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FOCUS ON DJIBOUTI: Strengthening Africa’s Passage To Prosperity

Penresa

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“Djibouti is in the process of becoming an essential link in the economic globalisation. We shall remain faithful to our ideals of unity, equality and peace by remaining true to our core values and our hospitality, generosity and solidarity culture that we can be proud of our identity in a world subjected to cultural standardisation.” – His Excellency President Ismaïl Omar Guelleh.

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Djibouti is successfully improving its position in the global market by enacting several enterprising reforms to enhance and improve conducive business environments, property registration, credit availability, as well as empowering sectors such as infrastructure, finance and energy. These measures are all a part of His Excellency President Ismaïl Omar Guelleh’s Vision 2035, which has already demonstrated great progress, as Djibouti has leapt from the 154th in 2017 to the 99th position in the 2018 World Bank Ease of Doing Business Report. Central Bank of Djibouti Governor Ahmed Osman Ali, says, “We have worked hard to improve our investment environment. In terms of investors’ protection, Djibouti ranked second worldwide in the World Bank Doing Business 2019 ranking, gaining 94 places compared to 2018. Djibouti offers great potential to investors in various sectors, as well as an attractive fiscal environment.” The Vision 2035 is a strategy that is built through the participation of Djibouti’s youth, political parties, civil society, businesses, development partners and the international community. The vision is based on five core pillars: Peace and national unity, Good governance, a diverse economy, Investing in human capital and Regional integration.

In utilising its advantageous geographic position and strengthening its place as East Africa’s hub, the Vision 2035 recognises that Djibouti is a natural gateway for bordering and nearby countries for sea and air cargo transportation. Dabar Adaweh Ladieh, General Director of the Société International Des Hydrocarbures de Djibouti (SIHD) says, “That is why Djiboutian ports, for instance, are destined to serve the whole region. Goods from Europe, the Middle East and Asia will arrive here. We will have an exchange centre thanks to our strategic plan and the President’s vision to develop infrastructure.” In keeping with this goal, Djibouti has been investing in new port terminals, as well. “SIHD, in partnership with other companies, is building a new stocking site in the Damerjog economic zone where there are also other projects to be realised, like the port and the stocking site of natural gas,” says Ladieh. “So, we are proceeding with this global vision in mind.”

Diversifying the economy is crucial to the Vision 2035, and the government is dedicated to ensuring consistent GDP growth, which will create over 200,000 jobs in the next fifteen years. One of the means to do this is through the energy sector. Djibouti is no stranger to ambitious projects if it means improving the livelihood of its people and securing a better future. As such, the government has enacted several programmes that seek to meet 100% of the country’s energy demand with renewable resources in order to combat pollution and decrease dependence on imported energy resources. This can be done through geothermal energy, wind energy, solar energy as well as waste energy. The government is currently moving into the production phase of geothermal energy, with wind energy production set to begin in spring 2020. Ensuring the abundant availability of reliable and cheap energy puts Djibouti on the cusp of a green revolution and is a crucial step toward the achievement of Vision 2035, with positive effect on investments and employment resonating throughout the economy. The government has also invested in highly specialised programmes that are designed to nurture the thriving young population. Mr Yonis Ali Guedi, Minister of Energy, states, “All these projects are to develop Djibouti, making sure that energy is abundant and cheap, to attract investors, jobs can be created, and the prosperity of our citizens can be increased. Development always needs energy, so, the country needs to provide itself with green and clean energy.”

In accordance with the strategy mapped out in Djibouti’s Vision 2035, the government has taken on an astounding series of projects aimed at updating Djibouti’s infrastructural landscape. Part of this plan is found in the country’s new International Free Trade Zone. Opened in July 2018, the DIFTZ marked a turning point in the history of Djibouti and the entire East African market. The Zone will inevitably boost local and international trade and create employment for Djiboutians. The Free Zone clearly represents Djibouti’s rapid and impressive transformation and serves as a beacon of light for the future, positioning the country as a hub for trade, logistics and finance.

