June 2018

Ports, services, human capital
Development in Ports, services, human capital 3D

By Cherif Ouazani
To be recognized as one of emerging Africa’s major hubs! President Ismail Omar Guelleh’s strategy has largely moved beyond the slogan stage. And the government’s Vision 2035 links it to China’s big New Silk Road project.
This is a great day for our country and your company.” With these words, President Ismail Omar Guelleh (IOG) welcomed Zhu Gong Shan, Chairman and CEO
of China’s Hong Kong-based Poly-GCL Group, on 13 May 2018. The phrase does not just pay diplomatic lip service. The purpose of the meeting between the two men is indeed important: to preside over the signing ceremony of a mega contract worth $3.8 billion, twice Djibouti’s GDP (in the region of $1.9 billion in 2017). This private investment does not add to the country’s debt but catapults Djibouti into a whole new dimension. Up until then, annual investments in Djibouti had amounted to tens of millions of dollars in the early 2000s, then hundreds of millions of dollars during the 2006-2016 decade, and suddenly we’re talking billions of dollars. The contract signed on 13 May will ultimately be a powerful incentive for similar investments. The contract is for the construction of a 750 kilometre-long gas pipeline (with a capacity of 12 billion m³ per year) to transport gas from the Ogaden plateau fields (Ethiopia) to China via a gas terminal to be built at the Damerjog industrial zone (10 km south of the capital Djibouti). According to the contract, the Damerjog industrial platform will be equipped with a liquefaction and methanol production plant with an annual capacity of 10 million tons, a gas-fired 150 megawatt power plant, and gas and methanol storage facilities. 
This project, which should be operational by the end of 2021, constitutes the first phase of the Djibouti Damerjog Industrial Development (DDID) project, the implementation of which falls within the framework of the Vision 2035 plan to make the country an emerging economy. Designed over an area of 30 km², 20 km² of which are on the Indian Ocean, the DDID project will be carried out over a period of 15 years between 2017 and 2032, in three five-year phases. The first phase is covered by the contract with Poly-GCL. The second will see continuity in the energy sector, with an oil terminal comprising a refinery (2.6 million tons per year) and 300,000 barrel storage capacity, which will relieve the Horizon terminal (in Doraleh), the capacity of which is insufficient to meet the growing demand of the Ethiopian economy, Djibouti’s main infrastructure customer. The third phase of the Damerjog project will confirm IOG’s determination to diversify Djibouti’s economy away from its dependence on the services and logistics sector, with the first heavy industrial units: metallurgy with flat steel production, ducts and gas pipelines, a 600,000 ton-peryear cement plant coupled with building materials manufacturing plants, a 25,000 m³ per day seawater desalination plant and lastly, a shipyard with the capacity to accommodate large tonnage vessels for repairs.
In addition to the oil and gas terminals, Damerjog will have its own multi-purpose port, capable of handling containers and bulk goods (grain, fertilisers and steel tubes) as well as a vast free zone. A town will be built on the outskirts of the port and the industrial zone, and will feature all amenities, including an international school, a hospital, a shopping centre, a salt sculpture park and the Mangrove Park, a huge ecological area. The project designers, Chinese firm Shanghai Tonghua Architecture and Urban Plan Co. Ltd, made sure that the industrial zone excludes neither ecology nor tourism and the DDID Master Plan thus includes two luxury hotels and a water park. This platform will be connected to the new airport by road and to Nagad railway station by rail. The DDID logistics and transport services will be serviced by air, land and sea.
Africa’s answer to Singapore
Why 13 May 2018 was such a great day for Djibouti is becoming more apparent. Damerjog is no longer a far-off project but a medium-term objective. While some are concerned about Djibouti’s indebtedness (see Central Bank Governor Ahmed Osman Ali’s response, p. 78), the Damerjog megaproject will be financed by private companies, mostly Chinese, in partnership with the State of Djibouti through its Ports and Free Zones Authority (DPFZA). As for the choice of China as a partner for the project, the decision was obvious. Only the Middle Kingdom with its immense foreign exchange reserves ($3,200 billion) and its world-class companies could breathe life into IOG’s dream of making his country a Singapore of Africa. There is nothing humanitarian about China’s interest in the Addis-Djibouti corridor. For China’s New Silk Road initiative, Djibouti is the gateway to the promising and gigantic African market (see box). The development strategy chosen by IOG to make his country an emerging economy is coherent. It is based on a triangle linking three points: the Damerjog platform and its heavy industries, the old port of Djibouti which will be transformed into a financial centre, and a new free zone in Khor Ambado (23 km from the capital) alongside the Doraleh port zone and its three terminals (container, oil and multipurpose).
Djibouti is not only investing in infrastructure, it is also investing in education and health. No development strategy can succeed without qualified and competent human resources. In 1999, when IOG came to power, the country had only one high school and a few middle schools. Today, doctors and engineers are trained by the University of Djibouti. The local know-how in port management was put to the test and passed with flying colours the day after the termination of DP World’s concession contract for the management of the port of Doraleh. Disgruntled pessimists were convinced that the port’s activity would decline, and perhaps even come to a grinding halt, the day after the expatriate workers, who believed they were running the port, left. The container terminal taken over by a new 100% Djiboutian-owned company has improved its performance and increased its production fivefold (container handling) in less than three months (see p. 70). Other than human resources, the country’s competitiveness changed significantly after the adoption of institutional and regulatory reforms. A Single Window was set up in April 2017 to facilitate starting a business and streamlining procedures. The result of this is that the World Bank’s “2018 Doing Business” report names Djibouti as the economy that has made the most progress in improving its business climate. IOG does not like being told that he has the “baraka” (blessing). No sooner had he come to power when the attacks of 11 September 2001 increased the world’s military powers’ interest in his country’s geostrategic location. Fifteen years later, his goal of making Djibouti a regional hub was consolidated by Egypt’s decision to expand the Suez Canal, which promised growth in the region’s maritime traffic and consequently a significant loading increase for the country’s ports. The most recent baraka is that, at a time when experts were predicting a risk of the Ambouli groundwater drying up, due to the excessive use of boreholes, thereby depriving the capital of its daily 40,000 m³ supply, cyclone Sagar caused flooding on the night of 18 May, as well as sufficient rainfall to regenerate the water table for at least a decade. By betting on industry, Djibouti is creating the conditions for a diversified economy that generates jobs and promotes the consolidation of a dynamic middle class, which all feature amongst IOG’s objectives. Other objectives are cutting poverty from 60% to 20% of the population and reducing unemployment, especially among young workers, to less than 10%.
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