Djibouti at the crossroads

The small Republic of Djibouti, with a population of just over one million, intends to turn a corner by diversifying its economy beyond its port activities. Its geographical position at the entrance to the Red Sea, as well as its political and monetary stability, are key assets in strengthening its role as a regional crossroads. Will it use the model of a city-state like Singapore?


To gauge the ambitions of the Republic of Djibouti, a visit to the Red Sea World International Exhibition Centre is a must. Inaugurated in June 2022 by President Ismaïl Omar Guelleh, this building houses a scale model of the project to transform the old port over the next 25 years. This historic site will become a city within the city, with business offices, a shopping centre, a Ferris wheel, a giant aquarium and even a cruise port. On site, at the request of visitors, staff can light up the model and project futuristic images on the wall. The immersive experience, which lasts several minutes, concludes with the words: ‘New Djibouti, prosperous future’. 

In the next room, which closes the exhibition, there is a film of the President posing alongside some twenty other heads of state, from China to France, the United States, Yemen and Turkey. In power for a quarter of a century, this man successfully brought peace after a decade of civil war and guaranteed regional stability over time. 

He has also put his country on a sound economic footing, with Djibouti recording average annual growth of 4.4% between 2000 and 2021. Under his five successive terms in office, massive investment in port infrastructure has enabled the port to climb to third place on the African continent in terms of container traffic. 

Protected by five foreign military bases (France, the United States, China, Japan and Italy), bolstered by the stability of its currency, the Djibouti franc, which has been pegged to the dollar at a fixed exchange rate since 1973, and boosted by its port and logistics infrastructure, which enables it to spread its influence throughout the sub-region, Djibouti dreams of a future like Singapore.

Creation of a sovereign wealth fund

Slim Feriani, CEO of the Djibouti Sovereign Wealth Fund, is a firm believer in the Singaporean destiny. “Singapore was a very poor swampy island in the 1970s, but today it is a global economic power, capitalising on its port activities, financial services and tourism sector,” he says. “Djibouti is inspired by this success. The country has no oil or gas, but it does have a strategic location, at the entrance to the Red Sea, at the crossroads of the major maritime routes linking Africa, Asia and Europe, where around 15% of the world’s maritime traffic moves, which has enabled it to establish itself over the last twenty years as a global port hub.”

Set up in 2020 on the model of the Gulf States and Singapore, the sovereign fund’s mission is to diversify the economy in promising sectors such as renewable energy, infrastructure, tourism and telecommunications, with a view to creating intergenerational savings. The institution is currently developing a $100 million investment programme, which it hopes to implement over the next three to five years, in collaboration with around ten partners who are expected to contribute up to $700 million ($300 million in equity and $400 million in private debt).

The fund is backed by 100% of the capital of Djibouti Télécom and Électricité de Djibouti, two of the country’s main flagships. It also owns a 40% stake in the powerful Great Horn Investment Holding, which groups together all the Djibouti links in the supply chain that serves the region. Lastly, it relies on 20% of the revenue generated by the presence of military bases, totalling $125 million a year. In office since December 2021, Slim Feriani regularly receives international investors at the institution’s headquarters, on the tenth floor of a building in Djibouti city centre. From the vast bay window of his office, he has a bird’s eye view of the old port, the presidential palace, the luxurious Ayla hotel, inaugurated earlier this year, and the Djibouti Bawadi Mall.

In the midst of a real estate boom, the capital is constantly changing its face. “There’s often a gap between people’s perception of Djibouti and the reality,” says Feriani. “Here, we have a president, a government and a people who want to move forward. This island of stability should be an example of success for the whole region.” 

How can the economy be diversified?

In the late 2000s, President Guelleh took the decision to relocate the activities of the historic port along Doraleh Bay, 5 km to the west. An ultra-modern container terminal as well as a bulk and mineral port are located there. In the south, at Damerjog, the authorities are due to inaugurate an oil port – the sixth of the country’s ports. But how does Djibouti intend to diversify its economy, 70% of which is based on port activities and related services?

“Djibouti is Ethiopia’s natural outlet, so we have developed infrastructures dedicated to maritime and port activities. We are now working on diversifying our economy. Our country has many advantages that should not be overlooked,” says Youssouf Moussa Dawaleh, businessman and President of the Chamber of Commerce of Djibouti.

