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Bolivia

Executive Summary

In general, Bolivia is open to foreign direct investment (FDI).  In November 2019, a transitional government came to power that indicated an interest in taking additional steps to attract more FDI.  However, no legislative nor constitutional changes have taken place.  New elections are scheduled for late 2020. A 2014 investment promotion law guarantees equal treatment for national and foreign firms, however, it also stipulates that public investment has priority over private investment (both national and foreign) and that the Bolivian Government will determine which sectors require private investment.  Gross FDI into Bolivia was approximately USD 781 million in 2018 (a decrease of approximately USD 420 million compared to 2017), primarily concentrated in the hydrocarbons and mining sectors.

U.S. companies interested in investing in Bolivia should note that in 2012 Bolivia abrogated the Bilateral Investment Treaties (BITs) it signed with the U.S. and a number of other countries.  The Bolivian Government claimed the abrogation was necessary for Bolivia to comply with the 2009 Constitution.  Companies that invested under the U.S.–Bolivia BIT will be covered until June 10, 2022, but investments made after June 10, 2012 are not covered.

Notwithstanding the uncertain political situation, Bolivia’s investment climate has remained relatively steady over the past several years.  Lack of legal security, corruption allegations, and unclear investment incentives are all impediments to investment in Bolivia.  At the moment, there is no significant foreign direct investment from the United States in Bolivia, and there are no initiatives designed specifically to encourage U.S. investment.  The Ministry of Foreign Affairs and Ministry of Planning are leading efforts to attract more foreign investment (including the launching of a new website, http://www.investbolivia.gob.bo/), but it is not clear if they will be successful, given upcoming re-run elections currently scheduled for October 2020.  But Bolivia’s current macroeconomic stability, abundant natural resources, and strategic location in the heart of South America make it a country to watch.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 123 of 198 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 150 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 110 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 $618 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $3,370 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

In 2019, the investment rate as percentage of GDP (19 percent) was in line with regional averages.  There has also been a shift from private to public investment.  In recent years private investment was particularly low because of the deterioration of the business environment.  From 2006 to 2019, private investment, including local and foreign investment, averaged 8 percent of GDP.  In contrast, from 2006 to the present, public investment grew significantly, reaching an annual average of 11 percent of GDP through 2019.

FDI is highly concentrated in natural resources, especially hydrocarbons and mining, which account for nearly two-thirds of FDI.  Since 2006 the net flow of FDI averaged 2.4 percent of GDP.  Before 2006 it averaged around 6.7 percent of GDP.

6. Financial Sector

Capital Markets and Portfolio Investment

The government’s general attitude toward foreign portfolio investment is neutral.  Established Bolivian firms may issue short or medium-term debt in local capital markets, which act primarily as secondary markets for fixed-return securities.  Bolivian capital markets have sought to expand their handling of local corporate bond issues and equity instruments.  Over the last few years, several Bolivian companies and some foreign firms have been able to raise funds through local capital markets.  However, the stock exchange is small and is highly concentrated in bonds and debt instruments (more than 95 percent of transactions).  The amount of total transactions in 2019 was around 29 percent of GDP.

Since 2008, the financial markets have experienced high liquidity, which has led to historically low interest rates.  However, liquidity has been returning to normal levels in recent years and there are some pressures to increase interest rates.  The Bolivian financial system is not well integrated with the international system and there is only one foreign bank among the top ten banks of Bolivia.

In October 2012, Bolivia returned to global credit markets for the first time in nearly a century, selling USD 500 million worth of 10-year bonds at the New York Stock Exchange.  The sovereign bonds were offered with an interest rate of 4.875 percent and demand for the bonds well surpassed the offer, reaching USD 1.5 billion.  U.S. financial companies Bank of America, Merrill Lynch, and Goldman Sachs were the lead managers of the deal.  In 2013, Bolivia sold another USD 500 million at 5.95 percent for ten years.  HSBC, Bank of America, and Merrill Lynch were the lead managers of the deal.  In 2017, Bolivia sold another USD 1 billion at 4.5 percent for ten years, with Bank of America and JP Morgan managing the deal.  According to the Ministry of Economy, the resources gained from the sales will be used to finance infrastructure projects.

The government and central bank respect their obligations under IMF Article VIII, as the exchange system is free of restrictions on payments and transfers for international transactions.

Foreign investors legally established in Bolivia are able to get credits on the local market.  However, due to the size of the market, large credits are rare and may require operations involving several banks.  Credit access through other financial instruments is limited to bond issuances in the capital market.  A recent financial services law directs credit towards the productive sectors and caps interest rates.

Money and Banking System

The Bolivian banking system is small, composed of 16 banks, 6 banks specialized in mortgage lending, 3 private financial funds, 30 savings and credit cooperatives, and 8 institutions specialized in microcredit.  Of the total number of personal deposits made in Bolivia through December 2019 (USD 26.5 billion), the banking sector accounted for 80 percent of the total financial system.  Similarly, of the total loans and credits made to private individuals (USD 26.8 billion) through December 2018, 80 percent were made by the banking sector, while private financial funds and the savings and credit cooperatives accounted for the other 20 percent.

Bolivian banks have developed the capacity to adjudicate credit risk and evaluate expected rates of return in line with international norms.  The banking sector was stable and healthy with delinquency rates at less than 1.9 percent in 2019. In 2020, delinquency rates rose after the interim government permitted clients to defer bank loan payments until the end of 2020 without penalty as a mitigating measure for the COVID-19 pandemic.  While delinquency rates still remain relatively low, there are concerns this measure could potentially harm the banking sector’s stability.

In 2013, a new Financial Services Law entered into force.  This new law enacted major changes to the banking sector, including deposit rate floors and lending rate ceilings, mandatory lending allocations to certain sectors of the economy and an upgrade of banks’ solvency requirements in line with the international Basel standards.  The law also requires banks to spend more on improving consumer protection, as well as providing increased access to financing in rural parts of the country.

Credit is now allocated on government-established rates for productive activities, but foreign investors may find it difficult to qualify for loans from local banks due to the requirement that domestic loans be issued exclusively against domestic collateral.  Since commercial credit is generally extended on a short-term basis, most foreign investors prefer to obtain credit abroad.  Most Bolivian borrowers are small and medium-sized enterprises (SMEs).

In 2007, the government created a Productive Development Bank to boost the production of small, medium-sized and family-run businesses.  The bank was created to provide loans to credit institutions which meet specific development conditions and goals, for example by giving out loans to farmers, small businesses, and other development focused investors.  The loans are long term and have lower interest rates than private banks can offer in order to allow for growth of investments and poverty reduction.

In September 2010, the Bolivian Government bought the local private bank Banco Union as part of a plan to gain control of part of the financial market.  Banco Union is one of the largest banks, with a share of 10.8 percent of total national credits and 12.7 percent of the total deposits; one of its principal activities is managing public sector accounts.  Bolivian Government ownership of Banco Union was illegal until December 2012, when the government enacted the State Bank Law, allowing for state participation in the banking sector.

There is no strong evidence of “cross-shareholding” and “stable-shareholding” arrangements used by private firms to restrict foreign investment, and the 2009 Constitution forbids monopolies and supports antitrust measures.  In addition, there is no evidence of hostile takeovers (other than government nationalizations that took place from 2006-14).

The Financial sector is regulated by ASFI (Supervising Authority of Financial Institutions), a decentralized institution that is under the Ministry of Economy.  The Central Bank of Bolivia (BCB) oversees all financial institutions, provides liquidity when necessary, and acts as lender of last resort.  The BCB is the only monetary authority and is in charge of managing the payment system, international reserves, and the exchange rate.

Foreigners are able to establish bank accounts only with residency status in Bolivia.

Blockchain technologies in Bolivia are still in the early stages.  Currently, the banking sector is analyzing blockchain technologies and the sector intends to propose a regulatory framework in coordination with ASFI in the future.

Three different settlement mechanisms are available in Bolivia:  (1) the high-value payment system administered by the Central Bank for inter-bank operations; (2) a system of low value payments utilizing checks and credit and debit cards administered by the local association of private banks (ASOBAN); and (3) the deferred settlement payment system designed for small financial institutions such as credit cooperatives.  This mechanism is also administered by the Central Bank.

Foreign Exchange and Remittances

Foreign Exchange

The Banking Law (#393, 2013) establishes regulations for foreign currency hedging and authorizes banks to maintain accounts in foreign currencies.  A significant, but dropping, percentage of deposits are denominated in U.S. dollars (currently less than 14 percent of total deposits).  Bolivian law currently allows repatriation of profits, with a 12.5 percent withholding tax.  However, a provision of the 2009 Constitution (Article 351.2) requires reinvestment within Bolivia of private profits from natural resources.  Until specific implementing legislation is passed, it is unclear how this provision will be applied.  In addition, all bank transfers in U.S. dollars within the financial system and leaving the country must pay a Financial Transaction Tax (ITF) of .03 percent.  This tax applies to foreign transactions for U.S. dollars leaving Bolivia, not to money transferred internally.

Any banking transaction above USD 10,000 (in one operation or over three consecutive days) requires a form stating the source of funds.  In addition, any hard currency cash transfer from or to Bolivia equal to or greater than USD 10,000 must be registered with the customs office.  Amounts between USD 50,000 and USD 500,000 require authorization by the Central Bank and quantities above USD 500,000 require authorization by the Ministry of the Economy and Public Finance.  The fine for underreporting any cash transaction is equal to 30 percent of the difference between the declared amount and the quantity of money found.  The reporting standard is international, but many private companies in Bolivia find the application cumbersome due to the government requirement for detailed transaction breakdowns rather than allowing for blanket transaction reporting.

Administrative Resolution 398/10 approved in June 2010 forces Bolivian banks to reduce their investments and/or assets outside the country to an amount that does not exceed 50 percent of the value of their net equity.

The Central Bank charges a fee for different kinds of international transactions related to banking and trade.  The current list of fees and the details can be found at:

https://www.bcb.gob.bo/webdocs/01_resoluciones/RD%20152%202019.pdf 

Law 843 on tax reform directly affects the transfer of all money to foreign countries.  All companies are charged 25 percent tax, except for banks which can be charged 37.5 percent, on profits under the Tax Reform Law, but when a company sends money abroad, the presumption of the Bolivian Tax Authority is that 50 percent of all money transmitted is profit.  Under this presumption, the 25 percent tax is applied to half of all money transferred abroad, whether actual or only presumed profit.  In practical terms, it means there is a payment of 12.5 percent as a transfer tax.

