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Quick Facts
- Population:
- GDP (PPP):
- $2.1 billion
- 4.5% growth
- 5.0% 5-year compound annual growth
- $2,555 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Djibouti’s economic freedom score is 53.9, making its economy the 127th freest in the 2012 Index. Its overall score is 0.6 point lower than last year due to declining scores in government spending, business freedom, and labor freedom. Djibouti is ranked 25th out of 46 countries in the Sub-Saharan Africa region.
Implementation of deeper institutional reforms is critical to strengthening Djibouti’s foundations of economic freedom and inspiring more dynamic economic growth. Systemic weaknesses persist in the protection of property rights and the effective enforcement of anti-corruption measures. The judiciary remains vulnerable to political influence.
The economy is driven mainly by services, with industry accounting for less than 20 percent of GDP. Regulatory efficiency remains poor as burdensome regulations continue to hinder the development of a more entrepreneurial environment. On the other hand, policies that sustain open markets are evolving in a positive way. Increased investment, particularly in construction and port operations, has led to relatively high economic growth. The financial sector is growing and, with new banking laws, becoming more competitive.
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 and American military bases. 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 have increased to 60 percent above their five-year average and are expected to continue rising as prices for wheat flour, sugar, and cooking oil increase. Djibouti is heavily dependent on food imports—the staple food, wheat, is almost entirely imported—and price trends largely reflect international commodity prices.
Protection of private property is weak. Courts are frequently overburdened, and enforcement of contracts can be time-consuming. Trials and judicial proceedings are subject to corruption. Political manipulation undermines the judicial system’s credibility. Commercial and bankruptcy laws are not applied consistently. In the absence of effective anti-corruption measures, prosecution and punishment for corruption have been rare.
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, with the overall tax burden corresponding to 21 percent of total domestic income. Government spending amounts to 43.8 percent of total domestic output. Public debt has been reduced to below 60 percent of GDP, but the latest budget was in deficit.
The regulatory system’s lack of transparency and clarity injects considerable uncertainty into entrepreneurial decision-making. Launching a business remains time-consuming, with the minimum capital requirement amounting to over four times annual average income. A modern labor market has not been fully developed. Inflationary pressures continue, with a range of goods and services subject to government price controls.
Djibouti’s trade weighted tariff rate is quite high at 15.2 percent, with other complex non-tariff barriers further constraining trade freedom. Although no major laws discriminate against foreign investment, the investment regime lacks transparency and remains unfavorable to dynamic growth. The banking sector is expanding as more banks, particularly foreign banks, have entered the market and increased competition in recent years.