2023 Investment Climate Statements: Djibouti

Policies Towards Foreign Direct Investment

Djibouti’s laws encourage FDI, with the government as a driving force behind Djibouti’s economic growth. Faced with an unemployment rate of over 47%, Djibouti looks to FDI to generate jobs. There are no laws, practices, or mechanisms that discriminate against foreign investors. Navigating the bureaucracy can be complicated. FDI is encouraged by policy and foreign companies are often able to negotiate favorable tax terms on a case-by-case basis.

The government very gradually continues to open public sector entities, including state owned utilities, to private investment. In 2021 the government invited proposals for a strategic investor in the state-owned telecommunications monopoly. The energy sector remains open to competition through power purchase agreements; however, the state-owned electric utility retains all rights to the transmission and distribution of electricity. This liberalization of production has resulted in the private development of wind, solar, and waste to energy resources.

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. NIPA assists foreign and domestic investors by disseminating information and streamlining administrative procedures. Since 2017, NIPA’s one-stop-shop, which houses several agencies under one roof, has simplified business registration. NIPA has identified several priority sectors for investment, including infrastructure and renewable energy.

The Secretariat of State in charge of Investment and Private Sector Development, established in May 2021, is in charge of implementing the business climate policy, investment promotion and private sector development. This agency works in coordination with the Ministry of Economy and Finance. It ensures that the business environment is internationally competitive and conducive to private initiatives. It identifies administrative reforms that remove obstacles to the proper functioning of the private sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have equal rights in establishing and owning business enterprises and engaging in all forms of remunerative activity.  Furthermore, foreign investors are not required by law to have a local partner except in the insurance industry, and then, only if the company is registered as a local company and not as a branch of an existing foreign company.  Nevertheless, some foreign companies choose to have a local partner to help them better navigate the local bureaucracy and cultural sensitivities.  There is no established screening process for FDI.

Other Investment Policy Reviews

The OECD, WTO, and the UNCTAD have not conducted an investment policy review (IPR) for Djibouti in the last five years.  The Business and Human Rights Resource Center conducted a review in 2022 of Djibouti’s Doraleh Multipurpose Port (DMP) which focused on the DMP’s financing by China Eximbank. This report can be found here: https://www.business-humanrights.org/en/latest-news/djibouti-doraleh-multipurpose-port-phase-i/

Business Facilitation

The government of Djibouti has facilitated the registration of business by reducing the capital needed for investment, simplifying the formalities needed to register and simplifying certain tax procedures.  The most important facilitation effort is the one-stop-shop, or Guichet Unique, managed by NIPA.  The Guichet Unique ( http://www.guichet-unique.dj ) brings together all the agencies with which a company must register.

Typically, a company registers with the following Djiboutian offices:  Office of Intellectual Property, Tax office, and the Social Security office.  Online registration is not possible; the normal registration process takes 14 days, according to the World Bank.  In Djibouti, new businesses must have every document notarized to begin operations.

Outward Investment

The government neither promotes nor restricts outward investment.

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) with subsequent updates.

The regulatory regime is written in a way that promotes open competition, but application of the rules is not always consistent.  Draft bills are initiated by the relevant ministry in consultation with stakeholders from relevant ministries or public institutions.  Laws are then proposed by the relevant ministry, and then debated and passed by the parliament.  The promulgation by the president is the last stage.

Regulatory actions including laws and decrees are available online:  https://www.presidence.dj/jord .  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.

The government has no environmental, social, and governance disclosure requirement.

The State Inspector General (SGI) is tasked with ensuring human and material resources in the public sector are properly utilized.  It also acts as an enforcement mechanism to ensure administrative processes are followed.

Public finances and the terms of debt obligations are opaque.

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.  European norms and standards, especially French, 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 commercial, criminal, administrative, and civilian courts.

The court system is de jure independent from executive power but may be susceptible to political pressure.  Most investors 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.  In conjunction with UNCTAD, NIPA developed an investment guide that provides useful information: https://www.theiguides.org/public-docs/guides/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 Antitrust Laws

In 2008, Djibouti adopted a law on competition and consumer protection, which does not cover state-owned enterprises, such as electricity and telecommunications.  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.  The 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 (see discussion below about DP World).  The government may expropriate land when it is needed for public utility.  In that case, the government will compensate the landowner by providing land at a different location or by cash settlement.

Dispute Settlement

ICSID Convention and New York Convention

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.

The February 2018 abrogation of Djibouti’s contract with DP World to operate the Doraleh Container Terminal, which nationalizing the equipment, physical assets, and land continues to be under arbitration and in court for enforcement of arbitration awards. Throughout, DP World has continued to claim that the 30-year 2006 Doraleh Container Terminal concession agreement remains in force while the government contends that the agreement was obtained inappropriately.  Most recently, in February 2023 a U.S. court upheld a USD468 million award made by the London Court of International Arbitration in favor of DP World. Other arbitration cases connected to the situation remain in process.

