Interview: Slim Feriani
How do you assess the role of the FSD in strengthening the diversification of the economy?
SLIM FERIANI: Creating new engines of inclusive wealth through economic diversification is key to the National Development Plan 2020-24. The FSD furthers this goal by improving governance and catalysing investment in strategic economic sectors, such as sustainable natural resources and energy, digital infrastructure, financial services, tourism, health care and education. This is important since port and logistics activities account for at least three-quarters of Djibouti’s revenue base.
As a conduit for 90% of internal and external Ethiopian trade, Djibouti is vulnerable to its neighbour’s economic cycles. Consequently, the national investment strategy prioritises diversification and risk management to foster long-term resilience against external shocks, such as regional conflict. This ethos informs the FSD’s mandate, which permits 60% of portfolio assets to be invested overseas, facilitating both asset and geographic diversification for maximum investment impact.
The diversification agenda has many strands, including increasing the contribution of tourism and digital services to overall GDP. For example, pre-Covid-19 tourism revenue accounted for a median of 8% of GDP across African countries, with the figure at 3% for Djibouti, so more investment is required to bridge the gap. Similarly, with its nine subsea cables, Djibouti has the infrastructure to undergo a transformation similar to Marseille, which now generates more revenue from digital services than from its port and logistics activities.
To what extent has the structure of the FSD been informed by the evolution of global funds?
FERIANI: The FSD can capitalise on the second-mover advantage by learning from the well-trodden path of successful institutions. The academic endowment funds of US universities such as Harvard and Yale, and Australia’s superannuation fund are examples of diversified multi-asset class and multi-sector investments that yield consistent annual returns with a moderate level of risk. The FSD has worked to emulate Temasek, Singapore’s sovereign wealth fund, in line with our ambition to be an enabler of long-term sustainable growth. Like Singapore, Djibouti is relatively small but occupies a critical space in the global maritime ecosystem.
Singapore has limited natural resources and started Temasek with Singtel, Singapore’s telecom company, in 1974. The FSD’s portfolio features 100% ownership of Djibouti Telecom (DT) and a 40% share of Great Horn Investment Holding. The national holding company owns 27 firms, including all ports and free zones, and accounts for a significant share of the economy. Another entity under the purview of the FSD is Electricité de Djibouti, the government-run electricity company. Together, these three businesses have a historic value of more than $1bn. With the pending acquisition of 40% of DT’s shares by an international partner, the telecom has particular strategic investment value in its capacity to leverage Djibouti’s nine subsea cables to create a connectivity hub for African and global markets.
What is the value proposition of investing in Djibouti’s economic potential?
FERIANI: Djibouti’s investment value proposition is informed by several factors, including its location at the mouth of the Red Sea, as well as its political and financial stability. The country’s currency has been pegged to the US dollar at a rate of roughly DJF178:$1 for the last 20 years, dispelling the foreign exchange risk perception that often typifies emerging markets.
Coupled with multiple free zones and an open trade regime, Djibouti’s investment opportunities and economic influence belie its size, manifesting in a projected annual growth of around 8.5% by 2025. This will largely be driven by the FSD’s $1bn pipeline, in line with the realisation of Djibouti Vision 2035. Lastly, the political will to support developmental objectives has created a environment that is conducive to maximising returns.