Population 0.866 million
GDP 1.36 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2010 | 2011(e) | 2012(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
3.5 |
4.4 |
4.8 |
5.2 |
|
Inflation (yearly average) (%)
|
4 |
4.4 |
5.5 |
4.5 |
|
Budget balance (% GDP)
|
-5.8 |
-6.3 |
-5.3 |
-5 |
|
Current account balance (% GDP)
|
-5.8 |
-11.7 |
-11.8 |
-11.9 |
|
Public debt (% GDP)
|
56.1 |
52.3 |
51.1 |
53.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Trans-regional hub for trans-shipment traffic
- Modernisation of port infrastructures
- Geostrategic position at entrance to the Red Sea
- Support from Middle Eastern investors and international donors
- High geothermic and tourism potential
WEAKNESSES
- Heavily dependent on Ethiopia for port activities
- Re-exports account for over 80% of GDP
- Very high poverty level (50% to 60% of the population) and structural food insecurity
- Energy infrastructure shortcomings
- Unsatisfactory business environment
- Possible resurgence of ethnic conflicts
Risk assessment
Economy stimulated by port activity
Growth depends heavily on the expansion of port activity. Djibouti wants to become the trade hub for its landlocked neighbours, in particular Ethiopia and Southern Sudan. In 2012 the country benefited from instability in Yemen to increase its market share at the expense of its main rival in the region, the port of Aden, and from strong activity in Ethiopia, whose trade transits chiefly through Djibouti. This led, however, to recurrent periods of traffic congestion.
In 2013, growth is likely to be driven by the momentum of the Ethiopian economy as well as the port operator Dubai Ports World’s decision to continue extending the container terminal at the country’s main port, Doraleh. The gradual start of operations at the deep-water port of Tadjourah, inaugurated in late 2012 and located near the Ethiopian border will also boost port activity. FDIs, accounting for about 10% of GDP, make up the second driver of growth: investors are attracted by Djibouti’s strategic position and its free-trade area. They are financing the development of communication channels linking the ports to neighbouring Ethiopia, an airport, as well as construction of a geothermal power plant expected to start up in several years time. The latter project should encourage a reduction in energy imports, mainly from Ethiopia. Construction and services, especially financial or tourism-related, also contribute to growth.
Small deficit cuts, public debt level still worrying
Improved tax collection, especially of VAT and business tax, has slowly reduced the fiscal deficit, which remains high, however, especially because of price subsidies on staples. The government is hoping that this reduction will retain IMF confidence regarding a possible new disbursement of funds in 2013. The 2013 budget sets out a social development policy costing $50mn, or 5% of GDP, aimed at improving public health, reducing urban poverty and supporting rural populations. The country also relies on grants from abroad, which are likely to remain important, as the donors, too, are responsive to the country’s geostrategic position.
Nevertheless, public debt is at a high level, two-thirds of which are held by multilateral creditors. The government will accordingly only be able to borrow on concessional terms.
Current account deficit financed by substantial FDIs
The trade balance will continue to post a deficit, particularly due to the high volume of imports of capital goods needed for the construction of new infrastructures, as well as imports of energy. Exports consist mainly of re-exports, especially from Ethiopia and will increase in 2013 as port traffic expands. The large current account deficit is easily covered by the important volume of FDIs from a myriad of investors, especially from the Gulf (Dubai in particular), as well as by external borrowing.
Firm political support of western powers
President Guelleh, elected in 2011, has promoted an authoritarian regime, bolstered by the appointment of relatives to key government posts and control over the media. This situation gives rise to a mediocre governance and business environment: pernickety regulations and major shortcomings in the legal system. Pervasive high unemployment, made worse by the fact that new infrastructure construction is not really creating jobs for local people, means social risks cannot be ignored. Poverty thus affects over half of the population. Externally, Djibouti relies very largely on the financing and presence of French, American and Japanese troops, as the country is at the heart of western strategy in the fight against maritime piracy in the Gulf of Aden.
