MAIN CITIES: Djibouti (capital), Dikhil, Tadjoura, Obock, Khor Angar
NATIONAL DAY: 27 June
TIME ZONE: Standard Time is GMT + 3
The Republic of Djibouti is located strategically at the foot of the Red Sea. Its capital is Djibouti- Ville or Djibouti city. Djibouti is one of the region’s poorest countries, not only lacks resources, but faces a severe climate that is a serious obstacle to development. Djibouti’s location is its main economic asset given its mostly barren landscape. The capital’s port handles all the major imports and exports into landlocked Ethiopia and Djibouti is an expanding shipping hub on one of the busiest maritime trade routes in the world. It is a major dropping point for World Food Programme and USAID supplies, which are transported by road or rail to Ethiopia’s capital, Addis Ababa. Meanwhile, Ethiopia’s cash crop, coffee, is exported in bulk from Djibouti.
Economy
Apart from substantial salt deposits, there are few otherm natural resources of significance in the country. 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. Djibouti’s main industry is mineral water bottling plant, leather tanning, construction, pharmaceuticals factory, abattoirs, salt mining, and one petroleum refi nery. Djibouti’s most important economic asset is its strategic location on the busy shipping route between the Mediterranean Sea and the Indian Ocean. The trans-shipment trade through the port is the mainstay of the economy and creates at least 70% of GDP. The capital has the only paved airport in the republic. In addition, Djibouti has one of the most liberal economic regimes in Africa, with almost unrestricted banking and commerce sectors. Djibouti is a free-trade zone. Port activity and related services constitutes the main commercial activities, in addition to a small tourist industry. Agriculture remains poorly developed, due to harsh climate, high production costs, unskilled labour, and limited natural resources. Agriculture is extremely small and generates 3.2% of GDP. Local farmers are only able to produce around 3% of the country’s food needs. The great bulk of the requirements therefore must be imported. In recent years, Djibouti has sought to increase food production by developing its fishing industry, including the construction of a fish canning factory fi nanced by the Islamic Development Bank. It has also sought to increase the effi ciency of agricultural land through irrigation projects, but with limited success. Manufacturing is small and the industry that exists is small-scale. The mineral deposits that exist are minimal and the arid soil is unproductive – around 89% is desert, 10% pasture, and 1% forested. However, services and commerce provide most of Djibouti’s gross domestic product. The economy is therefore based on service activities and highly dependent on international aid. The service sector is connected with the country’s strategic location and status as a free trade zone in the Horn of Africa. Djibouti provides services as both a transit port for the region and an international trans-shipment and refuelling centre. Imports and exports from Ethiopia represent 85% of port activity at Djibouti’s container terminal. 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 the country, but others are re-exported to Ethiopia and north-western Somalia.
Investment
The UAE is one of the countries carrying out ambitious investment projects to turn Djibouti into Africa’s biggest shipping terminal, in a project that aims to extend its commercial reach throughout East Africa. The integrated business plan aims to transform Djibouti into an elite tourist destination. The 1000 km Addis Ababa-Djibouti railroad is the only line serving central and south-eastern Ethiopia. The single-track railway occupies a prominent place in Ethiopia’s internal distribution system for domestic commodities such as cement, cotton textiles, candles, small rocks, coconuts, sugar, cereals and charcoal. The European Union is helping to fi nance the modernisation of this important asset.
Agriculture & Fishing
As stated, the country’s agricultural sector is inhibited by a very inhospitable climate and one of the most unproductive terrains in Africa. Local farmers are only able to produce around 3% of the country’s food needs. The great bulk of the requirements therefore must of necessity be imported. In recent years, Djibouti has sought to increase its food production by developing its fishing industry, including the construction of a fish canning factory fi nanced by the Islamic Development Bank. It has also sought to increase the effi ciency of agricultural land through the development of irrigation projects, but with limited success.
Reforms
Djibouti has also been making recent progress in implementing structural reforms, the IMF points out. The economy however still very much depends on a large foreign expatriate community, the maritime and commercial activities of the Port of Djibouti, its airport, and the operation of the Addis Ababa-Djibouti railroad. Djibouti’s macroeconomic environment has improved signifi cantly over the last few years. Annual real GDP growth accelerated from an annual average of 3% in 2001-05 to 6% in 2008 onwards. This growth was mainly driven by large foreign domestic investments in the port, tourism, and construction sectors, the IMF reports. Investment as share of GDP doubled within two years, reached 40% in 2007. After remaining stagnant for several years, credit to the private sector increased by 23%, owing in part to a real estate and construction boom.
