Economy of Djibouti
Encyclopedia
Red Sea
The Red Sea is a seawater inlet of the Indian Ocean, lying between Africa and Asia. The connection to the ocean is in the south through the Bab el Mandeb strait and the Gulf of Aden. In the north, there is the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez...
. Djibouti
Djibouti
Djibouti , officially the Republic of Djibouti , is a country in the Horn of Africa. It is bordered by Eritrea in the north, Ethiopia in the west and south, and Somalia in the southeast. The remainder of the border is formed by the Red Sea and the Gulf of Aden at the east...
is mostly barren, with little development in the agricultural and industrial
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
sectors. The country has a harsh climate, a largely unskilled labour force, and limited natural resources. The country’s most important economic asset is its strategic location connecting the Red Sea
Red Sea
The Red Sea is a seawater inlet of the Indian Ocean, lying between Africa and Asia. The connection to the ocean is in the south through the Bab el Mandeb strait and the Gulf of Aden. In the north, there is the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez...
and the Gulf of Aden
Gulf of Aden
The Gulf of Aden is located in the Arabian Sea between Yemen, on the south coast of the Arabian Peninsula, and Somalia in the Horn of Africa. In the northwest, it connects with the Red Sea through the Bab-el-Mandeb strait, which is about 20 miles wide....
. As such, Djibouti’s economy is dominated by the services sector, providing services as both a transit port for the region and as an international transshipment
Transshipment
Transshipment or Transhipment is the shipment of goods or containers to an intermediate destination, and then from there to yet another destination....
and refuelling centre.
From 1991 to 1994, Djibouti experienced a civil war
Djiboutian Civil War
The Djiboutian Civil War was a conflict in Djibouti between the People's Rally for Progress government and the predominantly Afar rebel group, the Front for the Restoration of Unity and Democracy...
which had devastating effects on the economy. Since then, the country has benefited from political stability. In recent years, Djibouti has seen significant improvement in macroeconomic
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
stability, with its annual gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
improving at an average of over 3 percent since 2003. This comes after a decade of negative or low growth. This is attributed to fiscal adjustment
Fiscal adjustment
A fiscal adjustment is a reduction in the government primary budget deficit, and it can result from a reduction in government expenditures, an increase in tax revenues, or both simultaneously....
measures aimed at improving public financing, as well as reforms in port management.
Despite the recent modest and stable growth, Djibouti is faced with many economic challenges, particularly job creation and poverty reduction. With an average annual population growth
Population growth
Population growth is the change in a population over time, and can be quantified as the change in the number of individuals of any species in a population using "per unit time" for measurement....
rate of 2.5 percent, the economy cannot significantly benefit national income per capita
Per capita income
Per capita income or income per person is a measure of mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate and dividing it by the total population...
growth. Unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
is extremely high at over 43 percent and is a major contributor to widespread poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
. Efforts are needed in creating conditions that will enhance private sector development
Private sector development
Private Sector Development is a strategy for promoting economic growth and reducing poverty in developing countries by building private enterprises, membership organizations representing them, and competitive markets that are stronger and more inclusive....
and accumulate human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
. These conditions can be achieved through improvements in macroeconomic and fiscal framework, public administration, and labour market flexibility.
Djibouti was ranked the 177th safest investment destination in the world in the March 2011 Euromoney Country Risk rankings.
Economic performance
Djibouti has experienced stable economic growth in recent years as a result of achievements in macroeconomic adjustment efforts. Fiscal adjustment measures included downsizing the civil service, implementing a pension reform that placed the system on a much stronger financial footing, and strengthening public expenditure institutions. From 2003 to 2005, annual real GDP growth averaged 3.1 percent driven by good performance in the services sector and strong consumption. InflationInflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
has been kept low (only 1 percent in 2004, compared with 2.2 percent in 2003), due to the fixed peg of the Djibouti franc
Djiboutian franc
The franc is the currency of Djibouti. The ISO 4217 currency code is DJF. Historically it was subdivided into 100 centimes.- History :...
to the US dollar. However, as mentioned above, unemployment has remained high at over 40 percent in recent years.
