Djibouti Needs a Plan B for the Post-Guelleh Era

Deregulate SOEs. Djibouti has performed poorly in the ICT sector, despite its geostrategic location for global fiber-optic lines and its role as the main supplier to Ethiopia, Yemen, Somalia, and Somaliland. Consider selling a 50% share in the SOE telecom sector to the private sector to modernize and increase internet and mobile penetration access and know-how. If improved, the sector could have a significant impact on economic growth, job creation, innovation, and poverty reduction. Good examples of this include Brunei, Bahrain, Cape Verde, etc.
Consider negotiating debt with China by restructuring the majority of Chinese loans through natural resource- or asset-backed loan arrangements and selling part of the debt to a private consortium led by local and foreign private investors. This was done by the U.S. government all the way back in 1795 to preempt foreign dependence, and this same approach will help Djibouti to build its credit rating, which would attract more investment and reduce its risk exposure to one country.
Djibouti is democratizing energy supply at the production level through independent power producers to harness energy from a 60-MW wind farm and a 50-MW geothermal plant in the Ghoubet area, near Lake Assal, which should significantly reduce the cost of electricity and boost energy access. However, deregulation of the SOE utility Electricité de Djibouti (EDD) is a must to address poor management, poor record-keeping and tariff collection, lack of technical capacity and human resources, combined with a monopoly over transmission and distribution of the electricity; otherwise EDD will hinder the success of Djibouti’s energy transition. It should renegotiate the ADR line debt with China and push Ethiopia to convert its electrified railway system to fossil fuel or seek compensation for the revenue fall due to climate change risk that causes power distributions from Ethiopia, including the failure to improve railway performance per the original design. It should also consider partnering with Power Africa for energy development through grants and debt-equity and the U.S. International Development Finance Corporation for infrastructure and production sector diversification.
Rather than seeing Somaliland as a regional competitor and politicizing fruitless Somalia-Somaliland talks, take a bold and giant step and advocate for Somaliland’s recognition through the African Union and the U.N. before other Intergovernmental Authority on Development (IGAD) countries, such as Kenya, recognize it. In addition, invest in Somaliland’s energy, trade, and water resources to hedge against climate change and move away from dependence on Ethiopian water as a geopolitical and geoeconomic dividend in the future.
Diversify the economy, which is currently driven by the service sector, into a production-based economy by investing in higher education (including technical schools), incentivizing partnerships with foreign universities to open branches in Djibouti, and building an industrial park zone that targets high-end technology demand manufacturing for Africa and the EU, such as solar and wind power, cell phones, and electronics, agricultural machines and inputs, leather processing, mining, and chemical processing. Modernize investing in the finance sector by partnering with African fintech pioneers like Kenya’s Safaricom to elevate conventional Djibouti financing to global digital financing and technology standards.

2021-07-22 | Djibouti, Economy/Business, Markets | English |