By Neil Halligan
The diminutive state, a stone’s throw across the Gulf of Aden, is developing both its infrastructure and economy at a rate comparative to the UAE and Qatar. Finance Minister Ilyas Dawaleh explains how he plans to double GDP within three years, overtaking most of Africa
The tiny African state of Djibouti appears to be emulating several chapters of Dubai’s extraordinary growth story; the similarities between the two are remarkably striking.
Despite their minute presences on the global map, both territories have long-established reputations as trading hubs and gateways to trillion-dollar markets: Dubai to the Gulf and Djibouti to East Africa (including Ethiopia, which represents a potential 90m consumers).
Both share enviable strategic locations. Dubai is perfectly positioned to channel exports between Asia, Africa and Europe, while Djibouti is ideally centred to facilitate trade flows between Europe, Africa and the Middle East. Unsurprisingly, the logistics industry plays an important part in both economies, with free zones particularly key.
They also have each taken advantage of their status as peaceful havens within regions of conflict, helping to attract foreign investment and create booming tourism industries (Djibouti may be well behind Dubai but it is growing at a similarly rapid rate).
Only 23,200 sq km in size, Djibouti does not have the oil to give it the kick-start that Dubai had, but it has managed to secure billions in foreign direct investment from around the world, which the country’s finance and economy minister believes will help bolster its gross domestic product (GDP) growth, already impressive for a nation of less than 1m people.
“This year we will enjoy 6.5 percent growth in GDP,” Finance Minister Ilyas Dawaleh (pictured left) tells Arabian Business during a recent visit to Dubai.
“In 2014, we observed 5.7 percent [growth] in GDP. We’ve been observing that trend for the last decade - an average of 5 percent GDP growth. We believe in the coming three years, if not earlier, growth will pass double digits. This is our target with our diversification strategy we are undertaking now.”
One of the four countries that make up the Horn of Africa, the Republic of Djibouti was formerly the French Territory of the Afars and the Issas before it won independence in 1977. But civil war broke out in the early 1990s, ending in 1994 with a power-sharing deal between the warring factions. A splinter, radical faction continued to fight until 2000, when it too signed a peace deal.
While neighbouring countries Somalia, Eritrea, and Yemen, across the Gulf of Aden, have endured conflicts in the years since 2000, Djibouti became the main maritime and military hub in one of the world’s roughest neighbourhoods, helped by the presence of American and French high level strategic military bases within its borders.
Djibouti’s strategic importance to the region has been the main economic contributor for a country that is largely underdeveloped.
“It [the economy] was mainly based, until the last decade, in the service sector and port and logistics activities. Sixty-eight to 70 percent of GDP was generated from [those sectors],” Dawaleh says.
“Nowadays we are shifting towards a much more integrated development plan. We’re trying to diversify our economy.”
Dawaleh says there are three key sectors Djibouti is looking to develop – telecommunications, tourism and energy.
“Djibouti has the largest telecommunications infrastructure in Africa, much ahead of South Africa in terms of infrastructure. We enjoy six sea cables [passing] through Djibouti,” he says.
“The largest consortium in fibre optic sea cables are all landing into Djibouti and distributed to the African region. It’s from the international traffic management.”
There are plans to develop further connections, including installing the largest fibre optic capacity.
“One is SEA-ME-WE (South-East Asia - Middle East - Western Europe 3), a Western consortium, and then we have an Asia-Africa-Europe cable, which is owned largely by China Telecom,” Dawaleh explains.
In the area of energy, Dawaleh says Djibouti will adopt a completely green energy supply by 2020, via its $31m geothermal development.
“From the energy perspective, we have an interesting geothermal development, as Djibouti has the ambition to become the first green energy-based economy in 2020. We must achieve that ambition in order to run the economy and the country on a green energy basis,” he says.
“Already we have about 70 percent of green energy in Djibouti through interconnection with Ethiopia. The development of geothermal will help also, not only making Djibouti 100 percent green, but also helping us to reduce by 70 percent our energy costs.”
The underdeveloped nature of the country outside the capital of Djibouti City (where 65 percent of the population live) offers a rich and diverse landscape, something the country’s tourist officials are keen to exploit.
“Djibouti has a very interesting particularity,” Dawaleh says. “We have the same advantages as Sharm El Sheikh in Egypt in terms of scuba diving [and] we have the salt lake [Lac Assal], which is 156 metres below sea level. It has strong [tourist] attractions.
“Djibouti is one of two reproduction points for the whale shark in the world, which also attracts tourists. In eco-tourism development, there are different areas of perspective we will see in the coming years. Already there has been quite a bit of investment in infrastructure in order to attract tourist development,” he adds.
Foreign investment has also helped to boost the tourist industry, with companies from the UAE in particular identifying opportunities with significant developments.
“Nakheel has developed one of the largest resorts - a five-star hotel - in east Africa with Kempinski,” says Dawaleh.
“We have another investor from Abu Dhabi [Nael Group from Al Ain] who is now developing a larger resort, mall and marina. We have a very interesting investment programme from the UAE.
“We have a Saudi-Dubai company - ASAS Capital - also developing in the tourism sector [with] marina facilities on the waterfront.”
The UAE interest in investing in Djibouti projects has led FDI, paving the way for others to follow.
“The UAE, and especially Dubai, is the pioneer in terms of foreign direct investment and has done a lot in Djibouti.
We always value that pioneering role played by Dubai, and by UAE in general,” Dewaleh says.
