Ahmed Osman
« We must also rely on our strengths »

Despite the double-barreled impact of Covid-19 and the Ethiopian crisis, Djibouti can rely on a stable, promising macroeconomic framework.

AM: Djibouti’s economy seems to have weathered the impact of the Covid-19 pandemic better than other countries. Are the goals of Vision 2035 still relevant?

Ahmed Osman: Djibouti’s GDP rose by 1.2% in 2020. However, the 5.4% drop in growth compared to 2019 shows that Covid-19 has had an economic and social impact. The government’s roll-out of important support measures as part of a national pandemic response plan, with backing from international partners, civil society and the private sector, has provided relief while shoring up the economy and growth. The goals of Vision 2035 are more relevant now than ever, especially given the regional context and the pandemic. A second National Development Plan (PND) for the 2020-2024 period is underway after the 2015-2019 five-year plan, the first step in setting Vision 2035 into motion. The 2015-2019 plan led to major strides in accelerating economic growth, reducing poverty, improving social indicators and building modern infrastructure (a road corridor connecting the sub-region, ports, a railway, water supply, etc.). The new five-year development plan dovetails with the world’s Agenda 2030 and Africa’s Agenda 2063. It aims to consolidate and strengthen the structural transformation and diversification of Djibouti’s economy, triple per-capita income and create enough jobs to bring unemployment down to below 10% by 2035.

What impact has the Ethiopian crisis had on Djibouti’s financial and economic balance?

The commonality of interests and destiny that unites Ethiopia and Djibouti dates back centuries. The model of integration between our countries sets an example for the rest of Africa. In this context, any instability in Ethiopia has an impact on our nation’s economic activity, especially the logistical transport  chain, the pillar of our growth model. In the current crisis, port activity has fallen by 20%. If the troubles drag on and get worse, Djibouti will be affected, but so will all the other countries in the sub-region. Ethiopia is and will remain a brotherly nation and a crucial, special economic partner, without, however, being the only option. We must also rely on our own strengths. Massive investment in infrastructure, the creation of vast free zones and the construction of industrial parks are helping to turn a regional logistical, trade and financial hub into a continental one, with the Common Market for Eastern and Southern Africa (COMESA) and the African Continental Free Trade Area (AfCFTA). The development of major potential resources in fishing, tourism, light processing, renewable energy, etc. will help diversify sources of income and fuel our growth.

Djibouti is particularly jeopardized by climate change. What are your takeaways from COP26?

Climate change is a serious threat to our countries’ development. The good news about COP26 is that a consensus on key actions has been reached. Another bit of good news is the obligation to keep the promise the developed countries made at the Paris conference to earmark $100 billion a year for developing countries. But the question of whether the funding will really come through is still pending. This is a recurring problem, even though the necessary funds are present in the world economy. In addition, there are the high costs related to the consequences of global warming already incurred, the decrease in official development assistance to Africa and the increase in debt levels. Part of the solution lies with the emerging countries themselves. We need to improve our national economic and financial governance, mobilize domestic resources and private funding and develop the financial sectors.

Debt is equal to 70% of GDP and 60% is owed to China. Some analysts say Djibouti risks becoming Beijing’s trade, logistical and military outpost.

The debt contracted and guaranteed by the state rose from nearly 50% of GDP in 2014 to 74% in 2020, but this is largely the external debt of public companies due to investments. We think the benefits of growth and development outweigh the risks. Some countries run up debt to plug budget gaps. This is not the case in Djibouti, which invests in infrastructure (new ports, roads, railroads, etc.). They’re long-term investments aiming to stimulate the economy and create added value by yielding sufficient returns to cover depreciation. We’ll continue our construction and development efforts as long as we have structuring and economically viable projects and partners to support us. The thresholds set by international partners and other donors are indicative standards, and in no way uncrossable limits.

How can countries like Djibouti fund their long-term infrastructure needs?

Projects with a real economic impact can easily find the right financing. They must be appropriate for our size. We must leave no regulatory and legal stone unturned to foster a healthy, attractive business environment. That is the meaning of the reforms we’ve carried out over the past few years in order to rise to honorable positions in the World Bank’s “Doing Business” rankings. Moreover, in 2020, a sovereign wealth fund was set up to finance our long-term infrastructure needs. It is a crucial instrument to reach our development goals by 2035.

The Djibouti franc is perceived as a stable, safe currency. What is the basis of its strength?

That’s not just a perception, but a reality more than 70 years old. The soundness of Djibouti’s currency is based primarily on our monetary system, which dates back to 1949. The Djibouti franc is pegged to the US dollar at fixed parity. To maintain that parity, all the currency issued by the Central Bank is covered proportionally by foreign currency. A currency coverage rate well above 100% ensures that the free and total convertibility of our currency is always guaranteed. The system contributes to stability while keeping inflation under control (less than 3% over a long period) and prevents money being printed to plug public deficits, which in turn imposes budgetary discipline on public authorities. Lastly, with regard to investors, Djibouti has no exchange controls and guarantees the free and total movement of capital in strict compliance with safeguards to prevent money laundering and the funding of terrorism.