US embassy cable - 04DJIBOUTI796

UNCLAS SECTION 01 OF 03 DJIBOUTI 000796 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF, AF/E AND AF/EPS 
 
E.O. 12958: N/A 
TAGS: PREL, PGOV, ECON, EINV, AA, DJ, TC 
SUBJECT: DJIBOUTI INAUGURATES FREE ZONE WITH SUPPORT FROM 
DUBAI INTERNATIONAL 
 
REF: DJIBOUTI 597 
 
1. (U) Summary: Djibouti and its United Arab Emirates 
investor, Dubai International (DI), inaugurated June 5 the 
new Djibouti Free Zone (DFZ) with the participation of 
President Guelleh, cabinet officials, heads of diplomatic 
missions, and potential DFZ investors. The project, billed 
"the first of its kind in Africa," is expected to change 
Djibouti's economic face and create a virtual Dubai in the 
Horn of Africa.  Ambitious to some, and a saving grace to 
others, the project -- along with the new Doraleh port coming 
on line in 2005 -- is seen as the gateway for trade to the 
African continent.  The DFZ offers pre-built warehouse units, 
open storage sheds, and land plots with benefits to include 
100 per cent foreign ownership, the absence of corporate 
taxes, duties, and currency restrictions, 100 percent 
repatriation of capital and profits, world class management 
practices, professional administrative support, and good 
quality logistics infrastructure.  Fifty-eight per cent of 
available warehouse space has been leased in the project's 
first phase, with Phase II and III to be completed by 2006. 
End summary. 
 
------------------------ 
The Compatibility Factor 
------------------------ 
 
2. (U) Djibouti launched its 17-hectare Free Zone on June 5. 
The zone, billed as the first of its kind in Africa, will be 
under the guidance and management of Jebel Ali Free Zone 
International (JAFZI) in the United Arab Emirates (UAE). 
Applicants for space in the project are being offered the 
choice of warehouse units built to standards of those in 
Jebel Ali, or a plot of land on which to build their own 
customized facility.  JAFZI is touting the compatibility of 
warehousing, storage, distribution, light manufacturing and 
value-added activities of DFZ with Common Market for Eastern 
and Southern Africa (COMESA) rules of origin and the Africa 
Growth and Opportunity Act (AGOA) trade agreement. 
 
----------------------- 
Incentives and Benefits 
----------------------- 
 
3. (U) Incentives and benefits offered by the DFZ will 
largely mirror those at Jebel Ali and will include, but not 
be limited to, 100 percent foreign ownership, the absence of 
corporate taxes, duties, and currency restrictions, 100 per 
cent repatriation of capital and profits, world class 
management practices, professional administrative support, 
and quality logistical infrastructure. Dubai-produced 
promotion material for the project highlighted the 
"pro-business attitude of Djibouti in developing a 
diversified and self-sufficient economy" and the intent of 
the DFZ "to provide business investors in Africa with a 
platform from which to tap in to the potential of the African 
market."  Djibouti's  port and international airport (both 
currently managed by Dubai Ports International-DPI), plus the 
highway and rail link directly to Ethiopia's capital, and the 
soon-to-be completed new port and oil terminal at Doraleh, 7 
kilometers from Djbouti port, would support the DFZ. 
 
------------------------- 
Optimism from Investors 
------------------------- 
 
4. (U) The President of Djibouti, Ismail Omar Guelleh, Prime 
Minister of Djibouti, Dileita Mohamed Dileita, President of 
the Djiboutian National Assembly, Idriss Arnaoud Ali, 
Executive Chairman of Ports, Customs and Free Zone 
Corporation (the global parent of DPI and JAFZI), Sultan Bin 
Sulayem, the Executive Chairman of PCFC, Managing Director or 
Dubai International (DI), Mohammed Sharaf, and key Djiboutian 
investor Abdurahman Boreh participated in the inaugural 
event.  Also attending were a host of Djiboutian cabinet 
ministers, Djiboutian military leaders, members of 
parliament, heads of missions accredited to Djibouti and 
business persons from both Djibouti and the UAE. Ambassador 
and USLO represented Embassy Djibouti. 
 
