Economy of Djibouti

Economy of Djibouti

Port of Djibouti
Currency Djiboutian franc (DJF)
Calendar year
Trade organisations
 AL, AU, CEN-SAD, IGAD
Statistics
GDP Increase$3.093 billion PPP (2015 est.)[1]
GDP growth
 6.5% (2015 est.)
GDP per capita
 Increase$1.743 PPP (2014 est.)[1]
GDP by sector
 Agriculture 3.1%
Industry 17.3%
Services 79.7% (2015 est.)
2.1% (2015 est.)
Population below poverty line
 23%
Labour force
 294,600 (2012 est.)
Labour force by occupation
 Agriculture 10%
Industry 21.2%
Services 75.7%
Unemployment 60%
Main industries
 Dairy
Fishing
Salt
Construction
Mining
External
Exports $141.9 million (2015 est.)
Export goods
 reexports, hides and skins, coffee
Main export partners
  Somalia 79%
 United Arab Emirates 4%
 Yemen 5.0%
 United States 4.0% (2015 est.)[2]
Imports $1.038 billion (2015 est.)
Import goods
 foods, beverages, transport equipment, chemicals, petroleum products
Main import partners
  China 42%
 Saudi Arabia 14%
 India 4%
 Indonesia 6% [3]
Public finances
Revenues $615 million
Expenses $860 million
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.

The economy of Djibouti 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 refueling centre.

From 1991 to 1994, Djibouti experienced a civil war 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 stability, with its annual gross domestic product 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 43 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.[4]

Djibouti was ranked the 177th safest investment destination in the world in the March 2011 Euromoney Country Risk rankings.[5]

Economic performance

Bus down the central market in Djibouti City.

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 40 percent in recent years. Djibouti's gross domestic product expanded by an average of more than 6 percent per year, from US$341 million in 1985 to US$1.5 billion in 2015.

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.[4]

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.[4]

Regional situation

Positioned on a primary shipping lane between the Gulf of Aden and the Red Sea, Djibouti holds considerable strategic value in the international trade and shipping industries. 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. Threats of pirates patrolling the Gulf of Aden, off the coast of Somalia, with the intentions of capturing large cargo ships, oil, and chemical tankers has created the need for larger nations such as the United States, France, and Japan to embed logistics bases or military camps from which they can defend their freight from piracy. The port of Djibouti functions as a small French naval facility, and the United States has also stationed hundreds of troops in Camp Lemonnier, Djibouti, its only African base, in an effort to counter terrorism in the region.[4] Recently China has stated they are in talks to build “logistics facilities”[6] in Obock to provide support peacekeeping and anti-piracy missions near Somalia and the Gulf of Aden. Additional international presence will increase both Djibouti’s economic value as well its strategic importance 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 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. Mean wages were $1.30 per person-hour in 2009.

Investment climate

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.[4]

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 International Monetary Fund stipulate increased privatization of parastatal and government-owned monopolies. There are no patent laws in Djibouti.[7]

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.[4]

Sectors

Trade

A Saba Islamic Bank branch in Djibouti City.

Principal exports from the region transiting Djibouti are coffee, salt, hides, dried beans, cereals, other agricultural products, chalk, 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 Somalia. 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.

Tourism

In 2013, 63,000 foreign tourists visited Djibouti, Djibouti City is the principal tourist destination for visitors, revenues from tourism fell just US$ 43 million in 2013.

See also

References

  1. 1 2 "Djibouti". International Monetary Fund. Retrieved 2014-10-01.
  2. ↑ "Export Partners of Djibouti". CIA World Factbook. 2013. Retrieved 2015-05-11.
  3. ↑ "Economy of Djibouti". 2014.
  4. 1 2 3 4 5 6 Country Watch
  5. ↑ "Euromoney Country Risk". Euromoney Country Risk. Euromoney Institutional Investor PLC. Retrieved 15 August 2011.
  6. ↑ "China has no military ambition in Djibouti - Global Times". www.globaltimes.cn. Retrieved 2015-11-30.
  7. ↑ Bill Anderson
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