Economic growth in Djibouti is seriously curtailed by an outdated telecoms and IT sector and highly restrictive and inflexible supply. The state operator provides terrestrial, mobile, internet and commercial network services.
There is no interfacing between foreign base facilities and the local networks.
Major developments amongst the less well off in other African countries like the mobile-based money transfer systems of Kenya and Uganda, have not developed. Prices are high and the state monopoly has not been broken by new market entrants.
More than other states in the region, Djibouti has an opportunity to develop as a telecoms and IT hub, which would dramatically enhance foreign investment generally as well as developing an informatics sector alongside the transport and shipping sector. This is because Djibouti has a connection to the Europe-Asia optical fibre network.
There are two key challenges for long term reform. One is the prospect of long term exclusive contractual arrangements with one European supplier, or two in consortium. This may provide some symptoms of pluralism but in effect ‘lock in’ inadequate and very limited reforms for a decade – and high prices.
In addition there is the real prospect of an expansion of mobile and mobile internet services just across the Somaliland side of the border, should Djibouti reforms be absent or inadequate. Coverage across Djibouti City would be hard to prevent.
The government should, broadly, let the market decide how many qualifying sector entrants there are in mobile and internet provision, and allow both a wholesale market and a sophisticated commercial network sector to develop. This will require a state regulatory function and formal demonopolisation.
It is anticipated that a sector employing perhaps three times the current sectoral employment levels would develop. The GDP effects would be very positive, and the benefits for the poor substantial. It should be remembered that the quality of telecom and IT services is today a major factor in international investment decisions.
The telecoms and IT sector in Djibouti is a tale of missed opportunity, and lamentable mismanagement based on outdated perceptions of political control. The current regime has failed to understand the key role of IT services and global comms networks in attracting investment – and failed to grasp the importance of the global optical fibre network connection enjoyed by Djibouti, which is only used to less than 5% of capacity.
In order to progress Djibouti’s international competitive advantage in this respect, promotional efforts will be undertaken to bring US investors to Djibouti, for example from Silicon Valley, Texas and New Hampshire.
As part of a privatisation programme, the Djibouti royalties and levies in the telecoms sector will need to be reviewed.
Getting things done
In this supremely profitable sector investment and improvements in services occur very rapidly, and no government spending or borrowing is necessary. A potential error in telecoms and IT reforms to be avoided in Djibouti is the tendency to move directly from state monopoly and quasi-regulation to complex European style regulation prior to seeking new investment. The preferred approach instead is to establish a basic set of regulatory functions and develop their sophistication alongside investment and sector restructuring, rather than taking too linear an approach.