Rwanda

2007 Investment Climate Statement - Rwanda

Openness To Foreign Investment

The GOR is making progress economically as it recognizes that the

private sector is an essential engine of development. The government

is extremely welcoming of foreign investment in policy and in

practice.

In March 2006, the government enacted an updated investment law to

facilitate investors to obtain necessary licenses, visas, work

permits, and tax incentives. The law provides permanent residence,

citizenship, and access to land for investors who invest USD 500,000

in Rwanda. This law also fixed the minimum initial capital

investment requirement for foreign investors at USD 250,000.

In 2006, foreign companies successfully opened operations, merged

with local companies, and participated in privatization programs. No

statutory limits on foreign ownership or control exist, and there is

no official economic or industrial strategy that has discriminatory

effects on foreign investors. In fact, there isn't a single

statutory restriction of investment in any sector in Rwanda.

Nonetheless, the legal infrastructure is still in the developing

stages. For example, the judicial system has difficulty upholding

the sanctity of contracts because there are no commercial courts.

The law establishing commercial courts was approved by Ministerial

council December 13, 2006. There is currently no specialized

commercial court in Rwanda. The government is working to develop the

necessary investment infrastructure; however, much remains to be

done.

A business law reform commission is in place to draft major business

laws including intellectual property protection, contract law,

bankruptcy regulations and arbitration law.

There is no mandatory screening of foreign investment but the Rwanda

Investment and Export Promotion Agency (RIEPA) does evaluate

business plans with the objective of recording incoming foreign

investments, allocating investment incentives to qualified foreign

investors, and determining the commitment of investors. The

evaluation is not mandatory for those who do not need tax incentives

or an investment certificate. This practice does not limit

competition or protect domestic interests.

In fact, the government through tax incentives and outreach has

proven to be extremely welcoming and encouraging of foreign

investment. The only difference in treatment between foreign company

and a domestic one is the initial capital requirement for official

registration - $250k for foreign investors, $100k for domestic

investors. This has not proven to be a barrier because foreign

investors who are not interested in an investment certificate and

tax incentives can start businesses irrespective of the initial

capital requirement.

Foreign investors can acquire real estate but there is a general

limit on land where both Local and foreign investors are not allowed

to own land. Land is owned by the government, but both foreign and

local investors acquire land through lease-hold agreements that

extend from 50 to 99 years. They are given property titles which are

binding as collateral by commercial banks.

The government of Rwanda established the Privatization Secretariat

and the National Tender Board to ensure transparency and foreign

companies have participated equally and successfully.

In 2005, the law establishing the Rwanda Investment Promotion Agency

was expanded to include export promotion. A one stop shop center for

investors became fully operational in the same year of 2005.

Licenses, approvals, work permits and tax advisory are granted in

the one shop center. No discrimination has been reported against

foreign investors who pass through the Rwanda Investment and Export

Promotion Agency. Investors who do not pass through RIEPA, however,

are likely to have clearing agents who demand petty bribes to

facilitate quick service. Legally, foreign firms are treated

equally with the regards to taxes, access to licenses, approvals,

and procurement.

No laws exist specifically authorizing private firms to adopt

articles of incorporation or association which limit or prohibit

foreign investment, participation, or control. No such practices

have been reported either.

RIEPA organized two investment conferences in attempts to attract

foreign investment. On many occasions RIEPA directors and local

businesses joined the President of Rwanda in tours around the world

to attract foreign investors. Conferences to encourage investors

were held in the US, China, India, Mauritius and South Africa. RIEPA

assists potential investors in securing all required approvals,

certificates, land for their projects, work permits and obtaining

tax incentives.

In 2006, Rwanda Investment Promotion Agency registered 69 investment

projects worth $245.5millions, foreign direct investments accounted

for 49%. By comparison, only 40 investment projects were registered

in 2005.

Conversion And Transfer Policies

There is no difficulty in obtaining foreign exchange, or

transferring funds associated with an investment into a freely

usable currency and at a legal market clearing rate. In 1995 the

government of Rwanda established a market-determined exchange rate

system under which all lending and deposit interest rates were

liberalized. The Central Bank holds weekly foreign exchange auctions

freely accessed by commercial banks and foreign exchange bureaus.

