Djibouti's most important economic asset is its strategic location on the shipping routes between the Mediterranean Sea and the Indian Ocean--the republic lies on the west side of the Bab-el-Mandeb, which connects the Red Sea and the Gulf of Aden. Its port is an important transshipment point for containers. It also functions as a bunkering port and a small French naval facility. Business increased at the Port of Djibouti when hostilities between Eritrea and Ethiopia denied Ethiopia access to the Eritrean Port of Assab. Djibouti became the only significant port for landlocked Ethiopia, handling all its imports and exports, including huge shipments of U.S. food aid in 2000 during the drought and famine. In 2000, Jebel Ali Port Managers, which manages the Port of Dubai, took over management of Djibouti's port. This was part of a regional management scheme that also included the Port of Beruit and the Port of Djeddah. The Addis Ababa-Djibouti railroad is the only line serving central and southeastern Ethiopia. The single-track railway--a prime source of employment--occupies a prominent place in Ethiopia's internal distribution system for domestic commodities such as cement, cotton textiles, sugar, cereals, and charcoal. The governments of Ethiopia and Djibouti are jointly pursuing privatization of the railroad. In July 2004, four international companies applied for the concession of the railway. The railroad will undergo a two-year transitional period before concession is handed over.

Principal exports from the region transiting Djibouti are coffee, salt, hides, dried beans, cereals, other agricultural products, wax, and salt. Djibouti itself has few exports, and the majority of its imports come from France. Most imports are consumed in Djibouti, and the remainder goes to Ethiopia and northwestern Somalia. Djibouti's unfavorable balance of trade is offset partially by invisible earnings such as transit taxes and harbor dues. In 2001, U.S. exports to Djibouti totaled $18.7 million while U.S. imports from Djibouti were about $1 million.

The city of Djibouti has the only paved airport in the republic. Djibouti has one of the most liberal economic regimes in Africa, with almost unrestricted banking and commerce sectors.