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Quick Facts
- Population:
- GDP (PPP):
- $3.3 billion
- 6.5% growth
- 5.8% 5-year compound annual growth
- $3,370 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Djibouti’s economic freedom score is 45.1, making its economy the 171st freest in the 2018 Index. Its overall score has decreased by 1.6 points, with declining tax burden and government spending scores outweighing slight improvements in property rights and fiscal health. Djibouti is ranked 43rd among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.
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 increase the cost of doing business.
Background
The French Territory of the Afars and the Issas became Djibouti in 1977. President Ismael Omar Guelleh was reelected to a fourth five-year term in 2016, parliament having eliminated a constitutional two-term limit in 2010. The only permanent U.S. African base is in Djibouti. France, Italy, Germany, and Japan also maintain a military presence, and Saudi Arabia and China are planning to open bases. A festering border dispute with Eritrea escalated after Qatari peacekeepers withdrew in June 2017. Djibouti has few natural resources and imports most of its food. Its service-based economy depends on commerce related to Djibouti’s strategic location at the mouth of the Red Sea, which makes its deep-water port facilities and railway key assets.
Property rights remain well below the global average. Lengthy periods of time are required before firms are granted official status. 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. Djibouti has made no noticeable progress on reducing government corruption.
The top personal income tax rate is 30 percent, and the top corporate tax rate is 25 percent. Other taxes include property and excise taxes. The overall tax burden equals 38.7 percent of total domestic income. Over the past three years, government spending has amounted to 49.3 percent of total output (GDP), and budget deficits have averaged 15.7 percent of GDP. Public debt is equivalent to 31.3 percent of GDP.
The regulatory system’s lack of transparency and clarity did not improve in 2016, and entrepreneurial decision-making requires a high tolerance for uncertainty and risk. A modern labor market has not been fully developed. The government reinstituted fuel subsidies, which had been at zero, as oil prices rose in 2017.
Djibouti’s average applied tariff rate is 17.6 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The financial sector is generating an increasing share of GDP. Although competition is increasing, the financial sector remains heavily dominated by the two principal banks.