Overview of Foreign Investment Climate
Mali generally encourages foreign investment. Foreign and domestic investment are treated equally. The structural adjustment facility agreements signed by the IMF/World Bank and Mali since 1992 encourage foreign investment. The government’s national strategy to fight poverty presented to the IMF, World Bank and other donors emphasizes the role of the private sector in developing the economy. To this end, Mali is a member of the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (WAEMU), which aim to reduce trade barriers, harmonize monetary policy, and create a common market.
The investment, mining, commerce and labor codes encourage investment and seek to attract foreign investors. Mali has privatized a number of state-owned enterprises, and foreign companies have successfully responded to calls for bids in several cases.
The Malian government has instituted policies promoting direct investment and export-oriented businesses. Foreign investors go through the same screening process as domestic investors. Criteria for granting authorization under the 2005 investment code include the size of capital investment, the use of locally produced raw materials, and the level of job creation. In 2009, the Malian government re-launched a one-stop shop for prospective investors, the Agence pour la Promotion de l’Investissement (API-Mali), with support from the Foreign Investment Advisory Service (FIAS) and the U.S. Agency for International Development (USAID). This helped Mali improve its ranking in the World Bank’s Doing Business Report 2010 to 156 of 183 economies from 162 of 181 economies in 2009. Mali has also created, with World Bank support, a Presidential Investment Council. The council is comprised of foreign and national businesspeople and is aimed at improving the business climate in Mali and identifying best prospects for investment.
The investment code gives the same incentives to both domestic and foreign companies for licensing, procurement, tax and customs duty deferrals, export and import policies, and export zone status if all production is to be exported. Export taxes and import duties have been reduced or eliminated as part of ongoing economic reforms. Price controls are applied to petroleum products and cotton, and occasionally to other commodities, such as rice, on a case by case basis. The incentives added in 2005 include exemptions from duties on imported equipment and machinery. Investors may also get tax exemptions on the use of local raw materials. In addition, specific incentives may be negotiated on a case by case basis.
Foreign investors can own 100 percent of any businesses they create. They can also purchase shares in parastatal companies being privatized or in other local companies. Foreign companies may also start joint-venture operations with Malian enterprises. The repatriation of capital and profit is guaranteed.
In practice, however, foreign investors face some challenges. Investors sometimes report that tax collectors interpret tax laws to discriminate against foreign companies or companies with foreign capital. The tax system remains complicated in spite of ongoing efforts to improve it. Foreign companies have also reported delays with clearing customs when importing machinery. Enforcement of contracts in Mali can be problematic. Corruption in the judiciary is pervasive, and companies can often find themselves at a disadvantage vis-à-vis Malian or other investors.
Some key economic indicators:
--Transparency International Corruption Index:2.8 out of 10
--Heritage Economic Freedom:55.6 out of 100
--World Bank Doing Business: 156 of 183
--MCC Government Effectiveness: 53 percent
--MCC Rule of Law: 85 percent
--MCC Control of Corruption: 77 percent
--MCC Fiscal Policy: 90 percent
--MCC Regulatory Quality: 76 percent
--MCC Business Start Up: 41 percent
--MCC Land Rights Access: 14 percent
--MCC Natural Resource Management: 7 percent
Conversion and Transfer Policies:
The investment code allows the transfer of funds associated with investments, including profits.
As a WAEMU member, Mali uses the CFA franc currency. Linked to the Euro, the CFA is fully convertible at a rate of Euro 1 = CFA franc 655.957. No parallel conversion market exists because the CFA franc is a fully convertible currency supported by the French treasury, which ensures a fixed rate of exchange.
As of January 2010 the U.S. Embassy purchased local currency at a rate of approximately CFA franc 450 per one U.S. dollar. The U.S. Embassy obtains currency through the Charleston Financial Service Center in Charleston, South Carolina, and a local bank.
The CFA franc has not been devalued since January 1994. There are no limits on the inflow or outflow of funds for repatriation of profits, debt service, capital, or capital gains. In the CFA zone there is no restriction on the export of capital provided that adequate documentation to support a transaction is presented. Most commercial banks have direct investments in western capital markets. No physical transfer of funds is authorized outside the borders of the CFA zone. It takes less than one week to transfer funds abroad.
Expropriation and Compensation:
Expropriation of private property for public purposes is rare. The only known expropriation against a foreign company occurred in the early 1960s. By law, the expropriation process should be public and transparent, and in accordance with the principles of international law. Compensation based on market value is awarded by court decision.
