Situated on the Gulf of Aden on the Horn of Africa, Djibouti serves as a vital trade centre for the Middle East and East Africa. With several major ports, it connects landlocked Ethiopia and its neighbours to major trade routes to Europe and Asia. Transport and logistics has been recognised by the government as a strategic sector for growth and has helped Djibouti attract increased international interest in recent years, bringing higher levels of foreign investment to the sector. As the country invests in new air, sea, road and rail infrastructure, greater economic development is expected to follow, helping it deepen regional ties in line with the goals of Djibouti Vision 2035.
A key element of the country’s ongoing infrastructure development plans is its continued efforts to develop ports, specifically through the Djibouti Ports and Free Zones Authority (DPFZA) and its investment arm, the Great Horn Investment Holding (GHIH), which was established by presidential decree in December 2016. Continuing investment in mega-projects linking ports with airports, roads and railways is designed to allow the country to maintain its competitive edge over other ports in the region and take advantage of opportunities to integrate multi-modal transport solutions into its cargo activities. This should further enhance Djibouti’s trade flows with landlocked neighbours and create links to emerging industries that are located near its ports such as bulk goods packaging, renewable energy, and oil and petrochemicals, among others.
Structure & Oversight
The Ministry of Equipment and Transport oversees the implementation of road, rail, maritime and air transport infrastructure policy. It is also responsible for the management, operation, maintenance and renovation of public facilities. The railway connecting Djibouti and Ethiopia, the ports, the Djibouti-Ambouli International Airport, the Djibouti Roads Agency and the Civil Aviation Authority fall within the ministry’s purview.
The government of Djibouti is working to establish the country as a major commercial and shipping centre for East Africa. Having identified transport and logistics as a priority sector in Djibouti Vision 2035, the country has begun to take steps to encourage greater private and foreign investment in the development of the sector. Since 2018 the government has introduced tax, labour and financial reforms to encourage investment. The introduction of an online registration process for companies, as well as the Djibouti Port Community Systems (DPCS) platform, has made it easier to do business.
In 2001 the government established the National Investment Promotion Agency (Agence Nationale pour la Promotion des Investissements, ANPI) to modernise the regulatory framework for investment, and support investors by providing information and streamlining administrative procedures. While foreign businesses have the same rights as local companies, due to complex administrative processes many international investors partnered with local companies to enter the market in the past.
In addition to ANPI, the Secretariat of State in charge of Investment and Private Sector Development was established in 2021 to implement policies related to business and oversee private sector development. It works in partnership with the Ministry of Economy and Finance to enhance Djibouti’s business competitiveness at the international level. It also seeks to improve administrative processes to make bureaucratic procedures more straightforward.
Performance & Size
With approximately 2500 ships passing through the Port of Djibouti per year, the small African country has already begun to establish itself as a leader in regional and international trade. Around 30% of global merchant ships travel through the country’s waters, helping it attract foreign direct investment in infrastructure and commercial projects in its transport and logistics sectors.
Djibouti is viewed as a secure area in a region that struggles with conflict, allowing its international partners to access East Africa and carry out trade safely. It is home to five overseas military bases – belonging to China, France, Italy, Japan and the US – and India and Russia, among others, have expressed interest in opening installations in the country. Armed forces in the region are focused on enhancing regional security and supporting global anti-piracy efforts to make Djibouti’s waters and surrounding shipping routes safer for incoming traffic.
Situated on the Bab Al Mandab Strait and at the intersection of the Red Sea and the Gulf of Aden, Djibouti provides a vital gateway to the Suez Canal, one of the busiest shipping routes in the world. In 2020 transport was Djibouti’s most imported and exported service, making up 53.4% ($615m) of exported services and 85% ($523m) of imported services. Although 7.2% growth was forecast for 2021, GDP rose by 4.8% due to the effects of the Covid-19 pandemic, compared to 1.2% in 2020. Services accounted for around three-quarters of GDP and roughly 14.6% of exports in 2020. The IMF expects GDP growth to increase to 4% in 2023 from 2.5% in 2022. Djibouti has also improved its Logistics Performance Index score – the World Bank’s interactive benchmarking tool – from two out of five points in 2007 to 2.8 in 2018.
Ethiopia, a landlocked neighbouring country, has long relied on Djibouti’s ports for its trade. Indeed, an estimated 90-95% of Ethiopia’s imported goods transit through its neighbour. Much of the expansion in Djibouti’s trade has been supported by the traditionally high demand for imported goods in Ethiopia, with the total value of imports increasing by 12.5% on average per year over the last decade, rising from $4.8bn in 2010 to $14.4bn in 2015.
