The Red Sea country of Djibouti has achieved strong growth in recent years through large foreign direct investment inflows and brisk port activity. But the country must become more attractive to private investment—while maintaining macroeconomic stability—if it is to realize the ambitious goal of becoming a regional transport, trade, and financial hub, IMF economists say.
Djibouti’s growth remains strong despite the global economic crisis, the IMF says in its latest country analysis, with only a modest decline—from 5 percent to 4.5 percent—expected in 2010 (see Chart 1).
But the former French colony is now seeing the indirect effects of the global crisis through lower foreign direct investment and a possible decline in aid flows, the IMF said. Moreover, unemployment remains stubbornly high, at 60 percent, and poverty is pervasive.
“The authorities have a vision of becoming an important logistical and strategic hub for the region,” said Carlo Sdralevich, IMF mission chief for Djibouti. “Djibouti should seize the opportunity to build on recent achievements to attain sustainable growth, decrease unemployment, and reduce poverty.”
Djibouti’s service-based economy has considerable potential, but the country faces many serious problems, Sdralevich noted. Lagging in many social indicators, the country ranked 147th out of 169 countries in the United Nations Development Program’s Human Development Index for 2010. The drought-prone country has seen its food security situation deteriorate sharply owing to low rainfall over the past four years, and malnutrition has risen.
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