Major logistics infrastructure, a new free trade zone and industrial parks fuel economic expansion in Djibouti


As Djibouti establishes itself as a leading centre of international logistics, large investment volumes have been stimulating construction activity, notably in transportation and energy. In particular, port expansion, road development and the establishment of new power stations are expected to drive sectoral growth and support the development of the overall economy. In addition, the need to improve living conditions for the country’s population is providing motivation for a range of urban projects. Housing construction, as well as the expansion of electricity and water links across some of the country’s larger urban areas, is helping to bridge the gap between segments of the population.

Nevertheless, despite the broad range of works under construction or already completed, a range of obstacles face operators. These include the high cost of inputs arising from an underdeveloped domestic building materials industry, administrative delays and an insufficient pool of local human capital. While the continued expansion of the sector appears assured over the medium term, the ability of the government and major stakeholders to overcome these issues will determine the pace at which Djibouti is able to achieve its longer-term social and economic ambitions.

Sector Weight

Since the early 2000s Djibouti’s construction sector has played a pivotal role in facilitating development. In recent years Djibouti has been one of the top-performing African economies in terms of growth. The country’s GDP expanded by 6.5% in 2016 and was projected to grow by an additional 7% per year through 2017-18, according to the IMF.

To date this economic performance has been primarily sustained through the development of capital investment projects for new infrastructure. Although this activity has been largely supported by borrowing – which is already weighing heavily on the country’s budget – these investments stand to pay considerable dividends. The country has focused on the construction of assets with potentially long-term returns for the overall economy, which have the capacity to sustain economic expansion for many years to come.

The sector’s contribution in the Djiboutian economy has remained high and stable over the last decade, accounting for 11% of GDP in 2011 and 11.1% in 2016, according to the most recent figures from the African Development Bank. Furthermore, the primacy of the sector is expected to continue with Djibouti Vision 2035 – the government’s strategy for the transformation of the country into a middle-income state – expecting construction and public works to represent 14.4% of GDP by 2022 and 16% of GDP by 2035.

Energy Projects

Ongoing economic expansion will require the country to significantly improve and expand its electricity generation capabilities, however. In order to address this increase in demand several new power plants – most of them based on renewable energy generation – are being built. A €360m project is currently under way to build a solar energy plant in the Gran Bara region in the south of the country. The new unit is being built by the Switzerland-based firm Green Enesys, and is set to have a 300-MW capacity when it becomes fully operational. Construction began in 2016 and is expected to proceed in six different phases, with each completed phase providing 50 MW of additional capacity. Furthermore, work began on a geothermal energy facility at Lake Assal in July 2018. The project, which is set to cost up to $50m, is being financed by international development partners, and is initially expected to generate 100 MW of renewable energy when it comes on-line in 2020.

Other key construction projects are focused on the transportation of energy resources and water, which capitalise on both the country’s long-term demand expectations and on its geographical position at the centre of international trade lines. Approximately $4bn is being channelled to set up infrastructure to allow Ethiopia to export liquefied natural gas (LNG) to China, through Djibouti. The project, financed by Chinese contractor Poly-GCL Petroleum Investments, is set to include a liquefaction plant in Ethiopia, a 700-km gas pipeline through Djibouti and a LNG terminal in the country’s Damerjog port. The construction of the project is expected to reach completion in 2019.

Water Works

Due to the country’s naturally arid climate – with only 300 cu metres of renewable water resources – securing adequate supplies of drinking water has long proven a challenge. With rising consumption and increased demand as a result of improved urban sanitation and the expansion of housing developments, this issue is set to become increasingly acute. Nevertheless, in order to address these issues two large-scale works have been implemented. The first of these, a 320-km pipeline connecting Shinilé in Ethiopia to Djibouti’s major centres of Djibouti City, Ali Sabieh, Dikhil and Arta, came on-line in June 2017. The pipeline now provides up to 100,000 cu metres of drinking water per day. Work began on the project in 2015 and cost a total of $328m, with the construction being undertaken by Chinese construction giant CGCOC and financing being provided by a loan from the state-owned Export-Import (Exim) Bank of China.

Another project aimed at addressing the country’s water needs is the €63m desalination plant being built in Doraleh. The works are headed by a consortium made up of France-based Eiffage Génie Civil and Spanish firm Tedagua, and funded by the EU. Upon completion the project is expected to provide an initial capacity of 22,500 cu metres of water per day, with this figure set to eventually double to 45,000 cu metres. The plant facility is also set to include a storage tank with a 5000 cu metre capacity as well as an 8.5-km pipeline linking the plant to Djibouti City’s public water distribution system. Work began on the desalination plant in 2018 and it is scheduled to reach completion in 2020.