Investors can remit payments only through authorized commercial

banks, not through any parallel markets. There is no limit on the

inflow or outflow of funds, but justification for high value

transfers is required by the central bank to facilitate the

oversight of potential money laundering.

There is no limitation on the inflow of funds for remittances but

there some restrictions on the outflow of export earnings. Export

earnings must be repatriated within three months after the goods

cross the border unless the exporter makes arrangements to have more

time. Tea proceeds must be deposited after the auction in Mombasa.

Repatriated export earnings deposited in commercial banks must match

the exact declaration the exporter used on crossing the border.

Justifications are required to transfer more than USD 50,000 per

year from Rwandan commercial banks. Rwandan working overseas can

make remittances to their home country.

It takes three days to transfer money using SWIFT financial services

and investors are allowed to use many other financial services such

as Western Union and MoneyGram, which may be faster.

The Rwandan Franc (RwF) is convertible for essentially all business

transactions since March 6, 1995. Rwanda has a liberal monetary

system and complies with IMF Article VIII and all Organization for

Economic Cooperation and Development (OECD) convertibility

requirements. The Rwandan Franc exchange rate is set against a batch

of currencies, including the Euro, the Pound Sterling, and the USD.

Expropriation And Compensation

The Government of Rwanda is authorized to expropriate property if

"in the public interest" and "for qualified private investments."

Under the recently released Rwandan land tenure law compensation is

negotiated directly between the buyer and the seller.

Expropriatory actions have been common in the capital because Kigali

is undergoing major development, although it does not appear to be

done in a discriminatory fashion. No industrial plant has been

expropriated thus far, as expropriation has been limited to

residential and small farming plots. Expropriated citizens often

complain of late and unfair compensation when the government is

responsible for payments. This will continue to be an issue until

the expropriation law and commercial courts are finalized and

implemented.

There are no laws that force local ownership, but the government has

decreed that owners risk losing land that they let lie fallow.

Dispute Settlement

The government of Rwanda established an arbitration center in 1998

as an alternative dispute resolution mechanism but it has not lived

up to expectations according to businesses that have utilized it.

Rwanda is a member of the International Center for the Settlement of

Investment Disputes (ICSID) and African Trade Insurance Agency

(ATI), which are supported by the World Bank and Lloyds of London.

ATI covers risks against restrictions on import and export

activities, inconvertibility, expropriation, war, and civil

disturbances.

Rwanda currently has no specialized commercial court but the

government approved the creation of commercial courts on December

13, 2006. Meanwhile the recent justice system reform should reduce

the bulk of cases reaching supreme courts and should pave way for

commercial cases.

Until commercial courts and contractual laws are enacted and operate

appropriately, there will be no effective means for enforcing

property and contractual rights. The law governing commercial

establishments, the investment law, the law on privatization and

public investment, the land law and the law on protection and

conservation of the environment are main laws governing investments

in Rwanda. A law on public procurement, a law on privately financed

infrastructure projects and a law on insurance and mining are still

lacking.

Judgments of foreign courts and governing law clauses in agreements

are accepted and enforced by local courts according to the above

stipulation. There have been few private investment disputes in

Rwanda, and the government has never been involved as a complainant

or respondent in World Trade Organization dispute settlement.

A US investor is currently involved in a commercial dispute that was

not resolved through arbitration. Restructuring of the court system

has created continuous delays and frustration for the investor.

Rwanda signed and ratified the Multilateral Investment Guarantee

Agency (MIGA) convention on October 27, 1989. MIGA issues guarantees

against non-commercial risks to enterprises that invest in member

countries.

Performance Requirements And Incentives

The Government maintains measures that are alleged to violate the

WTO's TRIMs text where custom valuation on imported used goods does

not respect transaction invoices and parallel imports of goods where

patents and original trade marks are not registered and recognized.

However, as a least developed country Rwanda has up to 2013 to abide

by specific WTO's Trade Related and Investment measures.

