Economy of Djibouti – World Countries for Kids

Djibouti is one of the smallest nations in Africa, with an area of just 23,200 square kilometres and a population estimated at about 990,000. The size of Djibouti’s economy curtails its capability to diversify production and increases its dependence on foreign markets, making it relatively more vulnerable to market downturns and hindering its access to external capital. Being a bridge between Africa and the Middle East and location adjacent to some of the world’s busiest shipping lanes has made it a nation whose strategic location is its major strength. Driver of Djibouti’s economy is a state-of-the-art port complex, which is among the most sophisticated in the world. In partnership with the Emirate of Dubai, the government of Djibouti has developed, over the last decade, an extraordinary port and logistics hub with few precedents in other African nations.

The Port of Djibouti has hosted a container terminal armed with gantry cranes and a dozen berths for bulk and conventional cargo, since 1985. During the 2000s, it progressively expanded its amenities with a new oil terminal at Doraleh (2006), a bulk terminal in the old port (end of 2006), a new container terminal at Doraleh (end of 2008), the Djibouti Free Zone (DFZ) in 2004, the Djibouti Dry Port (DDP), and the logistics zone called PK-12 zone. Besides the high standard of its infrastructures, the port of Djibouti’s strategic geographic position on the straits of Bab-el-mandeb grants it a substantial share of international maritime transit flow along the East African coast. A second strategic advantage of the port is being the main sea-access route for Ethiopia and its huge market of 90 million inhabitants.

Although bordering Ethiopia with comparatively more extensive coastlines and terrestrial borders, Eritrea and Somalia/Somaliland are in no position to “seriously” compete with the Port of Djibouti due to the existing geopolitical situation in both nations. Owing to the extent of Ethiopia’s terrestrial borders with its neighbouring nations (Eritrea, Somaliland, Sudan, and Kenya), the ports of Assab, Berbera, Massawa, Port Soudan, and Mombasa are Djibouti’s expected competitors for Ethiopian transit traffic. This potential competition, nevertheless, remains marginal due to an adverse geopolitical context and/or the inferior infrastructure quality of these ports currently. The conditions of competition for transit traffic could however evolve as it is in Ethiopia’s interest to diversify its sea-access routes so as not dependent on a single port that could abuse its position of dominance by charging uncompetitive tariffs.

Fortunately, the confirmed research shows that the state of Djibouti has some other natural resources that could be used for tourism, such as unexploited marine resources that could support more artisanal fishing, and an infrastructure of undersea telecommunications cables, by virtue of which it could develop new service and digital industries. Renewable energy could be another important source of growth, as Djibouti has geothermal, wind, and solar potential.