Alongside energy and water, the development of new housing is one of the government’s priorities, providing another avenue for the growth of the sector. Besides new housing to meet growing demand, increased work has also gone into the renewal of urban areas and the elimination of makeshift dwellings. This area has taken on a greater urgency with the rise of refugees fleeing crisis areas in the region – notably from Yemen – leading to a rise in average rental prices, as demand outstrips current supply.

The situation is acute, with the country facing a total deficit of around 30,000 homes, with 2500 to 3000 new homes needed every year, according to information provided by the government Housing Fund (Fonds de L’Habitat, FH). Currently, the sector is falling short of closing this gap, with the industry producing an average 700 new homes per year. Nevertheless, a rising number of agreements with international financing institutions is likely to considerably raise the this construction capacity over the coming years. For example, work began in February 2018 on a 840-unit housing project on the outskirts of Djibouti City, funded by a DJF4.9bn ($27.6m) grant from the Saudi Fund for Development. In addition, DJF3.7bn ($20.8m) of funding has been secured through a partnership with the Kuwait-based Arab Fund for Economic and Social Development to build a new 504-home residential project.

Alongside these projects to raise the country’s housing stock, a state programme is under way to redevelop areas of informal housing in and around the capital. The Zero Slums in Djibouti Programme (Programme Zéro Bidonville à Djibouti), which was first devised in 2013, will mobilise DJF100bn ($562.2m) to invest in 14 low-income neighbourhoods, primarily located in the Balbala suburb of the capital. The programme, which was initiated by President Ismaïl Omar Guelleh with the support of the World Bank, is set to channel investment into both house building and infrastructure, including roads, electricity and sanitation systems. The World Bank has already mobilised DJF4.4bn ($24.8m) to execute the first project of the programme.

“Alongside the strategy, we hope to be able to get other financial partners to finance similar projects developing basic infrastructure, such as those connecting water supply, electricity and roads,” Abdourahman Ali Ahmed, director of the FH, told OBG. “This will certainly enhance the living conditions of poor households dwelling in these neighbourhoods.”

Besides housing, other public investment projects are under way. In February 2017 the state secured the financing to build a major hospital to serve Djibouti’s health care provider, the National Social Security Fund. The total cost of the project is estimated at $80.3m and is set to be jointly financed by the government, the African Development Bank and the Islamic Development Bank. In addition to projects aimed at addressing the needs of less wealthy segments, work is also forging ahead in the luxury segment. For example, a large-scale development is taking place in Tadjourah, Djibouti’s second-largest city. The Gadileh Palm Village project aims to build 30 seaside villas, with the units expected to be 210 sq metres in size and cost roughly DJF23m ($129,000) each. The development will also include a 50-room-hotel, a mosque, a marina and retail areas.

High Rise

Even with the country’s high growth rates positively impacting the business environment, demand for apartment blocks and modern office space has remained low. This appears to be changing, however, with the China Civil Engineering Construction Corporation (CCECC) beginning work in January 2017 on a 23-floor twin tower, set to be the country’s tallest building upon completion. The project, which is expected to cost $70m and cover 42,000 sq metres, will serve as the firm’s headquarters in the country, and will provide up to 480 units to serve as both residential and office spaces. The space will also include conference rooms, sports facilities and as many as 260 parking spaces.

Transport Growth

The government’s development strategy has prioritised consolidating the country’s favourable position as an important global centre of logistics and trade. As such, much of the ongoing investment has focused on expanding and modernising the country’s transport infrastructure. New ports, railways, road renovation projects and free trade zones are set to significantly increase construction over the coming years. As with developments in other segments, many of these projects are being financed through Chinese loans and are consolidating economic integration between Djibouti and neighbouring Ethiopia.

Port infrastructure has been a particular priority for the country’s development plans, with three new facilities being completed in 2017. In June of that year, a new $90m port terminal, for the export of potash reserves from neighbouring Ethiopia, was inaugurated in Tadjourah. The facility was built by Chinese contractor Baoye Hubei Construction Group and has an annual export capacity of 4m tonnes. Another recently completed facility was the $570m Doraleh Multi-purpose Port, which came on-line in May 2017. Furthermore, the Port of Ghoubet, which required an investment of $64m, was also completed in 2017, and is being put to use exporting the country’s significant salt reserves.

In October 2016 one of country’s most significant infrastructure projects, a 750-km railway line between the Port of Djibouti and the Ethiopian capital Addis Ababa, was completed. The line cost a total $3.4bn and was constructed by CCECC and China Railway Group, and was 70% financed by Exim Bank. While the rail link is expected to support increased trade flows over the short term, it also has the potential to support longer-term development, with Ethiopia planning to construct an additional 5000 km of railway linking Sudan, South Sudan and Kenya, over the coming years.