Currency is freely convertible at Bolivian banks and exchange houses.  The Bolivian Government describes its official exchange system as an “incomplete crawling peg.”  Under this system, the exchange rate is fixed, but undergoes micro-readjustments that are not pre-announced to the public.  There is a spread of 10 basis points between the exchange rate for buying and selling U.S. dollars.  The Peso Boliviano (Bs) has remained fixed at 6.96 Bs/USD  1 for selling and 6.86 Bs/USD  1 for buying since October 2011.  The parallel rate closely tracks the official rate, suggesting the market finds the Central Bank’s policy acceptable.  In order to avoid distortions in the exchange rate market, the Central Bank requires all currency exchange to occur at the official rate ±1 basis point.

Remittance Policies

Each remittance transaction from Bolivia to other countries has a USD 2,500 limit per transaction, but there is no limit to the number of transactions that an individual can remit.  The volume of remittances sent to and from Bolivia has increased considerably in the past five years, and the central bank and banking regulator are currently analyzing whether to impose more regulations sometime in the future.  Foreign investors are theoretically able to remit through a legal parallel market utilizing convertible, negotiable instruments, but, in practice, the availability of these financial instruments is limited in Bolivia.  For example, the Bolivian Government mainly issues bonds in Bolivianos and the majority of corporate bonds are also issued in Bolivianos.

The official exchange rate between Bolivianos and dollars is the same as the informal rate.  The government allows account holders to maintain bank accounts in Bolivianos or dollars and make transfers freely between them.  Business travelers may bring up to USD 10,000 in cash into the country.  For amounts greater than USD 10,000, government permission is needed through sworn declaration.

Sovereign Wealth Funds

Neither the Bolivian Government nor any government-affiliated entity maintains a sovereign wealth fund.

7. State-Owned Enterprises

The Bolivian Government has set up companies in sectors it considers strategic to the national interest and social well-being, and has stated that it plans to do so in every sector it considers strategic or where there is either a monopoly or oligopoly.

The Bolivian Government owns and operates more than 60 businesses including energy and mining companies, a telecommunications company, a satellite company, a bank, a sugar factory, an airline, a packaging plant, paper and cardboard factories, and milk and Brazil nut processing factories, among others.  In 2005, income from state-owned business in Bolivia other than gas exports represented only a fraction of a percent of Gross Domestic Product (GDP).  As of 2015, public sector contribution to GDP (including SOEs, investments, and consumption of goods and services) has risen to over 40 percent of GDP.

The largest SOEs are able to acquire credit from the Central Bank at very low interest rates and convenient terms.  Some private companies complain that it is impossible for them to compete with this financial subsidy.  Moreover, SOEs appear to benefit from easier access to licenses, supplies, materials and land; however, there is no law specifically providing SOEs with preferential treatment in this regard.  In many cases, government entities are directed to do business with SOEs, placing other private companies and investors at a competitive disadvantage.

The government registered budget surpluses from 2006 until 2013, but began experiencing budget deficits in 2014.  Close to 50 percent of the deficit was explained by the performance of SOEs, such as Bolivia’s state-owned oil and gas company.  According to the 2009 Constitution, all SOEs are required to publish an annual report and are subject to financial audits.  Additionally, SOEs are required to present an annual testimony in front of civil society and social movements, a practice known as social control.

Privatization Program

There are currently no privatization programs in Bolivia.

9. Corruption

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Vice Minister of Justice and the Fight Against Corruption
Ministry of Justice
Calle Capitan Ravelo 2101, La Paz
+591-2-115773
http://www.transparencia.gob.bo/ 

Bolivian law stipulates criminal penalties for corruption by officials, but the laws are not often implemented properly.  Governmental lack of transparency, and police and judicial corruption, remain significant problems.  The Ministry of Justice and Transparency and the Prosecutor’s Office are both responsible for combating corruption.  In September 2014, the former Transparency Minister reported that the Ministry was investigating 388 complaints against public servants.  The Ministry has obtained 100 convictions since 2006.  Cases involving allegations of corruption against the president and vice president require congressional approval before prosecutors may initiate legal proceedings, and cases against pro-government public officials are rarely allowed to proceed.  Despite the fact that the courts found that the awarding of immunity for corruption charges is unconstitutional, their rulings were ignored by the government.

Police corruption remains a significant problem.  There are also reports of widespread corruption in the country’s judiciary.

There is an Ombudsman appointed by Congress and charged with protecting human rights and guarding against government abuse.  In his 2014 annual report, the Ombudsman cited the judicial system, the attorney general’s office, and the police as the most persistent violators of human rights due to widespread inefficiencies and corruption.  Public opinion reflected the Ombudsman’s statements.  The 2017 Transparency International corruption perception index ranked Bolivia as 112 of 180 countries and found that Bolivian citizens believe the most corrupt institutions in Bolivia are the judiciary, the police, and executive branch institutions

Bolivia has laws in place which govern public sector-related contracts (Law 1178 and Supreme Decree 181), including contracts for the acquisition of goods, services, and consulting jobs.  Bribery of public officials is also a criminal offense under Articles 145 and 158 of Bolivia’s Criminal Code.  Laws also exist that provide protection for citizens filing complaints against corruption.

Bolivia signed the UN Anticorruption Convention in December 2003 and ratified it in December 2005.  Bolivia is also party to the OAS Inter-American Convention against Corruption.  Bolivia is not a signatory of the OECD Convention on Combating Bribery of Foreign Public Officials.

10. Political and Security Environment

Bolivia is prone to social unrest, which can include violence.  Given the country’s reliance on a few key thoroughfares, conflict often disrupts transportation and distribution networks.  The majority of civil disturbances are related to domestic issues, usually workers pressuring the government for concessions by marching or closing major transportation arteries.  Protests in late 2019 surrounding fraudulent elections and the subsequent resignation of long-serving president Evo Morales did get violent, but none of the political violence targeted foreigners.  Outside of the volatile months of October and November 2019, while protests and blockades are frequent, they only periodically affect commerce.  In November 2019, however, election-related conflicts and protests led to two weeks of significant interruption to commerce in La Paz and elsewhere, directly affecting distribution of essential services or travel in and out of the city.  In 2020, strict quarantine and lockdown measures severely affected commerce economy-wide and caused numerous businesses to close or otherwise impeded business operations.  In addition, during approximately ten days in August 2020 during the midst of the COVID-19 pandemic, protestors blocked key highways, denying resident access to foodstuffs, fuel, and badly needed oxygen supplies.

Taiwan

Executive Summary

Taiwan is an important market in regional and global trade and investment.  It is one of the world’s top 25 economies in terms of gross domestic product (GDP) and was the United States’ 10th largest trading partner in 2019.  An export-dependent economy of 23 million people with a highly skilled workforce, Taiwan is also a key link in global supply chains, a central hub for shipments and transshipments in East Asia, and a major center for advanced research and development (R&D).

Taiwan welcomes and actively courts foreign direct investment (FDI) and partnerships with U.S. and other foreign firms.  The administration of President Tsai Ing-wen aims to promote economic growth in part by increasing domestic investment and FDI.  Taiwan authorities offer investment incentives and seek to leverage Taiwan’s strengths in advanced technology, manufacturing, and R&D.  Expanded investment by the central authorities in physical and digital infrastructure across Taiwan complements this investment promotion strategy.  The authorities convene an interagency monthly meeting to address common investment issues, such as land scarcity.  Some Taiwan and foreign investors regard Taiwan as a strategic relocation alternative to insulate themselves against potential supply chain disruptions resulting from regional trade frictions.  In January 2019, the Taiwan government launched a reshoring initiative aimed to lure Taiwanese companies to shift production back to Taiwan from the People’s Republic of China (PRC) in response to rising tariffs on Taiwan’s critical electronics manufacturing industry.

Taiwan’s finance, wholesale and retail, and electronics sectors remain top targets of inward FDI, although Taiwan attracts a wide range of U.S. investors, including in advanced technology, digital, traditional manufacturing, and services sectors.  The United States is Taiwan’s second largest single source of FDI after the Netherlands, through which some U.S. firms choose to invest.  In 2018, according to U.S. Department of Commerce data, the total stock of U.S. FDI in Taiwan reached USD 17.5 billion.  U.S. services exports to Taiwan totaled USD 10 billion in 2018.  Leading services exports from the U.S. to Taiwan were in the intellectual property (industrial processes), transport, and travel sectors.

Structural impediments in Taiwan’s investment environment include: excessive or inconsistent regulation; market influence exerted by domestic and state-owned enterprises (SOEs) in the utilities, energy, postal, transportation, financial, and real estate sectors; foreign ownership limits in sectors deemed sensitive; and regulatory scrutiny over the possible participation of PRC-sourced capital.  Taiwan has among the lowest levels of private equity investment in Asia, although private equity firms are increasingly pursuing opportunities in the market.  Foreign private equity firms have expressed concern about a lack of transparency and predictability in the investment approvals and exit processes, as well as regulators’ reliance on administrative discretion in rejecting some transactions.  These challenges are especially apparent in sectors deemed sensitive for national security reasons but that allow foreign ownership.  Businesses have questioned the feasibility of Taiwan’s long-term energy policy in light of plans to phase out nuclear power by 2025 and increase use of LNG and renewables.

The Taiwan authorities have introduced new rules to help establish a modern regulatory framework for a thriving digital economy, but their reluctance to accommodate certain new business models, such as sharing economy platforms, presents a stark contrast to Taiwan’s efforts to position itself as a global innovation hub.  Taiwan in late 2016 implemented new rules mandating a 60-day public comment period for draft laws and regulations emanating from regulatory agencies, but the new rules have not been consistently applied.  Proposed amendments to foreign investment regulations, if passed, would help promote inward investment through streamlined reporting and approval procedures.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 28 of 180  https://www.transparency.org/cpi2019
World Bank’s Doing Business Report 2020 15 of 190 http://www.doingbusiness.org/en/data/
exploreeconomies/taiwan-china
Global Innovation Index 2019 N/A
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 17,530 https://apps.bea.gov/iTable/iTable.cfm?reqid=2&step=1&isuri=1#reqid=2&step=1&isuri=1
World Bank GNI per capita 2018 N/A http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Taiwan authorities welcome foreign portfolio investment in the Taiwan Stock Exchange (TWSE) and Taipei Stock Exchange, with foreign investment accounting for approximately 40 percent of TWSE capitalization in the past few years.  Taiwan allows the establishment of offshore banking, securities, and insurance units to attract a broader investor base.  The Financial Supervisory Commission (FSC) utilizes a negative list approach to regulating local banks’ overseas business not involving the conversion of the NTD.

