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- GDP (PPP):
- $3.1 billion
- 6.5% growth
- 5.9% 5-year compound annual growth
- $3,204 per capita
- Inflation (CPI):
- FDI Inflow:
Djibouti’s economy is driven mainly by services, with industry accounting for less than 20 percent of GDP. Economic activity is centered on port facilities, the railway, and military bases. Increased investment, particularly in construction and port operations, has led to relatively high economic growth in recent years.
Institutional weaknesses such as poor governance and the lack of a sound judicial framework severely undercut vibrant economic expansion and constrain long-term economic development. Corruption continues to raise the cost of doing business. Open-market policies related to free trade and the free flow of capital are not deeply rooted in the economic system.
President Ismael Omar Guelleh was reelected by a landslide to a fourth term in 2016 after getting parliament in 2010 to change a constitutional prohibition against more than two terms. Djibouti’s strategic location at the mouth of the Red Sea makes its port facilities and railway key assets. The U.S. has its only permanent African base in Djibouti, and France and Japan have a military presence there as well. In early 2016, China began building “support facilities” for its army and navy in the port town of Obock. Djibouti has few natural resources and imports most of its food. The government relies on foreign assistance to finance development projects.
Protection of private property is weak. Judicial proceedings and trials are time-consuming, prone to corruption, and politically manipulated. Sharia law prevails in family matters. Power remains heavily concentrated in the president’s hands, and repression of political opposition has increased. Public officials do not have to disclose their assets. Government corruption is a serious problem, and efforts to curb it have had little success.
The top personal income tax rate is 30 percent, and the top corporate tax rate is 25 percent. Other taxes include a property tax and an excise tax. The overall tax burden equals 19.6 percent of total domestic income. Government spending has amounted to 44.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 11.5 percent of GDP. Public debt is equivalent to 55.5 percent of GDP.
The regulatory system’s lack of transparency and clarity injects considerable uncertainty into entrepreneurial decision-making. A modern labor market has not been fully developed. In 2016, the government and the Saudi Arabia–based Islamic Trade Finance Corporation, a subsidiary of the Islamic Development Bank, signed a $75 million agreement that the IMF warns will probably be used to finance Djibouti’s fuel subsidies.
Trade is important to Djibouti’s economy; the value of exports and imports taken together equals 58.7 percent of GDP. The average applied tariff rate is 17.6 percent. State-owned enterprises distort the economy. Credit is generally allocated on market terms, but access to credit for entrepreneurial activity is still limited by high costs and the lack of other available financing instruments.