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2010 Investment Climate Statement - Republic of the Congo


2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010
Report
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Overview
Located in Central Africa and straddling the equator, the Republic of the Congo (ROC) covers an area of 142,000 square miles, slightly larger than the State of New Mexico. Its population is estimated at 3.8 million inhabitants, with a population density of 8.7 people per square kilometer. The country is bordered by Cameroon and the Central African Republic to the north, Angola (the Cabinda enclave) to the south, the Democratic Republic of Congo to the east and the Republic of Gabon and Atlantic Ocean to the west. Republic of the Congo has three climatic zones: equatorial in the north, sub-equatorial in the center and humid tropical in the south.

After almost three decades of centrally planned economy, the Congolese Economy entered a period of broad liberalization at the end of the 1980’s. With assistance from the IMF and the World Bank, Congo implemented various structural adjustment programs to create a private sector based market economy. Following the Civil War from 1997-2002, Congo spent significant resources rebuilding Brazzaville, which was heavily damaged during the fighting. Congo held peaceful presidential elections in July 2009, which provided incumbent President Denis Sassou Nguesso with a seven-year term. As it is currently written, Congo’s constitution does not allow President Sassou to run for reelection in 2016.

Although the informal sector is an important portion of the Congolese economy, it does not generate revenues for the Congolese treasury. The Congolese government relies heavily on the oil industry, which generates roughly 80% of its fiscal revenue, and represents 70% of Congo’s GDP. Over half of the 2010 Congolese budget is allocated toward countering budget shortages in future years when oil revenues decline.

Agriculture, fishing and farming sectors account for a mere 4% of the RoC’s GDP. However, the Government hopes to revive these vital sectors over the next decade.

The Republic of Congo reached “completion point” in the Heavily Indebted Poor Countries initiative as of January 28, 2010, which will generate USD 1.9 billion in debt service savings and may eventually translate into USD 6.4 billion in overall debt relief.

Chinese loans linked to construction projects awarded to Chinese firms are funding significant infrastructure projects. Current projects, by Chinese firms, include roads, highways, a hydroelectric dam, hospitals, airports, and apartment buildings.

Congo imports approximately $200 million in food products each year, which represents approximately 65% of Congolese food consumption. According to the government, only 2% of Congolese available farm land is currently used for agriculture.

The economic indicators for the upcoming year are positive; the GDP growth rate is estimated to reach 12% in 2010 as opposed to 7% in 2009.

Openness to Foreign Investment

In order to create a business in the Republic of Congo, investors must provide the CFE (“Centre de Formalites des Entreprises”) two copies of the company by-laws, two copies of capitalization documents (i.e. Bank’s letter or Affidavit), a copy of the company’s investment strategy, the company approved financial statement (if available), and ownership documents or lease agreements for the company’s office in ROC.

The CFE is designed to provide all services under one roof in order to facilitate the opening and closing of businesses. CFE has offices in Brazzaville, Pointe-Noire, N’kayi, Ouesso and Dolisie.

The Investment Charter, established by Law 6–2003 on January 18, 2003, offers a range of guarantees to foreign investors including no discrimination or disqualification on types of investment and equal justice under Congolese law.

The cost of registering a business depends on the type of company one is trying to register. Registration fees range from USD $244 for a small company with a capitalization below two thousand dollars, to USD $4,444 for a large company with a capitalization that exceeds two hundred thousand dollars.

A local partner is not required to start up a business in Congo. The entire business registration process should take an average of three weeks, according to the CFE’s Secretary General. There are additional government licensing and permit requirements, depending on the nature of the business.

Congo has an investment code adopted in 1994 that provides a framework to protect investments and investors. In addition, Congo is party to OHADA (Organisation pour l’harmonisation du droits des affairs en Afrique), a type of commercial code for 16 African countries that governs investments and business practices. (Members include all countries that are members of ECOWAS and CEMAC as well as Mauritius and Madagascar). OHADA registration applies to all countries in the zone.

There are no known pending lawsuits regarding to the investment code in Congolese commercial courts. Lawsuits have been filed at OHADA’s tribunal in Abidjan, Cote D’Ivoire relating to investors doing business in the Republic of Congo. In principle, the judicial system upholds the sanctity of contracts; parties also may appeal to foreign or international justice courts for any necessary relief.

Investors report that the commercial environment in the Congo has improved and they feel they have good working relations with government officials. However, corruption is still a fact of life and there are reports of government officials requesting bribes. Court cases are subject to political influence.

