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Potential For Formal Economic Co-Operation Of Djibouti

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Question:

Identify the potential for formal economic co-operation of Djibouti (Djibouti, officially the Republic of Djibouti, is a country located in the Horn of Africa) with other nations through relevant trade groupings.

You can apply the below. (if necessary and relevant)
1) Graphs
2) Pestle
3) HDI Framework / 3 Category OF HDI
 
 

Answer:

Introduction

The study is to classify the potential for formal economic co-operation of Djibouti, which is the country, located in the Horn of Africa with other nations through relevant trade groupings. Djibouti (Republic of Djibouti) is situated in the Horn of Africa. Djibouti is a mixed and a multi linguistic country (Publishing and Centre, 2012).The planned position on the Red Sea derives the economy of Djibouti. The economy of Djibouti is based on service activities connected with the country’s planned location and status as a free trade zone in the Horn of Africa. Here, free trade zone is a special economic zone where goods can be landed, handled, manufactured or reconfigured, and re-exported without any involvement of the customs authorities.

Economy of Djibouti

The economy of Djibouti is subject to the services sector which provides shipment port as well as international transshipment. The main focus of Djibouti’s economy is on service sector. As regional and international trade platform Djibouti’s position was strengthen by more investment in port operation, real estates, hotels and banking (DJIBOUTI: Economic Expansion, 2008). Djibouti has both export and import partners. Some exports and imports partners are as below:-

Export partners:-

1. Ethiopia
2. European Union
3. Somalia
6. Brazil
5. Qatar
 
 

Import partners:-

1. European Union
2. United Arab Emirates
3. Kingdom of Saudi Arabia
4. Japan
5. Ethiopia

The Annual GDP of djibouti in comparison of diifernt middle east & north africa are dicussed by the graph:-

The starting year is 2011 in which the GDP is 4.5 , 2012 it is 4.8, 2013 is5.0, 2014 is 5.5,and its is forecasted that in 2015 is would increase will 5.5 and in futher years 2016 and 2017 it will increase to 6.0. In comparison of other middle east & north africa countries  it will be increasing.

Annual GDP growth (%)

Figure: Annual GDP growth (%)

Source: (Data.worldbank.org, 2015)

The graph below shows the current account balance ,i.e, % GDP from 2011 to 2017 by comparising djibouti GDP to other middle east & north African countries which are developing. In 2011 it was 4.4 , 2012 it was1.3 , 2013 it was 0.6, 2014 it was -1.0 ,2015 it would be -5.9,  the forecasted year is 2016 and 2017 in which it may be -4.1, -3.9 respectively .

Current account balance, % GDP

 

Figure: Current account balance, % GDP

Source: (Data.worldbank.org, 2015)

Some partners of Djibouti are outside the Gulf States. The economy of Djibouti is free-enterprise economy and market based economy. Its market is reliant on its tactical position at the narrow straits at southern entrance to Red Sea. The largest single source of economic and commercial activity in Djibouti is the French military base. The land available in Djibouti is very little and country suffers from severe drought due to which country produces only 3% of its food needs. Livestock like goat, sheep and camels are income of more than half of the population of the Djibouti (Morrow, 2004). The country has little vulnerable natural resources and little industries, due to which it is mainly reliant on foreign aid to finance progress project and support its balance of costs.

 

If we consider Djibouti by geographic point : to north is Ras Doumera and Eritrea, to east , a section of Red Sea coast north of Ras Bir , to south Ethiopia is situated and to the west is As Ela. There are several problems with Djibouti neighbors in perspective to security, politics and etc. There are many companies based in Djibouti which help the country in its economy. The companies are as follows:

1. Banks
1.1 Central bank of Djibouti
1.2 Dahabshil bank International and etc.
2. Construction
3. Telecommunication
4. Transportation
5. Airlines
6. Railway

Djiboutian Ministry of foreign Affairs and International cooperation maintains the foreign relations of Djibouti. With government of Somalia, Ethiopia, France and the United States Djibouti have close tie up. Djibouti also has strong relation with China.

