Djibouti: IMF expects growth of 7% in 2017

In 2016 Djibouti’s economy has seen high growth on the back of a public spending campaign involving several major projects aimed at improving logistical and energy capacity.

The country’s medium-term outlook is favourable, with public and private investments expected to spur further economic development, according to the World Bank. The IMF agreed, predicting GDP growth would remain steady this year at 6.5%, rising to 7% in 2017.

Furthermore, the IMF foresees a narrowing of the current account deficit, from 30.7% of GDP in 2015 to 17.2% this year. Inflation, meanwhile, is forecast to remain relatively stable at 3% in 2016, increasing slightly to 3.5% in both 2017 and 2018.

Infrastructure push

Djibouti, with a population of less than 1m, has earmarked some $14bn worth of investment over the past two years for a series of major transport, hydrocarbons and power projects to boost its competitiveness as a commercial hub.

To this end, in October the country – which has long served as neighbouring Ethiopia’s principal port of entry – inaugurated a $4bn rail line for passenger use, linking the Port of Djibouti to the Ethiopian capital, Addis Ababa. The railway is set to cut travel time, which previously took as long as two days by road, to fewer than 10 hours, according to press reports. The line was first used for cargo last year to transport wheat to areas in Ethiopia affected by heavy flooding.

Officials are also looking to increase port capacity to complement expanded rail connectivity, to help make the Port of Djibouti a key entry point not only to Ethiopia, but to the broader continent. The Djibouti Ports and Free Trade Zone (DPFTZ) is working on inaugurating five more port facilities, several of them dedicated to specialty cargo such as livestock and minerals, over the next five years.

DPTFZ’s largest project is the development of the $590m Doraleh Multipurpose Terminal, a joint investment by Port of Djibouti and China Merchants Holding located just outside of Djibouti City and scheduled to come on-line by the first quarter of 2018. A $3.5bn free trade zone is also being built nearby to cater to the expected increase in warehousing and manufacturing space.

Construction on two new airports – valued at a combined $599m and expected to increase air capacity eight-fold upon completion – also continued in 2016.

The larger of these, the Hassan Gouled Aptidon International Airport located 25 km outside Djibouti City, is expected to handle 1.5m passengers and 100,000 tonnes of cargo per year when completed in 2018. The second one – the Ahmed Dini Ahmed International Airport located near Seven Brothers Islands, an archipelago off the coast of Obock – will have a capacity of 767,000 passengers annually.

The new facilities will supplement the existing Djibouti-Ambouli International Airport, which handles around 250,000 passengers per annum.

Energy sustainability

In addition to major transport works, authorities are also rolling out a number of new geothermal and solar projects in a bid to offset Djibouti’s high electricity prices – which stand at $0.28 per KWh, compared to the African average of $0.14 per KWh – and foster greater long-term energy independence.

In August Djibouti’s Office of Development of Geothermal Energy signed an agreement with Japanese conglomerate Toshiba to develop 50 MW of geothermal energy projects across the country. Harnessing this potential would represent a significant increase in Djibouti’s current installed generation capacity of around 120 MW.

Earlier in 2016 Djibouti also began construction on a photovoltaic solar plant in the south of the country, the result of a programme partnership agreement with Switzerland’s Green Enesys. The €360m complex – to be built in six phases of 50 MW each – will be among the largest of its kind in the region when complete, and the first in the country to connect to the national power grid.

The solar plant is an important step in the country’s goal of procuring 100% of its power from renewables by 2020 and of reducing reliance on imports from Ethiopia, which today account for 65% of consumption.

Looking forward

Investment in the nation’s infrastructure, coupled with increased power generation capacity and lower electricity costs, are expected to significantly improve the business climate and lay the foundation for further growth in the short and medium term.

A number of other reforms in recent years have already helped open up the traditionally state-centred economy to foreign investors, including the establishment of the High Council for Private-Public Dialogue and the Djiboutian Industrial and Commercial Property Office.

As a result, the time it takes to register a business dropped from 37 days to under a week, while bureaucratic procedures were simplified and certain capital requirements for limited liability companies removed.

In the year ahead the government will look to further capitalise on its location at the centre of world trade routes, cementing itself as a link between Africa and Asia.

Highlighting Djibouti’s key location – on a main shipping route from Asia to Europe and adjacent to landlocked Ethiopia, one of China’s biggest investment recipients in Africa – China also announced plans to build its first overseas military base in Djibouti, paying an annual rent of $100m according to press reports and giving relations between the two countries a further boost.

To read the full piece from , click here.