The government may exercise eminent domain to undertake large-scale public projects, in cases of bankrupt companies that have had a government guarantee for their financing, or in certain cases when a company has not complied with the requirements of an investment agreement with the government. In 2000, the government expropriated land in the vicinity of the Bamako city airport for air safety reasons. Notifications of the expropriation were sent via direct mail and published in public and private media.
Disputes occasionally arise between the government or state-owned enterprises and foreign companies. Some cases involve wrongdoing on the part of companies and some involve corrupt government officials.
In November 1991, an independent commercial court was established with the encouragement of the U.S. government to expedite the handling of business litigation. Commercial courts are located in Bamako, Kayes, and Mopti. In areas where there is no commercial court, disputes are first heard at local courts of first instance. Since inception, the commercial court has handled cases involving foreign companies. The court is staffed by magistrates assisted by elected Malian Chamber of Commerce and Industry representatives. Teams composed of one magistrate and two Chamber of Commerce and Industry representatives conduct hearings. The magistrate's role is to ensure that decisions are rendered in accordance with applicable commercial laws, including internationally recognized bankruptcy laws, and that court decisions are enforceable under the law.
This notwithstanding, the judicial system is slow and inefficient, and is widely reputed to be corrupt. In 2006 an appeals court ordered an American company to pay damages to a Chinese company, even though it was the American company that had originally filed charges against the Chinese firm alleging trademark infringement. In January 2009 the Malian Supreme Court overruled the appeals court, and sent the case back to the appeals court for a new hearing. Litigation in this case is ongoing. U.S. companies, bound by anti-corrupt practices legislation, have expressed the view that they are at a disadvantage when it comes to legal proceedings vis-à-vis other foreign companies that are not bound by similar legislation. German investors are currently involved in a dispute with the state-owned Malian Housing Bank (BHM) over expropriation of property, though the facts of this case have yet to be determined.
The investment code allows a foreign company that has a signed agreement with the government to refer to international arbitration any case that the local courts are unable to resolve.
Mali is a member of the African Organization for the Harmonization of Business Law (OHADA) and has ratified the 1993 Treaty creating the Joint Arbitration Court. OHADA has a provision for allowing litigation between foreign companies and domestic companies or the government to be tried in an appellate court outside of Mali. Mali is a member of the International Center for the Settlement of Investment Disputes (ICSID - also known as the Washington Convention). Mali is a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitrage Awards. Mali has been a member of the World Bank Multilateral Investment Guarantee Agency (MIGA) since 1990.
The investment code offers incentives to companies that reinvest profits to expand existing businesses or diversify into another relevant sector. The code also encourages the use of locally sourced inputs, which can offer tax exemptions. Companies that use at least 65 percent of locally produced raw materials are eligible for certain tax exonerations. Companies that invest at least 5 percent of their turnover in supporting local research and development are eligible for a reduction of payroll taxes for Malian employees.
There is no requirement that Malian nationals own shares in a foreign investment or that foreign equity be reduced over time. In the case of joint ventures with the government, the government share may not exceed 20 percent ownership. OHADA regulations specify that a company with less than 35 percent government equity is legally considered a private company.
Most businesses are located in the capital, and the investment code encourages the establishment of new businesses in other areas. Incentives include income tax exemptions for 5-8 year periods, reduced-energy prices, and the installation of water supply, electric power and telecommunication lines to areas lacking public utility services.
Any company, domestic or foreign, that plans to export at least 80 percent of its production is free of all taxes for a period of 30 years. The law allows up to 20 percent of total production to be sold domestically, subject to the same taxation as other similar imported products. Mali currently has no dedicated free trade zones.
The National Assembly approved a new oil code in June 2004. The initial span allowed for oil prospecting is four years renewable for two successive periods of three years each. Prospecting and exploitation permits, as well as their renewal, are subject to the payment of fixed taxes ranging from one million to ten million CFA francs (approximately USD 2,000 to 20,000). In addition, permit holders are liable for the payment of taxes while prospecting ranging from CFA 500 – 2,500 (USD 1-5) per square kilometer and taxes of CFA 1,000,000 (USD 2,000) per square kilometer during exploitation. Permit holders and the companies associated with those permit holders are subject to a 35 percent tax on net profits.
In 2004, the government created a marketing office for petroleum exploration, AUREP. This agency drafts, plans and implements oil research programs, and collects data on oil reserves. AUREP is also the interface with the government for private sector investors.
