US embassy cable - 04DJIBOUTI1598

UNCLAS SECTION 01 OF 02 DJIBOUTI 001598 
 
SIPDIS 
 
STATE FOR EB/MTA/MST 
 
USTR FOR G. BLUE 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EFIN, DJ 
SUBJECT: DJIBOUTI - 2005 NATIONAL TRADE ESTIMATE 
 
REF: STATE 240980 
 
1. SUMMARY: DJIBOUTI OFFERS A STABLE POLITICAL ENVIRONMENT 
IN A HISTORICALLY UNSETTLED REGION. DJIBOUTI HAS MAINTAINED 
CLOSE COMMERCIAL LINKS WITH FRANCE, WHICH WAS FORMERLY THE 
COLONIAL POWER AND MAINTAINS A LARGE MILITARY PRESENCE IN 
THE COUNTRY.  HOWEVER, DJIBOUTI IS NOW SEEKING TO EXPAND ITS 
ECONOMIC RELATIONS WITH OTHER COUNTRIES, ESPECIALLY THE 
UNITED STATES.  THE DJIBOUTIAN MARKET COULD PROVIDE 
OPPORTUNITIES FOR U.S. BUSINESS IN SECTORS SUCH AS 
TELECOMMUNICATIONS, TRANSPORT, ENERGY AND WATER PROCUREMENT. 
DJIBOUTI HAS NO MAJOR LAWS OR REGULATIONS THAT WOULD 
DISCOURAGE FOREIGN INVESTMENT. CHALLENGES FOR POTENTIAL 
INVESTORS INCLUDE THE HIGH COST OF LIVING AND 
TELECOMMUNICATIONS SERVICES, AS WELL AS A SHORTAGE OF 
SKILLED WORKERS. FLUENCY IN FRENCH AND FAMILIARITY WITH 
FRENCH BUSINESS PRACTICES IN AFRICA WILL FACILITATE BUSINESS 
CONNECTIONS. THE DJIBOUTIAN GOVERNMENT HAS RECENTLY 
ESTABLISHED AN INDEPENDENT AUDITING UNIT IN AN EFFORT TO 
OVERCOME PROBLEMS OF CORRUPTION AND LACK OF TRANSPARENCY IN 
THE DECISION MAKING PROCESS.  U.S EXPORTS TO DJIBOUTI IN 
2003 WERE US $31.7 MILLION AND CONSISTED PRIMARILY OF FOOD 
PRODUCTS AND USED CLOTHING.  END SUMMARY. 
 
Import Policies 
--------------- 
2. A license is required to sell or import to Djibouti.  The 
cost of licensing varies according to the professional or 
commercial activities undertaken and the value of the 
imported goods.  Regular import taxes vary from 5% to 40% 
according to the nature of the merchandise.  Ready-made 
clothing is taxed 20% while raw textile materials are 
subject to only an 8% tax.  Although basic commodities enjoy 
low import taxes, goods such as cigarettes and alcoholic 
beverages have required surplus taxes of 70% and 160% 
respectively. 
 
3. Customs officials require a commercial invoice with the 
bill of lading or the airway bill for all goods entering the 
country.  Shipping marks and numbers on the bill of lading 
must correspond exactly with those on the invoices and 
goods.  The goods should be cleared within four to ten days 
of arrival; otherwise they will be moved to a warehouse and 
additional fees will be levied. Cigarettes, fuel, cosmetics 
and other products smuggled through the borders compete with 
legally imported products and represent an important loss of 
revenue for the government. 
 
Standards, testing, labeling, and certification 
--------------------------------------------- -- 
4. There are no specific labeling or marking requirements on 
imports, except for cigarettes.  On order to fight the 
increasing contraband from neighboring countries the 
government has requested cigarette importers to pre-label 
product destined for the Djiboutian market.  It is advisable 
to print any label or marking in French, which is widely 
understood in Djibouti.  Djibouti's office for norms quality 
control is still in its nascent stages; thus, specific 
standards do not yet exist.  No testing is performed on any 
product before consumption.  In the case of pharmaceutical 
products, health authorities examine deliveries and issue a 
certificate to the importer after ensuring that a no 
prohibited product is included.  The list of prohibited 
pharmaceutical products is publicly available and can be 
obtained with the assistance of the Embassy. Other 
prohibited imports include illegal drugs, specific medical 
products, environmentally hazardous chemicals, toxic waste 
and some cosmetics. 
 