Taiwan’s capital market is mature and active.  As of the end of 2019, there were 942 companies listed on the TWSE, with a total market trading volume of USD 882 billion (including transactions of stocks, Taiwan Depository Receipts, exchange traded funds, and warrants).  Foreign portfolio investors are not subject to a foreign ownership ceiling, except in certain restricted companies, and are not subject to any ceiling on portfolio investment.  The turnover ratio in the TWSE dropped to 73 percent in 2019, likely indicating more investors were willing to hold their positions for longer.  Payments and transfers resulting from international trade activities are fully liberalized in Taiwan.  A wide range of credit instruments, all allocated on market terms, are available to both domestic- and foreign-invested firms.

Money and Banking System

Taiwan’s banking sector is healthy, tightly regulated, and competitive, with 36 banks servicing the market.  The sector’s non-performing loan ratio has remained below 1 percent since 2010, with a sector average of 0.21 in December 2019.  Capital-adequacy ratios (CAR) are generally high, and several of Taiwan’s leading commercial lenders are government-controlled, enjoying implicit state guarantees.  The sector as a whole had a CAR of 14.07 percent as of December 2019, far above the Basel III regulatory minimum of 10.5 percent required by 2019.  Taiwan banks’ liquidity coverage ratio, which was required by Basel III to reach 100 percent by 2019, averaged 139.6 percent in December 2019.  Taiwan’s banking system is mostly deposit-funded and has limited exposure to global financial wholesale markets.  Regulators have encouraged local banks to expand to overseas markets, especially in Southeast Asia, and to minimize exposure in the PRC.  Taiwan Central Bank statistics show that Taiwan banks’ PRC net exposure on an ultimate risk basis reached USD 68.1 billion in the fourth quarter of 2019, trailing the United States’ USD 86.4 billion.  Taiwan’s largest bank in terms of assets is the wholly state-owned Bank of Taiwan, which had USD 171 billion of assets as of December 2019.  Taiwan’s eight state-controlled banks (excluding the Taiwan Export and Import Bank) jointly held nearly USD 820 billion, or 48 percent of the banking sector’s total assets.

Foreign Exchange and Remittances

Foreign Exchange

The Taiwan Central Bank operates as an independent agency and state-owned company under the Executive Yuan, free from political interference.  The Central Bank’s mandates are to maintain financial stability, develop Taiwan’s banking business, guard the stability of the NTD’s external and internal value, and promote economic growth within the scope of the three aforementioned goals.

Foreign banks are allowed to operate in Taiwan as branches and foreign-owned subsidiaries, but financial regulators require foreign bank branches to limit their customer base to large corporate clients.  To promote the asset management business in Taiwan, starting in May 2015, foreigners holding a valid visa entering Taiwan have been allowed to open an NTD account with local banks with passports and an ID number issued by the immigration office, replacing the previous dual-identification (passport and resident card) requirements.  Please refer to the Taiwan Bankers’ Association’s webpage: https://www.ba.org.tw/EnglishVer/BusinessEngDetail/2   for detailed information regarding various types of bank services (credit card, loans, etc.) for foreigners in Taiwan.

Foreign Exchange

There are few restrictions in place in Taiwan on converting or transferring direct investment funds.  Foreign investors with approved investments can readily obtain foreign exchange from designated banks.  The remittance of capital invested in Taiwan must be reported in advance to the Investment Commission, but the Commission’s approval is not required.  Funds can be freely converted into major world currencies for remittance, but in order to retain funds in Taiwan they must be held in currency denominations offered by banks.  In addition to commonly used U.S. dollar, euro, and Japanese yen-denominated deposit accounts, most Taiwan banks offer up to 15 foreign currency denominations.  The exchange rate is based on the market rate offered by each bank.  The NTD fluctuates under a managed float system.

Remittance Policies

There are no restrictions on remittances deriving from approved direct investment and portfolio investment.  No prior approval is required if the cumulative amount of inward or outward remittances does not exceed the annual limit of USD 5 million for an individual or USD 50 million for a corporate entity.  Declared earnings, capital gains, dividends, royalties, management fees, and other returns on investment may be repatriated at any time.  For large transactions requiring the exchange of NTD into foreign currency that could potentially disrupt Taiwan’s foreign exchange market, the Taiwan Central Bank may require the transaction to be scheduled over several days.  There is no written guideline on the size of such transactions, but according to law firms servicing foreign investors, amounts in excess of USD 100 million may be affected.  Capital movements arising from trade in merchandise and services, as well as from debt servicing, are not restricted.  No prior approval is required for movement of foreign currency funds not involving conversion between NTD and foreign currency.

Sovereign Wealth Funds

Taiwan does not have a sovereign wealth fund. Taiwania Capital Management Company, a partially government-funded investment company, was established in October 2017 to help promote investment in innovative and other target industries.  In December 2018, Taiwania raised USD 350 million for two funds investing in IOT and biotech industries.

7. State-Owned Enterprises

According to the NDC, there are 17 SOEs with stakes by the central authorities exceeding 50 percent, including official agencies such as the Taiwan Central Bank.  Please refer to the list of all central government, majority-owned SOEs available online at https://ws.ndc.gov.tw/001/administrator/10/relfile/0/1295/374a165c-c930-461e-bb5b-07893b3e5ea2.doc .  Some existing SOEs are large in scale and exert significant influence in their industries, especially monopolies such as Taiwan Power (Taipower) and Taiwan Water.  MOEA has stated that Taipower’s privatization will not take place in the near future but plans to restructure it as a new holding company under Electricity Industry Act revisions passed in January 2017 that will gradually liberalize power generation and distribution.  CPC Corporation (formerly China Petroleum Corporation) controls over 70 percent of Taiwan’s gasoline retail market.  In August 2014, the Aerospace Industrial Development Corporation (AIDC) was successfully privatized through a public listing on the TWSE, and MOEA’s stake in AIDC declined to 35.2 percent by the end of 2019.  The Labor Insurance Bureau ceased to be an SOE in 2014 but remained under the Ministry of Labor (MOL).  Taiwan authorities retain control over some SOEs that were privatized, including through managing appointments to boards of directors.  These enterprises include Chunghwa Telecom, China Steel, China Airlines, Taiwan Fertilizer, Taiwan Salt, CSBC Corporation (shipbuilding), Yang Ming Marine Transportation, and eight public banks.

In 2018 (latest data available), the 17 SOEs together had net income of NTD 347 billion (USD 11.6 billion), up 1.5 percent from the NTD 342 billion (USD 11.4 billion) in 2017.  The SOEs’ average return on equities continued to decline from a recent peak of 11.13 percent in 2015 to 9.83 percent in 2018.  These 17 SOEs employed a total of 118,359 workers.

Taiwan has not adopted the OECD Guidelines on Corporate Governance for SOEs.  In Taiwan, SOEs are defined as public enterprises in which the government owns more than 50 percent of shares.  Public enterprises with less than a 50 percent government stake are not subject to Legislative Yuan supervision, but authorities may retain managerial control through senior management appointments, which may change with each administration.  Public enterprises owned by local governments exist primarily in the public transportation sector, such as regional bus and subway services.  Each SOE operates under the authority of the supervising ministry, and government-appointed directors should hold more than one-fifth of an SOE’s board seats.  The Executive Yuan, the Ministry of Finance, and MOEA have criteria in place for selecting individuals for senior management positions.  Each SOE has a board of directors, and some SOEs have independent directors and union representatives sitting on the board.

Taiwan acceded to the WTO’s Agreement on Government Procurement (GPA) in 2009.  Taiwan’s central and local government entities, as well as SOEs, are now all covered by the GPA.  Except for state monopolies, SOEs compete directly with private companies.  SOEs’ purchases of goods or services are regulated by the Government Procurement Act and are open to private and foreign companies via public tender.  Private companies in Taiwan have the same access to financing as SOEs.  Taiwan banks are generally willing to extend loans to enterprises meeting credit requirements.  SOEs are subject to the same tax obligations as private enterprises and are regulated by the Fair Trade Act as private enterprises.  The Legislative Yuan reviews SOEs’ budgets each year.

Privatization Program

There are no privatization programs in progress.  Taiwan’s most recent privatization, of AIDC in 2014, included imposition of a foreign ownership ceiling of 10 percent due to the sensitive nature of the defense sector.  In August 2017, Taiwan authorities identified CPC Corporation, Taipower Company, and Taiwan Sugar as their next privatization targets.  Following passage of the Electricity Industry Act amendments in January 2017, the authorities planned to submit a Taipower privatization plan within six to nine years after successfully separating Taipower’s power distribution/sales business from its power generation business.

9. Corruption

Taiwan has implemented laws, regulations, and penalties to combat corruption, including in public procurement. The Act on Property-Declaration by Public Servants mandates annual properties declaration for senior public services officials and their immediate family members.    In 2019, there were 59 violations found by the Control Yuan and a total of USD 480 thousand of fines were imposed.   The Corruption Punishment Statute and Criminal Code contain specific penalties for corrupt activities, including maximum jail sentences of life in prison and a maximum fine of up to NTD 100 million (USD 3.3 million).  Laws provide for increased penalties for public officials who fail to explain the origins of suspicious assets or property.  The Government Procurement Act and the Act on Recusal of Public Servants Due to Conflict of Interest both forbid an incumbent and former procurement personnel and their relatives from engaging in related procurement activities.  Although not a UN member, Taiwan voluntarily adheres to the UN Convention against Corruption and published its first country report in March 2018.

Guidance titled Ethical Corporate Management Best Practice Principles for all publicly listed companies was revised in November 2014.  It asks publicly listed companies to establish an internal code of conduct and corruption-prevention measures for activities undertaken with government employees, politicians, and other private sector stakeholders.  The Ministry of Justice is drafting a Whistle Blowers Protection Act aiming to effectively combat illegal behaviors in both government agencies and the private sector.  The Anti-money Laundering Act implemented June 2017 requires the mandatory reporting of financial transactions by individuals listed in the Standards for Determining the Scope of Politically Exposed Persons Entrusted with Prominent Public Function, Their Family Members and Close Associates, and by the first-degree lineal relatives by blood or by marriage; siblings, spouse and his/her siblings, and the domestic partner equivalent to spouse of these politically exposed individuals.  The U.S. government is not aware of cases where bribes have been solicited for foreign investment approval.

