Guinea2007 Investment Climate Statement - Guinea Openness to Foreign Investment Guinea constitutes a small, underdeveloped market open to U.S. direct investment. Guinea's Investment Code of 1987 guarantees the right of all individuals or private legal entities of both Guinean and foreign nationality to undertake any economic activity in accordance with current laws and regulations. An investment promotion unit exists with the Ministry of Commerce. Laws governing takeovers, mergers, acquisitions, and cross-shareholding are limited to rules for documenting financial transactions and for filing changes of status documents with the Economic Register. The Investment Code authorizes private investment of all types: foreign private, mixed foreign and local, and mixed public and private. The Guinean government provides a guarantee, in the 1987 Investment Code, that it will not, except for reasons of public interest, take any steps to expropriate or nationalize foreign or locally held assets or businesses. Foreign investors and corporations receive the same treatment as Guinean nationals in this regard. The mineral liberalization policy of 1992 legalized wholly private ventures in the mining sector. The Ministry of Natural Resources and Energy adjudicates authorization and licensing at its own discretion. In order to attract major investment and to restore competitiveness in the sector, the Guinean government passed the 1995 Mining Code. The Code provides for the Guinean government's gradual divestiture of its capital in mining companies, significantly reduces the requirements for government participation in mining ventures, and allows favorable tax treatment for the duration of mining claims (including VAT exemptions during prospecting, construction and expansion stages). Alcoa and Global Alumina, two companies proposing the construction of new Greenfield alumina refineries, both received preferential tax treatment under the Basic Agreements negotiated with the government. The telecommunications liberalization policy of 1992 allows for private activity in the "value added" services sector, including cellular, radio, satellite, on-line data transmission, and other services. The Guinean telecommunications company, Sotelgui, and the Ministry of Communications, however, regulate licensing and administration. Sotelgui has officially ended a long partnership with a Malaysian telecommunications company, and is negotiating a partnership with a Chinese firm. Throughout 2006 Guinea's telecommunications sector experienced a surge of activity with two additions to its private cellular operators, including one U.S. company. There are currently four cellular companies in operation and this sector presents tremendous opportunity for growth. However, regulation of the sector has not kept up with its growth, and Guinea is currently reviewing the efficacy of its regulatory body. Until June of 2001 private operators managed the production, distribution and fee-collection operations of water and electricity under performance-based contracts with the government. However, both sectors have continued to battle inefficiency, corruption and nepotism in past years, and various foreign private investors in these operations have departed the country in frustration. The French Development Agency and the World Bank, major donors to the Guinean electricity and water sectors, have strongly encouraged the government to contract with new private partners in these sectors. The government has not yet identified new partners. Inadequate water and electricity provision are major political issues. The 1995 elimination of the public monopoly on petroleum product importation and commercialization allows private distributors to operate in Guinea. 100% foreign ownership is permitted in commercial, industrial, mining, agricultural and service sectors. Industries that are restricted from having a majority of foreign ownership are radio, television, and newspapers. In 2005, President Conte signed a decree establishing the process for private ownership of broadcast media, and Guinea liberalized its radio waves in 2006, issuing five licenses to private radio broadcasters. Conversion and Transfer Policies Individuals or legal entities making foreign investments in Guinea are guaranteed the freedom to transfer to any country of their choice the original foreign capital, profits resulting from investment, capital gains on disposal of investment, and compensation paid in the case of nationalization or expropriation of the investment. Unless there is a foreign exchange crisis, such transaction can take place upon request, although some expatriate businesspersons complain of periodic delays or shortages. These delays do not concern the government, as there are no specific laws pertaining to this factor. Periodic delays depend solely on the banks of the foreign investors in question. Expropriation and Compensation The government of Guinea provides a guarantee, in the 1987 Investment Code, that it will not, except for reasons of public interest, take any steps to expropriate or nationalize investments made by individuals and companies. It also promises fair compensation for expropriated property. Although the law states that expropriation is possible, there have been no known cases. Guinea is a member of the World Trade Organization (WTO), and its government obeys rules preventing discrimination against U.S. investments, companies, and representatives in expropriation. Major expatriate companies operating in Guinea have reported the government's failure to rebate value-added taxes or to grant tax exemptions that had been guaranteed. Some business managers have reported practices such as judges' requests for payments to "escrow accounts" pending court decisions and locking of office gates until an arbitrary sum of "tax" is paid. While these practices may not rise to the level of expropriation, they greatly complicate