DJIBOUTI INAUGURATES FREE ZONE WITH SUPPORT FROM

UNCLAS SECTION 01 OF 03 DJIBOUTI 000796

SIPDIS

SENSITIVE

STATE FOR AF, AF/E AND AF/EPS

E.O. 12958: N/A
TAGS: PREL PGOV ECON EINV AA DJ TC
SUBJECT: DJIBOUTI INAUGURATES FREE ZONE WITH SUPPORT FROM
DUBAI INTERNATIONAL

REF: DJIBOUTI 597


1. (U) Summary: Djibouti and its United Arab Emirates
investor, Dubai International (DI),inaugurated June 5 the
new Djibouti Free Zone (DFZ) with the participation of
President Guelleh, cabinet officials, heads of diplomatic
missions, and potential DFZ investors. The project, billed
"the first of its kind in Africa," is expected to change
Djibouti's economic face and create a virtual Dubai in the
Horn of Africa. Ambitious to some, and a saving grace to
others, the project -- along with the new Doraleh port coming
on line in 2005 -- is seen as the gateway for trade to the
African continent. The DFZ offers pre-built warehouse units,
open storage sheds, and land plots with benefits to include
100 per cent foreign ownership, the absence of corporate
taxes, duties, and currency restrictions, 100 percent
repatriation of capital and profits, world class management
practices, professional administrative support, and good
quality logistics infrastructure. Fifty-eight per cent of
available warehouse space has been leased in the project's
first phase, with Phase II and III to be completed by 2006.
End summary.

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The Compatibility Factor
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2. (U) Djibouti launched its 17-hectare Free Zone on June 5.
The zone, billed as the first of its kind in Africa, will be
under the guidance and management of Jebel Ali Free Zone
International (JAFZI) in the United Arab Emirates (UAE).
Applicants for space in the project are being offered the
choice of warehouse units built to standards of those in
Jebel Ali, or a plot of land on which to build their own
customized facility. JAFZI is touting the compatibility of
warehousing, storage, distribution, light manufacturing and
value-added activities of DFZ with Common Market for Eastern
and Southern Africa (COMESA) rules of origin and the Africa
Growth and Opportunity Act (AGOA) trade agreement.

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Incentives and Benefits
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3. (U) Incentives and benefits offered by the DFZ will
largely mirror those at Jebel Ali and will include, but not
be limited to, 100 percent foreign ownership, the absence of
corporate taxes, duties, and currency restrictions, 100 per
cent repatriation of capital and profits, world class
management practices, professional administrative support,
and quality logistical infrastructure. Dubai-produced
promotion material for the project highlighted the
"pro-business attitude of Djibouti in developing a
diversified and self-sufficient economy" and the intent of
the DFZ "to provide business investors in Africa with a
platform from which to tap in to the potential of the African
market." Djibouti's port and international airport (both
currently managed by Dubai Ports International-DPI),plus the
highway and rail link directly to Ethiopia's capital, and the
soon-to-be completed new port and oil terminal at Doraleh, 7
kilometers from Djbouti port, would support the DFZ.

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Optimism from Investors
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4. (U) The President of Djibouti, Ismail Omar Guelleh, Prime
Minister of Djibouti, Dileita Mohamed Dileita, President of
the Djiboutian National Assembly, Idriss Arnaoud Ali,
Executive Chairman of Ports, Customs and Free Zone
Corporation (the global parent of DPI and JAFZI),Sultan Bin
Sulayem, the Executive Chairman of PCFC, Managing Director or
Dubai International (DI),Mohammed Sharaf, and key Djiboutian
investor Abdurahman Boreh participated in the inaugural
event. Also attending were a host of Djiboutian cabinet
ministers, Djiboutian military leaders, members of
parliament, heads of missions accredited to Djibouti and
business persons from both Djibouti and the UAE. Ambassador
and USLO represented Embassy Djibouti.


5. (U) In remarks at the inauguration, DI Managing Director
Sharaf noted his objective to create an international
network of free zones as a step towards enhancing Dubai's
leading position in business. In Djibouti, he said, a strong
logistical free zone similar to Jebel Ali could service the
African continent. He told the assembled guests that 58 per
cent of the existing warehouse space at DFZ had been leased
with a further 8 per cent under option. Forty-six per cent
of current participants, Sharaf said, were from Dubai, 46 per
cent from Djibouti, and 8 per cent from Ethiopia. He also
said the high demand for facilities and services had prompted
a phase two development which would include an additional 34
leased warehouse units and a 9,100 square meters short
storage warehouse for humanitarian aid cargo. Phase III of
the project, to be implemented in 2006, will include 25
warehouses and a new 64-unit office complex for trading and
service sectors. Sharaf said Phase III would dovetail with
the new Doraleh port which would be fully on line by then.


6. (U) In his speech, Abdurahman Boreh said the DFZ is part
of the vision of President Guelleh to create a world class
port and free zone in Djibouti. The aim is to take advantage
of services for income generation, as there is no other
option, given the country's lack of resources. He said
Djibouti wants to attract quality foreign investment and
described the hope and progress he saw in the new Doraleh
port.

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Vision, Success, and the Government's Commitment
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7. (U) Sultan Sulayem said the DFZ began "as a result of a
vision." In addition, the success of DPI in managing both
Djibouti's port and international airport "has given us the
confidence to start other projects in Djibouti". He
mentioned the work of Han-Padron, a U.S. engineering
consulting firm, which is preparing a master study for DI on
the city of Djibouti, covering its airport, port, free zones
and power and water needs. Sulayem said it is important to
ensure the success of what is being done in Djibouti.
Results of the study will be initially presented to DI in
November, 2004 and in final form in January 2005. Sulayem
also said plans are afoot to develop a 400-room five-star
hotel in Djibouti, as well as 100 luxury villas and 500
apartments.


8. (U) In his turn, President Guelleh spoke of the strong
relations between Djibouti and the UAE over the years. He
said Djibouti wants to play a principal role in Africa and it
is important to develop Djibouti and to get others to invest.
He invited those listening to "invest in this brotherly
country" and reaffirmed the Government of Djibouti's
commitment to provide all necessary facilities.

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Comment
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9. (U) Comment: After the inauguration, Abdurahman Boreh
hosted a lunch for the visiting entourage and potential
participants. The event reportedly secured commitment to the
project from a number of UAE and Djiboutian business persons.
That commitment was conditioned, Post was told, on DPI's
continued management and operation of the DFZ as well as
Djibouti's air and sea ports. Post notes that DPI has
managed and operated the International Airport since 2002 and
the existing Djibouti Port since 2000.


10. (SBU) Comment continued: Post is increasingly optimistic
about the economic possibilities for Djibouti as a result of
this project. We also want to share as much information as
possible about it with American business. ConGen Dubai may
receive inquiries on this project and we believe DI can
provide the necessary detail. Much of the activity
surrounding the DFZ is being driven by Abdurahman Boreh, the
hard-charging, pragmatic, and results-oriented Djiboutian
businessman with close ties to President Guelleh. Boreh is
frequently in Dubai and owns a residence there. He supports
the view that the Dubai link will be Djibouti's renaissance,
creating much-needed jobs, investment opportunities and
economic diversification. On job creation, the lingering
question is whether the skill sets of Djibouti's work force
will be sufficient to take advantage of job opportunities
created by the DFZ or by the Doraleh port project. End
comment.
RAGSDALE