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Section 2: Labour & Land Resources in Djibouti

Fitch Solutions Labour Market Risk Index

  • Djibouti is placed in seventh position out of 11 East Africa states and in 174th position out of 201 states globally in Fitch Solutions’ Labour Market Risk Index.
  • Djibouti underperforms against the East Africa average for all components of the Labour Risk Index, namely education, availability of labour and labour costs.
Chart: Labour Market Risk, 2019
Chart: Labour Market Risk, 2019

Labour Market Risk Index: Methodology and Components

  • 100 = Lowest risk; 0 = Highest risk
  • The overall Labour Market Risk score is calculated from the average of the Availability of Labour, Education and Labour Cost sub-component scores.
  • Education: the education sub-component focuses on general and tertiary schooling. Scores are based on enrolment at each level of education and interest in technical subjects, such as science, manufacturing, construction and engineering. This gives an indication of the talent pool available in a country, and emphasises higher value technical skills.
  • Availability of Labour: the availability of labour score takes into account the size of the workforce, the quality, age and health of the labour pool and its composition (both with regards to the nationality of workers, and their occupations).
  • Labour Cost: this sub-component assesses worker flexibility and the cost of hiring in a particular country. It includes factors such as the minimum wage, severance pay and unemployment. The scores are calculated to reward the countries with the lowest cost of hire.

Labour Supply & Skills

Djibouti has a population of approximately a million people, making it one of the smallest countries by population size in East Africa, which limits the supply of labour in the country. Yet unemployment is high, with just under 56% of the working age population in employment, meaning that there is an available domestic labour pool to tap into for companies looking to set up business operations in the country.

The formal labour market is made up predominantly from the services and government-related sectors, but given the ongoing growth in the construction and logistics industries, employment opportunities in these areas are increasing. The lack of skilled labour does remain a bottleneck for businesses, given the generally low levels of education in the country. The primary school enrolment rate in Djibouti is just under 53%, compared with 86% in Ethiopia, 84% in Kenya and 96% in Rwanda. That said, improving the education system is an important policy consideration for the government; via the ‘Strategy of Accelerated Growth and Promotion of Employment 2015-19’ plan. A number of international development organisations are also playing a role in targeting the education system for advancement, notably the World Bank, UNICEF, the Global Partnership for Education and the Islamic Development Bank.

Chart: Working Age Population, 2018
Chart: Working Age Population, 2018

Labour Costs & Regulations

Djibouti does not have a mandated minimum wage and therefore labour costs are generally low. Employees and employers both pay a contribution to the National Social Security Fund (CNSS), regardless of contract type and nationality of employee.

Table: Minimum Wage
Table: Minimum Wage

The labour market in Djibouti is regulated by the Labour Code of 2006. Regulations generally favour the employee, particularly in areas of termination and disputes. There are labour unions in Djibouti, and while technically independent, they can be influenced by both the government and employers. The internationally recognised union is the Djiboutian Workers Union (UDT).

Foreign workers obtain work permits from the National Agency for Employment, Training, and Professional Integration (ANEFIP), but are contingent on whether their qualifications or expertise are not available among Djibouti nationals. Given the aforementioned issues concerning a lack of skilled workers in the domestic labour force, this is unlikely to be a pertinent issue for businesses looking to hire foreign workers. Furthermore, there are no quotas to limit the number of foreign employees that can work within a company.

Table: Labour Regulations
Table: Labour Regulations

Land Resources, Construction Permits & Registering Property

While there are no specific limits on foreign ownership of land, land disputes and rising legal risks are an increasingly important issue for companies operating in Djibouti. Particularly in light of the ongoing dispute with DP World, following the government’s expropriation of the UAE port operator’s stake in the Doraleh Container Terminal. The Djibouti government’s decision to renege on its legally binding commitments to an international firm without due process sends a major warning signal to potential investors and will likely hinder Djibouti’s ambitions to develop its manufacturing, trade and financial services industries.

While obtaining a construction permit is subject to only moderate delays on a regional comparison, taking 148 days on average, the high number of procedures (17) which must be undertaken increases the risk of blockages or delays caused by government departments. In terms of costs, obtaining a construction permit generally costs 5.1% of warehouse value, which is competitive against the Sub-Saharan Africa average of 8.8%. Registering a property is relatively fast, averaging 24 days. In fact, over the last year, Djibouti made property transfer easier and less opaque by reducing registration fees, amongst other initiatives.

Table: Registering Property
Table: Registering Property

 

Manufacturing in East Africa: Djibouti

Section 1: Industrial Manufacturing Focus
Section 2: Labour & Land Resources
Section 3: Infrastructure
Section 4: Regulations & Tax Incentives
Appendix: Relevant Government Bodies
        
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Content provided by Picture: Fitch Solutions – BMI Research
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