Djibouti has tapped into the advantages of its strategic location in the Horn of Africa, on the Bab Al Mandab Strait at the entrance of the Red Sea, with important implications for its ICT sector. Data cables that run through the country’s cable landing stations are connected to its data centres, feeding to neighbouring countries and other strategic industries that rely on advanced communications systems, such as ports and foreign military bases.
Djibouti’s economic growth prospects are greatly linked to its position as a digital centre in the continent and the wider region. In 2020 the service sector, including ICT, contributed 77% of GDP – a figure substantially higher than the manufacturing, agriculture, forestry and fishing sectors, which contributed a combined 6%. The digital economy could help to lower the general unemployment rate (28% in 2020-21) and that of youth between 14-24 years old (about 80% for the same period) figures that have remained consistent in recent decades.
The government has prioritised the ICT sector in Djibouti Vision 2035, the country’s long-term economic development framework, along with the shipping and logistics sector, and has courted greater private sector funding from abroad to develop key infrastructure. Other important strategies include the reinvigoration of the start-up ecosystem and partnering with international development agencies to spark new investment in the digital economy. These strategies align with the goal of transforming the country into a middle-income economy, as well as a regional transport and logistics leader.
Structure & Oversight
The ICT sector in Djibouti is one of the final remaining monopolies in the global telecommunications sector, the other in neighbouring Eritrea. Djibouti Telecom is the sole provider of mobile and fixed services in the country, including mobile 2G, 3G and 4G technologies, fixed-line voice, internet and data services. The company also offers xDSL access – a network of high-bandwidth transmission – to neighbouring Eritrea, Ethiopia and Somalia. Although Djibouti Telecom is undergoing strategic changes aimed at partial privatisation, it remained a government-owned enterprise as of late 2022.
Ownership of its assets has been transferred to the Djibouti Sovereign Fund (Fonds Souverain de Djibouti, FSD). The FSD was launched in September 2020 to facilitate the privatisation of state-owned enterprises and facilitate foreign direct investment. The FSD plans to sell a 40% stake in Djibouti Telecom to an international strategic partner in early 2023.
The FSD has been given a mandate to drive greenfield investment in telecommunications, digital infrastructure, financial services, general infrastructure and technology, among other strategic sectors, as part of a strategy prioritising investment in the digital economy. The privatisation of telecoms and other state-owned enterprises is gaining momentum and is expected to provide notable investment opportunities in the near future.
Performance & Size
The traditional lack of competition in the telecommunications sector has resulted in restrictive prices for most of the population. A 2020 World Bank study identified Djibouti’s mobile broadband prices at 9.3% of gross national income, the second highest in the Arab world. Djibouti has about 26 active mobile users per 100 inhabitants, and 59% of individuals used the internet in 2020. In 2021 there were 489,000 subscribers of mobile-cellular subscriptions, or 44% of the population. Reversing an upward trend, fixed line subscriptions are declining. In 2018 there were over 37,000 such subscriptions, a figure that fell to just over 27,000 in 2021, representing a 27% decline. This is partially the result of an improvement in mobile phone services, often a substitute for fixed telephone and internet services in emerging markets. Recent years have witnessed an increase in mobile subscription rates – from 38% in 2019 to 44% in 2021 – and mobile broadband subscriptions – from 19% in 2018 to 26% in 2021.
The partial privatisation of Djibouti Telecom and other government-owned enterprises, along with sustained improvements in ICT indicators, could have significant spillover effects thanks to emerging opportunities on the continent, as start-ups from Egypt, Kenya, South Africa and Nigeria could find a home in Djibouti’s ICT and logistics services. Furthermore, Djibouti Telecom’s outward-oriented strategy has created notable opportunities for investment in developing and upgrading the country’s internet backbone, as well as its terrestrial cables that connect to neighbouring countries.
However, digital entrepreneurship is still in its infancy. The main barriers to an entrepreneurial ecosystem are policies restricting competition and deterring domestic investment in digital coverage and technologies. The ICT sector has significant potential for growth, which will have important implications for overall economic performance, productivity and innovation. This will particularly be the case for micro-, small and medium-sized enterprises (MSMEs), as well as the youth population.
Subsea Cables
Djibouti is the fourth-most-connected country in Africa and a leader in connectivity in East Africa and the Horn of Africa. Subsea cables running through Asia, Africa and Europe connect the country to the world. A total of nine subsea data cable systems have been laid. Three more are set to be completed in the coming years, including Africa-1 and India-Europe Xpress, slated for 2024; and SEA-ME-WE-6, projected for 2025.
