Openness to Foreign Investment
The Government of Burundi’s official attitude toward foreign direct investment is reflected in the new Investment Code, formally enacted on September 10, 2008, which ostensibly aims to attract and reassure foreign investors. The new Code encourages and promises to facilitate acquisitions, production, transformation and distribution of goods and services. The language of the Code, however, is vague, containing guarantees and inducements that are not explained in specific terms –- nor can they be, absent the still-pending revision of Burundi’s Tax and Customs Codes. In effect, the Investment Code outlines the GOB’s apparent desire to stimulate foreign investment but highlights a continuing lack of transparent, specific regulations to foster significant foreign investment. In August – September 2008, a team of Booz Allen Hamilton consultants funded by USAID conducted a comprehensive assessment of Burundi’s business climate as part of the Business Climate Legal and Institutional Reform (BizCLIR) project. The BizCLIR Burundi report covers many aspects of the national investment climate and is available online at www.bizclir.com.
Burundi’s judicial system upholds the sanctity of contracts. In case of a dispute involving foreign interests, the plaintiff has the option of referring its complaint to either the national courts or an international arbiter. In 2007, the GOB created a Center for Arbitration and Mediation to handle such disputes; to date, no disputes have been submitted to the Center.
The GOB has no overall economic or industrial strategies that discriminate against foreign investors, nor are there any general limits on foreign ownership or control of enterprises. There are no established processes or criteria for the screening or review of foreign investments. In the past, foreign investors applying for tax exemptions were subject to routine evaluation by the Ministry of Planning; the new Investment Code has removed even these nominal screening procedures.
Foreign investments concerning weapons, munitions, and any sort of military or para-military enterprises are restricted. Private investments in this sector are rare, and most military enterprises are conducted on a government-to-government basis. No other investment sectors are restricted, nor are there any sectors where foreign investors are denied the same treatment as domestic firms.
Burundi’s coffee industry –- the largest source of foreign exports -– is in the midst of a protracted privatization process. While several foreign companies purchase Burundian coffee, none has attempted to invest directly in domestic infrastructure, which still rests mostly in GOB hands. The new Investment Code sets forth no specific bidding criteria for the acquisition of GOB interests by private firms.
There is no explicit discrimination against foreign investors at any stage of the investment process, nor are there any laws or regulations specifically authorizing private firms to adopt articles of incorporation or association which limit or prohibit foreign investment, participation, or control.
There has been no significant foreign direct investment in Burundi since the outbreak of civil strife in 1993 following the assassination of the country’s first democratically-elected president after only three months in office. In 2005, internationally-brokered elections, generally considered to be free and fair, led to the installation of a new government and a series of economic reforms supported by the IMF and World Bank. On paper, Burundi’s economy has been liberalized and is open to foreign investors. In practice, red tape and corruption hamper virtually all business activities, domestic and foreign. To date, there are no major foreign companies directly invested in Burundi, although some domestic firms have ties to international businesses or employ foreign-born managers.
In general, the fledgling nature of Burundi’s democracy, the poor state of its post-conflict infrastructure and institutions, its geographic isolation, and proximity to regional conflicts (such as those in the eastern Democratic Republic of Congo) tend to discourage any serious foreign investment.Conversion and Transfer Policies
There are no restrictions on converting or transferring funds associated with an investment into a freely usable currency at a legal market rate. The new Investment Code allows completely free access to foreign exchange for investment remittances. There are no regulatory barriers to obtaining foreign exchange, but availability of foreign currency within Burundi’s Central Bank is limited, since the Bank is not accustomed to accommodating large international transactions.
The average delay for remitting investment returns, once all taxes have been paid, is three months. The reasons for such delays are attributable to general inefficiency in the banking sector and the rarity of such transactions in an environment with very little foreign direct investment. There is no mechanism allowing investors to remit funds through a legal parallel market using convertible negotiable instruments. There is no stated legal limit on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs. On the other hand, there are no significant foreign enterprises now operating in Burundi which would test the effectiveness of this policy in practice.Expropriation and Compensation
Burundian law permits the GOB to expropriate property for “exceptional and state-approved reasons” but stipulates that “a just and prior compensatory allowance is required.” In practice, there are no recent cases involving expropriation of foreign investments, nor do any foreign firms have pending complaints about compensation. In case such disputes did arise, the Investment Code offers plaintiffs recourse to the national court system or international arbitration (please see paragraph 2).