Performance requirements are not imposed as a condition for

establishing, maintaining, or expanding investment. They are mostly

imposed as a condition to access tax and investment incentives.

Investors who demonstrate capacity to add more value, technology

transfer, and invest in priority sectors enjoy more tax and

investment incentives which include VAT exemptions on all imported

raw materials, 100% write-off on research and development costs, 5%

to 7% reduction in corporate income tax if the company exports

products and services valued from USD 3 to USD 5 million, duty

exemption on equipment and a favorable accelerated rate of

depreciation of 50% in the first year.

Although there are no legal obligations regarding these matters,

foreign investors are encouraged to transfer technology and

expertise to local staff in the development of human resources. Work

permits are granted to foreign expatriates as long as they are key

personnel and fall into categories of skilled labor where Rwandans

are not available.

RIEPA was established in 1998 to encourage investment and has been

relatively successful in developing important incentives and

publicizing investment opportunities. Registered investors obtain

certificates that bring benefits, including exemption from

value-added tax and duties when importing machinery, equipment, and

raw materials. RIEPA also assists with the issuance of expatriate

work permits, securing all the required government permits, and

assisting with land acquisition if required. Grants and special

access to credit is provided to investors promoting rural areas.

There no import quotas for investors.

There is no legal requirement that investors purchase from local

sources or export a certain percentage of output. In order to

benefit from incentives of the free export zone, a certain

percentage of the finished product must be exported. There is no

condition regarding access to foreign exchange in relation to

exports.

More tax incentives are given to investors who create significant

export-oriented growth, since export enterprises in Rwanda may

qualify for the benefits of the Free Export Economic Processing Zone

(FEEPZ). Determination is made upon request and is based on several

factors: exports must total at least 80% of production or exports

total at least 10% if manufacturing under bond; the entity must be

engaged in the export of services; and capital investment is at

least USD $100,000 (local investors and COMESA members) or USD

$250,000 (foreign and non COMESA investors). The Rwandan investment

code is currently under review to determine precise duration for

exemption from taxes and to provide more incentives for investors.

There is no requirement for physical presence at the FEEPZ. Any

exporter who fulfills conditions can legally access the free export

processing zone incentives without being physically present in the

actual zone. The investment law released in March 2006 is intended

to assist investors in obtaining the necessary licenses and provides

more incentives.

There is no legal obligation that nationals own shares in foreign

investments or that shares of foreign equity be reduced over time.

Technology transfer can only be imparted to local employees. There

is no condition that technology be transferred on certain terms.

Procurements are at the sole discretion of the investor but specific

procurement requests can only be approved in case there is need for

tax exemption. The Government imposes conditions on permission to

invest only in the free export zone. This mainly concerns a specific

geographical area located in Kigali and export requirement, special

authorization can be provided to invest in other geographical areas

if conditions for the Free Economic Zone are met. Permission to

invest in the FEZ does not concern specific percentage of local

content whether in goods or services or local equity.

The government is not involved in assessing the type and source of

raw materials as a pre requisite for performance but the National

Bureau of Standard determines quality standards. Investors are not

required to disclose proprietary information to government

authorities.

U.S. and other foreign firms are allowed to participate in

government/authority financed and/or subsidized research and

development programs on a national treatment basis. In fact foreign

firms are given special priority in research projects because

Rwandan professionals are not well developed in research issues, and

foreigners are considered experts.

There are no onerous visa residence or work permit requirements that

inhibit foreign investors' mobility. U.S. nationals are not

required to have visas for the first 90 days of their stay in

Rwanda. Other foreign nationals have their visa processed timely as

well. Rwanda Investment and Export Promotion Agency facilitates

potential investors to obtain visa and work permits.

Rwanda, in fact, has no discriminatory practices affecting foreign

investors.

Right To Private Ownership And Establishment

Local and foreign investors have the right to own and establish

business enterprises in all forms of remunerative activity. Private

ownership is preserved in the constitution of Rwanda. The

constitution stipulates that every person has the right to private

ownership of other types of property, whether personal or in

association with others. It cannot be violated except in the public

interest, and with procedures that are determined by law, and is

subject to fair compensation.

