Transparency of the Regulatory System
Government policies are sometimes not transparent, and do not foster competition on a non-discriminatory basis. Likewise, the legal, regulatory, and accounting systems are not always transparent nor are they consistent with international norms. Rule-making and regulatory authority exists at the state level.
The Djiboutian accounting system is loosely based on the French accounting system as it existed at independence (1977) and has been updated since that time. Legal and regulatory procedures are complex and unevenly enforced. Draft bills are initiated in a process of public consultation in which stakeholders participate. Regulatory actions including laws and decrees are available online at the following site: https://www.presidence.dj/recherchetexte.php
The State General Inspection (SGI) is tasked with ensuring human and material resources in the public sector are properly utilized. It also acts as the enforcement mechanism.
The regulatory regime is written in a way that promotes open competition, at least in the sectors that are open to private investment. Implementation of the law is sometimes not transparent, and public functions such as licensing and issuing permits are not always done in a systematic fashion. Application of the rules is not always consistent. The laws are proposed by the ministry, and then debated and passed by the parliament. The promulgation by the president is the last stage. Public finances and the terms of debt obligations are opaque. Ministries and regulatory agencies do not develop forward regulatory plans – that is, a public list of anticipated regulatory changes or proposals intended to be adopted/implemented within a specified time frame.
International Regulatory Considerations
Djibouti is a member of the Intergovernmental Authority on Development (IGAD) and the Common Market for Eastern and Southern Africa (COMESA). The regulatory systems in these countries are not yet harmonized. The European norms and standards are referenced in Djibouti. Djibouti is a member of the WTO.
Legal System and Judicial Independence
Djibouti’s legal system is based on Civil law, inherited from the French Napoleonic Code. It 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. In addition, Islamic law (shariah) and traditional law is practiced. Djibouti has a written commercial code and specialized courts, including criminal court, administrative court, and civilian court as well.
The court system is de jure independent from executive power. However, this is not always the case in practice so most investors in the market request the right to counsel including agreements for arbitration in a recognized international court. International lawyers practicing in Djibouti have reported effective application of maritime and other commercial laws, but in the past, foreign companies operating in Djibouti have reported that court deliberations were biased or delayed.
Laws and 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. The National Investment Promotion Agency (NIPA) website has useful information and acts as a guide for investors: www.djiboutinvest.com. The agency bills itself as the one stop shop for investing in Djibouti.
The Djibouti Office of Industrial and Commercial Protection (ODPIC) is the agency in charge of registering businesses. Its website contains information about the registration process: https://odpic.net/
Competition and Anti-Trust Laws
In 2008, Djibouti adopted a law on competition and consumer protection, which does not cover State-Owned Enterprises. Under this law, the Government of Djibouti regulates prices in areas where competition remains limited. For example, the government regulates postal services, telecommunications, utilities and urban transport services. Djibouti does not have an agency that specifically promotes competition and does not have a comprehensive strategy to restrict market monopolies.
Expropriation and Compensation
Foreign companies enjoy the same benefits as domestic companies under Djibouti’s Investment Code. Djibouti’s Investment Code stipulates that “no partial or total, temporary or permanent expropriation will take place without equitable compensation for the damages suffered.” There are no known recent cases of U.S. companies in Djibouti being subject to expropriation. There have been cases of foreign companies facing de facto expropriation via fines, while other companies have had their concession to run a public service unilaterally revoked.
ICSID Convention and New York Convention
Djibouti recently became a member state of ICSID. On April 12, 2019, Djibouti signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention, also known as the Washington Convention). Djibouti made its deposit of ratification on June 9, 2020 for an entry into force on July 9, 2020.
Djibouti is a contracting member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
Djibouti’s government has had only a few investment disputes in the past several years, none with U.S. businesses. In some cases, the disputes have been settled in international arbitration courts and the government has abided by those decisions. In other cases, there has been de facto expropriation through large fines. As in any country, a strong, enforceable contract is important.
The government passed a law in November 2017 permitting the government to unilaterally alter or terminate contracts. Using this law, in February 2018, Djibouti’s President issued a decree abrogating the government’s contract with DP World concerning the Doraleh Container Terminal, later nationalizing the equipment, physical assets, and land. DP World continued to hold 33.33% of shares until July 2018, when the government terminated the shareholders’ agreement with DP World and later nationalized all shares. Throughout, DP World has continued to claim that the 30-year 2006 Doraleh Container Terminal concession agreement remains in force.
In January 2020, the London Court of International Arbitration decided Djibouti should restore DP World’s rights to operate Doraleh Container Terminal for 25 years, in line with the original deal. It was the court’s fifth ruling in favor of DP World since Djibouti nationalized the port. In response, Djibouti’s President released an official communiqué rejecting the court ruling, stating “As the Republic of Djibouti has consistently indicated since the termination of the concession, the only possible outcome is allocation of fair compensation in accordance with international law.”
International Commercial Arbitration and Foreign Courts
There is no domestic arbitration body within the country. In February 2014, the IGAD countries agreed to set up an international Business Arbitration Center in Djibouti. This institution provides a mechanism for resolving business disputes and helps create a more transparent business environment in the region by reinforcing the principles of contract law and increasing the number of lawyers practicing commercial and contract law in Djibouti. Djibouti’s rule of law is weak as it relates to business disputes involving non-Djiboutian. Investment dispute cases are not made public.
Djibouti does have bankruptcy laws, and bankruptcy is not criminalized. Insolvency laws are a bright spot in Djibouti’s investment climate, as it was ranked 44 out of 190 by the World Bank in 2020 in this area.