ECONOMY

Djibouti's economy depends largely on its proximity to the large Ethiopian market and a large foreign expatriate community. Its main economic activities are the Port of Djibouti, the banking sector, the airport, and the operation of the Addis Ababa-Djibouti railroad. During the "lost decade" following the brunt of its civil war (1991-94), there was a significant diversion of government budgetary resources from developmental and social services to military needs. However, from 2001 on, Djibouti has become a magnet for private sector capital investment, attracting foreign direct investment inflows that now top $200 million annually. It has also significantly improved its finances, paying current salaries, maintaining reserves, and generating a growth rate in 2008 of approximately 5.8%. Djibouti has become a significant regional banking hub, with approximately $600 million in dollar deposits. Its currency, the Djiboutian franc, was linked to the dollar (and to gold) in 1949 and appreciated twice over the interim when the dollar was devalued and then freed to float. Agriculture and industry are little developed, in part due to the harsh climate, high production costs, unskilled labor, and limited natural resources. Mineral deposits exist in the country, but with the exception of an extraordinary salt deposit at Lac Assal, the lowest point in Africa, they have not been exploited. The arid soil is unproductive--89% is desert wasteland, 10% is pasture, and 1% is forested. Deforestation for charcoal is a significant problem, as it now replaces expensive imported cooking gas in many urban homes. Services and commerce provide most of the gross domestic product.

Djibouti's most important economic asset is its strategic location on the busy shipping route between the Mediterranean Sea and the Indian Ocean. Roughly 60% of all commercial ships in the world use its waters from the Red Sea through the Bab-el-Mandeb strait and into the Gulf of Aden and the Indian Ocean. Its port is an increasingly important transshipment point for containers as well as a destination port for Ethiopian trade. In 2009, Djibouti and Dubai Ports World inaugurated the state-of-the-art, $300 million Doraleh Container Terminal. The older portion of the port will continue serving as a general shipping, bulk cargo, and break-bulk facility and also as the host of a small French naval facility.

Business soared at the Port of Djibouti 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 U.S. food aid in 2000 during the drought and famine. In 2000, Dubai Ports World took over management of Djibouti's port and later its customs and airport operations. The result has been a significant increase in investment, efficiency, activity, and port revenues. The Addis Ababa-Djibouti railroad is the only line serving central and southeastern Ethiopia. The single-track railway needs upgrades, but remains an important source of employment. A weekly train from Ethiopia brings in most of Djibouti's fresh fruits and vegetables. The bulk of Ethiopia-bound imports from Djibouti’s port are transported via truck. Principal exports from the region transiting Djibouti are coffee, salt, live animals, 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 Djibouti, and the remainder go to Ethiopia and northwestern Somalia. Djibouti's unfavorable balance of trade is offset partially by invisible earnings such as transit taxes and harbor dues. In 2007, U.S. exports to Djibouti totaled $59 million, while U.S. imports from Djibouti were about $4 million.

The city of Djibouti has the only paved airport in the republic. Djibouti has one of the most liberal economic regimes in Africa, with almost unrestricted banking and commerce sectors.