What Djibouti Tells Us About Africa’s Troubled Road To Prosperity – Analysis

What Djibouti Tells Us About Africa’s Troubled Road To Prosperity – Analysis

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What Djibouti Tells Us About Africa’s Troubled Road To Prosperity – Analysis
By Malik Ibrahim*

As Africa continues to be the world’s fastest-growing region, the continent’s natural resources and increasing domestic demand have captured the attention of foreign investors everywhere. In spite of the Ebola outbreak, the World Bank predicts that the African economy will grow by an eye-popping 5.2% in the next two years, a rate that has not been seen since the pre-economic crisis years. The continent’s main challenge will be to translate this economic boom into long-term development and prioritize investments in infrastructure and human capital.

The tried and tested way to achieve this is a fairly simple one: political stability and good governance. But will Africa make the cut and revamp its risk-prone image?

The ABCs of economic development

In the past decade, Africa has become one of the prime destinations for international capital, especially for the extractive industries. As a result, foreign domestic flows have risen to $57 billion in 2013, fueled in part by China’s insatiable appetite for resources. Given the volatility of commodity prices, African governments need to adopt coherent policies to capitalize on this economic boom and diversify their economies. Creating a politically stable and business-friendly environment needs to be a priority to keep on attracting foreign companies. Creating public-private partnerships can strengthen the relationship between foreign investors and African governments and lead to a trickle-down effect in the local communities through job creation.

Take Botswana, that small South African country that could. Using its considerable mineral wealth it managed to transform itself from one of the most impoverished countries in the world into an up and coming middle-income economy. Botswana’s strong yet transparent relationship between the government and the private sector facilitated the efficient use of the royalties generated by the diamond industry. Instead of being pocketed by the ruling elite, the royalties were used to invest in infrastructure and social development. Now, Botswana is the continent’s most stable country and its government even created the Pula Sovereign Wealth Fund as early as 1994. The continent’s most emblematic success story shows that natural resources, if well managed, can lead to long-term development.

But for many this is a big “if”, as not every country in Africa has the advantage of having high-price commodities or the political stability needed to encourage investors to take risks.

Djibouti: from rags to riches and back again

A country of less than one million people, Djibouti is sandwiched between Somalia and Eritrea in Africa’s ill-reputed region of the Gulf of Aden. Natural resources are scarce in Djibouti; the country doesn’t even have the capacity to guarantee food security for its citizens and relies heavily on food imports. It would have seemed that this Red Sea Country was doomed to have a similar luck to that of its neighbors. However, Djibouti was able to turn its small size and its key strategic location into a great comparative advantage.

Americans, French, Germans, Chinese, Russians and even the Japanese have been vying for influence within the country’s government. As a result, Djibouti’s main source of income comes from the rents it charges its Western partners for the military facilities it hosts. While the exact sums are unclear, the U.S. pays some $60 million a year, while the French and the Japanese both contribute some $30 million.

Most recently, the Djiboutian government signed a security and strategic defense partnership with China. Djibouti is offering China military facilities in exchange for training of their military forces. Despite the important income the rents represent for Djibouti’s GDP, the military bases barely create affect domestic development.

The military bases are not Djibouti’s only source of revenue. Opened in 2008, the Doraleh Container Terminal (DCT) uses up a third of the country’s population and is the country’s principal source of employment. The DCT was constructed through a joint venture between the government and DP World, giving the Dubai-based company a 30-year concession to operate the most technological advanced container in Africa. After investing hundreds of millions of dollars in the country over the past 14 years, DP World turned Djibouti into a world-class port competing with Jeddah and Aden as Africa’s largest container terminal. Besides building the port infrastructure, the DP World also oversaw a three-year campaign to deliver primary health care services in collaboration with USAID and the Djiboutian government.

The successful partnership between DP World and the Djiboutian government registered a major setback recently when the Djiboutian president, Ismael Omar Gulleh, rescinded the Dubai-based company’s concession to operate the DCT. The government claims that DP World paid bribes to the former chairman of the Djibouti Ports and Free Zone Authority, Abdourahman Boreh to favor the company. Boreh alleges that the government has rescinded DP World’s concession for political reasons after he emerged as a presidential candidate, challenging Gulleh. Djibouti could very well irreversibly jeopardize the relationship with the country’s largest employer over this eminently internal struggle for power.

Djibouti’s revenues from the military bases are indeed high but unless they are used to create other jobs and develop much-needed infrastructure, the country risks relying on these rents as the only source of income. Moreover, Gulleh’s new agreement with China is already creating tension with American officials, as they are starting to doubt Djibouti’s commitment Gulleh’s unpredictable behavior won’t take long to scare off investors.

This scenario, of dictators clinging to power while paying little regard for their countries’ long-term interests, is sadly commonplace in Africa. Gulleh’s reaction to DP World shows how political instability can discourage FDI and hinder Africa’s development. Djibouti’s president and African leaders in general must adopt a more pragmatic approach to investment and development and not let themselves get carried by political rivalries. African governments must reduce the risks associated with political instability and create a business-friendly environment to continue to attract investments that are economically sustainable in the long run. It’s high time to commit unpredictable African leaders to the history books. Africans deserve more.

*Malik is a risk analyst currently based in France working for several consultancies on issues relating to political and security risk, primarily in the MENA region.

Eurasia Review

Eurasia Review

Eurasia Review is an independent Journal and Think Tank that provides a venue for analysts and experts to disseminate content on a wide-range of subjects that are often overlooked or under-represented by Western dominated media.

Despite the combined Eurasia and Afro-Asia areas containing over 70% of the world’s population, analysis and news continues to be dominated by a U.S. slant, and that is where Eurasia Review enters the picture by providing alternative, in-depth perspectives on current events.

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