INFORMATION FOR USITC STUDY ON U.S.

UNCLAS SECTION 01 OF 03 DJIBOUTI 001042

SIPDIS

USITC FOR L. SCHLITT

E.O. 12958: N/A
TAGS: OTRA ETRD AF ECON PREL EAID DJ
SUBJECT: INFORMATION FOR USITC STUDY ON U.S.
SUB-SAHARAN AFRICAN TRADE AND INVESTMENT

REF: A.STATE 137500


B. DJIBOUTI 856


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Introduction
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1. Good management and foreign assistance have greatly
contributed to a healthier economy in Djibouti. Hosting the
COMESA conference in 2005 will give the Government of
Djibouti (GOD) an opportunity to promote its liberal
economic regime and the port of Doraleh, which is expected
to jump start trade in the region. The fishing port was
conceded to foreign management and the railway company is
following in its footstep. IGAD's main achievement
continues to be its sustained role in the positive
development of both the Somali and Sudanese peace
processes.

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Major Economic Development
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2. Amarreh Ali, Chief Economist at the Ministry of Finance
and Economy, holds that vigorous management and financial
aid from the USG and France have significantly ameliorated
Djibouti's economy. It has resulted in the first positive
real growth (3.5%) in more than a decade. Also, strong
partnership with the IMF led to a Staff Monitored Program
(SMP) for the year 2004. The SMP consists of an informal
agreement between GOD and IMF staff to monitor the
implementation of the GOD's economic program for a period of
one year. This SMP will follow up the completion of the
reforms required by the IMF in the first Enhanced Structural
Adjustment Facility (ESAF),in particular. There will also
be some additional measures such as a Code of Commerce and a
Labor Code. The Memorandum of Economic and Financial
Policies (MEFP) signed between the IMF and the GOD contains
a detailed list of tasks. The GOD is required to prepare
progress reports on a regular basis. The SMP is expected to
restore GROD's credibility to the donors.


3. Moreover, the IMF validated the GOD Poverty Reduction
Strategy Papers (PRSPs) in June 2004. The PRSP aims at
reducing poverty and unemployment by improving living
conditions for all the population. This document was
elaborated with the contributions of government agencies,
civil societies, trade unions and private sector
representatives. It offers a comprehensive strategic
framework to be implemented over horizons, 2006, 2010 and

2015. Improvements in the medium range include: reduction
of the extreme poverty rate of 42.25% in 2002 to 36.1% by
2006; sustained real GDP growth average to 4.6% during 2004-
2006; increase of the schooling rate of 42.7% in 2002 to 73%
by 2006; and decrease of infant death rate from 103.1 per
1000 to 75 per 1000 by 2006. Malik Garad, Chief Economist
at the Central Bank, indicated that a consultative meeting
of international organizations is scheduled for December
2004 to prepare for a donors round table to be held in the
first quarter of 2005.

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Major Trade Development
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4. In June 2004, the "Societe Djiboutienne du Terminal
Vraquier" (STDV) owned by a Saudi Investor, started the
construction of a bulk grain terminal at the port of
Djibouti. This project consists of two warehouses for
grains and fertilizers, 12 packing units and two large
cranes. It should be completed in two years and has the
objective of speeding up the unloading of food aid and
fertilizers, which will make the port more competitive.


5. The construction of a new port in Doraleh remains the
most important project in Djibouti. The project includes
three phases: 1) an oil terminal, 2) a container terminal
and 3) a large commercial/industrial free zone. The GOD
awarded management of its ports to Dubai Port Authorities,
which considers Doraleh Port as an extension of Dubai port.
The oil terminal is expected to be operational by June

2005. Seawater depth of more than twenty meters will allow
Doraleh Port to accommodate fourth generation ships carrying
up to 8,000 containers. The GOD is convinced that this
investment will generate tremendous economic benefits to the
country. Please read ref B for more details on the oil
terminal.


6. Tenders for the Livestock Project are scheduled for
August 2004 according to Mohamed Omar, Secretary General at
the Chamber of Commerce. Livestock from the region, but
mainly from Somalia/Somaliland and Ethiopia, would be
quarantined in Djibouti and shipped to Gulf countries. The
GOD is discussing intensely with the Gulf Countries the
possibility of lifting the ban on livestock from the
region. The project site, which covers 300 acres, is
situated near the border with Somaliland to allow animals to
be delivered by trucks. Animals from Ethiopia could either
come by truck or by railroad. The project includes a pre-
quarantine inspection area, a quarantine facility and a pre-
shipping final inspection plot located at the port.
Ron Omar, Livestock Project Coordinator at the Ministry of
Commerce, is satisfied that this USAID funded project should
become operational by the end of 2004.