Resources to Report Corruption

Agency Against Corruption, Ministry of Justice
Overall Planning Division
No. 318, 2nd floor, Song-jiang Road, Taipei
aac2043@mail.moj.gov.tw
https://www.aac.moj.gov.tw/7170/278724/BossmailUsual 

Transparency International Taiwan
https://www.transparency.org/country/TWN 
http://www.tict.org.tw/ 
Dr. YEH, I Jan
Executive Director
TI Chinese Taipei
5F, No.111 Mu-Cha Road, Section 1
Taipei, Taiwan 11645
Tel: +886-2-2236-2204
Email: tict@tict.org.tw

10. Political and Security Environment

Taiwan is a young and vibrant multi-party democracy.  The transitions of power in both local and presidential elections have been peaceful and orderly.   There are no recent examples of politically motivated damage to foreign investment.

Tajikistan

Executive Summary

Tajikistan is a challenging place to do business but could present high-risk, high-reward opportunities for foreign investors who have experience in the region, a long-term investment horizon, and the patience and resources to conduct significant research and due diligence.  At the most senior levels, the Tajik government consistently expresses interest in attracting more U.S. investment, but the poorest of the Central Asian countries harbors few U.S. investors and remains a largely uncompetitive investment destination.

Tajik President Rahmon publicly emphasizes the need to foster private-sector-led growth, and attracting investment is prioritized in the government’s 2016-2030 National Development Strategy and in-progress 2021-2024 Economic Development Strategy. Strategy documents notwithstanding, bureaucratic and financial hurdles, widespread corruption, a largely dysfunctional banking sector, non-transparent tax system, and countless business inspections greatly hinder investors. The absence of private investment, along with the government’s commitment to dedicate significant financial resources to the construction of the Roghun Dam hydropower plant, creates pressure on the Tax Committee to enforce or reinterpret tax regulations arbitrarily in order to meet ever-increasing revenue targets.

Tajikistan is saturated in opaque loans connected to China’s Belt and Road Initiative, and Chinese investments account for more than three-quarters of the country’s total Foreign Direct Investment. Tajikistan is also reportedly considering joining the Russian-led Eurasian Economic Union.  Should it apply for and receive membership, U.S. firms could experience higher trade tariffs. Finally, despite Tajikistan’s 2013 accession to the World Trade Organization, the Tajik government has imposed both blanket and targeted trade policies to protect private interests without notifying its partners, as occurred with bans on imported chicken meat in 2017 and exports of mining concentrate in 2019.

The Tajik economy faces endemic challenges. Consumption has been a major driver of Tajikistan’s economic growth, but it is reliant on migrant remittance flows from Russia, where about one million labor migrants reside. The novel coronavirus pandemic is projected to severely reduce remittances this year and precipitate a two percent GDP contraction in Tajikistan. Falling remittances also lead to shortages of foreign exchange and put downward pressure on the country’s reserves as it defends the national currency. Tajikistan’s banking sector is plagued by politically-directed, non-performing loans, high interest rates, and the absence of correspondent banking accounts in the West.

Despite these challenges and risks to potential investors, Tajikistan is pursuing greater trade links with its neighbors and has made modest progress to improve its investment climate over the past year. The World Bank cited Tajikistan as a top reformer on its Doing Business 2020 report and is also providing technical assistance towards tax reform. Authorities made steps towards greater compliance on intellectual property rights protections this year, and Tajikistan was recognized for significant progress towards transparency in the extractives sector. Should the government continue an economic reform path, opportunities in energy, agribusiness, food processing, tourism, textiles, and mining could prove promising.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 153 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 106 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 100 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 $41 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $1,010 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Foreign portfolio investment is not a priority for the Tajik government.  Tajikistan lacks a securities market.  According to government statistics, portfolio investment in Tajikistan totaled USD 502.5 million at the end of 2019.  This includes the USD 500 million Eurobond the National Bank of Tajikistan issued in September 2017.  The National Bank of Tajikistan has made efforts to develop a system to encourage and facilitate portfolio investments, including credit rating mechanisms implemented by Moody’s and S&P.  Apart from these initial steps, however, Tajikistan has not established policies to facilitate the free flow of financial resources into product and factor markets.

Tajikistan does not place any restrictions on payments and transfers for current international transactions, per IMF Article VIII.  It regards transfers from all international sources as revenue, however, and taxes them accordingly.

Commercial banks apply market terms for credits, but are also under considerable pressure by governing elites and their family and friends to provide favorable loans for commercially questionable projects.

The private sector offers access to several different credit instruments.  Foreign investors can get credit on the local market, but those operating in Tajikistan avoid local credit because of comparatively high interest rates.

Money and Banking System

According to the latest National Bank of Tajikistan report from December 2019, 75 credit institutions, including 17 banks, including one Islamic bank, 22 microcredit deposit organizations, six microcredit organizations, and 30 microcredit funds, function in Tajikistan.  Tajikistan has 328 bank branches, a 4 percent reduction since 2018. Although the National Bank of Tajikistan reports 26.1 percent of commercial loans are non-performing, other estimates range as high as 60 percent.

Tajikistan’s banking system has still not recovered from the 2015 financial crisis.  AgroInvestBank and TojikSodirotbank, two of Tajikistan’s largest, are in fact collapsed banks awaiting liquidation.  Tajikistan’s banking sector has assets of USD 2.2724 billion as of December 2019, which is USD 130 million more than in 2018.  Total liabilities in 2019 were unchanged from 2018, reaching USD 1.6 billion.  The National Bank of Tajikistan is the country’s central bank (www.nbt.tj ).  Foreign banks can establish operations but are subject to National Bank of Tajikistan regulations.  United States commercial banks discontinued correspondent banking relations with Tajik commercial banks in 2012.

To establish a bank account, foreigners must submit a letter of application, a passport copy, and Tajik government-issued taxpayer identification number.

Foreign Exchange and Remittances

Foreign Exchange

Tajikistan places no legal limits on commercial or non-commercial money transfers, and investors may freely convert funds associated with any form of investment into any world currency.  However, businesses often find it difficult to conduct large currency transactions due to the limited amount of foreign currency available on the domestic financial market.  Investors are free to import currency, but once they deposit it in a Tajik bank account it may be difficult to withdraw.

In December 2015, the National Bank of Tajikistan reorganized foreign currency operations and shut down all private foreign exchange offices in Tajikistan.  Since that time, only commercial bank exchange offices may exchange money and transactions require customers to register with an identity document. In December 2019, the National Bank of Tajikistan launched a national money transfer center that centralizes the receipt of all remittances from abroad.

The government’s policy supports a stable exchange rate but remains susceptible to changes in the Russian ruble. As global oil markets caused the Russian ruble to devaluate in March 2020, the National Bank adjusted the official rate from TJS 9.68 per U.S. dollar to TJS 10.2 per U.S. dollar, a 5.4 percent depreciation. Defending the somoni’s rate to the dollar puts pressure on Tajikistan’s foreign currency and gold reserves, leaving the government with little capacity for systematic currency interventions.

Remittance Policies

The National Bank of Tajikistan mandated that commercial banks disburse remittances in local currency since early 2016.  There are no official time or quantity limitations on the inflow or outflow of funds for remittances.  Tajikistan’s tax code classifies all inflows as revenue and taxes them accordingly; however, the Tajik government does not tax remittances from labor migrants.

Sovereign Wealth Funds

Tajikistan does not have a sovereign wealth fund.  The country does have a “Special Economic Reforms Fund,” but, according to official statistics, it is empty.

7. State-Owned Enterprises

World Bank and IMF reports indicate there are 920 state-owned enterprises (SOEs) (up from 583 in 2004) which 24 percent of the labor force, use 50 percent of all available credit, and account for 17 percent of the country’s economic output.

SOEs are active in travel, transportation, energy, mining, metal manufacturing/products, food processing/packaging, agriculture, construction, heavy equipment, services, finance, and information and communication sectors.  The government divested itself of smaller SOEs in successive waves of privatization, but retained ownership of the largest Soviet-era enterprises and any sector deemed to be a natural monopoly.

The government appoints directors and boards to SOEs but the absence of clear governance and internal control procedures means the government retains full control.  Tajik SOEs do not adhere to the Organisation for Economic Co-operation and Development (OECD) Guidelines on Corporate Governance for SOEs.  When SOEs are involved in investment disputes, it is highly likely that domestic courts will find in the SOE’s favor.  Court processes are generally non-transparent and discriminatory.

The Committee for Investments and State Property Management maintains a database of all SOEs in Tajikistan, but does not make this information publicly available.

Major SOEs include:

  • Travel: Tajik Air, Dushanbe International Airport, Kulob Airport, Qurghonteppa Airport, Khujand Airport, and Tajik Air Navigation;
  • Automotive & Ground Transportation: Tajik Railways;
  • Energy & Mining: Barqi Tojik, TajikTransGas, Oil, Gas, and Coal, and VostokRedMet;
  • Metal Manufacturing & Products: Tajik Aluminum Holding Company (TALCO), and several TALCO subsidiary companies;
  • Agricultural, Construction, Building & Heavy Equipment: Tajik Cement; Food Processing & Packaging: Konservniy Combinat Isfara;
  • Services: Dushanbe Water and Sewer, Vodokanal Khujand, and ZhKX (water utility company);
  • Finance: AmonatBonk (state savings bank), TajikSarmoyaguzor (state investments), TajikSugurta (state insurance);
  • Information and Communication: Tajik Telecom, Tajik Postal Service, and TeleRadioCom

In sectors that are open to private sector and foreign competition, SOEs receive a larger percentage of government contracts/business than their private sector competitors.  In practice, private companies cannot compete successfully with SOEs unless they have good government connections.

SOEs purchase goods and services from, and supply them to, private sector and foreign firms through the Tajik government’s tender process.  Tajikistan has undertaken a commitment, as part of its WTO accession protocol, to initiate accession to the Government Procurement Agreement (GPA).  At present, however, GPA does not cover Tajik SOEs.

