The first inkling that there is something strange going on in Djibouti occurs five minutes outside the airport. Issa Ibrahim, Monocle’s driver, is talking about the new roads built in the past two years. Flat, tarmac roads of the sort all too rarely seen in sub-Saharan Africa.

“The Americans gave us the money to build them,” he says, before adding with the utmost seriousness: “The Americans are our saviours.” It is not the sort of thing you expect to hear in a country that is 94 per cent Muslim, where Arabic is widely spoken, and which is perched on the edge of one of the most volatile and anti-American regions in the world. But this tiny country is a most unlikely US ally. Major Brian Kellner thinks it has something to do with “flip-flops for freedom”. He is one of approximately 1,600 US soldiers stationed in Djibouti, part of the Combined Joint Task Force–Horn of Africa (CJTF-HOA), an organisation aiming to diminish the threat of terrorism in a region that has become America’s third front in its “war on terror”.

Kellner leads a team of 300 marines. Aside from providing the four layers of security at the front gate of Camp Lemonier, base to the task force, the troops carry out patrols of the city and its surrounding villages. It is here, close to the porous Somalian border, that Kellner launched “flip-flops for freedom”.

“All of the children run around barefoot,” he says. “So we collected about 10,000 flip-flops from across America and handed them out. It all feeds into winning the hearts and minds. We can show we’re here to develop their country and give them hope. There are organisations and groups out here who want to do harm to the United States.”

That much is clear just by looking at the map. To the east lies Somalia, thought to be home to hundreds of men the US believes are linked to al-Qaeda. The US gave tacit approval to Ethiopia last year to drive out the Islamic Courts Union (ICU) that had taken control of the capital, Mogadishu, and large swathes of south-central Somalia.

To the west is Eritrea. Just four years ago, Eritrea joined the “coalition of the willing”, America’s bizarre grouping of supporters of the war in Iraq. Times have changed, though. Eritrea, a sworn enemy of Ethiopia, has provided support to Somalia’s Islamists, recently hosting a conference that launched a new alliance aimed at driving the US-backed Ethiopian troops out of Somalia. The US is preparing to name Eritrea as a state sponsor of terrorism, placing it at an “Axis of Evil” level.

In Djibouti, a country of just 500,000 people, there are no such problems. Formerly the French portion of Somaliland, Djibouti did not become independent until 1977. It has had just two presidents: Hassan Gouled Aptidon, who stepped down in 1999, and his nephew, Ismail Omar Guelleh, who won the subsequent election with 74 per cent of the vote. A rebellion by the minority Afar tribe briefly rocked Djibouti in the 1990s, but Guelleh – from the majority Issa tribe – signed a peace deal.Throughout its short history, Djibouti has relied on its location for survival. “Our location is our main resource,” says transport minister, Ismail Ibrahim Houmed. “We have no industry or agriculture.”

Little grows in Djibouti’s bare, lunar landscape. Daily temperatures regularly reach 40C. Driving out of the main city, the road is flanked by endless plains of sand and rock, scattered with acacia trees and shrubs with old plastic bags stuck to them – some locals refer to them as “Djibouti flowers”. Scrawny-looking camels chew what little greenery there is, while prostitutes – robed from head to toe – who have crossed over the border from Ethiopia and Somalia, line the roads, flagging down trucks.

There are two key drivers to the economy – the port and the military bases leased to the French and the Americans. France kept its military base here after independence but following September 11, Djibouti was seen as the perfect place for the US to set up a base in the Horn of Africa. CJTF-HOA is supposedly a “non-lethal” task force, building schools and drilling wells, while also training the militaries of those countries in the region aligned to the US (Ethiopia, Djibouti, Kenya and Uganda).

“We don’t have people out there shooting things,” says Major Mike Czarnik. Maybe, maybe not. The CIA has a presence here and on at least three occasions so far this year, US forces have launched attacks inside Somalia. Some analysts argue that America’s presence has had a detrimental effect on the region. Ethiopian troops trained by the US have invaded Somalia and are now facing allegations that they have killed their own citizens in Ethopia’s Ogaden region.

The Americans have proved an enormous boon for Djibouti’s economy, although neither the US nor the Djiboutian government will reveal exactly how much they pay each year for renting Camp Lemonier. The US military is now the second-largest employer in Djibouti, after the government, providing jobs in security, maintenance and cleaning.

The presence of so many foreign troops – German forces training for Afghanistan and Bangladeshi troops on their way home from the UN mission in the Democratic Republic of Congo are in town when Monocle visits – has a big effect on the local economy. Shops and restaurants in the French-colonial-style town centre are frequented by men in uniform. The new luxury Kempinski hotel, overlooking the bay, has benefited from an influx of US contractors working on Camp Lemonier, while at weekends its infinity pool and bar are packed with French military families.

“Security is playing in our favour,” says Anissa Ali Ahmed, the feisty young PR chief at the Port of Djibouti. With its one stable neighbour, Ethiopia, landlocked, Djibouti has effectively become its port, with 83 per cent of all cargo coming in and out for Ethiopia. But Djibouti wants to diversify. A project to upgrade the port has two main aims. One is to look beyond the boundaries of Ethiopia and serve other countries deeper inland. More ambitious, though, is the desire for Djibouti to become a major trans-shipment point for vessels travelling through the Suez Canal. Around 70 million containers pass through the straits known as the Gate of Tears between the Red Sea and the Indian Ocean every year.