business operation in Guinea. Dispute Settlement The 1987 Investment Code states that competent Guinean judicial authorities shall settle disputes resulting from interpretation of the Code in the accordance with laws and regulations. In practice, however, a fair settlement may be difficult in such cases. Although the Guinean constitution creates an independent judiciary, businesspersons frequently claim that poorly trained magistrates, high levels of corruption, and nepotism plague the administration of justice. The Guinean government is in the process of implementing a wide range of reforms to strengthen the judicial system and ensure a more favorable climate for economic development. The government established an arbitration court in 1999, independent of the Ministry of Justice, to settle business disputes in a less costly and more expedient manner. The Arbitration Court is based on the French "prud'homme" system in which arbitrators are selected from among the Guinean business sector, rather than from among lawyers or judges, and are supervised by the Chamber of Commerce. Guinea has also ratified the OHADA treaty, which allows investors to appeal legal decisions on commercial and financial matters to a regional body based in Abidjan. Investors should know that, in many cases, the Guinean government does not meet payment obligations to private suppliers of goods and services, both foreign and Guinean, in a timely fashion. There is no independent enforcement mechanism for collecting debts from the government, although some contracts have international arbitration clauses. The government is bound by law to honor judgments made by the arbitration court. Most large foreign contractors prefer to work directly for donor-funded projects. According to the Code of Economic Activities, a company declaring bankruptcy can be held responsible for its debts through the Guinean court system. Monetary judgments are usually made in local currency. In 1986, Guinea ratified the March 1985 International Convention on the Settlement of Investment Disputes between states and nationals of other states and is a member of the International Center for the Settlement of Investment Disputes (ICSID). Performance Requirements/Incentive The 1987 Investment Code created an advantageous regime for investments in high priority sectors and industries, such as small and medium enterprises, export-oriented enterprises, value-added activities, or investments in less-developed zones of Guinea. The National Investment Commission (CNI) determines eligibility for benefits on a case-by-case basis according to the Investment Code. In practice, the ministers responsible for the concerned sector may also accord these benefits. High-priority sectors include: agricultural production, especially food crops and rural development; agro-industry, including food processing and transformation phases; animal breeding, including preservation and transformation facilities; mechanical or chemical preparation/processing of mineral, plant, or animal products; health and education; tourism and related activities; housing construction; development banks and credit institutions. Investors in high-priority sectors have, until recently, enjoyed an exemption from import duties and turnover taxes on the importation of equipment, material and machines necessary to implement their investments (excluding vehicles for personal transport) during the period of initial investment or during a period of expansion investment. This exemption is not applicable to the VAT (Value Added Tax). Businesses are responsible for a 2% (fob value) registration tax on such imported equipment. Raw material imports are subject to a one-time, 6% import tax and are exempted from all other taxes (except the VAT) without time limit. Each year the customs service determines the amount of raw materials eligible for these benefits. For a period of one fiscal year following the completion of the above benefits, the commercial/industrial/company (c/i/c) tax base is reduced by 50%. For the second fiscal year following the completion of the same benefits, the c/i/c tax base is reduced by 25%. Investors in high-priority sectors can also find income tax exemptions, discounts on social security payments for Guinean employees during the first five years of operations, and a 50% income tax reduction in the requirements for investors to maintain favorable regime status are covered below: Small or Medium-sized Enterprises (SME): A small- or medium-sized enterprise is defined as an enterprise which meets all of the following conditions: the value of assets (excluding land and working capital) must be between 15 and 500 million Guinean francs ($2,650 to $88,000); the business must employ a minimum of five full-time employees and bookkeeping must be kept up to date. To benefit from the regime, the investment must be in a high-priority sector and at least 20% in cash. SMEs benefit from the following specific advantages: exemption from the payment of the minimum income tax for a period of three fiscal years from the start date of operations; and tax on profits at the preferential rate applicable to self-employed craftsmen, or at a rate equal to two thirds of the normal rate if this is lower, for a period of five fiscal years from the start date of operations. Export-oriented firms: An export-oriented firm is defined as a manufacturing or service enterprise which exports non-traditional, non-mining, products of Guinean origin, and whose actual sales receipts from exports during a given fiscal year is more than 22% of the total turnover of the company for the same year. To qualify as an exporting firm, the investment must be in a sector considered high-priority (detailed below), with 33% of the investment in cash. Objectives concerning the creation of jobs and the training of local staff must be submitted to the CNI. During the first five years of operation, exporting