In addition to the government’s dedication and all these vast improvements across many sectors, Djibouti’s participation in the African Continental Free Trade Agreement will also create an environment where investors can thrive. The AfCFTA is meant to create a tariff-free continent that could boost intra-African trade. Governor of Central Bank of Djibouti, Ahmed Osman Ali, states, “It is a great opportunity: it will grant access to a wider market to companies operating here. To take advantage of increased regional integration. We have invested heavily in port, road, rail and telecommunications. We remain very confident about the positive effects of the African Continental Free Trade Agreement in terms of activities, growth and job creation.”

Driving Djibouti’s Development Goals

Afreximbank Focus on Djibouti

Afreximbank has pledged to work with public and private entities in Djibouti in order to deploy the Bank’s trade finance programmes in support of the country’s economic priorities.

A small nation in the Horn of Africa, Djibouti’s location along the Gulf of Aden, its proximity to the Mandeb Strait, the southern entrance to the Suez Canal and Yemen gives the small African nation a strategic role to play along one of the world’s busiest trade routes. Ten percent of the world’s oil exports and 20% of all commercial goods traverse through the Suez Canal, passing close to Djibouti. With the vision to be the trade finance bank for Africa, Djibouti plays an increasingly bigger role within the Afreximbank portfolio.

Djibouti signed onto the African Export-Import Bank Establishment Agreement in 2016 marking the commencement of the partnership. At the signing of the agreement, President Ismaïl Omar Guelleh stated that this partnership will help the country advance its trade related infrastructure and the areas of logistics and renewable energy. The bank has also helped to promote and finance Djibouti’s industrial sector in the area of export manufacturing. With help in financing from Afreximbank, Djibouti has been able to further leverage its important geographic position to its advantage. It will also flourish in new areas of the economy such as tourism and investment.

During its partnership, Afreximbank has pledged to work with public and private entities in Djibouti and would link them with other African and international economic players in order to deploy the Bank’s trade finance programmes in support of the country’s priorities, including the development of renewal energy infrastructure through the Bank’s funding arrangement with KFW, the German development bank, construction of world-class tourism amenities under the Bank’s CONTOUR facility and expansion of Djibouti’s transport and logistics infrastructure. The trade and infrastructure development plans initiated by Djibouti are very impressive and have the potential to transform the country and to make an impact, not only in the region but across Africa, as the country moves toward becoming a key logistics hub for the continent.

Due to its location and the government’s recent policy reforms, the country is attracting more business and investment than ever. Djibouti has recently implemented a policy of international free trade zones, which enables foreigners to start business in the country easily and without paying profit taxes. These policies have been effective in recent years to attract much attention to the tiny nation as it seeks to create a conducive business environment. Already, our partnership has seen positive effects with Djibouti’s Ease of Doing Business ranking increasing in 2018 to 99 up from 154 in 2017.

Djibouti is one of the many cases in which partnering with Afreximbank has helped countries develop their trade sectors. In 2017 Afreximbank focused on a forward looking initiative called Impact 2021, Africa Transformed. This initiative is fixed on strengthening four main sectors: intra-Africa trade, industrialisation and export development, trade finance leadership and financial soundness and performance. Just in 2018, Afreximbank saw 24% overall growth with a US$55 million increase in income. Up from US$229.8 million total income in 2017, the total income for 2018 was US$285.4 million. Afreximbank also saw a 13% growth in its assets totalling US$13.42 billion for 2018 due to a rise in net loans and advances. The bank’s operating profit saw an exceptional rise in 2018 to US$394.8 million from US$109 million in 2017.

This growth is continuing into 2019 with a 59% increase in total revenues for the first three months of the year compared to the same timeframe in 2018. Though it is a small country, Djibouti’s location elevates its status in geopolitics, and it is only logical to assume that its importance will continue to grow as nations turn their attentions to Africa and the Middle East. With a positive outlook ahead and a successful year behind us, Afreximbank is well on its way of achieving its vision and assisting Djibouti in its development goals.

