Economic underdevelopment in Djibouti, its causes and examples, level of economic development & industrialization, income distribution, taxation, land ownership. The economy of Djibouti is considered to be underdeveloped despite the fact that there have attained an economic growth of three percent over the past recent years, this is too low to make any significant difference on the living standard of its citizens and reduce poverty levels in the area.
There has been underdevelopment in the economy of Djibouti. This is happening despite the fact there is some growth in the economy. The growth is so low and cannot have any effect on the living standards of the citizens. There has been around 3% growth rate. The causes of the underdevelopment experienced in Djibouti are low education level, inadequate understanding of health conditions, and lack of skilled labor, unemployment, high population growth, and harsh climatic conditions among others. There is underdevelopment especially in education, employment, investment and health sectors. Though, there is economic underdevelopment, a little development is noticed by the increased economic score. Income distribution in Djibouti is much skewed involving a lot of inequalities. Land ownership is depended on certain rules and the country has set the average tax to be paid on income and for corporate. Different countries and private sectors have different views on the underdeveloped economy of Djibouti.
The economy of Djibouti is contributed to majorly by service industries contributing around 83% of gross domestic product (Djibouti, 2011). Other contributors to the economy are banking, insurance, trade and administration. It is considered that the primary and secondary sectors are considered to be underdeveloped since they contributed 4% and 13% to GDP respectively in 1998 (Djibouti, 2011). Due to harsh climatic conditions, agriculture and livestock keeping are largely affected. The underdevelopment of the secondary sector is due to scarce natural resources, lack of skilled labor and high cost of inputs. The economy of Djibouti is considered underdeveloped even though has been a 3% growth rate over the last years (Nathan Associates Inc, 2006). This is considered very low to improve the living standards and poverty levels of its citizens. The growth rate has increased by 3.2% in 2003 and 3.0% in 2004. This is ranked below the median for lower middle income (LMI) countries (Nathan Associates Inc, 2006). The rate for LMI is 5.1%. In addition to this, there is a lot of inequality and poverty.
Causes of Underdevelopment
There are so many contributors to the underdevelopment of the economy in Djibouti. The enrollment in primary education has been found to be very low. Education is very important in the development of the economy. Therefore, if people are not educated the economy has to be underdeveloped. The rate of unemployment is also very high in Djibouti rated at 59% in 2002 (Nathan Associates Inc, 2006). In addition to low education the economic growth is very low. The amount of skilled labor is very low since very few people undergo trainings. The population of Djibouti is progressingly growing which strains the resources available and there are few jobs to cater for this growing population (Nathan Associates Inc, 2006). Harsh climatic conditions make it difficult to do any form of agriculture which can be a good contributor to the development of the economy. Djibouti citizens do not get adequate provision of health care. There is an inadequate understanding of health condition. The poor performance of the health sector can be assessed using the average health expectancy which was 43 years in 2003 showing the lowest in the whole world (Nathan Associates Inc, 2006). Poor understanding of the health conditions affects how a country adopts to means on economic growth interventions. Science and technology is the most important aspect of economic growth and development. Unfortunately for Djibouti, it depends on other developed countries to acquire technology then use it appropriately (Nathan Associates Inc, 2006). They have a lack of capacity to fully acquire this technology and use it optimally. Gender inequality is also very dominant in Djibouti where women do not have equal access to education and employment opportunities as their counterpart males (Nathan Associates Inc, 2006). The there is also income inequality where some people get more than others not because they deserve it but because of their social status. Other contributors to the underdevelopment are less arable land, lack of permanent fresh water source, lack of reliable mineral resources, very little vegetation, high temperatures and a persistent drought for almost the past six years (Brass, 2008).
Example of Underdevelopment
Agriculture in Djibouti is not only underdeveloped but it is almost nonexistence. Employment level is very low in Djibouti which is a show of underdevelopment in Djibouti. Poverty, gender inequality and inequality in the income levels are also a show of an underdeveloped economy (Nathan Associates Inc, 2006). Inappropriate adoption of science and technology is another example of underdevelopment. The country also shows that its economy is underdeveloped in that it is not in a position to give employment to its growing population and the level of education enrolment is also very low.
