US embassy cable - 04DJIBOUTI340

UNCLAS SECTION 01 OF 03 DJIBOUTI 000340 
 
SIPDIS 
 
STATE FOR AF/E AND EB; STATE ALSO PASS WORLD BANK AND IMF 
 
E.O. 12958: N/A 
TAGS: EINV, PREL, EAID, ENRG, EWWT, SENV, SOCI, ABLD, SA, KU, DJ, TC 
SUBJECT: INVESTMENT IN DJIBOUTI DOMINATED BY ARAB WORLD 
 
1. (U) SUMMARY: President's Advisor on Investment, 
Fahmi Ahmed Al-Hag, says Djiboutians favor Arab 
development funds over western funds because of the 
simplicity of their financing procedures.  Al-Hag 
detailed the current investments to Djibouti from the 
Arab world.  He twice commented that both the 
Government of Djibouti and Arab donor nations would 
like to pursue a triangular development approach for 
Djibouti; financing from the Arab donors, planning 
and technical expertise from the U.S. and Djiboutian 
cooperation. END SUMMARY. 
 
2. (U) PolOff met with Mr. Fahmi Ahmed Al-Hag, the 
President's Advisor on Investment, to discuss the 
general investment climate in Djibouti and the recent 
development project proposed by a private Saudi 
investor in the Haramous region of Djibouti City - a 
proposed site for the New Embassy Compound.  Mr. 
Al-Hag was pleased to discuss the general investment 
climate in Djibouti, though he clarified that he 
could only comment on the Arab portfolio, which he 
has covered since 1979.  Mr. Al-Hag indicated that 
most investment and economic cooperation is with 
Saudi Arabia, Kuwait and the United Arab Emirates. 
Funding is most often provided by the Saudi 
Development Fund, Kuwaiti Development Fund, the Arab 
Fund for Economic and Social Development (FADES) and 
OPEC funds.  Mr. Al-Hag indicated that while Djibouti 
is not devoid of Western donor activity, it prefers 
funds from Arab donors because of the simplicity in 
its financing procedure and quick release of funds 
after approval. 
 
ARAB DEVELOPMENT FUNDS JOIN TOGETHER 
------------------------------------ 
3. (U) In May 2000, the Djiboutian government hosted 
a meeting with several Arab donors to negotiate and 
plan a joint development program for Djibouti's most 
pressing needs.  Donors included the Saudi Development 
Fund, Kuwaiti Development Fund, FADES, Abu Dhabi 
Development Fund, Islamic Development Bank and OPEC 
Fund.  The program focuses on energy, education, 
housing, health, water resources and transportation 
infrastructure to be built and improved over five 
years.  Totaling US$ 200 million, the program spans 
2001-2006 with a low-interest, long-term repayment 
over 25 years. 
 
4. (U) The $200 million covers six new generators 
for the energy sector; the construction of 2000 new 
housing units to aid the shortage of homes; $25 million 
to the education sector - mainly focused on the 
construction of new buildings and refurbishment of 
existing structures; $5 million for the health sector, 
an initial investment in the Djiboutian Economic 
Development Fund of $5 - to be followed by another 
$25 million from a separate donor program; 
paving and improvement on the 66 kilometer stretch of 
highway between Tadjourah and the northern city of 
Obock; $25 million to develop a container terminal 
to ship salt from Goubet, near Lake Assal, as well as, 
wind energy and desalinization plants to power the 
region; repairs and replacement of the water 
distribution network throughout Djibouti city, which 
is the cause of a 25 percent loss annually of total 
water pumped; and a feasibility study on piping water 
in to the city from the Hanle region, some 200km from 
Djibouti City. 
 
DUBAI PORTS INTERNATIONAL EXPANDS TO DORALEH 
-------------------------------------------- 
4. (U) In addition to the $200 million economic 
development program, investment to expand the port 
is coming from the United Arab Emirates.  The current 
Port of Djibouti has reached capacity and due to its 
physical layout cannot be expanded at its current 
location.  At a depth of twelve meters, the cost and 
amount of dredging needed to expand the current port 
has ruled out this option.  Dubai Ports International 
(DPI), which  currently runs the Port of Djibouti, is 
building a new port facility to expand its shipping 
capacity.  This new facility will be built in Doraleh, 
some 18 kilometers from the outskirts of Djibouti City. 
The Doraleh Port Facility will have an oil terminal, 
container terminal and an economic Free Zone. 
 