The most recently constructed cable, known as the 2Africa cable system, was built by a consortium led by Meta, Facebook’s parent company, and companies like China Mobile International, Orange, Vodafone, Telecom Egypt, Saudi Telecom Company, MTN GlobalConnect and West Indian Ocean Cable Company. Approximately 45,000 km long, the 2Africa subsea cable is the longest fibre optic cable in the world, connecting 33 countries in Africa, Asia and Europe with a total of 46 landing points.
In May 2022 Djibouti Telecom announced that 2Africa had been connected to the capital, marking an important step in a project that is expected to contribute significantly to the country’s digital transformation. This cable is particularly relevant because Djibouti Telecom will host the line in a new cable landing station and a new Tier-3 data centre.
Salient in this digital infrastructure is the neutrality of both, allowing cable landing services to subsea cable operators and international telecoms carriers, advancing Djibouti’s ambitions to become a strategic centre for digital traffic into Africa and a global cable interconnection point. Yet, the potential of the domestic ICT sector still remains untapped.
Data Centres
Since 2013 the country has housed the Djibouti Data Centre, the first data centre in the Horn of Africa and the first Tier-3 data centre in East Africa. In October 2021 data centre services company Wingu.Africa partnered with Djibouti ISP TO7 Network to build a new carrier-neutral data centre and cable landing station in the capital. While the centre was expected to be completed in April 2022, it had yet to be inaugurated as of January 2023.
Djibouti Telecom built and operates two cable landing stations – the YAC A cable landing station and the Haramous cable landing station. The new cable landing station under construction as of early 2023 in Djibouti City, the RAS DIKA cable landing station, is set to host 2Africa and the forthcoming Africa-1, India-Europe Xpress, SEA-ME-WE-6, PEACE and Blue-Raman cable systems.
As part of the Horn of Africa initiative, countries including Djibouti are encouraged to participate in a project focused on regional digital integration across connectivity, data and e-commerce markets. The World Bank projected a $20m expenditure in 2023 for that proposed activity.
Investors are taking note of these developments. Italy-headquartered Sparkle, a telecommunications service provider, announced in July 2019 that it is establishing an internet provider facility in the Djibouti Data Centre to support its expansion in East Africa and South Africa. IX Reach, a global provider of wholesale network solutions, opened a point of presence at the data centre in February of the same year, enabling it to provide cloud software-defined network connectivity services.
The presence of such companies will facilitate the creation of a dynamic and efficient network, allowing different sectors to use technologies such as the internet of things and artificial intelligence to boost productivity and efficiency. Terrestrial cables also enhance the country’s aspirations to become a recognised digital powerhouse and provide a market for its data centres’ services. Djibouti serves as the main gateway for international traffic to Ethiopia and northern Somalia via terrestrial cables to Addis Ababa and Hargeisa. In September 2022 Djibouti and South Sudan signed a memorandum of understanding to lay fibre optic cable from Djibouti to South Sudan’s capital, Juba, via Ethiopia.
Transformation
Djibouti Vision 2035 set the national strategy for ICT sector development and adopted a 10-year plan to be implemented across two five-year phases, beginning in 2014. The first phase focused on four key sectors: transport and logistics, ICT, tourism and fishing.
The second phase of the strategy, which is currently being implemented, aims to boost inclusion, connectivity and regional integration, with the private sector as a critical enabler. The country has successfully become a key digital centre on the African continent, with its connectivity comparable to South Africa, a regional leader. With nine subsea data cables and two cable landing stations, Djibouti served over 50 telecoms operators and effectively connected 90 countries as of late 2022.
The current digital transformation could enable and support initiatives, such as the Technologies for African Agricultural Transformation programme led by the African Development Bank, to increase productivity and investment in infrastructure, enabling agribusiness to operate in the region. The use of ICT can dramatically improve the current business and delivery models. In Nigeria, for example, a digital wallet system has been set up to serve as a channel of distribution for subsidies, eliminating intermediaries and overhead costs. The government will play an essential role in starting the process of bringing about digital transformation.
Digital Economy
Between June 2020 and December 2021 the government underwent a digital transformation in e-services to improve the delivery of remote administrative services and reduce wait times. The National Agency for State Information Systems was in charge of developing and implementing a secure data exchange between the government, and its registries and databases at the cost of over €480,000. The agency partnered with Roxnet, Gofor and Upmind – international firms specialising in data exchange, digitisation, commerce and billing – to modernise the public administration. As of early 2023, 95 e-government services were available through its website. As a result, the government is now able to integrate new information systems between its agencies. The transport and logistics sector has also undergone a significant digital transformation through the launch of the Djibouti Port Community Systems. The platform, which launched in 2018, provides a single window to facilitate various processes (see Transport & Logistics chapter).
