INVESTMENT IN DJIBOUTI DOMINATED BY ARAB WORLD

UNCLAS SECTION 01 OF 03 DJIBOUTI 000340

SIPDIS

STATE FOR AF/E AND EB; STATE ALSO PASS WORLD BANK AND IMF

E.O. 12958: N/A
TAGS: EINV PREL EAID ENRG EWWT SENV SOCI ABLD SA KU DJ TC
SUBJECT: INVESTMENT IN DJIBOUTI DOMINATED BY ARAB WORLD


1. (U) SUMMARY: President's Advisor on Investment,
Fahmi Ahmed Al-Hag, says Djiboutians favor Arab
development funds over western funds because of the
simplicity of their financing procedures. Al-Hag
detailed the current investments to Djibouti from the
Arab world. He twice commented that both the
Government of Djibouti and Arab donor nations would
like to pursue a triangular development approach for
Djibouti; financing from the Arab donors, planning
and technical expertise from the U.S. and Djiboutian
cooperation. END SUMMARY.


2. (U) PolOff met with Mr. Fahmi Ahmed Al-Hag, the
President's Advisor on Investment, to discuss the
general investment climate in Djibouti and the recent
development project proposed by a private Saudi
investor in the Haramous region of Djibouti City - a
proposed site for the New Embassy Compound. Mr.
Al-Hag was pleased to discuss the general investment
climate in Djibouti, though he clarified that he
could only comment on the Arab portfolio, which he
has covered since 1979. Mr. Al-Hag indicated that
most investment and economic cooperation is with
Saudi Arabia, Kuwait and the United Arab Emirates.
Funding is most often provided by the Saudi
Development Fund, Kuwaiti Development Fund, the Arab
Fund for Economic and Social Development (FADES) and
OPEC funds. Mr. Al-Hag indicated that while Djibouti
is not devoid of Western donor activity, it prefers
funds from Arab donors because of the simplicity in
its financing procedure and quick release of funds
after approval.

ARAB DEVELOPMENT FUNDS JOIN TOGETHER
--------------

3. (U) In May 2000, the Djiboutian government hosted
a meeting with several Arab donors to negotiate and
plan a joint development program for Djibouti's most
pressing needs. Donors included the Saudi Development
Fund, Kuwaiti Development Fund, FADES, Abu Dhabi
Development Fund, Islamic Development Bank and OPEC
Fund. The program focuses on energy, education,
housing, health, water resources and transportation
infrastructure to be built and improved over five
years. Totaling US$ 200 million, the program spans
2001-2006 with a low-interest, long-term repayment
over 25 years.


4. (U) The $200 million covers six new generators
for the energy sector; the construction of 2000 new
housing units to aid the shortage of homes; $25 million
to the education sector - mainly focused on the
construction of new buildings and refurbishment of
existing structures; $5 million for the health sector,
an initial investment in the Djiboutian Economic
Development Fund of $5 - to be followed by another
$25 million from a separate donor program;
paving and improvement on the 66 kilometer stretch of
highway between Tadjourah and the northern city of
Obock; $25 million to develop a container terminal
to ship salt from Goubet, near Lake Assal, as well as,
wind energy and desalinization plants to power the
region; repairs and replacement of the water
distribution network throughout Djibouti city, which
is the cause of a 25 percent loss annually of total
water pumped; and a feasibility study on piping water
in to the city from the Hanle region, some 200km from
Djibouti City.

DUBAI PORTS INTERNATIONAL EXPANDS TO DORALEH
--------------

4. (U) In addition to the $200 million economic
development program, investment to expand the port
is coming from the United Arab Emirates. The current
Port of Djibouti has reached capacity and due to its
physical layout cannot be expanded at its current
location. At a depth of twelve meters, the cost and
amount of dredging needed to expand the current port
has ruled out this option. Dubai Ports International
(DPI),which currently runs the Port of Djibouti, is
building a new port facility to expand its shipping
capacity. This new facility will be built in Doraleh,
some 18 kilometers from the outskirts of Djibouti City.
The Doraleh Port Facility will have an oil terminal,
container terminal and an economic Free Zone.


