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; supported from the international community
  • Emergence as a regional hub for trading, logistics and military
  • Substantial FDI inflows
  • Ongoing efforts to modernize infrastructure


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

Current Trends

Investments Support Non-Inclusive Growth 

In 2019, growth will likely be strong, continuing to be driven by many new investments (25% of GDP), most of which will be foreign, as well as by the effects of previous government investments aimed at making the country the main logistics hub in the region, thanks to its strategic geographical location. The biggest initiative is the Chinese-financed Djibouti Free Trade Zone, inaugurated in 2018 and set to become the largest in Africa. With more than 20 companies (mainly from China) planning to set up bases, growth should be boosted from 2019 onwards, with more than 12,000 jobs created in the near term and over 300,000 further out. However, the pace of investment growth could soften due to investor concerns, particularly over the government's unilateral decision to terminate DP World's management of the new container terminal at the Port of Doraleh, and nationalize the company’s shares (one third) pending a financial arrangement. The Chinese government, which is the country's largest investor, voiced its official concerns after President Guelleh said that China might lose its monopoly over management of the free trade zone, which could threaten Chinese investments, including those intended for the construction of two cargo airports. However, these developments are not expected to hinder the expansion of port activity, which has been strengthened by the new Djibouti-Addis Ababa railway line, which came into service in 2018. Djibouti is currently Ethiopia's only access to the sea, and the strategic partnership between the two allows 90% of Ethiopian exports to pass through the country. The remaining investments will be aimed at developing salt production, fisheries, renewable energies, and tourism, and will be largely provided by the private sector. As the state is already heavily indebted, public investment could decline. For this reason, 2019 could see a widening of the gap separating the modern portion of the economy – which is focused on services (the tertiary sector represents 77% of GDP), particularly transport, logistics and construction, which benefit from trade – and the archaic informal portion (60% of companies, mainly individual and service firms). The population is largely dependent on the latter, reflecting the fact that growth remains non-inclusive. However, people should benefit from the job creation resulting from investment. The unemployment rate of almost 50% is therefore expected to decline, which, combined with moderate inflation (the Djibouti franc is pegged to the US dollar), will stimulate private consumption, which accounts for almost 60% of GDP.

Risk of Over-Indebtedness Despite Fiscal Efforts

Fiscal consolidation efforts are expected to continue in 2019. The financing of infrastructure projects in recent years has had a big impact on the public accounts and, given the high risk of over-indebtedness, reducing the deficit is a priority. While investment spending is expected to decline, the increase in current expenditure will decelerate. The benefits of previous investments, along with improved collection of tax revenues, should make it possible to increase the government’s revenues, but not by enough to get the budget back into balance. The large current account deficit is expected to shrink in 2019. Exports of goods and especially services will continue to grow, while imports (mainly of capital goods) are set to slow, since the largest investments have now been completed. The structural trade deficit (25% of GDP) is therefore expected to improve. Conversely, the increase in income paid abroad, resulting from investments, will reduce the income surplus generated by the presence of foreign military bases. Massive inward FDI in 2019, which will finance the current account deficit, will play a part in transforming the country into a regional logistics center. Public debt, including non-concessional debt from EximBank China, will remain at an excessively high level, and debt service (11% of revenues in 2017) will weigh heavily on the public accounts.

Developments in International Relations with Uncertain Consequences

President Ismail Omar Guelleh, who has been in power since 1999 and was re-elected in 2016, confirmed his hold on the local political scene when his party won the February 2018 legislative elections, taking 57 seats out of 65. The opposition – some of whose members boycotted the election, claiming it to be non-transparent and rigged – appears to be marginalized. Despite Djibouti’s desire to transform itself, the business environment remains poor (99th in the Doing Business ranking). Governance remains mediocre, particularly in terms of corruption, where the country ranks 148th according to the World Bank. These two indicators, combined with the country's high debt, will worry Chinese investors and could make for cooler trade and diplomatic relations with China, Djibouti’s main creditor. Relations with China, which peaked in 2017 with the establishment of a Chinese military base, could suffer from new port competition, from Somalia or Eritrea for example, on this strategic trade route. The resumption of diplomatic relations between Eritrea and the other countries of the Horn of Africa could, paradoxically, have a negative impact on Djibouti's prospects if Ethiopia were to negotiate agreements to free itself from its trade dependence on Djibouti.


Coface (02/2019)