The government has identified priority sectors for furthering economic development. Special incentives are offered for investment in the following areas:
--Fishing and fish processing
--Livestock and forestry
--Mining and metallurgical industries
--Water and energy production industries
--Tourism and hotel industries
--Human and animal health promotion enterprises
--Vocational and technical training enterprises
--Cultural promotion enterprises
Right to Private Ownership and Establishment:
The government has price controls on petroleum products and locally produced cotton, and occasionally controls the price of basic commodities, such as rice. The free market determines prices of other goods. Domestic and foreign companies compete on an equal basis with public enterprises and they share equal rights to private ownership and establishment. The government’s privatization program for state enterprises holds investment opportunities through a process of open international bidding. In the past several years, the government has privatized parastatal enterprises including the cotton processing company, Huilerie Cotonniere du Mali (HUICOMA); the International Bank of Mali (BIM); and the telecommunications company, Societe des Telecommunications du Mali (SOTELMA). The government is in the process of privatizing the cotton marketing parastatal, Compagnie malienne pour le developpement des textiles (CMDT). In some cases, the local media have questioned the transparency of the bidding and contracts award process, though no evidence of corruption was given.
Protection of Property Rights:
Property rights are nominally protected in Mali. The government established the Malian Center for the Promotion of Industrial Property and charged it with implementing the legal regime of property rights protection, including the World Trade Organization (WTO) TRIPS agreements. This agency is a member of the African Property Rights Organization (OAPI) and works with international agencies recognized by the United Nations Industrial Development Organization (UNIDO). Patents, copyrights, and trademarks are covered.
These structures notwithstanding, property rights are not always protected. A recent example is that of a U.S. herbicide manufacturer, which has been mired in a three-year long legal battle in the Malian courts with a Chinese company allegedly selling the same products under a different brand name. In spite of a recent favorable ruling by the Supreme Court, the case was remanded to a lower court and the outcome of the case remains unclear.
Transparency of the Regulatory System:
As reflected in agreements with the International Monetary Fund (IMF) and World Bank, the government of Mali has adopted a transparent regulatory policy and effective laws to foster competition. The commerce and labor codes adopted in 1992 are designed to meet the requirements of fair competition, to ease bureaucratic procedures, and to facilitate the hiring and firing of employees. The investment code simplifies the application process to establish a business, and it favors investments that promote handicrafts, exports, and labor-intensive businesses. The 2010 Doing Business Report cited that it take an average of seven procedures and 15 days in order to establish a business. The Mining Code encourages investments in small and medium mining enterprises, awards two-year exploration permits free of charge, and does not require a commitment from the exploring firm to lease the area explored thereafter. Mali is a member of OHADA and implements the Accounting System of West African States (SYSCOA), which harmonizes business practices among several African countries consistent with international norms.
Efficient Capital Markets and Portfolio Investment:
WAEMU statutes and the BCEAO determine banking system and monetary policy in Mali. The BCEAO is located in Dakar, Senegal. Commercial banks enjoy considerable liquidity. Banks’ deposit funds are split 75/25 between demand deposits and time deposits, respectively. The majority of banks’ loanable funds, however, do not come from deposits, but rather from other liabilities, e.g. lines of credit from the BCEAO and North African and European banks. In spite of having sufficient loanable funds, commercial banks in Mali tend to have highly conservative lending practices. Bank loans generally support short-term activities, such as letters of credit to support export-import activities and short-term lines of credit and bridge loans for established businesses. Small- and medium-sized businesses have difficulties obtaining access to credit. In order to strengthen the banking sector, WAEMU raised the minimum capital required of banks and financial institutions by end-2010 to CFAF 5 billion (USD 10 million) and CFAF 1 billion (USD 2 million), respectively. Following this first phase, WAEMU will establish a timetable to raise the minimum capital requirement to CFAF 10 billion (USD 20 million) for banks and CFAF 3 billion (USD 6 million) for financial institutions.
Portfolio investment is not a current practice, although the legal and accounting systems are now transparent enough and are similar to the French system. In 1994 the government instituted a system of treasury bonds available for purchase by individuals or companies. The payment of dividends or the repurchase of the bonds may be done through a compensation procedure offsetting corporate income taxes or other sums due to the government.
The WAEMU stock exchange program based in Abidjan opened a branch in each WAEMU country, including Mali. To date, no Malian company is listed on the stock exchange. The privatization programs of the electric company, EDM, the telecommunications entity, SOTELMA, and cotton ginning company, CMDT, offer prospects for some companies to be listed on the WAEMU stock exchange.