Footnote: The African Export-Import Bank (Afreximbank) is the foremost pan-African multilateral financial institution devoted to financing and promoting intra- and extra-African trade. The Bank was established in October 1993 by African governments, African private and institutional investors and non-African investors. Its two basic constitutive documents are the Establishment Agreement, which gives it the status of an international organisation, and the Charter, which governs its corporate structure and operations. Since 1994, it has approved more than US$67 billion in credit facilities for African businesses, including US$7.2 billion in 2018. Afreximbank had total assets of US$13.4 billion as at 31 December 2018. It is rated BBB+ (GCR), Baa1 (Moody’s), and BBB- (Fitch). The Bank is headquartered in Cairo.

The Central Bank Fights Financial Exclusion And Eases Business

Ahmed Osman Ali – Governor of the Central Bank of Djibouti

Governor Osman Ali vows to do even more to attract banking activities to Djibouti and enable further growth.

Central Bank of Djibouti Governor Ahmed Osman Ali is a key player in the nation’s strategy of enabling infra­structure improvement and economy diversification to become an emerging country by 2035. Penresa sat with him to discuss the achievements of his mandate and his plans to keep supporting Djibouti’s Vision 2035

How is the Central Bank working to help Djibouti be­come a middle-income country by 2035?

The ambition to establish Djibouti as an emerging economy by 2035 is part of the national develop­ment strategy pursued by the government’s sec­toral policies. The objective is to transform Djibouti into an international logistic and financial hub.

The Central Bank is thus working for a more dy­namic, efficient, sustainable and inclusive financial sector. An initial comprehensive reform package began in the early 2000s: since then, the sector has grown from five to 36 financial institutions (in­cluding 11 banks, from two in 2006). Subsequently, to expand the financial sector, our priorities are fo­cused on the following points: The viability of the sector with the impressive strengthening of the supervisory framework, as well as anti-money laundering and anti-terrorist financing measures. Reference texts are regular­ly updated according to international standards;

The promotion of financial inclusion through initiatives such as the right to an account, with banks being legally obliged to open an account for people with a minimum income of DJF 40,000 (e200). Also worth mentioning is the develop­ment of microfinance and mobile banking. To ease access to credit for SMEs/SMIs we have established a Partial Credit Guarantee Fund and initiated the necessary reforms to launch leasing activities in Djibouti;

The modernisation of the national financial infra­structure with the introduction of i) a modern na­tional payment system taking into account the new paperless electronic payments (real-time gross settlement, automated clearing house…); and ii) a new fully automated credit information system.

The African Continental Free Trade Agreement is meant to create a tariff-free continent that could boost intra-African trade. Do you feel this will contribute to Djibouti’s economic growth?

It is a great opportunity: it will grant access to a wider market to companies operating here. To take advantage of increased regional integration (Djibouti is a founding member of COMESA), we invested heavily in port, road, rail and telecommunications. Djibouti is AGOA eligible, which is significant for our Indian and Chinese partners.

We remain very confident about the posi­tive effects of the African Continental Free Trade Agreement in terms of activities, growth and job creation.

You were awarded Central Banker of the Year 2018 at the Global Islamic Finance Award. What did you do to expand Islamic Finance?

We realised that a significant portion of our pop­ulation was marginalised in the financial sphere due to the lack of Shariah compliant financial products. We have made the necessary efforts to introduce and develop Islamic finance, and today the three active Islamic banks (the first of which established in 2006) represent 20% of the mar­ket. We also launched an annual Summit bringing together in Djibouti the institutions and eminent experts of International Islamic finance.

The award we received is an acknowledgement of the efforts undertaken by all stakeholders to achieve these results.

For the readers of FORBES AFRICA and the dis­cerning investor, why is NOW the best time to invest in Djibouti?