In support of Djibouti’s digital economy, the World Bank approved an extra $10m in credit in December 2021 for the Djibouti Digital Foundations Project, which aims to accelerate the country’s digital transformation and build a more inclusive digital economy. Some 65% of the programme’s funds target ICT services, while 23% are earmarked for public administration and the remaining 12% target ICT infrastructure. This is in addition to the 2022-26 Country Partnership Framework (CPF), announced in August 2021, and the Institutions-Connectivity-Inclusion programme for 2020-24.
Importantly, at least $85m of the World Bank’s $258m portfolio in Djibouti as of late 2021 is directed to spurring the digital economy, with $20m earmarked for potential activities at the regional level. Some $45m is earmarked for the Second Djibouti-Power System Interconnection Project and an extra $10m has been set aside for the Skills Development for Employment Project.
The scope of digital reform falls under a new ministry established in 2021, the Delegate Ministry in charge of Digital Economy and Innovation, enacted in July 2022. In April 2022 the ministry launched a roadmap to bring about reforms aimed at increasing productivity, efficiency and sustainable growth.
Start-Up Ecosystem
The country’s digital transformation could enable it to leapfrog its start-up ecosystem development and become a globally recognised digital centre, leveraging its subsea and terrestrial connectivity to create a new generation of tech-oriented jobs for its graduates.
As part of the CPF, in August 2021 the World Bank earmarked $4m for business park development, aimed at creating 200 new firms and more than doubling the number of firms registered and led by women. This is in addition to ensuring 3000 entrepreneurs receive training certification. Furthermore, the Digital Foundations Project looks to develop a favourable environment for the gradual introduction of competition and private-sector investment in ICT. The project is expected to help to build the digital ecosystem by fostering digital literacy, introducing market competition, and improving the quality and cost of utility services for businesses.
These efforts complement the country’s goal of mobilising private capital. Moreover, the government’s commitment to improving the domestic business environment has resulted in the creation of one-stop shops for business registration; a new civil code; amendments to the fiscal code to lower the costs of starting a business; and the establishment of a credit fund for MSMEs.
Financing
Financial inclusion remains a crucial constraint hindering economic development in Djibouti and Africa as a whole. The banking sector is a vital contributor to start-up growth, as financial technology companies can work to develop innovative ways to build synergies between a growing ICT sector and traditional banking. In mid-2021 FIM Partners, a UK investment management company focused on emerging markets, and the Egyptian investment bank EFG Hermes raised $200m with the aim of investing in digital firms in high-growth markets throughout the Middle East and Africa.
A successful digital transformation in Djibouti could catalyse the development of an ecosystem of digital platforms, further reinvigorating transport, logistics and distribution, as well as business process outsourcing and data hosting. It also would support the transition to a knowledge economy via knowledge process outsourcing such as analytics.
Outlook
Djibouti saw robust real GDP growth of approximately 7% from 2014-19, with the figure dropping to 1.2% in 2020 and rising to 4.8% in 2021. Although the current ICT market structure restricts the emergence of a competitive digital economy, Djibouti Telecom possesses an international advantage that it can leverage domestically. One key barrier to future growth is the high cost that the Central Bank of Djibouti incurs for network access, hindering the development of a national payments system. Other barriers include a lack of technical expertise, insufficient funding, as well as legal and regulatory issues.
Despite these shortcomings, vital reforms are under way, and the ICT sector is likely to flourish once they are fully implemented. The government has been taking concrete steps towards liberalisation of the ICT sector and improving the business environment. For example, in 2019 the government commissioned the UN Development Programme to prepare a roadmap to open its ICT sector to competition, increase Djibouti Telecom’s capabilities to compete in an open market and set up a sector regulator. The roadmap was officially launched in April 2022 by the prime minister.
In terms of regulations, a law establishing the Multisector Regulatory Authority (Autorité de Ré gulation Multisectorielle de Djibouti, ARMD) was passed in December 2019. The ARMD intends to regulate telecommunications, postal services and energy, and will serve as an essential prerequisite for ICT market liberalisation once operational. More importantly, the transfer of Djibouti Telecom’s assets to the FSD in preparation for partial privatisation is a reliable indicator of the reality of these promises.
In order to boost digital competency across the country, digital learning and skills development programmes are being implemented as part of reform efforts under the purview of the Ministry of Education and Vocational Training. In 2019 the Ministry of Communications, in charge of Post and Telecommunications awarded Bahrain’s iibGroup, a holding company, a licence to construct a fibre optic cable to support networking and connectivity.
Such developments, along with growing interest from private investors in Djibouti’s domestic broadband market and network, signal that a positive future is in store for the local ICT sector as it becomes more inclusive and competitive. Ultimately, the development of the sector is likely to have a multiplier effect on productivity, sustainability and innovation in other areas of the economy, most notably in the country’s burgeoning start-up ecosystem.
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