Djibouti

Economy dependent on the port sector and Ethiopia

Growth is expected to remain strong, largely driven by the dynamism of port and logistics activities, which account for nearly 70% of GDP. Transhipment remains a key driver, stimulated by mandatory inspections of cargo bound for Yemen and by the re-routing of shipping lanes following Houthi attacks in the Red Sea, which disrupted traffic to the Suez Canal. The trend is mainly supported by growing demand from Ethiopia, as more than 90% of Ethiopia's trade passes through Djibouti's ports. However, after peaking in 2024, port traffic declined in 2025 (-7% in the first quarter and -10.5% at mid-year) due to the combined effect of changes to US tariffs, regional tensions and uncertainty over global trade. To support growth, the country is focusing on structural projects included in Vision 2035, led by the private sector. Major initiatives include the expansion of the Damerjog Free Trade Zone (DDID-FTZ) between 2018 and 2033, including the construction of an oil refinery financed by Saudi Arabia and the extension of port terminals.

The economy remains heavily focused on services (85% of GDP in 2024), followed by industry (14% with electricity generation, wastewater treatment, seawater desalination and salt extraction from Lake Assal). Agriculture on the other hand is marginal (1%) in this very arid country. Strategic sectors such as telecommunications, water and electricity are dominated by monopolistic public companies, contributing around 20% of GDP, which limits competition and hinders economic diversification. The business climate remains fragile despite the quest for modernisation: the liquidation in April 2025 of the Djibouti Sovereign Fund (FSD), created in 2020 to attract financing, illustrates these difficulties which are exacerbated by allegations of corruption, risks of expropriation (termination of the container terminal concession contract with DP World in 2018) and unsustainable debt. Outside of transport and logistics, opportunities for private investment remain limited, which increases dependence on the port sector. FDI remains low (2.2% of GDP in 2025), despite infrastructure projects and free trade zones. On the social front, growth remains largely exclusive: capital-intensive projects have generated few jobs, leaving unemployment high (25.9% in 2024, affecting over 70% of young people). Less than a third of the working population has formal employment. Poverty is prevalent: 42% of the population lived below the poverty line in 2024, despite one of the highest levels of per-capita official development assistance in the region.

Inflation continues to be low thanks to the Djiboutian franc (DJF) being pegged to the US dollar, which ensures monetary stability, and the maintenance of administered prices for fuel, transport and certain public services. The authorities have also frozen electricity and food prices to limit the impact of tensions in the Red Sea on import costs. The decline in global oil and food prices is also helping to contain inflationary pressures.

Fiscal stability threatened by external debt and trade shocks

The country could record a slight budget surplus in 2025, breaking with years of deficits, thanks to increased spending discipline and better revenue mobilisation, notably through the dissolution of the sovereign wealth fund and increased revenue from military base leases. This improvement is part of a series of reforms aimed at modernising the tax administration (digitisation, broadening the tax base) and rationalising expenditure, with a gradual reduction in subsidies in favour of better-targeted social transfers. However, the revenue structure remains fragile: the share of tax revenues as a percentage of GDP remains low due to exemptions granted to free zones, port activities and military bases, in addition to tax evasion. State-owned enterprises, although contributing significantly to GDP, drain public finances without generating significant revenue, which justifies the ongoing reforms to improve their transparency and reduce subsidies. In 2026, the budget balance could return to deficit as a result of investments related to port expansion and renewable energy projects.

Public debt is critical and deemed unsustainable by the IMF. It is entirely external, with more than half contracted from the Chinese Export Import Bank, a legacy of commercial financing for water and rail infrastructure through state-guaranteed loans (USD 14 billion raised between 2012 and 2020). Debt servicing was suspended in 2022, but in October 2023 the country managed to obtain a moratorium on repayments until 2027. This offers temporary respite but fails to resolve structural vulnerabilities. Discussions are continuing to revise interest rates and maturities, while similar negotiations are under way with other official creditors, including India and other bilateral creditors.

The slight current account surplus is expected to hold over in 2026. The trade deficit (13% of GDP in 2024, excluding re-export-related movements) will continue to be pinned to imports of equipment for port and energy projects. Port and logistics activities, on back of the extension of the DDID-FTZ free zone, will maintain the services surplus (10%). However, an easing of tensions in the Red Sea, which had initially boosted transhipment activities, could weigh on volumes if Suez Canal traffic increases. The primary income account surplus will be significant (3%), driven by rents from foreign military bases and the renegotiation of the lease with France in 2024. In addition, foreign project grants account for 0.7% of GDP. Despite the slight current account surplus, the external position remains fragile: foreign exchange reserves cover approximately three months of imports (excluding those intended for re-export) in 2025, a worrying threshold given the external debt and the planned end of the Chinese moratorium.

Consolidation of power in an unstable regional landscape

In October 2025, the government introduced a major constitutional amendment which removed the age limit of 75 for presidential candidates, thereby allowing 77-year-old Ismaïl Omar Guelleh to run for a sixth term in 2026. The reform, passed unanimously by a National Assembly dominated by the Union for the Presidential Majority (UMP), illustrates the concentration of power and the weakness of countervailing forces. Presented as a measure of stability in an unstable region, the opposition and NGOs criticised the move as being tantamount to presidency for life. Guelleh, who has been in power since 1999, relies on the support of the Issa community (a Somali majority subgroup also settled in Somalia and Ethiopia, which represents 60% of the population and is influential in the armed forces), while marginalisation of the Afars (also present in Ethiopia and Eritrea) continues to fuel tensions. In January 2025, drone strikes against Afar rebels near the Ethiopian border drew international criticism following civilian casualties. Migratory pressure is exacerbating these internal tensions: Djibouti is home to tens of thousands of refugees from Eritrea, Ethiopia and Somalia, which is aggravating social and security challenges. Despite these vulnerabilities, the regime maintains its stability through strict security controls, patronage networks and foreign military support.

Djibouti has established itself as a strategic player in the Horn of Africa thanks to its position on the Bab el-Mandeb Strait, which is essential for global trade. The country is host to American, French, Chinese and Japanese military bases, generating more than USD 125 million per year and strengthening its security role, particularly in light of tensions in the Red Sea from the Israel-Hamas conflict and Houthi attacks, as well as piracy in the Gulf of Aden. Diplomatically, Djibouti remains an active regional mediator through the Intergovernmental Authority on Development (IGAD) and the African Union and has consolidated its ties with Ethiopia, a key partner for its logistics and port activities, despite tensions over the memorandum signed between Ethiopia and Somaliland to grant Ethiopia a naval base, on top of an increased presence in the port of Berbera. This cooperation is based on infrastructure projects such as the Damerjog-Nagad rail link and the DDID-FTZ free trade zone. At the same time, Djibouti is strengthening its extra-regional partnerships, notably with France (renewal of the defence treaty in 2024 for a 10-year period) and Turkey (political agreement sealed in 2025) to secure its economic and geopolitical interests.

Last updated: 25 November 2025