Up in the Air

To support both land and maritime trade flows, air traffic is also set for expansion. In January 2015 the government signed a $599m agreement with CCECC to build two new airports. The largest of the two planned air facilities, Hassan Gouled Aptidon International Airport, is expected to be located in Ali Sabieh and include two runways, with the capacity to handle 1.5m passengers and 600,000 tonnes of freight per year. The smaller facility, Ahmed Dini Ahmed International Airport, is expected to be located at the international shipping intersection of the Seven Brothers Islands.

Nevertheless, both the projects have experienced delays, with the government announcing in October 2017 that it would restructure the projects through a fresh tendering process. While it remains unclear when these new facilities will come on-line, rising freight and passenger traffic at Djibouti-Ambouli International Airport will soon make this a major priority for the authorities (see Transport chapter).

Free Trading

Beside the development of new transportation links, the building of ancillary support infrastructure is set to provide another major boost to the sector. In July 2018 the first phase of what is expected to become Africa’s largest free trade zone upon completion opened for business. The Djibouti International Free Trade Zone, which is being built by Chinese port operator Dalian Port Corporation, will ultimately span 4800 ha and enable investors to undertake operations without paying property, income or value-added taxes. The zone is set to be jointly managed by the Djibouti Ports and Free Zones Authority and China Merchants Group, and is expected to cost a total $3.5bn. The final project is expected to reach completion by 2028.

Another large-scale industrial area is planned for Damerjog, on the southern coast. The development is set to encompass a multi-purpose port that includes a livestock terminal, refinery, storage tanks, dry dock, gas complex, and a jetty for refined and crude oil.

The livestock port is expected to include a 655-metre quay, with total freight capacity of 10m heads of livestock per year. In order to capitalise on this development, a total of $6bn of public and private investment has been set aside for a range of new facilities, including a cement factory, refinery, fuel warehouse, logistics area and a new power plant. Work on the site is scheduled to begin in the second half of 2018.

Buidling Material

Overall, the ongoing construction of the free trade zone, along with the building of infrastructure and industrial centres, can be expected to stimulate the local production of building materials. The development of domestic capacity may go some way towards reducing the cost of construction in the country, a factor that has previously caused issues for foreign companies investing in the sector.

Facilitating easier access to locally produced construction inputs forms part of the Djibouti Vision 2035 development strategy. The programme prioritises the creation and expansion of manufacturing capacity in such materials in order to reduce the reliance on imports and bring down overall building costs. While the country has made progress in this direction, challenges inherent to the region remain.

“Djibouti has always worked with European standards for building materials and construction techniques,” Soubaneh Said Ismael, director-general of the Central Laboratory of Building and Equipment, a subdivision of the Ministry of Transport and Equipment, told OBG. “This allows foreign investors and promoters to come and develop their projects on the spot. However, with its specific geological conditions and a very hot climate, the country still presents challenges.”

Local Resources

An additional issue for investors and a potential challenge for the government, in terms of utilising sectoral growth to meet its development goals, is the availability of trained local labour. Despite the broad array of large-scale infrastructure projects under way or already completed, the utilisation of local firms and workers has so far been limited.

This situation has resulted in part from a shortage of the necessary human resources – in terms of the engineering and management of the projects along with skilled construction techniques required – among the domestic population. It has also emerged from the fact that the lion’s share of investment has come from foreign partners, who have, in many instances, brought their own personnel and equipment with them. Nevertheless, as with the development of local building material production, this increased international investment does present considerable opportunities for domestic firms, along with considerable scope for the transfer of skills and know-how.

“Djibouti presents many opportunities in the construction sector; however, many of the parameters need to adapted in order for the country to fulfil its ambitions,” Prabal Chatterjee, marketing manager at international construction firm Fabtech, told OBG. “Having materials produced locally could boost the local ecosystem and help develop the Made in Djibouti brand. This would help professionalise its workforce and help it build a stronger position in the region.”


The construction sector can be expected to continue to play a pivotal role in the country’s ongoing economic expansion. Djibouti is making great strides in consolidating its position as an international logistics centre, with the upgrade and expansion of transport infrastructure, particularly in terms of ports, roads and railways. These moves are improving overall connectivity and supporting both regional integration and global partnerships. Djibouti is also making moves toward attracting business through free trade zones and industrial parks. Nevertheless, the country’s ability to harness these opportunities to increase domestic human capital and stimulate local production will prove decisive in meeting its overall development objectives.


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The Report: Djibouti 2018

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