There have been no expropriatory actions in the past or policy shifts which would lead one to believe that there may be expropriatory actions in the near future. The current government has no tendencies towards discrimination against U.S. investments, companies, or representatives with regard to expropriation. Dispute Settlement
In recent years, there have been no investment disputes whatsoever involving U.S. or other foreign investors or contractors in Burundi. In fact, there are no reliable records of any disputes ever involving foreign direct investors and the GOB. The closest case involving foreign elements –- and the only one of its kind –- was a complaint registered in 1995 by Affimet, a Burundian metal refining company owned by a Belgian national, whose operating license was revoked by the GOB for unspecified reasons. When the case could not be settled amicably, the parties agreed to arbitration by the International Center for Settlement of Investment Disputes (ICSID), which ruled against the GOB in 1998. The GOB accepted the ruling and compensated Affimet.
Burundi’s legal system contains standard provisions guaranteeing the right to private property and the enforcement of contracts. While the GOB has been known to impede judicial procedures in cases with political or human rights overtones, it generally does not interfere in business matters. Burundi has a written and consistently applied commercial law which allows for the judgments of foreign courts to be accepted and enforced by local courts. Monetary judgments are usually made in the investor’s currency. A bankruptcy law granting equal rights to foreign and domestic creditors exists, but has not been effectively publicized or enforced.
In rare cases involving international elements (please see paragraph 13) the GOB accepts binding international arbitration, and recognizes and enforces foreign arbitral awards. In investment disputes between private parties, international arbitration is accepted as a means of settlement provided one of the parties is an extra-national. In 2007, the GOB created a Center for Arbitration and Mediation to handle such disputes; to date, the Center has heard no cases. Although the GOB has enacted no specific legislation for the enforcement of ICSID decisions, it is a member of the ICSID and enforces its awards (paragraph 13). Performance Requirements/Incentives
The GOB has not notified the World Trade Organization (WTO) of any measures that are inconsistent with the WTO’s Trade Related Investment Measures (TRIMs), nor have there been any independent allegations that the GOB maintains any such measures.
There are no established performance requirements for foreign investors, and tax incentives apply uniformly to both domestic and foreign firms. In theory, all new investors qualify for tax deferral based on the rate, duration and nature of their investments. In practice, there are no established formulae or prior conditions for determining the amount of tax deferral awarded. The standard enticement offered to potential large investors, foreign or domestic, is one or more years of tax-free operation.
The GOB imposes no performance requirements on investors as a condition for establishing, maintaining, or expanding their investments, or for access to tax and investment incentives. There are no requirements that investors purchase from local sources or export a certain percentage of their output, or only have access to foreign exchange in relation to their exports. There is no requirement that nationals own shares in foreign investments, that the share of foreign equity be reduced over time, or that technology be transferred on certain terms.
The GOB imposes no “offset” requirements linking major procurements to investments in specified sectors of the national economy. There are also no government-imposed conditions on permission to invest related to geographic location, percentage of local content, local equity, employment of nationals, use of domestic employment agencies, import substitution, export targets, technology transfer, or local funding sources. There are no specified performance requirements and therefore no enforcement procedures for same.
There is no foreign direct investment in the research sector. The only known scientific research being conducted in Burundi concerns agricultural production and is largely funded by foreign donors.
There are no discriminatory or excessively onerous visa, residence, or work permit requirements that inhibit foreign investors’ mobility, nor does the GOB have any discriminatory or preferential export-import policies affecting foreign investors. Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity permitted by Burundian law. Private entities may freely establish, acquire and dispose of interests in business enterprises. In theory, private enterprises enjoy competitive equality in competition with public enterprises with respect to access to markets, credit and other business operations. In the coffee sector, newly enacted procedures to permit direct sales from coffee washing stations to foreign buyers have been put in place; however, some procedural issues remain which hamper true competition with state-controlled interests.Protection of Property Rights
Secured interests in both real and movable property are nominally recognized under Burundian law. The concept of a mortgage, however, does not exist and there is no recognized and reliable system for recording security interests. Nonetheless, the legal system in general and the new Investment Code in particular claim to protect and facilitate the acquisition and disposition of all property rights. The law also guarantees adequate protection for such intellectual property as patents, copyrights and trademarks but contains no provisions about trade secrets or semiconductor chips.
