DJIBOUTI - NATIONAL TRADE ESTIMATE

UNCLAS SECTION 01 OF 03 DJIBOUTI 001159

SIPDIS

STATE PLEASE PASS USTR (G. BLUE);
STATE FOR EB/MTA

E.O. 12958: N/A
TAGS: ETRD ECON EFIN DJ
SUBJECT: DJIBOUTI - NATIONAL TRADE ESTIMATE
2006

REF: STATE 188246


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, which
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. businesses 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
2004 were U.S $43.7 million and consisted
primarily of food products. 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. Following the recent
developments on Bird Flu, the government of
Djibouti has asked chicken meat importers to
stop importing from Asia. However, Djibouti
has very little capacity to test for Avian
Flu or to combat a pandemic.


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. Further to an agreement
signed between Djibouti Customs and Dubai
Customs International to develop a modernize
Djibouti customs procedures; a new customs
clearing system was launched in June 2005.
This new arrangement is meant to speed up,
simplify and promote transparent customs
procedures.

Standards, testing, labeling, and
certification
--------------
--------------

4. There are no specific labeling or marking
requirements on imports, except for
cigarettes. In 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. A Treasury official verifies
conformity of the goods 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. The data for 2004
were not available. 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
rights (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 the World Intellectual
Property Organization (WIPO) convention, the
Paris convention on the protection of
industrial rights, and the 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 Ports International (DPI)
manages both the port and airport. DPI is
also the main investor in the Port of
Doraleh project, which consists of an oil
terminal, a container terminal and an
industrial and commercial free zone. The
oil terminal was completed during the summer
2005 and is operational now. However,
inadequate security installations and
procedures are keeping USG and US-flagged
ships from using Doraleh Port. 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. Since 2000,
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. On November 15, 2004 the CAFD
made public its first report covering the
years 1999, 2000, 2001 and 2002. This
report simply listed the anomalies and
malfunctioning discovered in government
ministries and state agencies. No sanctions
were taken against any government officals.
Also, President Guelleh who was re-elected
April 8, 2005 for another six years term has
placed the fight against corruption as one
of his priorities. Three government
officials are currently being investigated
for corruption. It is however important to
note that that corruption is a very
sensitive issue in Djibouti so it is not
expected to be easily corrected.