Free zones promote foreign direct investment

MANILA, Philippines - Djibouti’s free zone development policy is undoubtedly the consecration of the vision of President Ismail Omar Guelleh to make the republic the business hub of the region and the investment gateway to Africa.

Indeed, as normal partners to the harbor domain, the free zones aim to not only sustain the business opportunities that are born out of the existing infrastructure (harbors, airports, roads) but also, in particular, to establish a favorable environment for investment and trade.

The modernization of the country’s infrastructure was one of the priorities of President Guelleh, who since his accession to power in 1999, has worked relentlessly to implement this ambitious project of growth and development. In 2009, at the time of a 10-year report, the ports and free zones are undeniably the pillars of an economic governance reassessed. Besides the innovative strategies of development inherent to these sectors, the new dynamic introduced by the president lies in resorting to the system of public/private partnership to promote the construction of the country’s infrastructure.

The first stone of the free zone concept was laid in 1980 with the creation of the Port Free Zone, a storage zone for goods in transit toward Ethiopia or in suspension of customs duties before their import to the local market. President Guelleh began with a total recast of the free zone concept from a simple storage space exempt from taxes to a free zone that has henceforth the objective to become: Distribution and marketing platform availability of a vast range of products; positioning the FZs as a “purchase platform” for the region; minor transformation platform and light assembly import of spare parts and assembly in the FZs; import of bulk and bottling, packaging, labelling in the FZs; and platform for import, transformation of the region’s products, sea products, coffee, tea from the region.

Endowed with a full fledged legal setting (free zone law of 2004), containing fiscal and nonfiscal incentives to attract foreign investors, the Djibouti Free Zones (DFZs) are designed to act as a commercial linkage between Africa (specifically the COMESA market), countries of the Middle East-East Asia and preferred import countries of the East Africa region. The structures of the free zones position themselves, thanks to the COMESA Rules of Origin, and to the European norms in the valorization of the “Made in Djibouti” products for their entry into European and world markets.

Thus, an encouraging business environment with exempt taxes and customs duties supports the foreign direct investment policy. The establishment of a “one-stop shop,” a single center for all administrative formalities attached to the creation and the monitoring of free zone commercial companies, represents an asset in the facilitation of business in the free zones.

Considering the importance of marketing strategies for gaining international reputation, the government recruited the expertise of the Dubai authorities for the management of the DFZs. The pilot free zone in 2004, a symbol of the public/private partnership with Jebel Ali Free Zone (JAFZA) International, allowed international standardized infrastructure to be placed at the disposal of the free zone investor.

The availability of a state-of-the-art operational setting is a prerequisite to the foundation of a favorable business environment in Djibouti.

At this time when government action is being assessed and considering the five years of the functioning of the free zone legal framework, the free zones stand out as the forefront of the economic dynamism and the business effervescene that is a clear characteristic of the term in office of President Guelleh.

DFZs shelter the logistics platform of the humanitarian aid of USAID. Beyond its role as a natural port to Ethiopia, Djibouti with its free zones finds again its historic place as a land of exchanges and encounters; Djibouti has positioned itself as the gateway for investors in the COMESA region.

In April 2009, a statistical report showed that 138 free zone commercial companies are operational. The main founders of free zone companies originate mainly from Ethiopia, the United Arab Emirates and Asia.

The government action of President Guelleh is a good omen for new investment projects such as the establishment of an airport free zone spurred by the influx of companies starting industrial projects or commercial ones in existing free zones.

Djibouti Ports & Free Zones Authority may be reached at P.O. Box 197, Djibouti, tel: +253 35 90 70, fax: +253 35 90 59, E-mail: [email protected]

Ahmed Araita Ali, Ambassador, Embassy of Djibouti, 5-18-10, Shimomeguro, Meguro-ku, Tokyo, Japan 153-0064, tel. 81-3-5704-0682, fax 81-3-5725-8305; Charlie A.V. Gorayeb, Honorary Consul General, Consulate of the Republic of Djibouti, CVG Centre No. 36 First Avenue Cubao, Quezon City, Philippines,tel. 723-4922, fax 723-4920, E-mail: [email protected]