Djibouti WT/TPR/S/159/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) MAIN FEATURES OF THE ECONOMY  
1. The Republic of Djibouti, a State in east Africa,  is situated at the southern gateway to the 
Red Sea and covers an area of 23,000 km2, with a coastline of 370 km.1  Its neighbouring countries 
are Somalia and Ethiopia to the south and Eritrea to the north. Its population (with an annual average 
rate of growth of around 3 per cent) was estimated to be 632,000 in 2004, of which over 80 per cent 
live in urban areas.  Almost two thirds of the population live in the city of Djibouti.  Djibouti has one of the highest rates of urbanization in Africa.  In  2002, the infant mortality rate was 10 per cent;  
43 per cent of the population was under 15 years old and only 3.8 per cent over 65
2, while life 
expectancy was 45.8 years at birth. 
2. With a per capita GDP of US$721.5 in 2003, Djibou ti is a least developed country.  In 2004, 
it was 154th out of 177 countries (12th in the category of 36 countries with low human development) according to the UNDP's human development index.
3  Over two fifths of its population live in 
extreme poverty4, 83 per cent in rural areas.  Djibouti's economy is dominated by services (some 
87 per cent of real GDP), the Port autonome international de Djibouti (Djibouti International 
Autonomous Port) (PAID) is its catalyst (Chapter  IV(5)(iii)(a)).  The completion of the port at 
Doraleh should mean that port services come to  dominate the economy even more.  The revenue 
generated by military cooperati on agreements (around 5.6 per cent of GDP) and spending by foreign 
military troops stationed in Djibouti is another source of growth for the economy.5  Mining (salt), 
energy and water together account for around 9 per cent of real GDP.  Agriculture (mainly subsistence 
agriculture because of climate conditions) employ s some 3,600 people and represents some 3.5 per 
cent of real GDP (Table I.1).  Manufacturing activities are only marginal. 
Table I.1 
Main economic indicators, 2000-2004 
2000 2001 2002 2003 2004a 
Miscellaneous     
Nominal GDP (millions of Djibouti francs) 85,962 89,511 92,474 97,451 102,802 
Per capita GDP (US$) 681.25 689.95 693.78 721.50 741.60 
(Real) GDP growth 0.7 2 2.6 3.2 3.0 
Inflation (calculated on the basis of consumer prices)b 2.4 1.8 0.6 2.0 2.8 
Exchange rate     
Djibouti franc/US$(end of period) 177.721 177.721 177.721 177.721 177.721 
Real effective exchange rate (e nd of period – change in rate)c 9.3 3.3 -8.4 -11.5 -3.7 
 Percentage 
Share of GDP (at factor cost)     
Agriculture 3.5 3.5 3.5 3.5 3.6 
Table I.1 (cont'd) 
                                                      
1 Djibouti became independent on 27 June 1977.  It was a French colony from 1862 onwards and had a 
number of different names:  from 1862 to 1967 it was French Somaliland and then until independence the 
French Territory of th e Afars and the Issas. 
