DJIBOUTI ENGAGES SAUDI INVESTOR FOR USAID

C O N F I D E N T I A L SECTION 01 OF 03 DJIBOUTI 001266

SIPDIS

STATE FOR AF, AF/E AND AF/RA
STATE PASS USAID
LONDON/PARIS FOR AFRICA WATCHERS

E.O. 12958: DECL: 12/23/2015
TAGS: EAID EAGR PREL PGOV ECON ETRD DJ SA
SUBJECT: DJIBOUTI ENGAGES SAUDI INVESTOR FOR USAID
LIVESTOCK PROJECT


Classified By: AMBASSADOR MARGUERITA D. RAGSDALE.
REASONS 1.4 (B) AND (D).


1. (C) Summary: With a claim of dissatisfaction with
technical aspects of construction and progress of the U.S.
Agency for International Development (USAID)-funded Livestock
Export Facility in Djibouti, the Government of Djibouti has
advised Embassy and Regional Economic Development Services
Office (REDSO) in Nairobi of its engagement of a Saudi
investor to complete the project and achieve "standards" that
will pass the scrutiny of Gulf, and primarily Saudi,
livestock importers. On December 19, USAID affiliation with
the project ended, following an investment in it of
approximately USD 5 million. The facility "as-is" and
remaining materials and equipment were turned over to the
Government of Djibouti on December 25. Ambassador met
Djibouti's Foreign Minister separately on December 18, and
jointly on December 19 with REDSO Director Andrew Sisson, to
discuss the new development. Although REDSO Director
expressed to the Foreign Minister concern about the
transparency of the process of engagement of the Saudi
investor and his agency's desire to see the project benefit
all Djiboutians, Djibouti's Foreign Minister reassured on
this score, describing the move as not a desire to "hijack"
the project but to ensure both its success and its capacity
to create jobs and income for Djiboutians. Despite these
assurances, the paucity of details the government of Djibouti
has provided about the position of the Saudi investor in the
project leaves significant questions of control and ownership
open for speculation. End Summary.


2. (C) Djibouti's Minister of Foreign Affairs (FM),Mahamoud
Ali Youssuf, informed Embassy and USAID November 24 that the
Government of Djibouti had been in discussions with four
foreign investors about potential investment in the
USAID-originated livestock export facility in Djibouti and
that Saudi investor, Mohamed Kayed Mohamed, had been selected
from among them. In a meeting with Ambassador on December 18
and in a follow-on meeting December 19 with visiting REDSO
Director Andrew Sisson and Ambassador, the FM elaborated on
this decision.


3. (C) In the December 18 meeting, Ambassador handed to the
FM a letter from REDSO Director acknowledging Djibouti's
decision and confirming USAID's plans to finalize
construction activities on the livestock project by December
18 and to hand over the project at that time to the
government of Djibouti. The letter urged that the project be
governed in accordance with the highest standards of
integrity and transparency to ensure its benefit for the
people and economy of Djibouti.


4. (C) The FM reviewed the letter and provided his views to
Ambassador of the project's status. He described it
"mismanaged since its outset." He said that while USAID
blamed its implementing partner, the African Union, for
failures, the African Union had clearly been selected by
USAID. The second contractor USAID engaged, Chemonics
(RATES),was not serious, the FM asserted, and lacked
sufficient experience. The facility, as it is currently
configured, does not conform to international standards and
criteria important to customers, especially those in the
Gulf. He added that if Djibouti asks Saudi Arabia "today" to
lift its livestock embargo, it will not do so because the
criteria for export had not been met. The FM continued that
with the amount of money already invested, the project could
have been completed in one year. Yet more than two years
have since passed. He asked that USAID provide a final
accounting of how the money was spent.


5. (C) The FM expressed his concern that USAID wished in
reality to be part of the facility's eventual management. "It
should not be AID's role to manage," he said. "Djibouti
anticipates private management, open to all investors
regionally and internationally", the FM added. To "save face"
for everyone, he continued, Djibouti has selected Mohamed
Kayed Mohamed of Saudi Arabia to complete the project that
USAID has begun. Mohamed offers investment and services
capacity to import annually approximately 4 million heads of
livestock from Djibouti. He has 50 slaughter houses in Saudi
Arabia and businesses in Yemen in the livestock domain. His
facility in Jeddah, situated on 1 million square meters of
land, is impressive. Moreover, the FM continued, the Islamic
Bank of Saudi Arabia is ready to finance the investor and
this project. Five to eight months would be needed by the
investor to "correct deficiencies," the FM claimed, in
grading, water networks, feeding troughs, and veterinary
services.


6. (C) The FM eschewed the notion that Djibouti wished to
"hijack" the livestock project. He said Djibouti only wants
it to work. He reassured Ambassador that the "concession"
for land on which the facility sits was removed from Chamber
of Commerce control (by presidential decree dated November
27, 2005) solely to reassure the new investor that the land
for the project is unencumbered.