The government of Mali has participated in the Sovereign Credit Rating Program sponsored by the State Department in 2002. Fitch Ratings won a competitive contract to conduct the ratings. The U.S. Treasury Department provided technical assistance to the Malian Ministry of Economy in this endeavor with the support of the U.S. State Department. Fitch completed its evaluation in 2004 and awarded a B- to Mali. Parallel to this effort, Standard and Poor’s awarded Mali a BBB- rating in 2005 through a UNDP-funded program. Standard and Poor’s has not rated Mali since 2005. In December 2009, Fitch Ratings affirmed Mali's Long-term foreign and local currency Issuer Default Ratings (IDRs) at B- with Stable Outlooks respectively, Country Ceiling at BBB- and its Short-term foreign currency IDR at B. After completion of the State Department-sponsored rating program, Fitch announced in December 2009 it would no longer provide rating or analytical coverage of Mali, and all the ratings have been withdrawn.
Mali's IDR of B- reflects the country's high level of poverty, its vulnerability to external shocks and slow economic growth. Mali consistently runs a current account deficit, due to its high dependence on energy imports and low export base. Fitch does not expect any improvement in Mali's creditworthiness in the medium to long term. However, the country's external situation is not a constraint, as Mali is part of the West African Economic and Monetary Union: the CFA Franc is pegged to the Euro and the French Treasury guarantees its convertibility
Competition from State-Owned Enterprises
Private and public enterprises compete under the same terms and conditions with respect to access to markets, credit, and other conditions, including the supply of electricity and water. Because of their high operation costs relative to private companies, however, public enterprises are less competitive than their private counterparts.
Mali is in the process of privatizing its state-owned enterprises (SOEs), but a number of SOEs still exist. The government is active in the agricultural sector: the Niger River Authority (Office du Niger) controls much of the irrigated rice fields and vegetable production in the Niger River inland delta. The national cotton production company, CMDT, provides financing for fertilizers and inputs to cotton farmers, sets cotton prices, purchases cotton from producers and exports cotton fiber via ports in neighboring countries. The government is still active in the banking sector. While it no longer has a majority stake in the Malian Development Bank (BDM), it has significant influence over operations as the Minister of Finance serves as head of the Board of Directors. The Malian government also owns the Agricultural Development Bank (BNDA), the Malian Solidarity Bank (BMS), and the Housing Bank (BHM). In addition, the electricity and water company, EDM, is still owned by the government after a failed privatization attempt. Senior government officials from different ministries make up the board of SOEs.
SOEs are required by law to publish an annual report. They hold a mandatory annual Board of Directors meeting to discuss the financial statements prepared by a certified public accountant and certified by an outside auditor. Mali’s independent auditor general conducts an annual review of public spending, which may result in the prosecution of specific cases of corruption.
Mali has no sovereign wealth fund.
Corporate Social Responsibility
There is no general awareness of corporate social responsibility in Mail among producers or consumers. Foreign mining and oil exploration companies sometimes provide schools and health clinics to communities in proximity of their activities, however, this is not done with adherence to generally accepted principles such as the OECD Guidelines for Multinational Enterprises. Rather, such donations are the result of individual negotiations between the company and the leaders of neighboring communities.
Mali’s multi-party democracy, now almost two decades old, has consistently encouraged private enterprise and investment. Occasional student and labor strikes and small-scale political demonstrations have sometimes resulted in political vandalism and violence, but not enough to impact the investment climate. President Amadou Toumani Toure was first elected in 2002. President Toure was reelected to his second and final term in 2007 with more than 70 percent of the vote. Several political parties contested the July 2007 legislative elections, and the three major parties got more than 90 percent of National Assembly seats. The elections were considered free, fair, and transparent. Municipal elections were held in April 2009 and observers deemed them free and fair.
Northern Mali is host to occasional friction between pastoral and sedentary populations, as well as uprisings by the Tuareg population against the government in Bamako. In May 2006, a group of former Tuareg combatants previously reintegrated in the regular armed forces attacked two Malian military facilities in the northern towns of Menaka and Kidal. In July 2006, the government of Mali and the rebels signed a peace agreement known as the Algiers Accords. In early 2009, the last Tuareg holdout to the Algiers Accords, the bandit Ibrahim Ag Bahanga, was chased from Malian territory, effectively ending the uprising. The government, along with international donors and United Nations organizations, supports the socioeconomic reintegration of refugees and former combatants.
