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2010 Investment Climate Statement - Gabon


2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010
Report
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Openness to Foreign Investment

Gabon is generally open to foreign investment, with foreign firms controlling the country's three main sources of income and exports: petroleum, manganese and timber. However, several factors constrain foreign investment in the non-extractive industries. These include a small domestic market, high production costs, a rigid labor market, limited and deteriorating infrastructure (transportation, telecommunications, etc.), and an unpredictable judicial system. Gabon's regulatory and judicial bodies are subject to influence, creating uncertainty concerning fair treatment and the sanctity of contracts.

The 1998 investment code conforms to the Central African Economic and Monetary Community (CEMAC) investment regulations, providing the same rights to foreign companies operating in Gabon as to domestic firms. Businesses are also protected from expropriation or nationalization without just prior compensation as determined by an independent third party. The 1998 code also established the Private Investment Promotion Agency (APIP), which manages the one-stop-shop ("guichet unique") to facilitate the opening of a business. Certain sectors have specific investments codes, such as mining, forestry, petroleum and tourism, which attempt to encourage investment through customs and tax incentives.

Gabon is affiliated to the Organization for Business Law Harmonization in Africa (OHADA). Legislation allows foreign investors to choose freely from a wide selection of legal business structures, such as a private limited liability company or public limited liability company. The distinctions arise primarily from the minimum capital requirements and the conditions under which shares may be re-sold. There are no restrictions on foreign investment in Gabon, but the state reserves the right to invest in the equity capital of ventures established in certain sectors (e.g., petroleum and mining). There are no other blanket requirements for local participation in the capital of local corporate entities, nor any systemic practices by private firms to restrict foreign investment, participation, or control.

Conversion and Transfer Policies

Gabon is a member of CEMAC and the Bank of Central African States (BEAC). The other members in these organizations are Cameroon, the Central African Republic, Congo-Brazzaville, Equatorial Guinea, and Chad. Gabon's currency is the franc of the Communaute Financiere Africaine (CFA). The CFA is convertible and tied to the euro; 1 euro equals 657 CFA and 1 dollar is roughly equivalent to 450 CFA.

Foreign investors have the option of opening local bank accounts in CFA, dollars, or Euros. There is no difficulty obtaining foreign exchange, with the three main commercial banks providing currency exchange services at non-prohibitive rates. Under Gabonese law, documentation is required to substantiate the need for any foreign exchange over one million CFA (approximately USD 2,300).

There are no legal restrictions on converting or transferring funds associated with an investment, including the inflow or outflow of funds for remittances of investment capital, earnings, profits, etc. CEMAC regulations require banks to record and report the identity of customers engaging in large transactions. Additionally, financial institutions must maintain records of large transactions for five years. CEMAC regulations do not stipulate a threshold amount for transactions to be reported. Under Gabonese law, however, documentation is required to substantiate the need for any foreign exchange over one million CFA (approximately USD 2,300). Transfers within the CEMAC zone are not restricted.

In August 2008, the BVMAC (Bourse des Valeurs Mobilieres de L'Afrique Centrale), a Central African regional stock exchange created in 2003, was officially launched in Libreville. Overall authority for Gabon's exchange control system rests with the Department of Economic Control and External Finance within the Ministry of Finance. It currently operates using public financing from the government, with a value of 100 billion FCFA (about USD 200 million). In November 2009, the International Finance Corporation (IFC), the World Bank's private sector lender, launched a USD 43 million Central African bond which was listed on the Central African regional stock exchange in the Gabonese capital of Libreville and the Douala Stock Exchange in Cameroon.

Expropriation and Compensation

Foreign firms established in Gabon operate on an equal basis with national firms. Under Gabonese law, business investments that are expropriated must first be compensated as determined by an independent third party. The government of Gabon has not exhibited any recent tendency to discriminate against U.S. investments, companies, or representatives in expropriation, nor have there been any indications or reports of incidences of "creeping expropriation," such as through confiscatory tax regimes.

