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 location at the entrance to the Red Sea and support from the international community
  • Emergence of the country as a regional commercial, logistic and military hub
  • Influx of significant foreign direct investment
  • Process to modernize port and railway infrastructures, free zones
  • At the heart of China's Silk Road project
  • Ethiopia's only access to the sea, through which more than 90% of its trade passes


  • High risk of debt distress
  • Dependence on Ethiopia and China
  • Large informal economy: high poverty and unemployment endemic
  • Arid climate
  • Difficult business environment

Current Trends

Regional trade and resumption of infrastructure projects as sources of growth in 2022

Benefiting from the recovery in international and regional trade, the economy rebounded in 2021 following a sharp deceleration in growth in 2020 related to the health crisis. In 2022, as the recovery in global trade is expected to continue, the country's activity will continue to be driven by growth in demand for logistics and transhipment services. Exports will therefore continue to be an engine of growth. With over 80% of Djibouti's annual port traffic dependent on Ethiopia, it will be able to benefit from its neighbour's continued recovery, but will also remain vulnerable to possible disruptions due to political instability in the Tigray region. Difficulties in the global supply chain could also dampen the expansion of this growth engine. On the other hand, the country's activity is also expected to be supported by the resumption of public and private investment in infrastructure in support of the country's ambition to become a regional logistics and trade hub. In 2022, the redevelopment of the historic port into a business centre and the further development of the Damerjog port industrial free zone, with the construction of a new oil jetty, will be among these projects. The population, which is largely dependent on the informal economy (70% of jobs), could benefit from the job creation resulting from these investments, which would then support private consumption (nearly 50% of GDP). Nevertheless, private consumption will remain constrained by the very high unemployment rate (nearly 50%). It will also remain vulnerable to developments related to the pandemic, as the vaccination rate, despite the mandatory vaccination of the over-25s, was still very low at the start of the new year.

In 2022, inflation is expected to remain subdued, but food and energy prices could exert upward pressure.

A slight reduction of the twin deficits in 2022

In 2022, the end of crisis support measures (to the tune of 2.6% of GDP) is expected to reduce the budget deficit. Nevertheless, the improvement is expected to be only marginal, due to increased capital investment spending on projects to achieve the development ambitions of the Vision 2035 plan. Furthermore, the crisis has temporarily halted fiscal consolidation efforts, which are not expected to resume immediately. The financing of infrastructure in recent years has weighed heavily on debt dynamics, even leading to a high risk of debt distress. Public debt, almost entirely external, is mainly owed to China (70% of total public debt in 2021). Given this situation, the country is seeking to diversify its sources of financing, giving priority to less costly multilateral sources. After the IMF and AfDB loans to deal with the pandemic, the country has, for example, agreed with the AfDB to receive a concessional loan of USD 13.9 million (out of a total of USD 83.6 million) for its electricity interconnection project with Ethiopia.

Regarding the external accounts, the resumption of growth in 2021 increased imports, pushing the current account into deficit. In 2022, it will remain in deficit, still fuelled by high imports of goods and services needed for infrastructure projects. The significant increase in exports (and re-exports) of goods and services (logistics and transport) is, however, expected to enable the country to reduce the deficit slightly. However, their development will remain subject to how the situation in Ethiopia develops. Repatriation of investment earnings will continue to contribute to the income account deficit. In contrast, the transfers account is expected to remain in surplus thanks to remittances. The current account deficit is expected to be financed mainly by direct investment, which had declined sharply due to the pandemic. Foreign exchange reserves held by the central bank remain moderate, equivalent to more than five months’ worth of imports (excluding re-export-related imports).

Continuation of the Vision 2035 development plan 

Ismaïl Omar Guelleh, in power since 1999, won the presidential election in April 2021 with more than 97% of the vote, in an election boycotted by a large part of the opposition. The government will continue to implement the Vision 2035 development plan, which aims to triple per capita income and improve social and human development indicators. Despite the will to transform the country, the business environment remains poor, suffering from weak governance and corruption (142nd out of 180 in 2020, according to Transparency International). The country's heavy debt burden could affect trade relations with China, its main creditor. Moreover, the resumption of diplomatic relations between Eritrea and Ethiopia could affect the country's prospects if Ethiopia negotiates agreements that would free it from its dependence on Djibouti for trade.


Coface (03/2022)