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.  Investment dispute cases are not made public.

Bankruptcy Regulations

Djibouti has bankruptcy laws, and bankruptcy is not criminalized.

Investment Incentives

Tax benefits and incentives fall under two categories detailed in the investment code.  Investments greater than DJF 50 million (USD 282,486) that create several 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 companies start producing materials in Djibouti.  Incentives are often unique to an individual company or investment and are agreed upon with relevant ministries.  Projects can be delayed if all relevant ministries are not consulted during negotiations.  To promote exports, Djibouti has multiple free zones where companies enjoy full exemption from direct and indirect taxes for a period of up to ten years.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Djibouti Free Zone (DFZ) is located on 40 hectares and offers office space, warehouses, light industrial units, and hangars.  Businesses located in the Free Zone do not pay corporate taxes, have a simplified registration process, and receive other benefits such as assistance obtaining work permits and visas.  Currently, 180 companies from more than 30 countries operate out of the Free Zone.  In December 2013, the DAM Commercial Free Zone opened in the Damerjog region, south of Djibouti City.  In March 2018, the Djibouti Ports and Free Zone Authority and China Merchants Group began construction on a large free zone called Djibouti International Free Trade Zone (DIFTZ).  The first phase, a 240-hectare pilot zone is currently operational.  It consists of four industrial clusters which will focus on trade and logistics, export processing, business, and financial support services, as well as manufacturing and duty-free merchandise retail.   When complete it will cover 4,800 hectares and offer office space, warehouses, industrial units, and will be connected directly with the ports in later phases.  It will be the largest free zone in Africa.

Djibouti Damerjog Industrial Development (DDID) free-trade zone is in its first of three five-year phases. The project includes a multipurpose port, a liquefied natural gas terminal, a livestock terminal, dry docks and a ship repair area, a power plant and a factory that will produce construction materials.  DDID will offer all the preferential policies guaranteed by the free zone authority, such as tax exemption, minimized restrictions on foreign labor and competitive water and electricity rates.

Performance and Data Localization Requirements

The government does not follow “forced localization.”  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.  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.

There are no measures that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory.  There are no rules requiring local data storage within Djibouti.

Real Property

Djibouti’s legal system officially protects the acquisition and disposition of all property rights. Mortgages 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 mechanism to secure mortgages, and they expect that their employer will perform this role.  Typically, the government originally owns and sells the land.  There are no specific restrictions on foreign ownership of land.  All property owners who have legally obtained their land are registered.  Even if unoccupied, the property belongs to the owner who legally purchased it.

Intellectual Property Rights

Djibouti is not listed in the U.S Trade Representative (USTR) Special 301 report or the Notorious Markets List.

Djibouti’s legal structure for protecting and enforcing IPR is weak but developing.  There are few existing protections.  However, the government passed a law that protects artists’ copyrights.

Djibouti ratified the World Intellectual Property Organization (WIPO) Convention, the Paris Convention on the Protection of Industrial Rights, and the Berne Convention on the Protection of Literature and Art Works.  The Djibouti Office for Intellectual Property Rights is responsible for safeguarding intellectual property after registering products.  Counterfeit products are commonly available in Djibouti’s markets. Infringing products include clothing, watches, electronics, and bags.  Because of the nascent nature of IPR protections, counterfeit products are rarely seized, and no statistics on seizures are published.  There have been reports of seizures of counterfeit money; however, statistics are unavailable.

Compared to other industries, the sale of counterfeit goods does not appear to be at higher risk of labor rights violations, including child labor, forced labor, and dangerous working conditions.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at  http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Djibouti is open to and receptive of foreign investors.  Djibouti does not have its own stock market, but some multinational companies with investments in Djibouti are publicly traded.  Portfolio investment in Djibouti is primarily done through private equity investments in a given sector, rather than through purchase of securities.  Investments in Djibouti are inherently illiquid for that reason, and the purchase or sale of any sizeable investment in Djibouti affects the market accordingly.  Existing policies respect IMF Article VIII and allow the free flow of funds for international transactions.

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.  Credit is available to the private sector, whether foreign or domestic.  Where credit is not available, it is primarily due to the associated risk and not structural factors.

Money and Banking System

Three large banks, Bank of Africa, Bank for Commerce and Industry – Mer Rouge, and CAC bank dominate Djibouti’s banking sector. While these three banks account for the majority share of deposits in-country, there are 13 total banks, all established in the last 14 years.  The 2011 banking law fixed the minimum capital requirement for financial institutions at DJF 1 billion (USD 5,651,250) and also covers financial auxiliaries, such as money transfer agencies and Islamic financial institutions.  In addition to the three names banks above, foreign banks include Silkroad Bank, Bank of China, and the Burkina Faso-based International Business Bank.

