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World > Africa > Djibouti > Economy (Notes)

Djibouti - Economy (Notes)


ECONOMY
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. 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 inflows that now average more than $200 million. It has also significantly improved its finances, paying current salaries, maintaining reserves, and generating a growth rate in 2006 of approximately 4.5%. 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 Asal, 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.

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 old port is an increasingly important transshipment point for containers as well as a destination port for Ethiopian trade. Last year alone, private investment in the old port totaled approximately $50 million. Djibouti is now in the second of three phases of a multi-year, $800 million, privately-financed project to build a new port with fueling, container, and free zone components. The old 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--a prime source of employment--occupies a prominent place in Ethiopia's internal distribution system for domestic commodities such as cement, cotton textiles, sugar, cereals, and charcoal. A weekly train from Ethiopia brings in most of Djibouti's fresh fruits and vegetables. In March 2006, the Governments of Ethiopia and Djibouti (which co-own the railway) selected the South African firm COMAZAR to manage the line. They are still in negotiations over the management agreement. In addition, the European Union is considering a $100 million project to upgrade a portion of the rail line.

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 2001, U.S. exports to Djibouti totaled $18.7 million, while U.S. imports from Djibouti were about $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.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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