Interview: Jama Hersi Abdi
Which elements are underpinning the resilience of the banking sector in Djibouti?
JAMA HERSI ABDI: The primary factors that have been contributing to the banking sector’s resilience are Djibouti’s sustained economic growth and political stability, as well as the continuing modernisation of the sector. The country has enjoyed consistent economic expansion in recent years, with GDP growth at 1.2% in 2020 and 4.8% in 2021. These figures incentivise investment in the banking sector and ensure its sustained operation. Moreover, the sector’s solvency ratio was close to 15% in the second quarter of 2022 – well above the required minimum – and the ratio of liquid assets to customer deposits was 74% during the same period.
Of particular importance is the government’s national solidarity pact, which aims to mitigate the adverse economic effects of the Covid-19 pandemic and decisions made by Djibouti’s central bank to support the economy. Despite increased public spending, the government was able to reduce its budget deficit from 2020 to 2021 and lower public debt, significantly increasing the supply of loanable funds. This allowed banks to grant maturity extensions and perform loan restructurings for companies affected by the pandemic. In terms of the banking sector’s modernisation, the authorities continue to roll out sectoral reforms such as the transformation of the nation’s financial infrastructure through an automated transfer system and electronic clearing house.
To what extent can digital tools help to accelerate financial inclusion in the country?
ABDI: Digital financial services are promising for the private and public sectors. Despite efforts to increase financial inclusion, only a small part of the population uses its financial means to conduct banking transactions. A primary constraint to applying digital solutions is the low rate of internet penetration. About 40% of Djiboutians had a mobile phone as of January 2021, but the mobile broadband access required to use digital payment services is available to 16% of the population. Because of this, it will be important for the banking sector to work closely with Djibouti Telecom, the country’s sole internet provider, to find solutions to these challenges. Internet access for all, with enough broadband to support digital banking, is a prerequisite for financial inclusion.
Despite these structural challenges, we are confident that Djibouti’s high urbanisation rate will help resolve them quickly, allowing the sector to increase financial inclusion with relative ease. The banking sector is ready to deploy digital solutions, such as the local mobile wallet Waafi, which allows micro-, small, and medium-sized enterprises to receive payments from channels like cards, accounts and wallets.
How is the sector leveraging Djibouti’s competitive advantages to attract foreign investment?
ABDI: Djibouti has exploited its geostrategic position to leverage areas of the economy such as ports and logistics, telecommunications and foreign military bases. These segments are intrinsically linked to international players, so the banking sector can assist in funnelling investment to key domestic economic sectors. Local financial services have much potential in terms of providing insurance services to vessels coming in and out of Djibouti’s ports, and they can assist in financing ICT infrastructure domestically and abroad. The banking sector can also facilitate the consumption of goods and services by foreigners living temporarily in the country.
The creation of the Djibouti Sovereign Fund to facilitate government-owned enterprises’ partial privatisation is expected to create additional financing opportunities for the domestic banking sector. The industry is getting ready to receive institutional investors, including foreign pension funds and regional banks that have excess liquidity to invest in Djibouti.
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