Despite myriad benefits from its inherently advantageous geographic location, Djibouti’s medium-term economic trajectory will largely depend on its strategic planning and the availability of financial resources. With this in mind, in 2013 the authorities launched Djibouti Vision 2035, a long-term development plan aimed at transitioning the country into a middle-income nation. The policy aims to steer public and economic policy towards turning the country into a regional transport and financial hub in less than three decades.
Djiboutian officials have described the plan as a way of transforming the country into a new Dubai or Singapore – small but highly developed territories with sizeable clout in international commerce and finance. While this may seem a long way off for Djibouti, it is evidence of the country’s ambitious growth strategy. Implementation of the development plan will be based on five main development pillars: maintaining peace and national unity, a diversified economy, good governance, investing in human capital and regional integration. Crucially, securing these elements will require the country to take a dual approach that leverages its current economic growth rates, and extends their impact beyond the transport and logistics sector.
SPECIFIC GOALS: Consecutive years of robust growth – IMF figures show the economy has expanded at over 6% annually since 2014 – have already created tangible positive economic reinforcement.
Annual growth for 2018 and 2019 is estimated to sit at 6.9%. Nominal GDP, at $2.2bn in 2017, is projected to pass $3bn as early as 2022. Economic expansion has largely been driven by a focus on transport and logistics services, linked to the strong economic growth of neighbouring landlocked Ethiopia, which have allowed Djibouti to position itself as an essential platform for international trade. “The long-term perspectives for Djibouti are very solid. Ethiopia’s impressive growth shows few signs of slowing, and this is likely to continue to have a positive influence on Djibouti,” Mamadou Ndione, senior economist at the World Bank, told OBG. Long-term growth will be critical for the plan to achieve one of the strategy’s underlining goals: tripling the country’s per capita income by 2035.
Acting as Ethiopia’s main sea link has attracted investment into maritime and land transport infrastructure, with several ports currently being developed. But as Djibouti Vision 2035 stipulates, truly universal economic growth will only come through the sustained diversification the economy away from its reliance on Ethiopia’s strong growth.
BEYOND LOGISTICS: Although its rising reputation as a transport hub is unlocking rapid economic expansion, current investments into port operations are capital intensive, and have a limited impact on job creation. The government has therefore accounted for the need to expand into other economic activities in its policy outline. For example, when the Djibouti Vision 2036 strategy was devised, agriculture and fisheries accounted for 3.7% of GDP, and manufacturing 2.7% of GDP. They are expected to represent up to 5% and 7% of GDP by 2035, respectively. Commerce and tourism, with a combined share of 16.8% in 2012, are projected to represent as much as 20% of GDP by 2035.
These are some of the most critical sectors to develop, with the potential to create a considerable amount of jobs. In terms of fisheries and aquaculture, the government plan highlights an estimated 47,000 tonnes of exploitable fishery resources in Djiboutian waters, and aims to have an annual production of 10,000 tonnes by 2020, which could create up to 3000 jobs. In terms of tourism development, the authorities expect to move away from a business traveller-focused model to develop a leisure tourism segment that attracts 500,000 visitors per year by 2030.
Djibouti’s natural attractions and rising number of international air connections lend it to be a natural competitor in the global tourism industry. This, as a result, would require a comprehensive upgrade of hospitality infrastructure to internationally recognised standards (see Tourism chapter).
Another source of economic diversification is expected to come from the establishment of a manufacturing base. Taking advantage of international maritime connections, as well as the investments being channelled into free trade zones, could serve an optimal perfect platform to add value to many of the products that transit through the country. “You can bring products in, add value on to them through assembly or light manufacturing, and re-export those products,” Ndione told OBG.
This sector, however, continues to be challenged by a number of factors including the high cost of electricity and the lack of a large pool of trained human capital. That said, employment creation is one of the plan’s primary mechanisms to address high poverty rates. Djibouti Vision 2035 aims to create 200,000 new jobs over the 2013-35 period, a sizeable figure for a population of around 900,000 people. Consequently, the initiative is expected to bring about a reduction in the percentage of the population living in extreme poverty by a third, down from the current figure of 23%.
Two other critical options for economic development rest within the energy and telecommunications sectors. In order to reduce its dependence on fossil fuels, Djibouti is already studying the potential development of renewable energy generation. Wind, geothermal and particularly solar projects will help the country generate cleaner energy, and eventually reduce electricity costs for both businesses and citizens. When launched, Djibouti Vision 2035 called for a full switch to 100% renewable energy projects by 2020. Although that goal seems ambitious, ongoing investments in solar and geothermal energy generation will notably increase the proportion of the energy generated from renewable resources over the coming years, even if reaching the 100% target extends beyond 2020. For the expansion of the telecommunications industry, Djibouti Vision 2035 looks to take advantage of the country’s role as nexus for 11 submarine cables that connect Asia, the Middle East, Africa and Europe. The plan aims to establish a special zone for telecommunications development and potentially develop an ICT offshoring industry. Moreover, the authorities hope that the sector’s growth will indirectly strengthen the business environment, improve the quality and scope of government services, and help foster development in other industries through adoption of more sophisticated and integrated systems. (See ICT chapter).
FIVE-YEAR PLANS: In a bid to implement Djibouti Vision 2035 with a more simple and structured framework, policymakers have divided up the overall development strategy into smaller five-year plans. This, they hope, will facilitate the mobilisation of financial resources and lead to more thorough project implementation. The first of these plans, the Strategy for Accelerated Growth and Employment (Stratégie de Croissance Accélérée et de la Promotion de l’Emploi, SCAPE), was enacted to cover the 2015-19 period. Its total budget is expected to reach DJF2.4trn ($17.7bn) of which DJF1.8trn ($10bn) had been secured as of May 2018. Securing the necessary financing for the plan’s implementation will depend on a combination of loans from international institutions, grants from development partners and an increase in budgetary spending through a boost in fiscal revenue. The income derived from taxes rose from DJF52.6bn ($295m) in 2014 to DJF63.4bn ($368m) in 2017, according figures published by the IMF, and tax revenue is expected to climb further and surpass DJF95bn ($530m) by 2021. Maximising the revenue the government secures through taxation by broadening the country’s tax base will be necessary to ensure that the Djibouti Vision 2035 development plan receives adequate financing. “Additional revenue from sustainable and non-distortionary taxation is necessary to finance social and growth-enhancing projects and to service public debt,” the IMF stated in its latest report on the country, published in April 2017. One clear achievement reached under SCAPE is the improvement of domestic business conditions for all types of investors CHALLENGES: Proper management of the country’s growing debt commitments, expected to reach 87.3% of GDP in 2018, will be important for the successful implementation of Djibouti Vision 2035. An improvement in technical capabilities in financial and project management will also likely be required for the strategy to move forward as planned. However, additional risks might come from the Djiboutian economy’s inherent exposure to macroeconomic headwinds.
Because of the country’s high dependence on food imports, international price shocks can have an immediate effect on state finances. However, Djibouti is in a favourable position to transfer the favourable growth in its transport and logistics sector to other sectors. Moreover, improving working conditions and opportunities in manufacturing, fishing and tourism will help the authorities achieve their ambitious employment-creation goals over the medium to long term.
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