Government procurement 
---------------------- 
5. Government procurement is conducted through the Ministry 
of Finance.  If the value of the goods is less than 
Djiboutian Francs (DF) 5 million (US$ 28,257), procurement 
is made directly from the vendor. Conformity of the goods is 
verified by a Treasury official before payment is rendered. 
If the amount of the order exceeds DF 5 million, the 
Ministry of Finance calls for tenders, especially for 
projects financed by international donors. 
 
 
Export subsidies 
---------------- 
6. In 2003, Djibouti exported goods valued at about US$ 89 
million.  Exports consisted mainly of personal effects, 
personal vehicles, hides, skins, salt, and re-exported 
products.  The government of Djibouti does not subsidize 
exports. 
 
Intellectual property protection 
-------------------------------- 
7. A provision for intellectual property protection (IPR) 
exists in the penal code, which is inherited from the 
French.  However, it is not enforced.  Djibouti joined the 
African Organization for Intellectual Property Rights in 
1993.  In addition, Djibouti ratified World Intellectual 
Property Organization (WIPO) convention, Paris convention on 
the protection of industrial rights, and Bern convention on 
the protection of literature and art works in January 2002. 
An increasing number of counterfeit products have come to 
the attention of the Ministry of Justice in recent years. 
Post is not aware of any existing prosecution for IPR 
infringement. 
 
Services barriers 
----------------- 
8. The government of Djibouti welcomes all foreign direct 
investment.  Djibouti's assets include a strategic 
geographic location, an open trade regime, a stable 
currency, substantial tax breaks and other incentives. The 
government of Djibouti has placed privatization, economic 
reform, and increased foreign investment as top priorities. 
 
9. Telecommunications and other state-owned public utilities 
are increasingly open to investors. Dubai Port International 
(DPI) manages both the port and airport. DPI is also the 
main investor in the Port of Doraleh project, which is 
slated to be completed in 2005 and will consist of an oil 
terminal, a container terminal and an industrial and 
commercial free zone.  Djibouti Telecom and the Railway 
Company are slated for privatization.  Conditions of the 
IMF's structural adjustment agreement for Djibouti stipulate 
increased privatization of government-owned monopolies. 
 
 
 
 
Investment barriers 
------------------- 
10. Djibouti's investment code guarantees investors the 
right to import all goods, equipment, products, or material 
necessary for their investment activities; freely display 
products and services; determine and run marketing policy 
and production; choose customers and suppliers; and set 
prices.  Foreign investors are also free to determine their 
own hiring/firing policy as long as it conforms to the labor 
code.  Some foreign observers have commented that the 
current labor code inordinately favors employees and thus 
deters increased foreign investment. In response, a new 
labor code has been drafted and is in the legislative 
approval process. If passed, it is expected to shift the 
balance of power favorably to employers. 
 
11. Djibouti has no foreign exchange restrictions.  There 
are no limitations on converting or transferring funds or on 
the inflow and outflow of cash.  The Djiboutian franc, which 
has been pegged to the U.S. dollar since 1949, is stable and 
easily converted to U.S. dollars or European currency.  The 
fixed exchange rate is 177.71 Djiboutian francs to the 
dollar. 
 
12. Corruption is an issue in Djibouti, although it is not 
as prevalent as in many other parts of the developing world. 
It poses a major problem in the judicial system and results 
in an extreme mistrust by foreign investors. Anti-corruption 
laws exist but are rarely enforced.  In the past five years, 
the government has established both the Chamber of Accounts 
and Fiscal Discipline (CAFD) and the State General 
Inspection to address corruption. The CAFD has the authority 
to verify and audit all public establishments for 
transparency and accountability and take necessary legal 
sanctions.  The State General Inspection is designed to 
complement the work of the CAFD by ensuring that human and 
material resources in the public sector are properly 
utilized. 
 
RAGSDALE