190 km runs on Djiboutian territory, with each circuit rated at 160 MW. It is designed to lift import capacity on the Djibouti side from the current 80 MW, stretchable to about 95 MW, toward 220 MW. The World Bank approved US$55 million of IDA credit for the Djibouti section in March 2022, against a total estimated cost of about US$138 million.

The first interconnector already proved the model; the second is an expansion, not an experiment. That distinction matters, because it means both governments are doubling down on a trade they have tested rather than betting on an untried link. The new line also adds a parallel path, so a fault on one circuit no longer threatens the bulk of a neighbour's supply – redundancy that turns a single point of failure into a network.

A single new line roughly triples the power one country can buy from its neighbour.

The economics of a downhill sale

The trade works because the two sides value the same electricity differently. Ethiopia generates hydropower it cannot fully consume; left unsold, that capacity is a sunk cost earning nothing. Djibouti, with almost no generation of its own, would otherwise meet demand by burning imported diesel at a far higher cost per unit. The interconnection lets Ethiopia turn idle capacity into revenue and Djibouti swap expensive fuel for cheaper imported power – a gain on both sides of the meter.

That is what separates this from a subsidy. At roughly US$138 million for the full scheme, with US$55 million of World Bank credit on the Djibouti side, the line is sized to pay for itself through metered sales rather than to hand one country a favour. The lifting of capacity toward 220 MW is calibrated to demand growth on the Djibouti side, not to a donor's generosity.

A sale only happens because the same megawatt is worth more on one side of the border than the other.

Why it counts as trade, not aid

This is electricity as an export commodity. For Ethiopia, sales to Djibouti, Kenya and Sudan are a route to scarce foreign exchange against the cost of its dams – export earnings the country has leaned on as domestic demand lags its installed capacity, with plans to raise supply to Djibouti as demand there grows. For Djibouti, imported hydro is cheaper and cleaner than the diesel it would otherwise burn, and a lower power cost feeds directly into the competitiveness of the ports and logistics on which its economy turns.

It also fits a larger pattern. The line is one strand of the East Africa Power Pool, the framework through which the region's grids are being stitched into a single market. Bilateral wires like Nagad-Galafi are the building blocks from which that continental ambition is assembled, one border at a time, and each new circuit makes the next easier to justify. The interconnection makes the dependency mutual and bankable rather than precarious – a regional energy bargain written in copper and steel.

When power crosses a border on a meter, generosity becomes commerce.

The fragility in the wire

Concentration cuts both ways. Sourcing four-fifths of national electricity from a single neighbour leaves Djibouti exposed to Ethiopian droughts, grid faults and politics. A second line adds redundancy and capacity, but it deepens the structural reliance even as it strengthens it. The trade works while the water flows and the relationship holds – and hydropower's output, unlike a diesel plant's, rises and falls with the rains, so a regional drought can squeeze buyer and seller at once.

A second cable buys resilience and dependence in the same stroke.

The Ethiopia-Djibouti link is a small project with an outsized lesson: regional power trade, not national self-sufficiency, may be the realistic path to reliable electricity in much of Africa – provided the wires, and the politics behind them, hold. Most African countries will never generate all the power they need within their own borders, and the alternative to trade is not independence but scarcity.

Sources: World Bank P173763, Dawan Africa