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2012 Investment Climate Statement - Central African Republic


2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report
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The Central African Republic is a landlocked country of 4.5 million people in an area slightly smaller than the state of Texas, with large swathes in the east almost uninhabited. After decades of coups, violence and government mismanagement, CAR now ranks 179 out of 187 on the United Nations’ Human Development Index. More than two-thirds of the population live in poverty, less than half are literate, and the average life expectancy hovers around 50 years, resulting in a very young population with almost fifty percent under the age of 18 and only four percent aged 60 and over. With a per capita income of USD 460(2012 est.), CAR ranks 182 out of 183 on the World Bank’s Doing Business Index. Its economy is based mainly on agriculture, artisanal diamond mining and logging. Diamonds and timber are the country's principal exports, but some gold, iron and uranium exploitation exists. CAR has the potential to become an agricultural products net exporter. However, CAR's economy is disadvantaged by the country's landlocked position, which isolates it from foreign suppliers and markets and contributes to high import prices. CAR is believed to have petroleum deposits along its border with Chad, which are currently being explored but are likely many years away from any potential exploitation. It also has hydroelectric potential that could be developed for export to neighboring countries that have power shortages.


Openness to Foreign Investment

In 2001, the government created the Central African Investment Charter to stimulate private sector development by attracting domestic and international private investment. The charter, common to the six member-states of the Central African Economic and Monetary Community or CEMAC (Cameroon, Central African Republic, Congo Brazzaville, Gabon, Equatorial Guinea and Chad) focuses on export-generating activities and is designed to open up the country to foreign investors, while still complying with the CEMAC treaty. The investment Charter created a fiscal and customs framework that involves notable changes, including:

- Enforcement of more moderate and harmonized customs taxes and external tariffs more in line with CEMAC;

- Suspension of temporary admission taxes;

- No value-added tax applied to exported goods;

- Reduction of fees on the establishment of new companies; and

- Encouragement of technical training of local staff and environment protection through tax reduction program.

The Investment Charter is not applicable to the mining, forestry and tourism sectors, which have their own investment code, or to the usual trading activities that do not generate value added, such as retail. However, the charter gives the National Commission for Investments, located at the Ministry of Commerce and Industry, the responsibility of facilitating the bureaucratic process of establishing new businesses in CAR by working with and on behalf of potential investors.

Due to political instability, insecurity in large parts of the countryside and widespread corruption, the Charter has not succeeded in attracting significant investment. The Ministry of Commerce made changes to some of the provisions of the current investment charter to make it more attractive for potential investors. The revised document was sent to the National Assembly for review and was adopted during the first quarter of 2011.

The Central African Government (CARG) adopted a new mining code in March 2009 which intended to modernize the law and facilitate greater investment in the sector. However, there are several controversial provisions of this mining code including:

1) A bonus payment of an unspecified amount to fund a ”Mining Development Fund” controlled by the Minister of Mines. The amount would be specified in a Mining Convention to be negotiated with each company.

2) 15 percent for CARG in carried interest in any mining project.

3) 15 percent of the production for CARG, whether in cash or product.

Diamond buying houses in particular are obligated:

1) To invest USD 700,000 (1$=CFA 500) in the construction of buildings/facilities for government use within three years of beginning operations.

2) To build within five years a headquarters valued at USD 300,000 minimum.

In case of failure to comply with above provisions, the mining code stipulates the cancellation of the mining license.

These provisions, combined with the effects of the 2009 international financial crisis, led to the closure of 8 of 11 diamond buying houses in the country.

Judicial system: The Central African judicial system is comprised of civil, administrative, criminal, commercial and financial courts. At the top of the judicial system is the Constitutional Court. Central Africa’s judicial system is severely understaffed and underfunded. As a result, judges are often improperly influenced, causing the judicial system to sometimes fail to uphold the sanctity of contracts.

Economic and industrial discrimination: There is no overt discriminatory industrial and economic strategy with any negative impact on foreign-owned investments in the Central African Republic.

