Djibouti’s geographic position is its crown jewel

The second Djibouti Forum comes in what the apocryphal Chinese curse labels “interesting times” – an understatement for the current geopolitical chaos. But the government of Djibouti and its sovereign wealth fund, which is the organiser of the event from 6 to 8 April, should be congratulated for ignoring the outside clamour and sticking to their calendar. Whatever may be shaking the trees for the world powers, Djibouti – and by extension Africa – will go its own way for its own needs – “Africa First” if we may adapt from Mr. Trump’s lexicon.

As Mohamed Ashraf Iqbal, chairman of Malaysia’s WAAFI Bank and one of the most respected analysts of the Association of Southeast Asian Nations (ASEAN) area, says: “Djibouti’s geographic position is its crown jewel”. 

Indeed, situated at the confluence of the Indian Ocean and the Red Sea, it overlooks one of the world’s busiest sea-lanes, one that serves practically the whole world, connecting East and West, North and South. It is estimated that 30% of global goods to Europe pass here.

Iqbal sees many parallels between Djibouti and the factors that led to the emergence of Southeast Asian countries like Malaysia and Singapore as major global economic forces. He sees Djibouti as the gateway to a market of over 1.5bn Africans and a series of synergies that can create a dynamic new economic nexus in the South. 

No matter how the geopolitical cards fall, we can be sure of one thing: trade will remain the prime geopolitical concern. The importance of the Bab el Mandeb, the “Gate of Tears” at the entrance of the Red Sea, through which an estimated 40,000 ships pass each year, will increase, not diminish. 

Already the growing demand for bunkering and other shipping services, as well as transhipment, at Djibouti’s various harbours – described by the World Bank as “a state-of-the-art port complex, among the most sophisticated in the world” – is approaching capacity. A new dry dock – the largest on the continent – adds to that capacity and also generates extra demand.

But the country has a lot more going for it. As detailed in the following pages, it hosts a collection of some of the world’s most important undersea cables and is home to five military bases – those of the US, China, Italy, Japan and France. Given its position adjacent to one of the world’s most volatile yet valuable regions, it is easy to understand why Djibouti has become so attractive as a military base.

With its currency pegged to the US dollar since 1949 it provides a degree of fiscal stability denied most African countries and all the building blocks needed to transit into a regional financial hub.

Laying the foundations

Djibouti became independent from France in 1977, but then had to weather a destructive civil war between 1991 and 1994. It was only after the end of the civil war that the country’s leadership could begin the slow and often frustrating process of knitting the country together and laying out the economic foundations.

Today, under President Ismaïl Omar Guelleh (often referred to as IOG), it enjoys a reputation as one of Africa’s most politically stable countries. 

But a great deal still needs to be done to provide employment opportunities for its growing youthful demography: the current unemployment rate is around 30%. The country’s social needs include affordable housing for the majority; cheaper power; water shortages; an external debt overhang; and a general modernisation and upgrading of its processes and standards of living.

That said, the country’s fundamentals are solid and various agencies are working on filling the gaps in government services and improving efficiency. 

Following a site visit led by Esther Pérez Ruiz in December 2024 the IMF said: “Djibouti’s maritime-dependent economy has demonstrated resilience to regional conflicts. Growth in financial year 2024 is projected at a robust 6.5%, driven by increased transhipments as shipping companies navigate Red Sea tensions. Inflation remains moderate as the authorities have stabilised energy and food prices to mitigate the impact of rising import costs.”

The report concludes: “The authorities remain committed to policies that promote macroeconomic sustainability and enhance the credibility of the policy framework. Efforts include expediting debt negotiations with key creditors, revising military base agreements, enhancing revenue mobilisation by shifting from custom duties to inland revenues, and leveraging dividends from profitable state-owned enterprises.”

Uncanny similarities

The establishment of the Djibouti Sovereign Wealth Fund (FSD) in 2020 may well prove to be the stroke of prescience that will catapult Djibouti as a major economic force over the next decade. It has uncanny similarities to the Singapore Wealth Fund that has grown into a near trillion-dollar behemoth able to underwrite most of Singapore’s income and job generating projects and become a magnet for capital from all over the world.

Djibouti had ditched its former European city planners and opted for a Singaporean urban planning outfit. In this is it following the lead set by Rwanda, which has transformed Kigali from a potholed dust heap into an attractive and clean city. 

New hotels, high-end housing and port expansions are already changing the skyline of Djibouti city. “Domestically, the construction and public works sectors have thrived,” says the World Bank, “with cement sales surging 80% in 2023, year-on-year, as projects resumed post-Covid-19”.

The FSD, led by Slim Feriani, a British Tunisian schooled in the power of the private sector and working in tandem with progressive government policies to expand and diversify the economy, has identified these fundamental sectors for development: tourism; renewable energy; finance; digital; and logistics (see page 20). 

A springboard to the continent’s vast opportunities

He wants canny investors at the Djibouti Forum to see for themselves the country’s potential, not only within its own geographical space, but as a springboard to the continent’s vast opportunities.

Investment influencers such as Malaysia’s Iqbal agree. “Djibouti’s true market is not its citizens but the 1.5bn Africans reachable via AfCFTA [the African Continental Free Trade Area],” he writes. 

Southeast Asia’s expertise aligns seamlessly with Djibouti’s untapped potential, he argues. Bring Southeast Asia’s dynamism and Africa’s aspirations together, he says, and see the creation of a new global economic nexus. Slim Feriani underlines the message: “investing in Djibouti today means getting a head start on tomorrow.”