21 May 2018
As countries across the Horn of Africa embark on ambitious programmes to attract foreign investment, Djibouti seems a stable option in a volatile region. But are there risks? A new report by political and security risk consultancy Allan & Associates (www.Allan-Assoc.com) offers guidance.
When African Development Bank officials meet in Busan, South Korea, today (21 May), details of new foreign investment opportunities in Africa are likely to emerge.
Djibouti, which is seeking to become a Horn of Africa trans-shipment hub, has proved attractive to investors in recent years. Located near some of the world’s busiest shipping lanes, with access to the Indian Ocean and Red Sea, it can boast decades of peace and political stability, unlike neighbours that include divided Somalia, secretive Eritrea and war-torn Yemen.
‘Djibouti offers an attractive environment for investors in the Horn of Africa, but be careful how you tread,’ says Allan and Associates Senior Analyst and Sub-Saharan Africa specialist Olivier Milland, author of the report.
Indicators suggest that significant investment risks exist in Djibouti, Allan & Associates assesses. These include:
- Growing corruption concerns as the country has slipped in international indices for transparency and governance
- Regional competition for contracts may see national elites attempt to access rents from foreign investors
- Poor macro-economic indicators, with public debt reaching 87 per cent of GDP in 2018
- Over-dependence on neighbour Ethiopia – 95 per cent of Ethiopian exports pass through the port of Djibouti – and China, its top source of foreign investment
- Vulnerability to a global protectionist trend, driven by United States President Donald Trump, due to a reliance on port traffic
- Rifts between Gulf countries threaten stability of investments
- Concerns over renegotiation of contracts under a new law and localisation
‘Changing geopolitical dynamics in the region, amid protectionist policies in the U.S. and a rift between the Gulf countries, are posing additional challenges for investors’, says Milland.