Djibouti Says Ethiopia Conflict Hinders Economic Rebound

Mohamed Sheikh Nor, Bloomberg News

(Bloomberg) -- The speed of Djibouti’s economic recovery from a contraction last year hinges on how soon conflict ends in neighboring Ethiopia, Finance Minister Ilyas Dawaleh said.

“The recent and escalating conflict in Ethiopia is worsening prospects for regional peace, trade and undermines regional cooperation,” Dawaleh said in an emailed response to questions on April 10. “As a result of these external and internal factors, Djibouti’s economic recovery is likely to be a prolonged affair.”

Situated at the entrance to the Suez Canal, Djibouti is a major trade conduit for Ethiopia, Africa’s second-most populous country. Fighting in Ethiopia’s northern Tigray region that erupted in November has exacerbated the impact of the coronavirus pandemic and raised economic uncertainty in that country.

Djibouti’s economy shrank 1% last year, and is forecast to expand 5% this year and 5.5% in 2022, according to the International Monetary Fund. The country, is targeting growth of 7% to 9% in the coming years, driven by port upgrades, investments in green energy and technology, Dawaleh said.

The country has been ruled by President Ismail Omar Guelleh, 73, for the past two decades. He secured a fifth term in an April 9 election, winning more than 97% of the vote, according to the state-owned La Nation newspaper.

Situated on one of the world’s busiest shipping lanes, Djibouti has become increasingly important to regional and world powers. Smaller than the U.S. state of Massachusetts, it hosts the largest U.S. military base in Africa in addition to a Chinese People’s Liberation Army support facility.

In June, the Horn of Africa nation announced the creation of a sovereign wealth fund that will target domestic and regional investments, focusing on industries including telecommunications, energy and logistics. The fund is targeting $1.5 billion of contributions within a decade.

“The Djibouti Sovereign Fund will play an important role to attract and generate more international private capital,” Dawaleh said.