We have worked hard to improve our investment environment. In terms of investors’ protection, Djibouti ranked second worldwide in the World Bank Doing Business 2019 ranking, gaining 94 places compared to 2018. Djibouti offers great po­tential to investors in various sectors, as well as an attractive fiscal environment.

Developing And Connecting Djibouti Through A World Platform

Minister’s Round Table

Penresa sat down with Hon. Youssouf, Minister of Foreign Affairs and International Cooperation, Hon. Awaleh, Minister of Agriculture, Livestock, & Fisheries, Hon. Dawaleh, Minister of Economics and Finance and Hon. Guedi, Minister Minister of Energy & Water.

What big project is your ministry focused on right now?

Hon. Youssouf: We need to speed up the process of creating job opportunities. First, in education and then in job creation. That is why we are compelled to seek opportunities for young people and women. Djibouti has signed the ICSID Convention. You need a legal framework to reassure investors that their investment is protected. We hope that it will boost the volume of the investment, because more investment means more job opportunities. Vision 2035 is our development plan over the next 20 years that will help change the livelihood of people. Djibouti has also signed the African Continental Free Trade Agreement (AfCFTA). It is vital for African countries to create that common market because trade is the engine of the economy. When you have that framework, that facility to boost and step up the intra-African trade, it creates job opportunities, wealth, rapprochement between countries, community. We believe that the bigger the market is, the bigger the opportunities to create job and wealth.

Hon. Awaleh: The Ministry is involved in several projects focused on sustainable agriculture. Djibouti has an arid ecosystem; it is more or less a desert with black stones. The rainfall is on average 150mm per year and we have no rivers. The best three activities for Djibouti (because of saline ground) are date palms, greenhouse horticulture and livestock. One example is that we have a laboratory here for date palms. There are a lot of varieties, and the best variety is called Medjool. One kg of Medjool is about $US30. It is the highest price for a fruit. It is very difficult to get this variety: California, Israel and Morocco have it. One tree takes eight years to grow, and in all its life, a date palm will give you 10-20 shoots. The problem is that we do not have date palms here in Djibouti. So, we have done the research and we have discovered that we can produce date palms from cells. It has taken us 5-6 years, and we have chosen the best varieties. In the world, we are the fourth laboratory which produces Medjool dates in this way. We are proud to have introduced date palms specific for Djibouti.

Hon. Guedi: We are working toward 100% green energy. We are developing other forms of energy like wind and geothermal energy. We never had a real project in geothermal, but at the end of April/beginning of May 2019, the presence of geothermal energy in the Fiale project was confirmed. The three drillings were done at a depth of 2,600 metres. Now, we are going to move to the next step, the production. We have signed all necessary contracts as far as wind energy is concerned after one year of negotiations to finalise the production of 60 MW of wind energy with African Financial Cooperation in Ghoubet. As of now, the windmills are already being produced, using German technology. Completion of the project is 12 months, so in April/May 2020, we will start with the production of wind energy. We have also developed solar energy. The French company Engie contacted us for a first project for solar energy. We have already signed with EngieAfrique for the development of 30 MW solar station on the site of Grand Bara. This will be the first step and we hope that we will finalise all the documents for the project in two to three months. As you can see, the energy revolution in Djibouti is coming.

Hon. Dawaleh: The growth over the past five years has been 6-7%, which is comfortable. The balance of payment is now at a good level; in the past we had a very high debt, while now it is at 70%. All the macro-economic indicators are reasonable for Djibouti. The driving force of the economy of Djibouti is the port, the air, the airport and the infrastructure. We have six ports, we have trains. We deliver the flow of goods from COMESA countries to the world. We also intend to handle the flow of information and finance, of capital between COMESA and Djibouti because we want to be a hub for money, since our currency is pegged on the dollar. All people in the Eastern African region should put their money in Djibouti. We want to be the hub of the flow of capital and information, since we have seven telecommunication submarine cables, not only for Djibouti, Somaliland and Ethiopia, since the cable encompassing Africa runs through Djibouti. So, our focus areas are transport, flow of information and capital.

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