DJIBOUTI
FISCAL YEAR 2005
Country Commercial Guides can be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information and assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce's Trade Information Center at (800) USA-TRADE, or go to one of the following web sites: www.usatrade.gov or www.tradeinfo.doc.gov.
TABLE OF CONTENTS
Chapter 1,
Doing Business in Djibouti
Chapter 2,
Economic and Political Environment
Chapter 3,
Selling U.S. Products and Services
Chapter 4,
Leading Sectors for U.S. Exports and Investment
Chapter 5,
Trade Regulations, Customs and Standards
Chapter 6,
Investment Climate Statement
Chapter 7,
Trade and Project Financing
Chapter 8,
Business Travel
Chapter 9,
Contact, Market Research and Trade Events
Chapter 10,
Guide to our services
The Republic
of Djibouti is a small country located at the juncture of the Red Sea and the
Gulf of Aden. Its territory covers
8,250 square miles, making it comparable in size to the State of Massachusetts.
Since independence from France in 1977, Djibouti has pursued a moderate foreign
policy. Djibouti’s population of approximately 600,000 is primarily of Somali
and Afar ethnicity and is predominantly Muslim. French and Somali are the main languages used in government,
business and daily activities. There
is little English spoken. There is a small, but influential, Arab population,
and a European community of approximately 10,000, primarily French.
Since 2002, Djibouti hosts a U.S. military camp where 1,200 to 1,500
personnel are based.
Djibouti has
no laws or regulations that would discourage incoming foreign investment.
In principle, there is no screening of investment or other discriminatory
mechanisms. Certain sectors, most
notably public utilities, are state-owned.
Conditions of the structural adjustment agreement recently signed by the
Government of Djibouti (GOD) and the International Monetary Fund stipulate
increased privatization of government-owned monopolies.
Currently, the telecommunications, railroad and electricity companies are
in transitional periods on the way to privatization.
Major
challenges to doing business in Djibouti include the high cost of utilities,
telecommunications, and labor. The
cost of living can also be an inhibiting factor with prices that can be two to
four times those in the United States. A 70-percent
unemployment rate and low-levels of education and technical skills makes finding
skilled workers, particularly English speakers, quite difficult.
Although proportionally less than many countries in the developing world,
corruption, administrative delays and a non-transparent judicial system pose
obstacles to foreign investment.
The
Political and Economic Officer, assisted by an Economic and Commercial
Assistant, run the Embassy Commercial Section. The Embassy remains at your
disposal to provide you with information and help.
Djibouti’s economy is mainly based on services
provided by port, airport and financial institutions, which account for about
85% of the GDP. Lacking
natural resources, the industrial and primary sectors are not developed. Only 3% of land is arable and the huge fishing
potential is not exploited because of small local demand, lack of price
competitiveness, and quality standards for export.
An influx of refugees, a persistent draught, a four-year civil war and a
substantial decrease of foreign aid weakened Djibouti’s economy in the
nineties. However, in recent years,
intensive port activities, improved management, and
financial aid from the USG and France have significantly improved Djibouti’s
economy. In 2003 these improvements
resulted in the first positive real growth (3.5%) in more than a decade.
However, high unemployment and lack of other essential resources
remain a drag on economic development.
Djibouti’s location is its main economic asset.
The Port of Djibouti is strategically located at the crossroads of sea routes
between the Far East, the Arabo-Persian Gulf and Africa.
Djibouti has a large, well-equipped, international port, whose
management was turned over to Dubai Ports International (DPI) in 2000.
Ethiopia, a landlocked country, is the main client of the port.
The new Doraleh Port project remains the single largest investment, which
is expected to generate serious economic benefit to Djibouti.
Located at 8 km from Djibouti City, it consists of an Oil Terminal with
storage capacity of 200,000 Cubic Meters; a Container Terminal with a 2,000
meter berth in waters 17 to 20 meters deep, able to accommodate the largest
container ships, and capable of handling more than 4 million containers per
year; and a 700 hectares Industrial and Commercial Free Zone financed by DPI and
Emirates National Oil Company (ENOC). The construction of the Oil Terminal began
in March 2003 with an expected completion date of August 2005.
