NATIONAL ECONOMY 

BREF OVERVIEW

The Djiboutian economy is essentially based on the activities of the tertiary sector.The other two sectors are not developed. 

The primary sector represents around 3% of GDP. It still has to face the difficult and unfavorable climatic conditions ( aridity of the soil and scarcity of water resources). Fishing nevertheless remains a promising sector considering  the importance of halieutic resources of   Djibouti  coasts. 

The secondary sector which represents around 15% of GDP is not much developed. The main obstacles are the scarcity of natural resources, the high operating costs and the small size of the local consumer market. 

  Djibouti  has therefore the only option of organizing her economy around the tertiary sector which represents 80% of GDP. The existence of a Port equipped with modern installations , a railway system, an international airport and a network of efficient telecommunications systems contribute to the developpement of a banking sector, trade, insurance and other transport related activities. The country  is also home to a financial and commercial liberal system that facilitates  exchanges  with foreign countries. The stability of its freely convertible currency linked to the US dollar in a fixed parity ( 1 USd= 177,721DJF ). 

The Administrative sector plays an important part in the economy.Its production represents almost one third of the GDP of the tertiary sector.

THE SOCIO-ECONOMIC EVOLUTION OF THE COUNTRY 

Thanks to  favourable international context ( help from friend countries ) combined with an enthusiastic national surge, the 11 first years after independence were a good opportunity for the autorities to set up their political and institutional basis in order to put in place the required infrastrusctures and mechanisms for an economic take off. In the late 80s all the social economic and financial indicators were good as ever. 

In the 90s however, Djibouti was confronted with a series of exogenous events: in one hand, a strong migration of refugees from Somalia and Ethiopia which has noticeably  affected the social infrastructures. On the other, the ignition of an internal armed conflict which  heavily impacted the State budget. (infrastructure destruction, increased military spending, displaced populations…) Moreover The traditional sponsors of the Djibouti economy reduced their contribution following the difficult international conditions. 

From 1991 to 1996 the GDP growth had become globally negative (an average of -5 % ). In that context the republic of Djibouti committed itself in 1996 to a stabilization process  of the public finances with the assistance of the IMF and WB. The objective of those reforms was to stabilize the budgetary situation and in the short term increase the competitiveness of the economy to reach growth that could create sustainable jobs.  Djibouti  as agreed with the IMF set in place a series of reforms some of which are as follows: 

-The improvement of the fiscal policy

-a program of demobilization of the military personnel 

-a significant reduction of the State wage bill ( more than 20 % ) 

-a vast program of privatization 

- The reinforcement of the financial health of the bank with a cautious monitoring 

From 1998, the real growth of GDP became a positive number ( almost 1 % ) and the state budget deficit which in1994 amounted to 8 billion DJF ( 9% of GDP ) has been filled along the years. In 1998 there was a surplus of 600 million DJF representing 0.8 % of GDP. This evolution testifies to the efforts made by the authorities and the population. 

Evolution of the economy in 2005 

In 2005, the Djiboutian authorities estimated that was crucial to pursue the partnership with the IMF on the basis of a new PSF program following the first one that did not prove very successful the previous year. 

The declared objective of the authorities was to set preliminary conditions for two semesters in order to initiate as early as  2006 a FRPC with the view of implementing the DSRP. 

The objective of reducing poverty in   Djibouti  , which is the foundation stone for any action meant for development in the country is part of the Global Strategy for the reduction of Poverty ( le cadre strategique de lutte contre la pauvrete ) designed by the government. The fundamental objective of this CSLP is to create the dynamics of growth and accrued human capital which reduce poverty and unemployment durably. It is also meant to improve the living conditions of the entire nation. The system lays on a long term vision aimed at making the most of the strategic assets of the country, its geographic position and its port and to develop its human resources  for better competitiveness of the economy and its smooth integration in global economy.

In that context,the governmemnt’s will was to pursue and consolidate, in the future the important efforts to regain financial stability in the short and meduim term on the basis of a new PSF program.The main objectives of this programme are: 

a/ to reinforce the efforts for budget stabilization; 

b/to increase the structural reform programs;

c/ to be strict on isues such as governance and corruption in order to reach a high and sustainable as well as diversified economic growth, to reduce poverty for a viable financial condition

  The major developments in the economy in he course of the year 2005

On December 2005, the economic activity was characterized by the encouraging results in the chain of transport.

Port traffic  increased in volume ( + 10%  incoming and +27 % outgoing )

Air transport  grewn positively in terms of aircraft movements  ( + 5.9 % ), number of passengers ( + 2.9% ) and air freight ( + 11.5 % ).