Per government policy, private enterprises cannot compete with SOEs under the same terms and conditions with respect to market share (since the government continually increases the role and number of SOEs in any market), products/services, and incentives.  Private enterprises do not have the same access to financing as SOEs as most lending from state-owned banks is politically directed.

Local tax law makes SOEs subject to the same tax burden and tax rebate policies as their private sector competitors, but the Tajik government favors SOEs and regularly writes off tax arrears for SOEs.

Privatization Program

The Tajik government conducted privatization on an ad-hoc basis in the 1990s, and then again in the early 2000s.  Following a World Bank recommendation, the government has begun a plan to split national electrical utility Barqi-Tojik into three public/private partnerships, responsible for generation, transmission, and distribution but progress has been slow.

Foreign investors are able to participate in Tajikistan’s privatization programs.

There is a public bidding process, but the privatization process is not transparent.  Privatized properties have been subject to re-nationalization, often because Tajik authorities claim on illegal privatization process.

In January, 2020 Tajikistan’s lower house of parliament approved amendments to the state privatization law that remove the Roghun energy project and TALCO aluminum company from the list of state facilities precluded from foreign investment.

9. Corruption

Tajikistan has enacted anti-corruption legislation, but enforcement is politically-motivated, and generally ineffective in combating corruption of public officials.  Tajikistan’s parliament approved new amendments to the criminal code in February 2016.  Now, individuals convicted of crimes related to bribery may be released in return for payment of fines (roughly USD 25 for each day they would have served in prison had they been convicted under the previous criminal code).

Tajikistan’s anti-corruption laws officially extend to family members of officials and political parties.  Tajikistan’s laws provide conditions to counter conflict of interest in awarding contracts.

The Tajik government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials.  Private companies do not use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

Tajikistan became a signatory to the UN’s Anticorruption Convention in 2006.  Tajikistan is not a party to the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.

Tajik authorities do not provide protection to NGOs involved in investigating corruption.

U.S. firms have identified corruption as an obstacle to investment and have reported instances of corruption in government procurement, award of licenses and concessions, dispute settlements, regulations, customs, and taxation.

Resources to Report Corruption

Sulaimon Sultonzoda Said, Head
The Agency for State Financial Control and Fight with Corruption
78 Rudaki Avenue, Dushanbe
992 37 221-48-10; 992 27 234-3052
info@anticorruption.tj; agenti@anticorruption.tj

(The agency requests that contact be made via a form on their website – www.anticorruption.tj)

Contact at a “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption, such as Transparency International):

United Nations Development Program
39 Aini Street, Dushanbe
+992 44 600-56-00
registry.tj@undp.org

10. Political and Security Environment

Tajikistan’s civil war lasted from 1992 to 1997 and resulted in the deaths of 50,000 people. Apart from a minor uprising in September 2015, however, political violence following the end of the civil war has been rare.

Tajikistan is governed by an authoritarian ruler who has consolidated power by silencing opposition voices and ending multi-party democracy.  As part of its security efforts, the Tajik government has placed numerous restrictions on religious, media, and civil freedoms.

The state, as an extension of the regime, furthers the interests of the ruling elite, often to the detriment of the business community.  Democratic reform is viewed by many elites as a threat to important political and financial interests.

Government institutions are often unwilling or unable to protect human rights, the judiciary is not independent, and the court system does not present Tajiks with a fair or effective forum in which to seek protection.  Law enforcement institutions often overuse their authority to monitor, question or detain a wide spectrum of individuals, and the State Committee on National Security (GKNB) exercises a wide degree of influence in all aspects of government.

Tanzania

Executive Summary

The United Republic of Tanzania has a relatively stable political environment, reasonable macroeconomic policies, and resiliency from external shocks. However, recently adopted Government of Tanzania (GoT) policies raise questions about short- and medium-term prospects for foreign direct investment (FDI), and foster a more challenging business environment. Tanzania is ranked 141 out of 190 countries on the World Bank’s “Doing Business” rankings, the lowest among its East African peers. After nearly a nearly a decade of double-digit growth, Tanzania’s rate of GDP growth slowed over the past two years. The private sector remains concerned about heavy-handed and arbitrary enforcement of rules; stagnant credit growth; poor budget credibility and execution; and excessive domestic arrears (especially to the domestic private sector). Tanzania’s diverse economy gives it some resiliency but nevertheless, it faces considerable challenges from the COVID-19 pandemic, as well as high rates of poverty and youth unemployment.

Profitable sectors for foreign investment in Tanzania have traditionally included agriculture, mining and services, construction, tourism, and trade. However, aggressive revenue raising measures and unfriendly investor legislation have made investment less attractive in recent years. Labor regulations make it difficult to hire foreign employees, even when the required skills are not available within the local labor force. Corruption, especially in government procurement, privatization, taxation, and customs clearance remains a concern for foreign investors, though the government has prioritized efforts to combat the practice. GoT-funded infrastructure development offers investment opportunities in rail, real estate development, and construction.

Compared to some of its neighbors, Tanzania remains a politically stable and peaceful country. Since November 2015, however, the government has restricted civic and media freedoms, including severely limiting the ability of opposition political parties and civil society organizations to debate issues publicly, or assemble peacefully. Elections in 2019 were marred by allegations of irregularities and suppression of opposition candidates. National elections, including Presidential elections, are scheduled for October 2020.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 96 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 141 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 97 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 $1.38 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $ 1,020 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Tanzania’s Dar es Salaam Stock Exchange (DSE) is a self-listed publicly-owned company. In 2013, the DSE launched a second tier market, the Enterprise Growth Market (EGM) with lower listing requirements designed to attract small and medium sized companies with high growth potential. As of December 2017, DSE’s total market capitalization reached USD 10.5 billion, a 20.6 percent increase over the previous year’s figure. The Capital Markets and Securities Authority (CMSA) Act facilitates the free flow of capital and financial resources to support the capital market and securities industry. Tanzania, however, restricts the free flow of investment in and out of the country, and Tanzanians cannot sell or issue securities abroad unless approved by the CMSA.

Under the Capital Markets and Securities (Foreign Investors) Regulation 2014, there is no aggregate value limitation on foreign ownership of listed non-government securities. Despite progress, the country’s capital account is not fully liberalized and only foreign individuals or companies from other EAC nations are permitted to participate in the government securities market. Even with this recent development allowing EAC participation, ownership of government securities is still limited to 40 percent of each security issued.

Tanzania’s Electronic and Postal Communications Act 2010 amended in 2016 by the Finance Act 2016 requires telecom companies to list 25 percent of their shares via an initial public offering (IPO) on the DSE. Of the seven telecom companies that filed IPO applications with the CMSA, only Vodacom’s application received approval. TiGo’s IPO is reportedly close to approval.

As part of the Mining (Minimum Shareholding and Public Offering) Regulations 2016, large scale mining operators were required to float a 30 percent stake on the DSE by October 7, 2018. In February 2017 the GoT moved the date to August 23, 2017. To date, no mining companies have listed on the DSE.

Money and Banking System

Tanzania’s financial inclusion rate increased significantly over the past decade thanks to mobile phones and mobile banking. However, participation in the formal banking sector remains low. Low private sector credit growth and high non-performing loan (NPL) rates are persistent problems.

According to the IMF’s most recent Financial System Stability Assessment, Tanzania’s bank-dominated financial sector is small, concentrated, and at a relatively nascent stage of development. Financial services provision is dominated by commercial banks, with the ten largest institutions being preeminent in terms of mobilizing savings and intermediating credit. The report found that nearly half of Tanzania’s 45 banks are vulnerable to adverse shocks and risk insolvency in the event of a global financial crisis. (Source: https://www.imf.org/en/Publications/CR/Issues/2018/12/04/United-Republic-of-Tanzania-Financial-Sector-Assessment-Program-Press-Release-Staff-Report-46418 )

The two largest banks are CRDB Bank and National Microfinance Bank (NMB), which represent almost 30 percent of the market. The only U.S. bank is Citibank Tanzania Limited. Private sector companies have access to commercial credit instruments including documentary credits (letters of credit), overdrafts, term loans, and guarantees. Foreign investors may open accounts and earn tax-free interest in Tanzanian commercial banks.

The Banking and Financial Institution Act 2006 established a framework for credit reference bureaus, permits the release of information to licensed reference bureaus, and allows credit reference bureaus to provide to any person, upon a legitimate business request, a credit report. Currently, there are two private credit bureaus operating in Tanzania – Credit Info Tanzania Limited and Dun & Bradstreet Credit Bureau Tanzania Limited.

Foreign Exchange and Remittances

Foreign Exchange

Tanzanian regulations permit unconditional transfers through any authorized bank in freely convertible currency of net profits, repayment of foreign loans, royalties, fees charged for foreign technology, and remittance of proceeds. The only official limit on transfers of foreign currency is on cash carried by individuals traveling abroad, which cannot exceed USD 10,000 over a period of 40 days. Investors rarely use convertible instruments.

The Bank of Tanzania’s new Bureau de Change regulations with stringent requirements came into force in June 2019. The regulations include a minimum capital requirement of TZS 1 billion (Approx. USD 431,000) and a non-interest bearing deposit of USD 100,000 with the Bank of Tanzania (the regulator). Regulations also require the business premises to be fitted with CCTV cameras, and new stringent procedures and policies for detecting and reporting money laundering and terrorism finance. Bank of Tanzania closed more than ninety percent of all forex shops in the country, stating that they did not pass inspection for compliance with these requirements. In response, commercial banks and Tanzania Posts Corporation were licensed to provide forex services.

The value of the Tanzanian currency, the shilling, is determined by a free-floating exchange rate system based on supply and demand in international foreign exchange markets. However, Interbank Foreign Exchange Market (IFEM) and the rates quoted by commercial banks and exchange bureaus often vary considerably. There are reports that the Bank of Tanzania has stepped in several times over the past few years to stabilize the exchange rate.

Remittance Policies

There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

Sovereign Wealth Funds

Tanzania does not have a sovereign wealth fund.

7. State-Owned Enterprises

Public enterprises do not compete under the same terms and conditions as private enterprises because they have access to government subsidies and other benefits. SOEs are active in the power, communications, rail, telecommunications, insurance, aviation, and port sectors. SOEs generally report to ministries and are led by a board. Typically, a presidential appointee chairs the board, which usually includes private sector representatives. SOEs are not subjected to hard budget constraints. SOEs do not discriminate against or unfairly burden foreigners, though they do have access to sovereign credit guarantees.