There is no single sector/matter in which foreign investors are denied equal treatment in this country.

Real estate: Foreign investors can acquire real estate in the CAR.

Local stock exchange: There is no stock exchange in the CAR. There is a regional stock exchange in Libreville, Gabon (BVMAC) for the six CEMAC state members including Cameroon, Central African Republic, Chad, Congo Brazzaville, Equatorial Guinea and Gabon. Foreign investors are able to buy shares on this stock exchange on the same basis as local investors.

There is no screening of foreign investments in the CAR.

There are no closed/screened sectors in the CAR. All economic sectors are open to foreign investments.

Foreign investor treatment in privatization program: Having committed to reduce its role in the commercial and industrial activities, the CARG is currently conducting a privatization program. After privatizing various parastatals including water and petroleum and some banks, the CARG plans to privatize SOCATEL, the telecommunications company. The CARG holds 60% of SOCATEL's share capital, with 40% owned by France Cable, a French company. In 2010, SOCATEL started negotiating partnership relationships with Skylink, a US based Telecommunications Company. In light of its restructuring, World Bank is funding an audit to be conducted from January to March 2011. In December, 2012 President Bozize dissolved the corporate boards of all parastatal companies essentially putting himself in charge of corporate governance. ENERCA, the state owned electricity company, is to be privatized also, with foreign and national investors given the same treatment. Bidding criteria are clear and transparent.

There is no official discrimination against foreign investors at any time in the investment process.

Laws or regulations specifically authorizing private firms to adopt articles of incorporation or association, which limit or prohibit foreign investment, participation or control: There is no such law or regulation in the CAR.

There is no practice by private firms to restrict foreign investment, participation in, or control of domestic enterprises.

TI Corruption Index: 154 out of 180

Heritage Economic Freedom Index: 152 out of 179

World Bank Doing Business: 182 out of 183

MCC Government Effectiveness: -0.51 (15%)

MCC Rule of Law: -0.39 (18%)

MCC Control of Corruption: -0.05 (48%)

MCC Fiscal Policy: -0.4 (83%)

MCC Trade Policy: 58.1 (10%)

MCC Regulatory Quality: -0.43 (27%)

MCC Business Start-Up: 0.829 (12%)

MCC Land Rights and Access: 0.441 (9%)

MCC Natural Resource Management: 60.53 (44%)

Conversion and Transfer Policies


There is no restriction on converting or transferring funds associated with an investment. The Investment Charter provides that the investment capital, earnings or loan payments are freely transferable. The Ministry of Finance must be notified of transfer processes, but to date have not interfered with any transfers.

There has been no change in remittance policies and expatriates can transfer as much as they would like to bank accounts in the CAR.

Foreign exchange is legally obtained only at the banks, but a black market exists.

Average delay for remitting investment returns is 30 days. However, in practice the operation often takes longer.

Money transfer requires authorization from the Ministry of Finance. There is no ceiling; any amount can be transferred. The costs of transferring money from the Central African Republic are as follows:

Inside the Franc zone: 0.25% of the amount of the money to be transferred plus 18% of the value of 0.25%.

Outside of Franc zone: 1% of the amount of the money to be transferred plus 18% of the value of 1%. (Example: $100,000 x .01 = $1,000. $1000 x .18 = $180. $1,000 + $180 = $1,180 total)

Remitting investment returns through a legal parallel market including one utilizing convertible negotiable instruments (such as dollar-denominated host government bonds issued in lieu of immediate payment in dollars) is not common in CAR.

Foreign investors noted no discrepancy between the stated policy and its implementation.

Expropriation and Compensation
 

There have not been any reported cases of expropriation in CAR during the previous twenty years.

There is no particular sector that is more at risk for expropriation or similar action in CAR.

There is no law that forces local ownership in any sector in CAR.