Level of Economic Development and Industrialization
The development of the economy of Djibouti is very minimal because even if the growth rate is increasing, it so low to extend that it cannot improve the standard of living of its individuals. Its economic score increased in 2011 by 3.4 points making it to be 54.5 (The Heritage Foundation, 2011). The improvements were noticed in trade, labor, and monetary freedom. According to this 2011 index, it is the second most improved country in the sub-Saharan Africa (The Heritage Foundation, 2011). The improvement is mostly contributed to by the services industry. There has been increased investment in construction and port operations which has led to economic growth. In addition to this, there is growth in financial sector which is associated with new banking laws (The Heritage Foundation, 2011). Investment in both private and public sector has increased significantly.
Income distribution in Djibouti is no very uniform but shows a very high level of skewness. This shows that lower 80 percent of the population earn less than one-third of income. There is zero perfect equality and 100 perfect inequalities. The national poverty rate is 43.1% with a very a very high rate of individuals living on less than $2 per day. In other word, the income distribution is very diverse with a few low percentages getting the minimum recommended amount.
The tax rates in Djibouti are calculated to an average amount. The highest income rate is at 30% and the highest corporate tax rate is 25% (The Heritage Foundation, 2011). Other taxes include; property tax, excise tax, and value added tax commonly abbreviated as VAT. VAT was in traduced in the country on January 2009. Mostly, the overall tax revenue which is expressed as a percentage of GDP is 22.7% (The Heritage Foundation, 2011).
At independence, there was only the conserved private ownership of land. In addition to this, there are two customary laws which are related to access to and utilization of land. For instance, at the Isa areas, the ownership of land is communal and is governed by the set rules for access and utilization. In the Afar areas, they use the Sultan as the trustee of land ownership. There are also the set rules which guide the right use of the land.
What the country says about its underdevelopment
Djibouti has noticed that its economy is underdeveloped and is aiming high to develop its economy. It aims to be a regional hub. It aims at making the growth of its economy have a significant change on the living standards of all citizens and reduce the poverty levels in the country. They are striving to be a crucial logistical and strategic hub for the region. They say that the country’s economy has a very high potential but it is hindered by serious problems like global economic crisis. Low rainfall has increased level of drought and malnutrition.
What USA says about the underdevelopment?
The United States of America views that the country has a high potential and it can utilize all the resources available to develop its economy.
What do non-governmental sources say about the country?
World Bank aims at eliminating poverty in countries and ensuring that there is economic growth. It says that, the economic underdevelopment in Djibouti will end if the poverty, inequality in income and gender, education and health care provisions is addressed. This will happen if the community is committed through utilization of the money it receives as grants to invest in its economy. This is the same view of Red Cross and UN. Although they intervene by providing health and food, they say that success can only be achieved if the country becomes independent in providing for its people.
Although, Djibouti is a potential country, it is faced by many problems which make its economy to be underdeveloped. The growth at which the economy grows is far below the recommended rate. Issues like education, poverty, unemployment, lack health condition understanding and rainfall scarcity has led to the underdevelopment. There is some level of development but it not adequate to improve the standards of living. There is income inequality making the distribution to be skewed. The views of the country, US, and non-governmental organizations are that, the country has a very potential economy but the development is hindered by the problems which face the country.
Brass, J. (2008). Djibouti’s unusual resource Curse. Retrieved on May 19, 2011 from http://www.relooney.info/0_NS4053_945.pdf
Djibouti. (2011). The Official Website of Djibouti. Retrieved on May 19, 2011 from http://translate.google.com/translate?hl=en&sl=fr&u=http://www.presidence.dj/&ei=crvUTeiQNIrJgQeon53GBw&sa=X&oi=translate&ct=result&resnum=1&sqi=2&ved=0CCEQ7gEwAA&prev=/search%3Fq%3Dhttp://www.presidence.dj/%26hl%3Den%26prmd%3Divns
Nathan Associates Inc. (2006). Djibouti Economic Performance Assessment. Retrieved on May 19, 2011 from http://pdf.usaid.gov/pdf_docs/PNADF301.pdf
The Heritage Foundation. (2011). Promoting Economic Opportunity and Prosperity. Retrieved on May 19, 2011 from http://www.heritage.org/index/country/Djibouti