As of June 2019, the GoT’s Treasury Registrar reported shares and interests in 266 public parastatals, companies and statutory corporations. (See  http://www.tro.go.tz/index.php/en/latest-news/382-treasury-registrar-sets-record-with-552pc-increase-in-annual-dividend )

Relevant ministry officials usually appoint SOEs’ board of directors to serve preset terms under what is intended to be a competitive process. As in a private company, senior management report to the board of directors.

Privatization Program

The government retains a strong presence in energy, mining, telecommunication services, and transportation. The government is increasingly empowering the state-owned Tanzania Telecommunications Corporation Limited (TTCL) with the objective of safeguarding the national security, promoting socio-economic development, and managing strategic communications infrastructure. The government also acquired 51 percent of Airtel Telecommunication Company Limited and became the majority shareholder. In the past, the GoT has sought foreign investors to manage formerly state-run companies in public-private partnerships, but successful privatizations have been rare. Though there have been attempts to privatize certain companies, the process is not always clear and transparent.

9. Corruption

Tanzania has laws and institutions designed to combat corruption and illicit practices. It is a party to the UN Convention against Corruption, but it is not a signatory to the OECD Convention on Combating Bribery. Although corruption is still viewed as a major problem, President Magufuli’s focus on anti-corruption has translated into an increased judiciary budget, new corruption cases, and a decline in perceived corruption, especially low-level corruption. This improvement is partly attributed to instituting electronic services which reduce the opportunity for corruption through human interactions at agencies such as the Tanzania Revenue Authority (TRA), the Business Registration and Licensing Authority (BRELA), and the Port Authority.

Tanzania has three institutions specifically focused on anti-corruption. The Prevention and Combating of Corruption Bureau (PCCB) prevents corruption, educates the public, and enforces the law against corruption. The Ethics Secretariat and its associated Ethics Tribunal under the President’s office enforces compliance with ethical standards defined in the Public Leadership Codes of Ethics Act 1995.

Companies and individuals seeking government tenders are required to submit a written commitment to uphold anti-bribery policies and abide by a compliance program. These steps are designed to ensure that company management complies with anti-bribery polices.

The GoT is currently implementing its National Anti-Corruption Strategy and Action Plan Phase III (2017-2022) (NACSAP III) which is a decentralized approach focused on broad government participation. NACSAP III has been prepared to involve a broader domain of key stakeholders including GoT local officials, development partners, civil society organization (CSOs), and the private sector. The strategy puts more emphasis on areas that historically have been more prone to corruption in Tanzania such as oil, gas, and other natural resources. Despite the outlined role of the GoT, CSOs, NGOs and media find it increasingly difficult to investigate corruption in the current political environment.

President Magufuli’s current anti-corruption campaign has affected public discourse about the prevailing climate of impunity, and some officials are reluctant to engage openly in corruption. Transparency International (TI), which ranks perception of corruption in public sector, gave Tanzania a score of 37 points out of 100 for 2019 and 36 points for 2018. The Afrobarometer report estimates that between 2016 and 2018 the corruption increase in the previous 12 months was only 10% in Tanzania, the lowest in Africa. While for the same period, 23% of the respondents voted that Tanzania is doing a bad job of fighting corruption, again the lowest in Africa.

Some critics, however, question how effective the initiative will be in tackling deeper structural issues that have allowed corruption to thrive. Despite President Magufuli’s focus on anti-corruption, there has been little effort to institutionalize what often appear to be ad hoc measures, a lack of corruption convictions, and persistent underfunding of the country’s main anti-corruption bodies.

Resources to Report Corruption

The Director General
Prevention and Combating of Corruption Bureau
P.O.  Box 4865, Dar es Salaam, Tanzania
Tel: +255 22 2150043   Email: dgeneral@pccb.go.tz

Executive Director
Legal and Human Rights Centre
P.O.  Box 75254, Dar es Salaam, Tanzania
Tel: +255 22 2773038/48   Email: lhrc@humanrights.or.tz

10. Political and Security Environment

Since gaining independence, Tanzania has enjoyed a relatively high degree of peace and stability compared to its neighbors in the region.  Tanzania has held five national multi-party elections since 1995, the most recent in 2015. The next national elections are scheduled for October 2020. Mainland Tanzania government elections have been generally free of political violence.  Elections on the semi-autonomous archipelago of Zanzibar, however, have been marred by political violence several times since 1995, including in 2015.

October 2015 general elections were conducted in a largely open and transparent atmosphere; however, simultaneous elections in Zanzibar were controversially annulled after an opposition candidate declared victory.  A heavily criticized re-run election was held on March 20, 2016 despite an opposition boycott. Since the 2015 election, the GoT has placed several restrictions on political activity, including severely limiting the ability of opposition political parties and civil society organizations to debate issues publicly, or assemble peacefully.  Elections in 2018 and 2019 were marred by allegations of irregularities and suppression of opposition candidates and voters. National elections, including Presidential elections on the Mainland and Zanzibar are scheduled for October 2020.

In addition to monitoring the political climate, foreign investors remain concerned about land tenure issues. Although the government owns all land in Tanzania and oversees the issuance of land leases of up to 99 years, many Tanzanian citizens judge that foreign investors exploit Tanzanian resources, sometimes resulting in conflict between investors and nearby residents. In Arusha and Mtwara, among other areas, conflicts have led to violence, prompting the GoT to emphasize its commitment to supporting foreign investment while also ensuring the intended benefit of the investments to Tanzanian citizens.

There are also concerns about insecurity spilling over from neighboring countries, particularly along the Tanzania-Mozambique border, as well as from conflicts in the Democratic Republic of the Congo and Burundi.

Thailand

Executive Summary

Thailand, the second largest economy in the Association of Southeast Asian Nations (ASEAN), is an upper middle-income country with pro-investment policies and well-developed infrastructure. General Prayut Chan-o-cha was elected by Parliament as Prime Minister on June 5, 2019. Thailand celebrated the coronation of King Maha Vajiralongkorn May 4-6, 2019, formally returning a King to the Head of State of Thailand’s constitutional monarchy. Despite some political uncertainty, Thailand continues to encourage foreign direct investment as a means of promoting economic development, employment, and technology transfer. In recent decades, Thailand has been a major destination for foreign direct investment, and hundreds of U.S. companies have invested in Thailand successfully. Thailand continues to encourage investment from all countries and seeks to avoid dependence on any one country as a source of investment.

The Foreign Business Act (FBA) of 1999 governs most investment activity by non-Thai nationals. Many U.S. businesses also enjoy investment benefits through the U.S.-Thai Treaty of Amity and Economic Relations, signed in 1833 and updated in 1966. The Treaty allows U.S. citizens and U.S. majority-owned businesses incorporated in the United States or Thailand to maintain a majority shareholding or to wholly own a company, branch office, or representative office located in Thailand, and engage in business on the same basis as Thai companies (national treatment). The Treaty exempts such U.S.-owned businesses from most FBA restrictions on foreign investment, although the Treaty excludes some types of business. Notwithstanding their Treaty rights, many U.S. investors choose to form joint ventures with Thai partners who hold a majority stake in the company, leveraging their partner’s knowledge of the Thai economy and local regulations.

The Thai government maintains a regulatory framework that broadly encourages investment. Some investors have nonetheless expressed views that the framework is overly restrictive, with a lack of consistency and transparency in rule-making and interpretation of law and regulations.

The Board of Investment (BOI), Thailand’s principal investment promotion authority, acts as a primary conduit for investors. BOI offers businesses assistance in navigating Thai regulations and provides investment incentives to qualified domestic and foreign investors through straightforward application procedures. Investment incentives include both tax and non-tax privileges.

The Thai government in 2019 passed new laws and regulations on cybersecurity and personal data protection that have raised concerns about Thai authorities’ broad power to potentially demand confidential and sensitive information, introducing new uncertainties in the technology sector. IT operators and analysts have expressed concern with private companies’ legal protections, ability to appeal, or ability to limit such access. As of March 2020, the government is still in the process of considering and implementing regulations to enforce laws on Cyber Security and Personal Data Protection.

Gratuity payments to civil servants responsible for regulatory oversight and enforcement remain a common practice. Firms that refuse to make such payments can be placed at a competitive disadvantage to other firms that do engage in such practices. The government launched its Eastern Economic Corridor (EEC) development plan in 2017. The EEC is a part of the “Thailand 4.0” economic development strategy introduced in 2016. Many planned infrastructure projects, including a high-speed train linking three airports, U-Tapao Airport commercialization, and Laem Chabang Port expansion, could provide opportunities for investments and sales of U.S. goods and services. In support of its “Thailand 4.0” strategy, the government offers incentives for investments in twelve targeted industries: next-generation automotive; intelligent electronics; advanced agriculture and biotechnology; food processing; tourism; advanced robotics and automation; digital technology; integrated aviation; medical hub and total healthcare services; biofuels/biochemical; defense manufacturing; and human resource development.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 36/ 101 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 21 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 43 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 USD 17,667 http://www.bea.gov/intl-trade-investment/
direct-investment-country-and-industry
World Bank GNI per capita 2018 USD 6,610 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

The Thai government maintains a regulatory framework that broadly encourages and facilitates portfolio investment. The Stock Exchange of Thailand, the country’s national stock market, was established under the Securities Exchange of Thailand Act B.E. 2535 in 1992. There is sufficient liquidity in the markets to allow investors to enter and exit sizeable positions. Government policies generally do not restrict the free flow of financial resources to support product and factor markets. The Bank of Thailand, the country’s central bank, has respected IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Credit is generally allocated on market terms rather than by “direct lending.” Foreign investors are not restricted from borrowing on the local market. In theory, the private sector has access to a wide variety of credit instruments, ranging from fixed term lending to overdraft protection to bills of exchange and bonds. However, the private debt market is not well developed. Most corporate financing, whether for short-term working capital needs, trade financing, or project financing, requires borrowing from commercial banks or other financial institutions.

Money and Banking System

Thailand’s banking sector, with 15 domestic commercial banks, is sound and well-capitalized. As of December 2019, the non-performing loan rate was low (around 2.98 percent industry wide). The ratio of capital funds/risk-weighted assets (capital adequacy) was high (19.61 percent). Thailand’s largest commercial bank is Bangkok Bank, with assets totaling USD 100 billion as of December 2019. The combined assets of the five largest commercial banks totaled USD 450 billion, or 69.39 percent of the total assets of the Thai banking system, at the end of 2019.