Among them, the tourism sector represents a major investment lever. Although it currently contributes just 3% of GDP, the government hopes to double this figure by 2035, by attracting 500,000 visitors a year. Far from mass tourism, the country intends to capitalise on its marine and terrestrial biodiversity, made up of plains, mountains, lakes, plateaux, beaches, mangroves and islands. 

The country also has major ambitions in the digital sector, currently running at 8% of GDP. Through the state-owned operator, Djibouti Télécom, the government has invested in twelve undersea cables, making the territory a hub and rallying point between Europe, the Middle East, Asia and Africa, thereby strengthening connectivity and interoperability between the regions.

To bolster its position as a global digital hub, the authorities will have to rise to the challenge of lowering the cost of electricity, which currently stands at 23 cents per kWh, making it one of the highest on the continent.

To achieve this, Djibouti is relying in part on renewable energy. President Guelleh wants to offer 100% green energy to the population by 2035. In 2015, the government passed a law to liberalise the energy sector, enabling the first wind farm to be set up recently in the Bay of Ghoubet, 120 km north of the capital. Solar power, geothermal energy, biomass, tidal power, green hydrogen… the country has tremendous energy potential, which it intends to capitalise on, notably by forging public-private partnerships.

Finally, the country intends to develop the potential of its free trade zones to strengthen its role as a regional crossroads. The future Djibouti Damerjog Industrial Development Free Trade Zone (DDIDFTZ), 30 km south-east of the capital, is currently being built at a cost of over $1 billion. By 2035, this industrial port site will house fuel storage depots, a refinery, a cement plant and a power station, all backed by an oil port. In terms of its size and the amount invested, DDIFZ is the counterpart of the 4,800-hectare Djibouti International Free Trade Zone (DIFTZ), which was inaugurated with great fanfare in 2018, in the light industry niche. 

“The infrastructure is ready, but now Djibouti needs to attract companies with the capacity to expand into much wider markets, particularly the East African hinterland,” says Abdallah Ibrahim Abdallah, Deputy Managing Director of the Bank for Commerce and Industry of the Red Sea (BCIMR), one of the first banks to be established in a country that now has thirteen, as well as Vice-President of the Chamber of Commerce.

“In recent years, strong growth rates have been driven primarily by public investment. We now need to hand over to private investors. Our major challenge in getting off the ground economically is our ability to attract serious investors who want to take advantage of the opportunity we are offering them in Djibouti,” he says. 

This view is shared by businessman Youssouf Moussa Dawaleh, who says Djibouti has a lot of potential, but has not yet reached maturity, particularly in terms of direct investment. “Yes, the port infrastructure is of very high quality, and the government has invested heavily in digital technology via submarine cables, but industry and the private sector are struggling to keep up, not least because of the cost of energy. We have a lot of work to do if we are to develop our path,” he says.

From the top of the fifteenth floor of the very chic Mezz Tower, which rises above the waters of the Red Sea in the heart of the capital, World Bank economist Rick Emery Tsouck Ibounde retraces the broad outlines of the country’s development. “From 2000 to 2021, Djibouti’s economy saw remarkable average annual GDP growth of 4.4%,” he says. “GDP per capita has more than doubled to over US$3.2 billion. The country attracted $2.3 billion in foreign direct investment between 2000 and 2020.”  

Despite being shaken by recent crises such as Covid, the Tigray war and the Ukraine conflict, Djibouti has maintained healthy growth – 1.3% in 2020 and over 3% subsequently. For 2023, it was boosted by exports to Ethiopia and by the vitality of its domestic market, via construction in particular, to approach 7% growth. “In the medium term, we expect growth to stabilise at around 5%,” says Ibounde.

However, the economist points to certain limitations for the country, including the price of electricity – three times higher than in Ethiopia – and the speed of the internet, which until the summer of 2023 ranked among the lowest 10% on the continent. According to the World Bank, reducing the cost of electricity and telecommunications could increase real GDP by 39.1% by 2030, generate 23,000 jobs and considerably boost household incomes, while reducing poverty. 

Another challenge for Djibouti is the stranglehold of a handful of state-owned companies on key sectors of the economy, such as the port, telecoms and electricity. “They are holding back the development of the private sector, which is still in its infancy,” Ibounde continues.

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Théo du Couëdic

Théo is a freelance journalist based in Senegal.