Accra, Ghana - October 20th 2012: Ship being unloaded at the Harbor of Accra

Free Trade Zones and Cargo Capacity at Ports

Photo by Shutterstock

Free Trade Zones and Cargo Capacity at Ports

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Services
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Consumer Services
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
10% - 15% (in IRR)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Long Term (10+ years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
> USD 10 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8) Industry, Innovation and Infrastructure (SDG 9)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
No Poverty (SDG 1) Sustainable Cities and Communities (SDG 11)

Business Model Description

Build businesses operations to increase industrial, transshipment and seaborne cargo capacity around four industrial clusters of focus at Djibouti's ports: logistics (transportation, warehousing and similar), business industry (goods transactions and merchandise display), business support (financial services, accommodation and office spaces) and processing manufacturing (packaging and light processing).

Expected Impact

Increase regional manufacturing output, improve intra-regional trade and enhance value chain development.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

Disclaimer

UNDP, the Private Finance for the SDGs, and their affiliates (collectively “UNDP”) do not seek or solicit investment for programmes, projects, or opportunities described on this site (collectively “Programmes”) or any other Programmes, and nothing on this page should constitute a solicitation for investment. The actors listed on this site are not partners of UNDP, and their inclusion should not be construed as an endorsement or recommendation by UNDP for any relationship or investment.

The descriptions on this page are provided for informational purposes only. Only companies and enterprises that appear under the case study tab have been validated and vetted through UNDP programmes such as the Growth Stage Impact Ventures (GSIV), Business Call to Action (BCtA), or through other UN agencies. Even then, under no circumstances should their appearance on this website be construed as an endorsement for any relationship or investment. UNDP assumes no liability for investment losses directly or indirectly resulting from recommendations made, implied, or inferred by its research. Likewise, UNDP assumes no claim to investment gains directly or indirectly resulting from trading profits, investment management, or advisory fees obtained by following investment recommendations made, implied, or inferred by its research.

Investment involves risk, and all investments should be made with the supervision of a professional investment manager or advisor. The materials on the website are not an offer to sell or a solicitation of an offer to buy any investment, security, or commodity, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction.

Read More

Country & Regions

Explore the country and target locations of the investment opportunity.
Country
Region
  • Djibouti: Djibouti (City)
  • Djibouti: Arta
  • Djibouti: Tadjourah
Learn more

Sector Classification

Situate the investment opportunity within sustainability focused sector, subsector and industry classifications.
Sector

Services

Development need
Djibouti's economy is dominated by the services sector generating 70% of growth (5). Transport services, especially port activities, are the main growth source and employ most of the workforce (1). As services are becoming more tradable, expanding and diversifying international service exports provide significant opportunities for developing least developed countries (2).

Policy priority
The authorities are continuing the country's development with the goal of setting up a regional hub for trade, logistical and financial services (3). One such attempt is the inauguration of the Djibouti International Free Trade Zone (DIFTZ) in 2018, which is set to be the largest free trade zone in Africa once complete (9).

Gender inequalities and marginalization issues
Consumer services are key to promoting inclusive growth. They provide jobs for the poor, form the backbone of the economy, and offer key opportunities for growth through trade in Djibouti (6).

Investment opportunities introduction
Strong export growth especially in transport and logistics services is expected to improve the current account balance to 2.6% of GDP by 2024. An output growth of 7-8% is expected given the country's strategic location and potential to serve the East African region, especially with logistics and transport-related services (4).

Key bottlenecks introduction
Value added by the services sector, which usually generates 70% of Djibouti's growth, increased only 2% in 2020 compared with 8.2% in 2019 due to the COVID-19 pandemic (5). The absence of efficient services, such as telecom, internet, finance, accounting, legal services and transportation and logistics, hinders overall economic growth and business operations (2).

Sub Sector

Consumer Services

Development need
Djibouti's economy is heavily dependent on imports due to the underdeveloped industrial and agricultural sectors, and a large number of companies operate in import and trade activities (8). Future development of the country requires its transformation into a hub for trade, logistics and related services (3).

Policy priority
Djibouti seeks to position itself at the heart of the African trade. The Djibouti International Free Trade Zone (DIFTZ) is set to be the largest free trade zone in Africa once complete (9). Among the priorities of the National Strategy for Social Protection is the promotion of sustainable growth and diversifying the economy through key sectors, including trade (10).

Gender inequalities and marginalization issues
Fewer opportunities for women to participate in trade-related jobs and high levels of unemployment can have a serious impact on the economy, leading to lower consumption, higher poverty and declining well-being of women and their families (7).

Investment opportunities introduction
The Horn of Africa Initiative has launched the Multi-Donor Trust Fund (MDTF) with a capital of Euro 30 million, which includes support for More Trade, More Growth, More Jobs focusing on trade and economic integration covering trade facilitation, regional value chains, and improvements in the investment climate (11).

