The Gulf region’s fingerprints are all over the economic fortunes of a small African country.
Wedged between the so-called eastern Horn of Africa states of Eritrea, Ethiopia and Somalia, Djibouti attracted early interest from Dubai Ports World. The company built a USD 400 million container terminal in 2009 and breathed new life in an ageing port located near one of the world’s busiest shipping lanes close to the Gulf of Aden.
Meanwhile, Kuwait-based Arab Fund for Economic and Social Development and the Saudi Fund for Development are financing a new port development in Tadjourah in the north of the country. In addition, Qatari troops have helped keep a tricky truce between Djibouti and Eritrea.
Dubai’s decision to cherry-pick Djibouti as its African hub was a masterstroke. Wary of the rising fortunes of Oman’s Salalah Port, Dubai sought a new strategically located outpost to divert some of the sultanate’s business.
Another key consideration for the emirate was the East African state’s relative stability amid the troubled neighboring countries.
Before too long Djibouti president Isma√Øl Omar Guelleh had developed strong ties with senior Dubai Inc. officials, which helped the country secure a steady flow of UAE aid, investments and business travelers.
“Viewed in retrospect, DPW’s Djibouti venture was a stepping stone to its subsequent broader expansion in Africa,” wrote Chatham House in a report on the country.
Hospitality ventures and more
Meanwhile, the emirate’s real estate developer Nakheel opened the country’s first five-star, the Kempinski Djibouti Palace Hotel, which gave the African state a venue to stage high-profile conferences and entertain delegates.
A fruitful relationship with the GCC is only one aspect of Djibouti’s international network of ties.
As a Francophone state, the country has strong political and military ties with France since it became independent in 1977.
The country is also home to the United States’ only permanent military facility in Africa and is now a regional hub for Americans to conduct operations against Somali pirates and also — deplorably — drone programs as well.
The US government reportedly pays Djibouti authorities USD 38 million each year and has expanded its presence with 3,200 personnel based out of a 500-square-kilometer army base. The facility has allowed the US to gain a foothold near — but not in — the Middle East and also develop ties with African states such as Uganda and Burundi.
“In a largely unplanned, incremental manner, Djibouti has become a laboratory for new forms of military and naval cooperation among and beyond NATO and EU forces. It is the logistics hub for the EU’s first joint naval mission, the anti-piracy operation EUNAVFOR Atlanta,” Chatham House said.
Djibouti also host vessels from China and other Asian states and has become a maritime African hub for global powers.
The Ethiopian connection
Djibouti has also emerged as a regional powerhouse and has benefited from the dynamic changes on it borders.
Eritrea’s independence from Ethiopia suddenly rendered the latter state landlocked and without access to key ports Massawa and Assab. A war with Eritrea in 1998 further compelled Ethiopia to foster greater economic relations with its tiny neighbor and use its maritime facilities as its primary trading post.
Ethiopia’s rapid transformation has boosted Djibouti’s fortunes in the process. Growth has remained steadily around 4-5% annually for the past few years and is estimated to have grown by 4.8%, driven by port activity, transit trade with Ethiopia, transshipment and construction activities, according to the International Monetary Fund (IMF).
“The current account deficit deteriorated from 12.6% of GDP in 2011 to 13.4% of GDP in 2011. Djibouti’s economic outlook for 2013 is relatively favorable. Real GDP is expected to grow at a rate of about 5%, buoyed by port activity, trade with Ethiopia, construction and foreign direct investment,” the IMF said.
Chinese military and economic investments are also growing in the country. The China National Petroleum Corporation is building a 300 MW geothermal plant in the country, while another Chinese company has pledged to finance a salt handling port terminal at Ghoubet.
Growth prospects at risk
For all its success, Djibouti has some significant political and economic challenges ahead, and has failed to foster growth that helps its poverty-stricken population.
Ports in neighboring Eritrea and Somaliland are moving swiftly to compete with the country. There is also the danger that the rapid transformation of some of the East African economies could outshine Djibouti.
As such, the northern port of Tadjourah has taken on an even more important dimension to help Djibouti reinforce its role as a maritime hub and generate much-needed jobs.
The politically-marginalized Tadjourah region is attracting a fresh wave of investment, while a rail link from Ethiopia to the port will further cement ties with its larger neighbor.
The project could help generate much-needed employment as well.
The Ministry of Finance and Commerce notes that more than 75% of the country’s citizens live below the poverty line, with 42% in conditions of extreme poverty.
A four-year program to eradicate poverty which ended in 2012 saw a mere 20% of the 454 planned projects completed.
“The employment survey conducted in 2010 shows that unemployment remains high, affecting 54% of the workforce and 70% of young people,” said the African Development Bank in a report. “Driven by capital-intensive activities, the sustained economic growth has not reduced the unemployment rate.”
The persistently high jobless rate has led to social dissension. The issue came to the fore in 2010 when president Guelleh made amendments to the constitution to run a third time for the presidency.
Just as crowds were gathering in Tahrir Square in Cairo in early 2011, Djibouti also saw its own youth launching protests in the country – an event that went largely unreported in the international community.
The government struck back hard initially, but since then has implemented some political reforms to bring a new generation of politicians into the fold. It also introduced new electoral reforms that offered greater representation to various stakeholders just in time for legislative elections in February 2013.
But the election result has been disputed by opposition groups and has further undermined the legitimacy of president Guelleh’s government.
The lack of political reform could undermine some stellar work down by the administration on the diplomatic and political front.
While most analysts expect president Guelleh to complete his third presidential term in 2016, it is unclear whether the new generation will have the political will to overcome the country’s structural barriers to growth.
“New and more radical policies will be required to ensure the wider distribution of windfall gains from a growing economy that rests on accelerated regional integration and rising rental incomes from foreign military bases,” said Chatham House.