Country Risk Rating

A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.


  • Geostrategic position at the entrance to the Red Sea and support from the international community
  • Emergence as a regional trade, logistics, and military hub
  • Substantial FDI inflows
  • Ongoing efforts to modernize port and railway infrastructure, free zones
  • At the heart of China’s Silk Road Project
  • Ethiopia’s only access to the sea, with 90% of Ethiopian trade passing through Djibouti


  • High risk of over-indebtedness
  • Increasingly dependent on Ethiopia and China
  • Large informal economy: high poverty and endemic unemployment
  • Dry climate
  • Difficult business environment

Current Trends

Re-exporting keeps growth strong

Growth is expected to remain strong in 2020, supported by exports of transport, logistics and telecommunications services thanks to past investments aimed at making the country a major regional trade, logistics, and digital hub. The emergence of exports from budding light industries based in free trade zones, including shoe assembly, agri-food processing, and construction materials, could boost the value of local exports. Other investments will be aimed at developing salt production, fisheries, renewable energy, and tourism, and should be provided by the private sector. However, the growth rate of these investments could be impacted by fears among investors, particularly after the government terminated UAE group DP World’s management of the new container terminal at the Port of Doraleh and nationalized the company’s share in the terminal (one third of the capital) pending a financial arrangement. The restrictive operating environment in the electricity, telecommunications and education sectors could further curb private investment and competitiveness. However, the population, which is heavily dependent on the informal economy, should benefit from the job creation resulting from foreign investment. The unemployment rate, which stands at almost 50%, is expected to fall, which could stimulate private consumption (almost 60% of GDP). However, consumption is likely to be adversely affected by higher local food prices.

Deterioration in the current account deficit

Fiscal consolidation is expected to continue in 2020. Infrastructure financing has been a severe drag on public accounts in recent years and, given the high risk of over-indebtedness, reducing the deficit will be the government’s priority. While investment spending is expected to decline, the increase in current expenditure will decelerate. The benefits of previous investments, along with an improved collection of tax revenues, should generate an increase in government revenues, but not enough to return to a balanced budget. Public debt, which is almost entirely external, is mainly due to China (55% in 2018). Despite the restructuring of the Chinese loan for the railway linking Djibouti and Ethiopia in September 2018, which extended the repayment period and lowered the rate, debt service is expected to increase, hampering fiscal consolidation efforts.

The current account deficit is expected to deteriorate in 2020 due to the slowdown in world trade and its negative impact on re-export activity (106% of GDP in 2018) on which the economy is heavily dependent. Conversely, the current account deficit excluding re-exports (-0.75% of GDP in 2018) is expected to improve very slightly thanks to exports of services (33% of GDP in 2018), which are set to continue growing, and imports, mainly of capital goods, which are expected to stabilize as the largest investments have now been completed. However, increased repatriation of profits from foreign investments will reduce the income surplus generated by the presence of foreign military bases. FDI (5.8% of GDP in 2018) and international financing will finance the current account deficit and maintain the Djiboutian franc’s dollar peg. Foreign exchange reserves held by the central bank are expected to stabilize at 3 months of imports.

Continuation of the Vision 2035 development plan

Ismail Omar Guelleh, who has been in power since 1999 and was re-elected in 2016 for a five-year term, reshuffled his cabinet in May 2019 as he set out the priorities for his final years in office. The government will continue to implement the Vision 2035 development plan, which has the dual objective of tripling per capita income and improving social and human development indicators. The aim is to modernize administration, notably by strengthening the management and supervision of state-owned enterprises, developing human capital, encouraging the private sector, and opening up a number of protected industries to competition. Despite the desire to transform the country, the business environment remains poor, with Djibouti coming 112th in the Doing Business 2020 ranking, owing in particular to weak governance and corruption, where it is ranked 124th out of 148 according to Transparency International. The country’s high level of debt could affect trade relations with China, the main creditor. Closer bilateral relations, symbolized by the establishment of a Chinese military base in 2017, could cause Djibouti’s authorities to become involved in diplomatic issues between the various countries with military interests and bases in the region. Relations could also be affected by possible new port competition (Somalia, Eritrea). The resumption of diplomatic relations between Eritrea and Ethiopia could have an impact on Djibouti’s prospects if Ethiopia were to negotiate agreements to free itself from its trade dependence on Djibouti.


Coface (02/2021)