5. (U) In remarks at the inauguration, DI Managing Director 
Sharaf noted his objective  to create an international 
network of free zones as a step towards enhancing Dubai's 
leading position in business.  In Djibouti, he said, a strong 
logistical free zone similar to Jebel Ali could service the 
African continent.  He told the assembled guests that 58 per 
cent of the existing warehouse space at DFZ had been leased 
with a further 8 per cent under option.  Forty-six per cent 
of current participants, Sharaf said, were from Dubai, 46 per 
cent from Djibouti, and 8 per cent from Ethiopia.  He also 
said the high demand for facilities and services had prompted 
a phase two development which would include an additional 34 
leased warehouse units and a 9,100 square meters short 
storage warehouse for humanitarian aid cargo.  Phase III of 
the project, to be implemented in 2006, will include 25 
warehouses and a new 64-unit office complex for trading and 
service sectors.  Sharaf said Phase III would dovetail with 
the new Doraleh port which would be fully on line by then. 
 
6. (U) In his speech, Abdurahman Boreh said the DFZ is part 
of the vision of President Guelleh to create a world class 
port and free zone in Djibouti.  The aim is to take advantage 
of services for income generation, as there is no other 
option, given the country's lack of resources.  He said 
Djibouti wants to attract quality foreign investment and 
described the hope and progress he saw in the new Doraleh 
port. 
 
--------------------------------------------- --- 
Vision, Success, and the Government's Commitment 
--------------------------------------------- --- 
 
7. (U) Sultan Sulayem said the DFZ began "as a result of a 
vision."  In addition, the success of DPI in managing both 
Djibouti's port and international airport "has given us the 
confidence to start other projects in Djibouti".  He 
mentioned the work of Han-Padron, a U.S. engineering 
consulting firm, which is preparing a master study for DI on 
the city of Djibouti, covering its airport, port, free zones 
and power and water needs.  Sulayem said it is important to 
ensure the success of what is being done in Djibouti. 
Results of the study will be initially presented to DI in 
November, 2004 and in final form in January 2005.  Sulayem 
also said plans are afoot to develop a 400-room five-star 
hotel in Djibouti, as well as 100 luxury villas and 500 
apartments. 
 
8. (U) In his turn, President Guelleh spoke of the strong 
relations between Djibouti and the UAE over the years. He 
said Djibouti wants to play a principal role in Africa and it 
is important to develop Djibouti and to get others to invest. 
He invited those listening to "invest in this brotherly 
country" and reaffirmed the Government of Djibouti's 
commitment to provide all necessary facilities. 
 
------- 
Comment 
------- 
 
9. (U) Comment: After the inauguration, Abdurahman Boreh 
hosted a lunch for the visiting entourage and potential 
participants.  The event reportedly secured commitment to the 
project from a number of UAE and Djiboutian business persons. 
 That commitment was conditioned, Post was told, on DPI's 
continued management and operation of the DFZ as well as 
Djibouti's air and sea ports.  Post notes that DPI has 
managed and operated the International Airport since 2002 and 
the existing Djibouti Port since 2000. 
 
10. (SBU) Comment continued:  Post is increasingly optimistic 
about the economic possibilities for Djibouti as a result of 
this project. We also want to share as much information as 
possible about it with American business. ConGen Dubai may 
receive inquiries on this project and we believe DI can 
provide the necessary detail. Much of the activity 
surrounding the DFZ is being driven by Abdurahman Boreh, the 
hard-charging, pragmatic, and results-oriented Djiboutian 
businessman with close ties to President Guelleh.  Boreh is 
frequently in Dubai and owns a residence there. He supports 
the view that the Dubai link will be Djibouti's renaissance, 
creating much-needed jobs, investment opportunities and 
economic diversification. On job creation, the lingering 
question is whether the skill sets of Djibouti's work force 
will be sufficient to take advantage of job opportunities 
created by the DFZ or by the Doraleh port project. End 
comment. 
RAGSDALE