Economy

The economy of Djibouti is based on service activities connected with the country's strategic location and status as a free trade zone in northeast Africa. Two-thirds of the inhabitants live in the capital city, the remainder being mostly nomadic herders. Scant rainfall limits crop production to fruits and vegetables, and most food must be imported.

Djibouti provides services as both a transit port for the region and an international transshipment and refueling centre. It has few natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance to help support its balance of payments and to finance development projects. An unemployment rate of 40% to 50% continues to be a major problem. Inflation is not a concern, however, because of the fixed tie of the franc to the US dollar.

Per capita consumption dropped an estimated 35% over the last seven years because of recession, civil war, and a high population growth rate (including immigrants and refugees). Also, renewed fighting between Ethiopia and Eritrea has disturbed normal external channels of commerce. Faced with a multitude of economic difficulties, the government has fallen into arrears on long-term external debt and has been struggling to meet the stipulations of foreign aid donors.