Private entities are also allowed to acquire and to dispose of

interests in business enterprises. Foreign nationals may hold shares

in locally incorporated companies.

Competing with public enterprises is not a serious concern for the

private sector, as the government has divested and continues to

divest in public enterprises that would compete with the private

sector.

Protection Of Property Rights

The legal system protects and facilitates acquisition and

disposition of all property rights. Investors involved in extensive

agriculture have land titles and investors are able to secure

property titles, if needed. The recently passed land law stipulates

modalities of property registration, but no registries have been

established yet. Land titles may be held even without any

developments on land and they can be donated or sold.

There is adherence to key international agreements on intellectual

property rights and adequate protection of intellectual property

rights but as a least developed country, Rwanda has up to 2013 to

abide by specific TRIP's arrangements. As a member of COMESA,

Rwanda is automatically a member of ARIPO, the African Regional

Intellectual Property Organization. It is also a member of WIPO, the

World Intellectual Property Organization, and is currently working

towards conformity of its legislation to WTO trade-related aspects

of intellectual property. The Ministry of Commerce (MINICOM), the

Rwandan Revenue Authority (RRA), and the Rwandan Bureau of Standards

(RBS) work together to address issues involving counterfeit products

on the Rwandan market. In fact, Rwanda has received much recognition

and appreciation from an American firm for destroying contraband

shoe polish that had entered the country illegally. Through the

Rwanda Bureau of Standards and the Rwanda Revenue Authority, Rwanda

has earned accolades for its protection of intellectual property

rights, but many goods make it to market, nonetheless, that violate

patents, especially pharmaceutical drugs.

Rwanda has not yet ratified WIPO internet treaties, but steps to

implement and enforce the WTO TRIPS agreements have taken place.

Intellectual property bills covering patents, trademarks and

copyrights have been adopted and will soon be sent to parliament.

Registration service agency due to be established will further

improve intellectual property rights.

Transparency Of The Regulatory System

The government uses transparent policies and effective laws to

foster clear rules of the game, all seemingly consistent with

international norms. Institutions such as the Rwanda Revenue

Authority, the Ombudsman's office, the Bureau of Standards, the

Rwanda Utilities Regulatory Agency, the National Tender Board, the

Privatization Secretariat, and the Environment Protection Agency all

have clear rules and procedures.

Drafts of some laws including the constitution and the land law were

passed though civil society representatives for comments, but there

is not a formalized mechanism to publish draft laws for public

comment. Nonetheless, there is no government effort to restrict

foreign participation in industry standards-setting consortia or

organizations.

Some investors complain that the strict enforcement of tax, labor,

and environmental laws impede investment, but the transparency and

lack of corruption in the regulatory framework is actually a boon to

the investment climate for legitimate businesses.

Bureaucratic procedures including those for licenses and permits are

not sufficiently streamlined. A draft law establishing a Rwanda

Registration Service Agency is currently in parliament. The law is

intended to steam line procedures for obtaining trade permits and

licenses which are currently exist as unnecessary red tape.

Rwanda established an ombudsman's office in 2004 that monitors

transparency and compliance to regulation in all governmental

sectors. The Rwanda Utility Regulation Agency, the Auditor General's

Office, the Anticorruption Division in the Revenue Authority, the

National Bureau of Standards, and the National Tender Board are all

in place to enforce regulations as well. Moreover, the press has

openly exposed instances of bad debts and malfeasance this year

involving private citizens and GOR leaders. This has led to some

resignations within the GOR and Rwanda continues fighting

corruption.

There are no informal regulatory processes managed by

nongovernmental organizations. Legal, regulatory and accounting

systems are transparent and consistent with international norms but

their results do not display required effects because they lack

autonomy in certain circumstances.

A key component of the GOR's regulatory system is the Auditor

General's Office, established in 1999 to continuously audit

government adherence to fiscal controls. The office managed to make

substantial progress in making government finances more transparent

according to IMF officials. The Auditor General' report for 2006

cited many accounting irregularities. The report issued to

Parliament in October 2006 will be used to examine official conduct

of government business; the executive has encouraged the parliament

to take action.

