Djibouti’s SWF hunts ag & fisheries partners amid diversification push

Djibouti’s sovereign wealth fund is interested in investment partnerships focused on its own primary ag and fisheries sectors and agribusiness processing of produce from neighboring countries.

Fonds Souverain de Djibouti was launched in September 2020 as a public limited company under private law whose sole shareholder is the state of Djibouti. The fund’s creation is part of the Vision 2035 national development strategy and calls for Djibouti to fund the vehicle with $1.5 billion over the next 10 years. Initial sectors of focus for FSD include energy, telecommunications and agriculture.

Director-general Mamadou Mbaye told Agri Investor FSD is interested in international partnerships with private companies for investments related to Djibouti’s agriculture and fisheries sectors. Initially, he said, investments would likely be between $10 million and $15 million, though eventually FSD hopes to pursue more strategic projects of between $50 million and $100 million.

“Agriculture is a sector where things take a little bit of time to be set up, but that is very, very important,” said Mbaye, a Senegalese man who previously served as vice-president of Sovereign Fund for Strategic Investments of Senegal (FONSIS). “In terms of value creation, if a project is well-structured, it’s very hard to beat.”

Mbaye said FSD has finalized one investment in the healthcare sector and is working to structure an asset-backed lending facility to finance upgrades to railroad infrastructure connecting Djibouti with Ethiopia. For agriculture, rather than fund commitments, FSD hopes to create equity and debt co-investment relationships with experienced international companies willing to partner on agricultural projects inside Djibouti and in surrounding countries.

“We would be very happy to think about strategic partnerships,” he said. “If you bring in a strategic partner who already has markets and who is going to source those markets from here – and we work with them on agribusiness strategy – that could be very interesting.”

“A platform where you can produce for the world”

Djibouti is an east African nation surrounded by Somalia, Ethiopia and Eritrea, bordering the Gulf of Aden and the Red Sea. Because much of the country’s population of just less than one million has traditionally lived a nomadic lifestyle, Mbaye explained, Djibouti has historically relied on food imports. Agriculture accounts for less than 3 percent of GDP.

Vision 2035 stresses the weak contribution of Djibouti’s domestic ag sector, highlighting that just 10 percent of its fruits and vegetables are produced domestically and only 2 percent of its 100,000 irrigable hectares are cultivated. It calls for investments to support small-scale, peri-urban farming and family livestock operations as a way to address food security concerns, mentioning the southern region of Dikhil has “tremendous” agricultural potential.

“In spite of agro-climate constraints hampering the development of agriculture on a large scale, it is important for our country to locally produce food products according to local conditions in order to reduce dependency on foreign foodstuffs,” the plan’s authors wrote.

A key challenge in developing those areas is water shortages, and Vision 2035 calls for steps to improve understanding of the country’s existing water resources. It also says any agriculture-related projects should improve access to water, food security and the incomes of rural producers.

Mbaye said the country’s dry climate does dictate water efficiency and controlled environment could prove some of the most relevant sub-sectors for FSD. Still, he added, there are regions in the north of the country with conditions similar to Ethiopia and FSD is currently evaluating which crops might be best suited for primary agricultural development inside Djibouti.

A key focus of Vision 2035, Mbaye explained, is diversifying Djibouti’s economy by developing service sectors that leverage the country’s position as a key port for global maritime traffic and logistics. Port revenue and infrastructure have been a natural focus of the country’s development efforts, he said, adding that enhancing Djibouti’s capacity to process and export agricultural produce from neighboring countries like Ethiopia and Sudan is a logical next step.

“The second phase of development for the country is really to showcase Djibouti as a platform where you can produce for the world. This is something we actually want to develop in agriculture,” Mbaye said. “You can either produce here or process it and package it for the world. That goes for production that can come here by boat or by road.”

For fisheries, Mbaye said areas of investment for FSD could include the build-up of a fishing fleet or construction of processing facilities that would allow Djibouti to meet domestic demand and feed international markets.

“We have great potential in the fishing industry, but most of the fish that is consumed here is imported, so there is great value to be brought to actually structure some investment initiative that is going to relocate the revenues from those sectors locally,” he said. “That could be a growth engine that is interesting to set up, so we are looking to build projects there.”

Mbaye’s experience with FONSIS included work on a sugar company investment it considered and the development of Biosoy, a Senegalese company producing organic seeds for export and local markets. FONSIS also established a separate vehicle to invest in service businesses supporting the agricultural services sector, he said.

Those initiatives could serve as a model for Djibouti and other SWFs could also prove appropriate investment partners for it, Mbaye said.

“If we were to set up an initiative like that with a company like Hassad Food, for example, or perhaps other sovereign funds, you could actually build a strategic investment partnership to invest in the agriculture sector, or agribusiness, and it could be very, very interesting to see what could be done in that field,” he said

He also highlighted the Great Green Wall Project – an African Union anti-deforestation initiative launched in 2007 that aims to vegetate an 8,000 kilometer stretch that received $14 billion from a World Bank-led group in January – as an example of the type of agricultural project that could involve future collaboration with other SWFs.

“I was in Senegal trying to push that, now I’m in Djibouti and I’m still looking at ways to make that Great Green Wall project actually possible,” he said. “We need to find a structured way to fund the initiative in order to develop agricultural projects into the zone of a Great Green Wall; that means agroforestry, maybe also cattle. Basically, it means, bringing water and energy into that world.”

Mbaye said Djibouti looks to other countries that have used private investment vehicles to help strengthen their own food security despite having a relatively low level of domestic production, like Singapore. A key lesson, he said, is that the most successful SWFs have been built with an eye towards becoming appropriate counterparties in international investment partnerships focused on specific sectors.

Although not every investment such SWFs make is a domestic one, Mbaye said, they are always focused on supporting their national economies.

“If we build a bankable project elsewhere, the country will benefit, but it has to also benefit [Djibouti] directly,” Mbaye said. “It’s very important that the fund contribute directly to the development of the economy of Djibouti.”