There are no recent examples of property being expropriated, but there was an instance of a mining permit being re-issued to another company. According to the Ministry of Natural Resources, a mining permit for the Belinga iron mine was issued to the Brazilian mining company, CVRD, in March 2005. The government then requested CVRD to re-bid for the permit in competition with a Chinese consortium led by the China National Machinery and Equipment Import and Export Corporation (CMEC). In June 2006, the government awarded CMEC the Belinga project. Currently, no activity has taken place with regards to the mine while environmental impact studies are underway.

While there is no general requirement for local participation in investments, many businesses find it useful to have a local partner who can help navigate the subjective factors in the business environment.

Dispute Settlement

There have been instances of disputes with U.S. firms, but most disputes are resolved before going to outside arbitration. Both settlements and monetary judgments are usually made in the currency on which the business contract was based, whether CFA or the foreign investor's currency.

Gabon's legal system is based on the French model, with a written code of commercial law. The law is not consistently applied; Gabon's judicial bodies are subject to political influence, creating uncertainty concerning fair treatment and the sanctity of contracts. Foreign court and international arbitration decisions are accepted, but enforcement may be difficult.

Gabon is a member of the International Center for the Settlement of Investment Disputes (ICSID) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. However, Gabon has not adopted specific legislation to enforce awards resulting from ICSID or New York Convention decisions. Gabon is also a party to the World Trade Organization (WTO), the Multilateral Investment Guarantee Agency (MIGA), and the Organization for Business Law Harmonization in Africa (OHADA), which provides an International Court of Justice and Arbitration (CCJA) common to its 16 member countries for the settlement of conflicts related to business law implementation.

Performance Requirements and Incentives

There are no specific performance requirements imposed as a condition for establishing, maintaining or expanding investment. There are no requirements for investors to buy local products, to export a certain percentage of output or to invest in a specific geographical area. There is no blanket requirement that nationals own shares in foreign investments in Gabon, that the share of foreign equity be reduced over time, or that technology be transferred on certain terms. Nonetheless, many investors find it useful to have a local partner who can help navigate the subjective factors in the business environment.

It is expected that foreign investors will recruit and train Gabonese citizens to gradually take on responsibilities. Accordingly, hiring foreigners is subject to prior authorization from the Ministry of Labor. Foreign firms have stated that there is a lack of qualified Gabonese workers, requiring companies to request authorization to hire foreigners. Non-Gabonese Africans find it increasingly difficult to obtain employment authorization; non-African expatriates have less difficulty. Chinese industry in Gabon historically imports their labor force.

Gabon's main industries, petroleum, mining and timber, encourage investment through customs and tax incentives. For example, oil and mining companies are exempt from customs duty on imported working equipment. The Government has attempted to promote tourism with the Tourism Investment Code of 2000, which provides tax exemptions during the first eight years of operation, tax-free imports, and other administrative incentives.

Right to Private Ownership and Establishment

Any legal entity or person wishing to do business in Gabon must request prior permission from the Ministry of Commerce. Foreign investors are largely treated in the same manner as their Gabonese counterparts with regard to the purchase of real estate, negotiation of licenses, and entering commercial agreements.

Protection of Property Rights

Secured interest in property is recognized, and the recording system is fairly reliable. Under the 1998 investment code, no investment can be expropriated without prior just compensation as determined by an independent third party. As a member of CEMAC and the Economic Community of Central African States (CEEAC), Gabon adheres to the laws of the African Intellectual Property Office (OAPI). Based in Yaounde, Cameroon, OAPI aims to ensure the publication and protection of patent rights, encourage creativity and transfer of technology, and create favorable conditions for research. As a member of OAPI, Gabon acceded to a number of international agreements on patents and intellectual property, including the Paris Convention, the Berne Convention and the Convention Establishing the World Intellectual Property Organization.

There are no recent examples of property being expropriated, but there was an instance of a mining permit being re-issued to another company (see above).

