Djibouti's geography is located in a geopolitical and unstable region with many security threats, but it could have been considered a weakness. However, the country is making the most of its location by developing modern port terminals to take advantage of the sea routes connected to the Indian Ocean, Gulf States and the Suez Canal, which handles around 30% of the world's seawater cargo.
Although Djibouti's population is only 1.18m, large port facilities are being constructed to harness Ethiopia's leading entrepreneurial status. Africa's second-most populous country has been inland since Eritrea's separation in 1993, but is Africa's fastest growing economy since the turn of the millennium, offering an increase in trade volume for Djibouti to take advantage of.
Ethiopian trade has helped fund the construction of the latest terminal, which currently provides transportation services to other ports in the region.
Most port facilities are located at Djibouti Port three kilometers to the west and the adjacent multi-purpose port of Dorare. Doraleh's owners, which opened in 2017 at a cost of $580 million, include the Djibouti Port and the Free Zone Bureau, and the China Merchants Port Holdings Company (23.5%).
The six existing berths offer dedicated containers, roll-on roll-off (RO-RO), bulk and break bark terminals, with 11 more planned berths. The Doraleh Container terminal handled 1,236,769 TEUs (standard-sized containers) in 2024, breaking the barrier of the 1M TEU for the first time. There are also even smaller ports from the cities of Ghoubet and Tadjourah, dealing in salt and potash exports, respectively.
At least 90% of Ethiopia's commodity trade was completed in 2018 and is being processed in Djibouti thanks to the new 753 km electric railway connecting Addis Ababa and Djibouti. The freight transport time between the Ethiopia capital and the Djibouti port has been reduced to less than 20 hours by more than three days. China's EXIM Bank provided 70% of the project's $4 billion construction costs, with Ethiopia and Djibouti governments supplying the rest.
The standard gauge lines are constructed and operated by the China Civil Engineering Construction Corporation and China Railway Engineering Corporation. In May 2024, management was transferred to Ethio-Djibouti Rail Transport SA. The operating company is owned by the Ethiopian government (75%) and Djibouti (25%). A total of 2,800 workers from Ethiopia and Djibouti were trained prior to the relocation.
Between 2018 and 2024, the line carried 9.5 million tonnes of cargo and 680,000 passengers. It first made profits in the fourth quarter of 2024, but the full figures were not released. However, in August 2024, Takeleuma, CEO of the Ethiopia Djibouti Railway, revealed that only 15 of the company's 32 freight locomotives are operational. He promised to use them.
Ports and logistics businesses are key sectors in their own right, but by supporting export-oriented businesses to grow and creating jobs, they could have a significant impact on the wider economy. The port sector promoted an average economic growth of 4.4% in DJibouti between 2000 and 2021, a significant increase from 0.6% of GDP in 2000 to 5.5% in 2015-22. GDP rose 6.7% in 2023, with an estimate of 6.5% increase last year.
Job creation
However, a visit to the country in 2024, the IMF team discovered that logistics investment over the past decade has helped create economic growth, but it has not coincide with job creation. Approximately half of the adult population lacked formal employment, with 70% of the unemployed being under the age of 30.
To help local residents work in the industry, a training centre specializing in port operations and logistics sectors opened in November 2024 with funding from the Agence Française de Dévelopepément (AFD) and the European Union. Near the main port area, the Center Deresor Centre Digibouti (CRC) is equipped with a simulator and education room that hosts a training program of 3,000 people since 2019. Of these, 70% secure employment.
CRC Director Abdourahman Elmi said: “We work closely with port authorities and businesses to understand their needs. We will then adapt the number of program locations to ensure that as many students as possible can be integrated into the labor market.” The Centre hopes to expand its operations and has already begun consultations with ports based in neighboring countries to train the workforce.
The CRC will help train skilled workers in new ship repair yards and floating docks, completed in 2023 by the Dutch Damen Shipyard. Funding was provided by Invest International Capital. The new facility will provide maintenance, metalworking and other services to visit vessels up to 217 meters.
Free Trade Zone
Several free trade zones and industrial parks have been developed around Djibouti city to make use of the port. The first phase of the Djibouti International Free Trade Zone (DIFTZ) was completed in 2018 23 km from the city. It will ultimately cover 4,800 hectares.
Great Horn Investment Holding is currently also developing the Damerjog Industrial Development Free Trade Zone, which will include a new oil pier and storage space to serve the shipping industry, with a $120 million funding provided by Afreximbank in 2023.
The country is particularly suited to serve as an entry point for Gulf investors into the new African Continental Free Trade Agreement area. In June 2024, the Saudi Arabian government signed a contract to develop a 120,000 square metre “logistics city” on Diftz.
Saudi Logistics City has already attracted truck assembly facilities, solar panel factories and medical device manufacturers. More broadly, it aims to host trade and logistics, export processing, lightweight manufacturing and duty-free retail. In a statement, Diftz said the project “will be important in attracting Saudi business investors and opening the African market to Saudi products. In the future, Saudi Arabian products will be traded in sub-regions and beyond from Diftz.”
Also last June, Saudi Arabia's Ajal Oil and Energy Company signed a land lease agreement with the aim of building an oil refinery of 300,000 barrels per day in the Dameljog Industrial Free Zone. If developed as planned, it will be Africa's third largest refinery after Nigeria's new 650,000 barrels per day Skeda facility with 356,500 barrels per day.
Intensifying economic diversification also helps to dilute the suspected geopolitical and security risks facing Djibouti. Located on the Horn of Africa, it is exposed to a wide range of potential risks, including instability in Somalia, potential conflicts between Ethiopia and Eritrea, copyright infringement in the Indian Ocean, and an ongoing civil war in Yemen, across the Bab-ermandev Strait.