The government fiscal balance is in deficit because the government has not been able to raise sufficient tax revenue
Tax revenue
Tax revenue is the income that is gained by governments through taxation.Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency that collects the tax may not be part of central government, but may be an alternative third-party...
s to cover expenses. In 2004, a substantial increase in expenditure resulted in a deterioration of the fiscal position. As a result, the government deficit increased to US$17 million in 2004 from US$7 million in 2003. But improvement in expenditure management brought down the fiscal deficit to US$11 million in 2005.
Balance of payments
Djibouti’s merchandise trade balance has shown a large deficit. This is due to the country's enormous need for imports and narrow base of exports. Although Djibouti runs a substantial surplus in its services balance, the surplus has been smaller than the deficit in the merchandise trade balance. As a result, Djibouti's current account balance has been in deficit. There is very limited information for Djibouti’s current account; the country’s merchandise trade deficit was estimated at US$737 million in 2004.Regional situation
With its position on the Red Sea, Djibouti holds a major strategic importance. The facilities of the Port of DjiboutiPort of Djibouti
The Port of Djibouti is located at the crossroads of one of the busiest shipping routes in the world, linking Europe, the Far East, the Horn of Africa and the Persian Gulf.-History:...
are important to sea transportation companies for fuel bunkering and refuelling. Its transport facilities are used by several landlocked African countries for the re-export of their goods. Djibouti earns transit taxes and harbour fees from this trade, these form the bulk of government revenue. This strategic location also has ensured a steady inflow of foreign assistance. The port of Djibouti functions as a small French
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
naval facility, and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
also has stationed hundreds of troops in Djibouti, its only African base, in an effort to counter terrorism in the region.
Macro-economic trend
This is a chart of trend of gross domestic product of Djibouti at market prices estimated by the International Monetary FundInternational Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
with figures in millions of Djiboutian francs.
| Year | Gross Domestic Product | US Dollar Exchange | Inflation Index (2000=100) |
|---|---|---|---|
| 1980 | 54,969 | 177.89 Djiboutian Francs | 44 |
| 1985 | 64,988 | 177.56 Djiboutian Francs | 49 |
| 1990 | 80,388 | 177.84 Djiboutian Francs | 70 |
| 1995 | 88,456 | 177.62 Djiboutian Francs | 90 |
| 2000 | 97,965 | 177.79 Djiboutian Francs | 100 |
| 2005 | 124,770 | 177.73 Djiboutian Francs | 111 |
For purchasing power parity comparisons, the US dollar is exchanged at 76.03 Djiboutian franc
Djiboutian franc
The franc is the currency of Djibouti. The ISO 4217 currency code is DJF. Historically it was subdivided into 100 centimes.- History :...
s. Mean wages were $1.30 per person-hour in 2009.
Background
Djibouti’s economy is based on service activities connected with the country's strategic location and status as a free trade zoneFree trade zone
A free trade zone or export processing zone , also called foreign-trade zone, formerly free port is an area within which goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities...
in the Horn of Africa
Horn of Africa
The Horn of Africa is a peninsula in East Africa that juts hundreds of kilometers into the Arabian Sea and lies along the southern side of the Gulf of Aden. It is the easternmost projection of the African continent...
. Two-thirds of inhabitants live in the capital and the remainder of the populace is mostly nomadic herders. Low amounts of rainfall limit crop production to fruits and vegetables, and requiring most food to be imported. The government provides services as both a transit port for the region and an international transshipment and refuelling centre. Djibouti has few natural resources and little industry. All of these factors contribute to its heavy dependence on foreign assistance to help support its balance of payments and to finance development projects.
