US embassy cable - 05DJIBOUTI107

C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000107 
 
SIPDIS 
 
STATE FOR AF AND AF/E; LONDON, PARIS FOR AFRICA WATCHER 
 
E.O. 12958: DECL: 02/01/2015 
TAGS: PREL, ECON, ETRD, DJ 
SUBJECT: DJIBOUTI-DUBAI CUSTOMS AGREEMENT IS ECONOMIC 
PARTNERSHIP, NOT HANDING OVER CONTROL 
 
 
Classified By: Pol/Econ Erinn C. Reed for reasons 1.4 (b) and (d). 
 
1. (U) Summary: On January 9, the Government of Djibouti and 
the Dubai Customs Authority signed a 21-year agreement giving 
control of administrative procedures, equipment, financial 
operations, customs inspections and training to the Dubai 
Customs Authority. While many are reporting the agreement as 
something akin to  a handover of a government responsibility 
to a foreign authority, Djibouti's Director of Customs, Elmi 
Isman, says the agreement is rather more of a "cooperative 
effort" with Dubai. The real depth of Dubai's control is not 
yet determined, as the project is still in nascent planning 
stages. Isman indicated that actual changes in control and 
procedures will not take place until the beginning of 2006. 
End Summary. 
 
2. (U) To many the customs agreement signed January 9 between 
the Government of Djibouti and the Dubai Customs Authority is 
one more piece of Djibouti's economic pie that is going to 
Dubai companies, who already control Djibouti's sea port, 
airport, free zone and will control the oil, container and 
bulk terminals at the new Doraleh Port. The agreement, valid 
for 21-years, is at first glance quite broad, but attaches no 
monetary gain to Dubai. Dubai Customs Authority will be 
responsible for modernizing Djibouti's customs procedures, 
including administrative practices, development of systems, 
financial operations, customs inspections, training programs, 
and implementing advanced IT infrastructure upgrades. Customs 
revenues play a crucial role in the economy of Djibouti, 
making up more than 50 percent of Djibouti's fiscal 
resources. An agreement, such as this, which seemingly hands 
over control of a significant portion of Djibouti's fiscal 
resources to a foreign entity does not trouble Djibouti's 
Director of Customs, Elmi Isman. 
 
3. (C) In a meeting with Pol/Econ on January 27, Isman 
explained, from his point of view, the new customs agreement. 
When asked exactly how much control would be given to Dubai, 
Isman responded immediately that the agreement did not hand 
over control to Dubai. He indicated that Dubai's role would 
be more consultative than anything else, saying that full 
control over Djibouti's customs would remain the sovereign 
property of Djibouti. 
 
4. (C) Isman was extremely positive when talking about the 
advantages each side would gain from the agreement. He called 
the agreement a win-win situation, giving Djibouti a modern 
IT infrastructure, training for its staff, and efficient 
customs procedures. Dubai, he commented, will obtain indirect 
monetary advantage through managing a port and airport with 
efficient modern customs. When asked if there would be any 
direct payment for services provided by Dubai Customs, Isman 
said Djibouti will merely pay the expenses of technical 
experts and personnel while they are acting as consultants in 
Djibouti. 
 
5. (C) The customs agreement will take time to implement. 
Isman said the whole of 2005 will be devoted to studies, 
inspections and development of a customs code. Technical 
assistance will begin in 2006. Experts and consultants will 
study the impact of free customs duty on the Djiboutian 
economy, analyze current procedures, and recommend ways to 
bring them up to par. The Government of Djibouti is already 
beginning its tasks of reorganizing the oversight of customs. 
Formerly the Indirect Receipts division of the Ministry of 
Finance, the new customs service was created in late 
December. The new structure makes the customs service 
directly accountable to the Minister of Finance. Isman said 
the ultimate goal is to develop internal autonomy for the 
customs service while the service remains attached to the 
Ministry of Finance. 
 
6. (C) Djibouti will also need to create legislation 
governing customs. Isman said Djibouti, as well as other 
COMESA countries, are contemplating developing a customs 
union. In this case, Isman said Djibouti will likely adopt 
the legislation created by COMESA as its national law. 
Djibouti's current customs regulations are based on French 
value-added-tax laws left over from colonial days. 
 
7. (C) Comment: If indeed the agreement with Dubai brings 
about an efficient, modern customs bureau, the benefits could 
likely reach more than just the governments of Dubai and 
Djibouti. Many businesses have indicated that complex customs 
procedures have served as a primary obstacle in shipping to 
and from Djibouti. Often, delays in customs can lead to 
significant port storage fees, which for business owners in 
Djibouti and neighboring countries can consume a great deal 
of the profit made on a shipment. A more efficient customs 
service in Djibouti could be profitable for all involved. One 
aspect of the deal that remains unanswered is whether the 
cooperation with Dubai will lead to lower customs duties. For 
businesses in Djibouti, it is cheaper to purchase materials, 
contract out production, and conduct all manners of business 
in Dubai than it is to bring resources into Djibouti. If the 
30 percent import tax were lowered, there is the likelihood 
of a domino effect in the Djiboutian economy. The price of 
goods ranging from food stuffs to luxury items could go down, 
which would in turn extend the purchasing power of the 
standard Djiboutian wage. While the real benefits of the 
agreement are still undetermined, it is fairly certain that 
this new deal will be good for the Djiboutian economy. End 
Comment. 
RAGSDALE