Port sector driving wider development

Djibouti’s geography – it is located in a geopolitically unstable region with numerous security threats – could have been considered a weakness. Yet the country is making the most of its location by developing modern port terminals to tap into the sea lanes that connect it with the Indian Ocean, the Gulf states and the Suez canal, which handles about 30% of global sea-borne cargo. 

Although Djibouti has a population of just 1.18m, large port facilities have been built to take advantage of its position as Ethiopia’s main entrepôt. Africa’s second most populous country has been landlocked since the secession of Eritrea in 1993 but has been the fastest growing economy in Africa since the turn of the millennium, providing growing trade volumes for Djibouti to tap into. 

Ethiopian trade has helped to finance the construction of modern terminals that now also provide transshipment services for other ports in the region, with goods unloaded from large container ships at Djibouti to be distributed across Eastern Africa by smaller feeder services.

Most port facilities are located in the Port of Djibouti and the adjacent Doraleh Multipurpose Port, three kilometres to the west. The owners of Doraleh, which opened in 2017 at a cost of $580m, include Djibouti Ports and Free Zones Authority and China Merchants Port Holdings Company (23.5%). 

Its six existing berths provide dedicated container, roll-on-roll-off (ro-ro), bulk and breakbulk terminals, with another 11 berths planned. Doraleh Container Terminal handled 1,236,769 TEU – or standard-sized containers – in 2024, breaking the 1m TEU barrier for the first time. There are also smaller ports further out from the city at Ghoubet and Tadjourah, handling salt and potash exports respectively.

At least 90% of Ethiopia’s trade in goods is now handled in Djibouti, partly thanks to the new 753 km electric railway that was completed in 2018 and which connects Addis Ababa and Djibouti. It has cut the freight transit time between the Ethiopian capital and the Port of Djibouti from more than three days to less than 20 hours. China’s Exim Bank provided 70% of the project’s $4bn construction costs, with the governments of Ethiopia and Djibouti supplying the remainder.

The standard-gauge line was built and operated by China Civil Engineering Construction Corporation and China Railway Engineering Corporation; in May 2024 management was transferred to Ethio-Djibouti Railway Transport SA. The operating company is owned by the governments of Ethiopia (75%) and Djibouti (25%). A total of 2,800 workers from Ethiopia and Djibouti were trained prior to the transfer.

Between 2018 and 2024 the line carried 9.5m tons of freight and 680,000 passengers. It made a profit in the fourth quarter of 2024 for the first time, although full figures were not released. However, in August 2024 Takele Uma, CEO of Ethiopia-Djibouti Railway, revealed that only 15 of the company’s 32 freight locomotives were operational, meaning that it could handle only 2.4m tons of freight per year, well below its official capacity of 6.3m tons per year. He has pledged to bring them back into use.

Port and logistics operations are an important sector in their own right, but could have a big impact on the wider economy by supporting the growth of export-oriented businesses and creating employment. The port sector helped drive average economic growth of 4.4% in Djibouti between 2000 and 2021 and enabled a big increase in foreign direct investment from 0.6% of GDP in 2000 to 5.5% over 2015-22. GDP grew by 6.7% in 2023, with an estimate of 6.5% for last year.

Employment creation

However, an IMF team that visited the country in 2024 found that while logistics investment over the past decade had helped create economic growth, it had not been matched by job creation. Roughly half the adult population lacked formal employment, with 70% of the unemployed aged under 30. “The combined shocks of the pandemic, the conflict in Ethiopia and commodity price increases revealed the need for a more resilient growth model as revenues decreased and fiscal space shrunk,” it reported.

To help equip the local population to work in the industry, a training centre specialising in port operations and the logistics sector opened in November 2024 with funding from Agence Française de Développement (AFD) and the European Union. The Centre de Ressources et de Compétences de Djibouti (CRC), which is located close to the main port area, is equipped with simulators and teaching rooms to host training programmes that have trained 3,000 people since 2019, of which 70% have secured employment.

CRC director Abdourahman Elmi said: “We work closely with port authorities and companies to understand their needs. We then adapt the number of places on our programmes to ensure that as many of our students as possible can integrate into the labour market.” The centre hopes to expand its operations and has already begun talks with ports based in neighbouring countries to train their workforces.

The CRC could help train skilled workers for the new ship repair yard and floating dock that was completed in 2023 by the Netherlands’ Damen Shipyards on behalf of Great Horn Investments Holding. Financing was provided by Invest International Capital. The new facility will provide maintenance, metalworking and other services for visiting vessels of up to 217 metres in length. 

Free trade zones

Several free trade zones and industrial parks have been developed around Djibouti City to take advantage of the ports. The first phase of the Djibouti International Free Trade Zone (DIFTZ) was completed 23 km from the city in 2018. It will eventually cover 4,800 hectares, which the government says will make it the biggest free trade zone on the continent. 

Great Horn Investment Holding is also currently developing Damerjog Industrial Development Free Trade Zone, which will include a new oil jetty and storage depot to serve the shipping industry, with $120m financing provided by Afreximbank in 2023. 

The country is particularly well placed to act as an entry point for Gulf investors into the new African Continental Free Trade Agreement area, with Saudi Arabia particularly keen to invest in and around the ports. In June 2024 the government of Saudi Arabia signed a contract to develop a 120,000 square metre “logistics city” in DIFTZ. 

Saudi Logistics City has already attracted a truck assembly facility, a solar panel plant and medical equipment manufacturers. More broadly, it aims to host trade and logistics, export processing, light manufacturing and duty-free retail businesses. In a statement, the DIFTZ said that the project “will be crucial in attracting Saudi business investors and opening the African market to Saudi-made products. Moving forward, Saudi products will be traded from DIFTZ to the sub-region and beyond”. 

Also last June, Saudi Arabia’s Ajyal Petroleum and Energy Company signed a land lease agreement with the aim of building a massive 300,000 barrels per day oil refinery in Damerjog Industrial Free Zone. If developed as planned, it would be the third biggest refinery in Africa, after the new 650,000 barrels per day plant in Nigeria and the 356,500 barrels per day Skikda facility in Algeria.

Greater economic diversification could also help dilute the undoubted geopolitical and security risks facing Djibouti. Located in the Horn of Africa, it is exposed to a wide range of potential risks, including instability in Somalia, potential conflict in Ethiopia and Eritrea, Indian Ocean piracy and the ongoing civil war in Yemen on the opposite side of the Bab El Mandeb strait.