Key bottlenecks introduction
Prevalence of illicit and informal trade especially in the borderland regions, cross-country clan and ethnic affiliations hindering activity, inadequate public and private investment to support trade are challenges within the consumer services subsector (12).

Industry

Professional and Commercial Services

Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Free Trade Zones and Cargo Capacity at Ports

Business Model

Build businesses operations to increase industrial, transshipment and seaborne cargo capacity around four industrial clusters of focus at Djibouti's ports: logistics (transportation, warehousing and similar), business industry (goods transactions and merchandise display), business support (financial services, accommodation and office spaces) and processing manufacturing (packaging and light processing).

Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

> USD 1 billion

The new Djibouti International Free Trade Zone (DIFTZ) Project is expected to draw USD 3.5 billion investment in more than 10 years. The pilot zone for the project, which foresees creation of employment opportunities for 340,000 people and provision of services in an area of 4820 ha, is operational (11).

Indicative Return

IRR
Describes an expected annual rate of growth of the IOA investment.

10% - 15%

Cost-benefit analysis using an enclave model showed that free trade zones (in China, Indonesia, Malaysia, South Korea and Sri Lanka) had economic internal rates of returns of 10.7-28% with a strong correlation between the growth of export processing zones and the Multi Fibre Arrangements (MFA) where the phasing out of the MFA and guaranteed market access result in lower rates of return (15).

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Long Term (10+ years)

The Djibouti International Free Trade Zone (DIFTZ) is expected to take more than 10 years to become fully operational (11). Port investments usually require 30-36 years' concessions and economic zone developments are made according to long-term leases (14).

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

> USD 10 million

Market Risks & Scale Obstacles

Capital - CapEx Intensive

Port and free trade zone developments require high capital expenditure and necessitate foreign interest as proven by Djibouti's Djibouti International Free Trade Zone (DIFTZ) project.

Business - Supply Chain Constraints

Djibouti has limited operational experience and a lack of trained personnel required for manufacturing and cargo.

Impact Case

Read about impact metrics and social and environmental risks of the investment opportunity.

Sustainable Development Need

Intra-regional trade is key to sustain economic growth, foreign direct investment (FDI) inflows and food security in the Horn of Africa and Djibouti. The Horn of Africa Initiative member states received net FDI inflows of USD 5.3 billion in 2019, a figure which has deteriorated since 2016 (30).

Annual GDP growth fell from 7.7% to 0.5% in 2020 in Djibouti (17). The country aims to tackle unemployment challenges by projects that concentrate around its maritime assets. The Djibouti International Free Trade Zone (DIFTZ) alone is projected to create 340,000 jobs once complete (10).

Djibouti's manufacturing sector is underdeveloped and has traditionally accounted for less than 5% of value added as percentage of GDP (17).

Gender & Marginalisation

Informal employment rates are high in the Djibouti. Informal employment of females in non-agricultural activity was 64.6% in 2017, which is significantly higher than the figure for males at 45.1% (18).

Female employment in industry has declined since the 1990s, and has fallen from 9.68% in 1991 to 6.8% in 2019 (19).

Expected Development Outcome

Construction of special economic zones in the region facilitates intra-regional trade, attracts foreign investment and develops key regional value chains.

Free trade zone investments facilitates economic growth and job creation by attracting foreign direct investment, local entrepreneurship and government support.

Free trade zones develop export manufacturing and processing capacity in Djibouti's key sectors such as food, automotive parts, textiles and packaging (13).

Gender & Marginalisation

Special economic zones such as free trade zones provide women with the first entry into formal-sector employment opportunity in many developing countries (20).

Women dominate the workforce in export processing zones (EPZ) in most developing countries with share of women in total EPZ workforce exceeding 60% (21).

Primary SDGs addressed

Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth

8.5.2 Unemployment rate, by sex, age and persons with disabilities

Current Value

Unemployment rate in Djibouti is 11.5% (of total labour force) in 2020 and has been above 10% since the 1990s, as per the International Labour Organisation (ILO). National estimates record significantly higher rates of unemployment, the latest being 26% in 2017 (22).

Target Value

The Government's growth projection in Vision 2035 aims to create 200,000 new jobs between 2013 and 2035 (23).

Industry, Innovation and Infrastructure (SDG 9)
9 - Industry, Innovation and Infrastructure

9.2.1 Manufacturing value added as a proportion of GDP and per capita

Current Value

The manufacturing industry traditionally accounts for less than 2.5% of GDP and was recorded as 2.7% in 2012 (17, 23).

Target Value

The manufacturing industry target is to increase the sector's share in GDP from 2.7% in 2012 to 5.8% by 2022, and to 7% by 2035 (23).