Transparency of Regulatory System

Regulatory procedures are streamlined and no laws or policies are used to impede foreign investment. Nevertheless, some less than objective factors in the system pose problems at times and government policies and laws do not establish "clear rules of the game." Gabon's regulatory bodies are subject to influence, creating uncertainty concerning fair treatment and the sanctity of contracts. Additionally, as a former French colony, Gabon maintains strong economic ties with France, which at times makes foreign investment by firms with other national affiliations difficult.

Tax, environment, health and safety laws and policies are transparent and consistent with international norms, and do not impede investment. Labor laws, on the other hand, are considered by many investors to be unusually weighted toward workers' interests, which tends to impede investment.

There are no informal or nongovernmental regulatory procedures in place. Proposed laws and regulations are not published in draft form for public comment.

Efficient Capital Markets and Portfolio Investment

The Bank of the Central African States (BEAC), headquartered in Cameroon, regulates the banking system. Overall authority for Gabon's exchange control system rests with the Ministry of Finance. Gabon's banking system includes one development bank (BGD) and five commercial banks. The BGD normally lends to small and medium sized companies. One of the five commercial banks is affiliated with a French bank (Credit Agricole), one is owned by a Moroccan company, and one is an American bank (Citigroup).

Commercial banks offer most corporate banking services, or can procure them from overseas. Local credit to the private sector is limited and expensive, but available to both foreign and local investors on equal terms. The country's main economic actors, the oil companies, finance themselves outside Gabon. Commercial banks have transferred excess liquidity to correspondent banks outside the region.

The Central Africa Regional Stock Exchange (BVMAC) began operation in August 2008, but is still in its embryonic stage.

Political Violence

In June 2009, President Omar Bongo Ondimba, who had been head of state since 1967, died. An interim President was sworn in, per the Constitution, and a presidential election was held on August 20, 2009. Ali Bongo Ondimba, the son of the late President, won the election with 41 percent of the vote. Opposition candidates contested the results. The Constitutional Court ruled in Bongo's favor and he was inaugurated on October 16. During the electoral period, localized violence occurred, particularly against foreigners and naturalized Gabonese attempting to vote.

On September 3, 2009, the announcement of the election results sparked protests in Libreville and violence in Port Gentil, where rioters set the French Consulate on fire. Police and military forces quickly dispersed protesters. The Government maintained a heavy security presence in Port Gentil. There were no further demonstrations.

Gabon's current domestic challenges are primarily social and include ongoing labor issues with teachers and civil servant unions, growing unemployment, and deteriorating infrastructure. President Bongo has embarked on an ambitious program to change the way in which government works and delivers services. However, some changes are meeting resistance from entrenched interests.

Corruption

Anti-corruption is a centerpiece of President Ali Bongo's ambitious reform program. Under the previous government, there was a lack of accountability and oversight in the budget process, which had serious spillover effects in many areas of the country's economy. Companies complained of a lack of transparency in customs and other government administrative affairs. In the past, the government's fiscal shortfalls, weak financial management, and suspected corruption have contributed to significant arrears in domestic and external debt payments. High oil prices during 2008 provided a short-lived boost to revenues, and allowed the government to retire some debt, but questions remain about fiscal management and experts expect the recent rise in profits to drop sharply by 2011.

Some of Bongo's early pronouncements included a new ethics code for government officials and orders for ex-government officials to turn in their government vehicles and properties to publicly declare their assets. In October, Bongo ordered the arrests of Gabonese officials involved a multi-million dollar scandal at the BEAC's Paris Bureau and announced Gabon's full cooperation with French investigators. Some of these measures could breathe new life into the Commission to Combat Illicit Enrichment, established in 2004 and charged with publishing quarterly and annual reports on its activities. To date, it has been widely regarded as ineffectual. Bongo also launched an audit of all government agencies in an attempt to eliminate ghost workers and slim down government expenditures. Many of these changes are meeting resistance from entrenched political and economic interests.

Gabon is a participant in the Extractive Industries Transparency Initiative (EITI), which aims to provide more transparency in accounting for revenues from petroleum and mining industries. Gabon published its first EITI report in December 2005 (see http://www.finances.gouv.ga /rubrique.php3?id_rubrique=25), its second report in early 2007, and its third report in March 2008. The most recent report is now expected to be released in early 2010.