A new port being built at Doraleh, 15km outside Djibouti city, will have capacity for 1.5m containers. Ali Ahmed believes Djibouti could attract up to 20 per cent of the traffic between Europe and Asia once the port opens in June 2009. “We’ll be one of a kind in the Horn of Africa,” she says.

The government has contracted the port’s management to Dubai Ports World. Another Arab firm from Kuwait has just been given the contract to upgrade the railway to the Ethiopian capital Addis Ababa. Eventually, it will go all the way to Juba, the capital of South Sudan.

The railway looks like it needs the investment. At the main station the clock has stopped at 20.42. A rickety passenger train with holes where glass windows once rested, stumbles into the station. It takes two days to travel the 780km from here to Addis Ababa. Transport minister Houmed has high hopes for the new train line and the road planned alongside it.

“Three or four years ago, the IMF and World Bank were not looking at us favourably,” he says. “People were thinking, ‘How do we get out of this tunnel?’. There were many, many conditions to get just small loans. But now investors come and they say, ‘We have so many billions – what projects do you have?’.”

Unlike in other African countries where major investment has been focused on raw materials, Djibouti’s investment boom is mainly infrastructure based. “It should benefit all Djiboutians,” says Houmed. Unemployment, though, is high – 60 per cent by some estimates – and many of the jobs at the port are going to Asian immigrants who live in container units inside the port.

Khat helps keep unemployment high. Everything stops after the daily khat shipment arrives each afternoon. Men sit on street corners and chew the narcotic leaf for hours on end.

As dusk falls a woman in the local tabac spits on the floor before serving her next customer. Half a dozen old men kneel on mats to pray beside the pavement. As the call to prayer from the local mosque rings out, two US servicemen stroll past, on their way to Djibouti’s single Chinese restaurant.

“We want to have a friendly neighbourhood,” says Lieutenant Colonel Vicente Perez, back in Camp Lemonier. “Little by little, it is working.”

Within minutes of arriving at Djibouti’s “khat depot” it is clear that our camera is not welcome. Khat, a mild narcotic leaf chewed throughout the Horn of Africa, is not illegal in Djibouti but its use is officially frowned upon. It has had a debilitating impact on the economy. By mid-afternoon most days the tell-tale green slime is oozing out of the mouths of men stood on street corners. The drug has to be flown in every day from Ethiopia. After its arrival at 13.00, it is brought to a disused car park where hundreds of dealers gather. Saballah Ali, 25, buys five bags a day – one for each of his clients, who in turn sell it on the street. Ali sees no harm in the drug. “It just relaxes you,” he says. Many dealers are women. They drive away in taxis with piles of bags in the back seats.

Ali Humed works on the salt plains of Lake Assal, a one-and-a-half-hour drive from Djibouti City, selling rocks of salt, gypsum and brightly coloured crystals. “It is hot season now so we don’t get many tourists,” he says. Not that Lake Assal has a cold season. The lake is one of the hottest places on earth. On a normal day the temperature soars above 50C; by 08.30 the heat is already unbearable. Humed’s wife and daughter stay in the village on top of the mountain behind Lake Assal. The temperature there is a more manageable 35C. But Humed and about a dozen other men spend their days down here, waiting for weeks on end for a car to arrive. “We have adapted – we are strong enough to survive,” he says. “Only the people that God wants to kill are killed.”

When the US military first mooted the idea in 2006 of a central African command, dubbed Africom, several African countries were reported to be “queuing up” to host its headquarters. Yet despite the promise of jobs and money, no African country has been willing to offer itself. US officials have blamed their country’s poor image across Africa. Instead, Africom, which is set to be fully functional by October 2008, is to be based, temporarily at least, in the rather un-African city of Stuttgart, Germany. America claims Africom has been established to fight terrorism and increase security across the continent – its model is the task force in Djibouti – but not everyone is convinced. China’s growing economic influence throughout Africa has worried the US, as both countries are increasingly relying on Africa for natural resources, especially oil.

“For the moment it is a dream, not a project,” says Djibouti’s transport minister, Ismail Ibrahim Houmed. He is referring to the proposed bridge connecting Djibouti to Yemen. If the dream comes to fruition it will be the world’s longest bridge, spanning 17 miles across the so-called Gate of Tears.

Technically, Houmed foresees few problems. Politically, though, there is one in particular: Sheikh Tarek Mohammed Bin Laden, a 60-year-old half brother of the more infamous Bin Laden, is the man hoping to build the “bridge of the century”. Two new cities would be built on either side of the bridge and the project is set to cost upwards of $10bn (€7bn).

An estimated 17,000 ships travel through the straits every year, many of them oil tankers carrying 3.3 million barrels a day. Whether the world’s largest economies, which rely on the traffic through the Gate of Tears, will be happy with the bridge, particularly one built by a Bin Laden, remains to be seen.