In general, Thai commercial banks provide the following services: accepting deposits from the public; granting credit; buying and selling foreign currencies; and buying and selling bills of exchange (including discounting or re-discounting, accepting, and guaranteeing bills of exchange). Commercial banks also provide credit guarantees, payment, remittance and financial instruments for risk management. Such instruments include interest-rate derivatives and foreign-exchange derivatives. Additional business to support capital market development, such as debt and equity instruments, is allowed. A commercial bank may also provide other services, such as bank assurance and e-banking.

Thailand’s central bank is the Bank of Thailand (BOT), which is headed by a Governor appointed for a five-year term. The BOT serves the following functions: prints and issues banknotes and other security documents; promotes monetary stability and formulates monetary policies; manages the BOT’s assets; provides banking facilities to the government; acts as the registrar of government bonds; provides banking facilities for financial institutions; establishes or supports the payment system; supervises financial institutions manages the country’s foreign exchange rate under the foreign exchange system; and determines the makeup of assets in the foreign exchange reserve.

Apart from the 15 domestic commercial banks, there are currently 11 registered foreign bank branches, including three American banks (Citibank, Bank of America, and JP Morgan Chase), and four foreign bank subsidiaries operating in Thailand. To set up a bank branch or a subsidiary in Thailand, a foreign commercial bank must obtain approval from the Ministry of Finance and the BOT. Foreign commercial bank branches are limited to three service points (branches/ATMs) and foreign commercial bank subsidiaries are limited to 40 service points (branches and off-premise ATMs) per subsidiary. Newly established foreign bank branches are required to have minimum capital funds of 125 million baht (USD 4.03 million at end of 2019 exchange rates) invested in government or state enterprise securities, or directly deposited with the Bank of Thailand. The number of expatriate management personnel is limited to six people at full branches, although Thai authorities frequently grant exceptions on a case-by-case basis.

Non-residents can open and maintain foreign currency accounts without deposit and withdrawal ceilings. Non-residents can also open and maintain Thai baht accounts; however, in an effort to curb speculation, in July 2019 the Bank of Thailand capped non-resident Thai baht deposits to 200 million baht across all domestic bank accounts. Any deposit in Thai baht must be derived from conversion of foreign currencies, receipt of payment for goods and services, or capital transfers. Withdrawals are freely permitted. Since mid-2017, the BOT has allowed commercial banks and payment service providers to introduce new financial services technologies under its “Regulatory Sandbox” guidelines. Recently introduced technologies under this scheme include standardized QR codes for payments, blockchain funds transfers, electronic letters of guarantee, and biometrics.

Thailand’s alternative financial services include cooperatives, micro-saving groups, the state village funds, and informal money lenders. The latter provide basic but expensive financial services to households, mostly in rural areas. These alternative financial services, with the exception of informal money lenders, are regulated by the government.

Foreign Exchange and Remittances

Foreign Exchange

There are no limitations placed on foreign investors for converting, transferring, or repatriating funds associated with an investment; however, supporting documentation is required. Any person who brings Thai baht currency or foreign currency in or out of Thailand in an aggregate amount exceeding USD 15,000 or the equivalent must declare the currency at a Customs checkpoint. Investment funds are allowed to be freely converted into any currency.

The exchange rate is generally determined by market fundamentals but is carefully scrutinized by the BOT under a managed float system. During periods of excessive capital inflows/outflows (i.e., exchange rate speculation), the central bank has stepped in to prevent extreme movements in the currency and to reduce the duration and extent of the exchange rate’s deviation from a targeted equilibrium.

Remittance Policies

Thailand imposes no limitations on the inflow or outflow of funds for remittances of profits or revenue for direct and portfolio investments. There are no time limitations on remittances.

Sovereign Wealth Funds

Thailand does not have a sovereign wealth fund and the Bank of Thailand is not pursuing the creation of such a fund. However, the International Monetary Fund has urged Thailand to create a sovereign wealth fund due to its large accumulated foreign exchange reserves (USD 224.3 billion as of December 2019).

7. State-Owned Enterprises

Thailand’s 56 state-owned enterprises (SOEs) have total assets of USD 422 billion and a combined net income of USD 8.3 billion (end of 2018 figures, latest available). They employ around 270,000 people, or 0.7 percent of the Thai labor force. Thailand’s SOEs operate primarily in-service delivery, in particular in the energy, telecommunications, transportation, and financial sectors. More information about SOEs is available at the website of the State Enterprise Policy Office (SEPO) under the Ministry of Finance at www.sepo.go.th .

A 15-member State Enterprises Policy Commission, or “superboard,” oversees operations of the country’s 56 SOEs. In May 2019, the Development of Supervision and Management of State-Owned Enterprise Act B.E. 2562 (2019) went into effect. The law aims to reform SOEs and ensure transparent management decisions. The Thai government generally defines SOEs as special agencies established by law for a particular purpose that are 100 percent owned by the government (through the Ministry of Finance as a primary shareholder). The government recognizes a second category of “limited liability companies/public companies” in which the government owns 50 percent or more of the shares. Of the 56 total SOEs, 43 are wholly-owned and 13 are majority-owned. Twelve of these companies are classed as limited liability companies. Five are publicly listed on the Stock Exchange of Thailand: Thai Airways International Public Company Limited; Airports of Thailand Public Company Limited; PTT Public Company Limited; MCOT Public Company Limited; and Krung Thai Bank Public Company Limited. By regulation, at least one-third of SOE boards must be comprised of independent directors.

Private enterprises can compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives in most sectors, but there are some exceptions, such as fixed-line operations in the telecommunications sector.

While SEPO officials aspire to adhere to the OECD Guidelines on Corporate Governance for SOEsno level playing field exists between SOEs and private sector enterprises, which are often disadvantaged in competing with Thai SOEs for contracts.

Generally, SOE senior management reports directly to a line minister and to SEPO. Corporate board seats are typically allocated to senior government officials or politically-affiliated individuals. Privatization Program

The 1999 State Enterprise Corporatization Act provides a framework for conversion of SOEs into stock companies. Corporatization is viewed as an intermediate step toward eventual privatization. (Note: “corporatization” describes the process by which an SOE adjusts its internal structure to resemble a publicly-traded enterprise; “privatization” denotes that a majority of the SOE’s shares is sold to the public; and “partial privatization” refers to a situation in which less than half of a company’s shares are sold to the public.) Foreign investors are allowed to participate in privatizations, but restrictions are applied in certain sectors, as regulated by the FBA and the Act on Standards Qualifications for Directors and Employees of State Enterprises of 1975, as amended. However, privatizations have been on hold since 2006 largely due to strong opposition from labor unions.

A 15-member State Enterprises Policy Commission, or “superboard,” oversees operations of the country’s 56 SOEs. In May 2019, the Development of Supervision and Management of State-Owned Enterprise Act B.E. 2562 (2019) went into effect. The law aims to reform SOEs and ensure transparent management decisions; however, privatization is not part of this process.

9. Corruption

Transparency International’s Corruption Perceptions Index ranked Thailand 101st out of 180 countries with a score of 36 out of 100 in 2019. According to some studies, a cultural propensity to forgive bribes as a normal part of doing business and to equate cash payments with finders’ fees or consultants’ charges, coupled with the relatively low salaries of civil servants, encourages officials to accept gifts and illegal inducements. U.S. executives with experience in Thailand often advise new-to-market companies that it is far easier to avoid corrupt transactions from the beginning than to stop such practices once a company has been identified as willing to operate in this fashion. American firms that comply with the strict guidelines of the Foreign Corrupt Practices Act (FCPA) are able to compete successfully in Thailand. U.S. businessmen say that publicly affirming the need to comply with the FCPA helps to shield their companies from pressure to pay bribes.

Thailand has a legal framework and a range of institutions to counter corruption. The Organic Law to Counter Corruption criminalizes corrupt practices of public officials and corporations, including active and passive bribery of public officials. The anti-corruption laws extend to family members of officials and to political parties.

Thai procurement regulations prohibit collusion amongst bidders. If an examination confirms allegations or suspicions of collusion among bidders, the names of those applicants must be removed from the list of competitors.

Thailand adopted its first national government procurement law in December 2016. Based on UNCITRAL model laws and the WTO Agreement on Government Procurement, the law applies to all government agencies, local authorities, and state-owned enterprises, and aims to improve transparency. Officials who violate the law are subject to 1-10 years imprisonment and/or a fine from Thai baht 20,000 (approximately USD 615) to Thai baht 200,000 (approximately USD 6,150).

Since 2010, the Thai Institute of Directors has built an anti-corruption coalition of Thailand’s largest businesses. Coalition members sign a Collective Action Against Corruption Declaration and pledge to take tangible, measurable steps to reduce corruption-related risks identified by third party certification. The Center for International Private Enterprise equipped the Thai Institute of Directors and its coalition partners with an array of tools for training and collective action.

Established in 2011, the Anti-Corruption Organization of Thailand (ACT) aims to encourage the government to create laws to combat corruption. ACT has 54 member organizations drawn from the private, public, and academic sectors. Their signature program is the “integrity pact.” Drafted by ACT and the Finance Ministry and based on a tool promoted by Transparency International, the pact forbids bribes from signatory members in bidding for government contacts. Member agencies and companies must adhere to strict transparency rules by disclosing and making easily available to the public all relevant bidding information, such as the terms of reference and the cost of the project.

Thailand is a party to the UN Anti-Corruption Convention, but not the OECD Anti-Bribery Convention.

Thailand’s Witness Protection Act offers protection (to include police protection) to witnesses, including NGO employees, who are eligible for special protection measures in anti-corruption cases.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

International Affairs Strategy Specialist
Office of the National Anti-Corruption Commission
361 Nonthaburi Road, Thasaai District, Amphur Muang Nonthaburi 11000, Thailand
Tel: +662-528-4800
Email: TACC@nacc.go.th

Contact at “watchdog” organization:

Dr. Mana Nimitmongkol
Secretary General
Anti-Corruption Organization of Thailand (ACT)
44 Srijulsup Tower, 16th floor, Phatumwan, Bangkok 10330
Tel: +662-613-8863
Email: mana2020@yahoo.com

10. Political and Security Environment

On March 24, 2019, Thailand held its first national election since the 2014 military coup that ousted democratically elected Prime Minister Yingluck Shinawatra. On June 5, the newly-seated Parliament elected coup leader General Prayut Chan-o-cha to continue in his role as Prime Minister.

