This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 DJIBOUTI 001042 
 
SIPDIS 
 
USITC FOR L. SCHLITT 
 
E.O. 12958: N/A 
TAGS: OTRA ETRD AF ECON PREL EAID DJ
SUBJECT: INFORMATION FOR USITC STUDY ON U.S. 
SUB-SAHARAN AFRICAN TRADE AND INVESTMENT 
 
REF: A.STATE 137500 
 
     ¶B. DJIBOUTI 856 
 
 
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Introduction 
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¶1. Good management and foreign assistance have greatly 
contributed to a healthier economy in Djibouti.  Hosting the 
COMESA conference in 2005 will give the Government of 
Djibouti (GOD) an opportunity to promote its liberal 
economic regime and the port of Doraleh, which is expected 
to jump start trade in the region.  The fishing port was 
conceded to foreign management and the railway company is 
following in its footstep.  IGAD's main achievement 
continues to be its sustained role in the positive 
development of both the Somali and Sudanese peace 
processes. 
 
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Major Economic Development 
-------------------------- 
¶2. Amarreh Ali, Chief Economist at the Ministry of Finance 
and Economy, holds that vigorous management and financial 
aid from the USG and France have significantly ameliorated 
Djibouti's economy.  It has resulted in the first positive 
real growth (3.5%) in more than a decade.  Also, strong 
partnership with the IMF led to a Staff Monitored Program 
(SMP) for the year 2004.  The SMP consists of an informal 
agreement between GOD and IMF staff to monitor the 
implementation of the GOD's economic program for a period of 
one year.  This SMP will follow up the completion of the 
reforms required by the IMF in the first Enhanced Structural 
Adjustment Facility (ESAF), in particular.  There will also 
be some additional measures such as a Code of Commerce and a 
Labor Code.  The Memorandum of Economic and Financial 
Policies (MEFP) signed between the IMF and the GOD contains 
a detailed list of tasks.  The GOD is required to prepare 
progress reports on a regular basis.  The SMP is expected to 
restore GROD's credibility to the donors. 
 
¶3. Moreover, the IMF validated the GOD Poverty Reduction 
Strategy Papers (PRSPs) in June 2004.  The PRSP aims at 
reducing poverty and unemployment by improving living 
conditions for all the population.  This document was 
elaborated with the contributions of government agencies, 
civil societies, trade unions and private sector 
representatives.  It offers a comprehensive strategic 
framework to be implemented over horizons, 2006, 2010 and 
¶2015.  Improvements in the medium range include: reduction 
of the extreme poverty rate of 42.25% in 2002 to 36.1% by 
2006; sustained real GDP growth average to 4.6% during 2004- 
2006; increase of the schooling rate of 42.7% in 2002 to 73% 
by 2006; and decrease of infant death rate from 103.1 per 
1000 to 75 per 1000 by 2006.  Malik Garad, Chief Economist 
at the Central Bank, indicated that a consultative meeting 
of international organizations is scheduled for December 
2004 to prepare for a donors round table to be held in the 
first quarter of 2005. 
 
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Major Trade Development 
----------------------- 
¶4. In June 2004, the "Societe Djiboutienne du Terminal 
Vraquier" (STDV) owned by a Saudi Investor, started the 
construction of a bulk grain terminal at the port of 
Djibouti.  This project consists of two warehouses for 
grains and fertilizers, 12 packing units and two large 
cranes.  It should be completed in two years and has the 
objective of speeding up the unloading of food aid and 
fertilizers, which will make the port more competitive. 
 
¶5. The construction of a new port in Doraleh remains the 
most important project in Djibouti.  The project includes 
three phases: 1) an oil terminal, 2) a container terminal 
and 3) a large commercial/industrial free zone. The GOD 
awarded management of its ports to Dubai Port Authorities, 
which considers Doraleh Port as an extension of Dubai port. 
The oil terminal is expected to be operational by June 
¶2005.  Seawater depth of more than twenty meters will allow 
Doraleh Port to accommodate fourth generation ships carrying 
up to 8,000 containers.  The GOD is convinced that this 
investment will generate tremendous economic benefits to the 
country.  Please read ref B for more details on the oil 
terminal. 
 
¶6. Tenders for the Livestock Project are scheduled for 
August 2004 according to Mohamed Omar, Secretary General at 
the Chamber of Commerce. Livestock from the region, but 
mainly from Somalia/Somaliland and Ethiopia, would be 
quarantined in Djibouti and shipped to Gulf countries.   The 
GOD is discussing intensely with the Gulf Countries the 
possibility of lifting the ban on livestock from the 
region.  The project site, which covers 300 acres, is 
situated near the border with Somaliland to allow animals to 
be delivered by trucks.  Animals from Ethiopia could either 
come by truck or by railroad.   The project includes a pre- 
quarantine inspection area, a quarantine facility and a pre- 
shipping final inspection plot located at the port. 
Ron Omar, Livestock Project Coordinator at the Ministry of 
Commerce, is satisfied that this USAID funded project should 
become operational by the end of 2004. 
 
