2013 Index of Economic Freedom

Djibouti

overall score53.9
world rank127
Rule of Law

Property Rights30.0

Freedom From Corruption30.0

Limited Government

Government Spending48.8

Fiscal Freedom79.4

Regulatory Efficiency

Business Freedom30.0

Labor Freedom59.6

Monetary Freedom76.6

Open Markets

Trade Freedom59.6

Investment Freedom65.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 0.8 million
  • GDP (PPP):
    • $2.2 billion
    • 4.5% growth
    • 4.8% 5-year compound annual growth
    • $2,642 per capita
  • Unemployment:
  • Inflation (CPI):
    • 5.1%
  • FDI Inflow:
    • $78.0 million
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Djibouti’s economic freedom score is 53.9, making its economy the 127th freest in the 2013 Index. Its overall score is the same as last year, with a notable improvement in the management of government spending offset by declines in five other economic freedoms including freedom from corruption. Djibouti is ranked 25th out of 46 countries in the Sub-Saharan Africa region.

Djibouti’s economy has demonstrated a high degree of resilience against external shocks that include a severe drought and high commodity prices. The continuing pursuit of structural reforms has attracted additional foreign direct investment, and increased business activity, particularly in port operations and construction, has contributed to relatively high economic growth. Policies that aim to sustain open markets and enhance regulatory efficiency have evolved in a constructive way, and the financial sector has grown, with new banks operating.

Effective implementation of deeper institutional reforms will be critical to strengthening Djibouti’s foundations of economic freedom and sustaining dynamic economic growth. Systemic weaknesses linger in the protection of property rights and the effective enforcement of anti-corruption measures. The judiciary remains vulnerable to political influence.

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Background

President Ismael Omar Guelleh, whose multi-party, multi-ethnic coalition controls all levels of government, was re-elected by a wide margin in April 2011. Djibouti is strategically located at the mouth of the Red Sea, and its economy is centered on port facilities, the railway, and French, Japanese, and American military facilities. Djibouti is an international partner in combating piracy in the Gulf of Aden. Services accounted for nearly 80 percent of GDP in 2007. The population is concentrated in the capital city, although a minority remain nomadic desert dwellers. Food prices stabilized somewhat in 2012 but remain very high, consuming about 75 percent of the budgets of poorer households. Djibouti depends heavily on food imports (the staple food, wheat, is almost entirely imported), and price trends largely reflect international commodity prices.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 30.0 Create a Graph using this measurement

Protection of private property is weak. Courts are frequently overburdened, and the enforcement of contracts can be time-consuming. Trials and judicial proceedings are subject to corruption. Political manipulation undermines the judicial system’s credibility. Power is heavily concentrated in the hands of the president and first lady, and key positions in government have been given to their relatives and close associates.

Limited GovernmentView Methodology

The top 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 is equal to 23.2 percent of total domestic income. Government spending has fallen to 41.3 percent of total domestic output. Public debt has been reduced to below 60 percent of GDP, but the latest budget was slightly in deficit.

Regulatory EfficiencyView Methodology

The commercial code has been revised, including finalization of new bankruptcy laws. Administrative procedures have been streamlined, and the cost of launching a business has been reduced. The minimum capital requirement to start a company remains high. Recent labor-market reform measures have not been fully enforced in practice. Inflationary pressures continue, with a range of goods and services subject to government price controls.

Open MarketsView Methodology

Djibouti’s trade-weighted average tariff rate is quite high at 15.2 percent, and non-tariff barriers further constrain trade flows. Although no major laws discriminate against foreign investment, the investment regime lacks transparency and still hinders dynamic growth. The financial sector is generating an increasing share of GDP. Despite establishment of new banks, the sector remains dominated by the two main banks.

Country's Score Over Time

Bar Graph of Djibouti Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Djibouti to other economic country groups

Regional Ranking

rank country overall change
1Mauritius76.9-0.1
2Botswana70.61.0
3Rwanda64.1-0.8
4Cape Verde63.70.2
5Madagascar62-0.4
6South Africa61.8-0.9
7Ghana61.30.6
8Uganda61.1-0.8
9Namibia60.3-1.6
10Burkina Faso59.9-0.7
11The Gambia58.80.0
12Zambia58.70.4
13Tanzania57.90.9
14Gabon57.81.4
15Benin57.61.9
16Swaziland57.20.0
17Mali56.40.6
18Kenya55.9-1.6
19Senegal55.50.1
20Malawi55.3-1.1
21Nigeria55.1-1.2
22Mozambique 55-2.1
23Seychelles54.91.9
24Côte d'Ivoire 54.1-0.2
25Djibouti53.90.0
26Niger53.9-0.4
27Cameroon52.30.5
28Mauritania52.3-0.7
29Guinea51.20.4
30Guinea-Bissau51.11.0
31Central African Republic50.40.1
32Ethiopia49.4-2.6
33Liberia49.30.7
34Burundi490.9
35Togo48.80.5
36Sierra Leone48.3-0.8
37São Tomé and Príncipe 48-2.2
38Lesotho47.91.3
39Comoros47.51.8
40Angola47.30.6
41Chad45.20.4
42Republic of Congo 43.5-0.3
43Equatorial Guinea42.3-0.5
44Democratic Republic of Congo39.6-1.5
45Eritrea36.30.1
46Zimbabwe28.62.3
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