The
Government of Djibouti (GOD) has undertaken significant economic reforms since
1996 with the assistance of the International Monetary Fund (IMF).
In 1996, the country started a stand-by program for a period of three
years, which led mainly to reduced inflation, demobilization of the military and
police, and downsizing of government employees as well as lower wages.
As a result, the IMF approved a three-year US$ 26.5 million loan for
Djibouti under the Enhanced Structural Adjustment Facility (ESAF) in October
1999 to assist GOD’s three-year Poverty Reduction and Growth Facility (PRGF)
program. In 2003, the IMF
mission started a new partnership, called the Staff-Monitored Program. (SMP).
The SMP does not involve any financing but consists of an informal
agreement between the GOD and IMF staff to monitor the implementation of the
GOD’s economic program. This SMP
covers the period of January 2004 to December 2004 to monitor Djibouti’s
economic reforms but also the completion of the remaining reforms not completed
during the ESAF. IMF’s
review of the SMP in September 2004 showed that the GOD made some slow progress.
The IMF is also involved in reviewing and helping the GOD in finalizing
its Poverty Reduction Strategy Papers (PRSPs).
This document, created with contributions from government agencies, civil
societies, trade unions and private sector representatives, aims at reducing
poverty and unemployment by improving living conditions for the entire
population. It offers a
comprehensive strategic framework to be implemented in stages to be completed by
2006, 2010 and 2015.
Fairly good
roads link all the small towns to the capital city of Djibouti.
The infrastructure still needs much improvement, as paved roads still are
not extensive. The interior of the country is served by a road system covering
1,172 kilometers, one-third of which is asphalt. Djibouti has an international
airport managed by DPI, which can handle large commercial and military
aircrafts. Regular air services connect Djibouti to the major cities in
the region and to Paris. Connections
further afield can be made through Addis Ababa, Sanaa, Nairobi or Paris.
Djibouti-Telecom was contracted to a foreign management for a two-year
period to improve its financial and technical viability, and prepare it for an
eventual privatization. Djibouti
Telecom is one of the best telephone systems in the region, but calls are
expensive in spite of recent reductions. The
state-owned company Electricite de Djibouti (EDD), which uses diesel-powered
generators, provides electricity to the nation.
The country has extensive geothermal energy potential, which to date has
not been exploited successfully. However, Geothermal Development Associates, an
American firm based in Nevada, is exploring this potential resource.
Djibouti’s port is linked to Ethiopia by 781 km of railroad links.
The railway company, which is co-owned by Djibouti and Ethiopia, is being
considered for private management.
From 1991 to
2000 the Djiboutian government fought a civil war against Afar rebels of the
Front for the Restoration of the Democratic Unity (FRUD). Peace treaties were signed with different factions of the
FRUD in 1994 and February 2000, bringing an end to the civil war.
In peaceful elections in April 1999, Djibouti chose its second president
since independence. The president
is head of government and head of state. Presidential elections are held every
six years by universal suffrage. Presidents
cannot be reelected more than twice. The
National Assembly represents legislative power with 65 members elected for five
years. Ministers, who are chosen by
the president, are mostly members of parliament.
Political pluralism was adopted in 1992, originally allowing only four
parties for a period of ten years.
The
Constitution lifted the limitations on political parties on 2002. Today, eight parties exist in the national political scene.
The UMP (Union pour la Majorité Présidentielle, ruling party coalition
composed of four parties) holds all the seats in the National Assembly.
The most recent elections were held in January 2003 (legislative) and
April 1999 (presidential) elections. The opposition coalition UAD (Union pour
l’Alternance Démocratique, four parties) is likely to compete with the
current President in the upcoming presidential elections due in April 2005.