firms can be exempt from the corporate income tax on the amount of profits that are equal to the proportion of export sales to total sales up to a ceiling of 60%. The normal corporate tax on profits is 35%. Value-adding firms: A value-adding firm is one whose intermediary goods, in a year of production, are more than 50% of Guinean origin. Imported materials may be added to the Guinean intermediary goods as long as the value of these materials or goods is less than 50% of the total value of the final product (obtained after processing/production in Guinea). The sector of investment must be a high-priority one, with 33% of the investment in cash. A plan for the creation of Guinean jobs and the training of local staff must be submitted to the CNI. Value-adding enterprises may deduct from taxable income an amount equivalent to 20 of the value of the Guinean-origin materials consumed during each of the first five fiscal years of operation. Enterprises in Less-Developed Zones: Enterprises in less-developed zones are also eligible for investment incentives. The 1995 revisions to the investment code divided Guinea into four zones, each comprising several prefectures. a) Zone One includes Conakry, Coyah, Dubreka, Forecariah, and Boke prefectures. b) Zone Two includes Boffa, Fria, Kindia, Mamou, Dalaba, Pita, Labe, Dabola, and Faranah prefectures. c) Zone Three includes Kissidougou, Gueckedou, Kankan, Macenta, N'zerekore, and Telimeli prefectures. d) Zone Four includes Koundara, Gaoual, Mali, Lelouma, Tougue, Kubia, Siguiri, Dinguiraye, Mandiana, Keroune, Beyla, Lola, and Youmou prefectures. A business is within a specific zone when: a) At least 90% of the personnel work in a locale with the zone; and b) The main office and the principal centers of activity are located within the zone. Investors in high-priority sectors also receive a commercial/industrial/company tax exemption for the first three years of operation in Zone Two, the first six years of operations in Zone Three, and the first eight years of operations in Zone Four. Enterprises in less-developed zones are eligible for a reduction in their turnover taxes for the first five years of operation at the following rates: 20% reduction for Zone Two firms; 40% reduction for Zone Three firms; and 40% reduction for Zone Four firms. Again, these reductions do not apply to the value added tax (VAT). The expansion of an existing enterprise is eligible for investment incentives if the expansion creates a minimum of 25 new permanent positions of employment, and investment equals at least 25% of the initial investment, or at least 500 million Guinean francs ($88,000). Separate bookkeeping records must be kept for the project extension. Right to Private Ownership and Establishment The Investment Code of 1987 guarantees the right of foreign and domestic private entities to establish and own business enterprises and to engage in all forms of remunerative activity, except that prohibited for the purposes of national interest. Both in theory and in fact, private entities are free to acquire and dispose of interest in business enterprises. There is little regulation of business transactions or interests and no government body equipped to do so. With no conflict of interest legislation, government officials engage in private business interests to the extent that opportunity allows. Also, a heavy concentration of business interests in the hands of a single family is not uncommon. In order to assure competitive equality, private and state-owned companies are guaranteed equal treatment, except in cases where the national interest is at stake. This is applicable in the case of taxation and market access. Credit for both public and private enterprises is extremely difficult to obtain, and expensive. Protection of Property Rights The Land Tenure Code of 1996 provides a legal base for documentation of property ownership. As with ownership of business enterprises, both foreign and national individuals have the right to own property. However, enforcement of these rights depends on a corrupt and inefficient Guinean legal and administrative system. To date, few cases exist which demonstrate that the legal system provides effective protection in property rights dispute cases. Guinea is a member of the African Intellectual Property Organization (OAPI) comprised of 15 African countries and the World Intellectual Property Organization (WIPO). OAPI is signatory to the Paris Convention for the Protection of Industrial Property, the Bern Convention for the Protection of Literary and Artistic Works, the Patent Cooperation Treaty, the TRIPS agreement, and several other intellectual property treaties. Guinea modified its intellectual property right laws in 2000 to bring them up to international standards. There have been no formal complaints filed on behalf of American companies concerning intellectual property rights infringements in Guinea. OAPI works with the Ministry of Commerce to assist in the protection of proprietary information and trade secrets. Many of Guinea's intellectual property rights officials have attended USPTO training courses. Transparency of the Regulatory System It is commonly acknowledged by businesspersons and senior members of the current Guinean government, that the Guinean judiciary is plagued by corruption and a general lack of training. Guinea's laws are designed to promote free enterprise and competition. According to local and expatriate businesspersons, the government lacks transparency in the application of the law. Businesspersons assert that application procedures are sufficiently opaque to allow for significant corruption, and regulatory activity is often applied based on personal interest. The government has committed itself, however, to strengthening judicial and legal institutions in order to attract more foreign investment and improve its economic condition. The World Bank and IMF have been working with