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05DJIBOUTI107 2005-02-01 13:25:00 CONFIDENTIAL Embassy Djibouti
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011325Z Feb 05
					C O N F I D E N T I A L SECTION 01 OF 02 DJIBOUTI 000107 



E.O. 12958: DECL: 02/01/2015

Classified By: Pol/Econ Erinn C. Reed for reasons 1.4 (b) and (d).

1. (U) Summary: On January 9, the Government of Djibouti and
the Dubai Customs Authority signed a 21-year agreement giving
control of administrative procedures, equipment, financial
operations, customs inspections and training to the Dubai
Customs Authority. While many are reporting the agreement as
something akin to a handover of a government responsibility
to a foreign authority, Djibouti's Director of Customs, Elmi
Isman, says the agreement is rather more of a "cooperative
effort" with Dubai. The real depth of Dubai's control is not
yet determined, as the project is still in nascent planning
stages. Isman indicated that actual changes in control and
procedures will not take place until the beginning of 2006.
End Summary.

2. (U) To many the customs agreement signed January 9 between
the Government of Djibouti and the Dubai Customs Authority is
one more piece of Djibouti's economic pie that is going to
Dubai companies, who already control Djibouti's sea port,
airport, free zone and will control the oil, container and
bulk terminals at the new Doraleh Port. The agreement, valid
for 21-years, is at first glance quite broad, but attaches no
monetary gain to Dubai. Dubai Customs Authority will be
responsible for modernizing Djibouti's customs procedures,
including administrative practices, development of systems,
financial operations, customs inspections, training programs,
and implementing advanced IT infrastructure upgrades. Customs
revenues play a crucial role in the economy of Djibouti,
making up more than 50 percent of Djibouti's fiscal
resources. An agreement, such as this, which seemingly hands
over control of a significant portion of Djibouti's fiscal
resources to a foreign entity does not trouble Djibouti's
Director of Customs, Elmi Isman.

3. (C) In a meeting with Pol/Econ on January 27, Isman
explained, from his point of view, the new customs agreement.
When asked exactly how much control would be given to Dubai,
Isman responded immediately that the agreement did not hand
over control to Dubai. He indicated that Dubai's role would
be more consultative than anything else, saying that full
control over Djibouti's customs would remain the sovereign
property of Djibouti.

4. (C) Isman was extremely positive when talking about the
advantages each side would gain from the agreement. He called
the agreement a win-win situation, giving Djibouti a modern
IT infrastructure, training for its staff, and efficient
customs procedures. Dubai, he commented, will obtain indirect
monetary advantage through managing a port and airport with
efficient modern customs. When asked if there would be any
direct payment for services provided by Dubai Customs, Isman
said Djibouti will merely pay the expenses of technical
experts and personnel while they are acting as consultants in

5. (C) The customs agreement will take time to implement.
Isman said the whole of 2005 will be devoted to studies,
inspections and development of a customs code. Technical
assistance will begin in 2006. Experts and consultants will
study the impact of free customs duty on the Djiboutian
economy, analyze current procedures, and recommend ways to
bring them up to par. The Government of Djibouti is already
beginning its tasks of reorganizing the oversight of customs.
Formerly the Indirect Receipts division of the Ministry of
Finance, the new customs service was created in late
December. The new structure makes the customs service
directly accountable to the Minister of Finance. Isman said
the ultimate goal is to develop internal autonomy for the
customs service while the service remains attached to the
Ministry of Finance.

6. (C) Djibouti will also need to create legislation
governing customs. Isman said Djibouti, as well as other
COMESA countries, are contemplating developing a customs
union. In this case, Isman said Djibouti will likely adopt
the legislation created by COMESA as its national law.
Djibouti's current customs regulations are based on French
value-added-tax laws left over from colonial days.

7. (C) Comment: If indeed the agreement with Dubai brings
about an efficient, modern customs bureau, the benefits could
likely reach more than just the governments of Dubai and
Djibouti. Many businesses have indicated that complex customs
procedures have served as a primary obstacle in shipping to
and from Djibouti. Often, delays in customs can lead to
significant port storage fees, which for business owners in
Djibouti and neighboring countries can consume a great deal
of the profit made on a shipment. A more efficient customs
service in Djibouti could be profitable for all involved. One
aspect of the deal that remains unanswered is whether the
cooperation with Dubai will lead to lower customs duties. For
businesses in Djibouti, it is cheaper to purchase materials,
contract out production, and conduct all manners of business
in Dubai than it is to bring resources into Djibouti. If the
30 percent import tax were lowered, there is the likelihood
of a domino effect in the Djiboutian economy. The price of
goods ranging from food stuffs to luxury items could go down,
which would in turn extend the purchasing power of the
standard Djiboutian wage. While the real benefits of the
agreement are still undetermined, it is fairly certain that
this new deal will be good for the Djiboutian economy. End