Ministers, who are appointed by the President, are members of the ruling
party and the Parliament. A
law on decentralization has been adopted by the Parliament, which enables the
different regions to govern themselves. Elections for regional governing
councils are expected to take place in 2005.
The United
States enjoys an excellent relationship with Djibouti. The United States Agency for International Development (USAID)
returned to Djibouti in 2003, after a closure of its office over ten years ago.
USAID provides assistance in Health, Education, and Livestock Trade with
programs totaling $30 million over a three-year period between 2003 and 2005.
The U.S. military based at Camp Lemonier provided more than $30 million
in land lease fees and humanitarian assistance in 2003.The U.S. Embassy also
contributed $500, 000 to the legislative elections and funded several projects
worth $200,000 for self-help, democracy and human rights in 2003.
Djibouti retains close relations with France and other Western nations as well as with Islamic states. It is the most important French base in Africa and host to several thousand French military personnel. U.S. naval vessels and aircraft use Djibouti’s facilities, and the two countries perform joint military exercises. Strategically located at the crossroads of Africa, the Middle East and the Indian Ocean, Djibouti has recently gained importance as a frontline state in the Global War on Terrorism . The American military base, Camp Lemonier, also hosts the headquarters of the Combined Joint Task Force-Horn of Africa (CJTF-HOA) for the fight against terrorism.
Djibouti
has a population estimated at 600,000, of which more than half live in the
capital city. Arabs and Somalis are the main traders and the most prominent ones
export to Somalia, Ethiopia or Yemen.
Structured distribution channels are not common in Djibouti; retailers go
to wholesaler or large businesses to buy goods. A few businesses such as Coca-Cola have organized
distribution points and trucks to carry their goods.
A significant portion of trade in Djibouti occurs in the informal market.
The vendor determines prices, as only the basic commodities such as rice, sugar, and oil have monitored prices. Wheat flour for bakeries, which is exempt from import taxes, is the only food product with a fixed price.
Use
of Agents and Distributors
A foreign investor is free to
conclude representation, agency, distribution, and franchising agreements with
Djibouti nationals. The local
Chamber of Commerce, which maintains a list of primary businesses, may be of
assistance in identifying an agent or distributor.
For U.S. firms seriously considering an agent or a distributor in
Djibouti, it is strongly recommended to visit the country to meet potential
agents. The Embassy, in
coordination with the local Chamber of Commerce, may arrange meetings with local
businesses.
The government does not regulate royalties or
commission rates, which are freely negotiated by the parties concerned.
However, caution should be the rule and a lawyer should be consulted
before engaging in any form of business relationship with local firms.
Franchising is not common in Djibouti but there is some potential in the
food industry, which could find a market among Americans, French, and
expatriates expected to work at the Doraleh Port after its completion.
No local firm has a joint venture with a U.S.
company to date in Djibouti. U.S.
firms should be cautious and use good business judgment when embarking in a
joint venture with a local firm.
Steps
to Establishing an Office
The first step to setting up a
business is to declare the business with a notary and then obtain a trading
license from the Ministry of Finance. Catering
and drinking establishments require a prior declaration with the Ministry of
Interior, which will deliver a permit after a routine investigation.
The employer is allowed to hire directly, but priority must be given to
nationals unless the job requires skills unavailable locally.
In any case, the national employment service should be informed for
statistical purposes. A work permit
is necessary for foreign employees. Once
staff is hired, the labor inspection office as well as the social security
services must be informed within forty-eight hours.
The business must be registered with the Office of Trade Registry at the
Ministry of Justice within two months. Also,
the National Agency for the Promotion of Investments should be contacted in
order to verify that all the requirements of the investment code have been
fulfilled. Opening a local bank
account is required. Please be aware that office space in Djibouti is expensive
and good locations are difficult to find. Finally,
the Office of Direct Taxation must be informed within ten days after the
business has started.
Selling techniques are still at a rudimentary
stage, and no infrastructure is available for modern selling techniques.