The banking sector suffers from a lack of consistent supervision, but it has been improving. Non-performing loans decreased from 16.26% in 2019 to 13.31% in 2020 and to 9.8% in 2021.  The total assets of all the banks were estimated to be USD 3.1 billion in 2020, of which 80% were held by the four largest banks. The country has a Central Bank, which is in charge of delivering licenses to banks and supervising them.  Foreign banks or branches are allowed to establish operations in the country.  They are subject to the same regulations as local banks.  Djibouti has not announced that it intends to implement or allow the implementation of blockchain technologies in its banking transactions.

In order to improve access, some banks have begun to provide mobile and e-banking services.  In June 2020, Djibouti Telecom launched D-Money, a Digital Mobile Money service which allows users to make digital money transfers and payments directly from mobile phones.

Foreign Exchange and Remittances

Foreign Exchange

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 Djiboutian franc, which has been pegged to the U.S. dollar since 1949, is stable.  The fixed exchange rate is 177.71 Djiboutian francs to the U.S. dollar.  Funds can be transferred by using banks or international money transfer companies such as Western Union, all monitored by the Central Bank.

Remittance Policies

There are no recent changes or plans to change investment remittance policies.  There are no time limitations on remittances.  The government does not issue bonds on the open market, and cash-like instruments are not in common use in Djibouti, so direct currency transfers are the only practical method of remitting profits.

Sovereign Wealth Funds

In mid-2020 the Djiboutian government announced the creation of a Sovereign Wealth Fund.  According to a government statement, the state-owned fund targets investments locally and in neighboring countries in the Horn of Africa.  It focuses on industries including telecommunications, technology, energy, and logistics.  The fund acts as a long-term investor and is required to reinvest the entire net profits of its activity.  The government aims to fund it to $1.5 billion within ten years.  Article 12 of Law N° 75/AN/20/8th L, creating the Sovereign Fund of Djibouti, states the fund will adopt and implement best practice in terms of transparency and performance reporting in accordance with the Santiago Principles.  As of late 2021, the fund was ramping up operations.

Privatization Program

A few SOEs have been privatized, such as a milk factory in 2021 and a water bottling plant in 2015.  No particular sector has been targeted, although the government has indicated that all sectors may eventually be up for privatization.  In 2021, the government announced that it was seeking a strategic investor to purchase a 40% stake in Djibouti Telecom, the monopoly telecommunications SOE.  This process is being managed by an international consultant.

Additional Resources

Department of State

• Country Reports on Human Rights Practices ( https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/)
• Trafficking in Persons Report ( https://www.state.gov/trafficking-in-persons-report/)
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities ( https://www.state.gov/key-topics-bureau-of-democracy-human-rights-and-labor/due-diligence-guidance/)
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises ( https://www.state.gov/u-s-national-contact-point-for-the-oecd-guidelines-for-multinational-enterprises/)
• Xinjiang Supply Chain Business Advisory ( https://www.state.gov/xinjiang-supply-chain-business-advisory/)

Department of the Treasury

• OFAC Recent Actions ( https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions )

Department of Labor

• Findings on the Worst Forms of Child Labor Report ( https://www.dol.gov/agencies/ilab/resources/reports/child-labor/findings  )
• List of Goods Produced by Child Labor or Forced Labor ( https://www.dol.gov/agencies/ilab/reports/child-labor/list-of-goods )
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World ( https://www.dol.gov/general/apps/ilab )
• Comply Chain ( https://www.dol.gov/ilab/complychain/ )

Climate Issues

The national climate strategy includes a number of actions to strengthen or build capacity in the field with a view of reducing the vulnerability of the coastal zone to climate change.  Priority is on addressing extreme floods, inundations, and marine submersion.

Post is not aware of any government introduction of policies to reach net-zero carbon emissions by 2050.

There are government policies that establish marine protected areas in order to contribute to the conservation of Djibouti’s marine biodiversity and other desirable ecological benefits.
In order to support coastal populations affected by climate change, the government has put in place a program to improve their resilience and mitigate their vulnerability while adopting a co-management approach to protect marine resources.

Resources to Report Corruption

Contact at the government agency responsible for combating corruption:

Fatouma Mahamoud Abdillahi
President
Commission Nationale Independante pour la Prevention et de Lutte Contre la Corruption
Plateau du Serpent
+253 21 35 16 03
anticorruption@intnet.dj 

No “watchdog” organizations are present in Djibouti.