the Guinean government to increase the transparency and efficiency of government through several training and awareness programs for both judicial and executive branch members. Also, the installation of an independent arbitration court has helped protect business people from corruption with the judicial system (see "Dispute Settlement"). Only Guineans have used the Arbitration Court, so its effectiveness in handling international disputes has yet to be determined. In 1994, because of a variety of new income and import taxes levied by the government, the tax burden of international businesses increased significantly. International financial experts in Conakry note that the code affects medium to large expatriate ventures the most and has diminished the margin of benefits originally intended to compensate investors for Guinea's poor infrastructure and difficult work environment. In 1996, the government added a value added tax (VAT) to all taxable items at a uniform rate of 18%. Exports, international transportation, and certain basic food items are excluded. Expatriate businesses have reported that the government has at times unfairly charged VAT and/or has been slow to provide VAT rebates due. In 1998, the government focused on improving tax administration and collection in order to increase non-mining revenue. The increase in non-mining revenue is generated by the implementation of a unique land tax, non-tax revenues (mostly user fees), and strengthened implementation of the VAT. In 1997, VAT coverage was extended to include the mining sectors. Efficient Capital Markets and Portfolio Investment Credit for BOT private and public enterprises is difficult to obtain and expensive in Guinea. Guinea, however, passed a BOT convention law in 1998, which provides rules and guidelines for BOT and related infrastructure development projects. The law lays out the obligations and responsibilities of the government and investors in such projects and stipulates the guarantees provided by the government for such projects. Guinea has no uniform policy on outward direct investment. The rules of investment govern only the export of capital and allow the conversion and transfer of start-up capital at the time of divestment. The conversion and transfer of profits is negotiated at the time of investment, to be honored on a monthly basis. Re-negotiation of the authorized repatriation ceilings is possible. The legal, regulatory, and accounting systems are based upon French civil law. The legal and regulatory procedures, however, are not always applied uniformly or transparently. The banking system is weak. The Central Bank suffers from a critical shortage of hard currencies/foreign exchange, which has caused hardship and inconvenience to large and small business owners. Even after removing the fixed exchange rate and reducing the spread to less than one percent, a flourishing parallel currency market exists, where many business people must go to obtain foreign exchange to complete transactions. Laws governing takeovers, mergers, acquisitions, and cross-shareholding are limited to rules for documenting financial transaction and filing any change of status documents with the economic register. The code of economic activities limits reciprocal holdings to 10 between two firms. There are no laws or regulations that specifically authorize private firms to adopt articles of incorporation that limit or prohibit investment. Political Instability Guinea has had a history of some political violence associated with elections. Street demonstrations sometimes develop, sparked by the hardships of daily life. None of these demonstrations has targeted American or foreign investors, and generally, Guineans are stoic and remarkably tolerant of the economic hardships they face every day. The December 2005 national election for local positions (mayors and rural councils) showed improved transparency and featured minimal unrest. It was also the first election in years that was not boycotted by the major opposition parties. Political violence in prior years (the 1993 presidential election, the 1995 legislative elections, a 1996 mutiny, the arrest of opposition figure Alpha Conde in 1999) impacted investors, primarily retailers. In February and June 2006, Guineans staged two general strikes which were widely supported, and most businesses closed. Mining operations continued in some sectors on various scales of production. The strikes were generally peaceful, but during the June strike several people were arrested and police fired into crowds of protesters, killing at least 12 persons and injuring others. The Ministry of Justice is investigating the incident. Its own internal problems aside, regional stability is much improved over prior years, although the border with Ivory Coast remains a concern. National elections in Liberia and improved stability in Sierra Leone suggest improved relations between these Mano River neighbors. Guinea's military is one of the few effective government institutions. It successfully fought off the incursions of 2000 and 2001 by Charles Taylor-backed forces from Liberia and Sierra Leone. Guinea at one time hosted hundreds of thousands of refugees from its regional neighbors. The vast majority has now been repatriated or permanently settled in Guinea. Corruption Corruption is perhaps the single biggest obstacle to U.S. investment in Guinea. The business and political cultures, and the poor salaries of most government officials, combine to encourage corruption. Business is routinely conducted through the payment of bribes rather than by the rule of law. Though it is illegal to pay bribes in Guinea, there is no enforcement; and it is, in practice, difficult and time-consuming to conduct business without paying bribes. This leaves U.S. companies at a disadvantage, since U.S. law prohibits them from doing business by bribing government and other officials. Enforcement of the