Some businesses use TV ads and contests to promote their products.
Advertising and trade promotion can be carried out
in the government newspaper "La Nation", which is published three
times a week. TV and radio are also
available at reasonable cost.
High-priced U.S. products are unlikely to sell
because of the presence of low-priced Asian products.
Some products like fuel, cigarettes and pharmaceutical drugs are smuggled
across the border to evade taxes. These
smuggled goods, sold at low prices affect legitimate distributors by undermining
competition.
Many firms in Djibouti neglect after-sales services but this an important aspect valued both by nationals and expatriates.
Government procurement is made through the Ministry
of Finance. If the value of the
goods is less than DF 5 million ($28,257), the procurement is made directly from
local vendors. Then the treasury
verifies the conformity of goods to specification before paying the vendor.
However, if the amount exceeds DF 5 million, the Ministry of Finances
calls for national tenders, especially when international donors finance
projects. Occasionally, the
government solicits international tenders of modest size for goods such as
school supplies or pharmaceutical products.
The bidding and bid award procedures are officially open to any
interested supplier, but in practice it is hard to determine the fairness of the
process.
Protecting
your Product from IPR Infringement
Djibouti’s legal system officially protects the
acquisition and disposition of all property rights and safeguards intellectual
property, however it is rarely enforced.
Trade involving counterfeit products occurs mostly in the informal
market, which is not controlled or monitored by the government.
Need
for a Local Attorney
The use of a local attorney is highly recommended
for the preparation of the necessary legal documents.
It is especially important to hire a local lawyer because Djibouti’s
legal system is based on French law, which is different from U.S. law.
The Embassy may provide a list of competent local attorneys to interested
U.S. firms.
Performing
Due Diligence
No formal system exists to verify the bona fides of
companies in Djibouti. The local
Chamber of Commerce may only provide limited information on firms operating in
Djibouti. U.S. firms may use the
Embassy to provide unofficial report on performance and credibility of companies
doing business in Djibouti.
Chapter 4:
Leading Sectors for U.S. Exports and Investment
Djibouti has a coastline of 314 km and the Red Sea
is known to be very rich in fish. Traditional fishing is still used and provides
jobs for up to 1,000 Djiboutians. A
new fishing port, inaugurated in 1999, is designed to boost this sector and
attract more extensive and modern fishing techniques.
This new fishing port was conceded to Djibouti
Maritime Management Investment (DMMI) in 2004, a private company, which has the statute
of a Free Zone company.
Djibouti Telecom, which split from the post office
in 1999, is actively trying to stay on top of current technology.
Djibouti Telecom provides satellite and submarine cable communications
and is known to be one of the best in the region.
It is currently under private management and is slated for privatization
in a near future.
Light industries simply do not exist in Djibouti.
However, the need is present and the whole region could benefit from it,
especially if it could lead to increased Djiboutian exports under the African
Growth and Opportunity Act.
The constant growth of the population is
dangerously exhausting water reserves. Djibouti critically needs new water
reserves and is contemplating moving to desalination of seawater. The U.S. Trade and Development Agency is currently funding a
feasibility study for this project with the National Water Office of Djibouti (ONED).
Food & beverages are imported from France, Gulf
countries and Ethiopia both for consumption in Djibouti and for export to
neighboring countries. Food
franchises are expected to be good investment opportunities in view of the high
number of expatriates anticipated with the completion of the Port of Doraleh.
B.
Best Prospects for Agricultural Products
The local market of 600, 000 is small but Djibouti
is the gateway to the Common Market for Eastern and Southern Africa (COMESA),
which offers a market of over 300 million.
In 2003, more than 6,000 tons of wheat were imported, mostly from the
European Union. As for rice, 4,600
tons came primarily from Asia. More
than 9,000 tons of sugar was brought mainly from Brazil. Concerning powdered milk, 2,860 tons were predominantly
imported from the European Union.
