Somalia vs. Djibouti

Despite the lack of effective national governance, Somalia maintains an informal economy largely based on livestock, remittance/money transfer companies, and telecommunications. Somalia's government lacks the ability to collect domestic revenue and external debt - mostly in arrears - was estimated at about 77% of GDP in 2017.

Agriculture is the most important sector, with livestock normally accounting for about 40% of GDP and more than 50% of export earnings. Nomads and semi-pastoralists, who are dependent upon livestock for their livelihood, make up a large portion of the population. Economic activity is estimated to have increased by 2.4% in 2017 because of growth in the agriculture, construction and telecommunications sector. Somalia's small industrial sector, based on the processing of agricultural products, has largely been looted and the machinery sold as scrap metal.

In recent years, Somalia's capital city, Mogadishu, has witnessed the development of the city's first gas stations, supermarkets, and airline flights to Turkey since the collapse of central authority in 1991. Mogadishu's main market offers a variety of goods from food to electronic gadgets. Hotels continue to operate and are supported with private-security militias. Formalized economic growth has yet to expand outside of Mogadishu and a few regional capitals, and within the city, security concerns dominate business. Telecommunication firms provide wireless services in most major cities and offer the lowest international call rates on the continent. In the absence of a formal banking sector, money transfer/remittance services have sprouted throughout the country, handling up to $1.6 billion in remittances annually, although international concerns over the money transfers into Somalia continues to threaten these services' ability to operate in Western nations. In 2017, Somalia elected a new president and collected a record amount of foreign aid and investment, a positive sign for economic recovery.

Djibouti's economy is based on service activities connected with the country's strategic location as a deepwater port on the Red Sea. Three-fourths of Djibouti's inhabitants live in the capital city; the remainder are mostly nomadic herders. Scant rainfall and less than 4% arable land limits crop production to small quantities of 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 center. Imports, exports, and reexports represent 70% of port activity at Djibouti's container terminal. Reexports consist primarily of coffee from landlocked neighbor Ethiopia. Djibouti has few natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance to support its balance of payments and to finance development projects. An official unemployment rate of nearly 40% - with youth unemployment near 80% - continues to be a major problem. Inflation was a modest 3% in 2014-2017, due to low international food prices and a decline in electricity tariffs.

Djibouti's reliance on diesel-generated electricity and imported food and water leave average consumers vulnerable to global price shocks, though in mid-2015 Djibouti passed new legislation to liberalize the energy sector. The government has emphasized infrastructure development for transportation and energy and Djibouti - with the help of foreign partners, particularly China - has begun to increase and modernize its port capacity. In 2017, Djibouti opened two of the largest projects in its history, the Doraleh Port and Djibouti-Addis Ababa Railway, funded by China as part of the "Belt and Road Initiative," which will increase the country's ability to capitalize on its strategic location.

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