5. (U) The aim of Doraleh is to diversify the port 
activities to extend beyond Ethiopian needs, and 
increase the volume capacity.  Doraleh has natural 
port depth of 20 meters, which will alleviate the 
need and cost of dredging. With an increased depth 
able to accommodate the newest generation of tankers, 
the Djiboutians expect several businesses resident in 
Dubai to be attracted to the strategic location of 
the less congested and newer Free Zone in Doraleh, 
Djibouti.  The ultimate goal for both the Arab 
investors and the Djiboutian government is to make 
Djibouti a regional distribution center.  Phase one 
of the facility is the oil terminal, coming to a total 
of roughly US$ 40 million and construction has already 
been started.  This is being funded by Emirates 
National Oil Company (ENOC) and DPI.  Phase two, the 
container terminal totaling close to US$ 300 million, 
is expected to be funded by private investors from 
Dubai and other Arab donors.  A feasibility study for 
this portion of the facility is being funded by the 
U.S. Trade and Development Agency (U.S.TDA). 
 
AN ECONOMIC FUTURE SURROUNDED BY SALT 
------------------------------------- 
6. (U) Lake Assal is fast becoming a hopeful hub of 
economic and energy potential.  In addition to the 
economic program's salt shipment facility, other 
mineral resources have been found at Lake Assal. 
The Bureau de Recherche Geologique et Minier (French 
Geological and Mining Research Office) has found 
evidence of high-quality perlite deposits in the area. 
Perlite is used in the refinement of oil and could be 
of great interest to U.S. oil investors.  The Canadian 
government financed a study to make the infrastructure 
of salt and energy development at Lake Assal more 
environmentally stable. 
 
7. (U) The Lake Assal region was the subject of a 
Saudi study in wind energy.  The study showed that 
winds are high enough eight months of the year to 
power the immediate region.  If combined with another 
form of energy, this could become a viable option 
for the Lake Assal area. 
 
8. (U) Geothermal energy is also a hopeful at Lake 
Assal with interest from private U.S. investors. 
Though this project has been in the works for several 
years, it is currently at a stand still.  Al-Hag 
commented that some Arab donors have expressed 
readiness to fund the project.  This was followed by 
the idea that Djibouti and the Arab donors would like 
to pursue a triangular cooperation on this and many 
other ventures. 
 
9. (U) Another possible source of energy that donors 
are exploring is importing natural gas from Yemen to 
Djibouti by way of a sub-marine connection at the 
mouth of the Bab El-Mandeb.  Electricite de France 
is the driving force behind this project, and 
according to Al-Hag, the Yemeni government has no 
qualms about the possible project. 
 
HARAMOUS VILLAGE - A STEP TOWARDS MODERN URBANIZATION 
--------------------------------------------- -------- 
7. (U) The Djiboutian government estimates that over 
the next ten years, the housing market will need 
approximately 2000 new units per year to meet demand. 
One of the largest investments that will aid this 
shortage, outside of the 5-year economic program, is 
the residential/commercial development of the Haramous 
area of Djibouti City.  The Government of Djibouti has 
signed an agreement with a private Saudi developer, Mr. 
Mohammad M. Ali Yamani, to urbanize the 610,000 square 
meters that neighbors the presidential residence, the 
French military base, the U.S. military base and the 
Ambouli Airport.  At a price of $5.65 per square meter, 
the project will include all infrastructure, such as 
roads, water and electricity.  The urbanization plan 
includes 260 high-standing villas, a modern residential 
complex, a five-star hotel on the water, a commercial 
center and a recreational center.  The expected time 
until completion is four to five years. 
 
8. (U) This project is of special interest to Embassy 
Djibouti as Haramous is the area where a proposed site 
for a new Embassy Compound is located.  Though the 
Ministry of Finance is the only body with the authority 
to sell or lease land, the Embassy will have to deal 
with Mr. Yamani on various infrastructure related 
issues.  PolOff hopes to meet with Mr. Yamani on his 
return to Djibouti in a few weeks.  Details of the 
project will follow in a septel on that meeting. 
RAGSDALE