2013 Investment Climate Statement - Djibouti

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013

Openness To, and Restrictions Upon, Foreign Investment

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Djibouti is a country with few resources and recognizes the crucial need for foreign investment for its economic development. The country’s assets include a strategic geographic location, a Free Zone, an open trade regime, a stable currency, substantial tax breaks, and other incentives.

Potential Areas of Investment include:

• Transport/Shipping: Djibouti is East Africa’s largest deepwater port, and its service-based economy revolves around its port business. A new fuel pier was dedicated in 2006, and a new US$ 400 million container terminal in 2009. In December 2012, Djibouti and Ethiopia laid the cornerstone for a new US$ 61 million port in Tadjoura, designed to ship potash from northern Ethiopia. In February 2012, Djibouti, Ethiopia and South Sudan signed a tripartite Memorandum of Understanding (MOU) to build an oil pipeline from South Sudan to Djibouti port via Ethiopia. In November 2012, Djibouti and China Exim Bank signed a US$ 64 million loan to build a mining terminal to export salt from Lake Assal. Air transportation is also a growing sector with the entry of Turkish Airlines in September 2012 and Egypt Air in March 2013.

  • Services Sectors: Djibouti's financial services sector continues to grow, as do port-related services such as freight forwarding. There is a lack of specialized medical care in Djibouti; many residents and expatriates currently travel abroad to receive such care.
  • Energy: Djibouti has unexploited renewable energy resources (geothermal, wind, and solar). In 2012, Djibouti’s President pledged to make a full transition to renewable energy by 2020.
  • Tourism: A large resort hotel complex, managed by the Kempinski Hotel Group, opened in October 2006. Unique ecotourism and dive tourism opportunities exist but are underexploited.
  • Manufacturing/Fishing Sectors: Djibouti currently imports almost all consumer goods; only small-scale fishing operations are present, primarily by non-Djiboutians. Djibouti’s Coast Guard, created in 2011, protects Djibouti’s territorial waters from illegal fishing.

Djibouti's laws encourage foreign investment. In principle, there is no screening of investment or other discriminatory mechanisms. In practice, however, navigating the bureaucracy can be complicated. Certain sectors - most notably public utilities - are state-owned and are not open to investors. Dubai Ports World manages Djibouti’s Doraleh Container Terminal. China Merchants Holdings purchased a portion of Djibouti’s port operations in December 2012.

Djibouti plans to expand Doraleh Container Terminal in 2013. The new expansion would more than double TEU (Twenty-foot Equivalent Unit) capacity at the port from 1.2 million to 3 million. Djibouti also plans to construct a new multi-purpose port and rehabilitate its general cargo port in to a new business district. In addition, the Government has plans for a new oil refinery, liquid natural gas, and livestock terminal. Although Gulf States have been the primary source of Foreign Direct Investment over the last ten years, China has been investing heavily in the country. China Exim Bank is financing several large scale infrastructure projects across Djibouti.

The Ethiopia-Djibouti Railway Company (CDE) - jointly owned by the Governments of Djibouti and Ethiopia - faces serious and financial and technical difficulties, largely linked to aging machinery and tough competition from Ethiopian trucking companies. The European Union donated 50 million Euros to help rehabilitate the CDE's narrow-gauge tracks and renovate several bridges; however, this project appears to have stalled. Attempts to establish private management of the CDE have failed, including negotiations with the South African company COMAZAR and the Kuwaiti Al-Ghanem Group. There are plans to build a new railway line from northern Ethiopia to Tadjoura. The new track will be used to export potash from Ethiopia.

In April 2004, the Government of Djibouti conceded its fishing port to a private firm, Djibouti Maritime Management Investment (DMMI). A fish processing facility was inaugurated in 2009; however, local standards still fall short of international export requirements.

Djibouti's National Investment Promotion Agency (NIPA), created in 2001, promotes private-sector investment, facilitates investment operations, and works to modernize the country's regulatory framework. The Minister of Investment Promotion - a position created in 2008 - oversees NIPA. NIPA assists foreign and domestic investors by disseminating information and streamlining administrative procedures. Its ultimate goal is to serve as a one-stop shop for investors. NIPA identifies fishing, banking, insurance, tourism, health, and manufacturing as priority sectors for investment.

