Djibouti Aims to Be Regional Hub

Service economy holds potential for Djibouti

Growth must now translate into higher employment, lower poverty

Djibouti must guard against excessive buildup of public debt

Djibouti’s growth remains strong despite the global economic crisis, the IMF says in its latest country analysis, with only a modest decline—from 5 percent to 4.5 percent—expected in 2010 (see Chart 1).

But the former French colony is now seeing the indirect effects of the global crisis through lower foreign direct investment and a possible decline in aid flows, the IMF said. Moreover, unemployment remains stubbornly high, at 60 percent, and poverty is pervasive.

“The authorities have a vision of becoming an important logistical and strategic hub for the region,” said Carlo Sdralevich, IMF mission chief for Djibouti. “Djibouti should seize the opportunity to build on recent achievements to attain sustainable growth, decrease unemployment, and reduce poverty.”

Djibouti’s service-based economy has considerable potential, but the country faces many serious problems, Sdralevich noted. Lagging in many social indicators, the country ranked 147th out of 169 countries in the United Nations Development Program’s Human Development Index for 2010. The drought-prone country has seen its food security situation deteriorate sharply owing to low rainfall over the past four years, and malnutrition has risen.

Strategic location

Djibouti has long exploited the advantages of its position on the Bab El Mandeb straits, at the entrance of the Red Sea, halfway between the Mediterranean Sea and the Indian Ocean. The port of Djibouti is neighboring Ethiopia’s only access to sea. And the country’s location has made it a major strategic outpost, hosting French and U.S. military bases as well as international anti-piracy operations, such as the European Union’s operation Atalanta.

The Djibouti authorities have accelerated economic expansion in recent years by successfully undertaking a foreign investment-financed transformation of their economy, the IMF report notes. A new container terminal at Djibouti’s port built recently by Dubai World and the Djibouti government in a public-private partnership expanded the port’s capacity many times over, while the new five-star Djibouti Palace Kempinski—owned by Nakheel, a Dubai World company—has given a boost to tourism and business.

Broadening the benefits of growth

Despite progress on infrastructure development, Djibouti’s high growth has thus...