2 Available at:  http://hdr.undp.org/statistics/data/cty/cty_e_DJI.html [28 June 2005]. 
3 UNDP (2004). 
4 In other words, they have less than US$1.8 per day in the case of Djibouti. 
5 The following are the military troops in Djibouti:  Control Joint Task Force – Horn of Africa of the 
United States for an annual amount of US$31 million;  French forces for an annual amount of €30 million 
(Law No. 89-AN-05/5èmeL of 16 January 2005);  German and Italian forces (Law No. 55-AN-04/5èmeL of 
20 May 2004). WT/TPR/S/159/Rev.1 Trade Policy Review 
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2000 2001 2002 2003 2004a 
Mining, energy and water 8.5 9.0 9.1 9.1 9.6 
Services 88.0 87.5 87.4 87.3 86.8 
     Trade and tourism 15.6 16.0 15.9 16.0 16.6 
     Transport and telecommunications 27.8 27.5 27.6 27.5 28.7 
     Banking and insurance 13.3 13.3 13.4 13.6 13.4 
     Non-market services 22.6 21.9 21.5 21.4 18.8 
     Construction and public works 6.7 6.8 6.9 7.0 7.4 
 Percentage of GDP 
National accounts       
Domestic final consumption 107.4 103.7 104.6 106.9 104.8 
Government authorities 25.8 23.4 25. 1 26.4 24.3 
Household 81.6 80.3 79.5 80.5 80.5 
Internal investment  12.2 8.3 10.9 15.5 18.3 
Public 2.7 2.7 4.1 7.9 10.3 
Private 9.6 5.8 6.5 8.8 12.3 
Export of non-factor goods and services 44.0 45.7 46.0 46.2 46.8 
Import of non-factor goods and services 63.6 59.2 61.4 67.3 71.4 
Domestic savings -7.4 -5.2 -4.5 -5.6 -5.5 
National savings 5.1 2.7 4.1 7.9 10.0 
Financing  1.3 2.0 4.2 4.9 0.9 
Internal financing 0.7 0.6 1.5 0.2 -0.4 
External financing 0.6 1.4 2.7 4.7 1.2 
Government finance     
Total revenue and grants 31.0 28.2 29.4 34.2 35.1 
Total expenditure 32.8 29.6 32.9 36.5 34.3 
Balance (based on payment orders) -1.8 -1.4 -3.5 -2.3 0.8 
Change in arrears 0.5 -0.6 -0.7 -2.7 -1.8 
Balance (based on payment orders, including grants) -1.8 -1.4 -3.5 -2.3 0.8 
Balance (cash basis) -1.3 -2.0 -4.2 -5.0 -0.9 
Domestic arrears (stock) 29.6 28.9 27.8 25.1 23.3 
Annual rate of growth 
Monetary situation (at 31 December)  
Currency in circulation 1.1 7.5 15.7 17.8 5.0 
Net external assets -7.3 16.1 15.7 19.4 4.4 
Net internal assets 8.4 -8.6 0.0 -1.6 0.6 
 Percentage of GDP 
External accounts     
Overall balance -3.3 5.6 8.1 10.4 5.6 
Trade balance -35.2 -32.7 -34.5 -39.9 -43.2 
Current account balance -7.2 -5.6 -6.8 -7.6 -10.0 
Capital account balance 3.9 13.4 14.9 18.0 15.6 
Official external debt  66.9 65.2 67.1 68.5 67.5 
Debt service ratio (to exports of go ods and services) 11.9 7.6 8.1 7.9 7.5 
a Provisional figures. 
b Annual average. c The minus sign indicates a depreciation. 
Source:  Central Bank of Djibouti, econo mic and monetary indicators – 3
rd quarter 2004, IMF (2004), Country Report No. 04/372 , 
24 November, and IMF (2004), Country Report No. 04/75  Statistical Appendix , 19 March. 
3. Since 1973, the national currency, the Djibouti franc (DF), has been pegged to the United 
States dollar at a rate of DF 177.721/US$1.  Th e Central Bank of Djibouti (BCD) is the issuing Djibouti WT/TPR/S/159/Rev.1 
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authority.  The BCD is managed and administered  by the Governor (appointed by presidential decree 
adopted by the Council of Ministers for a term of five years, renewable once only), a deputy and a 
deliberative body, the Board of Directors.  The BCD is monitored by an auditor appointed by 
presidential decree adopted by the Council of Mini sters for a renewable term of three years.  The 
Board of Directors is composed of the Governor and five directors appointed by decree for a 
renewable term of three years. 
4. Djibouti accepted the provisions of Article VIII of the International Monetary Fund's (IMF's) 
Articles of Agreement in 1978.  It does not maintain  any restrictions on payments and transfers for 
current or capital transactions.6  Djibouti has been able  to keep inflation at a relatively low level in 
recent years.  Inflation is mainly imported and is chie fly affected by the exchange rate and the price of 
food products, clothing and footwear, as well as h ydrocarbons (which are imported).  The public 
deficit is financed through payment arrears, a rrangements with commercial banks and external 
financing.  The lending rate is extremely high in comparison with the deposit rate, with a mean 
deviation of up to 15.6 percentage points.  This raises the cost of financing without encouraging 
savings, which in economies such as that of Djib outi are mainly in the form of remunerated bank 
deposits. 