Secondary SDGs addressed

No Poverty (SDG 1)
1 - No Poverty
Sustainable Cities and Communities (SDG 11)
11 - Sustainable Cities and Communities

Directly impacted stakeholders

People

Decent job offerings for the skilled labour force, youth and the unemployed.

Gender inequality and/or marginalization

Women are more likely to enter in formal employment.

Corporates

Djibouti has an enabling business environment for various companies that may engage in the manufacturing and logistics sectors. Foreign interests are channelled through a multitude of sectors owing to incentives in the free trade zone.

Indirectly impacted stakeholders

Public sector

The Government benefits from public-private partnerships to establish free trade zones and enhance cargo capacity at ports.

Outcome Risks

Increased industrial activity may exacerbate pollution in the region. Corresponding improvements in waste management should follow investments.

Impact Risks

Investments in dedicated free trade zones may be made by certain business groups only and cause prolonged income inequalities or dependency on foreign interest.

Impact Classification

B—Benefit Stakeholders

What

Free trade zones and cargo capacity at ports increases regional manufacturing output, improves intra-regional trade and enhances value chain development.

Risk

While the model of free trade zones and cargo capacity at ports are proven, the potential exacerbation of pollution and income disparities leading to regional divide require consideration.

Impact Thesis

Increase regional manufacturing output, improve intra-regional trade and enhance value chain development.

Enabling Environment

Explore policy, regulatory and financial factors relevant for the investment opportunity.

Policy Environment

Vision Djibouti 2035, 2014: As the strategic framework for development planning by the Government of the Republic of Djibouti, the key premises of the country's development trajectory are analyzed with respect to being a regional maritime outlet, which offers cargo opportunities (27).

Strategy for Accelerated Growth and Employment Promotion (SCAPE) 2015-2019, 2014: Accentuates the prominent role of transportation in the country's economy and growth strategy (28).

Horn of Africa Initiative Ministerial Roundtable, 2021: Joint Presentation by the African Development Bank, the European Union and the World Bank covers key messages and pillars for the regional development scheme, which includes infrastructure and cargo facilities at ports (11).

Financial Environment

Financial incentives: The World Bank announced support of USD 2 billion to the Horn of Africa through a lending programme under IDA19, which is the World Bank’s concessional financing window that provides low or no-interest loans and grants to the world’s poorest countries (28).

Fiscal incentives: Djibouti's Investment Code specifies three preferential regimes: Regime A, Regime B and Free Zone Code. The latter favours 100% foreign ownership, free repatriation of capital and profits, exemption from corporate and income tax, and flexibility to employ foreign nationals (27).

Regulatory Environment

Law No. 65, 2016: Concerns creation of Djibouti's free trade zone regime (26).

Law No. 186, 2017: Establishes Djibouti's Public-Private Partnership Act, following the Executive Decision No. 045 of 2016 to establish a Committee on the creation of a national legal and regulatory framework of 2016 (8).

Marketplace Participants

Discover examples of public and private stakeholders active in this investment opportunity that were identified through secondary research and consultations.

Private Sector

Great Horn Investment Holding (GHIH), China Merchants Group, Dalian Port Authority, IZP Group, China National Petroleum Corporation (CNPC), China Energy Engineering Group (CEEC), Exim Bank (Djibouti), Sahara Group, SOMAGEC, Vitol, Trafigura, Mercuria, MTBS

Government

Djibouti Ports & Free Zones Authority (DPFZA), Fonds Souverain de Djibouti (Djibouti Sovereign Fund).

Multilaterals

African Development Bank (AfDB), Horn of Africa Initiative (HoAI), World Bank (WB), European Union (EU), United Nations Conference on Trade and Development (UNCTAD), China-Africa Development Fund, Silk Road Fund.

Public-Private Partnership

Djibouti International Free Trade Zone (DIFTZ), Djibouti Damerjog Industrial Development Free Trade Zone (DDID FZE).

Target Locations

See what country regions are most suitable for the investment opportunity. All references to Kosovo shall be understood to be in the context of the Security Council Resolution 1244 (1999)
country static map
urban

Djibouti: Djibouti (City)

The Djibouti International Free Trade Zone (DIFTZ) project is undertaken as a part of the Chinese Belt and Road Initiative. Together with similar projects to be implemented in the country, it concerns key maritime hubs and port facilities, especially around the capital.
semi-urban

Djibouti: Arta

The Arta region hosts the Damerjog Livestock Port, and as a key outlet for maritime trade in the country, it may become a target location for free trade zone investments.
semi-urban

Djibouti: Tadjourah

The Port of Tadjourah is an important maritime outlet for potash trade and is potentially an alternative link between Djibouti and Ethiopia.

References

See what sources were used to establish the investment opportunity’s data and find resources that could be consulted to explore more.