Hikmat Daoud, Chairman, National Confederation of Djiboutian Employers; and Djama Aouled, Chairman, Federation of Djiboutian Corporations: Interview

Interview: Hikmat Daoud, Djama Aouled

What can be done to strengthen cooperation between foreign investors and local enterprises?

HIKMAT DAOUD: It is important to create an environment in which foreign investors and local enterprises share knowledge and work together. As a member of the International Organisation of Employers, our organisation does the match-making between foreign and Djiboutian enterprises. Generally, a foreign entrepreneur willing to set up in Djibouti can do so without a local sponsor, and is free to choose whether or not to engage with domestic enterprises. However, even though the business climate is favourable and investor-friendly, we recommended that investors find a local partner so that they can benefit from better knowledge of the Djiboutian market’s specifics. As the prime provider of employment, our organisation is able to strengthen cooperation between local and international companies by making sure the partnership can be fruitful with transfers of know-how.

DJAMA AOULED: Cooperation between international and Djiboutian enterprises has increased in recent years. This is mainly due to the active approach taken by the Chamber of Commerce, which – as the main representative of the Djiboutian private sector – has led business delegations to various international forums and has organised so-called “Djibouti days”, which create visibility for Djiboutian companies abroad. Also, efforts have been undertaken to stimulate more interaction and coherence among Djiboutian companies when dealing with their international counterparts. Djibouti has an open economy and a strong private sector that can cooperate with foreign enterprises.In order to reinforce this cooperation it is important for Djiboutians to open up to the world and orient themselves both regionally and internationally. This implies strengthening regional cooperation, adopting international procedures and quality standards, and investing in staff members that are able to communicate in multiple languages and platforms.

What can be done to enhance participation of local small and medium-sized enterprises (SMEs) in large-scale development projects?

AOULED: SMEs in Djibouti are willing to play a more significant role in national development projects, yet they have to be better equipped and organised. This means providing SMEs with more resources by improving their access to financing and putting in place a more structured mechanism through which local SMEs can share their expertise and join forces when bidding for projects through tenders.

An important factor in developing the local SME and industrial sector is to encourage the use of goods produced in Djibouti. Implementing strict quality controls for materials will generate trust for foreign employers to use locally manufactured goods, and increased consumption in turn will create employment. In order to prioritise cooperation and the sharing of know-how between the local workforce and investors, at least 10% of the personnel in large-scale projects should be locally sourced. This should also be true of any foreign company working on a debt-based project in Djibouti. These companies should be required to use local content in their projects.

DAOUD: Most of the fundamental investments have been made by the state, such as the construction of roads, and provision of water and electricity. The participation of local SMEs in such projects is still limited but could be increased through capacity-building strategies. The local banking sector, which has expanded significantly, is increasingly able to provide financing to local SMEs, which have used the opportunity to strengthen their business and expand their activities. Energy prices also have to drop in order for local business to develop, as electricity costs have been the major obstacle to development. However, the government has undertaken a series of strong initiatives to cut energy prices, such as the development of interconnection capacities with Ethiopia and solar power projects as a means to leverage Djibouti’s 365 days of sun per year. Once energy costs fall, diversification of local development will take place. Apart from stimulating knowledge-sharing between foreign and local enterprises, it is important to encourage Djiboutian SMEs to pool their resources together when bidding for tenders in order to increase their chances for selection. What has to be prevented is the vicious circle whereby, due to a lack of expertise or means, Djiboutian companies are disqualified from projects, and in turn fail to build up expertise. In the national market’s regulations, it should be obligatory for foreign investors to subcontract at least 30% of their work to Djiboutian firms in order to enable transfers of know-how and continuity.

Apart from the one-stop-shop mechanism, what other measures can be taken to increase foreign direct investment (FDI)?

AOULED: When aiming to increase FDI there are two crucial components. One significant driver is rendering the tax environment conducive to investment by having a tax system that is both attractive and transparent to investors. Djibouti’s recent tax reforms have underlined the goal of achieving more investment based on equity, compared to the current situation of investment based on debt, and aims to render the business environment more transparent. At the same time, an important aspect for investors is the availability of primary services, such as whether or not the country boasts an advanced infrastructure that allows products to be moved rapidly by air, sea and land. Having ensured a state-of-the-art infrastructure, Djibouti has to work, and is now working, on other factors such as the accountability and swiftness of the judicial system that can intervene in possible disputes involving international investors. It is also necessary to create a welcoming environment for investors, including high-quality medical care and an educational system that can provide services to the expatriate community. Finally, the availability of well-trained local labour is another factor that can enhance investment.

Djibouti has to invest in its vocational training capacity in order to allow foreign enterprises to source local labour that is sufficiently experienced to adhere to international standards. To strengthen domestic labour training, one possible solution would be to set up a national technical institute that would integrate the needs of the corporate world with the existing vocational training.

What educational reforms could strengthen the know-how of the local labour force?

DAOUD: Unlike neighbours such as Ethiopia or Kenya, Djibouti does not have a professional institution where enterprises can train their staff. Djibouti needs vocational training that emphasises specific skills in key sectors of its economy. As many of the large-scale projects will start soon and be finalised in five years, it is essential to train personnel now in order for them to be ready to manage and maintain the infrastructure then. As there is no vocational training institute, companies are compelled to train their staff themselves – yet, having such institutions would give young Djiboutians a better chance to find employment through the creation of training programmes that touch on different sectors of the economy.

As the private sector stands at the forefront in terms of job creation, it is important for the education system to be sensitive to the needs of the business community and supply it with sufficiently skilled labour. Having a well-trained labour force will allow foreign enterprises to source their employees locally as opposed to bringing in foreign labourers. As such, we recommend the undertaking of a series of actions to boost employment, including eliminating obstacles to creation, employment and development in Djibouti.

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The Report: Djibouti 2016

Economy chapter from The Report: Djibouti 2016