unemployed. High unemployment rate in conjunction with low labor force participation rate imply that only a small fraction of Djibouti nationals are engaged in formal wage employment. Less than 20 percent in 1996 and 40 percent in 2002 of the population aged 15 and above were employed in the formal sector<sup>5</sup> .

# **2.4. Poverty**

**_Poverty is high and rising._** Despite its relatively high per capita income (with a GNI per capita of US$1,030 in purchasing power parity terms), Djibouti has some of the highest rates of poverty in Sub-Saharan Africa (over 42 percent of its population lives below US$2 a day). Increased poverty is the legacy from almost two decades of slow growth, lackluster private investment, and a fastgrowing unskilled labor force. Over the past two decades, real GDP growth averaged about 1 percent per year. With an average annual population growth rate of 2.5 percent, this weak economic performance led to a continued decline in real income per capita. The stark decline in per capita income explains the deterioration in poverty levels. Figures 2 and 3 provide a description of where the majority of households are located in terms of their per-capita expenditure for 1996 and 2002 respectively. Over the 6 year period, the rapid deterioration in economic well-being can be seen in the left-ward shift of the mass of the population, falling below the extreme poverty line by 2002.

**_Poverty is more widespread in the rural and urban areas outside the city of Djibouti and surrounding districts._** The incidence of rural poverty is over seven times greater to the incidence of urban poverty.  Furthermore, the condition of the rural poor has further deteriorated over time. In 2002, 83 percent of rural Djiboutians were living in extreme poverty, unable to meet even basic nutritional needs as compared to 45.1 percent in 1996.

<!-- Start of picture text --> Figure 2: Poverty Incidence & Share of Tradables Figure 3: Incidence of Poverty & Share of Tradables<br> in Total Household Expenditure, 1996 in Total Household Expenditure, 2002<br>National National<br>Poverty Line Poverty Line<br>Extreme<br>Poverty Line Extreme<br>Poverty Line<br>20000 80000 300000 1000000 20000 80000 300000 1000000<br>Adult-equivalent per-capita household expenditure, 2002... Adult-equivalent per-capita household expenditure, 1996...<br>Share of Expenditure on Tradable Items Share of Expenditure on Tradable Items<br>density: Adult-equivalent per-capita household expenditure, 2002 density: Adult-equivalent per-capita household expenditure, 1996<br>Source: Authors' calculation based on EDAMS 2002 Source: Authors' calculation based on EDAMS 1996<br>1 1<br>.8 .8<br>.6 .6<br>.4 .4<br>.2 .2<br>Share of Expenditure on Tradable Items 0 Share of Expenditure on Tradable Items 0<br><!-- End of picture text -->

**_The consumption of the poor is heavily concentrated on food._** As household income rises, the share of food in the total budget declines. The poorest households in the first income quartile<sup>6</sup> spend 57.1 percent of their total expenditure on food in contrast to 30.4 percent incurred by the richest households as seen in the first column of Table 1. Interestingly, the qhat share in total

> 5 Unemployment figures should be read with caution, because they may also include underemployment. Partly owing to weak formal insurance mechanisms, very few individuals can afford to be jobless in Djibouti. As a result, many workers undertake any type of work in the informal sector. See Chapter 3 of the 2005 Djibouti Country Economic Memorandum for further details on the labor market.

> 6 Income quartiles are derived using per-capita adult equivalent household annual expenditure which is a common proxy for income.

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