C. Significant
Investment Opportunities
Djibouti Telecom, which is government owned, is slated for privatization. In addition, the eligibility of Djibouti under the African Growth and Opportunity Act (AGOA) offers the privilege to export duty free and export quota free to the U.S., offering excellent opportunities for joint ventures in such areas like textile, handicraft or finished wood products.
In order to sell or import in Djibouti, a license
is required. The cost of licensing
varies according to the professional or commercial activities undertaken.
It also depends on the value of the imported goods.
Regular import taxes vary from 5 to 40 percent according to the nature of
the merchandise. While basic
commodities enjoy low import taxes, goods such as cigarettes and alcoholic
beverages pay surtaxes of 70 and 160 percent respectively.
Customs officials require a commercial invoice with
the bill of lading or the airway bill for all goods entering the country.
Shipping marks and numbers on the bill of lading should correspond
exactly with those on the invoices and goods.
For pharmaceutical products, the health authorities deliver a certificate
after ensuring that the products are not prohibited.
The goods should be cleared within four to ten days, otherwise they will
be moved to storage and incur fees. Goods
in transit to neighboring countries are stored in warehouses at the port area. A huge warehouse facility, the Djibouti Dry Port, is designed
to free-up limited port storage.
There are no specific labeling or marking
requirements, except for cigarettes. The
government, in order to fight increasing contraband from neighboring countries,
has requested importers to pre-label cigarettes destined for Djibouti.
It is advisable to have any label or marking in French, which is widely
understood in Djibouti. The office for norms and quality control is still at an
embryonic stage so no standards are required.
Prohibited imports include illegal drugs, specific
medical products, environmentally hazardous chemicals, toxic waste and some
cosmetics. The customs service has
some general guidelines on prohibited products but an official document
describing all the prohibited imports is not available
The government of Djibouti recognizes the crucial
need of foreign investment for the economic development of the country.
Djibouti’s assets include a strategic geographic location, an open
trade regime, a stable currency, substantial tax breaks and other incentives.
Potential areas of investment include Djibouti’s port, tourism,
manufacturing and telecom sectors. President Ismail Omar Guelleh has placed privatization,
economic reform, and increased foreign investment as top priorities for his
government. The president has
pledged to seek the help of the international private sector to develop the
country’s infrastructure.
Djibouti has no laws that would discourage incoming
foreign investment. In principle
there is no screening of investment or other discriminatory mechanisms.
Certain sectors, most notably public utilities, are state owned and are
not currently open to investors. An
IMF request for privatization as a condition for structural adjustment led to
Djibouti’s selection of Dubai Ports International in 2000 to manage the Port
of Djibouti and 2002 Request of privatization by the IMF as conditions for
structural adjustment led to the management of the Port of Djibouti by Dubai
Port International in 2000 and Djibouti International Airport in 2002. In
addition Djibouti Telecom was handed to private management to prepare it for
eventual privatization. The
Djibouti-Ethiopia Railway Company, being considered for privatization, has
already identified several potential investors.
Finally, in April 2004, the Government of Djibouti conceded its fishing
port to a private firm, Djibouti Maritime Management Investment (DMMI).
Created in 2001, the National Investment Promotion
Agency (NIPA) has the triple role of promoting foreign investment, facilitating
investment operations and modernizing the regulatory framework.
The NIPA has the mandate to encourage and facilitate any foreign
investment by assisting with all administrative procedures.
Its ultimate goal is to become a one stop shop to better assist investors
who have to deal with several ministries located at various sites, which
currently have no coordination, in order to get all the proper clearances.
While several areas look attractive for investors, the NIPA identified tourism and manufacturing as
priority sectors for investment.
To
enhance the business environment, the Ministry of Finances reduced taxes on some
products, effective 2004.
For instance, automobile spare parts and recording or image producing
electronic devices are subject to 8% taxes instead of 33% while taxes on
electical, plumbing or sanitary material were decreased from 33% to 20%.
