The financial sector in the tiny Horn of Africa nation is attracting new business as a stable country surrounded by trouble spots.

“The banking sector in Djibouti has seen an explosion. Last year eight new banks, Islamic and conventional, opened their doors and are doing well. More will arrive this year,” central bank Governor Djama Haid told reporters in an interview.

Haid said he expected Iraq-based Warka Bank for Investment and Finance and Egypt's Shoura Bank to enter Djibouti in 2010.

Indo-Suez Bank, in existence for more than 100 years, and Commercial and Industrial Bank (BCIMR) – operational for more than 50 years, have dominated Djibouti's banking industry.

The BCIMR, a majority French-owned bank, controls around 60 percent of the market.

“The whole sector relied on these two banks, which maintained a monopoly,” said Michel Torielli, president of the Djibouti Deposit and Credit Bank (BDCD).

The BDCD, part of the Geneva-based Swiss Financial Investments group, opened its doors in 2007 and had more than 4,500 customers in 2009.

“This country is a haven of peace in the midst of storms. For international investors who want to work in this region they should come to Djibouti, for international banks it's a very attractive, interesting domestic market,” Torielli said.

According to the US State Department, the banking and insurance industry only makes up 12.5 percent of GDP, compared to public services with 22 percent of GDP.

The IMF forecasts real GDP growth of 5.4 percent, and inflation at five percent for 2010.

The country of 800,000 people – a former French colony separating Eritrea from war-torn Somalia – holds limited natural resources and has been plagued by droughts and high unemployment.

It hosts France's largest military base in Africa and a major US base. Its port is used by foreign navies patrolling busy shipping lanes off the coast of Somalia to fight piracy.

Djibouti is trying to capitalise on its strategic situation and wants to make its port the biggest transhipment hub for the Common Market for Eastern and Southern Africa (COMESA) – a trade bloc grouping around 20 countries.

The currency peg of the Djibouti franc at 177.71 to the US dollar has been favourable, Haid said.

“The peg has allowed us to be successful economically and to play an important role in the development of Djibouti as a financial place,” he said, adding it was too early to talk about a monetary union among COMESA states.

Bank account boost
“Today we have 15 percent of the population which have a bank account. We have not yet reached the African average of 28 percent, but we'll try to achieve this in 2011,” Haid said.

In the first nine months of 2009, Djibouti banks had recorded a 31 percent jump in customer numbers to 53,332.

However, critics say limited privatisation, burdensome regulations and corruption have hampered the sector's transformation.

Djibouti ranks 102 of 179 countries in Transparency International's 2008 Corruption Perceptions Index.

The international money transfer network Dahabshil opened its first bank branch in Djibouti in March, and wants to offer Sharia-compliant products.

“The economy is booming right now. The need is growing. Djibouti is becoming like the small Dubai of Africa,” Mohamed Osman Nur, chief executive of Dahabshil Bank International, said at the bank's inauguration.

Central bank Governor Haid said the country was hoping to establish a stock exchange within the next couple of years.