As the second-most-populous country in Africa after Nigeria, with 110m inhabitants, Ethiopia has driven trade in East Africa despite years of difficulties due to civil conflict and the pandemic. Between 2004 and 2019 Ethiopia had one of the world’s fastest-growing economies, averaging a GDP growth of 9.5% per year. It is expected to expand further as it rebounds from the pandemic, supporting economic growth in Djibouti as the two governments work together on several infrastructure projects.
Free Zones & Memberships
The Djibouti Free Zone (DFZ), in operation since October 2004, has helped to attract significant investment in the sector. It spans over 40 ha in Djibouti City and includes integrated office space, warehouses, light industrial units and hangars. Around 180 companies from roughly 47 countries operate in the DFZ, and businesses operating there are exempt from corporate tax.
The Djibouti Damerjog Industrial Development (DDID) free zone, located close to the border with Somalia, was approved in 2016 and is already partly operational. Once complete, the DDID will include a multipurpose port, a liquefied natural gas terminal, a livestock terminal, dry docks, a ship repair area, a power plant and a manufacturing facility for construction materials. In 2020 the DPFZA signed five investment agreements for $2.5bn with several Chinese multinational companies to finance construction work in the DDID for a floating refinery and a steel industry, among other facilities.
Djibouti has beneficiary status under the African Growth and Opportunity Act – a piece of legislation initially passed in May 2000 that provides duty-free treatment of goods from designated sub-Saharan African countries in the US – making it qualified to benefit from preferential trade benefits. The country’s membership in several international organisations, including the UN, the IMF, the World Bank, the World Trade Organisation, the Arab League, the Organisation of Islamic Cooperation and the Intergovernmental Authority on Development, makes it an attractive trading partner.
Roads
Due to successive projects undertaken by the Djiboutian government, the road network has increased from 700 km in 2010 to 2900 km as of 2022. The development of new routes, such as the Tadjoura-Balho north corridor and the Djibouti-Loyada road, has enhanced connectivity and trade between Djibouti, Ethiopia and Somalia, as well as other landlocked countries in the Great Lakes region.
The governments of Ethiopia and Djibouti have worked together to advance the Ethiopia-Djibouti Transport Corridor Project. The corridor is expected to improve logistics and road connections between seaports and Ethiopia, as well as deepen regional integration in trade transport. The tender for phase one of the corridor project was approved in 2019, which includes the construction of 60 km of a fourlane thruway, with the project’s completion planned for 2026. When finished, the motorway will stretch 126 km from Adama to Awash in Ethiopia.
Funding is set to come from an African Development Fund grant, expressed in terms of unit of account (UA), the reporting currency used by the bank. Ethiopia received funds of UA69.6m, which was equivalent to around $92.7m as of February 2023, and Djibouti was granted U3.8m ($5.1m). The Ethiopian government also contributed approximately UA108.2m ($144.1m) towards the project.
The development of the northern 112-km Sheikh Sabah Road connecting the city of Tadjoura with Balho on the Ethiopian border and continuing to Mekele in the north of Ethiopia is expected to help boost trade. It is designed to accommodate 60-tonne lorries, alleviating congestion on Route National (RN) 1. The road is expected to handle an eventual capacity of 100m tonnes of goods annually.
Rail
The rail network in Djibouti has seen significant investment in recent years, with the century-old Ethio-Djibouti railway replaced with an electrified rail line. The Addis Ababa-Djibouti Railway connects Djibouti with landlocked Ethiopia, enhancing regional import-export activities. The $3.4bn, 752-km, single-track rail was funded by a loan from the Export-Import Bank of China. The route, which includes industrial parks and dry ports, has been operational since January 2018, reducing travel time between the two countries from two to three days to 10 hours, speeding passenger and freight travel, and cutting costs by at least one-third.
The government established the Ethio-Djibouti Railway company in 2017 to manage the country’s new rail infrastructure. The China Railway Group and the China Civil Engineering Construction Corporation (CCECC) were contracted to build the railway, the construction of which started in December 2012. As such, operations will use Chinese technology and standards, which are increasingly recognised to be in line with international standards.
New railway construction corresponds with the government’s aim to establish Djibouti as a regional trade centre, leveraging its attractive position as part of the free trade market established by the African Growth and Opportunity Act. While 6m tonnes are expected to be transported in 2023, the country has an annual capacity of 24.9m tonnes of freight in anticipation of future demand levels.
