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Port of Djbouti

The Economy of Djbouti is derived in large part from its strategic location on the Red Sea. Djibouti is mostly barren, with little development in the agricultural and industrial 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 and the Gulf of Aden. 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 and refuelling centre.

From 1991 to 1994, Djibouti experienced a civil war which had a devastating effect on the economy. Since then, the country has benefited from political stability. In recent years, Djibouti has seen significant improvement in macroeconomic stability, with its annual GDP 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 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 rate of 2.5 percent, the economy cannot significantly benefit national income per capita growth. Unemployment is extremely high at over 50 percent and is a major contributor to widespread poverty. Efforts are needed in creating conditions that will enhance private sector development and accumulate human capital. These conditions can be achieved through improvements in macroeconomic and fiscal framework, public administration, and labour market flexibility.[1]

Contents

Economic performance

Djibouti market.

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. Inflation 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 to the US dollar. However, as mentioned above, unemployment has remained high at over 50 percent in recent years.

The government fiscal balance is in deficit because the government has not been able to raise sufficient tax revenues 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.[1]

Balance of payments

Djibouti’s merchandise trade balance has shown a large deficit. This is due to the countries 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 only data available at the time of writing is that the country’s merchandise trade deficit was estimated at US$737 million in 2004.[1]

Regional situation

With its position on the Red Sea, Djibouti holds a major strategic importance. The facilities of the Port of Djibouti 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 naval facility, and the United States also has stationed hundreds of troops in Djibouti, its only African base, in an effort to counter terrorism in the region.[1]

Macro-economic trend

This is a chart of trend of gross domestic product of Djibouti at market prices estimated by the International Monetary Fund 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 Francs only. Average wages in 2007 hover around $5–6 per day.

Investment climate

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Background

European Quarter, Djibouti City.

Djibouti’s economy is based on service activities connected with the country's strategic location and status as a free trade zone in the Horn of Africa. 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 and has been struggling to meet the stipulations of foreign aid donors.[1]

Openness to foreign investment

The government of Djibouti 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 and the telecommunications sectors. President Ismail Omar Guellehh first elected in 1999, has named privatization, 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 IMF stipulate increased privatization of parastatal and government-owned monopolies. There are no patent laws in Djibouti.[2]

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.[1]

Trade

Principal exports from the region transiting Djibouti are coffee, salt, hides, dried beans, cereals, other agricultural products, and wax. Djibouti itself has few exports, and the majority of its imports come from France. Most imports are consumed in Djibouti and the remainder goes to Ethiopia and Somaliland. Djibouti's unfavourable balance of trade 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 has the only paved airport in the republic. Djibouti has one of the most liberal economic regimes in Africa, with almost unrestricted banking and commerce sectors.

Key indicators

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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 66.2%, Ethiopia 21.4%, Yemen 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 20.7%, India 17.8%, China 9.3%, Ethiopia 4.6%, Malaysia 4.5%, Japan 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

References

External links


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