DJIBOUTI'S INPUT FOR 2008 PRESIDENT'S REPORT ON AGOA

UNCLAS SECTION 01 OF 02 DJIBOUTI 000239

SIPDIS

SIPDIS

STATE FOR AF, AF/E, AND AF/EPS

E.O. 12958: N/A
TAGS: ETRD EINV ECON PGOV DJ
SUBJECT: DJIBOUTI'S INPUT FOR 2008 PRESIDENT'S REPORT ON AGOA

REF: STATE 20082


1. SUMMARY: Djibouti's market-based, open economy continues to move
in the right direction, with an estimated 5 percent growth rate for

2007. Djibouti offers substantial incentives to private sector
investors, and has benefited from increasing foreign direct
investment. The government of Djibouti dedicated considerable
attention and resources to fighting poverty in 2007, launching a new
social development agency and significantly boosting spending on
education and health. Amidst a boycott by three opposition parties,
a five-party coalition supporting the president won all sixty-five
seats in Djibouti's February 2008 legislative elections. While the
government has reformed its labor laws to accelerate private
investment, labor unions continue to allege government interference
in union activities. END SUMMARY.

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Market Economy/Economic Reform/
Elimination of Trade Barriers
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2. Djibouti has a market-based, liberal economic regime with minimum
interference from the government. It offers attractive incentives
to foreign investors and does not impose barriers to U.S. trade. The
Djibouti Free Zone, managed by Dubai Ports World (DP World),also
offers incentives, including tax breaks, simplified administration,
and 100 percent foreign ownership. Djibouti's GDP relies heavily on
services, which account for more than 80 percent of its GDP.
Economic growth was estimated at 5 percent for 2007, spurred by an
increase in foreign direct investment and a hike in port activities
and construction.


3. The Doraleh Oil Terminal, funded by DP World and the Emirates
National Oil Company (ENOC),was inaugurated in February 2006.
Construction on the second phase of the project, a container
terminal funded by DP World and the Government of Djibouti, began in
November 2006 and is expected to be completed by the end of 2008. A
large commercial free zone will be the last phase of the Doraleh
Port project. Three new banks opened in Djibouti within the two
last years, and four more banks are planning to open in 2008. A
revamped Commercial Code, geared towards trade facilitation and
foreign direct investment, is currently being finalized.

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Political Pluralism/Rule of Law/Anti Corruption
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4. Following a thirteen-month, nation-wide voter registration
campaign, Djibouti held legislative elections in February 2008.
Voters returned the "Union for a Presidential Majority," a
five-party coalition, to all sixty-five seats in the National
Assembly. Three opposition parties boycotted the elections.
International election observers from the African Union and the Arab
League characterized the elections as free, fair, and transparent.



5. While there were some improvements in rule of law, complaints
about lack of transparency in the judicial system remained. The
Government of Djibouti ratified the United Nations Convention on
Corruption in February 2005 and is acting to reduce corruption and
promote transparency. The Chamber of Accounts and Fiscal
Discipline, a public expenditures audit board established to fight
corruption and promote transparency, has released two annual reports
on government expenditures indicating qualitative improvements in
some government departments. Dubai Customs International has
managed Djibouti Customs since 2005, greatly improving efficiency
and transparency. In 2007, Djibouti recorded higher customs
revenues.

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Poverty Reduction
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6. Poverty exceeds 40 percent; unemployment is estimated at 60
percent among those under age 30. The government's anti-poverty
plan is laid out in its Poverty Reduction Strategy Papers submitted
to the World Bank and IMF. The government has substantially
increased spending on education and health. In January 2007,
President Guelleh initiated a national social development program
aimed at accelerating job creation and reducing economic
inequalities. The Djiboutian Agency for Social Development (ADDS),
created in December 2007 and funded by the government and
international donors, will manage this new program.

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Labor/Child Labor
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7. The law and the constitution provide for the right to join
unions; however, in the past the government has chilled independent
union activity. Government approval is required for public

DJIBOUTI 00000239 002 OF 002


demonstrations, and this has restricted freedom of assembly and
interfered with labor activities. In December 2007, the government
created an autonomous National Agency of Employment, Training and
Professional Integration. Djibouti has ratified all eight core ILO
Conventions. The law prohibits forced or compulsory labor,
including by children, and there were no reports that such practices
occurred. The law prohibits work for children under 16, and there
are laws against the worst forms of child labor. Isolated instances
of child labor exist in Djibouti, especially in the informal sector
and in family enterprises.

SYMINGTON