During the past year, there has been an increase in anti-corruption activity on the part of members of civil society. Specifically, several local non-governmental organizations have targeted alleged corruption on the part of high-level government officials, including the late President and several Ministers.

Bilateral Investment Agreements

As of January 2009, the United States has no bilateral investment or taxation treaty with Gabon, although negotiations towards a bilateral investment agreement have been underway for several years. Gabon is a beneficiary of the African Growth and Opportunity Act (AGOA), a framework for US trade, investment and development policy for sub-Saharan Africa. Gabon has bilateral investment agreements with the following countries: Belgium, Luxembourg, China, Egypt, France, Germany, Italy, Lebanon, Mali, Morocco, Portugal, Sao Tome and Principe, South Africa, and Spain. There is a bilateral investment agreement among CEMAC member countries.

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) has provided services to US investors in Gabon. Gabon is also a member of the Multilateral Investment Guarantee Agency (MIGA), which guarantees foreign investment protection in cases of war, strife, disasters, or expropriation. MIGA is a branch of the World Bank Group. The U.S. Government's Export-Import Bank provides finance facilities to both the public and private sectors in Gabon.

Gabon's currency is the franc of the Central African Communaute Financiere Africaine (CFA), which is convertible and tied to the euro; 1 euro equals 657 CFA and 1 dollar equals approximately 450 CFA. (The Central African CFA is also used in Cameroon, the Central African Republic, Congo-Brazzaville, Equatorial Guinea and Chad.) We do not anticipate any inconvertibility problems for the CFA as long as the peg to the euro remains.

Labor

Gabon's population is approximately 1.4 million, of which as many as 25 percent are foreigners (mostly Africans from neighboring countries). Foreign firms report a shortage of highly skilled Gabonese labor. Chinese industry in particular imports the majority of its workers from China. Authorization from the Ministry of Labor is required in order to hire foreigners. Non-Gabonese Africans find it increasingly difficult to obtain employment authorization; non-African expatriates have less difficulty. Non-Gabonese Africans take up most positions requiring unskilled labor. Skilled labor costs are high and are kept so by a labor code inspired by a French model that strongly defends the rights of Gabonese workers. Labor unions and confederations are active.

Foreign Trade Zones/Free Ports

In October 2000, a Free Trade Zone project called "Zone Franche de l'Ile de Mandji" (Mandji Free Trade Zone) was announced near Port-Gentil for the exportation of processed wood and/or oil field services. The zone has not progressed beyond the project stage.

As a member of CEMAC, Gabon's trade with other member countries (Cameroon, Central African Republic, Chad, Congo-Brazzaville, and Equatorial Guinea) is subject to low or no customs duties.

Foreign Direct Investment Statistics

According to the UN Conference on Trade and Development (UNCTAD) Country Fact Sheet on Gabon for 2009, the total value of inward foreign direct investment (FDI) in place in Gabon in 2008 was USD 1086 million (compared to USD 1295 million in 2007). Annual direct investment into Gabon in 2008 was USD 20 million (compared to USD 269 million in 2007).

The UNCTAD Gabon Fact Sheet for 2008 indicates that the total value of Gabonese direct investment abroad in 2008 was USD 591 million (compared to USD 458 million in 2007.) Annual direct investment capital flow out of Gabon in 2008 was USD 96 million (compared to USD 59 million in 2007).

Most foreign investment comes from France and is concentrated in petroleum (Total) and manganese (COMILOG/ERAMET). According to the French Ministry of Economy/Commerce, France is the main supplier of goods to Gabon, and Gabon is the second largest recipient of French FDI in Africa. Most foreign investment (including that of the US) is concentrated in the oil sector. Major companies in Gabon include Total, Shell, Perenco, Vaalco, and COMILOG.

In June 2006, Gabon signed an agreement with a Chinese consortium for the development of the Belinga iron ore deposit that includes the development of the mine, roads, a railway, a hydroelectric dam and a deep-water port. Total investment for the Belinga project is estimated at USD 3 billion over the next three to five years.



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