5. In addition to the high cost of financing, the business climate is marked by limited access to 
bank loans;  inefficient infrastructure and, conse quently, shortcomings in the supply of basic public 
services (transport, water, electricity and telecommuni cations in particular), whose rates are extremely 
high;  limited natural and human resources, with a climate subject to frequent droughts; the small size 
of the country;  marked dependence on port activ ities for Ethiopia;  administrative delays;  the 
obsolescence of the legal, fiscal and judicial framewo rk for business;  and high fiscal pressure which 
has led to the development of the informal sect or, whose production activities employ around 42 per 
cent of the active labour force (95 per cent in ur ban areas), and account for between 25 and 30 per 
cent of GDP.7  In 2002, for example, out of the 3,346 licensed enterprises in Djibouti (almost all small 
and medium-sized enterprises), only 230 kept proper accounts.8  This situation has not allowed 
Djibouti to utilize its potential to the full, including its geographical situation on the Red Sea at the 
gateway to the Near and Middle East, in a region in which it is the most stable country in social and 
political terms. 
6. Unemployment was estimated to affect 59 per cent of the labour force in 2004, a sharp 
increase (34 per cent) compared with 1996 (44 per cent)9, and is one of the Government's major 
concerns.  The overall external debt amount ed to US$406.7 million at the end of 200410, an increase 
of 45.3 per cent compared with 200011:  US$111.6 million is owed to bilateral donors (36.3 per cent to 
Italy;  23.2 per cent to Kuwait;  15.6 per cent to Saudi Arabia;  and 10.8 per cent to China);  and 
US$295 million for multilateral loans (72.6 per cent of the debt's overall total).  In 2005, the external 
debt was estimated to be US$449.4 million (of wh ich US$110.4 million for the bilateral component 
and US$339 million for the multilateral component).  In 2004, the debt service ratio to exports of 
goods and services was 7.5 per cent of total external debt, corresponding to 67.5 per cent of the GDP.  
At the end of 2005, Djibouti did not qualify for debt reduction under the Heavily Indebted Poor 
Countries (HIPC) initiative. 
                                                      
6 IMF (2004). 
7 International Labour Office (2004). 
8 European Community (2001). 
9 International Labour Office (2004). 
10 Central Bank of Djibouti. 
11 In 2002, the major creditors were: ADF (25.4 pe r cent), AID (22.4 per cent), Italy (12.9 per cent), 
Kuwait (9.9 per cent), Saudi Arabia (6.8 per cent) and the IMF (5.6 per cent). WT/TPR/S/159/Rev.1 Trade Policy Review 
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7. A number of studies have been conducted in or der to define strategies that would allow 
Djibouti to tackle the problems affe cting its economy.  These include, inter alia , the Poverty 
Reduction Strategy Paper and th e Diagnostic Trade Integration Study.  In addition, a Commission 
nationale de la réforme institutionnelle (National Institutional Reform Commission) has been set up 
and is responsible for implementi ng and elaborating the institutiona l framework and a national action 
plan, as well as for putting the reforms into effect.12  In June 2004, Djibouti signed the United Nations 
Convention Against Corruption and ratified it in April 2005.13  In 2002, an interministerial committee 
to guide government action and another committee to  follow up and coordinate the reform programme 
were set up.14  It is now a question of implementing these various strategies. 