The railway is the first step towards the ambitious development of Ethiopia’s planned 5000-km rail network. The country hopes to establish connections to Kenya, Sudan and South Sudan to enhance trade and travel in the region. However, there have been concerns surrounding the reliance on Chinese investment in the building of the new rail line. The project had to restructure its debt in September 2022 because of underuse attributed to power shortages. Despite these challenges, the new link is expected to support Djibouti’s aims of becoming a regional leader in trade and manufacturing, helping the country attract a greater amount of foreign investment.
Air
In line with Djibouti Vision 2035, the government approved the construction of two new international airports at a cost of $599m. Following significant international interest, the development of the Hassan Gouled Aptidon International Airport was temporarily awarded by the DPFZA to French consortium Egis Group and ADP Ingénierie in June 2021. In March 2022 an agreement was struck between the DPFZA and Paris Aéroport to co-finance the construction of the new airport. The new airport will be built south of Djibouti City in Bicidley and is expected to have a annual capacity of 1.5m passengers and 100,000 tonnes of freight. The airport is also set to include a cargo terminal for air and sea freight.
The second airport, Ahmed Dini Ahmed International Airport, is being built in close proximity to the Seven Brother Islands. This air link is expected to enhance access to areas of the country beyond Djibouti City, aimed at promoting tourism to coastal destinations. It is set to have an annual capacity of 350,000 passengers when it opens.
Air Djibouti, the country’s first and only national airline, was originally launched in 1963. The airline relaunched cargo operations in 2015 before adding passenger services in 2016 with a new route to Mogadishu, Somalia. The GHIH is the majority owner of the company, at 70%, while the Djibouti-Ambouli International Airport holds the remaining 30%. In addition to boosting its freight capacity and enhancing prospects for cold chain logistics, renewed flight operations should facilitate the country’s goal to welcome 500,000 tourists annually by 2030.
Ports
The shipping industry has been a key driver of economic development. Its ports are on two of the three busiest shipping routes in the world, and are seen as key to connecting Europe and Asia with Africa. The Port of Djibouti ranked first overall in sub-Saharan Africa and 19th globally out of 370 ports in the World Bank’s Container Port Performance Index in 2021 for its administrative approach and 24th globally for its statistical approach. The leading variable in this index is the total port hours a ship spends between reaching a port and leaving it after completing its cargo exchange.
Since 2000 Djibouti has invested heavily in developing six new ports, primarily established to support growing demand from Ethiopia. The Doraleh Multipurpose Port, and the ports of Ghoubet and Tadjoura were all inaugurated in 2017, expanding Djibouti’s handling capacity and allowing for the trade of raw materials, minerals and energy products. Port facilities in Djibouti have a handling capacity of 1.5m twenty-foot equivalent units for containers, equating to 10.5m tonnes of general goods.
Major developments in 2022 included the expansion of the Doraleh Multipurpose Port’s capacity, as it is now able to unload over 22,000 tonnes of bulk wheat and 200 units of vehicles in a day; the completion of an integrated rail service with containerised and cargo-loading operations, for an annual capacity of 2m tonnes; the implementation of a new global strategy for the year 2023 to double the transfer of goods by rail; and the full operation of a five-track rail terminal for goods, vehicles, containers and bulk cargo. The port also has a 27,515-sq-metre livestock terminal, the current capacity of which is nearly 6000 head of livestock. Looking ahead, there are plans to upgrade existing equipment to provide additional transporters and mobile bagging machines for dry bulk operations, and increase capacity for vehicle trans-shipment to encourage companies in the free zone to use rail as a means of vehicle transport.
DPFZA
The establishment of the DPFZA in 2004 has helped to streamline activities in the transport sector. To simplify processes and reduce costs, the government has put the DPFZA in charge of all ports, airports, international road corridors and free zone activities. Via the GHIH, the DPFZA invests in projects that support the government’s goal of making the country a significant economic, trade and transport leader in East Africa. The GHIH was established by presidential decree in December 2016 in order to develop multi-modal transport systems in rail, aviation, road and maritime industries.
Within the DPFZA’s investment portfolio is the terminal management company for the Doraleh Container Terminal, Société de Gestion du Terminal à Conteneurs de Doraleh. The container terminal is Ethiopia’s primary access point to shipping lanes. The railway station at the container terminal started operations in November 2019, with the ability to accommodate up to six trains per day, and the station is directly linked to Ethiopia by rail. Other features of the container terminal include new cranes and an extended container yard, enabling the accommodation of greater volumes of international cargo.
