1.Summary. Djibouti continues to make improvements in
some problem areas. Djibouti-Telecom and the Ethio-
Djiboutian Railway Company are preparing for
privatization. The Chamber of Commerce has become more
dynamic in advancing the competitiveness of local
businesses. The Chamber of Accounts and Fiscal
Discipline made its first public report by noting a lack
of transparency in government and public services.
Djibouti took a further step by signing an international
convention against Female Genital Mutilation. A long-
term strategy for reducing poverty is ready to be
submitted to a donor's round-table. The oil terminal for
the Doraleh Port project is in its completion phase and a
new free zone was created in 2004. End of Summary.



--------------------------



--------------------------


Market Economy/Economic Reform/Elimination of barriers to
U.S. Trade


--------------------------



--------------------------




2. Djibouti continues to have a market-based, liberal
economic regime with minimum interference from the
Government. There are no price controls except on wheat.
Djibouti offers attractive incentives to foreign
investors and does not impose barriers to U.S. trade.



3. Djibouti's economy is becoming healthier thanks to an
increase in foreign aid and investment. In 2004, the
government initiated the Djibouti Free Zone (DFZ), which
is operated by Jebel Ali Free Zone International (JAFZI).
DFZ covers 17 hectares and offers plots of land,
warehouse facilities and office units for lease. The oil
terminal, which is part of the project of Doraleh Port,
is expected to become operational by June 2005. The
construction of Doraleh Port's container terminal and
Free Zone will start soon after the completion of the oil
terminal.



4. Djibouti-Telecom is still contracted to foreign
management in order to improve the financial and
technical viability of the company. Under the terms of
the contract, the Government is planning to announce the
privatization of Djibouti-Telecom. Djibouti and
Ethiopia, co-owners of the Railway Company, have pre-
selected six international companies in the tender for
privatizing the railway. In 2004, Djibouti's fishing
port was contracted to Djibouti Maritime Management
Investment (DMMI), owned at 60% by foreign investors.
DMMI is currently selling fish in the local market but is
targeting Gulf and other countries.



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-
POLITICAL PLURALISM/RULE OF LAW/ANTI-CORRUPTION


--------------------------

--


5. Since 2002, eight political parties exist in Djibouti.
During 2003 legislative elections, these parties were
grouped in two coalitions: the ruling coalition and the
opposition coalition. The opposition coalition has
decided to boycott the upcoming presidential elections,
accusing the ruling coalition of preparing for fraudulent
elections. The Embassy will closely monitor the
presidential elections due in April 2005.



6. The judiciary system in Djibouti is inherited from the
French and is complex. In addition, government
interference is common.



7. The State General Inspection (IGE), a governmental
agency created in 2001, only became operational in
November 2004. IGE is designed to complement the work of
the Chamber of Accounts and Fiscal Discipline (CAFD),
which focuses on financial audits of the public sector.
IGE will ensure that human and material resources in the
public sector are properly utilized. IGE remains
accountable only to the President or the Prime Minister,
who have the authority to request special investigations
if deemed necessary. The CAFD published its first
General Report in November 2004. The report documented
all the anomalies discovered during the audit of the
national budget for the years 1999, 2000, 2001 and 2002.
In addition, the CAFD report revealed a lack of
transparency in public firms and government projects.



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POVERTY REDUCTION


--------------------------




8. The increasing poverty rate is a direct consequence of
the high unemployment rate. The poverty rate exceeds
forty percent while unemployment is at a staggering
seventy percent among the youth 30 years of age or less.
In order to fight poverty, the government has finalized a
long-term poverty reduction strategy ending in 2015. It
essentially promotes economic growth, human resources
development, social safety nets, and good governance.
The Government is planning to present the strategy in a
donors' round-table meeting by the end of 2005.



--------------------------


LABOR/CHILD LABOR/HUMAN RIGHTS


--------------------------




9. The Government of Djibouti did not make concrete
improvement in its relations with labor unions. The
government continues to interfere in labor unions'
activities by creating shadow unions and by intimidating
union leaders. Unions are very critical of a new proposed
Labor Code currently under review by Parliament for
ratification. Unions view this new Labor Code as
limiting the rights of employees at the benefit of
employers. In addition, the new Labor Code reportedly
makes it very difficult for employees to form unions.
The Embassy continues to pressure Djibouti authorities to
change their attitude towards unions.



10. Child labor does exist in Djibouti but not in its
worst form. In urban areas, children are very active in
the informal economic activities: they work as shoe
cleaners, car washers, or domestic servants. In rural
areas, children help their parents in agricultural or
livestock areas. The country has adequate laws against
the worst form of child labor. These laws are found in
THE CONSTITUTION, IN THE INTERNATIONAL CONVENTIONS
RATIFIED BY DJIBOUTI SUCH AS ILO CONVENTION 182, THE UN
CONVENTION ON THE RIGHTS OF CHILDREN, AND IN THE PENAL
CODE.



11. THE GOVERNMENT'S HUMAN RIGHTS RECORD REMAINED POOR
DURING 2004, ALTHOUGH SOME IMPROVEMENTS WERE NOTED IN A
FEW AREAS. MOST ABUSES, INCLUDING POLICE VIOLENCE,
TORTURE OF DETAINEES, RAPE OF FEMALE DETAINEES,
INTIMIDATION OF POLITICAL OPPONENTS HAS DECREASED. IN
EARLY FEBRUARY 2005, DJIBOUTI HOSTED A SEMINAR ON FEMALE
GENITAL MUTILATION (FGM) WHERE IMPORTANT INTERNATIONAL
GUESTS WERE INVITED. AT THE TERMINATION OF THE SEMINAR,
DJIBOUTI RATIFIED THE MAPUTO PROTOCOL OUTLAWING FGM.

RAGSDALE