Djibouti

Sanctions

No

FATF AML Deficient List

No

Higher Risk

Compliance with FATF 40 + 9 Recommendations
Not on EU White list equivalent jurisdictions
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Failed States Index (Political Issues)(Average Score)

Medium Risk

US Dept of State Money Laundering assessment 

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ANTI-MONEY LAUNDERING

 

FATF Status

Djibouti is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

Djibouti has not yet undertaken a Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards.

 

US Department of State Money Laundering assessment (INCSR)

Djibouti was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

Djibouti is one of the most stable countries in the Horn of Africa. Djibouti’s GDP continues to grow by over 6 percent a year due to a surge in foreign investment in the port, construction, and tourism sectors, primarily from the countries of the Gulf Cooperation Council and China.

Djibouti aspires to be a regional financial hub, touting its U.S. dollar-pegged currency and lack of foreign exchange controls as key characteristics of the monetary system.

Djibouti hosts no offshore banks, although its banking laws explicitly permit offshore institutions. Hawala and other money/value transfer services are prevalent in the region, and informal markets for goods are sometimes used for counter-valuation.

Smuggled goods consist primarily of highly-taxed cigarettes and alcohol. A khat import quota instituted in 2014 has resulted in increased khat smuggling. Djibouti’s cultural and historical trading ties with neighboring Somalia present a risk factor. Many Djibouti-based financial institutions have operations in Somalia, a jurisdiction which has no AML/CFT legislation or other controls. There are also allegations of Djibouti-based financial facilitation on behalf of the Somali terrorist group al-Shabaab.

There are currently two free zones administered by the Djibouti Ports and Free Zone Authority (DPFZA). The chief executive officer of DPFZA reports directly to the Office of the President. One free zone is located at the “old” port. The other, Djibouti Free Zone (DFZ), is located on 40 hectares and offers office space, warehouses, light industrial units, and hangars. Jebel Ali Free Zone, based in Dubai, manages the commercial and operational aspects of the DFZ. The purpose of both free zones is to promote foreign investment in Djibouti with the goal of making Djibouti the gateway to regional and East African markets. There are plans to build two additional free zones in the coming years.

 

SANCTIONS

There are no international sanctions currently in force against this country.

 

The Arab League (comprising 22 Arab member states), of which this country is a member, has approved imposing sanctions on Syria. These include: -

  • Cutting off transactions with the Syrian central bank

  • Halting funding by Arab governments for projects in Syria

  • A ban on senior Syrian officials travelling to other Arab countries

  • A freeze on assets related to President Bashar al-Assad's government

 

The declaration also calls on Arab central banks to monitor transfers to Syria, with the exception of remittances from Syrians abroad.

 

The Arab League has also boycotted Israel in a systematic effort to isolate Israel economically in support of the Palestinians, however, the implementation of the boycott has varied over time among member states. There are three tiers to the boycott. The primary boycott prohibits the importation of Israeli-origin goods and services into boycotting countries. The secondary boycott prohibits individuals, as well as private and public sector firms and organizations, in member countries from engaging in business with any entity that does business in Israel. The Arab League maintains a blacklist of such firms. The tertiary boycott prohibits any entity in a member country from doing business with a company or individual that has business dealings with U.S. or other firms on the Arab League blacklist.

 

 

BRIBERY & CORRUPTION

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           31

World Governance Indicator – Control of Corruption             29

 

ECONOMY

Djibouti's economy is based on service activities connected with the country's strategic location as a deepwater port on the Red Sea. Three-fourths of Djibouti's inhabitants live in the capital city; the remainder are mostly nomadic herders. Scant rainfall and less than 4% arable land limits crop production to small quantities of fruits and vegetables, and most food must be imported.

Djibouti provides services as both a transit port for the region and an international transshipment and refueling center. Imports, exports, and re-exports represent 70% of port activity at Djibouti's container terminal. Reexports consist primarily of coffee from landlocked neighbor Ethiopia. Djibouti has few natural resources and little industry. The nation is, therefore, heavily dependent on foreign assistance to help support its balance of payments and to finance development projects. An official unemployment rate of nearly 50% - with youth unemployment near 80% - continues to be a major problem. Inflation declined to 3% in 2014 due to low international food prices and a decline in electricity tariffs.

 

Djibouti’s reliance on diesel-generated electricity and imported food and water leave average consumers vulnerable to global price shocks, though in mid-2015 Djibouti passed new legislation to liberalize the energy sector. The government has emphasized infrastructure development for transportation and energy and Djibouti – with the help of foreign partners – has begun to increase and modernize its port capacity.

 

Agriculture - products:

fruits, vegetables; goats, sheep, camels, animal hides

Industries:

construction, agricultural processing, shipping

Exports - commodities:

reexports, hides and skins, coffee (in transit), scrap metal

Exports - partners:

Somalia 79.8%, US 5.4%, Yemen 4.6%, UAE 4% (2015)

Imports - commodities:

foods, beverages, transport equipment, chemicals, petroleum products, clothing

Imports - partners:

China 42.1%, Saudi Arabia 14.3%, Indonesia 5.9%, India 4.4% (2015)

Investment Climate  -  US State Department

Djibouti, a country with few resources, recognizes the crucial need for foreign investment to stimulate economic development. The country’s assets include a strategic geographic location, Free Zones, an open trade regime, and a stable currency. Djibouti has identified a number of priority sectors for investment, including transport/logistics, financial services, energy, and tourism. Djibouti’s investment climate has improved in recent years, which has led to a renewed interest by U.S. and other foreign firms. There are, however, a number of reforms still needed to further promote investment.

 

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). Real GDP growth has remained between 4% and 6% per year for the last five years, and inflation has remained below 8%.

 

Djibouti remains below regional and world averages in World Bank’s “Doing Business” reports, and fell from from 169 in 2015 to 171 (of 189 countries) in the 2016 ranking. Some noteworthy improvements include making it easier to start a business by simplifying registration formalities and eliminating the minimum capital requirement for limited liability companies. In addition, Djibouti adopted a new commercial code, which broadens the range of movable assets that can be used as collateral to obtain credit.

 

Several large infrastructure projects are currently underway, with others in various stages of negotiation. Many of the ongoing and future projects are Chinese-funded with tied loans. An Independent Power Production law promulgated in 2015 has led to a surge of interest from U.S. and foreign firms, with multiple ongoing negotiations for energy generation projects, including green and hydrocarbon technologies.

 

The business environment in Djibouti would benefit from significant reforms to its legal and regulatory framework. Needed reforms include simplifying the tax code, especially for small businesses, and streamlining the procedures for investment. In addition, the adoption of a new investment code based on international best practices is necessary as indicated by UNCTAD in its investment policy review of Djibouti.

 

Economic development is hindered by high electricity costs, high unemployment, an unskilled workforce, regional instability, and a need to diversify the economy.

Djibouti belongs to a number of regional organizations, including the Inter-Governmental Authority on Development (IGAD) and the Common Market for Eastern and Southern Africa (COMESA), which groups 19 countries into a common market of more than 300 million people. Djibouti is eligible to benefit from the African Growth and Opportunity Act (AGOA), and is also a member of the World Trade Organization (WTO). In addition, Djibouti is among the 34 least developed African countries with the option of entering the European Union Generalized System of Preferences.

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