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COMESA
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7. By hosting the COMESA Conference in 2005, the GOD intends
to promote its liberal economic regime and the Port of
Doraleh. During its presidency in 2005, the GOD is
determined to convince COMESA countries that Djibouti is the
natural gateway to their market.
Djibouti would like especially to attract land locked
countries such as Uganda, Malawi and Rwanda. Unlike most
COMESA countries, Djibouti does not have an agriculture base
but has to rely on services. Abdoulrazak Idriss, COMESA
Focal Point at the Ministry of Commerce, said that the
adoption of a common external tax policy remained the main
issue covered in the last COMESA Conference held in Uganda
in June 2004. A number of countries have not finalized
studies of the impact of this new tax policy on their
individual economies. For instance, Djibouti gets 24% of
its GDP from tax income so it needs a clear measurement of
the impact of this new tax policy. Mr. Idriss said Djibouti
is not well integrated in the COMESA partly because most of
the COMESA state members are English speaking, which causes
a problem of communication. He added that the Djiboutian
business community is not well informed about the
opportunities offered by COMESA.

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IGAD
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8. Continued efforts from IGAD greatly contributed to
positive developments in the peace process both in Sudan and
Somalia. As a result, the Sudanese government and the Sudan
People People's Liberation Movement signed a power sharing
agreement in May 2004. The Somali National Reconciliation
Conference (SNRC),held in Kenya is in its last phase of
seat attributions in the new Parliament. The African Union
agreed with IGAD in sending observers and a peacekeeping
force in Somalia if a new government is established in
Mogadishu. In an effort to assist the SNRC, IGAD organized
a two-day conference in Djibouti for the Somali business
community on July 21 - 22, 2004 to obtain its commitment to
support financially a new government in Somalia. Other IGAD
activities included the reappointment of Dr.Attala Hamad
Bashir, IGAD Executive Secretary, for a second term, the
validation of a five year (2004-2008) strategy, the
reinforcement of the Conflict Early Warning and Response
Mechanism (CEWARN),preparation of a regional strategy on
terrorism and mainstreaming gender in the SNRC. Finally,
IGAD continued also to work in its core priorities such as
desertification and food security.

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Country Privatization Efforts
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9. Serious financial and technical difficulties caused by
old machinery and harsh competition from Ethiopian trucking
companies led the GOD and Ethiopia, the Railway co-owners to
the decision to concede the company to foreign management
for a transitional two-year period. On July 22, 2004, the
Board of Directors pre-selected six foreign firms, which
will soon receive the tender. The European Union, which has
been holding back an approved 40 million Euro grant (approx.
USD 48.6 million) for many years is planning to release the
funding during the transitional period to modernize the
Railway Company.


10. In April 2004, the GOD conceded its fishing port to a
private firm, Djibouti Maritime Management Investment
(DMMI). DMMI's objective is to maximize existing fish
production capabilities of the port to satisfy the local
market first. Then, DMMI plans to eventually target markets
in the Arab Gulf States, Europe and USA.

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AGOA
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11. No exports were made as a result of AGOA because of the
lack of factories in Djibouti. However, the port of Doraleh
represents a huge potential for AGOA.

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Economic and Trade Data Update
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12. The following data, obtained from the Ministry of
Finance and the Central Bank, are useful for updating the
data on the ITC website for the year 2003.
Economic Indicators
GDP (nominal, Dfr bn): 111.0
GDP (US$ bn): 0.63
CPI Inflation (annual average; %): 2.0
Goods Exports (US$ mn): 89.0
Goods Imports (US$ mn): 338.2
Trade Balance (US$ mn): (- 249.2)
Current Account Balance (US$ mn): (-47.4)
Foreign Exchange Reserves (US$ mn): 100.9
Total External Debt (US$ mn): 426.5
Exchange Rate (Dfr/US$): 177.7

Origins of GDP
Primary: 3.1%
Secondary (construction & public works): 6.2%
Secondary (other): 8%
Tertiary (transport & communications): 24.7%
Tertiary (other): 57.7%

Real GDP Growth Rate: 3.5%

Main Trade Commodities (US$ mn)
Exports
Re-exports: 72.0
Locally produced goods: 17.0
Imports
Food & beverages: 87.66
Qat: 20.12
Petroleum products: 27.88
Machinery: n/a

Net Foreign Investment (US$ mn): 21.4

RAGSDALE