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2012 Investment Climate Statement - Burundi


2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report
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1. Openness To, and Restrictions Upon, Foreign Investment

The Government of Burundi’s (GOB) official attitude toward foreign direct investment is reflected by the Investment Code adopted in September 2008, which aims to attract and reassure foreign investors. The Code encourages and promises to facilitate acquisitions, as well as the production, transformation, and distribution of goods and services. In August 2009, a series of amendments designed to clarify the somewhat vague provisions of the new Code came into effect. These amendments spell out substantial tax exemptions for real estate purchases related to new investments, tax reductions for goods used to establish new businesses and profit-tax breaks for investors employing more than 50 Burundian workers. The paperwork for creating a business has been made easier and most proposals receive a response within three to four days after the application is submitted. Along with the new code, the government has created the Burundian Investment and Promotion Authority (IPA). The Authority is professionally and financially independent and is in charge of the development and promotion of investment. Currently, its main objectives are not only to inform and assist potential investors, but also ensure that new laws and regulations that benefit investors are being upheld as well as promote reforms aimed at improving the business climate. IPA is in the process of setting up a “one-stop” investment center. In the 2012 World Bank Doing Business Report, Burundi had one of the largest improvements in Sub-Saharan Africa. However, Burundi is still recovering from a civil war and suffers from extreme poverty. Infrastructure is poor and corruption is pervasive.

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.

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.

The investment code does not distinguish between domestic and foreign investment except for in the military sector. IPA is responsible for approving investment projects. The new Investment Code sets forth no specific bidding criteria for the acquisition of GOB interests by private firms. Burundi’s coffee industry – the largest source of foreign exports – is in the midst of a privatization process. More State Owned Enterprises (SOEs) are expected to be privatized in 2012.

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.

On paper, Burundi’s economy has been liberalized and is open to foreign investors. In practice, corruption hampers many business activities, domestic and foreign. The government is working hard to address corruption issues; however it is too early to tell how successful it will be.

Investment is starting to increase in Burundi. In the two years that IPA has been operational, 145 investment projects have been approved, worth 449 billion Burundian Francs (BFR) (around 333 million USD) have been registered and a large percentage of the projects have already been launched. The most targeted sectors are tourism, energy, agribusiness, transportation, and some light assembly plants. Foreign investors are mostly from the East African Community, India and China. In the past, there has been no American investment but for the first time American investors invested in a new Burundian power plant. Other American firms are exploring investment opportunities as well.

Measure

Year

Index/Ranking

TI Corruption Index

2011

172 out of 182

Heritage Economic Freedom

2011

148 out of 179

World Bank Doing Business

2012

169 out of 183

MCC Gov’t Effectiveness

2012

32nd percentile

MCC Rule of Law

2012

27th percentile

MCC Control of Corruption

2012

29th percentile

MCC Fiscal Policy

2012

98th percentile

MCC Trade Policy

2012

84th percentile

MCC Regulatory Quality

2012

19th percentile

MCC Business Start Up

2012

30th percentile

MCC Land Rights Access

2012

50th percentile

MCC Natural Resource Mgmt

2011

34nd percentile

2. 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.

3. 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.

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.

4. 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. In 2010, four cell phone companies brought a complaint in the Burundian Commercial Court after the government announced it was reassigning part of the bandwidth for which each company held a license to two other companies. At the hearing, the regulatory body that had made the decision announced that it would no longer seek to reassign the bandwidth that had already been licensed.

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 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.

5. Performance Requirements and 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. The standard enticement offered to potential large investors, foreign or domestic, is one or more years of tax-free operation. Amendments adopted in August 2009 to the Investment Code stipulate substantial tax exemptions for real estate purchases related to new investments, tax reductions for goods used to establish new businesses, and profit-tax breaks for investors employing more than 50 Burundian workers. IPR and the Burundian Tax Authority are working together to make sure that the tax exemptions are in harmony with those of the East African Community of which it is a member.

