US embassy cable - 05DJIBOUTI343

UNCLAS SECTION 01 OF 02 DJIBOUTI 000343 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EFIN, EAID, PGOV, DJ, TC 
SUBJECT: DJIBOUTI FREE ZONE 
 
1. (U) Summary:  Djibouti Free Zone (DFZ), inaugurated in June 
2004, is a pilot project for the larger free zone planned 
for Doraleh Port.  Djibouti Port and Free Zone Authority 
(DPFZA) controls the DFZ and delivers licenses to eligible 
firms.  DPFZA gave the management of the free zone to Jebel 
Ali Free Zone International (JAFZI).  JAFZI, an 
internationally renowned firm is expected to bring Djibouti 
Free Zone up to the standards of Jebel Ali Free Zone in 
Dubai.  End Summary. 
 
2. (U) While the current Port of Djibouti has a small free 
zone, which serves simply as a storage facility for transit 
goods destined for neighboring countries, DFZ has a much 
bigger ambition and expects to have an international status 
comparable to Jebel Ali Free Zone.  As a consequence, the 
management of DFZ was entrusted to Jebel Ali Free Zone 
International (JAFZI), a subsidiary of Dubai International, 
operating also in Malaysia and Morocco.   DFZ is a pilot 
project designed as a test before introducing the large 
free zone of 700 hectares planned in the Port of Doraleh. 
Djibouti Free Zone, operational since October 2004, covers 
17 hectares designed to house warehouses, light industrial 
units, offices, humanitarian aid hangars and plots of 
lands.  According to DFZ officials, about twenty companies 
from several countries including the UAE (Dubai), Bahrain, 
France, United States (Seven Seas) and Lebanon, have leased 
facilities in the free zone so far.  The idea is to create 
proximity to buyers from the region to avoid long distance 
travel to purchase their supplies.  They will also save on 
shipping cost.  The Free Zone hopes to create jobs since 
firms settling at the Free Zone must initially have 30% of 
its workforce as nationals and increase to 70% after five 
years of operation.  Finally, DFZ looks to play the role of 
a business promoter in Djibouti by attracting worldwide 
firms. 
 
3. (U) The Free Zone Code, established May 2004, sets all legal 
requirements and specifies all regulatory provisions needed 
for the Free Zone.  The Free Zone Code indicates that 
companies need to register and get a license before 
leasing.  Companies registered in Djibouti or overseas may 
establish a branch in the DFZ or create a new entity as a 
Free Zone Establishment (FZE) or a Free Zone Company 
(FZCO).  A FZE is made up of a single shareholder while a 
FZCO has a maximum of five shareholders.  The business 
entity must submit an application form containing 
information on shareholders, necessary legal documents and 
other requirements.  Once the application is approved, a 
Trading License, a General Trading license, an Industrial 
License, a National Industrial License or a Service License 
is provided based on the type of activities that the firm 
is engaged in.  The company may lease a warehouse, office 
space or a plot of land to build upon.  Open-air storage on 
the plot of lands is not allowed.  Firms operating in DFZ 
may have satellites to sell in the Djibouti market after 
paying taxes and all other dues.  They may also use local 
distributors to access the local market. 
 
4. (U) Companies must pay the registration, license and lease 
fees. If the company chooses to form a FZE, the fees are 
US$ 2,500 while the tariff for a FZCO is US$ 4,000.  There 
is no fee for establishing as a branch.  Licenses rates 
vary from US$ 1,500 to US$ 4,000 depending on the 
activities of the firm.  For instance, a Specialized 
Trading License is price-tagged at US$ 1,500 and gives a 
company the right to sell, import and export up to five 
families of products.  A General Trading License is worth 
US$ 4,000 and is issued to companies involved in the 
selling, import and export of an unlimited range of 
products.  Industrial Licenses, Services Licenses are also 
available.  The warehouses and light industrial units are 
leased at US$60 per square meters per year and have 
attached office units.  Office accommodations are rented at 
US$ 250 per square meters per year.  The plots of lands are 
slated for US$ 9 per square meters per year. Open-air 
storage is not allowed because the client company leasing 
the land has to invest and build on it.  The business could 
either lease a site or construct its own facility after 
completing all the construction requirements such as 
detailed architecture, certificates from water and 
electricity utilities, and a building permit.  Ten percent 
deposit toward the annual lease is required to reserve an 
office, a warehouse or a plot of land. 
 
5. (U) As indicated on article 10 of the Free Zone, Djibouti 
Port and Free Zone Authority (DPFZA) is the interface 
between firms and the Free Zone.  DPFZA officials receive 
and approve applications from firms planning to settle at 
the Free zone.  Next, officials from DPFZA deliver a yearly 
license to eligible entities entering the free zone.  DPFZA 
writes all the rules and regulations governing any free 
zone in Djibouti and enforce their full implementation.  It 
determines as well all fees or fines related to the free 
zone.  In addition, DPFZA is in charge of all security and 
safety issues in the free zone.  Most importantly, DPFZA 
takes the role of a one-stop shop by facilitating all the 
administrative work to new companies setting up at the free 
zone.  JAFZI acts as a promoter on behalf of DPFZA and 
manages the free zone in accordance with an agreement with 
DPFZA.  Thus, JAFZI is authorized by DPFZA to manage the 
Free Zone but is held by the rules contained in the Free 
Zone Code. 
 
6. (U) Djibouti Free Zone offers several advantages described 
in the Free Zone Code.  Goods in the Free Zone are not 
subject to duties and taxes normally levied on imported 
goods (article 3).  Article 19 guarantees the right to 
property for individuals or private entities.  Article 20 
indicates that there is no obligation to have a local 
partner, allowing the firm to be one hundred percent 
foreign owned.  For a renewable period of fifty years, free 
transfer of capital, earnings or wages in any currency with 
no restriction is allowed (article 21).  Goods of any 
nature or origin may be introduced in the free zone with 
the exception of prohibited goods (article 23).  Employees 
as well as firms operating in the Free Zone are not subject 
to tax for fifty years renewable (art 32).  Any dispute may 
be resolved by international arbitration (article 43).  All 
payments of free zone dues should be made in US$ or 
Djibouti currency. 
 
7. (SBU) Comments: For the average Djiboutian, the DFZ 
remains a mystery in the same way that the Port of Doraleh 
is a mystery.  However, it is strongly believed that the 
presence of US troops has greatly contributed to foreign 
investment in general.    Even though, the French protect 
the country's borders, they are not known for promoting 
investment in Djibouti and are frequently seen as scaring 
away investors for whatever reasons.  DFZ is attracting 
foreign firm because it would like to position itself for a 
larger free zone in Doraleh, which is expected to offer 
excellent business opportunities.  A Commercial Lawyer 
working with foreign firms in the DFZ noted that the 
regulations in the Free Zone are unclear and incomplete. 
The Lawyer added that Djibouti's government has probably 
copied Jebel Ali requirements without setting a proper 
legal basis.  Political pundits would agree that the 
government's rush to launch the DFZ was the result of its 
anxiousness to put the DFZ in place before the start of 
Presidential elections. 
RAGSDALE