Economy of Djibouti
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[edit] Economic Overview
[edit] Overview
Djibouti is mostly barren, with little development in agriculture and industry because of the harsh climate, unskilled labor 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 an international transshipment and refueling center.
From 1991 to 1994, Djibouti experienced a civil war that had devastating consequences for 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 growth averaging over 3 percent since 2003 after a decade of negative or low growth. This is attributed to fiscal adjustment measures aimed at improving public financing, as well as reforms for improving port management.
Despite recent modest and stable growth, Djibouti is faced with compelling challenges, particularly job creation and poverty reduction. With an average annual population growth rate of 2.5 percent, current economic growth cannot increase significantly real income per capita. 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 labor market flexibility. [1]
[edit] Economic Performance
Djibouti 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 fiscal balance has been in deficit because the government has not been able to raise sufficient tax revenues to cover the expenses. In 2004, a substantial increase in expenditure resulted in a deterioration of the fiscal position. As a result, the fiscal 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. [2]
[edit] Balance of Payments
Djibouti’s merchandise trade balance has been in large deficit, driven by the country's enormous need for imports and narrow base of exports. Although Djibouti runs 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. [3]
[edit] Regional Situation
With its accessibility to the Red Sea, Djibouti holds major strategic importance with its access. The facilities of the port of Djibouti are important to ocean fleet services for fuel bunkering and refueling. Its transport facilities are used by several landlocked African countries for re-export of their goods, from which Djibouti earns transit taxes and harbor fees. 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. [4]
[edit] 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.
[edit] Investment Climate
[edit] Background
Djibouti’s economy is based on service activities connected with the country's strategic location and status as a free trade zone in northeast Africa. Two-thirds of the 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. Therefore, most food must be imported. The government provides services as both a transit port for the region and an international transshipment and refueling center. It 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. [5]
[edit] 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 telecom sectors. Newly-elected president Ismail Omar Guellehh has placed privatization, economic reform, and increased foreign investment as top priorities for his government. The president has 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. [6]
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 more and more realizing the importance of establishing a one-stop shop to facilitate the investment process. [7]
[edit] 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 northwestern Somalia. Djibouti's unfavorable balance of trade is offset partially by invisible earnings such as transit taxes and harbor dues. In 1999, U.S. exports to Djibouti totaled $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.
GDP: purchasing power parity - $619 million (2002est.)
GDP - real growth rate: 3.5% (2002 est.)
GDP - per capita: purchasing power parity - $1,300 (2002 est.)
GDP - composition by sector:
agriculture: 3.5%
industry: 15.8%
services: 80.7% (2001 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: 177 GWh (1998)
Electricity - production by source:
fossil fuel: 100%
hydro: 0%
nuclear: 0%
other: 0% (1998)
Electricity - consumption: 165 GWh (1998)
Electricity - exports: 0 kWh (1998)
Electricity - imports: 0 kWh (1998)
Agriculture - products: fruits, vegetables; goats, sheep, camels
Exports: $260 million (f.o.b., 1999 est.)
Exports - commodities: reexports, hides and skins, coffee (in transit)
Exports - partners: Somalia 53%, Yemen 23%, Ethiopia 5%, (1998)
Imports: $440 million (f.o.b., 1999 est.)
Imports - commodities: foods, beverages, transport equipment, chemicals, petroleum products
Imports - partners: France 13%, Ethiopia 12%, Italy 9%, Saudi Arabia 6%, UK 6% (1998)
Debt - external: $350 million (1999 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
[edit] External links
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