Energy & Water Sector
The World Bank is preparing a $7 million International Development Association (IDA) credit to back a $10 million project to reform Djibouti’s power and water sector. The funding will permit exploration of the potential for renewable power for the country’s Obock area; the Djibouti Ville distribution network and what will be Djibouti’s first wind farm; funds are also earmarked to cover a 2MW plant serving Ali Sabieh and Dikhil. Meanwhile, state-owned “Electricité de Djibouti” is planning a 30MW geothermal BOO plant for Lake Assal costing an estimated $115 million following the carrying out of a feasibility study by US firm Geothermal Development Associates. Djibouti receives assistance from the World Bank to develop its national energy strategy. In this regard, the Bank drew up an inventory of all sources of energy used by households, including quantities, costs and demand for electricity services and amenities. Local people face high tariffs and low levels of access to electricity. The connection rate in the country is below 30%. Although a variety of energy sources could be made available, kerosene and electricity account for 79% of all energy consumed in Djibouti at present. Poorer households spend 13.5% of their total expenditure on energy, compared to 5.3% for better off citizens in the capital Djibouti-ville. Kerosene is the most important source of energy for cooking and lighting because it is the least expensive option. However, kerosene costs have been rising at a rate of 2.3% per year. The poor have responded to these higher costs by increasing use of wood fuel and charcoal, though both resources are scarce. Clearly, in the long term this is not an environmentally sustainable option. 58% of households have access to electricity, some resort to illegal connections partly because of high costs. The World Bank’s policy recommendations include: reducing the cost of kerosene by revising surtaxes, reviewing the price structure of liquefied petroleum gas, and promoting access to 3 or 6 kilogram bottles to expand the range of affordable and better energy services; and promoting energy efficiency. The energy and water sectors are key bottlenecks to poverty alleviation in Djibouti due to their very high cost of production which constitute barriers to access. The consumer prices for electricity and water services are the highest in the region, at an average of $0.20/ kWh for electricity and $1.10/m3 for water. The reason for the high prices is mainly the high cost of electricity production as a result of the reliance on imported diesel fuel for power generation, high inefficiencies in the form of network losses, high administrative overhead costs and overall lack of managerial capability and incentive. In addition, in the energy sector, there is a 33% tax on all petroleum products which is passed through to the consumers and is estimated to generate revenues to the government of around $6 million per year. Djibouti has developed an action plan for both sectors focused on increasing access and improving competitiveness through a reduction of the high cost of service and improvement in overall service delivery. The key objectives in the sectors are to: improve efficiency and financial performance in the utilities through restructuring and promotion of private sector participation; address key service delivery constraints through rehabilitation of networks and administrative improvements; and explore new resources for water supply such as desalination and power generation, such as renewable energy and interconnection possibilities. The latter objective is particularly important for the water sector because the capital city Djibouti-ville relies entirely on the aquifer for its water supply. Weak control over water extraction and over water consumption has led to overexploitation of the aquifer and rapidly deteriorating water quality. In the power sector, the financial performance has drastically deteriorated due to high international oil prices. The electricity tariff is set to cover cost at a price per barrel level not exceeding $25 compared to recent prices reaching $32. Djibouti is, however, endowed with good potential to develop its renewable energy resources, in particular wind and geothermal.
Djibouti agreed to an IMF Staff Monitoring Program in a bid to improve the performance of its public utilities, power and water in particular. Furthermore, the World Bank is finalizing a Water Sector policy for Djibouti and identified the sector’s institutional arrangements as the main reason for inadequate service levels. The largest donor in the water sector, the European Union, requested World Bank engagement in order to finalize its investment program.
Banking & Finance
Djibouti has almost unrestricted banking and commerce sectors. It has an expanding financial sector that offers some basis for wealth generation. This has been growing largely as a result of the stable and freely convertible currency and absence of exchange controls. It is economically dependent to an overwhelming degree on its position as a free trade zone and key international transit port for the region. Djibouti has become a significant regional banking hub, with approximately $600 million in dollar deposits. There is a growing banking and insurance sector, and the telecommunications sector is the best in the region. In February 2001, the World Bank adopted its first Country Assistance Strategy for Djibouti. This was developed in close partnership with the authorities and has served as a roadmap for the Bank’s assistance to the country. Since 2001 Djibouti has become a magnet for private sector capital investment, attracting inflows that now average more than $200 million. In July 2005, the World Bank had financed 17 operations in the country for a total original commitment of $155.5 million. A total of five active investment projects form part of the Bank’s current portfolio in the country, including support for health and basic infrastructure.
Source: Austro-Arab Trade Directory 2011. The mentioned data are subject to modification. No responsibility is taken for the correctness of the details provided. Last modified: 24 January 2011
