Interview: Habon Abdillahi
What are the construction sector’s key strengths and drivers that underpin growth?
HABON ABDILLAHI: The construction sector’s main strengths are the country’s steady GDP growth and political stability. Between 2018 and 2022 this expansion has facilitated a cycle of construction in both the private and public sectors. Djibouti Vision 2035 and President Ismaïl Omar Guelleh’s blueprint for Djibouti provide a reliable roadmap of where the industry is going and how the private sector can assist in achieving the objectives of the government’s long-term development plans.
There are three main drivers of activity in the sector: the high urbanisation rate, a growing middle class and rising demand for hospitality services. The fact that around 80% of the population lives in urban areas makes the sector attractive for investment. An expanding middle class is contributing to a larger number of double-income households, which is driving up demand for home ownership over renting. Additionally, we are seeing more families interested in single-family homes that can be extended in the future, and an influx of emigrants returning to Djibouti with new skills and the means to buy property. Lastly, a boost in tourism investment signals growing confidence in Djibouti’s short- and medium-term environment. This trend is demonstrated by recognised brands, such as Accor — a French hospitality company — partnering with hotel groups like Fairmont to develop property in Djibouti City.
How can local construction players overcome funding challenges, and what strategies are being employed to mobilise capital in the sector?
ABDILLAHI: The main funding challenges are banks’ readiness to lend and cultural attitudes towards interest-bearing loans. Local construction players cannot rely solely on banks for loans, which results in slower activity and growth. Therefore, developers are often forced to rely on self financing for critical projects or collaborate with non-banking financial institutions.
Other challenges are mortgage length and perceptions about interest-bearing loans. Djibouti’s population is predominantly Muslim, so most individuals prefer Islamic financing with no interest on loans. Under these circumstances, Islamic banks provide loans only for short periods. For residential housing, these institutions often offer six-year loans. This practice presents an obstacle for individuals, especially those from the middle class, who are looking to finance an asset that is commonly paid over a period of 20 to 30 years.
A strategy that promises to support the construction sector and affordable housing is the participation of the Djibouti Sovereign Fund, which is spurring investment in the sector. The fund was launched in September 2020, and has been active in the real estate and construction market. The sovereign wealth fund’s presence has been well received by the private sector, which is exploring high-impact areas of investment with the largest multiplier effects for the sector and the economy as a whole.
To what extent does cooperation between the public and private sector stimulate the housing market?
ABDILLAHI: Public-private partnerships have been beneficial for fostering affordable housing and raising labour standards. Since 2013 there has been a marked improvement in the construction labour market. Previously, most companies relied on foreign workers to fill open positions. Today the sector has a large pool of local and qualified individuals.
This shift has much to do with initiatives to increase education and training through universities and vocational institutes in areas such as engineering, architecture and design. There is a healthy supply of local engineers graduating from the University of Djibouti, who are prepared and ready to integrate into the sector’s labour market. The private sector and universities have been collaborating to develop internships, with students often visiting construction sites several times a week in order to gain hands-on experience in the field.
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