“Of course we have some other private investors from the UAE and from the GCC [but we] still believe it represents our core objective in terms of attracting investment from the GCC. The UAE in particular represents a very important partner in terms of investment and development.
“Saudis [also] are very much active these days. Qatar is very much interested in the tourism development. We already have investors from Kuwait, but Saudis, Qatar and the UAE will be the largest investors in Djibouti from the GCC countries for the time being.”
Turkey also has been forthcoming with its investment, with an agreement announced to develop the Turkish Special Economic Zone in Djibouti.
“It’s a five-hectare development; activity has already started,” Dewaleh says. “Most of the industries from Turkey interested in Africa will have their base in Djibouti for assembling, processing and repositioning stocks for Africa. President Erdogan and the Turkish government have chosen Djibouti as their major point of entry to Africa, especially the eastern part of Africa.”
Dawaleh says with other free zones almost 100 percent full, it is time to develop a new area.
“Last week we passed a decree in our cabinet for extensions [to the free zones]. We have special zones to be developed in different areas of Djibouti,” he says.
The Minister of Finance and Economy also has recently returned from a beneficial trip to India, where $15.5m in finance was secured for a cement plant in Djibouti. An extension of an existing programme, the new agreement will see the plant’s energy transferred from oil to coal.
Dawaleh also used his time in India to speak to potential investors. “This year will be mainly India-focused,” he says. “We had serious discussions about SME development, and how to use Indian technology. They have good technology, and affordable too,” he adds.
The week prior to his India trip, Dawaleh was in Washington for the first bi-national forum between the US and Djibouti, discussing various aspects of their relations and cooperation, and given the strong ties between the countries, he is confident it will lead to further investment.
“From a government perspective, there is a very strong commitment in supporting Djibouti and the transformation of Djibouti from an economic perspective, especially energy and geothermal development,” Dawaleh says.
“We are now very confident in seeing American companies supported by the US government in geothermal development. It’s a major goal for our government.”
The forum followed a meeting last year between Djibouti’s President Ismaïl Omar Guelleh and President Barack Obama, when the US signed a 20-year lease to extend the presence of America’s largest military base in Eastern Africa, Camp Lemonnier, located next to the commercial Djibouti-Ambouli International Airport.
The presidential meeting last year also established the “Djibouti First” legislation that would give preference to Djiboutian products and services in Department of Defense procurements in support of US requirements in Djibouti. It will mean a significant boost for the local economy, says Dawaleh.
“There will be around $2bn plus investment in the camp. It means creating jobs and wealth in Djibouti economy. It means there will be some products and services which will be exclusively bought from Djibouti rather than importing from outside,” he says.
The camp will give some businesses a lucrative future, but Dawaleh says the wider investment plan for Djibouti will ensure that the economy as a whole will continue on its current upward trend.
“As of today, we have $1.8bn-plus investment. In the coming five years, our investment plan is estimated to be $8bn, mainly in key infrastructures. Most of it is invested by the government, but also by the private sector,” he says.
Like the UAE, and the greater GCC region, Djibouti also is developing its railway network, as well as ports and airports.
“As of today, the first line of railway - an electrical standard train - is almost completed. It will be completed by May and will start operation in October, from Djibouti to Addis Ababa in Ethiopia. Three ports [also] are under construction and a fourth one will start in the coming two or three months,” he says.
“Then we have another railway in the pipeline, which will most likely start in early 2016, dedicated to the north part of Djibouti, linking to the north of Ethiopia, especially [to serve] the mining of potash. We [already] have a port that is dedicated to the export of potash [and] Ethiopia is known as [having] the second largest deposit of potash in the world. We are going to start [exporting it in] early 2017. That train will mainly focus on those mineral resources.”
Dubai’s DP World is working in collaboration with Djibouti to build one of the most advanced ports in the region, despite strains in the pair’s relationship after the Djibouti government filed corruption allegations against the port operator in the London Court of International Arbitration in July, last year. The proceedings, which relate to dealings with the former chairman of the Djibouti Ports and Free Zones Authority, Abdourahman Boreh, between 2003 and 2008, are ongoing.
“[DP World is] partnering with us and they are operating and managing the container terminal,” Dewaleh says, deflecting questions about the legal suit. “Djibouti Port was the first port managed overseas by DP World.”
Construction of two airports is expected to begin this year. At a combined cost of nearly $600m and catering to 2m passengers and 100,000 tonnes of cargo annually, they are expected to significantly boost Djibouti’s position as a regional travel, tourism and business hub.
Hassan Gouled Aptidon International Airport is being built in Ali Sabieh, 25km south of the capital. The smaller Ahmed Dini Ahmed International Airport is planned to be dedicated to tourism development.
The Ali Sabieh airport also will include a cargo village to link sea and air transport.
“Djibouti is the largest gateway to the eastern part of Africa. A cargo village now becomes a must to serve those land-locked countries in the east and central part of Africa, like South Sudan, and the eastern part of Congo, like Kinshasa, Uganda and Burundi,” Dawaleh says.
While Djibouti will not be seeing many skyscrapers or mammoth-sized malls in the near future, the investment that it has been attracting is certain to ensure it continues to follow Dubai’s model for success by growing key sectors.
Building on its strengths and opportunities, the geographically diminutive country is set to have an altogether different look in five years’ time, much like in Dubai, where if you blink you are bound to miss an historic moment.