DJIBOUTI - 2005 NATIONAL TRADE ESTIMATE

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