As part of the country’s modernisation and digitalisation efforts, the DPCS offers online services for local and international companies to manage their administrative activities, as well as automates port and logistics processes to reduce administrative time and costs. The DPCS has more than 2000 connected users. In 2021, 26 shipping agencies, more than 100 transit companies and more than 600 registered free zone companies recorded transactions.
Furthermore, the DPCS connects strategic infrastructure – such as the Doraleh Multipurpose Port, the Port of Tadjoura and free zone operators – with the DPFZA, offering 60 digitalised services. These services are currently available to stakeholders, including shipping agencies, freight forwarders, free zone companies, road management agency Djibouti Ports Corridor Road and Ethiopian customers. Once integrated with Customs clearance software ASYCUDA, shipping agencies can finalise their Customs documentation through the DPCS platform.
The DPFZA has been working with international partners on a three-phase port development project. The Djibouti International Free Trade Zone (DIFTZ) is set to include high-speed telecommunications, power and water infrastructure; a one-stop service centre; an office building; a hotel; a Customs office; and roads and parking lots. The DIFTZ will provide companies with tax exemptions, reduce restrictions on foreign labour and offer competitive water and electricity rates. A $370m, 240-ha pilot zone became operational in July 2018. Upon completion, the DIFTZ is expected to be the largest free zone in Africa, covering 4800 ha. The project focuses on developing several industries, including logistics, marine, construction and automotive.
Energy
Djibouti’s energy, oil and petrochemicals sectors are being developed in parallel with the country’s multi-modal ports, free zones and industrial zones. The Damerjog Liquid Bulk Port (DLBP), construction of which began in September 2020, will be capable of accommodating the latest generation of vessels, helping Djibouti become a more prominent trading centre for oil products in East Africa’s petrochemicals industry. As part of the DDID mega-project, the DLBP consists of an offshore jetty connected to onshore storage facilities. This will serve multiple end users, enabling them to load and unload various petrochemicals products to and from storage facilities located inland. The jetty is located around 3 km from the coast and is attached to the mainland by a causeway, providing access for vehicles and pipeline services. It is designed for the berthing of two ships, one with a deadweight tonnage of up to 100,000 and the other with up to 30,000, with an annual throughput capacity of over 13m tonnes.
In line with the Djibouti Vision 2035 goal of generating 100% of the country’s energy from renewables by 2030, the Ghoubet wind farm is being developed by a consortium composed of the GHIH, the Africa Finance Corporation (AFC), Climate Investor One (CIO) and the Dutch Entrepreneurial Development Bank (FMO). The initiative includes the design, construction, operation and maintenance of a 60-MW wind farm in the Arta Region, located along the southern coast of the Gulf of Tadjoura. The project is expected to launch sometime in 2023.
The DPFZA, through the GHIH, has been active in financing projects to support the shipping industry’s growth. One such initiative is the Djibouti Shipping Company, which was established in February 2017 to strengthen the country’s geostrategic position as a regional gateway and centre for the liner industry. It operates regular monthly trade routes linking ports in Turkey with Djibouti and the ports of Berbera, Mogadishu and Kismayo in Somalia, carrying out shipping services to Ethiopia and South Sudan via Djibouti. Red Sea Bunkering, a GHIH subsidiary, was established in July 2015 as an exclusive bunker company in Djibouti’s territorial waters. It formed a strategic alliance in October 2021 with Denmark-headquartered Bunker One to supply a range of fuel and marine gasoil, with the objective to reinforce Djibouti’s position as one of the region’s main bunkering centres.
Upcoming Port-Related Projects
Multi-modal freight transport is being developed to reinforce sea-air cargo, which saw a significant increase from roughly 64 tonnes in 2021 to around 222 tonnes in 2022. Sea-air transport is currently serving 14 countries and 16 cities, and particularly useful for goods travelling between Ethiopia and China as multi-modal freight to and from China via Djibouti is expected to save shipping companies eight hours by air and five days by sea. Furthermore, the Djibouti Ship Repair Yard, which is jointly financed by the GHIH and the FMO, will set up a dry dock capable of lifting and maintaining out-of-water ships up to 217 metres in length and 37 metres in width. In addition, the construction of the East Africa International Special Business Zone began in October 2020. The project is being developed in partnership with China Merchants Group and the DPFZA. The blueprint is for the zone to be developed over six phases, with the first one expected to be completed within 10 years at an estimated cost of $513m.
In August 2021 the DPFZA signed a memorandum of understanding (MoU) with a consortium of Moroccan and Egyptian companies to build a new 110-km corridor road, RN 18, between the Port of Djibouti in the east and RN 5 in the west. This is expected to alleviate traffic on RN 1 and reduce the distance from Djibouti City to the town of Guelile in the country’s south near the Ethiopian border.
