Djibouti, a country with few resources, recognizes the crucial need for foreign direct investment (FDI) to stimulate economic development. The country’s assets include a strategic geographic location, free zones, an open trade regime, and a stable currency. Djibouti has identified a number of priority sectors for investment, including transport and logistics, real estate, energy, and tourism. Djibouti’s investment climate has improved in recent years, which has led to a renewed interest by U.S. and other foreign firms. There are, however, a number of reforms still needed to further promote investment.
In 2017, FDI represented 5.2 percent of Djibouti’s GDP. Real GDP growth has remained between four percent and seven percent per year for the last five years, and inflation has remained at 3.5 percent. GDP growth peaked in 2017 at an estimated seven percent and is projected to reduce to 6.5 percent in 2018. Djibouti undertook in a surge of foreign-backed infrastructure loans to posture themselves as the “Singapore of Africa.” Major projects include a new gas terminal and pipeline to Ethiopia, improved road systems, a railroad connecting Djibouti and Addis Ababa, and a water pipeline from Ethiopia. In April 2018, the Government of Djibouti (GoDJ) presented tax labor, and financial reforms to improve their investment climate.
Djibouti remains below regional and world averages in World Bank’s “Doing Business” reports, but improved from 171 in 2017 to 154 (of 190 countries) in the 2018 ranking. Various business climate reforms were introduced in April 2018 with the objectives of improving competitively regionally and internationally. These included reducing the time for obtaining a construction permit and the cost of transferring the ownership of real estate.
Djibouti passed a law in November 2017 to allow it to unilaterally terminate contracts that threaten its national sovereignty. The law also allows the GoDJ to renegotiate concessions agreed upon previous administrators. Despite the various governmental reforms, the February 2018 unilateral contract abrogation by the GoDJ regarding the management and operation of the Doreleh Container Terminal (DCT) raised the risk profile to future investors.
Economic development and foreign investment is hindered by high electricity costs, high unemployment, an unskilled workforce, regional instability, opaque business practices, compliance risks, corruption, and a weak financial sector. The World Bank forecasts that the GoDJ’s public debt-to-GDP ratio will remain over 85 percent for the coming years with the majority of the debt owed to Chinese entities. The first of the major loans will begin to mature in 2019, presenting a mounting risk of default.
Djibouti belongs to a number of regional organizations, including the Inter-Governmental Authority on Development (IGAD) and the Common Market for Eastern and Southern Africa (COMESA), which groups 19 countries into a common market of more than 300 million people. Djibouti is eligible to benefit from the African Growth and Opportunity Act (AGOA), and is also a member of the World Trade Organization (WTO).
|TI Corruption Perceptions Index||2017||122 of 175||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2018||154 of 190||http://www.doing
|Global Innovation Index||2017||N/A||https://www.globalinnovation
|U.S. FDI in Partner Country (M USD , stock positions)||2015||N/A||http://www.bea.gov/
|World Bank GNI per capita||2015||N/A||http://data.worldbank.org/