There are no reported cases of "creeping expropriation" or government action tantamount to expropriation. It should be noted that in 2008, 8 of the 11 diamond buying houses in the CAR were shut down by the government. Government authorities cited an obscure property regulation to justify closure of the houses and seizure of the companies’ records and property.

Dispute Settlement


The CARG handles investment disputes by taking dispute cases to court when attempts to reach a "gentlemen's agreement" with involved investorsfail.

A dispute between CARG and RSM, a US-Canadian joint venture oil exploration project was referred to the International Center for Settlement of Investment Disputes (ICSID) for arbitration. In December 2010, the ICSID ruled that the company’s exploration license had lapsed, but that the company was owed damages as a result of breaches by the CARG of a petroleum contract. The CARG brought suit against the company in December 2010 and condemned the company’s CEO to 10 years in prison and a $500,000 fine for slander and fraud.

AREVA, the French uranium exploitation company, signed a deal with the Central African Republic Government in Bangui on August 1, 2008 after a year-long dispute. The mine is expected to be worth USD 40 million over five years to the Central African Government.

A Canadian company, Axmin, had its 2006 mining convention first renegotiated and then had all its concessions except for gold terminated in 2008. Axmin renegotiated the contract in 2010 and will begin mining in 2011/2012.

Legal system: The legal system in the Central African Republic is comprised of regular courts (civil, commercial, administrative, criminal and financial) and a military court. At the top of the judiciary is the Constitutional Court. Enforcement of property and contractual rights is uneven. The constitution provides for an independent judiciary, but there are reliable reports of executive interference.

The CARG has signed judicial treaties with France and most francophone countries. It also ratified the treaty related to the African Organization for Harmonizing Business Law (Organisation pour l'Harmonisation en Afrique des Droits des Affaires.)

The country has a written and consistently applied commercial law that is similar to French law.

Judgments are usually made in local currency (Franc CFA).

CAR accepts binding international arbitration of investment disputes between foreign investors and the state.

Since 1965, CAR has been a member of ICSID. ICSID provisions are included in the Central African Investment Charter.

Performance Requirements/Incentives


Compliance with WTO TRIMS:

According to Ministry of Commerce officials, CAR is in compliance with WTO TRIMS notification. The CARG does not maintain any measures that appear to violate the WTO TRIMs agreement.

Performance requirements or incentives are applied uniformly to both domestic and foreign investors in CAR.

Investment incentives: As mentioned above, the new Investment Charter (investment code) conforms to the CEMAC treaty and is designed to open up the country to foreign investment favoring the export sectors. All investment, foreign and domestic can qualify for benefits generated by the new Charter. The minimum investment required is CFA 10 million or USD 20,000 - (1 USD = CFA 500). For any investment of CFA 100 million - USD 200,000, the taxes on the benefits are reduced 100% during the three years following the investment date. After three years, taxes are restored as follows:

-4th year: 25%

-5th year: 50%

-6th year: 75%

-7th year: 100%

Investment incentives are also influenced by geographic location. Investment in areas outside the capital benefits from additional tax exemption periods as follows:

-100 km from Bangui: 1 additional year

-100 km to 300 km from Bangui: 2 additional years

-More than 300 km: three additional years

Performance requirements are imposed to access tax exemption and investment incentives.

There is no requirement that investors purchase from local sources or export a certain amount of output in general. However, it should be noted that the Central African Forestry Code requires that logging companies operating in CAR convert at least 70% of the wood cut locally and export only 30% in the form of raw timber.

In the telecommunication sector, a decree dated December 31, 1997 requires that a Central African citizen owns/controls a portion of the share capital of any telecommunication company operating in the country.

“Offset” requirement: No such requirement exists in CAR.

There are no government-imposed conditions on permission to invest in terms of specific geographic area or specific percentage of local content (goods or services). In terms of employment, the CARG encourages the employment of CAR citizens in those areas of economic activities where there are qualified personnel. There is no specific quota requirement. However, before a foreigner is employed at any level in a private company, permission from the Ministry of Labor is required. The permission is usually granted.