Urban Transport
Public transport remains limited and is available only in urban areas of the country, principally Djibouti City and the neighbouring suburb of Balbala. The primary means of transport are minibuses, midibuses and rickshaw vehicles. Travel routes have emerged due to demand and the layout of roads in the city rather than through formal planning. As there is no government-run public transport, vehicles are privately owned and leased to drivers on a daily basis.
Due to the high cost of public transport relative to average incomes of around DJF150 ($0.85) per day, only 40% of those living in Djibouti City regularly use these services. Others rely on support from their employers for transport. A 2019 study by the World Bank and the University of Djibouti estimated that 5000 passenger seats were available per hour in each direction in Djibouti City, which has a population of around 624,000. While just 3% of the population owns a car, most people living in Djibouti City are within walking distance of a public transport route and travel times are typically relatively short, at an average of 44 minutes. There is a high level of congestion due in Djibouti City due to its dense nature, with bottlenecks on major roads, especially the two roads connecting it with Balbala. This issue is likely to worsen as the population and car uptake increase, particularly as infrastructure plans – such as the new housing developments, a university campus, and business and industrial areas – are completed.
Infrastructure Investment
Djibouti is attracting higher levels of foreign investment to develop key infrastructure. Despite being the smallest country in mainland Africa, its strategic location as a gateway between Asia, Europe and Africa has made Djibouti a major trade centre, supported by the development of large-scale road and rail links in recent years as the government continues to attract investment to the sector. The country could develop its economy in a similar way to Dubai in the UAE, by creating new industries that support growth and connect it to global markets.
Under its Belt and Road Initiative (BRI), China has identified Djibouti as one of its primary beneficiaries in East Africa due to its strategic location on the Red Sea. The BRI, a contemporary version of the Silk Road trading route between Europe and Asia, will see China invest heavily in large-scale infrastructure projects across Europe, Africa and Asia to enhance connectivity and trade on a global scale.
Several Middle Eastern countries have supported the establishment of Djibouti as a major trade centre in recent years. Kuwait was a significant investor in the new northern Sheikh Sabah Road link to Ethiopia, contributing around $78.2m from its national development fund. Meanwhile, the UAE has also helped to foster economic activity in the region since the launch of its flydubai route to Djibouti in 2009.
In January 2023 an MoU between the Hong Kong Aerospace Technology Group, Touchroad International Holdings Group and the government of Djibouti was signed to develop a spaceport in the country. The project is expected to have a total investment cost of some $1bn. A formal contract between the participating parties was initially expected to be signed in March 2023; however, international media reported that the conclusion of a final agreement was anticipated in April or May of that year.
The spaceport is projected to cover approximately 10 sq km and take five years to complete. After 30 years the spaceport will be transferred to the government of Djibouti to operate, with the facility to be co-managed by the country and its Chinese partners in the intervening period. This development is set to benefit Djibouti by allowing it to enter a multibillion-dollar industry with strong growth potential.
Indeed, Djibouti’s geostrategic location offers many advantages to players in the global space industry. Not only is the country located close to the equator, where the Earth rotates faster, but it also offers access to ports that would likely play a crucial role in importing the necessary equipment. The investment in the spaceport project could have important spillover effects for the transport and logistics sector. The space exploration industry in Africa was valued at $19bn as of February 2023, with that number expected to rise to $22bn by 2025.
Once built, the spaceport will be the first on the continent, giving Djibouti the chance to capitalise on a growing regional industry: there were 55 satellites from Africa in orbit as of February 2023, with an additional 100 in development at the time. To further the continent’s push into this field, in January 2023 the African Union Commission formally inaugurated the African Space Agency – the headquarters of which will be located in Egypt – to serve as a research platform on the continent.
Outlook
Several factors should propel growth in the transport and logistics sector. Investment in core infrastructure as part of the BRI will provide Djibouti with the necessary funds to improve its connectivity with landlocked countries in the region. This will be further enhanced by recent Chinese investment in the construction of a new spaceport. Furthermore, additional financing from the UAE and Kuwait is expected to help deepen ties with the Middle East.
Investment by the government, in partnership with Ethiopian authorities and several international organisations, is expected to help Djibouti improve its key infrastructure and thereby enhance multi-sector development. An upgraded, more efficient and safer transport network would likely attract more investment, facilitate regional and domestic trade, and create new jobs and economic opportunities, which in turn would boost the country’s economic growth and push it further along its development.
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