(2) RECENT ECONOMIC DEVELOPMENTS  
8. Following three years of civil war (1991-1994), since 1995 Djibouti has been engaged in 
rebuilding its economy.  In April 1996, it accordingl y signed a Confirmation Agreement in order to be 
eligible for support from the IMF for a period of thr ee years.  This support was followed by the IMF's 
Poverty Reduction and Growth Facility (PRGF) as of October 1999.15  The reforms are aimed at 
achieving macroeconomic stability and growth that  focuses on bringing down the unemployment rate 
and alleviating poverty.  They have enabled th e budget deficit (based on payment orders) to be 
lowered from 8.5 per cent of GDP in 1994 to 2 per cent in 2001, although it rose to 4.2 per cent of GDP in 2002 and then 5 per cent in 2003, only to fall again to 0.9 per cent in 2004.  This performance has been made possible by restricting government spending, particularly on the payroll, and increasing government revenue by improving its co llection and setting up an audit system for large 
enterprises so as to minimize tax evasion.  The paym ents made by the armed forces based in Djibouti 
have also largely contributed.  These reforms, however, have lost some of their intensity and 
effectiveness over time, which has meant a further increase in the budget deficit (Table I.1).  Other 
contributory factors have been sp ending on defence and internal securi ty and on the demobilization of 
war veterans, particularly those from the civil war. 
9. Inflation has been kept at less than 3 per cent as a result of a restrictive monetary policy and 
the stability of the Djibouti franc.  Djibouti's moneta ry system is based on the principle of a currency 
board according to which all issues of money must  be covered by a foreign currency deposit in an 
account currently kept in the books of the United St ates Federal Reserve Bank.  Over the past decade, 
the cover has been around 130 per cent on average.
16  Because of the structure of the economy, 
however, the reforms have only had a limited impact on growth.  For over a decade, the rate of growth 
of real GDP only reached and exceeded 2.5 per cent as of 2002 and this was the result of major 
construction work (including the port of Doraleh) and demand on the part of the foreign armed forces 
based in Djibouti.  Real GDP rose by 3 per cent in  2004 (compared with 0.7 per cent in 2000, 2 per 
cent in 2001 and 3.2 per cent in 2003);  growth for 2005 has been estimated to be 3.2 per cent (Table I.1). 
10. Djibouti's delay in implementing its structural refo rms is also one of the reasons for its limited 
performance in terms of economic growth.  The priv atization programme introduced in 1996 has only 
led to the granting of management contracts for D jibouti's port and airport (Chapter III(4)(iii)).  This 
                                                     
 
12 Decree No. 97-0075/PR/FP of 19 May 1997. 
13 Law No. 96/AN/05/5èmeL of 8 February 2005.  The Convention has been signed by 124 countries, but 
has not yet entered into force.  Information on line from the ODCCP (http://www.unodc.org/unodc/en/crime_signatures_ corruption.html#S) [3 August 2005]. 
14 Decree No. 2002-0180/PR/MEFPCP of 9 September 2002. 
15 IMF (2004). 
16 Central Bank of Djibouti (2004a). Djibouti WT/TPR/S/159/Rev.1 
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is far from enhancing the business climate, which is  a necessary prerequisite for attracting investment 
in the sectors producing goods so as to divers ify the economy and achieve economic growth. 
(3) TRADE AND INVESTMENT  
(i) Trade in goods and services 
11. The balance in Djibouti's current transactions acc ount shows a chronic deficit, the main cause 
being the low rate of cover of imports of goods by  exports because of inadequate domestic production 
and also the increase in the energy bill (Tables I. 1 and I.2).  Over the period 2000-2004, trade in 
goods and services accounted for between 103 and 120 pe r cent of GDP, consisting of 44-47 per cent 
of GDP for exports and 59-73 per cent of GDP for imports, which shows the importance of trade for 
Djibouti.  With the continued rise in imports, the de ficit in the trade balance has deteriorated since 
2000, rising from 35.2 per cent of GDP to 39.9 per cent  of GDP in 2003.  However, payments by the 
military based in Djibouti, official transfers and l ong-term loans have allowed Djibouti to achieve an 
overall positive balance and gross in ternational reserves have risen sharply (by almost 50 per cent) 
since 2000. 