An unemployment rate of 50 percent continues to be a major problem. Inflation is not a concern, however, because of the fixed tie of the franc to the US dollar. Per capita consumption dropped an estimated 35 percent over the last seven years because of recession, civil war, and a high population growth rate. Faced with a multitude of economic difficulties, the government has fallen in arrears on long-term external debt
External debt
External debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such...
and has been struggling to meet the stipulations of foreign aid donors.
Openness to foreign investment
The government of DjiboutiPolitics of Djibouti
Politics of Djibouti takes place in a framework of a semi-presidential republic. Executive power is exercised by the government. Legislative power is vested in both the government and parliament. The party system is dominated by the conservative People's Rally for Progress...
welcomes all foreign direct investment. Djibouti's assets include a strategic geographic location, an open trade regime, a stable currency, substantial tax breaks and other incentives. Potential areas of investment include Djibouti's port
Port of Djibouti
The Port of Djibouti is located at the crossroads of one of the busiest shipping routes in the world, linking Europe, the Far East, the Horn of Africa and the Persian Gulf.-History:...
and the telecommunications sectors. President Ismail Omar Guelleh
Ismail Omar Guelleh
Ismaïl Omar Guelleh is the President of Djibouti. He succeeded his uncle, Hassan Gouled Aptidon, in 1999. He is often referred to in the region by his initials 'IOG'....
h first elected in 1999, has named privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
, economic reform, and increased foreign investment as top priorities for his government. The president pledged to seek the help of the international private sector to develop the country's infrastructure.
Djibouti has no major laws that would discourage incoming foreign investment. In principle there is no screening of investment or other discriminatory mechanisms. That said, certain sectors, most notably public utilities, are state owned and some parts are not currently open to investors. Conditions of the structural adjustment agreement recently signed by Djibouti and the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
stipulate increased privatization of parastatal and government-owned monopolies. There are no patent laws in Djibouti.
As in most African nations, access to licenses and approvals is complicated not so much by law as by administrative procedures. In Djibouti, the administrative process has been characterized as a form of 'circular dependency.' For example, the finance ministry will issue a license only if an investor possesses an approved investor visa, while the interior ministry will only issue an investor visa to a licensed business. The Djiboutian government is increasingly realizing the importance of establishing a one-stop shop to facilitate the investment process.
Trade
Principal exports from the region transiting Djibouti are coffeeCoffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, salt
Salt
In chemistry, salts are ionic compounds that result from the neutralization reaction of an acid and a base. They are composed of cations and anions so that the product is electrically neutral...
, hides
Hides
A hide is an animal skin treated for human use. Hides include leather from cattle and other livestock animals, alligator skins, snake skins for shoes and fashion accessories and furs from wild cats, mink and bears. In some areas, leather is produced on a domestic or small industrial scale, but most...
, dried beans, cereals, other agricultural products, and wax. Djibouti itself has few exports, and the majority of its imports come from France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
. Most imports are consumed in Djibouti and the remainder goes to Ethiopia
Ethiopia
Ethiopia , officially known as the Federal Democratic Republic of Ethiopia, is a country located in the Horn of Africa. It is the second-most populous nation in Africa, with over 82 million inhabitants, and the tenth-largest by area, occupying 1,100,000 km2...
and Somalia
Somalia
Somalia , officially the Somali Republic and formerly known as the Somali Democratic Republic under Socialist rule, is a country located in the Horn of Africa. Since the outbreak of the Somali Civil War in 1991 there has been no central government control over most of the country's territory...
. Djibouti's unfavourable balance of trade
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...
is offset partially by invisible earnings such as transit taxes and harbour dues. In 1999, U.S. exports to Djibouti totalled $26.7 million while U.S. imports from Djibouti were less than $1 million.