Enforcement procedures for performance requirements: There is no indication that the CARG intends to increase or decrease requirements. The CARG does not require the disclosure of proprietary information as part of regulatory approval process.

U.S. and other foreign firms can participate in government financed/subsidized research and development programs on the same terms as local firms.

There is no discriminatory or excessively onerous visa, residence, work or other requirements inhibiting foreign investors in CAR.

There are no discriminatory or preferential export or import policies affecting foreign investors in CAR.

Rights to Private Ownership and Establishment

Foreign and domestic private entities are entitled to establish and own business enterprises and engage in all forms of remunerative activity.

There is a right of private entities to freely establish, acquire and dispose of interests in business enterprises.

There is no discrimination with regard to access to markets on a competitive and equal basis. There is an entity called the Markets Committee, which is responsible for evaluating and selecting offers from private as well as public enterprises competing for access to Government markets. There is also equality of access to credit, and other business operations.

Protection of Property Rights


Secured interests in property are recognized and enforced. The concept of a mortgage is common in CAR. The recording of such security is based on the French recording system.

There is a legal system that protects and facilitates acquisition and disposition of all property rights, such as land, buildings and mortgages.

Adherence to key international agreements on Intellectual Property Rights: CAR became a member of the African Intellectual Property Organization on March 27, 1997.

Adequate protection for intellectual property patents and copyrights: In 1983, the CARG established an office in the Ministry of Commerce to deal with industrial and intellectual property rights. In principle, there are legal provisions protecting the authors' rights, but implementation in this area remains poor.

WTO TRIPS Agreement: A The Bangui Agreement on Intellectual Property, signed by 17 African countries in February 1999, harmonizes all aspects of both intellectual and industrial property rights in the signatory nations. This agreement was reviewed by the Council of Ministers and ratified by the National Assembly of CAR in 2001. In 1990, the CARG established the National Office for the Protection of Copyrights (BUCADA). In principle, patents, trademarks, copyrights and related rights are monitored and protected by this entity.

Transparency of the Regulatory System


The CARG adopted a law in 1992 to liberalize the commercial sector by canceling price controls and encouraging sound competition in order to stimulate private sector development in the country.

Tax, labor, health, and security laws do not distort or impede investment in the Central African Republic.

Bureaucratic procedures: The government is in the process of streamlining bureaucratic procedures to improve transparency. In an effort to reach this goal, the Ministry of Commerce has established a one-stop shop office to complete the different steps needed to establish a business on behalf of the investors. This office has been operational for four years.

There are no informal regulatory processes managed by NGO or private sector organizations involved in discrimination against foreign investors in CAR.

Draft laws or regulations are not commonly published for public comments in CAR. Most of the time, draft laws and regulations come from the executive branch for review and adoption by the National Assembly. The only way to influence a draft law during the process of its adoption is to lobby the National Assembly members individually or as a group for the draft law’s adoption or rejection.

Legal, regulatory, and accounting systems in CAR are transparent and consistent with international norms.

There is no private sector and/or government effort to restrict foreign participation in industry standards-setting consortia.

Efficient Capital Markets and Portfolio Investment


There is no capital market in CAR. The banking and financial sector of the Central African Republic consists primarily of the Regional Central Bank of Central African States (BEAC), four commercial banks and twelve credit unions. The Central African banking system is mainly a short-term market. With the exception of a few real estate development projects, there are very limited long-term resources. Some 60% of all deposits are made for an average of one year.

Credit is allocated on market terms and foreign investors can obtain credit on the local market, although this market remains modest with only four commercial banks operating in the country. Additionally, there are only seven banks found outside of Bangui (ECOBANK – four, Central Bank of Central Africa (CBCA) - three)

The private sector in CAR has access to a limited range of credit instruments.

There is no effective regulation system to encourage and facilitate portfolio investments in the Central African Republic.