The PESTLE analysis of the economics of Djibouti can be done using below mentioned factors:-

PESTLE analysis of the economics

(Hamilton and Webster, 2009)

Eritrea

After the Eritrean-Ethiopian War, Ethiopian has started his trade with Djibouti. After many disputes with Eritrea, Djibouti has broken relation with Eritrea.

Ethiopia

With Ethiopia relation of Djibouti is sensitive. Addis Ababa – Djibouti Railroad is shared by both the countries. The Port of Djibouti is tied to railroad, which provides port facilities

France

After independence Djibouti is the host country for the French military. Economic and military agreement with France provides persistent safety and economic help.

Kosovo

Both the countries Djibouti and Kosovo have tactful relationship and they vowed to support joint cooperation with one another.

Somalia

In the Somalia peace process Djibouti is the dynamic participant. Likewise Djibouti has participated in many other international activities held in Somalia.

Turkey

Turkey and Djibouti have political as well as economic and military relations between them.

United State

Djibouti and U.S have strong political as well as economic relationship. Foreign Aid given from US to Djibouti plays an important role in economy of Djibouti. The government of Djibouti has allowed U.S as well as other nations to use its ports and airport facility.

In many international organizations like - African Union, Arab league, La Francophonia and United Nations Djibouti is a member. The Headquarters of Inter Governmental Authority on Development (IGAD) which is responsible for development of the seven countries in East Africa is situated in Djibouti City. Djibouti is also having bilateral immunity agreement related to protection with the International Criminal Court.

 

Economy of Neighbors Countries

There are several neighbors of Djibouti like Ethiopia, Eritrea, Dorro, Yemen, Somalia, and Somaliland. In Ethiopia Agriculture is the main factor on which economy dependent. Other sectors are also responsible for the economy like forestry, fishing, minerals and mining, energy, manufacturing, transport, telecommunication and tourism. There is a policy launched by Government of Ethiopia that the right to own land is as belonging only to state and the people of state , but people who are unable to mortgage or sell they may lease there land to the needy person .

Somalia is situated on Horn of Africa and is bordered in west by Ethiopia, in northwest by Djibouti, in north by Gulf of Aden, in east by Indian ocean and in southwest by Kenya . Somalia has an informal economy based on livestock, remittance/money transfer and telecommunications. Somalia economy has a gradual shift in favor of modern industry methods in both gradual as well as traditional production. Somaliland is a independent state which is self declared and also internationally recognized as Somalia (Scaglia, 2010).

Eritrea is also situated in Horn of Africa and is bordered by Red Sea, Sudan, Ethiopia, and Djibouti in east, west, south, and east respectively. The main reason for the growth of economy is full operation in the field of gold and silver.  Eritrea is a country which is having large amount of resources like copper, gold, granite, marble and potash.

 

Conclusion:

Djibouti economy is derived from the strategic location of the Red Sea. As the country has very harsh climatic condition and huge amount of unskilled laborers so there is limited stock of natural resources. Djibouti has also tie up with many international organizations like African Union, United Nations and etc. Djibouti economy is dependent on the trade done by different neighbor countries of it.

 

References:

Data.worldbank.org, (2015). Djibouti | Data. [online] Available at: https://data.worldbank.org/country/djibouti [Accessed 10 Feb. 2015].

DJIBOUTI: Economic Expansion. (2008). Africa Research Bulletin: Economic, Financial and Technical Series, 45(5), pp.17842A-17842C.

Hamilton, L. and Webster, P. (2009). The international business environment. New York: Oxford University Press.

Morrow, J. (2004). Djibouti. Philadelphia: Mason Crest Publishers.

Publishing, O. and Centre, O. (2012). African Economic Outlook 2012. Paris: Organisation for Economic Co-operation and Development.

Scaglia, B. (2010). The amazing continent of Africa. [S.l.: Perspicacious Press.

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