Economic diversification is key to advancing sustainable development, as it has a significant impact on progress and employment opportunities, stimulating growth and innovation, and reinforcing political stability and social cohesion. To achieve this, it is necessary to step up investment beyond transport and international trade.

With a high level of unemployment and informality, increased investment is needed in sectors with significant employment potential, which would also advance economic diversification.  Djibouti's heavy dependence on international maritime trade, with ports and free trade zones accounting for around 75% of its GDP, makes the economy vulnerable to external shocks. The COVID-19 pandemic exacerbated this vulnerability, leading to lower production, fiscal pressures and reduced tax revenues.

Investing in inclusive education is essential to boost the employability and the effectiveness of young people, positioning them as valuable assets for the country's economic growth. Broadening employment prospects beyond the public sector and transitioning from an informal to a formal labour market offering decent opportunities is also an essential step in establishing a solid economic base. Furthermore, the ongoing privatization process has the potential to create space for entrepreneurship and competitiveness rooted in innovation and performance. Additionally, tapping into Djibouti's renewable energy potential, particularly in the fields of geothermal, wind and solar power, could be a powerful catalyst for economic development and diversification.

The benefits of major investment in modern port, rail and road infrastructures have transformed the country and positioned it as a regional economic hub for trade. But the benefits are not yet sufficiently felt by the vast majority of the population, especially outside of Djibouti city, with poverty at 35.8%, acute malnutrition at 17%, unemployment (15-59 years) at 27.5% and illiteracy at around 40%.

The Accelerated Growth and Employment Promotion Strategy (SCAPE) 2015-2019* has led to significant progress, including to the building of state of-the-art infrastructure to connect with neighbouring countries, such as the Djibouti-Addis Ababa railway, ports and a Free Zone. GDP growth has been estimated at around 7% between 2015-2019, due to the normalization of the situation with Ethiopia and major investments in infrastructure over 10 years.

Despite increased access to social services, access to housing, water and sanitation remains inadequate and disparate between Djibouti City and other regions. This underscores the need for a more comprehensive and inclusive approach. Elevating the quality of housing, water and sanitation, alongside providing enhanced access to social services, presents a promising opportunity to bridge these gaps and to create a more equitable and sustainable future for all.

Investment in SDG 11.3 is crucial for Djibouti as, despite relatively advanced land administration in the city compared to neighbouring countries, the overall urban development process still faces significant challenges. Most of the development occurs without proper planning and basic infrastructure.

Consequently, the lack of services and disparate structure of urban areas impose substantial social, economic and environmental costs. The suboptimal planning system stems in part from insufficient public information and institutional capacity, as well as a lack of fundamental capacity by local governments.

Enhancing urban land administration is essential to promote sustainable development across Djibouti. This will enable effective infrastructure development, address social disparities, stimulate economic growth and reduce the impact of urban expansion on the environment. It also has the potential to empower local governments to implement well-structured development plans and efficiently manage urban spaces.

The 2020 Mo Ibrahim Africa Governance Index (IIAG) report ranked Djibouti 42nd out of 54 countries, with particularly low scores for transparency, freedom of expression and assembly. Djibouti's civic participation, rights and inclusion recently witnessed a decline. According to the World Bank’s World Governance Indicators*, the perception of government effectiveness, despite improving from 2017 to 2019, has fallen since 2020 and stands at less than 20% in 2021. Similarly, looking at the voice and accountability indicator**, while there has been a modest improvement since 2019, the overall perception remains demonstrably low, at a mere 14%.

Despite some progress in decentralization and de-concentration since 2006, the implementation of these processes remains limited due to numerous challenges. Development actors at both central and regional levels face significant hurdles related to technical and operational capacities.

To foster a resilient economy capable of effectively recovering from setbacks and absorbing future shocks, it is essential to invest in SDG 16 and to strengthen Djibouti's institutional capacities across various governance areas, including in administrative, economic, financial, local, political and judicial governance, as well as in public financial management. Such investments will not only facilitate economic development but also contribute positively to other relevant targets and SDGs for Djibouti.