Last updated: July 2nd, 2021
The Republic of Djibouti at the Horn of Africa is one of the smallest countries in Africa with an area of 23,200 km² (by comparison: Mecklenburg-Western Pomerania has an area of 23,214 km²) and a population of around 938,000. However, its geographical location by the Red Sea and the Gulf of Aden as well as its proximity to Ethiopia, Eritrea, and Somalia make it a geostrategically and economically important location. Djibouti is home to a number of foreign military bases – among them the U.S. and China – and provides the regional naval base for the EU Operation Atalanta against piracy off the Somali coast, in which Germany also participated until its reevaluation in May 2021.
In April 2021, Ismaïl Omar Guelleh was elected for his fifth five-year term as President having ruled Djibouti since 1999. In 2022, Djibouti will commemorate 45 years of independence from France. Djibouti is a member of the UN, the African Union, and the Intergovernmental Authority on Development (IGAD), a regional organization in northeast Africa headquartered in Djibouti.
Djibouti’s economy is growing and, before the outbreak of the Covid-19 pandemic, had remained relatively unaffected by the global financial crisis, falling oil prices, and slowing Chinese economic growth. The growth rates had risen from 4.5 percent in 2011 to 7.5 percent in 2019. This has mainly been due to the increase in private and public capital investment. Despite the Covid-19 pandemic, Djibouti’s GDP growth is projected to reach a remarkable seven percent in 2021 after a one percent contraction in 2020. Djibouti’s growth is, however, highly dependent on developments in the neighbouring country of Ethiopia.
According to the Ease of Doing Business Index, Djibouti is developing extremely well. Its values have improved significantly in recent years. For the first time in 2019,
the country was on the list of the top 10 economies whose business climate had improved the most, its foremost competitive advantage being its position as a regional trade and logistic hub.
With a GDP share of more than 80 percent, the services sector determines economic activity. Its main areas are ports, administration, deployed foreign military, and air transport. The strategically located container port in Doraleh is an important transit and transshipment port for the countries in the region – especially for Ethiopia. It is the largest and most modern in East Africa, and the only African port linked to Ethiopia by rail.
The country is also focusing on the expansion of renewable energies and, according to the Borgen Project, it has the natural capacity to produce 300 megawatts of renewable energy annually due to its abundant solar radiation and many opportunities to harvest geothermal energy. In March 2021, the EU’s largest project in Djibouti to date – a 70 million euro seawater desalination plant – started operating. In addition to the building of a geothermal power plant in the Lake Assal region in 2018, the construction of a solar farm in southern Djibouti is being set up as a result of a public-private partnership between Djibouti’s Ministry of Energy and Natural Resources, the French company Engie, and the German firm Green Enesys; the project was approved by the Djibouti government in May 2020 and is set to start in the summer of 2021. These efforts are part of Djibouti’s plan to become the first country in Africa to be entirely reliant on green energy by 2025. With the diversification of the economy and foreign direct investment, however, the continuing challenges of energy and water supply as well as the dependence on the port business are to be addressed.