The largest commercial bank in the Central African Republic is ECOBANK/CENTRAFRIQUE. Its address is as follows:

ECOBANK Centrafrique (ECA),Place de la Republique

P.O. Box 910 Bangui, Central African Republic

Tel # (236) 21 61 00 42

Fax # (236) 21 61 61 61 36

E-mail: ecobankcf@ecobank.com

ECOBANK’s assets:

Share stock: USD 12 Million. ECOBANK is the leading commercial bank with 52% of all deposits and 47.2% of credits. ECOBANK has 12 agencies throughout the country employing 171 personnel. The breakdown of its share capital is as follows:

Ecobank Transnational inc.: 75%

Local private: 16%

Central African Government: 9%

Soundness of banking system: According to an August 31, 2011 report from BEAC, the regional central bank, of the four main commercial banks operating in the country, only the Commercial Bank of Central Africa (CBCA) failed to conform to the regional bank requirements in terms of soundness.

Overall the Central African banking system’s deposits increased by - 10.8 % compared to August 2010. Credits to the economy increased by 17.3 %. Credits to the government increased by 36.5 % in 2011 as result of the government’s failure to secure/obtain needed financial assistance from donors. For several months Central African Government used the local banking resources to pay salaries to its personnel, which explained the sharp increase in the credit to the government.

The local bank with the most international correspondents is CBCA.

Competition from State Owned Enterprises

Private and public enterprises are allowed to compete under the same terms and conditions with respect to access to markets, credits and other business operations such as licenses and supplies.

State-owned enterprises are active in three sectors: water, electricity production and distribution, and fixed landline telephones, with the last being partially private.

Corporate governance of state-owned enterprise: The state-owned enterprise management reports to an independent board of directors and there are board seats specifically allocated to representatives of interested ministries. There is no seat specifically allocated to politically-affiliated individuals in the board of directors of SOE.

There is no sovereign wealth fund in CAR.

Corporate Social Responsibility


CSR has limited traction in the CAR.

Political Violence


CAR has suffered from chronic political instability characterized by repeated internal conflicts. Former Army Chief of Staff and current President Francois Bozize came to power by overthrowing former President Ange Felix Patasse on March 15, 2003. General Bozize declared himself President and engaged upon a transition period marked by a national dialogue with political parties and civil society organizations, a constitutional referendum, and the holding of general and Presidential elections in May 2005 and again in January, 2011.

Rebel activity in the northwestern and northeastern parts of CAR in 2006 led to bitter fighting between the government and rebel groups, in which atrocities committed by both sides contributed to a displaced population of over 300,000 people. By December 2008, an Inclusive Political Dialogue built upon a Comprehensive Peace Accord helped bring an end to the instability in CAR. A Disarmament, Demobilization, and Reintegration (DDR) Process was initiated in August 2009 but has not been completed. However violence in the northeast and eastern parts of the country continues and contributes to generalized instability outside of the capital and the southwestern part of CAR.

Currently, the overall security situation in the Central African Republic is tenuous. There are frequent incidents of highway robbery and intimidation of citizens by robbers in the countryside. Although the Government signed peace agreements with most of the rebel groups, clashes are still frequent among rebel groups and none have yet disarmed.
 

Corruption

Multiple U.S. firms have identified corruption as an obstacle to foreign direct investment in the CAR.

Laws and penalties to combat corruption effectively in the CAR: The law provides criminal penalties for official corruption; however, the government did not implement these laws effectively. Nevertheless, it should be noted that the CARG took some measures to combat corruption by initiating basic reforms. In March 2008, Prime Minister Touadera set up a national committee to fight corruption that included representatives from the government, trade unions, NGOs, private sector, religious organizations, and the media.

In 2010 the National Committee to Fight Corruption completed the preparation of a strategic document on the fight against corruption. The document has circulated among local donor representatives for comments before its final adoption scheduled for the first quarter of 2012. Corruption is a major obstacle to foreign direct investment in the Central African Republic, and corruption is pervasive in government procurement, dispute settlement and taxation.