Also, heavy construction
engines and raw cloth are liable to 8% taxes down from 20%.
These tax reforms are meant to promote growth of the construction sector,
transportation and textile industry.
The
most important direct foreign investment in Djibouti remains the project of the
Port of Doraleh, which is estimated at US$400 million.
Located 8 km east of the
current seaport, the Doraleh Project, developed for third generation container
ships, includes an Oil Terminal, a Container Terminal and an Industrial and
Commercial Free Zone funded by Emirates National Oil Company (ENOC) and Dubai
Port International (DPI). The first phase of the project, the Oil
Terminal, has already started construction with financing from ENOC. The Oil
Terminal, to be completed before end of 2005, consists of a jetty for tankers
and an initial 20 storage tanks of around 50,000 cubic meters capacity each. A
Brazilian company is involved in the construction of the Berth and an Italian
company is putting together the storage tanks.
Djibouti
belongs to a number of regional integration organizations.
It is an active promoter of the seven-member Inter-governmental Authority
on Development (IGAD) and is the headquarters for the IGAD Secretariat. It is
also part of the Common Market for Eastern and Southern Africa (COMESA), which
groups 19 countries and offers a market of over 300 million.
Djibouti is an eligible member of the African Growth and Opportunity Act
(AGOA), which grants advantageous access to the United States market. In addition, Djibouti is among the 34 African least developed
countries that have the option of entering the European Union Generalized System
of Preferences and is a member of the World Trade Organization (WTO).
Djibouti has no foreign-exchange restrictions.
There are no limitations on converting or transferring funds, or on the inflow
and outflow of cash. The Djibouti
franc, which has been pegged to the U.S. dollar since 1949, is stable. The fixed exchange rate is 177.71 Djibouti francs to the
dollar.
Djibouti Investment Code stipulates “no partial
or total, temporary or permanent expropriation will take place without equitable
compensation for the damages suffered”. In any case, Embassy is not aware of
any recent acts of expropriation or compensation related to foreign companies.
Given the government policy of promoting private investment, none are
expected.
Djibouti’s legal system is based on French law.
It consist of three different levels:
1) the First Court (“Première Instance”) where a single judge rules 2) the
Appeal Court (“Cour d’Appel”) which calls for three judges and 3) the
Supreme Court (Cour Suprême ) mandated to review the proper application of the
law in a given trial. The Supreme
Court reopens the trial if irregularities are discovered.
It is complex and far from transparent.
Government interference in the court system is common.
Djibouti does have written commercial and bankruptcy laws, but they are
not applied consistently. Foreign companies in Djibouti complain about lengthy
and biased court deliberations. Djiboutian
courts in principle accept judgments by foreign courts.
According to the Ministry of Justice, Djibouti is a member of the
International Center for the Settlement of Investment Disputes because any
international agreement signed by France before Djibouti gained independence in
1977 is automatically binding in Djibouti.
The Chamber of Commerce of Djibouti is planning to set up a Regional
Mediation Center, which is designed to settle commercial disputes in a timely
and transparent manner.
Performance requirements are not a pre-condition
for establishing, maintaining, or expanding foreign direct investments.
Incentives do, however, increase as the size of the investment and the number of
jobs created increase. Tax
benefits and incentives fall under two schemes, which are detailed in the
investment code. Investments
greater than $280,000 and creating a number of permanent jobs are entitled to
exemption from the payment of license and registration fees, property taxes for
improved real estate, taxes on industrial and commercial profits of individuals,
and taxes on the profits of corporate entities.
Imported raw materials used in manufacturing are exempt from the internal
consumption tax. These exemptions
are applicable for up to a maximum of ten years after the starting date of
operations. Investment matters fall
under the jurisdiction of the National Investment Board.
This board must approve all investments.
Djibouti offers significant incentives to
private-sector individuals or corporate investors.
The Djiboutian investment code guarantees investors the right to: freely
import all goods, equipment, products, or material necessary for their
investments; freely display products and services; determine and run marketing
policy and production; choose customers and suppliers; and set prices.
