19 Aug 2019
Section 1: Industrial Manufacturing Focus in Djibouti
Industrial Clusters: Parks & Zones
Djibouti City is the centre of economic activity – Djibouti has the highest urbanisation rate in East Africa, with approximately 78% of the population living in cities. Djibouti’s largest city, also called Djibouti, is home to about 60% of the population. About half of the population is under the age of 25.
Free trade zones expanding rapidly – International firms will concentrate in rapidly expanding free trade zones in the city of Djibouti. In addition to the existing Djibouti Free Zone (DFZ) and DAM Commercial Free Zone in the Damerjog region, the state is developing the US$3.5 billion Djibouti International Free Trade Zone (DIFTZ) in partnership with China. The initial 2.4 square kilometre pilot zone opened in 2018 and completion of the full 48 square kilometre site is scheduled for 2027.
Lack of manufacturing clusters – Despite rapidly expanding free trade zones, there are no significant manufacturing clusters at present. Manufacturing accounted for only 2.3% of the economy in 2018. This is comfortably the lowest share among Djibouti, Ethiopia, Rwanda, Tanzania, Uganda and Kenya. The government is prioritising the development of industries other than manufacturing, particularly transport and logistics, but also real estate, energy, and tourism.
Manufacturing investment will be constrained by three key factors:
- Export-orientation necessary – Djibouti has a population of approximately one million, making it the second smallest country by population size in East Africa after the Comoros. As a result, any large manufacturing investment will need to target exports to East Africa or further afield.
- Low-skilled and small-scale necessary – The small geographic size of the combined free trade zones, in conjunction with the small and relatively unskilled workforce will make Djibouti unattractive to large-scale mass-production or high-skilled manufacturing industries.
- Poor connectivity will limit smart-factory potential – A state-owned telecoms monopoly means that basic 2G/2.5G mobile services dominate the market. The country does have potential to roll out fast connectivity in free trade zones, given that numerous international submarine cables have landed, or are planned to land, in the country. However, the government has been reluctant to open these resources up to third parties and progress is likely to be slow.
Textiles: Djibouti could experience positive spillover from Ethiopia’s fast-growing textiles industry. The majority of Ethiopia’s manufacturing exports are shipped internationally via Djibouti. This could create an opportunity for textile firms operating in Ethiopia to set up operations in Djibouti in order to save on transport costs. Djibouti has a minimal textile industry at present. For instance, textiles accounted for less than 1% of total exports in 2018.
Basic Metals Products: There is a small footprint of basic metal product manufacturing in Djibouti. Three of the country’s four largest manufacturing exports in 2018 were razor blades (US$6.5 million), railway and locomotive parts (US$4.1 million) and machinery parts (US$2.5 million). Together these products accounted for 12.2% of total exports in 2018.
Other Low-Skill Assembly Manufacturing: Other low-skilled assembly industries such as paper products, packaging and toys and games could be compatible with the low level of skilled labour and limited geographic footprint available in Djibouti’s free trade zones.