Table I.2 
Balance of payments, 2000-2004 
(US$million) 
2000 2001 2002 2003 2004a 
Balance in the current transactions a ccount -39.7 -32.0 -40.1 -47. 4 -66.5 
Trade balance -194.8 -187.4 -204.1 -249.2 -292.2 
 Exports, f.o.b. 75.4 75.7 82.5 89.0 98.5 
including exports of domestic products 14.4 14.0 15.3 17.0 19.1 
 Imports, f.o.b. 270.3 263.1 286.6 338.2 390.7 
including those for direct consumption 205.4 203.0 220.9 268.8 315.1 
Services balance 86.2 110.1 113.0 117.2 123.0 
Revenue balance 15.8 12.6 10.4 40.9 46.9 
Current transfers (unrequited) 53.1 32.7 40.6 43.6 55.8 
Capital account balance 30.7 10.2 34.9 59.7 80.4 
Foreign direct investment 3.3 2.2 5.0 21.4 62.9 
Government sector (net) 27.4 7.9 29.9 38.3 17.5 
Errors and omissions -9.1 61.7 53.2 52.9 23.3 
Overall balance -18.1 39.9 48.0 65.2 37.2 
Financing 18.1 -39.9 -48.0 -65.2 -37.2 
Change in reservesb 21.3 -47.6 -49.8 -77.7 -37.2 
Change in payments arrearsc -5.2 2.2 -0.5 0.0 0.0 
Exceptional financing -3.2 7.7 1.8 12.6 0.0 
Memorandum items:      
Net external assets  52.1 53.1 57.7 77.6 83.0 
External official debt 279.9 274.3 325.7 374.4 406.5 
a Estimates. 
b The sign (-) indicates an increase. c The sign (-) indicates a decrease. 
Source:  Djibouti authorities and IMF estimates and forecast. 
12. Djibouti's exports are dominated by (unclassified) personal effects17 and salt (Chart I.1).  The 
share of (unclassified) personal effects rose until the mid-1990s, but has decreased since then, falling 
                                                      
17 These mainly consist of the re-export of the pe rsonal effects of milita ry personnel to France. WT/TPR/S/159/Rev.1 Trade Policy Review 
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from DF 1,612 million in 1996 to DF 340 million in 2002.  Exports of live animals, foodstuffs, hides 
and skins were important in the early 1990s but ha ve since become rare.  On the other hand, the 
heading "Other exports" has shown a general upw ard trend since 1990.  Since 1999, re-export and 
transit trade have developed, particularly to Ethi opia and Somalia, but their extent varies from year to 
year.  Since 2000, re-exports have accounted for at l east 80 per cent of Djibouti's total exports.  This 
situation can be explained primarily by the fact th at all Ethiopia's exports and imports by sea now go 
through the port of Djibouti following the conflict between Ethiopia and Eritrea. 
 
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Chart I.1  
Exports of goods, 1990-2002 
Source:  Djibouti authorities.
Unclassified personal effects
Live animals  
Hides and skins
Foodstuffs
Salt 
Other 
 
13. Ethiopia is currently the chief destination for D jibouti's exports; salt is the principal product 
exported to Ethiopia.  Re-exports dominate trade with Ethiopia and Somalia. 
14. There has been little change in the structure of  imports since 1995;  the major imports being 
food products and beverages, of which Djib outi is a net importer, hydrocarbons, khat (a 
hallucinogenic substance), manufactures, particularly transport machinery and equipment, textiles and 
footwear, and chemicals (Chart I.2). Djibouti WT/TPR/S/159/Rev.1 
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Chart I.2  
Imports of goods, 1990-2003 
Source:  Djibouti authorities.
Foodstuffs and beverages  
Hydrocarbons and by-products  
Khat 
Machinery
Vehicles
Textiles and footwear
 Chemicals  
Timber (except furniture)
Other 
 
15. The European Union, particularly France, is the main source of Djibouti's imports, followed 
by Ethiopia (Chart I.3).  The share of countries in the Near and Middle East, with Saudi Arabia and 
the United Arab Emirates as the leading suppliers , rose by some 11 percentage points between 1995 
and 2003.  Imports from Asia account for around 10 per cent of the total. 