There are no private sector or government authority efforts to

restrict foreign participation in industry standards-setting

consortia or organization. Consumer protection and producers

associations exist and run independently. Through the Rwanda Private

Sector Federation, the business community has been involved in the

formation of most if not all of the economic policy and regulatory

framework of the country.

Efficient Capital Markets And Portfolio Investment

Access to affordable credit is a serious challenge in Rwanda, as

interest rates are relatively high. Nonetheless credit is allocated

on market terms and foreign investors are able to get credit on the

local market if they have collaterals and bankable projects.

The private sector has limited access to credit instruments because

most Rwandan banks are still conservative and trade in limited

commercial products. A variety of credit instruments were introduced

with the privatization of the commercial banks. Leasing was

introduced in 2006 but is limited to two commercial banks and

mortgages are being introduced in a single bank. Credit cards are

still lacking but debit cards have been introduced.

Rwanda does not have a stock exchange. The central bank encourages

and facilitates investments through the sale of treasury bills and

bonds, but capital markets and the associated regulatory systems do

not exist.

A 2006 United Nations Conference on Trade and Development

publication reported that the ratio of non-performing loans to total

loans is 24%.

Since 2001, the total capital requirement for commercial bank has

been RF 1.5billion (USD 3 million) and RF 3 billion for investments

banks.

Since there is no public stock exchange, corporations trade shares

among themselves. No hostile takeovers have occurred involving

foreign investors, and both the Central Bank and the Rwandan

government have been very active in seeking foreign investors for

the banking sector. Likewise, private firms have not engaged in

arrangements to restrict foreign investment.

Plans are underway to develop capital markets. Ministry of Finance

officials are studying the preconditions for such a step and the

creation of a regulatory authority. An effective regulatory system

is monitored by the Central Bank, which is given high marks by the

IMF.

Political Violence

Rwanda remains a stable country with little violence. A strong

police and military provide an umbrella of security that continues

to minimize criminal activity and political disturbances. There have

been no incidents involving politically motivated damage to projects

or installations since the 1994 war.

Elections in 2003 were peaceful, although significant voting

irregularities were documented. Rwanda no longer faces insurgent

activity from rebel groups operating in the Democratic Republic of

Congo. Rwanda acts in concert with its neighbors to fight crime and

terrorism, and the GOR actively cooperates in efforts to identify

and freeze the assets of known terrorist individuals or

organizations.

Corruption

The GOR senior leadership maintains a consistent policy and law of

combating corruption within Rwandan society. Although less corrupt

than many other African governments, the GOR, despite its firm hold

on public policy, is confronted with periodic allegations of

misconduct or persons using their office for personal gain. In

general, such incidents do not go unpunished when proved and

enforcement is equal for both foreign and local investors. When

corruption involves high-ranking officials, they are dismissed or

prosecuted. Senior government officials appear to take pride in

Rwanda's reputation as being tough on corruption, and the National

Assembly takes an active role in investigating public officials

accused of corruption and, in concert with the recently established

Ombudsman Office, has exposed corrupt public officials, several of

whom have been forced to resign.

Rwanda has signed and ratified the UN Anticorruption Convention. It

is a signatory of the OECD Convention on Combating Bribery. It is

also a signatory of the African Union Anticorruption Convention.

Giving and accepting a bribe is a criminal act penalized by law, and

penalties depend on circumstances surrounding the specific cases.

As a result, U.S firms have not identified corruption as obstacle

for investment.

Corruption if generally very low but the 2006 Auditor General report

highlighted irregularities in government procurement. Businessmen

report occurrences of petty corruption in the customs clearing

process, but there is almost no reported corruption in transfers,

dispute settlement, regulatory system, taxation and performance

requirement.

A local company cannot deduct a bribe to a foreign official from

taxes. In fact, a bribe by a local company to a foreign official is

a crime in Rwanda.

Institutions including the Ombudsman office, the Anti-Corruption

Unit in the Rwanda Revenue Authority, the Auditor General's Office

identify corruption cases, but the police and national prosecutor's

office prosecute the actual acts. The National Tender Board and

Rwanda Revenue Authority were also established to combat

corruption.