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.

6. 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. Private enterprises enjoy competitive equality in competition with public enterprises with respect to access to markets, credit, and other business operations.

7. 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 Intellectual Property Organization (WIPO) treaties governing industrial property and patent law.

8. 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.

9. 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. In March, the U.S Treasury Department began working with Burundi’s Central Bank to develop such a regulatory system and establish a bond market. Although financial markets are small, they are highly liquid and could potentially permit the movement of large amounts of capital.

According to their latest annual reports, the total assets of Burundi’s three largest commercial banks are: Interbank Burundi (IBB), USD 198.7 million; Burundi Credit Bank (BCB), USD 181.4 million; and Burundi Commercial Bank (BANCOBU), USD 105.3 million. On average, approximately 7.3 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.) At this point, hedging against currency risk using Burundi’s commercial banking system is not possible.

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. The private sector has limited access to credit locally as the credit market is not developed.

10. Competition from State-Owned Enterprises (SOEs)

Private enterprises are allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations, such as licenses and supplies. SOEs in Burundi are mainly active in the agricultural sector: coffee, tea, sugar, cotton, and palm oil.

Corporate governance of SOEs is structured from the top down, with a government minister in charge, a Board of Directors, and a General Manager. The management reports directly to the Board of Directors, whose decisions must be approved by the minister within 15 days to be valid. The minister may overrule any decision made by the Board if the minister considers it to be “against the general interest” – a catch-all phrase that allows the minister to have the last word in any dispute. SOEs are required to prepare annual reports but do not routinely submit to independent audits.

There are no sovereign wealth funds (SWF) in Burundi.

11. Corporate Social Responsibility

There is no general awareness of corporate social responsibility among producers or consumers. Only the national brewery, Brarudi, which is managed and partially owned by the Dutch company Heineken, follows such principles as the OECD Guidelines for Multinational Enterprises. Since 2002, Brarudi has introduced programs to conserve water and electricity usage while reducing industrial waste; the company has also donated construction materials for schools and equipment for local NGOs.

Aside from these efforts, CSR is almost unknown in Burundi. The economy is so depressed and jobs are so scarce that such concepts are rarely discussed.

12. Political Violence

There have been no incidents in recent memory involving politically-motivated damage to foreign investors’ projects or installations. Even before the outbreak of ethnic violence in 1993, there was no significant foreign direct investment in Burundi. Though there were democratic elections in 2005 and the last rebel group demobilized in 2009, the security situation remains tenuous throughout Burundi. Banditry and extortion by armed criminals, some of whom are rumored to have links to the security forces or demobilized former rebels -- 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.

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 refugees from eastern DRC puts additional strain on Burundi’s limited resources.

13. 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. Customs officials are also reportedly very corrupt, regularly extorting bribes from exporters and importers.

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, insulating them from accountability and feeding a culture of impunity. However, in August 2010, the President announced a zero tolerance policy for corruption and the Ministry of Good Governance is developing a plan to battle corruption at all levels.

The most outspoken critic of corruption is a Burundian NGO, the Organization for the Struggle Against Corruption and Public Funds Embezzlement (known by its French acronym OLUCOME), which frequently decries abuses in the public sector.

14. 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.

15. OPIC and Other Investment Insurance Programs

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, 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 2012, U.S. Embassy Bujumbura purchased at an official rate of 1350 Francs to one USD. Given the overall weakness of Burundi’s economy, there is significant risk that the value of the Burundian franc will continue to depreciate against major market currencies.

16. 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.

17. 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 itself has few details concerning specific policies and procedures.

18. Foreign Direct Investment Statistics

Prior to 2009, it is difficult to get reliable figures on FDI. However, with the establishment of the IPA and the 2010 elections, FDI is slowly beginning to increase.

2009: <20 million USD

2010: 80 million USD

2011: 104 million USD



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