1. (U) Summary: Djibouti Free Zone (DFZ), inaugurated in June
2004, is a pilot project for the larger free zone planned
for Doraleh Port. Djibouti Port and Free Zone Authority
(DPFZA) controls the DFZ and delivers licenses to eligible
firms. DPFZA gave the management of the free zone to Jebel
Ali Free Zone International (JAFZI). JAFZI, an
internationally renowned firm is expected to bring Djibouti
Free Zone up to the standards of Jebel Ali Free Zone in
Dubai. End Summary.



2. (U) While the current Port of Djibouti has a small free
zone, which serves simply as a storage facility for transit
goods destined for neighboring countries, DFZ has a much
bigger ambition and expects to have an international status
comparable to Jebel Ali Free Zone. As a consequence, the
management of DFZ was entrusted to Jebel Ali Free Zone
International (JAFZI), a subsidiary of Dubai International,
operating also in Malaysia and Morocco. DFZ is a pilot
project designed as a test before introducing the large
free zone of 700 hectares planned in the Port of Doraleh.
Djibouti Free Zone, operational since October 2004, covers
17 hectares designed to house warehouses, light industrial
units, offices, humanitarian aid hangars and plots of
lands. According to DFZ officials, about twenty companies
from several countries including the UAE (Dubai), Bahrain,
France, United States (Seven Seas) and Lebanon, have leased
facilities in the free zone so far. The idea is to create
proximity to buyers from the region to avoid long distance
travel to purchase their supplies. They will also save on
shipping cost. The Free Zone hopes to create jobs since
firms settling at the Free Zone must initially have 30% of
its workforce as nationals and increase to 70% after five
years of operation. Finally, DFZ looks to play the role of
a business promoter in Djibouti by attracting worldwide
firms.



3. (U) The Free Zone Code, established May 2004, sets all legal
requirements and specifies all regulatory provisions needed
for the Free Zone. The Free Zone Code indicates that
companies need to register and get a license before
leasing. Companies registered in Djibouti or overseas may
establish a branch in the DFZ or create a new entity as a
Free Zone Establishment (FZE) or a Free Zone Company
(FZCO). A FZE is made up of a single shareholder while a
FZCO has a maximum of five shareholders. The business
entity must submit an application form containing
information on shareholders, necessary legal documents and
other requirements. Once the application is approved, a
Trading License, a General Trading license, an Industrial
License, a National Industrial License or a Service License
is provided based on the type of activities that the firm
is engaged in. The company may lease a warehouse, office
space or a plot of land to build upon. Open-air storage on
the plot of lands is not allowed. Firms operating in DFZ
may have satellites to sell in the Djibouti market after
paying taxes and all other dues. They may also use local
distributors to access the local market.



4. (U) Companies must pay the registration, license and lease
fees. If the company chooses to form a FZE, the fees are
US$ 2,500 while the tariff for a FZCO is US$ 4,000. There
is no fee for establishing as a branch. Licenses rates
vary from US$ 1,500 to US$ 4,000 depending on the
activities of the firm. For instance, a Specialized
Trading License is price-tagged at US$ 1,500 and gives a
company the right to sell, import and export up to five
families of products. A General Trading License is worth
US$ 4,000 and is issued to companies involved in the
selling, import and export of an unlimited range of
products. Industrial Licenses, Services Licenses are also
available. The warehouses and light industrial units are
leased at US$60 per square meters per year and have
attached office units. Office accommodations are rented at
US$ 250 per square meters per year. The plots of lands are
slated for US$ 9 per square meters per year. Open-air
storage is not allowed because the client company leasing
the land has to invest and build on it. The business could
either lease a site or construct its own facility after
completing all the construction requirements such as
detailed architecture, certificates from water and
electricity utilities, and a building permit. Ten percent
deposit toward the annual lease is required to reserve an
office, a warehouse or a plot of land.



5. (U) As indicated on article 10 of the Free Zone, Djibouti
Port and Free Zone Authority (DPFZA) is the interface
between firms and the Free Zone. DPFZA officials receive
and approve applications from firms planning to settle at
the Free zone. Next, officials from DPFZA deliver a yearly
license to eligible entities entering the free zone. DPFZA
writes all the rules and regulations governing any free
zone in Djibouti and enforce their full implementation. It
determines as well all fees or fines related to the free
zone. In addition, DPFZA is in charge of all security and
safety issues in the free zone. Most importantly, DPFZA
takes the role of a one-stop shop by facilitating all the
administrative work to new companies setting up at the free
zone. JAFZI acts as a promoter on behalf of DPFZA and
manages the free zone in accordance with an agreement with
DPFZA. Thus, JAFZI is authorized by DPFZA to manage the
Free Zone but is held by the rules contained in the Free
Zone Code.



6. (U) Djibouti Free Zone offers several advantages described
in the Free Zone Code. Goods in the Free Zone are not
subject to duties and taxes normally levied on imported
goods (article 3). Article 19 guarantees the right to
property for individuals or private entities. Article 20
indicates that there is no obligation to have a local
partner, allowing the firm to be one hundred percent
foreign owned. For a renewable period of fifty years, free
transfer of capital, earnings or wages in any currency with
no restriction is allowed (article 21). Goods of any
nature or origin may be introduced in the free zone with
the exception of prohibited goods (article 23). Employees
as well as firms operating in the Free Zone are not subject
to tax for fifty years renewable (art 32). Any dispute may
be resolved by international arbitration (article 43). All
payments of free zone dues should be made in US$ or
Djibouti currency.



7. (SBU) Comments: For the average Djiboutian, the DFZ
remains a mystery in the same way that the Port of Doraleh
is a mystery. However, it is strongly believed that the
presence of US troops has greatly contributed to foreign
investment in general. Even though, the French protect
the country's borders, they are not known for promoting
investment in Djibouti and are frequently seen as scaring
away investors for whatever reasons. DFZ is attracting
foreign firm because it would like to position itself for a
larger free zone in Doraleh, which is expected to offer
excellent business opportunities. A Commercial Lawyer
working with foreign firms in the DFZ noted that the
regulations in the Free Zone are unclear and incomplete.
The Lawyer added that Djibouti's government has probably
copied Jebel Ali requirements without setting a proper
legal basis. Political pundits would agree that the
government's rush to launch the DFZ was the result of its
anxiousness to put the DFZ in place before the start of
Presidential elections.
RAGSDALE