Interview: Robleh Mohamed Barreh
How have events that impacted the global economy affected the transport and logistics industry?
ROBLEH MOHAMED BARREH: Three key factors have affected Djibouti’s transport and logistics industry: oil price increases, the Covid-19 pandemic and production restrictions in China. These elements together have resulted in significant inflation in the sector. Most of the inflationary pressures in Djibouti stem from energy prices, including oil and natural gas. The rise in oil prices has affected all transport sectors, from maritime to road and rail transport, which are highly dependent on oil. Adding to high oil prices, the pandemic significantly strained the global supply chains. Furthermore, China’s zeroCovid policy also had a significant impact; the combined effect of these three elements resulted in a 300% increase in maritime transport prices.
Since a large portion of Djibouti’s trade flows from Turkey and China, production disruptions in the latter impacted the transport and logistics sector in Djibouti. Reduced supply and high international demand have ultimately resulted in higher prices.
What steps can be taken to overcome the challenges facing domestic companies?
BARREH: Before 1997 most of Ethiopia’s trade was routed and conducted through Eritrea, and Djibouti accounted for about 30% of Ethiopia’s trade. After a conflict between Ethiopia and Eritrea, practically all of Ethiopia’s trade was rerouted through Djibouti, which has led to significant improvement in this industry.
As of February 2022 Ethiopia represented a market of 120m people that relies on products imported through Djibouti’s ports and transport-related infrastructure. However, the financial sector still has to evolve to better serve the needs of the transport and logistics sector. Three-quarters of Djibouti’s GDP is linked to transport and logistics. Most freight forwarders and logistics companies rely on credit for their working capital, with a turnaround rate of 30-45 days. Bespoke financial services targeted at these companies would boost local transport and logistics operations, which would feed back into the financial sector and help the wider economy deal with other challenges.
Another challenge the industry is facing today stems from external sources. Ethiopia’s internal conflicts have affected currency flows, particularly of US dollars. Currency controls result in diminished currency flows for trade as Ethiopia’s government imposes restrictions and prioritises certain sectors. The financial sector could offer customised products to overcome this challenge. Having customised services would lead to increased loanable funds in Djibouti’s economy.
In what ways have public-private partnerships (PPPs) improved the industry?
BARREH: PPPs have helped to digitalise various processes, significantly reducing administrative tasks and operational costs. For example, the Djibouti Port Community System (DPCS) allows the logistics community using ports and free zones to complete their billing and Customs clearance operations digitally. While some payments are still made in person at the Customs office. All of these payments and transfers are expected to be carried out online by 2025, further reducing operating costs. The DPCS system implementation is at 70%, and the benefits it brings are already evident.
Two areas that have the potential to be improved further with the help of PPPs are multimodal freight and regulatory frameworks. Djibouti can significantly improve its rail transport network through increased private capital. Additionally, PPPs are needed to increase investment in small ships, the loading and unloading of larger ships, and sea-air operations to enhance trade from ports to neighbouring countries. Djibouti has the potential to strengthen its position as a regional hub. Mandating trade quotas for local transport and logistics firms in the near future in preparation for international competition would also help the domestic industry.
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