The French Territory of the Afars and the Issas became Djibouti in 1977. In November 1991, the mainly Afar-supported Front for the Restoration of Unity and Democracy (FRUD) began fighting the Issa-dominated government. Sporadic attacks continued in 1997 and 2000. On May 12, 2001, President Ismail Omar Guelleh presided over the signing of the final peace accord officially ending the decade-long civil war. France maintains one of its largest military bases outside France in Djibouti with some 2,800 troops as well as warships, aircraft and armored vehicles. In addition to French troops, Djibouti has become a launching point for the US war on terrorism in the Middle East. United States troops have been stationed and passing through the country since late-2002. In exchange for use of territory, the United States has offered monetary assistance to help Djibouti improve its counterterrorism operations.

Djibouti's main economic asset is its strategic location. The city of Djibouti, capital and home to nearly two-thirds of the country's population, is a major transshipment port and bunkering facility. Good transportation infrastructure with the country and links to neighboring African states earns Djibouti much-needed transit taxes and harbor fees. Trade through Djibouti increased significantly during the Ethiopian-Eritrean war when Djibouti became the only significant port for landlocked Ethiopia.

Djibouti has significantly expanded the capacity of its ports by building a new oil jetty to accommodate oil products, LPG, edible oils, and bitumen on vessels up to 120,000 deadweight tons (DWT). The new system has the capacity to handle 3 million cubic feet of petroleum products. Having completed the oil jetty, the next phase of the project adds a $300 million, 6,000 foot long, mega container port. The new additions to Djibouti's ports, supported by Emirates National Oil and Dubai Ports International, will enable the port of Djibouti to meet growing cargo requirements over the next 20 years.

Djibouti's real gross domestic product (GDP) is expected to grow 4.2 percent in 2006, following estimated growth of 3.9 percent in 2005, and 3.0 percent in 2004. Growth has been fueled by the transportation and communication sectors as well as the trade and tourism sectors, which together make up more than 40 percent of GDP. An unemployment rate of 40 to 50 percent continues to be a major problem for Djibouti's economy. In December 2002, the International Monetary Fund (IMF) approved the third disbursement of funds ($6 million) from a Poverty Reduction and Growth Facility (PRGF) signed with Djibouti in 1999. Djibouti is in an IMF Staff-Monitored Program and agreed to a Technical Memorandum of Understanding on economic policies in August 2005.

Although there is currently no upstream (exploration or production) oil activity in Djibouti, the government has tried to generate interest in offshore oil exploration without success. The downstream oil sector, however, is an important aspect of Djibouti's economy, given the role the capital city plays as a significant regional bunkering and refueling facility. Three companies--ExxonMobil, Shell and Total-- handle refueling at Djibouti's port. The companies, along with ChevronTexaco, also distribute and market petroleum products in the country. Storage capacity at the port facility is 1.26 million barrels (200,000 cubic meters). The Dubai Ports Authority (DPA) was awarded a 20-year contract in June 2000 to manage the port. DPA hopes to increase Djibouti's handling capacity from 125,000 metric tons to 300,000 metric tons per year and to make it the leading transshipment point on the African continent.

Djibouti currently has installed electricity generating capacity of 85 megawatts (MW), all of which is thermal (oil-fired). In January 2001, U.S.-based Geothermal Development Associates (GDA) announced that it had completed a feasibility study on the development of a 30-MW geothermal power plant in Djibouti. The study, which commenced in August 2000, established the commercial viability of the proposed generating facility. The $115 million plant, to be located in the Lake Assal region west of the capital, will be constructed on the build own operate (BOO) financing scheme. The Global Environmental Facility (GEF), a joint initiative of the World Bank and the United Nations (UN), had approved a $280,000 financing package to pay for contract negotiations required for the project. To date, however, these funds have not been released. At the same time, however, Electricite de Djibouti, the national electric company, has been removing aging diesel-fired generating units. To continue to provide power to rural residents, the government, with the help of a grant from a number of Arab financial institutions, is installing solar and wind capacity. The primary goal of the project is to replace old diesel powered rural water pumps with new ones powered by renewable resources, but excess energy will be used for electrification.