Djibouti Eyes Financial Sector Expansion

Long gone are the days when Djibouti had only two banks sharing the market with no real competition. In two decades, the banking landscape has changed dramatically: 12 institutions are now operating, and two new ones - an Egyptian bank Misr and an Australian one - are preparing to set up.

This transformation has taken place gradually, driven by a series of reforms which began in 2004-2005. "Thanks to these reforms and to Djibouti's economic performance, banking activity has boomed," says Ahmed Osman Ali, governor of the Central Bank.

The financial sector has attracted investors from various nationalities, including French, Ethiopian, Moroccan, Chinese, Bahraini and Yemeni. "The banking market is booming. There is still room for new players in a country where economic growth fluctuates between 6 and 7. A remarkable rate in the global context," says Slim Feriani, CEO of the Djibouti Sovereign Wealth Fund FSD.

This banking boom is based on a clear strategy and economic choices, designed to make Djibouti an attractive financial centre. Measures include the modernisation of the regulatory framework, the absence of exchange controls and, above all, the pegging of the local currency, the Djibouti franc, to the dollar since 1949. Under a currency board system, each franc in circulation is backed by an equivalent reserve in dollars. "This guarantees a monetary stability that is rare in Africa, with total convertibility that secures international transactions," says a banking sector executive.

However Abdallah Ibrahim Abdallah, deputy CEO of the Bank for Trade and Industry - Red Sea BCIMR contends that "unlike other systems, the Central Bank of Djibouti cannot intervene as a lender of last resort for financial institutions. Without an interbank market, banks must secure large reserves of liquidity rather than injecting them into the economy. This constraint limits the granting of credit and hinders the circulation of capital."