Despite Lack of Natural Resources, Djibouti Attracts Major Investments in Infrastructure

Djibouti has no natural resources, a land area of only 23,200 km2 and a population of 1m. Yet, the country has attracted billions of dollars of investments over the past decade, making some of Africa’s biggest economies look up to it with envy. Foreign investors from China, the Middle East and the United States are injecting billions into the country’s ports, oil & gas terminals, free trade zones and a 750km rail line that serves Ethiopia’s population of over 110m. That railway line alone can carry 2,600 tonnes of wheat and fertilisers and 110 containers per trip.  At a time when African countries continue to decry the lack of investment into the continent’s infrastructure, Djibouti is forging ahead and using its geographical location to build the trade and services infrastructure of tomorrow.

Geography is the country’s biggest asset: Djibouti is located on the strait of Bab-el-Mandeb on the north-east edge of Africa, where 30% of the world’s shipping passes on its way to the Suez Canal. Coupled with political and economic stability, Djibouti offers investors a safe haven to tap into the world’s most dynamic globalization routes while serving Africa’s growing population. It also helps that its neighbours Eritrea and Somalia continue to be plagued with insecurity and instability.

Djibouti’s ports and container terminals remain amongst the most productive in the world. According to a new global container port performance index compiled by the World Bank and IHS Markit, its port is even the most efficient in Africa measured by minutes per container move. With such efficiency, Djibouti’s goal of emulating Singapore as a leading maritime trading hub is within reach.

To cement its position as the world’s future big trading hub, Djibouti recently set up a sovereign wealth fund with a view to finance about $1.5bn of domestic business activity over the next decade. In parallel, the country has embarked on significant infrastructure expansion with the Djibouti Damerjog Industrial Development Free Zone, echoing Singapore’s own Jurong petroleum and petrochemicals hub.

Earlier this year, the Kuwait Fund for Arab Economic Development signed a $30m loan agreement to finance the construction of the Damerjog power plant.

The industrial park represents a 15-year undertaking and is expected to house integrated energy and petrochemicals facilities and further position the country as a strategic energy and industrial hub meeting the needs of the East African sub-region. While the complex was initially conceptualised to export South Sudanese oil, it eventually developed into a mega industrial and petrochemicals scheme.

The ultimate oil complex will cover 80ha, starting with the development of 32ha comprising of 300 000 m3 storage tanks, an oil jetty and railway infrastructure connected to the Nagad Station, and from there to the Djibouti-Addis Abebe railway line. It will also include the construction of a 6 million tonnes refinery by the China Marine Bunker Co. Ltd (CHIMBUSCO) that will refine Saudi and Sudanese crude into marine fuels with a sulphur content of no more than 0.50%S, along with diesel, naphtha and LPG. The facility would primarily meet demand for Djibouti and Ethiopia and be followed by the construction of an onshore refinery.

The industrial park will also benefit from a 150MW gas-to-power plant, starting with a 20MW hybrid power station expected to be commissioned in 2022. Such power supply will be key for all upcoming manufacturing units in the park built by Chinese investors and including steel, metal mesh, PVC pipes and glass.

The anchor project for the whole complex is the Damerjog Liquid Bulk Port, Djibouti’s seventh port, built by Moroccon contractor SOMAGEC. President of Djibouti Ismaïl Omar Guelleh laid the foundation stone there in September 2020.

Details on the Damerjog industrial park and liquid bulk terminal can be found in the “Projects” section within your Hawilti+ research terminal.

