Djibouti, a country of just over a million people on the African side of the Red Sea’s Bab el-Mandab strait, is blessed with neither mineral resources nor agricultural land. But it does have two things: a unique geographic location at a chokepoint of global maritime trade, and political stability. This is why China and America, as well as France, Japan and Italy, all have permanent naval bases here. And it is why Ethiopia, a landlocked country of 130m people, uses Djibouti’s ports for around 95% of its external trade. 

I was in Djibouti earlier this month for an investor conference organised by the country’s sovereign-wealth fund, which was launched in 2020. The fund, managed by Slim Feriani, a British-Tunisian banker, is unusual in Africa for having little oil or mineral wealth to invest. The main source of capital is rent from Djibouti’s many naval bases. Mr Feriani says he wants to build a “multi-generational savings pot” to cushion Djiboutians during hard times. 

The bigger ambition is to wean the country off dependency on external funders—be they foreign armies, neighbouring economies (Ethiopia) or Western donors. Mr Feriani wants to double the fund’s more than $1bn assets under management within the next decade. He is eyeing a data centre (Djibouti is an important waystation for undersea internet cables connecting Europe and Asia), industrial projects and a solar plant. Eventually, he wants about half the fund’s investments to be outside Djibouti. “In 20 to 30 years time we will hopefully be a capital exporter,” says Mr Feriani. Djibouti “definitely won’t need aid or IMF programmes,” he claims.

He is not unusual in his faith that African countries can bankroll their own development. Those attending investor conferences such as the Djibouti Forum generally believe Africa has more than enough capital to cope without foreign aid. That helps explain their surprisingly upbeat response to the recent slashing of aid budgets across the rich world. “We have the money here,” is a common refrain.

The problem, they say, is that it is not being deployed. Many of those I spoke with cited African pension funds as a particularly valuable under-tapped resource. Such funds have grown impressively in recent years, but many struggle to find places to invest. Pension-fund managers often complain there are not enough bankable projects in Africa. Managers of sovereign-wealth funds similarly have to decide between prudently parking the money abroad to build up savings and investing in riskier projects at home to accelerate growth.

For all the talk of unleashing home-grown capital, perhaps the biggest obstacle to accelerating development is the dire shortage of intra-African trade. “Without solving the African free-trade problem, transactions by pension and sovereign-wealth funds will happen, but they will be small,” says Samuel Maimbo, a Zambian economist who wants to be the next president of the African Development Bank. 

Djibouti takes inspiration from Singapore, another coastal entrepot endowed with few natural riches. Singapore is a critical hub for the Association of South-East Asian Nations, a flourishing intra-Asian trading bloc. To follow in its footsteps, Djibouti not only needs to replicate its successful sovereign-wealth fund. It also needs trade within Africa to pick up.