Djibouti

Even at a slightly slower pace owing to the impact on household consumption of the increased cost of food and fuel imports caused by the Red Sea shipping crisis, economic growth will remain strong in 2024. While this effect could fade in 2025, especially as a fall in global commodity prices is expected, growth will continue to benefit from the strength of re-exports (accounting for 92% of exports of goods) to and from Ethiopia, which has regained its robustness, as well as from logistics services, particularly transshipment, which seem to be benefiting from the setbacks suffered by other ports in the region as a result of Houthi actions. In addition, construction is expected to play a key role in growth on back of increased demand for housing.

In addition, economic policy will follow the multi-year national strategy "Vision 2035", aimed at strengthening Djibouti's position as a regional port and logistics hub. Within this framework, increased investment in regional connectivity infrastructure is expected. Flagship projects include the continued development of the Damerjog port industrial free zone (the country's third) (DDID FTZ), planned over the 2018-2033 period for an estimated cost of USD 4 billion. These projects include the completion of the oil jetty terminal and the construction of an oil storage depot financed by a facility granted in 2023 by the African Export-Import Bank (USD 120 million) and the Bank for Trade and Industry-Mer Rouge owned by BRED and the Djiboutian state (USD 35 million). Another major project involves the construction of an oil refinery by a Saudi oil company in the DDID due to start in June 2024 for an estimated cost of USD 12.7 billion.

However, Djibouti's economy remains vulnerable to a number of risks, including a further slowdown in regional maritime trade and a possible downturn in Ethiopia's economy if internal conflicts in the country intensify.

Progress in state revenues and debt renegotiation

Government revenues are expected to be boosted in 2024 and 2025 by increased customs and transit revenues driven by the expected increase in re-exports to and from Ethiopia, as well as by an increase in rental payments from France for the lease of its military base, agreed under the terms of the renewed Defence Cooperation Treaty (DCT) in July 2024. In addition, in line with the budget for the 2024-2025 financial years, tax revenues will benefit from the wider scope of the fixed minimum tax to exports of goods and services, as well as the introduction of the VAT regime to self-employed workers. The budget also includes a reduction in current expenditure, notably by replacing fuel subsidies with better-targeted social transfers. In addition, Djibouti has suspended debt servicing to Exim Bank China since January 2023. A preliminary agreement on a moratorium was subsequently reached in October 2023. As a result, the public deficit is expected to fall in 2024 and 2025.

However, Djibouti remains at high risk of debt distress, particularly given the size of the debt contracted with the Export-Import Bank of China which represented 37% of GDP at the end of 2023. The stock of arrears accumulated since the suspension of debt service payments already represented 6% of GDP at the end of June 2023 (78% of these arrears concern Exim Bank China). The debt, which was contracted on commercial terms, was mainly used to finance major infrastructure such as the railway line and the aqueduct linking Djibouti to Ethiopia, as well as the extension of the port of Doraleh. The preliminary moratorium agreement on servicing this debt was signed in October 2023 for a four-year period with application retroactive to January 2023 for rail and water supply infrastructure only. Port facilities are not affected. Discussions are continuing on the terms of the moratorium, notably with regard to interest rates and the maturity schedule. At the same time, Djibouti has begun negotiations with India (its second-largest bilateral creditor) and talks with the Paris Club to obtain similar conditions.

The current account surplus could narrow slightly in 2024 and 2025, mainly as a result of the decline in the trade balance surplus (including re-exports) related to the increase in imports required for major development projects in the Damerjog Free Zone (DDID). Notwithstanding, an increase in the surplus on the services account is expected, driven by growth in revenues from logistics services and transit to and from Ethiopia. In addition, the primary income deficit is expected to increase slightly as a result of increased profit repatriation by foreign companies, particularly Chinese companies, despite the suspension of interest payments on the country's debt to China. In addition, Djibouti will continue to generate a surplus in secondary revenues thanks to income from the leasing of land for foreign military bases, with a significant increase in rental payments by France as part of the renewal of the TCMD. In addition, foreign exchange reserves should remain at a comfortable level, covering 4.7 months of imports (excluding those intended for re-export) at the end of 2023.

Relative political and social stability

President Ismail Omar Guelleh, who has been in office since 1999, began his fifth term in 2021, winning 98% of the vote. Aged 77, he has now exceeded the age limit to stand as a candidate for the next election scheduled for 2026. To bypass the age restriction, he is considering a change to the constitution in 2025, which could be a source of tension. The coalition of which he is leader, the Union for the Presidential Majority (UMP), consolidated its power by winning 58 of the 65 seats in the February 2023 legislative elections. The opposition parties claimed them to be unfair and boycotted these elections, except for the Union djiboutienne pour la démocratie et la justice (UDJ) which won seven seats. The Afars population’s assertions of economic and political marginalisation also pose a problem. Since 1994, a radical faction of the Front for the Restoration of Unity and Democracy (FRUD), an opposition group representing the Afars, an ethnic group also present in Ethiopia, has been carrying out armed actions against the government dominated by the Issas, who are of Somali origin, and make up 60% of the population.

In July 2024, after two years of negotiations, Djibouti and France renewed their Defence Cooperation Treaty (DCT) for a further 10 years. The agreement enables France to extend the operation of its largest military base abroad, which hosts 1,500 military personnel. In return, France pays a lump-sum contribution and provides air defence for Djibouti. Djibouti has also acted as a mediator to ease tensions between Ethiopia and Somalia (related to the signing of a framework agreement between Ethiopia and the breakaway region of Somaliland), by proposing an agreement with Ethiopia for the shared management of its port at Tadjoura. In addition, relations with the United Arab Emirates are expected to remain strained. In July 2024, the District of Columbia court in Washington issued a USD 294.2 million binding arbitration award against Djibouti for the unilateral termination, in 2018, of the concession contract for the Doraleh container terminal that had initially been awarded to the UAE company DP World.

2021

2023 (e)

2025(p)

4,5

6,7

Points fortsStrengths