Djibouti slashes electricity prices in a bid to power growth

Djibouti’s government has announced a 10 per cent downward revision of electricity tariffs in a measure aimed at powering its industrial development.

Authorities said the lowest price is set at 28 Djiboutian francs per kilowatt and the highest at 55 Djiboutian francs per kilowatt.

Electricity bills account for about 25 percent of business expenses in Djibouti and hinder industrial development, while most companies in the country cite electricity as the most significant business constraint.

Djibouti currently has the capacity to produce 173 megawatts of power, according to the Energy Ministry. Costs are high because the grid is reliant on diesel. More than three quarters of electricity needed by the country is generated by thermal power plants. The rest is imported from Ethiopia.

The Japan International Cooperation Agency completed a survey of the 13 potential geothermal sites last year. Within the next year, the ministry expects four exploratory wells to be drilled near the caldera at Asal-Fiale that exploded about 50,000 years ago and now forms the lava lake.

Sandwiched between Somalia and Eritrea, Djibouti’s economy depends on services related to its location at the entrance to the Red Sea, one of the world’s busiest shipping lanes. The former French colony is home to the only permanent U.S. military base in Africa at Camp Lemonnier, along with French and Japanese military deployments and recently China.

Under a programme known as Vision 2035, the $1.67 billion economy is targeting middle-income status within two decades. The economy is forecast by the International Monetary Fund to expand to 7 percent in 2016, compared with 6.5 percent last year. The growth plan calls for the expansion of its ports and shipping services to become the largest logistics hub on the continent.

The horn of African nation needs cheaper power to fund the expansion of its harbors which cater for landlocked neighboring Ethiopia, Africa’s fastest growing economy that relies on Djibouti’s ports for most of its exports and imports.

The country is already working on solar- and wind-power projects as part of its plan to become completely reliant on “green energy” by 2020, according to its Energy ministry.

Still, it is a daunting task for a nation which is ranked among the world’s 20 poorest countries and which has an unemployment rate of about 48 percent.