Foreign investors are also free to determine their own hiring and firing
policy as long as it remains within the structure of the labor code.
A new Labor Code is being finalized to replace the current document,
which dates from the French colonial era of 1952.
The National Assembly is expected to pass this legislation by early 2005.
Djiboutian laws guarantee the rights for foreign and domestic private entities to establish, own business enterprises, and engage in all forms of remunerative activity. Legally established private sector companies have the same access to markets, land ownership, credit, and other business facilities, as do public enterprises. Although restrictions on private enterprises are minimal, competitive equality in regard to public enterprises, namely utilities, remains limited.
Most of the selling of pirated trademarks occurs in the informal market, which represents an important part of the trade in Djibouti. A large share of trade with other countries is also done informally. Djibouti’s legal system inherited from the French officially protects the acquisition and disposition of all property rights and safeguards intellectual property, patents, copyrights, trademarks, trade secrets, etc. In addition, Djibouti ratified the World Intellectual Property Organization (WIPO) convention, the Paris convention on the protection of industrial rights, and the Bern convention on the protection of literature and art works in January 2002. In reality, however, protection of property rights is not enforced.
A.8.
Transparency of the Regulatory System
Although the government makes efforts to adopt a transparent policy to foster free enterprise, bureaucratic obstacles and delays are often a problem.
Two large French commercial banks, Indosuez Bank (BIS)
and Bank for Commerce and Industry (BCI), dominate the financial system.
They account for most deposits but their exposure to the economy is
limited to mostly short-term (trade) financing and lending.
Credit is allocated on market terms and foreign companies do not face
discrimination in obtaining it. However,
generally only well-established businesses obtain bank credit, as the cost is
high. Both banks offer only a limited array of financial instruments: letters of
credit, money transfer, and short and long-term loans.
Despite human rights violations and political
imprisonments observed in previous years, no significant political violence is
reported during 2004. No political opposition figures have been arrested or
detained in 2004. The government appears reluctant to deal with human rights
groups and continues to monitor independent unions, which are often seen as part
of the political opposition. One major police abuse was reported in 2004 where
police forces beat to death a young mentally ill person. A legal inquiry
procedure was launched but there was final outcome,
due mainly to non-cooperation of the police hierarchy.
Corruption in Djibouti remains a constant
encumbrance on investment and business development.
While the government officially encourages foreign investment, pressure
from government officials looking to become partners with the investor (with no
or minimal contribution) or approaching the investor for sub-contracts is not
uncommon. Foreign businesses
complain that establishing an enterprise requires numerous bribes.
Also, some business owners choose to bribe Customs Officers in order to
evade taxes, thereby encouraging corruption.
Corruption poses a major problem in the judicial system and results in
mistrust of the system by foreign investors.
Laws against corruption are rarely enforced.
Actual prosecution and punishment for corruption is uncommon.
The government to address corruption has established the Chamber of
Accounts and Fiscal Discipline (CAFD), and the State General Inspection. The CAFD has the authority to verify and audit all
public establishments for transparency and accountability and take necessary
legal sanctions. The State General
Inspection is designed to complement the work of the CAFD by ensuring that human
and material resources in the public sector are properly utilized.
Djibouti
has several bilateral investment agreements, most notably with Ethiopia and
Yemen but also with Egypt, Malaysia and recently with India.
Other treaties include: the Partnership Agreement between the Members of
the African, Caribbean and Pacific Group of States (ACP); the Agreement for the
Promotion, Protection and Guarantee of Investment Among Member States of the
Organization of Islamic Conference; Articles of Agreement of the Islamic
Corporation for the Insurance of Investment and Export Credit; and the Unified
Agreement for the Investment of Arab Capital in the Arab States.
Djibouti is eligible for Overseas Private
Investment Corporation (OPIC) programs. OPIC
offers up to US$400 million in combined financial and political risk insurance
to eligible U.S. investors.
