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Djibouti - Economy

Heightened dependence on the port and soaring rents from foreign military bases have failed to generate many new jobs. Djibouti continues to bear the hallmarks of a dualistic economy in which a modern economic rent-generating sector co-exists alongside an informal economy. Nearly 42% of the population lives below the absolute poverty line (80% below the relative poverty line). Djibouti occupies the 164th rank in the Human Development Index (HDI) in 2013. The vast majority of Djiboutians eke out a precarious, marginal livelihood. The country is afflicted by pervasive poverty, extensive food insecurity, and abysmal living standards.

In 2015 Ethiopia signed an agreement with Chinese investors and Djibouti on leasing vast amount of Ogaden land for natural gas exploitation. The multi-billion dollar project, which aims to exploit natural gas from the Ogaden region and export it to China via a pipeline, will be built between the region and Djibouti’s Damerjog Port. Decades-long marginalisation and suppression policies of the Addis Ababa Government on Ogaden and Oromo people are not likely to change. The foundation stone for a new mega gas project was laid on March 3, 2016, by the presence the Djiboutian President. The project is planned to install a natural gas pipeline, a liquefaction plant and an export terminal at Damerjog, Djibouti from the Ogaden as reported by Global Energy.

The IMF has projected GDP growth at or above 5 percent annually for the next several years. In the 1990s, Djibouti’s economy was weakened by an influx of refugees, a persistent drought, a four-year civil war, and a substantial decrease of foreign aid. Recent years have seen a significant improvement driven by intensive expansion of the port, changes in the tax and labor codes, and an influx of foreign direct investment (totaling 19.7 percent of Djibouti’s GDP in 2013). Real GDP growth has remained between 4 percent and 5 percent per year for thge five years 2010-2015, and inflation remained below 8 percent.

Djibouti’s economy is based on service activities associated with the country’s strategic location and status as a free trade zone in northeast Africa. Djibouti provides services as both a transit port for the region and an international transshipment and refueling center.

Scant rainfall limits crop production; most food must be imported. Because Djibouti has few natural resources and little industry, it depends on foreign assistance to help support its balance of payments and to finance development projects.

Djibouti has a 50 percent unemployment rate. Inflation is not a concern, as the Djiboutian franc is fixed to the U.S. dollar. Per capita consumption has dropped 35 percent because of recession, civil war, and a high population growth rate (including immigrants and refugees). Faced with economic hardship, the government has fallen behind on long-term external debt and had difficulty meeting the stipulations of foreign aid donors.

Djibouti's most important economic asset is its strategic location on the busy shipping route between the Mediterranean Sea and the Indian Ocean. Roughly 60% of all commercial ships in the world use its waters from the Red Sea through the Bab-el-Mandeb strait and into the Gulf of Aden and the Indian Ocean. Its port is an increasingly important transshipment point for containers as well as a destination port for Ethiopian trade. In 2009, Djibouti and Dubai Ports World inaugurated the state-of-the-art, $300 million Doraleh Container Terminal. The older portion of the port will continue serving as a general shipping, bulk cargo, and break-bulk facility and also as the host of a small French naval facility.

Business soared at the Port of Djibouti when hostilities between Eritrea and Ethiopia denied Ethiopia access to the Eritrean Port of Assab. Djibouti became the only significant port for landlocked Ethiopia, handling all its imports and exports, including huge shipments of U.S. food aid in 2000 during the drought and famine. In 2000, Dubai Ports World took over management of Djibouti's port and later its customs and airport operations. The result has been a significant increase in investment, efficiency, activity, and port revenues. The Addis Ababa-Djibouti railroad is the only line serving central and southeastern Ethiopia. The single-track railway needs upgrades, but remains an important source of employment. A weekly train from Ethiopia brings in most of Djibouti's fresh fruits and vegetables. The bulk of Ethiopia-bound imports from Djibouti’s port are transported via truck.

Djibouti's economy depends largely on its proximity to the large Ethiopian market and a large foreign expatriate community. Its main economic activities are the Port of Djibouti, the banking sector, the airport, and the operation of the Addis Ababa-Djibouti railroad. The Djibouti railroad has been strategically and commercially important to Ethiopia since the end of the 19th century when the French and the Emperor of Ethiopia designated Djibouti as the official outlet of Ethiopian commerce. As a result, a railway was constructed between Djibouti and Addis Ababa. This railway was completed in 1915 and is vital to Djibouti’s economy. Djibouti has approximately 100 kilometers (62 miles) of 1-meter-gauge track. The Addis Ababa Railroad is the only line that serves Djibouti and central and western Ethiopia; however, only Djiboutian and Ethiopian passengers may use this train. During the "lost decade" following the brunt of its civil war (1991-94), there was a significant diversion of government budgetary resources from developmental and social services to military needs. However, from 2001 on, Djibouti has become a magnet for private sector capital investment, attracting foreign direct investment inflows that now top $200 million annually.

It has also significantly improved its finances, paying current salaries, maintaining reserves, and generating a growth rate in 2008 of approximately 5.8%. Djibouti has become a significant regional banking hub, with approximately $600 million in dollar deposits. Its currency, the Djiboutian franc, was linked to the dollar (and to gold) in 1949 and appreciated twice over the interim when the dollar was devalued and then freed to float.

Agriculture and industry are little developed, in part due to the harsh climate, high production costs, unskilled labor, and limited natural resources. Mineral deposits exist in the country, but with the exception of an extraordinary salt deposit at Lac Assal, the lowest point in Africa, they have not been exploited. The arid soil is unproductive--89% is desert wasteland, 10% is pasture, and 1% is forested. Deforestation for charcoal is a significant problem, as it now replaces expensive imported cooking gas in many urban homes. Services and commerce provide most of the gross domestic product.

Principal exports from the region transiting Djibouti are coffee, salt, live animals, 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 go to Ethiopia and northwestern Somalia. Djibouti's unfavorable balance of trade is offset partially by invisible earnings such as transit taxes and harbor dues. In 2007, U.S. exports to Djibouti totaled $59 million, while U.S. imports from Djibouti were about $4 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.