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Djibouti to Raise $5.9 Billion for Infrastructure Projects

People shop at the Balasrambu market in Djibouti. Djibouti has a $1.1 billion economy with fewer than 1 million people, 42 percent of whom live in extreme poverty, according to the African Development Bank. Photographer: Simon Maina/AFP/Getty Images
People shop at the Balasrambu market in Djibouti. Djibouti has a $1.1 billion economy with fewer than 1 million people, 42 percent of whom live in extreme poverty, according to the African Development Bank. Photographer: Simon Maina/AFP/Getty Images

May 9 (Bloomberg) -- Djibouti is in talks with China, India, Russia, Brazil and Arab investors to finance infrastructure projects worth $5.9 billion, the head of the country’s ports authority said.

The Horn of Africa nation, which is seeking to become a middle-income country by 2035, plans to develop rail links, ports, and oil and gas pipelines, Djiboutian Ports and Free Zones Authority Chairman Aboubaker Omar Hadi said in an interview yesterday. Commitments for “close to 57 percent” of the project costs have been received from China, India, a Saudi Arabian fund and other investors, he said in London.

The projects include a doubling of capacity at the Doraleh container port to 3 million containers a year by 2015, according to documents distributed by the Djiboutian government at a conference in the U.K. capital. That would rank it as the continent’s biggest such facility, surpassing Port Said and Damietta in Egypt, Durban in South Africa and Tangier in Morocco, it said.

“The main engine of growth in Djibouti is the service and logistics sector,” Finance and Economy Minister Ilyas Moussa Dawaleh said in an interview in London yesterday. Achieving faster growth “is the only way to transform, to create opportunities for job creation and poverty reduction,” he said.

Red Sea

Djibouti has a $1.1 billion economy with fewer than 1 million people, 42 percent of whom live in extreme poverty, according to the African Development Bank. The nation hosts about 2,500 U.S. military personnel at the Camp Lemonnier base, along with French and Japanese forces. Economic growth is dependent on services related to Djibouti’s location on the Red Sea, one of the world’s busiest shipping lanes.

With unemployment estimated at 60 percent and poverty indices among the worst in Africa, “new and more radical policies will be required to ensure the wider distribution of windfall gains from a growing economy,” David Styan, a lecturer at Birkbeck University of London, said in a report published by Chatham House, the foreign-policy research group, last month.

Growth averaged 5 percent from 2006 to 2012, compared with 2.5 percent from 2001 to 2005, Ahmed Osman Ali, governor of Djibouti’s central bank, said at yesterday’s conference. Expansion is set to accelerate to 7.5 percent this year and in 2014, according to Dawaleh’s estimates.

“Djibouti faces difficulties because of the cost of energy,” Dawaleh said. “Our aim is to make sure by 2020 we transform the country in running 100 percent on clean energy.”

Geothermal Energy

The East African nation has completed talks on developing its geothermal deposits with the World Bank and the African Development Bank, and has seen “great interest” from the Japanese government in the project, he said. Plans to start drilling five geothermal “wormholes” by the end of this year are under way, Dawaleh said.

Djibouti is also seeking investors for wind and solar-power development, while continuing to leverage its geographic position to become “the bridge between Asia and Africa,” he said.

The country plans to create six ports to handle commodity exports, according to Hadi.

In addition to the expansion of Doraleh, Djibouti is building a facility at Tadjourah, with the first phase being funded by the Saudi Fund for Development and the Arab League’s Kuwait-based Arab Fund for Economic and Social Development at a cost of $80 million. A second phase of development will begin in 2015 and cost $90 million, the government said.

Salt Exports

Last month, construction began on another port at Ghoubet to export salt and gypsum deposits from Lake Assal. The lake is the site of the world’s largest undeveloped salt reserve, according to Salt Investment SA, a unit of Washington-based Emerging Capital Partners. Chinese funding of $64 million has been secured for the port, the government said.

Talks are under way for a $600 million oil refinery that will allow for the import of crude from South Sudan by pipeline, the government said. The finished products will be sold in East Africa, it said.

South Sudan last year signed an agreement with Ethiopia and Djibouti to build an oil pipeline that would reduce its dependence on crude shipments via neighboring Sudan. The two Sudans came to the brink of war in 2012 amid a dispute over processing and transportation fees.

Plans for a $2.6 billion liquefied natural gas terminal in Djibouti, including a liquefaction plant and a pipeline, will enable the export of 10 million cubic meters of gas from Ethiopia to China annually from 2016, the government said.

PPP Models

Issuing debt to finance development “is not really our priority,” Dawaleh said. “We are focusing very much on” public-private partnership models, he said.

Brazil and Russia are mainly interested in financing the oil pipeline from South Sudan, a gas pipeline and rail links with Ethiopia, Hadi said.

Negotiations have started with the two nations for “concessional loans” of about $1 billion to be repaid at an annual interest rate of 3 percent over 25 years, Hadi said. Brazil’s commitment “is not yet finalized,” he said.

Djibouti has been ruled by President Ismail Omar Guelleh since 1999. The 65-year-old leader succeeded his uncle Hassad Gouled Aptidon, the country’s first president after it gained independence from France in 1977.

Human rights issues in the country include the use of torture, arbitrary arrests and corruption, according to the U.S. State Department. Reporters Without Borders, the Paris-based advocacy group, has expressed a “deep concern about the persecution of journalists” in Djibouti, according to the State Department’s website.

To contact the reporter on this story: Maria Levitov in London at mlevitov@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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