Read more

Kenya is positioning itself as Africa’s next big financial hub

Kenya’s capital, Nairobi, has successfully established itself as a regional hub for trade, commerce, innovation and technology. Now, it wants to compete with Mauritius or even Dubai to be Africa’s new financial hub, positioning itself as a global gateway for capital flowing into Africa’s rapidly growing economies. The country launched this year the Nairobi International Financial Center (NIFC) to deepen Africa’s financial sector, with a target of raising $2bn in investments by 2030. The project has been in the making since 2014 and joins a series of ambitious Kenyan ventures supporting the country’s competitiveness, including the Konza Technopolis. The project received a major boost last July during Kenyan President Uhuru Kenyatta’s visit to the United Kingdom. The visit resulted in the announcement of GBP 132m of UK investment into Kenya and marked the official launch of the NIFC in formal partnership with the City of London. British insurer Prudential notably submitted its application to be the first company to set up in the NIFC while Kenyan mining company Mayflower Gold announced plans to dual list its shares on both the London and Nairobi Stock Exchanges in a deal worth £14 million. The deal ALSO includes closer links between the London and Nairobi stock exchanges, as well as moves to ease incorporation and registration of companies in Kenya. While Kenya’s capital markets are relatively developed, the country’s businesses and economy at large still relies massively on commercial debt from banks. The launch of the NIFC is seen as an additional mechanism to promote the Nairobi Stock Exchange while contributing to the deepening of the region’s capital markets.

In 6 Months, Benin Has Raised Over 10% of its GDP in Eurobonds

In January, Benin had kicked off Africa’s financial year with a historic €1bn Eurobond issuance split in two tranches. In July, it continued to tap global capital markets and became Africa’s first nation to issue an SDG-link Eurobond that raised another €500m. In total, the small country of 12m people, often overshadowed by its big neighbour Nigeria, managed to raise a historic €1.5bn, representing over 10% of its GDP. A Well Executed Fundraising Programme At the start of the year, Benin already made headlines with its double issuance of €700m (11-year tenor) and €300m (31-year tenor), which it raised at rates of only 4.875% and 6.875% respectively. Both issuances were massively oversubscribed by 300% and mobilized a total of €3bn, demonstrating significant appetite from global investors for Africa’s debt, even that of smaller and often under-estimated nations. While smaller, the €500m issuance of July is nonetheless historic because it represents Africa’s first Eurobond dedicated to the financing of projects linked to the Sustainable Development Goals (SDGs). Once again, it was massively oversubscribed and mobilized a total of €1.2bn. The bond has a very good rate of 5.25% and a tenor of 12.5 years. Benin Builds Investors’ Confidence Shortly after the January issuance, Fitch Ratings revised the outlook on Benin’s long-term foreign-currency Issuer Default Rating (IDR) from stable to positive and affirmed the IDR at ‘B’. Moody’s Investor Service followed in March by upgrading the Government of Benin’s long-term issuer and senior unsecured debt ratings from B2 to B1. Both upgrades were made on the back of strong fiscal consolidation track record, recognized efforts in debt restructuring and rising economic resilience. Benin remains one of Africa’s fastest-growing economies with GDP growth projected at 5% by the IMF this year, and at 5.6% by Fitch Ratings. The medium-term growth prospects are event better with a projected GDP growth rate of over 6% a year over the 2022-2026 period (IMF). What are the Pitfalls? Benin’s latest issuance shows a growing recognition of the benefits of sustainable borrowing from African governments. While Nigeria had been the first African market to issue a sovereign green bond back in 2017, no African nation had yet issued an SDG-link Eurobond. But overall, the country’s Eurobond borrowing strategy also reflects Africa’s growing appetite for external and foreign-currency debt, supported by interest rates often more attractive than on the domestic market. While several countries have seen the debt-to-GDP ratios soar in recent years, Benin’s outstanding public debt is only at about 46.1% of GDP according to 2020 data from the African Development Bank (AfDB). It is expected to average 40.9% of GDP over 2021–22, well below the 70% threshold set by the West African Economic and Monetary Union. As a result, the risk of debt distress remains moderate in the short-term, providing Benin continues to strengthen its domestic resources mobilization, broaden its tax base and diversify its sources of revenue. African markets have raised a significant amount of foreign-currency debt this year. Beside Benin, Côte d’Ivoire notably issued a €850m Eurobond in February (4.3%, 12-year) while Kenya raised $1bn in June by issuing a 12-year Eurobond at 6.3%. All these issuances were massively oversubscribed, further signaling investors’ confidence in the continent’s growth prospects. The last few months of the year will tell if other countries are able to surf on the same wave or not: on October 11th, Nigeria is notably tapping global markets with a Eurobond issuance expected to raise up to $3bn.