Transparency International or other regional non governmental

organizations do not operate in Rwanda, yet periodically issue

reports on Rwanda.

Bilateral Investment Agreements And AGOA

Rwanda is eligible for trade preferences under the African Growth

and Opportunity Act (AGOA), which the United States enacted to

extend duty-free and quota-free access to the U.S. market for nearly

all textile and handicraft goods produced in eligible beneficiary

countries. A Trade and Investment Framework Agreement (TIFA) was

signed between the U.S. and Rwanda in 2006, and initial discussions

have begun to lay the groundwork for a Bilateral Investment Treaty.

OPIC And Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) has had a single

investment guarantee in Rwanda: Sorwathe, an American-owned tea

factory received an additional loan guarantee from OPIC in spring

2004.

The exchange rate regime is stable in the event an inconvertibility

claim arises. OPIC currently has no loan program in Rwanda but

given the enduring stability in the country and pending investment

climate changes, OPIC officials have expressed strong interest in

expanding OPIC involvement in Rwanda. OPIC is expected to expand its

program for Rwanda working with the Rwanda Housing Bank.

The Export-Import Bank (EXIM) continues its program to insure

short-term export credit transactions involving various payment

terms, including open accounts that cover exports to the U.S. of

consumer goods, services, commodities, and certain capital goods.

Rwanda is a member of the Multilateral Investment Guarantee Agency

(MIGA) and the African Trade Insurance Agency (ATI).

Labor

General labor is availability and improving, but there is a shortage

of skilled labor, including accountants, lawyers and technicians.

Higher institutes of technology, many private universities, and

vocational institutes are improving and producing more and more

qualified graduates each year. A new labor code that respond to

investor's demand of eliminating labor rigidities in under review.

Rwanda attempts to adhere to ILO convention protecting worker rights

at same time balancing to minimize complaints from investors.

Policies to protect workers in special labor conditions exist, but

enforcement remains questionable. On-the-job training and

technology transfer to local employees is encouraged but not

obligatory.

The national labor code was revised in 2000 to eliminate gender

discrimination, restrictions on the mobility of labor, and wage

controls. Laws relating to insurance are being prepared. Companies

will find skills deficits in many sectors when hiring in Rwanda, but

these deficits will continue to shrink as literacy rates increase

and more qualified people graduate from Rwandan institutions of

higher learning. The general population's literacy rate continues to

improve each year since the 1994 Genocide and war. Before 1994 the

rate was 64%; for 2003 the rate was 52%, 2006 rate is not available.

More than 1,000 students each year for the past three years have

completed training at the Kigali Institute of Technology (KIST) and

the National University of Rwanda (NUR). These students are fluent

in French, English, or both. Several hundred Rwandan students

complete their studies abroad each year and return to work in the

country. It is also possible to find qualified labor from South

Africa or from neighboring countries such as Congo, Uganda, and

Kenya. Movement of this skilled labor force will be further

facilitated by entry into the EAC.

Foreign Trade Zones/Free Ports

Rwanda is a member of several sub-regional economic organizations,

such as the Economic Community of Central African States (CEEAC),

the Economic Community of the Great Lakes (CEPGL), and the Common

Market for Eastern and Southern Africa (COMESA), and since 2006 the

East African Community (EAC). Member countries in COMESA have a

free trade agreement. Goods originating from COMESA countries that

fill condition of rules of origin qualify for duty free status.

Value addition on imported raw materials must be 35% to qualify for

rules of origin of COMESA member states. Rwanda plans to establish

a free trade zone in the near future.

Foreign Direct Investment Statistics

Foreign direct investment statistics from 2001 to 2004 as provided

by UNCTAD are as follows. In 2001 FDI was USD 3.8 million and 2.3

in $ per $1000 of GDP, 2002 it was USD 7.4 millions and 4.5 in $ per

$1000 of GDP, In 2003 FDI was USD 4.7 millions and 3.0 in $ per

$1000 of GDP, In 2004, FDI was USD 10.9 and 5.9 in $ per $1000 of

GDP. FDI Statistics for 2005 and 2006 are not yet released.