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COMESA 
------ 
¶7. By hosting the COMESA Conference in 2005, the GOD intends 
to promote its liberal economic regime and the Port of 
Doraleh.  During its presidency in 2005, the GOD is 
determined to convince COMESA countries that Djibouti is the 
natural gateway to their market. 
Djibouti would like especially to attract land locked 
countries such as Uganda, Malawi and Rwanda.  Unlike most 
COMESA countries, Djibouti does not have an agriculture base 
but has to rely on services.  Abdoulrazak Idriss, COMESA 
Focal Point at the Ministry of Commerce, said that the 
adoption of a common external tax policy remained the main 
issue covered in the last COMESA Conference held in Uganda 
in June 2004.  A number of countries have not finalized 
studies of the impact of this new tax policy on their 
individual economies.  For instance, Djibouti gets 24% of 
its GDP from tax income so it needs a clear measurement of 
the impact of this new tax policy.  Mr. Idriss said Djibouti 
is not well integrated in the COMESA partly because most of 
the COMESA state members are English speaking, which causes 
a problem of communication.  He added that the Djiboutian 
business community is not well informed about the 
opportunities offered by COMESA. 
 
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IGAD 
---- 
¶8. Continued efforts from IGAD greatly contributed to 
positive developments in the peace process both in Sudan and 
Somalia.  As a result, the Sudanese government and the Sudan 
People People's Liberation Movement signed a power sharing 
agreement in May 2004.  The Somali National Reconciliation 
Conference (SNRC), held in Kenya is in its last phase of 
seat attributions in the new Parliament.  The African Union 
agreed with IGAD in sending observers and a peacekeeping 
force in Somalia if a new government is established in 
Mogadishu.  In an effort to assist the SNRC, IGAD organized 
a two-day conference in Djibouti for the Somali business 
community on July 21 - 22, 2004 to obtain its commitment to 
support financially a new government in Somalia.  Other IGAD 
activities included the reappointment of Dr.Attala Hamad 
Bashir, IGAD Executive Secretary, for a second term, the 
validation of a five year (2004-2008) strategy, the 
reinforcement of the Conflict Early Warning and Response 
Mechanism (CEWARN), preparation of a regional strategy on 
terrorism and mainstreaming gender in the SNRC.  Finally, 
IGAD continued also to work in its core priorities such as 
desertification and food security. 
 
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Country Privatization Efforts 
----------------------------- 
¶9. Serious financial and technical difficulties caused by 
old machinery and harsh competition from Ethiopian trucking 
companies led the GOD and Ethiopia, the Railway co-owners to 
the decision to concede the company to foreign management 
for a transitional two-year period.  On July 22, 2004, the 
Board of Directors pre-selected six foreign firms, which 
will soon receive the tender.  The European Union, which has 
been holding back an approved 40 million Euro grant (approx. 
USD 48.6 million) for many years is planning to release the 
funding during the transitional period to modernize the 
Railway Company. 
 
¶10. In April 2004, the GOD conceded its fishing port to a 
private firm, Djibouti Maritime Management Investment 
(DMMI).  DMMI's objective is to maximize existing fish 
production capabilities of the port to satisfy the local 
market first.  Then, DMMI plans to eventually target markets 
in the Arab Gulf States, Europe and USA. 
 
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AGOA 
---- 
¶11. No exports were made as a result of AGOA because of the 
lack of factories in Djibouti.  However, the port of Doraleh 
represents a huge potential for AGOA. 
 
------------------------------ 
Economic and Trade Data Update 
------------------------------ 
¶12. The following data, obtained from the Ministry of 
Finance and the Central Bank, are useful for updating the 
data on the ITC website for the year 2003. 
Economic Indicators 
GDP (nominal, Dfr bn): 111.0 
GDP (US$ bn): 0.63 
CPI Inflation (annual average; %): 2.0 
Goods Exports (US$ mn): 89.0 
Goods Imports (US$ mn): 338.2 
Trade Balance (US$ mn): (- 249.2) 
Current Account Balance (US$ mn): (-47.4) 
Foreign Exchange Reserves (US$ mn): 100.9 
Total External Debt (US$ mn): 426.5 
Exchange Rate (Dfr/US$): 177.7 
 
Origins of GDP 
Primary: 3.1% 
Secondary (construction & public works): 6.2% 
Secondary (other): 8% 
Tertiary (transport & communications): 24.7% 
Tertiary (other): 57.7% 
 
Real GDP Growth Rate: 3.5% 
 
Main Trade Commodities (US$ mn) 
Exports 
Re-exports: 72.0 
Locally produced goods: 17.0 
Imports 
Food & beverages: 87.66 
Qat: 20.12 
Petroleum products: 27.88 
Machinery: n/a 
 
Net Foreign Investment (US$ mn): 21.4 
 
RAGSDALE