Bribery: In the framework of the fight against corruption in the Central African Republic, the National Assembly adopted a law against bribery in 2003. According to this law, bribery is considered a criminal act.

Bribery by local companies to foreign officials as well as bribery by foreign to local officials are common and rarely if ever punished.

A bribe to a foreign official cannot be deducted from taxes.

Enforcement of anti-corruption law: the law may be applied if a complaint is filed but is often enforced selectively.

The CAR is not a signatory of the OECD convention on combating bribery.

Transparency International’s 2011 Corruption Index ranked the CAR 154 out of 183 countries.

Bilateral Investment Agreements


The Central African Republic has bilateral commercial agreements with the CEMAC member states: Cameroon, Congo Brazzaville, Gabon, Equatorial Guinea and Chad as well as with following countries: Morocco, China, Sudan, Egypt, France, Nigeria, Libya, Iraq, Germany, South Korea and Romania.

The Central African Republic has a bilateral agreement and investment treaty with the U.S.

The Investment Guaranties Agreement between the United States of America and the Central African Republic is dated December 31, 1964 and entered into force on January 1, 1965.

OPIC and other Investment Insurance


The Central African Republic is not an OPIC eligible country.

Potential for operation of OPIC: The CAR has a democratically-elected government and is engaged in an IMF/World Bank economic restructuring program which includes the privatization of state owned companies. Small domestic surpluses over 2006 – 2008 were achieved through a conservative fiscal policy and several structural reforms, helping restore a measure of order to public finances. The Poverty Reduction Strategy enacted since 2007 covers public finance management, debt management and other key areas of economy policy. Due to these reforms, the CAR reached the completion point under the enhanced Heavily Indebted Poor Countries Initiative. Debt relief of some USD 741 million in net present value (NPV) was signed with creditors. Additionally, multilateral creditors provided debt relief amounting to USD 525 million in NPV. The average exchange rate for the twelve previous months: is CFA 469 to $1.00.

Devaluation risk: the CFA Franc is linked to the Euro. There is no indication that the CFA Franc is at risk of devaluation or depreciation relative to the Euro.

Labor

Labor is available in most of the economic sectors, depending on what the local training institution can provide. However, there are shortfalls of skilled personnel in some technical fields.

Labor-management relations are regulated by the Labor Code. Depending on the economic sector, labor-management relations are regulated through specific agreements.

The CAR adheres to the ILO convention protecting workers rights.

Foreign Trade Zones/Free Ports


There is no foreign trade zone in the Central African Republic.

Foreign Direct Investment Statistics


The CAR economy is based mainly on the agriculture, diamond, gold and logging sectors. Diamonds and timber are the country's principal exports. A uranium exploration project just started in the east of the country but was recently suspended in October 2011 for two years as result of Japan’s Fukushima accident and the resulting drop in world uranium prices. The world financial crisis beginning in 2008 strongly affected principal Central African export products such as diamonds and timber, which accounted for 40% to 32% of the country’s exports in 2009. Other exports include gold, cotton, coffee and tobacco. Foreign direct investments are primarily in diamonds, gold, uranium, telecommunications and more recently in the hotel industry. Among new foreign investments recorded from 2007 through 2009, the telecommunication sector ranks as the largest new investment field by volume. According to the National Investment Committee, operating under the Ministry of Commerce, major investments recorded during 2007, 2008 and 2009 in the telecommunications sector represented respectively 53.2%, 67.9% and 26.7% of total foreign direct investments. Gold and uranium benefited from substantial foreign direct investments as well over the same period. In terms of origin, most foreign direct investments come from France, Canada and South Africa and India. India’s investments in CAR are primarily in cement production project and urban transportation services. China’s share of investments in the country increased significantly over the last four years.

According to statistics from the Ministry of Economy and Planning, the foreign direct investment percentages of GDP represented 10, 12.6 and 14.8 respectively in 2007, 2008 and 2009.



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