The City of Djibouti
Djibouti (city)
The City of Djibouti is the capital and largest city in the Republic of Djibouti, a nation in the Horn of Africa. The biggest settlement on the Gulf of Tadjoura, it lies on a peninsula that separates that basin from the Gulf of Aden.-History:...
has the only paved airport in the republic
Djibouti-Ambouli International Airport
Djibouti-Ambouli International Airport is a joint civilian/military-use airport situated in Djibouti City, Djibouti. In 2004, the airport served 182,641 passengers.-Military:...
. Djibouti has one of the most liberal economic regimes in Africa, with almost unrestricted banking and commerce sectors.
Key indicators
GDP:purchasing power parity - $1.738 billion (2007est.)
GDP - real growth rate:
5.2% (2007 est.)
GDP - per capita:
purchasing power parity - $2,300 (2007 est.)
GDP - composition by sector:
agriculture:
3.2%
industry:
14.9%
services:
81.9% (2007 est.)
Population below poverty line:
50% (2004 est.)
Household income or consumption by percentage share:
lowest 10%:
NA%
highest 10%:
NA%
Inflation rate (consumer prices):
0% (1999 est.)
Labor force:
282,000
Labor force - by occupation:
agriculture 75%, industry 11%, services 14% (1991 est.)
Unemployment rate:
40%-50% (1996 est.)
Budget:
revenues:
$156 million
expenditures:
$175 million, including capital expenditures of $NA (1997 est.)
Industries:
limited to a few small-scale enterprises, such as dairy products and mineral-water bottling
Industrial production growth rate:
3% (1996 est.)
Electricity - production:
306 GWh (2006)
Electricity - production by source:
fossil fuel:
100%
hydro:
0%
nuclear:
0%
other:
0% (1998)
Electricity - consumption:
226.9 GWh (2006)
Electricity - exports:
0 kWh (1998)
Electricity - imports:
0 kWh (1998)
Agriculture - products:
fruits, vegetables; goats, sheep, camels
Exports:
$340 million (f.o.b., 2006 est.)
Exports - commodities:
reexports, hides and skins, coffee (in transit)
Exports - partners:
Somalia
Somalia
Somalia , officially the Somali Republic and formerly known as the Somali Democratic Republic under Socialist rule, is a country located in the Horn of Africa. Since the outbreak of the Somali Civil War in 1991 there has been no central government control over most of the country's territory...
66.2%, Ethiopia
Ethiopia
Ethiopia , officially known as the Federal Democratic Republic of Ethiopia, is a country located in the Horn of Africa. It is the second-most populous nation in Africa, with over 82 million inhabitants, and the tenth-largest by area, occupying 1,100,000 km2...
21.4%, Yemen
Yemen
The Republic of Yemen , commonly known as Yemen , is a country located in the Middle East, occupying the southwestern to southern end of the Arabian Peninsula. It is bordered by Saudi Arabia to the north, the Red Sea to the west, and Oman to the east....
3.4% (2007)
Imports:
$1,555 million (f.o.b., 2006 est.)
Imports - commodities:
foods, beverages, transport equipment, chemicals, petroleum products
Imports - partners:
Saudi Arabia
Saudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
20.7%, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
17.8%, China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
9.3%, Ethiopia
Ethiopia
Ethiopia , officially known as the Federal Democratic Republic of Ethiopia, is a country located in the Horn of Africa. It is the second-most populous nation in Africa, with over 82 million inhabitants, and the tenth-largest by area, occupying 1,100,000 km2...
4.6%, Malaysia 4.5%, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
4.2% (2007)
Debt - external:
$428 million (2006 est.)
Economic aid - recipient:
$106.3 million (1995)
Currency:
1 Djiboutian franc (DF) = 100 centimes
Exchange rates:
Djiboutian francs (DF) per US$1 – 177.721 (fixed rate since 1973)
Fiscal year:
calendar year
External links
- Djibouti latest trade data on ITC Trade Map
- Richard Labelle, "Djibouti ICT strategy and action plan", 28 May 2003
- African Development Bank, "Djibouti: Results-based country strategy paper, 2007-2010", October 2007