Like most WTO members, Burundi has adopted the 1995 agreement on Trade-Related Aspects of International Property Rights (TRIPS), which introduced global minimum standards for the protection and enforcement of virtually all intellectual property rights (IPR). In practice, a subsistence-level economy like Burundi’s has little to do with IPR issues. The only relevant area where TRIPS applies is the protection of pharmaceutical products, most of which are imported and distributed under the auspices of international donors in full compliance with WTO regulations. Burundi is also a signatory to the 1997 and 2000 UN World International Internet Organization (WIPO) treaties governing industrial property and patent law.Transparency of the Regulatory System
While the GOB’s general attitude toward investment (as outlined by the new Investment Code; see paragraph 1) is welcoming, the government has no stated, transparent policies for fostering competition or establishing a regulatory framework. There are no explicit tax, labor, environment, or health and safety policies that would discourage investors nor is there any bureaucratic procedure -- beyond registering with the GOB Treasury -- required to launch or invest in a new enterprise. There are no informal regulatory processes managed by NGOs or private sector associations.
Before the GOB enacts laws and regulations concerning investment policy, private consultants publish a study on the draft legislation for review and comment by the private sector. Comments are then submitted for consideration by the GOB before the legislation is voted upon. This procedure was followed during the drafting of the new Investment Code.
The GOB’s overall legal system is not transparent and is often subject to judicial roadblocks in cases pertaining to politics and human rights. With regard to commerce, however, Burundi’s regulatory and accounting systems are generally transparent and consistent with international norms. There is no evidence of government or private sector efforts to restrict foreign participation in consortia for setting industry standards.Efficient Capital Markets and Portfolio Investment
GOB policies facilitate the free flow of financial resources in the product and factor markets. In theory, foreign investors have access to all existing credit instruments. There are no explicit restrictions on foreign investors’ access to local credit, but the local market’s own resources are extremely limited. Given this lack of resources, there is no regulatory system to encourage and facilitate portfolio investment.
According to their latest annual reports, the total assets of Burundi’s three largest commercial banks are: Interbank Burundi (IBB), USD 126 million; Burundi Credit Bank (BCB), USD 110 million; and Burundi Commercial Bank (BANCOBU), USD 67 million. On average, approximately 20 percent of the three banks’ total asset base is non-performing, which indicates a relatively stable banking environment. (Note: The formal banking sector mainly serves Burundi’s small elite of wealthy business people and government officials, as well as its miniscule middle class, composed mostly of civil servants. The majority of Burundians have no access to formal credit and rely on micro-finance institutions that dispense commercially-negligible amounts.)
There are no arrangements by private firms that restrict foreign investment through mergers and acquisitions. Private firms also have no specific mechanisms or written strategies to prevent hostile takeovers, since these would only be relevant in a more developed economy.Political Violence
There have been no incidents in recent memory involving politically-motivated damage to foreign investors’ projects or installations. Even before the most recent outbreak of ethnic violence in 1993 (paragraph 7), there was no significant foreign direct investment in Burundi. Following democratic elections in 2005, the security situation remains tenuous throughout Burundi; banditry and extortion by members of the remaining rebel group National Liberation Force (FNL)-- as well as a general climate of lawlessness and impunity -- continue to discourage foreign investment. All visitors to Burundi -- and all U.S. Mission employees -- are urged to exercise extreme caution and avoid nighttime travel outside the capital. Nonetheless, there is no reliable evidence of anti-foreign sentiment or threats toward foreign investors. Politically-motivated violence may increase as the next national elections, scheduled for 2010, approach, but there is no reason to believe foreign investors would be specifically targeted.
