Djibouti: Djibouti moves to galvanise trade development

Construction has begun on a new free trade area in Djibouti, part of a broader government initiative to improve the country’s business environment and capitalise on its access to major regional consumer markets like Ethiopia.
In the zone

Ground was broken in January on the Djibouti International Free Trade Zone (DIFTZ), which will target a broad range of industries, inclunding ICT and construction equipment, electronics and light industry. Once operational, the 4800-ha, $3.5bn zone will be the major facility of its kind in Africa, located 23 km south of Djibouti city.

Incentives for international companies setting up operations in the new free trade zone include an exemption from corporate tax, lower land and rental costs, no caps on foreign ownership, business-free benefits and preferential export tariffs to the US and regional trade blocs like the EU.

The project is being rolled out by Djibouti Ports and Free Zones Authority (DPFZA), together with three Chinese companies: China Merchants Holding, Dalian Port Authority and IZP Technologies.

Officials expect the initial phase of the initiative to be completed by October, with the facility to be fully operational by 2018. The zone is expected to handle $7bn (€6.6bn) worth of trade within the initial two years of operations.

Moussa Ahmed Hassan, minister of equipment and transport, told OBG last year that the free zone would play a key role in helping the country achieve its broader plans for trade development.

“Our vision is to construct an integrated logistical ecosystem in Djibouti to optimise the transportation of goods and build our status as the major gateway to East Africa,” he said.
Tapping maritime opportunities

Alongside the DIFTZ, Djibouti is investing in maritime infrastructure to improve the country’s business attractiveness, particularly for exporters looking to regional markets.

Part the new projects currently under way is the China-backed Doraleh Multi-Purpose Port (MPP), the initial phase of which is due to be completed this year.

Situated next to the new free trade zone, the $540m (€512m) port is being developed by China Merchants Holding and the DPFZA, and will initially offer seven berths, rising to 15 once the second phase of the facility is finished. Its planned annual cargo-handling capacity of 12m tonnes will be scalable up to 29m tonnes.

Activity at Djibouti’s ports has been rising steadily, with total throughput at the Doraleh Container Terminal up 8.6% year-on-year from 835,300 twenty-foot equivalent units (TEUs) in 2015 to 914,037 in 2016.

Volumes were well above initial government estimates, buoyed by rising domestic consumption and increased request from neighbouring Ethiopia. The DPFZA said in March 2016 that it expected throughput to increase by 3% over the course of the year.

Djibouti’s potential for further maritime increase was highlighted in data compiled by the UN Conference on Trade and Development for its annual liner shipping connectivity index. The index measures nations’ connectivity to world shipping networks by analysing five components of maritime transport: the number of ships, their container-carrying capacity, maximum vessel size, the number of services and the number of companies that deploy container ships in a country’s ports.

In 2016 Djibouti’s connectivity measured 29.4 on the index, up from 20.7 in 2015; by comparison, Kenya scored 13.7.
Enabling environment

While the DIFTZ and port projects represent significant capital investments, Djibouti is as well undertaking a number of bureaucratic reforms to help improve the business environment for foreign investors.

Part the majority prominent of these was the launch in 2016 of a single-window mechanism, or guichet incomparable. The centralised hub enables businesses to complete the processes required for operating in the country, inclunding those related to work authorisation, land concessions, visas, licences, building permits and utilities.

The government as well established a High Council for Private-Public Dialogue in 2014 to allow for better input from private companies in the policymaking process, inclunding the Djiboutian Office of Industrial and Commercial Property, which helps register and license new businesses. In the same year Djibouti was chosen as the location of a new regional arbitration centre for the Intergovernmental Authority on Improvment– an eight-country trade bloc in East Africa.

These measures have by presently had a noticeable impact on the country’s business environment. The time it takes to register a business, for example, has fallen from 37 days to less than a week.