Conversion and Transfer Policies

The Republic of the Congo is a member of the Franc Zone (Communauté Financière Africaine - CFA), a member of the Central African Economic and Monetary Community (CEMAC) and the Bank of the Central African States (Banque des Etats de l’Afrique Centrale – BEAC). BEAC serves as the Central Bank for Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea and Gabon.

The common currency used in Republic of the Congo and other African nation CEMAC members, is the CFA Franc (CFA F). The CFA is linked to the Euro and is treated as an intervention monetary unit at a fixed exchange rate of 0.001524 Euro/CFA Franc. This agreement guarantees the availability of foreign exchange and the unlimited convertibility of the CFA Franc. It also provides for considerable monetary stability to the Republic of the Congo and other countries of the region. The exchange rate between the CFA Franc and the US dollar fluctuates according to the rate between the euro and the dollar.

Expropriation and Compensation

During the 1970s and 1980s, the political landscape of the Republic of the Congo was marred by turbulent interventionist policies and Marxist-Leninist doctrine which led to nationalization of private companies and the departure of many foreign investors. However in 1992, the Republic of the Congo completed a transition to multi-party democracy, and its former economic and political views moderated considerably following the collapse of the Soviet Union.

There is no evidence that foreign investors who have returned to the country are discriminated against in any fashion or have been subjected to expropriation of assets. Foreign and national firms established in Republic of the Congo operate on an equal basis.

Several companies have been privatized, including the national flour company (currently MINOCO) and banking companies UCB and CAIC. U.S. firm Seaboard successfully privatized the Congolese flour company, a process which was completed in 2009.

During the 1970s and 1980s, the Congolese economy was dominated by state-owned companies. However, the promulgation of Law 24/94 on August 10, 1994, which introduced a framework for privatization, and its addendum, Law 10/95 introduced on April 17, 1995, which identified specific sectors to be privatized, ushered in a new economic era, receptive to national, private and foreign investments.

The laws define the privatization process as follows:

- A transfer of property from the government to the private sector;

- A call for private sector capital or expertise managed through concessions or contract to conduct a public sector activity.

The transfer may be implemented as follows:

- Total or partial cession, subject to payment for shares representing the direct or indirect majority shareholding of the government;

- Total or partial cession, subject to payment for elements owned by public companies.

Public companies have been divided into two categories of privatization: (a) the first consists of six major public companies supporting the oil, transport, telecommunication, water and electricity sectors; and, (b) the second includes all other agricultural and industrial companies in the farming, forestry, hotel, banking, transport and transit sectors. The General Office of Privatization within the Ministry of Industrial Development and the Promotion of the Private sector is now in charge of monitoring privatization.

Dispute Settlement

The majority of foreign private companies based in the Republic of the Congo are invested in the oil and timber sectors. Relations between the government and oil companies are regulated on the basis of Production Sharing Agreements (PSAs). Although there have been some reports of constraints on recovering VAT reimbursements or customs fees under those agreements, very few private investment disputes involving foreign businesses have been lodged in recent years.

The Republic of the Congo is a member of the World Trade Organization (WTO) and is a party to other international treaties governing trade and commerce. Binding international arbitration of investment disputes is accepted.

Public Law 6-2003, which established the country’s Investment Charter, states that investment disputes will be subject to settlement under Congolese law. However, independent settlement or conciliation procedures can be enacted by either party. These procedures are governed by:

- The convention regulating the Community Justice Court;

- The treaty of October 17, 1993, implementing the African Business right Harmonization Organization OHADA);

- The International Center for the Settlement of Investment Disputes (ICSID).

Performance Requirements and Incentives

Presidential decree No: 2004-30 of February 18, 2004, defines the requirements for foreign and national companies to benefit from incentives offered by the Congolese Investment Charter. Four types of incentives are considered:

(a) Incentives to export.

(b) Incentives to reinvest the company’s profit in the Congo.

(c) Incentives for businesses in remote areas or areas which are difficult to access.

(d) Incentives for social and cultural investment.

In the oil and forestry sectors, companies are required to respect the environment, particularly regarding water pollution safeguards and forest regeneration. All forestry companies, both foreign- and locally owned, are required to process 85 percent of their timber in the country and to sell it abroad as furniture or otherwise transformed wood. According to the law, companies are allowed to export up to 15 percent of their wood product as natural timber.

