DJIBOUTI'S INPUT FOR 2006

UNCLAS SECTION 01 OF 02 DJIBOUTI 000300

SIPDIS

STATE FOR AF AND AF/E;

E.O. 12958: N/A
TAGS: ETRD ECON PHUM XA DJ
SUBJECT: DJIBOUTI'S INPUT FOR 2006
PRESIDENT'S REPORT ON AGOA

REF: STATE 26707

1.Summary. Djibouti continues to make
improvements in some problem areas.
Djibouti's economy took a positive step in
2005 by recording a surplus budget.
Djibouti continues to offer incentives to
investors such as Dubai financing of a
modern port and a five star hotel. The
Government of Djibouti (GoD) is making
increasing efforts to curb corruption.
Donors have pledged to fund a major portion
of Djibouti's long-term program for reducing
poverty. However, relations between the GoD
and the opposition are not improving. The
opposition boycotted the presidential
elections in April 2005 and will adopt the
same attitude for the upcoming regional
elections. The government also continues to
intimidate legitimate unions. End Summary.

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Market Economy/Economic Reform/Elimination
of barriers to U.S. Trade
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2. Djibouti relies heavily on services,
which account for more than 80% of its GDP.
Djibouti's economy is getting healthier and
recorded a 3.2% growth rate for 2005.
Inflation was 3.5% mainly due to the rise in
oil prices. The budget in 2005 had a
surplus for the first time since 1998.
Djibouti continues to have a market-based,
liberal economic regime with minimum
interference from the Government. Djibouti
offers attractive incentives to foreign
investors and does not impose barriers to
U.S. trade. Djibouti Free Zone, managed by
Dubai's Djebel Ali Free Zone, also offers
interesting incentives including tax breaks,
simplified administration and 100% foreign
ownership


3. Doraleh Oil Terminal, funded by Dubai
Port World (DP World) and Emirates National
Oil Company (ENOC) was inaugurated in
February 2006. A Container Terminal and a
Commercial Free Zone are also planned. DP
World, which is currently managing
Djibouti's port and airport, is also funding
the construction of a five star hotel, which
will be managed by the Kempinski Hotel
Group.


4. Oceanic Developpement, a French company
specializing in fishing, was recently
selected to manage and develop Djibouti's
fishing port. Oceanic Developpement is
expected to improve the standards of the
fishing port to make it eligible for
exporting fish to the United States and
Europe.

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Political Pluralism/Rule of Law/Anti-
corruption
--------------

5. Since 2002, eight political parties exist
in Djibouti, grouped in two coalitions: the
ruling coalition and the opposition
coalition. The opposition boycotted the
presidential elections held in April 2005
because their conditions for transparency
were not accepted by the ruling coalition.
The opposition is intending to also boycott
upcoming regional elections on March 10,

2006.


6. Rule of Law is progressing at a very slow
pace in Djibouti. The judiciary system in
Djibouti, inherited from the French, is
complex and far from transparent with
government interference commonplace.
Enforcement of laws and regulations remains
difficult.


7. The Government of Djibouti ratified the
United Nations Convention on Corruption in
February 2005 and is making attempts to
reduce corruption and promote transparency.
The State General Inspection, a government
agency created to promote transparency, was
given more support and authority. Also, the
Minister of Finance has pledged to fight tax
evasion, fraud and price speculation, and
has reactivated the Finance Inspection
section, an auditing body in his ministry.
Finally, the GOD signed an agreement with
Dubai Customs International (DCI) in 2005 to
manage, develop and promote transparency
within Djibouti Customs.

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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 against 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 GoD
submitted its need for the poverty program
during an Arab donors' round-table meeting
held November 2005 in Djibouti. The Arab
donors, comprising the Islamic Bank of
Development, the Kuwaiti Fund for
Development and the Arab Fund for Economic
and Social Development, approved US$ 341
Million out of the US$ 455 Million requested
for the poverty reduction program.

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Labor/Child Labor/Human Rights
--------------

9. The government continues to interfere in
the internal affairs of labor unions, which
are perceived as the opposition. The
government continues to intimidate union
leaders. Several union members were jailed
and fired following a 2005 strike at the
port. A new Labor Code was approved by the
Parliament in December 2005. This new
document is meant to attract and provide
confidence to potential investors but is
widely contested by Union members. Unions
feel that this new Labor Code limits the
rights of employees at the profit of
employers. In addition, the new Labor Code
reportedly makes it very difficult for
employees to form unions. The Embassy will
report on the details of the new Labor Code
when it becomes public.


10. Child labor exists 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 laws against the worst forms 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 Human Rights situation in Djibouti
remains poor despite some timid progress. No
political detainees were reported in 2005.
However, police brutalities were noted
during an operation to remove residents from
illegal wooden houses, resulting in several
deaths. In early February 2005, a seminar
on Female Genital Mutilation (FGM) was held
in Djibouti where international guests were
invited. After the seminar, Djibouti took a
positive step by ratifying the Maputo
Protocol outlawing FGM.

BALL