The government introduced a Value Added Tax (VAT) system in January 2009. The VAT consists of a flat rate tax of 7 percent imposed on companies with an annual turnover exceeding

80 million Djiboutian Francs (approximately US$ 450,000). In January 2010, the government started to lower the annual turnover to 50 milliion Djiboutian Francs (approximately US$ 282,000) for VAT. Whenever VAT is levied at 7 percent, other existing taxes on the same transaction are reduced by 7 percent. Between 2004 and 2008, the government lowered taxes on several categories of goods and exempted tax from basic food commodities to counteract inflation and encourage business sector growth.

Djibouti belongs to a number of regional organizations, including the Inter-Governmental Authority on Development (IGAD) and the Common Market for Eastern and Southern Africa (COMESA), which groups 19 countries into a common market of more than 300 million people. Djibouti is eligible to benefit from the African Growth and Opportunity Act (AGOA), and is also a member of the World Trade Organization (WTO). In addition, Djibouti is among the 34 African least developed countries with the option of entering the European Union Generalized System of Preferences.

Conversion and Transfer Policies

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.

Expropriation and Compensation

Djibouti's Investment Code stipulates that "no partial or total, temporary or permanent expropriation will take place without equitable compensation for the damages suffered". The

Embassy is not aware of any recent act of expropriation or compensation related to foreign companies.

In December 2007, Djibouti and France signed a bilateral agreement regarding bilateral promotion and protection of investment, which extends legal protections to French investments in Djibouti. The draft of a revised Commercial Code, aimed at improving and modernizing the business climate in Djibouti, was approved in 2011.

Dispute Settlement

Djibouti's legal system is based on French law, and consists of three courts: a Court of First Instance presided over by a single judge; a Court of Appeals, with three judges; and the Supreme Court.

International lawyers practicing in Djibouti have reported effective application of maritime and other commercial laws, but there have been reports in the past from foreign companies operating in Djibouti that court deliberations were biased or delayed. Djibouti’s rule-of-law is weak as it relates to business disputes involving non-Djiboutians. Foreigners may be pressured to quickly resolve disputes in favor of Djiboutians.

In principle, judgments by foreign courts are accepted by Djiboutian courts, and Djibouti is a member of the International Center for the Settlement of Investment Disputes. The

Djibouti Chamber of Commerce is planning to set up a Regional Mediation Center, designed to settle commercial disputes in a timely and transparent manner. In recent years, there have been no investment disputes involving U.S. companies in Djibouti.

Performance Requirements/Incentives

Performance requirements are not a pre-condition for establishing, maintaining, or expanding foreign direct investments. Incentives do, however, increase with the size of the investment and the number of jobs created. Tax benefits and incentives fall under two categories detailed in the investment code. Investments greater than US$ 280,000 that create a number of permanent jobs may be exempted from license and registration fees, property taxes, taxes on industrial and commercial profits, and taxes on the profits of corporate entities. Imported raw materials used in manufacturing are exempted from the internal consumption tax. These exemptions apply for up to a maximum of ten years after production commences. Investment matters fall under the jurisdiction of the national investment board, which approves all investments.

Foreign investors are not required by law to have a local partner except in the insurance industry and only if the company is registered as a local company and not a branch of an existing foreign company. Djibouti offers significant incentives to private-sector individual and corporate investors when establishing a company within its Free Zone. Establishing a local company outside the Free Zone is significantly more time-consuming. The Djiboutian investment code guarantees investors the right to freely import all goods, equipment, products, or material necessary for their investments; 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, which strongly favors the employee.

Right to Private Ownership and Establishment

Djiboutian laws guarantee rights for foreign and domestic private entities to establish and own business enterprises. Legally established private-sector companies have the same access to markets, land ownership, credit, and other business facilities as public enterprises. Although restrictions on private enterprises are minimal, competitive equality in regard to public enterprises, namely public utilities, remains limited.

Protection of Property Rights

There are sales of pirated trademarked products in Djibouti, especially in the informal market. Djibouti has a substantial informal sector. Trade with regional trading partners also occurs 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, and trade secrets. 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 July 2006, Djibouti passed an additional law (Law 154) enforcing the protection of copyrights.

Djibouti has an Office of Industrial and Commercial Property Rights (ODPIC), and passed a comprehensive law on the protection of property rights in July 2009. In practice, protection of intellectual property rights has not been strictly enforced. In May 2011, the government clarified ODPIC’s mandate as well as the rules it needed to enforce.

