Country name: Republic of Djibouti
Population: 496,000 (July 2007 estimate)
Land Area: 23,200km2
Official Language: Arabic and French (official)
Currency: 1 Djibouti Franc (DFr) = 100 centimes
Main Cities: Djibouti-ville (capital), Dikil, Tadjourah, Obock
Visa Requirements: EU passport holders can buy a visa on arrival at Djibouti airport
The Republic of Djibouti, a territory with a land area of 23,200km2, is strategically located at the foot of the Red Sea. Its capital is Djibouti-Ville. Djibouti is one of the region’s poorest countries and not only lacks resources, but faces a severe climate that acts as a serious obstacle to human and social development. Apart from substantial salt deposits, there are few other natural resources of significance in the country; the agricultural sector is extremely small and generates a mere 3% of GDP; very little manufacturing takes place and what industry that exists is of a small scale. Consequently, the country is highly dependent on international aid, with France as the largest donor, and a vast proportion of business activities and trade opportunities that are available with Djibouti are of a developmental nature.
Djibouti’s economy 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. Agriculture and industry are not extensively developed, due to a combination of the harsh climate, high production costs, unskilled labour, and limited natural resources. Limited mineral deposits exist in the country, and the arid soil is unproductive – around 89% is desert, 10% pasture, and 1% forested. Services and commerce provide most of Djibouti’s gross domestic product.
Djibouti’s most important economic asset is undoubtedly its strategic location on the shipping routes between the Mediterranean Sea and the Indian Ocean - it lies on the west side of the Bab-el-Mandeb, which connects the Red Sea and the Gulf of Aden. Its port is an important transhipment point for containers and also functions as a bunkering port and a small French naval facility. Activities increased at Djibouti port 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 food aid in 2000 during the drought and famine. Some 80% of traffic through the port is to and from Ethiopia, so it is good news that the two countries have now signed a much-delayed 20-year port agreement. This involves simplified customs procedures and a new regulatory framework, changes seen as needed before the opening of the new Doraleh container port.
A part of Dubai’s regional management scheme that also includes the port of Beirut, the Port of Djibouti has increased its efficiency and is positioned to be a major port and trans-shipment port for the Red Sea. Construction work on new port infrastructure involves a container port, a petroleum terminal and free trade zones all designed to enhance Djibouti’s profile as a key regional transport hub. In 2002, Arab donors from Kuwait, Saudi Arabia and Abu Dhabi agreed to fund the modernization of the country’s marine transport sector including the construction of a container and oil terminal and the development of the free zones. Along with managing the port, Dubai has since June 2002 been responsible for managing Djibouti International Airport, the only paved airport in the republic.
The 1000km Addis Ababa-Djibouti railroad is the only line serving central and south-eastern 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, candles, small rocks, coconuts, sugar, cereals and charcoal. The railway is to have a major upgrade following the conclusion in November 2006 of a $65 million contract between an Italian consortium and Ethiopia and Djibouti. This follows on from the awarding of a 25-year railway operator concession to South African developer Comazar. The European Union is helping to finance the modernization work.
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.
Djibouti has one of the most liberal economic regimes in Africa, with 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.
Three consecutive failed rainy seasons have led to widespread livestock deaths and a significant decline in milk production, creating serious food shortages in Djibouti, the UN reported in June 2005. In fact, Djibouti is subjected to prolonged and repeated drought and floods. Some 50 thousand Djibouti farmers were facing food shortages as a result of the latest drought in 2005. But since 1977, the country has been hit by six devastating floods and five severe droughts. Floods in April 2004 claimed an estimated 100 lives and severely disrupted the lives of over 100,000 people or 15% of the country’s population. In an attempt to combat these seasonal hazards, the World Bank approved a $6.5 million project to assist the victims of flood damage through the rehabilitation of social and economic infrastructure. The activities have included building and repairing homes, schools and health centres. Djibouti, with the help of the World Bank and other donors, has also sought technical assistance and consultancy services to strengthen long and short term disaster prevention management plans.
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. As of July 2005, the Bank had financed 17 operations in the country for a total original commitment of $155.5 million. In total five active investment projects form part of the Bank’s current portfolio in the country, including support for the health sector and basic infrastructure projects.
A World Bank backed Health Sector Development Project is supporting the government of Djibouti's long-term health sector development strategy. This is attempting to meet those aspects of the UN Millennium Development Goals that relate to the reduction of under-five child mortality and maternal mortality rates. This project has four main components. The first aims to improve the physical and human capacity of health facilities in the country; establishing Integrated Management of Childhood Illness programs in all facilities; reinforcing malaria control; and supporting immunization.
The second component seeks to improve the availability of trained personnel by increasing capacity and improving the curriculum of Djibouti’s Centre de Formation des Personnel de la Sante Publique (CFPS); and by improving service conditions for qualified paramedics. The third component of this project is aimed at improving the availability of drugs and medical supplies by supporting the stocking of drugs in emergency health facilities; establishing a self-sustaining independent drug fund; and supporting the development of community pharmacies that can purchase generic drugs and sell them at a low cost to patients. Finally, the fourth component will improve sector management through capacity building in Djibouti’s Health Ministry.
The Social Development and Public Works Project aims to enhance living standards in Djibouti, through increased access to basic economic and social infrastructure, and services, in addition to new employment opportunities. Ultimately, the project should contribute to poverty reduction in the city. The project has three components: Social and economic infrastructure works will improve the physical environment in poor areas. Small infrastructure works will improve streets and drainage on secondary and tertiary networks. Construction and rehabilitation of commercial infrastructure, such as markets and public places, will be included, in addition to social infrastructure, such as standpipes, health centres and schools.
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 Electricite 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 power 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.
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 financed by the Islamic Development Bank. It has also sought to increase the efficiency of agricultural land through the development of irrigation projects, but with limited success.
Industry in Djibouti remains limited and small in scale. The country possesses limited resources for investment and has sought to initiate strategic projects essential to the provision of basic services for the country. These first began only in the 1980s. The first major industrial project to be opened outside the capital was at Tadjourah where a power station supplying a mineral water bottling factory was commissioned in 1981. This was followed during 1984-85 by a dairy plant just outside the capital, a printing press and an extension to the Boulaos power station. With the support of Saudi Arabia, work on Djibouti’s first petroleum refinery located at Doraleh began in 1990.
Various policy options aimed at significantly increasing the competitiveness of the Djibouti economy have been suggested by the IMF. New initiatives include the planned construction of the $400 million Doraleh container port, which saw its foundation stone laid on 11 November 2006. In co-operation with Dubai’s ports group, DP World, Djibouti is anticipating expansion of trade with neighbouring countries, including the 21 member Common Market for Eastern and Southern Africa (COMESA).
Central Bank
Banque Nationale de Djibouti
Boulevard de la Republique, Djibouti
P.O. Box 2118, Djibouti
Tel: + (253) 352751
Fax: + (253) 356288
Societe de Telecommunications Internationales de Djibouti (STID)
P.O. Box 2031
Tel: + (253) 35 59 38
Fax: + (253) 35 01 09
Email:
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Website: www.intnet.dj/stid/index.html
Quelle: Ghorfa, Arab-German Chamber of Commerce & Industry e.V.
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