Economy of Djibouti

Exports and Imports

Djibouti's economy is highly dependent on trade, with exports and imports playing crucial roles. In recent years, the total value of exports has been relatively low, around $170 million annually, primarily consisting of re-exports, hides, skins, and coffee. Imports, on the other hand, are significantly higher, valued at approximately $1.8 billion per year. Major imports include foodstuffs, beverages, transport equipment, chemicals, and petroleum products. The substantial difference between exports and imports underscores the country’s dependency on foreign goods to meet domestic needs.

Infrastructure

Djibouti has invested heavily in developing its infrastructure to leverage its strategic location. The country has modern port facilities, with the Doraleh Container Terminal being one of the largest in Africa, capable of handling over 1.2 million TEUs annually. The road network spans about 3,065 kilometers, with significant improvements in recent years, although only 14% is paved. Key projects include the Addis Ababa-Djibouti Railway, a critical link for trade with Ethiopia, and ongoing developments in free trade zones, which enhance the logistics and warehousing capabilities of the region.

Balance of Trade

Djibouti faces a significant trade deficit due to its high level of imports compared to exports. The trade deficit stands at around $1.63 billion annually. This imbalance reflects the country's reliance on imported goods and services to support its population and economic activities, while its export base remains limited. The persistent trade deficit poses challenges for the country's economic stability and growth prospects.

Fiscal Policy

Djibouti's fiscal policy focuses on improving public finance management and fostering economic growth. Government spending has been directed towards infrastructure development, social services, and security, with public expenditure accounting for about 36% of GDP. Tax revenue collection efforts have improved, contributing around 22% to GDP. Recent fiscal adjustments aim at reducing the budget deficit, which has been averaging around 2.5% of GDP, by enhancing revenue generation and controlling public expenditure.

Monetary Policy

The Central Bank of Djibouti (Banque Centrale de Djibouti) manages the country's monetary policy, primarily focusing on maintaining price stability and ensuring the strength of the Djiboutian franc, which is pegged to the US dollar at a fixed rate. Inflation has been kept relatively low, averaging around 2.3% in recent years. The central bank uses tools like reserve requirements and open market operations to regulate liquidity in the banking system and support economic stability.

Trade Agreements

Djibouti is a member of several regional and international trade agreements that facilitate its economic activities. It is part of the Common Market for Eastern and Southern Africa (COMESA), which promotes regional integration and trade. Additionally, Djibouti benefits from the African Growth and Opportunity Act (AGOA) with the United States, providing preferential access to the US market for certain goods. These agreements help enhance trade opportunities and attract foreign investment, contributing to economic growth.

Environmental Regulations

Djibouti has been increasingly aware of the need for sustainable development and has implemented several environmental regulations to address challenges like water scarcity, desertification, and pollution. The government has committed to international environmental agreements, including the Paris Agreement on climate change. Policies focus on promoting renewable energy, protecting marine ecosystems, and improving waste management. Around 70% of the country’s energy comes from renewable sources, such as geothermal and wind power, reflecting its efforts to reduce reliance on fossil fuels and minimize environmental impact.

Tax System in Djibouti

Capital Gains Tax: Djibouti does not impose a specific capital gains tax on profits from investments. Instead, gains from the sale of assets are generally taxed as part of the regular income tax. For individuals, this means capital gains are included in their overall taxable income and are subject to the same rates as other forms of income.
Corporate Tax Rate: The corporate tax rate in Djibouti is set at 25%. This rate applies to the profits earned by businesses operating within the country. The government provides some incentives and exemptions to encourage investment in certain sectors, such as infrastructure and technology, which can lower the effective tax rate for qualifying businesses.
Sales Tax: Djibouti imposes a Value Added Tax (VAT) on goods and services. The standard VAT rate is 10%, which is relatively low compared to other countries. This tax is applied to most goods and services, with certain essential items, such as basic foodstuffs and medical supplies, typically exempted or subject to reduced rates.
Property Tax: Property tax in Djibouti is levied on real estate based on the assessed value of the property. The rate varies depending on the location and type of property. Urban properties generally have higher rates than rural ones. The government periodically reassesses property values to ensure the tax base reflects current market conditions.
Payroll Tax: Djibouti imposes payroll taxes on wages and salaries, which are used to fund social security programs. Employers and employees both contribute to these taxes. The total payroll tax rate is around 15%, with employers contributing approximately 10% and employees contributing 5%. These funds support various social security benefits, including pensions and healthcare.
Tax Deductions and Credits: Djibouti offers several tax deductions and credits to reduce the tax liability of individuals and businesses. These incentives are designed to promote investment and economic growth. Common deductions include those for business expenses, charitable donations, and certain types of investments. Tax credits may be available for activities such as renewable energy projects and job creation in underserved areas.
Tax Compliance: The efficiency of tax collection in Djibouti has been improving, but challenges remain. The government has undertaken reforms to modernize the tax administration system, enhance transparency, and reduce evasion. Efforts include the digitization of tax records, stricter enforcement measures, and taxpayer education programs. However, compliance rates are still impacted by the informal sector and limited administrative capacity.
Tax Burden: The overall tax burden in Djibouti, which represents the total amount of taxes paid by individuals and businesses as a percentage of GDP, is moderate. It is estimated to be around 19-20% of GDP. This figure reflects the combination of various taxes, including income tax, corporate tax, VAT, and social security contributions. The government's goal is to balance the need for revenue with maintaining a favorable environment for economic growth and investment.