Transparency of the Regulatory System

With guidance from the International Monetary Fund, the Government of Djibouti made some areas within its ministries more transparent. For example, the Ministry of Finance publishes the state budget on its website. This includes sources of income and budget allocations for of its ministries; however, bureaucratic obstacles remain.

Efficient Capital Markets and Portfolio Investment

Two large banks - Bank of Africa (BOA) and Bank for Commerce and Industry – Mer Rouge (BCI-MR) dominate Djibouti’s banking sector. While these two banks account for the majority share of deposits in-country, they face competition from nine new banks, all established in Djibouti between 2006 and 2011. Credit is allocated on market terms, and foreign companies do not face discrimination in obtaining it. Generally, however, only well-established businesses obtain bank credit, as the cost of credit is high.

Djibouti's nine new commercial banks are: the Malaysian International Commercial Bank; the Saba Islamic Bank of Yemen; the Bank of Deposits and Credits of Djibouti, a bank backed by Swiss capital; Salam African Bank, an Islamic bank with shareholders from East Africa; the Agricultural Bank of Yemen, Dahabshil Bank International, an Islamic bank owned by Dahabshill Money Transfer, Shura Bank from Egypt, and an Iraqi bank, WARKA Bank; Exim Bank from Tanzania. Deposits in the new banks have increased from 12% of the market share in 2009 to 23 % in 2012 while their loans went from 9.5% to 15%. Djiboutians holding formal banking accounts have increased from 8% in 2009 to 14% in 2012, and the government continues to actively encourage expansion of banking services, for example, by guaranteeing access to a bank account for citizens earning above a set monthly salary, and by paying government salaries electronically.

Competition from State-Owned Enterprises

State-owned enterprises control telecommunication, water, and electrical distribution in Djibouti.

State-run services in a handful of other areas - such as municipal garbage collection, real estate, and social security - do not hold legal monopolies but are afforded material advantages by the government (such as government-backed loan guarantees in the real estate sector). There are also state-run media outlets (television, radio, and print), and a non-functioning state-run railway company (jointly owned by the governments of Djibouti and Ethiopia).

Djibouti's most important economic engine - Doraleh Container Terminal - is privately managed by Dubai Ports World. In July 2011, the International Port Authority of Djibouti (PAID) assumed management of Djibouti’s old port after Dubai Ports World and the Government of Djibouti mutually agreed to end the management contract. In January 15, 2013 PAID – as a condition for investment by China Merchants – became a private company.

Senior management of state-owned enterprises reports directly to appropriate line ministers but also answer to an Administrative Council. State-owned enterprises are required by law to publish an annual report, which is submitted to the National Assembly. The Chamber of Accounts and Fiscal Discipline is charged with auditing state-owned enterprises.

Corporate Social Responsibility

There is nascent but growing awareness among both companies and consumers in Djibouti of internationally accepted corporate social responsibility standards. Well-established local companies have long-supported charitable causes, and consumers look favorably on companies that practice good corporate social responsibility.

The government passed a law in October 2012 that made Codex labeling mandatory on all food packages. Beginning April 2013, all packaged food items sold in Djibouti will be required to indicate the product composition, nutritional characteristics, origin, and any warnings, as appropriate.

Political Violence

Djibouti offers a stable political environment. In 2010, the Parliament amended the Constitution to allow President Guelleh to run for a third term. The opposition in the country and abroad strongly contested the legality of the constitutional amendment and peacefully protested the change. In April 2011, President Guelleh defeated an independent candidate to win a third, five-year term with 80% of the popular vote. An ongoing border dispute with Eritrea, which led to fighting in June 2008, remains a potential source of instability in northern Djibouti. Individuals identify with their ethnic groups, leading to occasional friction, especially in the impoverished Afar region. Legislative elections are scheduled for February 2013.


Corruption exists and is an obstacle to investment and business development. Privatization of port and free zone operations continues to increase transparency and government revenues in the most important sectors of the economy. The government has pledged to both welcome and protect new investment; however, some investors have reported pressure from local officials to become their "partners" or to obtain sub-contracts. Two magistrates were dismissed in 2007 as the result of an investigation into judicial misconduct. In late 2009, the director of the public garbage collection agency (OVD) was investigated for embezzlement and terminated as a result. In 2010, the director of the “Fonds Routier,” a public service in charge of collecting road fees was also dismissed for the same reason. Despite these high profile cases, consistent prosecution and punishment for corruption is rare.