The Algeria based terrorist group, Al Q’aida in the Islamic Maghreb (AQIM), continues to use isolated regions of northern Mali as a safe haven. In June 2009, AQIM assassinated a Malian military officer at his home in Timbuktu, leading to Malian military action against the terrorist group. In November 2009, AQIM kidnapped a French citizen in Menaka, in Gao region, and three Spaniards and an Italian couple were kidnapped by AQIM in Mauritania in November-December 2009 are also believed to be held in Mali. The vast majority of Malians, however, practice an open and tolerant form of Islam, and extremist ideologies like those espoused by the Algerian-based AQIM have made few inroads into Malian society. There is limited infrastructure and business in the northern desert regions, and past troubles in the north have had little direct impact on business activities in the rest of the country. Mali maintains good relations with each of its several neighbors.
Corruption is considered a crime punishable under the penal code. This notwithstanding, there are widely circulated reports of bribery cases on large contracts and investment projects.
Corruption poses an obstacle to foreign direct investment. Government officials often solicit bribes in order to complete otherwise routine procedures. Using assessments by the African Development Bank, the World Bank, and the World Economic Forum, in 2009 Transparency International assigned Mali a score of 2.8 on a 0 to 10 scale of perceived public sector corruption, zero representing the worst score. Mali ranked 111 of 180 countries surveyed.
Corruption seems most pervasive in government procurement and dispute settlement. The government has addressed this by requiring procurement contracts to be inspected by the Directorate General for Public Procurement, which determines whether the procedure meets fairness, price competitiveness, and quality standards. Mali’s international donor community has been working with the government to reduce corruption, but progress has been slow.
The President created an Office of the Auditor General (OAG) in 2004, an independent agency tasked to audit public spending. Since inception, the OAG has uncovered several large cases of corruption. To date, however, none of these cases have resulted in prosecutions.
Questionable judgments in commercial cases have occasionally been successfully overturned at the court of appeals. In 2007, the Auditor General organized a discussion with magistrates to find ways by which the Office of the Auditor General and the judiciary could work to bring economic crimes to trial. While prosecution of minor economic crimes is routine, significant official corruption is rarely prosecuted.
Bilateral Investment Agreements
Mali has signed the International Center for Settlement of Investment Disputes (ICSID) treaty sponsored by the World Bank group. During the past six years, Mali has signed investment protection agreements with South Africa, Algeria, Senegal, and Libya.
OPIC and Other Investment Insurance Programs
Since October 1997, Mali has been eligible for the U.S. Ex-Im Bank program for short and medium term financing for the private sector. Mali is also eligible for certain OPIC programs. Mali has been a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA) since 1990.
Labor is widely available, though skilled labor is in short supply. Workers have the right to unionize. Relations between labor and management are often contentious. Although a warning notice for strikes is not required in the private sector, mediation procedures are generally followed before resorting to a strike. The government has signed the International Labor Organization agreement protecting the rights of workers. Although the labor code adopted in 1992 improved hiring and firing procedures, it still requires simplification. Powerful labor unions play an important role in national affairs. Compensation plan negotiations and firing procedures are very long and closely scrutinized by the Ministry of Labor and the judiciary. Labor disputes have constituted one of the major difficulties both Malian and foreign employers have recently encountered. Although not a requirement, it is advisable to have regular contacts with labor inspectors, especially when concluding new hiring contracts or considering terminations or reductions in force.
Foreign Trade Zones/Free Ports
There is no discrimination between foreign-owned firms and host country entities in terms of investment opportunities. Companies (domestic or foreign) that export at least 80 percent of their production are entitled to the status of “zone franche” (tax-free status). As such, they benefit from duty free-status on all equipment and other inputs they need for their operations. To date, there are no dedicated free trade zones in Mali.
Foreign Direct Investment Statistics
Companies from Japan, Australia, Canada, and South Africa have made significant investments in the mining sector. France, Germany, and China have made significant investments in the manufacturing and food processing sectors. In its 2008 World Investment Report, the United Nations Conference on Trade and Development (UNCTAD) recorded that Mali received USD 73 million in foreign direct investment (FDI) for 2007, while total FDI stock for 2008 was USD 1.1 billion. As of 2008, there were ten foreign affiliates located in Mali. FDI inflows to West Africa increased in 2008 to USD 26 million from USD 16 million in 2007. In the case of Mali, this was the result of an increase in investments in project upgrades, especially in the mining industry, by existing transnational corporations.