A national law passed in 2000 makes school compulsory until the age of sixteen. Gross enrollment rates have risen from approximately 38% in 1998 to approximately 53% in 2003. Vocational or professional training facilities are few, which results in the major problem of lack of skilled labor. Many employers have also commented that production is low and that it is difficult to find educated and experienced workers. The government remains the main employer (70% of the formal sector), but American and French forces also offer an important number of jobs to local workers. By law, all employers have the obligation to provide social security to their employees. The “Caisse National des Retraites” handles social security for government workers under public statute (long term contracts) while the “Organisme de Protection Sociale” deals with the private sector and government employees under conventional statute (short term contracts). Due to the high cost of living, wage levels in Djibouti are among the highest in the Horn of Africa.
The Labor Code permits employees to form labor
unions to protect their rights. It
also provides guidelines on wages, overtime pay, annual leave, sick leave, work
schedules and holidays. A new Labor
Code recently completed is in the process of being approved by the Parliament.
This new Labor Code is however widely contested by the labor unions,
which view the document as providing greater rights to employers at the expenses
of workers. Two large labor unions exist in Djibouti but the Djiboutian
Workers Union (UDT) is the most viable and is recognized by international labor
organizations. The Government,
which has the mandate to act as a mediator between the unions and the employers,
regularly interferes with the internal affairs of labor unions.
In 1995 all of Djibouti was designated a
free-export processing zone. Any company working exclusively for export in the
industrial sector is eligible for the status of Export Processing Company (EPC).
In addition, local investors recently developed a free zone with a
capacity of up to 100 companies. This
small free zone is designed to be a testing laboratory before establishing the
sizable Doraleh industrial and commercial free zone, which will cover 600,000 m2
in the first phase. The Airport,
managed by DPI is also planning to establish a free zone within its premises to
complement the Doraleh Free zone.
The largest Foreign Direct Investment (FDI) is the
project of Doraleh, which is reflected in a peak increase in FDI as indicated in
the following statistics obtained from the Central bank.
|
|
2000 |
2001 |
2002 |
2003 |
|
(US$ million) |
3.3 |
3.4 |
5 |
21.4 |
A.
Brief Description of the Banking System
BCI and Indosuez Bank, the two only existing banks
in Djibouti, are respectively linked to BNP Paribas and Credit Agricole, based
in Paris. Three other banks filed
for bankruptcy in the last fifteen years primarily due significant number of
loans, which proved uncollectible. These
are “Banque de Developpement du Moyen Orient”, “Banque de Developpement de
Djibouti” and “Banque Al-Baraka”. Djibouti’s
market is very small but there is regional market potential.
The banks are used by businessmen from neighboring Somalia, Somaliland,
and Ethiopia for transactions such as opening letters of credit.
Both BCI and Indosuez Bank offer high interest rates (9 to 16%) because
of anticipated difficulties in recovering loans.
These banks extend mainly short term financing since the capital that
they secure is also on a short-term basis.
Loans are primarily for commercial purposes but individual loans are
possible.
Money Exchange & Transfer companies are widely
used in Djibouti because of their better rates and more simple operations.
Djiboutians use them to send money abroad or to receive money from
abroad. Eight money Exchange &
transfer companies are officially recognized by the Central Bank, however a
large number of “Hawalas” function informally and cannot be controlled by
the Central Bank. The main problem
remains the widespread habit of using cash in commercial operations.
This situation makes monitoring of cash inflow/outflow difficult.
The Central bank oversees Djibouti’ s banking system. The Central Bank approves the establishment of banks and controls their financial activities. To be approved, banks should initially make an official request to the Central Bank. The Central Bank ensures the legality of the institution, the bona fides of its shareholders or guarantors, the honorability and experience of the people who will direct, manage the institution, and that a minimal capital of 300 million Franc-Djibouti (US $1.70 million) is available. The Central bank also examines planned activities and their impact on economic and social