Investment Climate

Background

Djibouti has little in the way of natural resources and arable land. However, the country’s access to the Red Sea and the Gulf of Aden makes it a strategic trade hub for the region, and Ethiopia‘s main export-import route. It is a big transport corridor and quite a lot of goods that go into Ethiopia and other countries pass through the Port of Djibouti. The country’s key assets include a strategic geographic location, a Free Zone, an open trade regime, a stable currency, substantial tax breaks, and other incentives. Djibouti recently became a member of Africa Finance Corporation (AFC), an international institution that acts as a catalyst for private sector investment in key infrastructure projects across Africa. 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.

Economy

The IMF has projected GDP growth at or above 6% annually for the next several years. In the nineties, Djibouti’s economy was weakened by an influx of refugees, a persistent drought, a four-year civil war, and a substantial decrease of foreign aid. Recent years have seen a significant improvement driven by intensive expansion of the ports, changes in the tax and labor codes, and an influx of foreign direct investment (totaling 9.1% of Djibouti’s GDP in 2014). According to World Bank (2015) Real GDP growth was 6.5% for 2015 and has remained between 4% and 6% per year for the last five years, and inflation has remained below 8%.The inflation rate was 2.9% in 2015.

Doing business in Djibouti

The highlights of World Bank score of doing business in Djibouti is summarized as follows;

Topic World Bank 2017 rank World Bank 2016 rank Change
Overall 171 168 -3
Starting a business 172 171 -1
Dealing with Construction Permits 120 118 -2
Getting electricity 172 171 -1
Registering property 168 166 -2
Getting credit 181 181  
Protecting Minority Investors 178 180 2
Paying taxes 106 103 -3
Trading across the boarders 155 155  
Enforcing contracts 184 184  
Resolving insolvency 71 67 -4


Political

Djibouti’s President Ismail Omar Guelleh is serving his fourth term after obtaining   a landslide victory in an election. President Guelleh has been in power since 1999. There are no private TV or radio stations and the government owns the main newspaper and the national broadcaster Radiodiffusion-Television de Djibouti (RTD).

Population

According to 2015 World Bank data, it has a population of 887,861 and population density of 38 per square kilometer. Annual population increase has averaged 1.3%. The average unemployment rate is about 50% and the youth unemployment rate is about 80%.

Urban Population

About 77.3 % of the population of Djibouti lives in urban areas and it is growing at a rate of 0.10% per year.

Attitude toward Foreign Direct Investment

Djibouti’s laws encourage foreign investment, with state-run media providing favorable coverage of projects funded by foreign entities. The government sees FDI as a driving force behind Djibouti’s economic growth. Faced with high unemployment rates of over fifty percent, FDI is expected to generate jobs.

Restrictions on foreign investments

There is not an established screening process for FDI. FDI is encouraged and given favorable tax status. Specific terms are negotiated on a case-by-case basis. Many companies therefore have a unique status created by agreement with varying preferences and advantages. Navigating the bureaucracy, however, can be complicated. Certain sectors like public utilities are state-owned and are not open to investors. In July 2015, the Djiboutian government approved a bill liberalizing the production of electricity. The state-owned company Djibouti Electricity (EDD) has had a monopoly on electricity production for decades. The bill will begin the process of opening the sector to competition, though this will likely be slow, and EDD retains all rights to the transmission and distribution of electricity. Nonetheless, the liberalization of production is a positive step in promoting private investment in the energy sector.

The National Investment Promotion Agency (NIPA) encourages the promotion of investment in Djibouti through a policy of flexibility in investment operations, a modern regulatory framework and procedures. NIPA assists foreign and domestic investors by disseminating information and streamlining administrative procedures. To simplify the process, Djibouti seeks to use the main post office as a one-stop-shop where new business owners can register their company with all the appropriate government agencies. The construction of the facility is in progress and will house several services, including immigration and social insurance. The NIPA will be the main coordinator of the one-stop-shop which is expected to become fully operational in a few months. NIPA has identified several priority sectors for investment, including infrastructure and renewable energy. A new Convention was signed in February 2016 making formerly temporary contracts between workers and labor brokers into fixed term contracts. These fixed term contracts will allow the workers to enjoy social security benefits, additional job security and the ability to borrow money from banks like other regular workers. Most foreign investors use local brokers for their staffing.

Laws/Regulations on Foreign Direct Investment

The country’s legal system has no discriminatory policy against foreign investment, and frequently negotiates extended tax breaks and other incentives to attract larger investments.

Remittances

Djibouti has no foreign exchange restrictions. Businesses are free to repatriate profits. 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. Funds can be transferred by using banks or international money transfer companies such as Western Union, which are both monitored by the Central Bank.

Business Registration

The Djibouti Office of Industrial and Commercial Protection (ODPIC) is the agency in charge of registering businesses. Its website is www.odpic.info and contains information about the registration process. Online registration is not possible; the normal registration process takes 14 days according to the World Bank. At a minimum, a company must register with the tax, social security offices, and the Chamber of Commerce. There is no regime allowing simplified business creation without a notary.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors are not required by law to have a local partner except in the insurance industry, and there only if the company is registered as a local company and not a branch of an existing foreign company. Foreign and domestic private entities have equal rights in establishing and owning business enterprises and engaging in all forms of remunerative activity

International Arbitration

The IGAD, which consists of member states Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan and Uganda, seeks to establish an international arbitration center in Djibouti. The center will focus on handling business disputes within the region. It will provide alternative mechanisms for resolving business disputes. This may improve the investment environment and aid in gaining investor confidence in the region.

ICSID Convention and New York Convention

Djibouti is not a member state to the International Centre for Settlement of Investment Disputes (ICSID convention). Djibouti is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention)

Dispute resolution through local courts is quite expensive in terms of number of days taken and the legal costs.

Protection of Property Rights

Real Property

Djibouti’s legal system officially protects the acquisition and disposition of all property rights. Mortgages do exist, and are often guaranteed by the employer, who signs a form indicating the employee’s status and salary. The employer is then obliged to inform the bank if the employee leaves the company. Local workers rely on this to secure mortgages and expect that their employer will perform this role. Intellectual Property Rights

The Ministry of Communication is responsible for safeguarding intellectual property, but intellectual property rights are rarely enforced. Trade involving counterfeit products occurs mostly in the informal market. 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.

 Corruption

The country ranked number 123 in the Transparency International corruption survey with a corruption index of 30 in 2016 and 34 in 2015.

Investment Climate in Djibouti has been summarized to include the following

International Trade Agreements with Djibouti

Investment Authority of Djibouti

Investment Guarantees in Djibouti

Investment Incentives in Djibouti

Investment opportunities in Djibouti

Natural Resources of Djibouti

Trading partners of Djibouti

Port Djibouti Shipping Status

Restrictions on foreign Investment in Djibouti

Facilitating organisations

Djibouti Foreign reserves

Banking sector

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