The Chamber of Accounts and Fiscal Discipline (CAFD) has the authority to verify and audit all public establishments for transparency and accountability, and to implement necessary legal sanctions. The CAFD has reported on cases of lack of transparency and accountability in government agencies.

The State General Inspection (SGI), another government institution, complements the work of the CAFD by ensuring that human and material resources in the public sector are properly utilized. The SGI held a workshop on corruption sponsored by the United Nations Development Program (UNDP) in December 2012, a first in Djibouti. The SGI completed an audit of ministries' inventories of government property, in collaboration with the Ministry of Finance's own inspector general. The CAFD and SGI are mandated to produce regular corruption reports, although in practice, these reports were not always completed in a timely manner.

Bilateral Investment Agreements

Djibouti has several bilateral investment agreements with France, China, Ethiopia, Yemen, Egypt, Malaysia, Sudan, South Sudan, and India.

Other treaties to which Djibouti is a party include:

  • Partnership Agreement between the Members of the African, Caribbean and Pacific Group of States (ACP)
  • 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
  • Unified Agreement for the Investment of Arab Capital in the Arab States
  • Arab Authority for Agricultural Investment and Development

OPIC and other Investment Insurance Programs

Djibouti is eligible for Overseas Private Investment Corporation (OPIC) programs. Djibouti is a member of the Multilateral Investment Guarantee Agency (MIGA), which guaranteed the construction of the Doraleh Container Terminal in 2009.


Djibouti has complicated labor laws that favor the employee. In addition, the laws are complex and may contradict other laws, including in the areas of retirement and insurance. It is difficult to terminate employees.

Vocational and professional training facilities remain limited. School attendance is compulsory until the age of 16, and enrollment rates have risen from approximately 38% in 1998 to 78% in 2011. In practice, some students do leave school before the age of 16. Skilled Djiboutian workers - especially in highly demanded trades such as construction - are in short supply. The Government of Djibouti, Camp Lemonnier, and the Port of Djibouti are the country’s top employers. There are limited private sector employment opportunities.

By law, all employers are obligated to make social security payments on behalf of their employees, through the National Council for Social Security. Wages in Djibouti are relatively high compared to other countries in the region. This reflects influence from historically high pre-independence French pay scales, and the country’s high cost of living. In December 2011, basic pay for low-level civil servants was increased.

Widespread use of the legal narcotic khat substantially impacts both employee performance and family incomes. Reports show that over half of the Djiboutian male population consumes khat, a narcotic leaf imported daily from Ethiopia. Khat users spend a considerable percentage of their income to purchase the narcotic. Major employers are increasingly forbidding the use of khat by their workers, but khat use remains the norm in most sectors of the economy.

The Labor Code allows for employees to form labor unions. It also provides guidelines on wages, overtime pay, annual leave, sick leave, work schedules and holidays. A new 2006

Labor Code was criticized by labor unions, who have asserted that it gives more rights to employers at the expense of workers. Two large labor unions exist in Djibouti, but only the Djiboutian Workers Union (UDT) is recognized by international organizations. Unions have accused the government of Djibouti of interfering in their internal affairs.

In December 2007, the government created a National Agency for Employment, Training, and Professional Integration (ANEFIP). One of the objectives of ANEFIP is to become a viable interlocutor for investors. ANEFIP maintains a database of Djiboutian job-seekers with various educational backgrounds and kinds of experience. ANEFIP also issues work permits to foreign workers.

Companies that register their business outside of the Free Zone automatically become members of the Djibouti’s Chamber of Commerce.

Foreign Trade Zones/Free Trade Zones

The 42 acre Djibouti Free Zone has been operational since 2004 and can house up to 100 companies. In July 2012, the government approved a new 57 hectares free zone (Jabanaas Free Zone) just outside of the capital.

Foreign Direct Investment Statistics

The following data on annual FDI, from Djibouti's Central Bank, show that the revised FDI in 2010 was much smaller than estimated. However, the decreasing trend is expected to be reversed in 2012:


US$ million




















110 (estimated)