Rail transport  regain momentum mostly in the fourth quarter because the volume of goods transported by rail more than doubled thanks to the surge in Ethiopian imports ( food aid ) the volume of which  tripled compared to preceding year.

Road transport in the Djibouti-Ethiopia corridor has known 148,787 movements of trucks which represents an increase of 23%. The telecommunications sector has been marked by an increase in its activities , mobile phone mainly and the internet where the number of subscribers has respectively risen to 30 % and 17 %.

The labor market was characterized by more job creations than losses. The number of jobs created at the date of December 31^st 2005 was 1,231; it has grown up to 39 % when job losses were declining at 15 %.

Consumer prices index knew an annual variation rate of 3.5% growth. Considering the structure of the Djiboutian economy, that level of inflation was tributary to the international context.

 The total money supply to December 31^st   2005 was  102.629 billion djf, and it had increased by 11% compared to the year 2004. This increase was achieved with the surge in the amount of deposits in national currency (+ 4.7 %) and mostly the deposits in foreign currency (+ 17 %).

In addition,the disbursements for public investments projects financed by foreign resources on December 31 2005 were up to 9.152 billion djf. There was 38 % growth compared to the previous year

Considering the financing structure of those projects, we notice that the gifts represented 52 % of total disbursement and loans 48 %. The projects that were initiated by social sectors received 2/3 of the  resources allocated to public investments.

In December 2005, the budget reveals total revenues up to 46,711 million djf. Compared to the budget forecasts, these figures are far beyond expectations of the program which stood at 43,967million dj. Overall December 2005 results represent a clear improvement compared to the previous year even though this fiscal performance was attenuated by the important increase in expenses

The improved condition has allowed the authorities to face the ordinary expenses, to reduce overdue accrued throughout the year from 3,200 to 2,714 million djf in order to start savings and face emergency situations.

Strategy and macroeconomic context in the short and medium term

The DSRP ( document de stratégie pour la reduction de la pauvreté ) announces the  national development strategy in the medium and long term. It was finalized in 2004.

For the short term, the government considers it crucial to maintain partnership with the IMF in the form of a FRPC program. 

In any case , for 2006, the agenda seems to be more ambitious and covers among other points:

-      The negotiation ,indeed of a new FRPC program with IMF 

-      The pursuit of the promises made at the meeting held in  Djibouti  in November 2005 with Arab sponsors relative to an Economic and Social development program ( 2006-2009 )  

-      The organization of the summit of COMESA heads of states  

-      The organization of the meeting of the consultative group for the financing  of the national strategy against poverty ,DRSP. 

-      The creation of the VAT (value added tax) : the beginning of the sessions for the introduction of that tax.  

-      The continuation of the computerization process for tax collection and management in addition to the chain of expenses.   

According to the government, there will not be a strong and sustainable economic growth without the continuation of a program of reforms aiming at the creation of a favorable macroeconomic and structural environment whose objectives will be:

-      To adopt a short and medium term budget policy that will hopefully reduce the vulnerable financial situation of the country and improve the composition of public spending in support for growth and the reduction of poverty. 

-      Growth spurred by the private sector with the promotion of an attractive environment for private investors. The strategy is built on three axes: (i) the creation of a legislative framework that is favorable to private investors. (ii) The improvement of working conditions,(iii) the continuation of reforms aiming at the reduction of operating costs and the management of public companies.

-      The consolidation of structural gender-promoting reforms, an efficient administration and the development of good governance.

In this context, the macroeconomic objectives for the period 2006/2009 consist in:

-      Ensuring an average growth rate for the GDP of 4.6% supported by a high volume of public and private investments

-      Controlling inflation as it is defined at 2 % by the consumer index price except in cases of international exogenous shocks ;

ü      Establish the management and control of public finances on solid foundations with relevant efforts to modernize taxation and reinforce the chain of public spending that will be pursued 

-      Keep the national foreign debt service at 1.5% of GDP ;

There will not be real growth if the private sector does not respond favorably to reforms. The acceleration of growth is yet at the heart of those reforms that will be organized in three main axes :

-         As for fiscal reforms, the objectives consist in improving the levying system of tax revenues to reduce tax pressure without increasing the global budget balance ;

-         For public spending the objectives are the improvement of the management system for  more efficient operational productive public and social services  such as education ( training included ) and health ( prevention and drainage included) ;

-         For structural reforms, the objective was the improvement of competitiveness of the economy abroad with the adoption of  new labour , trade and investments laws and create an operational ‘guichet unique’, One Stop Shop.

-         The improvement of the banking sector with the reinforcement of control and the introduction of new banks in 2006.