Djibouti—Harnessing Trade and Technology for Inclusive Growth

[Deeq A.]

Christine Lagarde

By Christine Lagarde, IMF Managing Director
Djibouti, December 18, 2017

December 18, 2017

AS PREPARED FOR DELIVERY

Governor Ali, Minister Dalawaleh, Excellencies, Ladies and Gentlemen:

Good morning—As Salam Alaykom.

I would like to thank the government of Djibouti for inviting me to this high-level dialogue on the importance of trade and technology.

These forces are critical for all countries. But they are especially important for small states such as Djibouti, where they can play a major role in economic transformation.

Trade and technology are at the heart of Djibouti’s development strategy known as Vision Djibouti 2035.[1]

When this strategy was launched—back in 2014—President Guelleh quoted Emile Zola, who said: “Knowing where to go is very good; showing the way is even better.”[2]

Djibouti can show the way by transforming itself into a regional hub for trade and logistics, and by drawing on the experiences of other port-based economies.

The goal is to become a prosperous middle-income country, where the benefits of growth are shared by all citizens.

That is why Djibouti has been investing heavily in public sector projects, including several new ports and the new railroad to Ethiopia. These investments have the potential to boost trade and drive fundamental economic changes.

 

1. Harnessing Trade

We know that trade can increase living standards in all countries. Why? Because consumers and businesses are benefiting from lower prices and a greater variety of goods. This is particularly important for poorer consumers who buy relatively more, low-priced imports.

We also know that trade can boost productivity growth by encouraging companies to adopt new technologies and production processes.[3]

The good news is that global trade growth is projected to increase to 4 percent in 2018, largely because of stronger global economic growth.

This offers a huge opportunity for Djibouti.

The new ports, for example, will allow Djibouti to capture a larger share of global and regional trade volumes. They will also contribute directly to productivity growth because of their high degree of automation.

But that is not the whole story. The longer-term objective is to shift a large part of Djibouti’s resources into higher-productivity services that support increased trade.

From trans-shipment services, to cutting-edge logistics, to financial and legal services: these are some of the professions that will need to be expanded if Djibouti is to become a regional trading hub.

This is about fostering a larger and more vibrant private sector to help reduce high unemployment and high economic inequality. It is about creating better opportunities for the next generation.

 

2. Harnessing Technology

Another potential opportunity is Djibouti’s unique position at the crossroads of global internet connections.

The country’s data center has direct access to all major international and regional internet cables, serving as a gateway to East Africa and beyond.

Djibouti could leverage this digital infrastructure by hosting third-party equipment[4], providing internet exchange, and offering big data processing, among other services.

We know that countries in the region could generate enormous productivity gains by enabling greater internet use in financial services, healthcare, and public administration.

But some of the biggest productivity gains could come from providing reliable electricity to companies and communities.

Here in Djibouti, the clean energy sector is expected to benefit from the recent liberalization of energy production and new regulations on public-private partnerships.

An important geothermal project is under preparation—but there is room for more private investment, especially in solar power.

These are only some of the areas where Djibouti can benefit from technology and trade. To achieve these goals means that other policies must be supportive.

 

3. Creating a Supportive Environment

How can Djibouti create this supportive environment?

One avenue that has worked in all countries is pursuing sound macroeconomic policies. Djibouti’s economic growth is expected to remain strong in the medium term—at about 7 percent—because of the investment boom.

But the financing of these projects has raised public debt from 50 to 85 percent of GDP. Bringing public debt back to a sustainable level is critical to preserve economic stability and protect spending on health and education.

This calls for a slowdown in government borrowing and a strengthening of debt management. It also calls for further tax reforms to raise public revenue.

These are some of the areas where the IMF is deeply engaged with Djibouti, providing hands-on assistance on public financial management—from tax policy, to expenditure policy, to budgetary frameworks.

A second avenue is improving the business environment. The government has recently made significant progress in cutting red tape—which can help unlock private investment.

At the same time, nothing is more important for a better business environment than fighting corruption. Djibouti’s development strategy clearly states that “corruption is a scourge that impedes development efforts”.[5]

In this area, the government has taken an important step by creating a new governance code for public enterprises. Implementing this code is critical. So too is strengthening the management and supervision of these companies.

Better governance in public enterprises could lead to lower prices for water, electricity, and telecom services. That could be a game changer for both companies and communities.

A third avenue is promoting more inclusive growth. New IMF staff research[6]shows that, in the past decade, Djibouti’s economic growth has benefited mostly the upper bracket of the income distribution.

What can be done? Increasing the proportion of women in the labor market could make a huge difference. So too could extending public-sector health insurance to the poorest segments of society.

There is also room to scale up investment in training and education—so that workers can upgrade their skills to find new jobs in higher-productivity firms.

Of course, meeting the challenges posed by trade and technology is not an easy task. But the experiences of other port-based economies show that it can be done.

A good example is Dubai. Over the past four decades, Dubai has invested heavily in ports, tourism, financial services, and free trade zones—while improving its business environment to promote private-sector-led growth.

This transformation has captured the imagination of many policymakers across the globe, but it can only take us so far. Countries such as Djibouti know that there is no single recipe for success.

 

4. Conclusion

That is why the IMF is working in partnership with our 189 member countries.

The Fund is helping to address the changing needs of our members through our analysis and policy advice, our financial assistance, and by sharing policy ideas and best practices—so that countries can boost their capacity for sound economic management.

As the great Arab poet, Ahmed Shawqi, once put it: ”Wama nylu almatalibi biltamanni,” “We cannot accomplish our goals by wishful thinking alone.”[7]

Today’s generation of policymakers—here in Djibouti and across the region—will be measured by their ability to harness the potential of trade and technology.

By turning wishful thinking into action, policymakers can help create more prosperous economies where all people have a chance to thrive.

I look forward to our discussion.

Shukran!

IMF