Private sector participation key to funding development of Djibouti tourism

Attracting 500,000 visitors annually by 2030 will necessitate infrastructural and capital improvements across the board, alongside a significant increase in current spending on promotional campaigns. As a result, the financing requirements are sizable. However, with the country already devoting a large portion of its budget to upgrades focused on the cargo and bulk transport sector, its ability to directly fund its tourism initiatives is limited. In order to overcome this, it is looking to attract as much private sector involvement as possible, through public-private partnerships and incentive programmes.

Incentives

A key plank of the government’s push to attract greater levels of private investment is via fiscal incentives. Current incentives outlined in the country’s investment code include 10 years of tax exemptions on professional profits (25% of annual net profit) to companies investing at least DJF5m ($28,000). Hotels are also exempted from the tax on property-derived income and income from assets tax for at least seven years. Eligible firms can also apply for an exemption from the Home Consumer Tax, which is levied on imported products. This is especially relevant for the tourism industry and the majority of construction materials and equipment used in the sector, along with imported furniture and appliances. Finally, hotels and tourism-related services are fully exempted from valued-added tax, which is normally charged at 10% of a product or service’s price.

Access to Credit

Ensuring that domestic companies and entrepreneurs can access affordable financing terms is also central to the government’s efforts. In April 2015 Mohamed Abdillahi Waiss, director of the National Tourism Office of Djibouti (Office National du Tourisme de Djibouti, ONTD), called on the financial services industry to establish a guarantee fund and multiple credit lines that would enable young entrepreneurs to start businesses. He also called for support and technical assistance in setting up projects and feasibility studies, services that would be offered jointly by the state-owned Economic Development Fund of Djibouti (Fonds de Developpement Economique de Djibouti, FDED), the ONTD and the Chamber of Commerce of Djibouti.

While a variety of commercial borrowing options are available for small and medium-sized enterprises, Djibouti also has a fairly developed, if informal, tontine industry, known locally as hakba. This system has long been used by Djibouti households and has been increasingly applied by entrepreneurs seeking to start small projects in the nascent tourism industry. This financial mechanism creates a group of individuals who pool their financial resources to finance a project. The hakba has proven useful for running small tourism projects as it allows investors and project sponsors to avoid relying on bank loans, which have high interest rates in Djibouti at an average of 12.7%.

Eco-Friendly

In April 2014 Djibouti’s government also launched a new loan programme that aims to encourage environmentally sustainable building techniques among hospitality providers. The programme offers financial support to current and future hotel operators via advantageous interest rates from the FDED for projects that make use of ecologically sustainable materials or renewable energy. The target client base for these funds are those in the ecotourism sector, many operating traditional hut complexes. Waiss told OBG, “The programme is a fast and effective way of increasing accommodation capacity in areas with high tourism potential.” The financing offered by the FDED is in the range of DJF5m-10m ($28,000-56,000) per project and is repayable over five to 10 years. In addition to FDED funding, ecotourism projects have received financial support from non-profit entities. For example, the Assamo camp, located close to the Ethiopian border, was built by local non-government organisation Discover and Aid Nature and funded by France’s ZooParc de Beuval.