7. (C) In the meeting on December 19, the FM made many of
these same points. REDSO Director acknowledged that the
performance of AU/IBAR and RATES had not met expectations but
that the greater disappointment was with AU/IBAR. In the
last year, he said, attempts have been made to correct
mistakes. USAID suspended its grant with AU/IBAR for poor
performance and contracted with Chemonics to complete the
work. He emphasized to the FM that AID never wanted to
"manage" the project and that its intent all along had been
to find the best possible manager for Djibouti. REDSO
Director also noted that USAID has long advocated, and the
Government of Djibouti including the Foreign Minister himself
has agreed, that there should be "private sector" management
of the facility. "If the foreign investor Djibouti has
chosen is good, this is great news. USAID's objective and
concern will remain assistance to the people of Djibouti,"
REDSO Director said.


8. (C) The FM responded that Djibouti shared the same
concerns as REDSO Director -- to make the project successful
and to create income and jobs for Djiboutians. Djibouti is
seeking private management, he continued, because his
government is notoriously a bad manager and has
unsuccessfully managed government-owned companies in the
past. This is why Djibouti placed Djibouti Telecom under
France's Alcatel, its ports and airport under Dubai's DP
World and its railway under a South African/French joint
venture company. Djibouti's policy continues to be to find
good commercial partners with which to work, the FM added.


9. (C) When Djibouti found it difficult to market its
livestock in Saudi Arabia, it knew an outside investor would
be needed to make up for wasted time and money, the FM
continued. He described the process of finding a new investor
as "transparent." The FM insisted the Government of Djibouti
would own the facility and Saudi investor Mohamed would have
a "20-year concession" provided his feasibility study merits
such a concession. "There would be no monopoly for one
individual", the FM said. In his view, the Saudi investor
would receive a percentage of profits from the facility
initially until he had recovered his investment.


10. (C) REDSO Director asked the FM how the interests of
herders would be protected under the planned investment
arrangement. The FM responded that the herders will have use
of the facility. "If they want to become partners, they can
do so provided they have the money." He also said it is in
Djibouti's interests that the rights of herders be preserved.



11. (C) REDSO Director expressed his preference to convey
USAID's concerns about management of the project and to pull
back for the time being from it and to observe. The FM
interjected that he thought this would be best. (Note:
Ismail Tani, Director of the President's Cabinet, in a
separate meeting with REDSO Director and Ambassador in which
the same points of the FM meeting were confirmed, requested
continued USAID support for the project, primarily through
technical assistance and training. The Minister of
Agriculture, Abdulkader Kamil Mohamed, also requested support
for additional work at the project site via a letter to USAID
offices. USAID's current preference is to take a pause and
see how the Saudi investment develops. End note.) REDSO
Director continued that USAID's objective is to see a
facility that is beneficial to Djibouti's people, open,
transparent, and not a gift to a wealthy Saudi investor. He
said he wanted the project to maintain its integrity.

12. (C) The FM responded that he was concerned REDSO Director
believed Djibouti had turned over its project to a rich
person with little regard for the interests of Djibouti's
people. He said Djibouti's people ARE the concern of
government. "Your repeating this (concern) is not an
approach advisable for USAID to adopt," the FM added. He
reiterated that Djibouti would like a report of everything
done to date on the project including equipment bought and
money spent. REDSO promised to provide a broad outline of
expenditures to date. (Comment: Embassy forwarded this
information to the FM on December 27 by letter from REDSO
Director to the FM. End comment.)


13. (C) COMMENT: USAID promised to deliver to Djibouti a
facility capable of processing pilot shipments of five
thousand head of livestock. Its technical experts still
believe this facility, as handed over to the Government of
Djibouti on December 19, is ready to do this despite the
government's views to the contrary. Although USAID
involvement with the livestock project was to end the same
day, REDSO Director agreed to retain guard service at the
facility until December 25, when the facility was officially
relinquished to the Government of Djibouti. Embassy is
planning a formal handover ceremony for mid-January in order
to acknowledge U.S. investment in this project and to show
that it is moving forward.


14. (C) COMMENT CONTINUED: Meanwhile, individuals under the
employ of Mohamed Kayed Mohamed are already in Djibouti and
working directly with Djiboutian officials. Three of them,
Mohamed Ahmed, Bassabre Rifki and Taha Gad were introduced to
Ambassador and Acting USAID Representative Tom Hall on
December 24 at Ministry of Foreign Affairs headquarters.
Despite assurances from the Government of Djibouti that the
process of finding and choosing an outside investor has been
transparent, the paucity of details the government of
Djibouti has provided about the position of the investor in
the project leaves significant questions of control and
ownership open for speculation. A future role for USAID in
this project, if any, has not yet been determined. End
comment.
RAGSDALE