There are no known performance enforcement procedures for foreign companies. There are no known restrictions on U.S. or other foreign firms from participating in Congo-government financed or subsidized research and development programs.

Right to Private Ownership and Establishment

The law stipulates that each individual, without distinction of nationality, residing in the territory of the Republic of the Congo, has the right to establish a business in agriculture, mining, industry, forestry, handicrafts, commerce or services in accordance with existing policies. Local and foreign investors have the right to own and establish lawful business enterprises and all forms of remunerative activity.

The Republic of the Congo guarantees the legal right and freedom of private business to:

- Import or export raw materials or products, equipment and materials necessary for economic activity;
- Define their own production, commercial and hiring policies; and,
- Select suppliers and customers and set prices.

At present, the oil, timber and commerce sectors are heavily influenced by foreign investors.

Protection of Property Rights

As a member of the Central African Economic and Monetary Community (CEMAC), Congo is automatically a member of the African Intellectual Property Organization (AIPO). AIPO is charged with issuing a single copyright system which is enforceable in all CEMAC member states. As a member of the World Trade Organization (WTO), Congo must conform its legislation to trade-related aspects governing intellectual property.

The Ministry of Commerce and other interested departments work together to address issues related to counterfeit products and other items entering the country illegally. Containers of contraband items, such as medical supplies and food products, have been seized and destroyed by local authorities.

Transparency of the Regulatory System

Transparency in the government’s economic management system is an ongoing concern. The Public Finance Law of 2000 governs transparency and public management.

From 2006-2009, the Republic of Congo, working with the International Monetary Fund and the World Bank, designed and began implementation of significant changes in the area of public finance and management of Congo’s resources. A new forest management code was adopted, a new government procurement system was designed and implemented, major changes were made in the management of revenue from oil production, a national anti-corruption commission was established, new debt management procedures were adopted, and a new system for monitoring public spending was inaugurated. These reforms, if fully implemented, will vastly increase the transparency and efficiency of government economic management.

Efficient Capital Markets and Portfolio Investment

The Republic of the Congo does not have a stock exchange. Monetary and credit policies are conducted by the BEAC in the regional context of CEMAC. The main objective is to ensure the stability of the common regional currency.

The privatization of Congo’s main commercial banks has been completed. However, the commercial banks provide credit and services primarily to large clients involved in oil, forestry, telecommunications, import-export, or service sectors. Congo’s informal economy is predominantly cash-based and commercial banks service only a small segment of the market.

Banks do not yet provide adequate credit to small businesses, which appears to be a constraint to the country’s economic growth and development.

Competition from State-Owned Enterprises

Following the liberalization of the Congolese economy in the 90’s, several state-owned enterprises have been privatized. Some state-owned enterprises still exist, notably in the transportation, oil, energy, and water sectors. These sectors are deemed strategic by the Congolese government. The national oil company (SNPC) is a required participant in all oil projects in the Republic of Congo (usually a 15% stake).

Corporate Social Responsibility

The large oil companies engage in CSR practices such as funding development projects in the local community. This is viewed favorably by these communities. At the national level, there is little awareness of accepted CSR principles.

Political Violence

Multi-party democracy, established during the National Conference in 1991, experienced severe trials in the early 1990s and eventually led to civil war which severely damaged Brazzaville and other cities from 1997-1999.

Peace accords were signed in 2003 and stability has returned, although some areas of the country remain volatile.

As of late 2009, Sassou-Nguesso had offered a general amnesty to his former principal adversaries including former President Lissouba and the late Bernard Kolelas, and had focused the nation’s attention on peace and reconciliation, political unity, and economic and social development. Peaceful Presidential elections were held in 2009.

Corruption

The national Anti-Corruption Commission was created in September 2009 by the Anti-Corruption Law. The commission’s main function is to manage and track the implementation of anti-corruption and governance enhancement measures adopted by the government.

The Republic of Congo reached completion point in the Heavily Indebted Poor Countries (HIPC) debt relief process on January 28, 2010. The Republic of Congo has made tremendous progress on budgetary control according the Joint IMF and World Bank mission that visited Brazzaville in November 2009.

The reforms to which the Republic of Congo has committed include bringing the internal controls and accounting system of the state-owned oil company (SNPC) up to internationally recognized standards; preventing conflicts of interests in the marketing of oil; requiring officials of SNPC to publicly declare and divest any interests in companies having a business relationship with SNPC; and implementing an anti-corruption action plan with international support, monitored by the IMF.

