President Ismail Omar Guelleh's ruling Union for the Presidential Majority on 24–25 February won 58 of 65 seats in Djibouti's legislative elections. The result strengthens Guelleh's extended family to the benefit of Chinese commercial interests, although a growing external public debt burden will probably motivate changes to generous tax incentives.

• Incoherent opposition is allowing the ruling Union for the Presidential Majority party successfully to co-opt support from rival ethnic-Afar elites, allowing President Guelleh's family to centralise their control over the Djiboutian economy.
• A cabinet reshuffle in mid-March 2018 conducted by the prime minister (who is an Afar) will likely maintain the status quo, with a member of Guelleh's extended family being favoured for the presidency in elections expected in 2020.
• An ongoing legal dispute over Doraleh Container Terminal is unlikely to indicate a risk of wider contract alterations to Gulf investments. However, the Djiboutian government does face mounting pressure to streamline tax exemptions under the free zone policy with the Investment Code.

President Ismail Omar Guelleh's ruling Union for the Presidential Majority (Union pour la Majorité Présidentielle: UMP) on 24–25 February won 58 of 65 seats in Djibouti's legislative elections. Only three parties participated in the legislative elections, with the UMP dominating results in all five regions. Unlike in previous elections, the UMP dissolved the wider People's Rally for Progress (Rassemblement populaire pour le Progrès: RPP) coalition, and absorbed candidates from coalition members into the UMP. As a sign of growing discontent with the electoral process in the capital, only 25% of Djibouti City's population registered to vote, with 59.8% of these registered voters going on to vote at polling stations.

A key factor motivating voter apathy is the government's refusal to reform the election commission, which controls elections to the president's advantage. The government refused to register the opposition Rally for Action, Democracy and Ecological Development (Rassemblement pour l'action, la démocratie et le développement écologique: RADDE) party, led by the former mayor of Djibouti City, Abdourahman Mohamed Guelleh. RADDE won two seats in Djibouti City at municipal elections on 20 February 2017, representing the UMP's first ever loss. In RADDE's place, the Union for Democracy and Justice and the Djiboutian Democracy Party (Union Djiboutienne pour la Démocratie et la Justice-Parti Djiboutien pour le Développement: UDJ-PDD) obtained seven seats with a 17.9% share of the vote in Djibouti City.

Weak opposition

IHS Markit sources reported during the election that the interior ministry closely monitored the opposition UDJ-PDD, which resulted in the appointment of candidates largely from families within President Guelleh's own Issaq clan. Furthermore, in the regions, a large section of the opposition Republican Alliance for Development (Alliance Républicaine pour le Développement: ARD) boycotted the elections, leaving an ARD splinter faction to participate only in Tadjourah, where it won no seats. Meanwhile, the Central Democratic Union (Centre Démocrate Unifié Djiboutien: CDU) participated only in Ali Sabieh, failing to win any seats.

President Guelleh has weakened opposition outside the capital by co-opting Afar patronage networks in Ali Sabieh, Obock, and Tadjourah. Guelleh appointed Abdoulkader Kamil Mohamed as prime minister in March 2013. Mohamed is an ethnic-Afar and Guelleh's brother-in-law. He was likely influential in drawing support from the opposition Front for the Restoration of Unity and Democracy (Front pour la Restoration de l'Unité et de la Démocratie: FRUD) party – a former RPP ruling coalition member – over to the UMP, especially due to his likely influence over the election commission in selecting UMP candidates.

Family businesses favour Chinese investment

President Guelleh's family will probably continue to centralise their control over the economy. Guelleh's daughter, Haibado Guelleh, is his economic adviser, and is responsible for delivering Djibouti's 'Vision 2035' development plan. Haibado speaks Mandarin and is likely to broker Chinese debt-financed infrastructure projects. Vision 2035 largely utilises financing from Export-Import Bank of China, with loan repayments for infrastructure projects currently totalling at least USD3.4 billion. This includes financing for construction of Doraleh Multi-Purpose Port (USD590 million), which became operational in June 2017; Bicidley Airport (USD450 million); Doraleh to Addis railway (USD490 million), which became operational on 2 January 2018; and an under-construction water pipeline (USD322 million). Separately, Guelleh's half-brother and Haibado Guelleh will probably continue overseeing operations at the Port of Djibouti, being influential in determining tenders for local supply and servicing contracts.

Legal disputes lead to contract alterations

Prior to the elections, Djibouti on 22 February cancelled Dubai Ports (DP) World's 30-year contract to operate the Doraleh Container Terminal (DCT), originally awarded in 2006. DP World was in a joint venture with the Djiboutian government, which ultimately owned the concession. The wholly government-owned Doraleh Container Terminal Management Company has since taken over DCT's operations. Legal changes approved on 8 November 2017 facilitated the cancellation, by allowing the government to unilaterally alter and cancel contracts relating to strategic infrastructure projects. In this instance, the government claims DP World falsified claims regarding the port's capacity in order to re-route freight through Emirati ports. DP World denies all allegations and has since initiated legal proceedings at the London Court of International Arbitration.

Outlook and implications

The ruling UMP's strong election results indicate that a cabinet reshuffle is likely to be conducted in mid-2018, although few changes are likely. If Finance Minister Ilyas Moussa Dawaleh were removed from his post, this would indicate that Prime Minister Mohamed is President Guelleh's most likely successor at the 2020 presidential election. Notably, succession to Mohamed would maintain cohesion between rival Issaq sub-clans around the president, given the first lady – who is the prime minister's mother – is the key mediator for resolving intra-clan conflicts should Guelleh step down after 18 years in power. Although currently unlikely, if Guelleh chooses Dawaleh as his handpicked successor, then the UMP will begin losing Afar support in Obock and Tadjourah, providing an opportunity for urban and rural-based opposition parties to co-ordinate.

Guelleh's government will face mounting budgetary pressure to mobilise revenue. This stems from election-related expenditure and financing a growing non-concessional public external debt relating to the infrastructure projects (which accounted for 85% of GDP in 2016, up from 50% in 2014). Furthermore, as Djibouti is a net oil-importer, a forecasted rise in oil prices this year to USD66.8 per barrel, up 53% since 2016, will increasingly strain the budget. Therefore, if Chinese lenders refuse to extend loan durations and oil prices rise further, then a likely policy change will be to streamline tax exemptions under the Freezone Code with those in the Investment Code. Foreign investments in the free trading zones, which are largely Chinese, benefit from 50-year corporate tax and customs duties exemption, while other foreign investment receives only a seven-year tax holiday. Tax changes would be reviewed for projects on a case-by-case basis, increasing competition between rival Chinese investors, and thereby creating more opportunities for bribery and corruption during tenders for new infrastructure projects. Separately, a Chinese investor would probably be preferred in a new tender for the Doraleh Container Terminal. Despite this, DP World's contract cancellation is unlikely to spread. This includes the nearby Horizon Terminal, wholly owned by United Arab Emirates-based ENOC, which would be protected for its strategic provision of at least 95% of landlocked Ethiopia's refined oil supply. An exception is Kuwaiti-financed road construction projects, which face cancellation due to underperformance.