5. (U) The aim of Doraleh is to diversify the port
activities to extend beyond Ethiopian needs, and
increase the volume capacity. Doraleh has natural
port depth of 20 meters, which will alleviate the
need and cost of dredging. With an increased depth
able to accommodate the newest generation of tankers,
the Djiboutians expect several businesses resident in
Dubai to be attracted to the strategic location of
the less congested and newer Free Zone in Doraleh,
Djibouti. The ultimate goal for both the Arab
investors and the Djiboutian government is to make
Djibouti a regional distribution center. Phase one
of the facility is the oil terminal, coming to a total
of roughly US$ 40 million and construction has already
been started. This is being funded by Emirates
National Oil Company (ENOC) and DPI. Phase two, the
container terminal totaling close to US$ 300 million,
is expected to be funded by private investors from
Dubai and other Arab donors. A feasibility study for
this portion of the facility is being funded by the
U.S. Trade and Development Agency (U.S.TDA).

AN ECONOMIC FUTURE SURROUNDED BY SALT
--------------

6. (U) Lake Assal is fast becoming a hopeful hub of
economic and energy potential. In addition to the
economic program's salt shipment facility, other
mineral resources have been found at Lake Assal.
The Bureau de Recherche Geologique et Minier (French
Geological and Mining Research Office) has found
evidence of high-quality perlite deposits in the area.
Perlite is used in the refinement of oil and could be
of great interest to U.S. oil investors. The Canadian
government financed a study to make the infrastructure
of salt and energy development at Lake Assal more
environmentally stable.


7. (U) The Lake Assal region was the subject of a
Saudi study in wind energy. The study showed that
winds are high enough eight months of the year to
power the immediate region. If combined with another
form of energy, this could become a viable option
for the Lake Assal area.


8. (U) Geothermal energy is also a hopeful at Lake
Assal with interest from private U.S. investors.
Though this project has been in the works for several
years, it is currently at a stand still. Al-Hag
commented that some Arab donors have expressed
readiness to fund the project. This was followed by
the idea that Djibouti and the Arab donors would like
to pursue a triangular cooperation on this and many
other ventures.


9. (U) Another possible source of energy that donors
are exploring is importing natural gas from Yemen to
Djibouti by way of a sub-marine connection at the
mouth of the Bab El-Mandeb. Electricite de France
is the driving force behind this project, and
according to Al-Hag, the Yemeni government has no
qualms about the possible project.

HARAMOUS VILLAGE - A STEP TOWARDS MODERN URBANIZATION
-------------- --------------

7. (U) The Djiboutian government estimates that over
the next ten years, the housing market will need
approximately 2000 new units per year to meet demand.
One of the largest investments that will aid this
shortage, outside of the 5-year economic program, is
the residential/commercial development of the Haramous
area of Djibouti City. The Government of Djibouti has
signed an agreement with a private Saudi developer, Mr.
Mohammad M. Ali Yamani, to urbanize the 610,000 square
meters that neighbors the presidential residence, the
French military base, the U.S. military base and the
Ambouli Airport. At a price of $5.65 per square meter,
the project will include all infrastructure, such as
roads, water and electricity. The urbanization plan
includes 260 high-standing villas, a modern residential
complex, a five-star hotel on the water, a commercial
center and a recreational center. The expected time
until completion is four to five years.


8. (U) This project is of special interest to Embassy
Djibouti as Haramous is the area where a proposed site
for a new Embassy Compound is located. Though the
Ministry of Finance is the only body with the authority
to sell or lease land, the Embassy will have to deal
with Mr. Yamani on various infrastructure related
issues. PolOff hopes to meet with Mr. Yamani on his
return to Djibouti in a few weeks. Details of the
project will follow in a septel on that meeting.
RAGSDALE