Interim debt relief will increase the resources available to the Government to finance poverty reduction programs, fight corruption, and support on-going financial and structural reforms. The Government has agreed to undertake an array of measures to ensure that the resources freed from debt service obligations are used for poverty reduction under a reform program that will be closely monitored by the IMF.

In total, debt relief to Congo under the enhanced HIPC Initiative will be approximately USD 1.9 billion, equivalent to a 32.4 percent reduction of Congo’s overall debt.

Bilateral Investment Agreements

On February 12, 1990, the Republic of the Congo signed a Bilateral Investment Treaty with the United States. The treaty entered into force on August 13, 1994. Bilateral investment agreements with France and China have been in place for many years, as well as fiscal agreements with other CEMAC countries.

Commercial and bilateral agreements to safeguard investments have been signed with several African nations, including South Africa in 2005 and Namibia in 2007.

OPIC and Other Investment Insurance Programs

The overseas Private Investment Corporation (OPIC) is active in the Republic of the Congo with a political risk insurance program covering MINOCO (Minoterie du Congo SA), a flour mill company owned and operated by the Seaboard Corporation. The Republic of the Congo is also a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

The state civil service bureaucracy is the country’s largest employer, with an estimated 80,000 employees. The World Bank and other international lending institutions have pressed for reform in public sector hiring practices. Unemployment among Congo’s youth is approximately 40 percent, as workers seeking to leave behind the rural agricultural economy find limited opportunities in urban centers, state-owned enterprises and public service.

Except for members of the police, gendarmerie and armed forces, the Congolese Constitution provides workers with the right to form unions and to strike, subject to conditions established by law. The Labor Code allows for collective bargaining; however, it is not widespread due to the social and economic disruption and extreme hardship that occurred during much of the 1990s. Several labor unions threatened to strike in 2009, but did not, following negotiations with the government.

The Labor Code establishes a standard work period of 7 hours per day and 35 hours per week.

Foreign Trade Zones/Free Trade Zones

As a member of the Central African Customs Union (UDEAC), the Republic of the Congo belongs to a free trade zone which includes Cameroon, Central African Republic, Chad, Equatorial Guinea and Gabon. Within this zone, imports are subject to very low or no customs duties. The CEMAC zone is also considered a preferential trade area, for Congo and other member countries.

There are no foreign trade zones or free ports established in the country, however, this project is currently under consideration by the Ministry of Commerce.

Foreign Direct Investment Statistics

Congo’s economy relies primarily on exploitation of natural resources rather than industrial production, hence foreign direct investment is concentrated in the oil and forestry sectors. The government has increased its activity to attract investments in the telecommunications and banking sectors, and investments in both sectors have been rising.

Total Congolese exports to the U.S. were valued at USD $5.04 billion in 2008 and consisted mainly of oil and mineral fuels, as well as wood products. Goods imported to the Republic of Congo from the U.S. were valued at USD $183 million in 2008 and consisted of vehicles, machinery, chemicals, and meat products such as chicken. The 2008 balance of trade with the U.S. was USD $4.85 billion.

GDP was USD $13.8 billion in 2009 and USD $15.39 billion in 2008. GDP per capita was USD $1,540 in 2009, USD $1,479 in 2008, USD $1,492 in 2007, USD $1,442 in 2006 and USD $1,356 in 2005.Real GDP grew at an estimated rate of 6.4 percent in 2009, 3.7 percent in 2007, 6.1 percent in 2006 and 7.8 percent in 2005.

U.S. Foreign Direct Investment (FDI) in Republic of the Congo was $195 million in 2007.

Following are some majors companies registered as foreign businesses by the Congolese Chamber of Commerce.

Agriculture and Industry

A) Oil Sector:
- Chevron Overseas
- CMS Nomeco Congo
- Congorep
- Eni Congo
- Total
- Zetah Congo
- Puma International
- X-oil
- Total Congo
- Murphy Oil

B) Forestry sector:
- CIB
- Cristal
- IFO
- Likouala Timber
- Thanry Congo
- Congo Timber
- FORALAC
- MAN FAI TAI
- TRABEC
- SICOFOR

C) Banking sector:
- Credit Lyonnais
- BCI (Banque Commerciale Internationale)
- La Congolaise de Banques
- BGFIBANK
- ECOBANK

D) Communication sector:
- AFRIPA Telecom Congo
- Celtel/Zain Congo
- Ets. Temi
- MTN
- Warid Telecommunication



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