rule of law in Guinea is irregular and inefficient. Businesses report that one must pay a bribe to see that a law is enforced, and then a bribe is paid by the offender to reduce or eliminate any penalties. The government has made a commitment to combat corruption, and is working with the IMF and World Bank on the issue. Efforts have focused on the revision of procedures, the strengthening of judicial institutions, and the creation of an arbitration court. Efforts by the government, including the creation of an anti-corruption committee to investigate and report on corruption have done little to eliminate this widespread problem. A survey published in 2005, featuring questions asked in 2003, suggested that corruption was a huge problem for most Guineans, and affected their lives daily. The report showed that judicial decisions, routine administrative tasks, even calls to the electrical utility, required payment of bribes. Bilateral Investment Agreements Countries with bilateral investment protection agreements with the Guinean government include Belgium, China, France, Great Britain, Iran, Italy, Japan, Morocco, Nigeria, Saudi Arabia, Senegal, South Africa, South Korea, Switzerland, and Tunisia. OPIC and Other Investment Insurance Programs Guinea and the U.S. have an agreement on private investment guarantees in effect since 1962, making investors eligible for OPIC insurance programs. As of December 2005, OPIC offered political risk insurance to an American NGO, and was closely considering a significant investment in loans and risk insurance for refinery projects. Labor Education is compulsory for eight years. The government reports about 65% of all eligible school-age children attend, and that the rate for girls is slightly lower, at 60 percent. Guinea's official illiteracy rate is 62 , although one recent survey put the rate as high as 85 . Thus, the labor pool in Guinea is ample, but generally not well educated. With the exception of Guineans involved in donor training programs and those with the means to study overseas, few have exposure to Western business and economic principles. Productivity levels are low, and there is a critical shortage of skilled managers and administrators with private-sector experience. Guinea has a strict labor code (1988) protecting the rights of employees, and a strict enforcing agent in the Ministry of Social Affairs. The Labor Code sets forth guidelines in various sectors; the strictest are in the mining sector. Guidelines cover wages, holidays and work schedules, overtime pay, vacation, and sick leave. The National Assembly recently increased employers' rights to hire and fire under the 1999 revision of the Labor Code. Employers no longer need to go through the labor office in order to contract or terminate the work of an employee, and now there is no obligation to hire only Guinean employees. Labor-management relations, defined by the provisions of the Labor Code, can vary from smooth to difficult. Many foreign managers cite incidences of theft, low productivity and the difficulty of terminating an employee as major problems. On average, employers must contribute 18% of the value of the employees' salary toward social security, with an employee contribution of 5%. The Labor Code outlines general guidelines related to health and safety, but the Guinean government has yet to articulate a set of practical occupational standards. The government has limited resources for this activity. The Labor Code legalizes employee labor unions and the right to collective bargaining. The majority of workers belong to independent unions. In 2006, Guinea's labor union gained strength and the independent unions joined with the National Labor Confederation (the government union) to form a union coalition that represented a vast majority of organized labor. The unions also had large numbers of retirees and workers in the informal sector supporting their actions. There are about six major unions with national membership, and another 8-9 local unions in Conakry, all of which lobby for improved wages, benefits, and working conditions. Child labor is prevalent in Guinea in the informal sector. Approximately 60% of children under 15 work, most in the informal sector as street-side vendors, shoe-shiners, or on family farms. Some, however, work in the mines and quarries under grueling conditions for little or no money. Foreign Trade Zones/Free Ports Guinea has no free trade zones or ports, but a temporary license to sell merchandise duty-free may be obtained through the Ministry of Finance. Foreign Direct Investment Statistics Statistics on foreign direct investment are hard to obtain, but it is clear that regional stability, improved economic management, and external market factors are encouraging increased investment. Global Alumina and Alcoa/Alcan are at various stages in building two alumina refineries in the Boke region of Guinea that will have a combined value of close to four billion dollars. In addition, Chinese and other aluminum companies have either signed agreements or are pursuing agreements to further develop Guinea's massive bauxite potential. Two gold-mining companies, Societ de Minihre de Dinguiraye (SMD) and Societe Aurifhre de Guinee (SAG) are investing and expanding their businesses, though small-scale artisanal mining is also a major factor in that sector. Lebanese traders have a visible foreign business presence, with interests in real estate, small manufacturing, and wholesale and retail import and sales. Chinese enterprises are a growing factor in health care, retail trade and other small firms. Investing in Guinea is simplified by the opening of the Office of Private Investment Promotion (OPIP), created in 1992. OPIP is a one-stop business registration office, centralizing the administrative, legal, fiscal, and other formalities required to invest in Guinea. Web Resources |
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