Djibouti's economy is service-based, with the country's seaport and a railroad linking it to Addis Ababa accounting for the bulk of economic activity. Almost all food and many other goods are imported from Ethiopia, the Gulf, or France. The services and commercial sectors account for 85 percent of GNP.

Openness to Foreign Investment
The government of Djibouti welcomes all foreign direct investment. Djibouti's assets include a strategic geographic location, an open trade regime, a stable currency, substantial tax breaks and other incentives. Potential areas of investment include Djibouti's port and telecom sectors. Privatization, economic reform, and increased foreign investment as top priorities for the government.

Djibouti has no major laws that would discourage incoming foreign investment. In principle there is no screening of investment or other discriminatory mechanisms. Certain sectors, most notably public utilities, are state owned and some parts are not currently open to investors. Conditions of the structural adjustment agreement recently signed by Djibouti and the IMF stipulate increased privatization of parastatals and government-owned monopolies.

Currency Conversion and Transfer Policies
Djibouti has no foreign-exchange restrictions. There are no limitations on converting or transferring funds, or on the inflow and outflow of cash. The fixed exchange rate is around 179.56 Djibouti francs to the dollar.

Performance Requirements/Incentives
Djibouti offers significant tax benefits and incentives to private-sector individuals or corporate investors. The Djiboutian investment code guarantees investors the right to freely import all goods, equipment, products, or material necessary for their investments; freely display products and services; determine and run marketing policy and production; choose customers and suppliers; and set prices. Foreign investors are also free to determine their own hiring and firing policy as long as it remains within the structure of the labor code. Items in the labor code include giving a two-week notice before job termination, a minimum wage, and so on.

Tax benefits and incentives fall under two schemes, which are detailed in the investment code. Investments greater than $280,000 and creating a number of permanent jobs are entitled to exemption from the payment of license and registration fees, property taxes for built-up real estate, taxes on industrial and commercial profits of individuals, and taxes on the profits of corporate entities. Imported raw materials used in manufacturing are exempted from the internal consumption tax.

These exemptions apply for up to a maximum of ten years after the starting date of operations. Investment matters fall under the jurisdiction of the national investment board. All investments must be approved by this board.

Right to Private Ownership and Establishment
Foreign and domestic private entities may establish and own business enterprises and engage in all forms of remunerative activity. Although restrictions on private enterprises are minimal, competitive equality in regard to public enterprises, namely public utilities, remains limited.

Efficient Capital Markets and Portfolio Investment
The banking system is dominated by two large commercial banks, which account for 85 percent of total deposits. During the financial problems of 1997, these banks remained relatively unscathed largely because their exposure to the economy is limited to mostly short-term (trade) financing and lending.

Bilateral Investment Agreements
Djibouti has several bilateral investment agreements, most notably with Ethiopia and Yemen.