16. Djibouti is a net exporter of services with an average annual surplus of around 
US$106 million between 2000 and 2003.  Exports of tr ade-related services have grown rapidly, 
notably as a result of the increase in transhipment in the port of Djibouti of some 98 per cent over the 
period, reflecting the growing importa nce of the PAID for the region.18 
                                                      
18 Central Bank of Djibouti (2002). WT/TPR/S/159/Rev.1 Trade Policy Review 
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Chart I.3  
Origin of imports, 1990-2003 
Source:  Djibouti authorities.US$ million  
France  
Netherlands  
Italy  
Other EU countries (15)
Other European countries
Ethiopia
Other African countries
Saudi Arabia
United Arab Emirates
Other Near and Middle 
Eastern countries
Singapore
Japan  
Other Asian countries
Other 
 
(ii) Investment 
17. In general, factors such as the high cost of energy, water and telecommunications and 
breakdowns in their supply, together with the lack  of local raw materials and skilled labour, have not 
allowed Djibouti to benefit from its advantages ( inter alia , its geographical situation, its membership 
of the Common Market for Eastern and Southern A frica (COMESA) and the stability of its currency) 
in order to attract investment and fulfil its potential. 
18. The flow of foreign direct investment (FDI) amounted to US$3.3 million in 2000;  
US$2.2 million in 2001;  US$5 million in 2002;  US$21.4 million in 200319;  and is estimated to be 
some US$63 million for 2004.  This is an extremely large increase in comparison with the annual average of US$3.6 million over the period 1998 to 2002.
20  The ratio of FDI to GDP rose from 1.5 per 
cent in 1990 to 7 per cent in 2004.  This trend is attr ibutable to foreign investment in port services, 
particularly in building the port at Doraleh (Chapter IV(5)(iv)). 
19. The major investors (in order of importance) are the United Arab Emirates, France and 
Switzerland. 
                                                      
19 According to the UNCTAD, FDI amounted to US$4.2 million in 1999, US$3.2 million in 2000, and 
US$3.5 million in 2002.  Available at: http://www.unc tad.org/sections/dite_fdistat/docs/wid_ib_dj_en.pdf 
[8 July 2005]. 
20 Available at:  http://www.unctad.org/sections/d ite_fdistat/docs/wid_ib_dj_en.pdf [8 July 2005]. Djibouti WT/TPR/S/159/Rev.1 
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(4) OUTLOOK  
20. In the current circumstances and taking into account the structure of the economy, the annual 
rate of growth of real GDP could be around 3. 5 per cent per annum in the medium term.  This 
performance is conditional upon continued economic re form and flows of investment for building the 
Doraleh complex, whose start-up could, in turn, boost economic growth.  Subject to trends in the price 
of imported goods on which Djibouti's economy depends, particularly hydrocarbons and food 
products, pursuing a restrictive monetary policy should  allow annual inflation to be kept below 3 per 
cent. 
21. In the absence of far-reaching structural reform , the aim of diversification might not be easy 
to achieve and a substantial reduc tion in the rate of unemployment could also be difficult.  The 
Government's effective implementa tion of its various reform plans, including privatization of State-
owned enterprises, particularly those active in key subsectors such as infrastructure services 
(telecommunications, energy, water, transport), th e establishment of a multisectoral regulatory 
authority, modernization of the transport chain, a nd the creation of a new legal framework for certain 
key sectors, should constitute the beginning of a solution for Djibouti's current economic problems. 
22. In the medium term, there is a risk that the tr ade deficit will deteriorate further because of the 
sustained increase in imports needed for the cons truction work under way.  Nevertheless, if the 
current trend in official transfers, including th ose related to military c ooperation agreements, and 
capital movements continues, the surplus in th e overall balance should reinforce the level of 
international reserves.