The FNL launched a coordinated but militarily ineffective series of mortar and rocket attacks on GOB positions in the capital in April 2008. The following month FNL leaders returned to peace negotiations with the government, and there have been no further attacks to date. In January –- in a move seen as paving the way for its registration as a political party -- the FNL changed its name (previously Palipehutu-FNL) to remove an unconstitutional reference to the Hutu ethnic group. Negotiations continue, with no indication that the FNL wishes to resume open hostilities against the GOB’s superior military forces. However, the FNL retains the capability to lunch harassing-fire attacks against Bujumbura; in the unlikely event that the FNL chose to do so, foreign interests could become unintentional targets.
The security situation throughout the region is volatile, particularly in neighboring eastern Democratic Republic of Congo (DRC) and northwestern Uganda. These conflicts pose little direct threat to Burundi’s security, but the potential influx of refugees from eastern DRC could put additional strain on Burundi’s limited resources.Corruption
Officially, Burundi has a number of laws and regulations prohibiting corrupt practices such as bribery, nepotism, preferential hiring and promotion and embezzlement. In practice, these measures are rarely enforced. This is largely a result of an under-resourced and poorly trained police force and civil service; there is no evidence of any particular bias for or against foreign investors in the enforcement of these statutes.
Burundi is a signatory to the UN Anti-Corruption Convention and the OECD Convention on Combating Bribery. Burundi has also been a member of the East African Anti-Corruption Authority since joining the East African Community in 2007. To date, no foreign firms have lodged complaints against the GOB under any of these agreements. No major U.S. firms have specifically noted corruption as an obstacle to direct investment in Burundi, although corruption is seen as one of the typical hurdles to be overcome when doing business in the region. Corruption is most pervasive in Burundi in the government procurement sector; the purchase and sale of government property takes place in a non-transparent environment with frequent allegations of bribery and cronyism.
Giving or receiving bribes, including a bribe by a local company to a foreign official, is technically a criminal act punishable by six months to ten years in prison depending on the scale of the financial interests involved. As such, bribes are not tax-deductible. The GOB’s Anti-Corruption Brigade is charged with enforcing this legislation, but has very limited jurisdiction. Cabinet members, parliamentarians, and anyone appointed by presidential decree have immunity from prosecution on corruption charges, effectively insulating them from accountability.
The most outspoken critic of corruption is the Burundian Organization for the Struggle Against Corruption and Public Funds Embezzlement (known by its French acronym OLUCOME), which frequently decries abuses in the public sector. Bilateral Investment Agreements
Burundi has a long-standing mutual investment agreement with the BENELUX nations. Although Burundi is technically eligible to take part in the African Growth and Opportunities Act (AGOA), there has been no significant activity in this area, nor does the GOB have any bilateral investment or taxation treaties with the U.S.
Burundi is a member of the Multilateral Investment Guarantee Agency, and signed an agreement with the Overseas Private Investment Corporation (OPIC) in 2006. To date, foreign direct investment in Burundi has been negligible, and there are no OPIC-affiliated enterprises now known to be in operation. In the unlikely event that OPIC would need to pay an inconvertibility claim, it would use Burundian Francs, which, as of January 2009, U.S. Embassy Bujumbura purchased at an official rate of 1200 Francs to one USD. Given the overall weakness of Burundi’s economy and the worldwide financial crisis, there is significant risk that the value of the Burundian franc will continue to depreciate against major market currencies.Labor
Unskilled local labor is widely available. Workers from neighboring DRC and Rwanda often supplement a local economy generally lacking skilled labor. Burundi has signed the ILO convention protecting workers’ rights. In the private sector, labor-management relations are generally conducted according to international standards that allow for collective bargaining and freedom from reprisal against employees who engage in union activities. Labor leaders in the public sector have occasionally been subjected to harassment and arbitrary detention. There are no stated policies that would allow differential treatment of labor or require the hiring of host country nationals for certain positions. A largely uneducated workforce cannot be said to impede the use of advanced technologies, given that the level of development in most sectors is already hampered by extreme poverty and lack of access to basic utilities.Foreign Trade Zones/Free Ports
Burundi now has no designated foreign trade zones or free ports. In theory the new Investment Code makes the entire country a de facto foreign trade zone, but the language of the Code has few details concerning specific policies and procedures. Foreign Direct Investment Statistics
The GOB compiles no reliable statistics on foreign direct investment and no data are available from other sources. All evidence suggests that there is virtually no foreign direct investment in Burundi.