Djibouti’s economy revolves around the capital city’s modern seaport, which serves not only Djibouti but landlocked Ethiopia and parts of Somalia as well. The country also relies heavily on economic aid from France and other countries. In 1998 Djibouti’s gross domestic product (GDP), the total value of goods and services produced within a country, was $519 million, or $820 per capita. Services accounted for about 76 percent of GDP, industry made up 21 percent, and agriculture about 4 percent. Estimates indicate that about three-quarters of the labor force works in agriculture. Djibouti’s dry and barren landscape supports little crop farming, but subsistence livestock herding is a significant economic activity. Although the population is mostly urban, many city dwellers periodically tend family livestock herds in rural areas. Estimates suggest that almost half the labor force lacks formal employment.

Much of the country's economic potential lies in the transport and service sectors. An international airport is located at Ambouli. The port of Djibouti is a free-trade zone with modern container and refrigeration facilities and a rail link to Ethiopia. International telecommunications services are some of the best in sub-Saharan Africa. The capital has attracted several large commercial banks and provides a thriving entertainment industry necessary to a port city. There is also much unrecorded transshipment, via camels, dhows, and trucks, to bordering countries.

The economy is based on service activities connected with the country's strategic location and status as a free trade zone in northeast Africa. Two-thirds of the inhabitants live in the capital city, the remainder being mostly nomadic herders. Scanty rainfall limits crop production to 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. It has few natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance to help support its balance of payments and to finance development projects. An unemployment rate of 40% to 50% continues to be a major problem. Inflation is not a concern, however, because of the fixed tie of the franc to the US dollar. Per capita consumption dropped an estimated 35% over the last seven years because of recession, civil war, and a high population growth rate (including immigrants and refugees). Faced with a multitude of economic difficulties, the government has fallen in arrears on long-term external debt and has been struggling to meet the stipulations of foreign aid donors. The year 2001 will see only small growth as port activity should decrease now that Ethiopia has more trade route options.