US embassy cable - 05DJIBOUTI1159

UNCLAS SECTION 01 OF 03 DJIBOUTI 001159 
 
SIPDIS 
 
STATE PLEASE PASS USTR (G. BLUE); 
STATE FOR EB/MTA 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EFIN, DJ 
SUBJECT: DJIBOUTI - NATIONAL TRADE ESTIMATE 
2006 
 
REF: STATE 188246 
 
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, which 
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. businesses 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 
2004 were U.S $43.7 million and consisted 
primarily of food products.  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.  Following the recent 
developments on Bird Flu, the government of 
Djibouti has asked chicken meat importers to 
stop importing from Asia. However, Djibouti 
has very little capacity to test for Avian 
Flu or to combat a pandemic. 
 
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.  Further to an agreement 
signed between Djibouti Customs and Dubai 
Customs International to develop a modernize 
Djibouti customs procedures; a new customs 
clearing system was launched in June 2005. 
This new arrangement is meant to speed up, 
simplify and promote transparent customs 
procedures. 
 
Standards, testing, labeling, and 
certification 
-------------------------------------------- 
--------- 
4. There are no specific labeling or marking 
requirements on imports, except for 
cigarettes.  In 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. A Treasury official verifies 
conformity of the goods 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.  The data for 2004 
were not available.  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 
rights (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 the World Intellectual 
Property Organization (WIPO) convention, the 
Paris convention on the protection of 
industrial rights, and the 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 Ports International (DPI) 
manages both the port and airport. DPI is 
also the main investor in the Port of 
Doraleh project, which consists of an oil 
terminal, a container terminal and an 
industrial and commercial free zone.  The 
oil terminal was completed during the summer 
2005 and is operational now. However, 
inadequate security installations and 
procedures are keeping USG and US-flagged 
ships from using Doraleh Port.  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.  Since 2000, 
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.  On November 15, 2004 the CAFD 
made public its first report covering the 
years 1999, 2000, 2001 and 2002.  This 
report simply listed the anomalies and 
malfunctioning discovered in government 
ministries and state agencies.  No sanctions 
were taken against any government officals. 
Also, President Guelleh who was re-elected 
April 8, 2005 for another six years term has 
placed the fight against corruption as one 
of his priorities.  Three government 
officials are currently being investigated 
for corruption.  It is however important to 
note that that corruption is a very 
sensitive issue in Djibouti so it is not 
expected to be easily corrected.