Violence related to an ongoing ethno-nationalist insurgency in Thailand’s southernmost provinces has claimed more than 7,000 lives since 2004. Although the number of deaths and violent incidents has decreased year-over-year, efforts to end the insurgency have so far been unsuccessful. The government is currently engaged in confidence-building measures with the leading insurgent group. Almost all attacks have occurred in the three southernmost provinces of the country.

Timor-Leste

Executive Summary

The Government of Timor-Leste has welcomed foreign investment and business development opportunities since gaining independence in 2002.  Plagued by conflict and turmoil during the first years of independence, Timor-Leste emerged as a peaceful and stable democracy.  Peaceful presidential and parliamentary elections in 2017 and snap parliamentary elections in May 2018 revealed an active democratic political climate with competing views for how to best develop the nascent economy, which remains largely dependent on public sector spending for growth.  Political gridlock has stalled passage of crucial state budgets since 2018 and stunted growth.

The government is implementing fiscal and economic reforms to comply with international best practices as it seeks to join the Association of Southeast Asian Nations (ASEAN).  The country continues to struggle, however, with incomplete and unclear legislation, inadequate regulatory mechanisms, corruption, insufficient personnel capacity, and deficient infrastructure.

The private sector is weak and primarily dependent on government contracts, and government’s ability to regulate industry remains limited.  The government is looking for partners to develop the Greater Sunrise offshore natural gas reserves and build a petroleum infrastructure corridor on its south coast.  The U.S. government’s Millennium Challenge Corporation is developing plans to assist with renovating the Dili municipal water and waste management system once its planned five-year compact is signed and comes into effect.  Timor-Leste has said it would also like to invest in significant infrastructure on the country’s southern coast and maintains Special Economic Zones in Oecusse and Atauro Island.  In 2020, the government closed its borders, temporarily ended commercial flights, and instituted a State of Emergency (SOE) to combat the COVID-19 pandemic.  The government approved a $250 million withdrawal from its Petroleum Fund to pay for an economic stimulus and emergency relief package to offset the SOE’s impact on the economy and fund the containment effort.  The economic downturn associated with COVID-19 has thus far cost the Petroleum Fund roughly $1.8 billion.

Key objectives for the U.S. Embassy in Timor-Leste and all U.S. government agencies represented in the Embassy include diversification of Timor-Leste’s economy, support for private sector development, including entrepreneurs, health and agricultural development, support for democratic institutions, and development of a commercial law framework.  The United States was instrumental in developing the coffee industry in Timor-Leste, and coffee is now the third largest source of the GDP behind oil and gas and remittances from Timorese workers abroad.  U.S. companies are among the buyers of Timor-Leste’s coffee and spices.  USAID is fostering public-private partnerships in the tourism sector, improving horticultural value chains, and working to modernize and restructure the government customs authority.  The U.S. Department of Agriculture’s McGovern-Dole School Feeding program engages private sector farmers to help combat malnutrition.  The U.S. Millennium Challenge Corporation is also planning to support secondary school teacher training.  The U.S. Embassy’s public diplomacy section supports STEM education for women and girls, English language education and youth leadership development.  The U.S Ambassador’s small grants fund supports financial literacy and entrepreneurship trainings for women entrepreneurs.  The Commerce Department’s Commercial Law Development Program (CLDP) trains Timorese government officials in key legal and regulatory agencies to improve the business environment and level the playing field for U.S. companies.  In September 2019, the United States hosted key oil and gas decision makers for meetings in Washington DC and Houston.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 93 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 181 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 N/A http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 USD 1,820 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Timor-Leste does not have a stock market and limited access to credit and liquidity to facilitate investment.  There are no known restrictions on portfolio investment.

Money and Banking System

There are five commercial banks operating in Timor-Leste: ANZ of Australia, Mandiri of Indonesia, BRI of Indonesia, BNU of Portugal, and a subsidized national bank, National Commercial Bank of Timor-Leste.  Foreign citizens must have a tax identification number demonstrating residency in Timor-Leste to maintain an individual bank account.  According to World Bank data, lending to the private sector totaled approximately $258 million in 2018.  The overall non-performing loan rate was 5.6 percent in 2018.

The Central Bank of Timor-Leste is the country’s monetary authority.  It supervises the activities of commercial banks, money transfer operators, currency exchange offices, insurance companies, and other deposit-taking corporations, as well as serving as the operational manager of the country’s sovereign wealth Petroleum Fund.  The bank also operates as the clearing house for interbank payments and undertakes bank operations for the government and Timor-Leste’s public administration.  American citizens must submit a copy of their passport notarized by the Consular Section of the U.S. Embassy attesting to their citizenship status to open a bank account.

Foreign Exchange and Remittances

Foreign Exchange

The U.S. dollar is the official currency of Timor-Leste.  There are no official currency controls, although the Central Bank of Timor-Leste imposes reporting requirements for the importation or exportation of cash above $5,000 and requires explicit authorization for sums in excess of $10,000.  The four foreign banks operating in Timor-Leste – Bank Mandiri, BRI, ANZ Bank, and Banco Nacional Ultramarino – may also impose reporting requirements for transactions above a certain amount in order to comply with home-country anti-money laundering regulations in addition to the requirements stipulated by the Central Bank.  American citizens must have a tax identification number that demonstrates residency in Timor-Leste in order to maintain an individual bank account.  American citizens must also submit a copy of their passport notarized by the Consular Section of the U.S. embassy attesting to their citizenship status to open a bank account.

Remittance Policies

Timor-Leste does not have a specific policy governing remittance.  The government facilitates Timorese going overseas in the UK, South Korea, and Australia for industrial and agricultural work but data on remittances is limited.  The World Bank reported remittances to Timor-Leste totaled roughly $90 million for 2018.  The government is discussing bilateral work programs with Japan and Thailand.

Sovereign Wealth Funds

Established in 2005, the Petroleum Fund is Timor-Leste’s sovereign wealth fund.  The Minister of Finance is responsible for its overall management and investment strategy.  The Central Bank of Timor-Leste is responsible for its operational management, although the Minister of Finance has the authority to select a different operational manager.  By law, all petroleum and related revenues must be paid into the Fund, with the balance of the Fund invested in international financial markets for the benefit of present and future generations of Timor-Leste’s citizens.  The Fund’s receipts are invested in approximately 40 percent equities and 60 percent bonds, but the Petroleum Fund Law permits the Fund to invest up to 50 percent in equities, 10 percent of which may be in exotic investments.  The Petroleum Fund publishes monthly, quarterly, and annual reports online.  As of April 2020, the Petroleum Fund held roughly $17 billion in assets.  The law governing the Fund provides that it must maintain an independent auditor, which shall be an internationally recognized accounting firm (most recently Deloitte Touche Tohmatsu).

The Petroleum Fund is the primary source of funding for the government budget, with a ceiling on annual withdrawals set by law at 3 percent of Timor-Leste’s total petroleum wealth (defined as the current Petroleum Fund balance plus the net present value of future petroleum receipts).  Recent budgets have exceeded the annual ceiling with the approval of Parliament; however, budgets are rarely fully executed, returning up to one-third of their value to the government coffers.

The Petroleum Activities Law no 13/2005, article 22, limits the government to investing 20 percent of the fund in petroleum activities.  The government amended the law in 2019 to allow 5% of the Petroleum Fund to be invested in Timor Gas and Petroleum (Timor GAP), while reducing the percentage of the Fund held in stocks from 40% to 35%.  Timor GAP must use the investment to exploit known oil and gas fields, which are commercially competitive and will contribute to development and diversification of the national economy.  Timor GAP will pay 4.5% interest on the investment and comply with reporting requirements.

7. State-Owned Enterprises

The Timorese government operates several state-owned enterprises (SOEs) across various sectors, including broadcasting, aviation, oil and gas, pharmaceuticals, and telecommunications.

  • The Government of Timor-Leste owns 20.6 percent of Timor Telecom, a telecommunications provider while Telecomunicações Públicas de Timor (TPT) owns 54 percent.  In 2013, two private foreign companies began telecommunications operations, ending Timor Telecom’s monopoly of the fixed and mobile network.  In exchange for the end of the monopoly, Timor Telecom acquired certain equipment procured by the government and will retain no-cost usage rights of some government-owned infrastructure and equipment until 2062.
  • In mid-2011, the government established Timor GAP, E.P., a 100-percent state-owned petroleum company intended to partner with international firms in exploration and development of Timor-Leste’s petroleum resources and to provide downstream petroleum services.  Timor GAP is supervised by the Minister of Petroleum but is governed by an independent Board of Directors.  Firms that partner with Timor GAP will receive preferential treatment in tenders for petroleum projects.
  • In November 2008, the Timorese government transformed Timor-Leste’s Public Broadcasting Service, Radio Televisão de Timor-Leste (RTTL), into a state-owned enterprise known as RTTL.  The government owns RTTL under the supervision of the State Secretary of Social Communication governed by an independent Board of Directors.  In 2016, the government established an official news agency, TATOLI.
  • In November 2005 (Government Decree No.8/2005), the government established ANATL, E.P., a state-owned company to administer the domestic airports in all aspects, including air navigation.
  • The government also created SAMES, E.P. in April 2004 (Government Decree No. 2/2004) – a public enterprise that imports, stores, and distributes medicines and medical products and equipment.  In April 2015, the government converted SAMES, E.P. into SAMES, I.P., an autonomous institution, which operates under the tutelage and supervision of the Ministry of Health.
  • In 2020, the government approved two decree laws to convert the public electricity utility known as the Department of National Electricity to Public Enterprise (EDTL, E.P) into a state-owned enterprise in the hope it will deliver better services to the customer and profitable improve its cost recovery.

Several autonomous government agencies are active in the economy:  The Institute of Equipment Management (IGE), the Dili Port Authority (APORTIL), Timor-Leste’s Agency for Information and Communication Technology (TIC Timor), and the National Aviation Authority (AACTL).  Postal and communications services may shift from the Ministry of Transportation and Communications to autonomous agency status eventually.  Other autonomous and self-funded institutions include the National Petroleum and Mineral Authority (ANPM), which regulates the oil and gas sector, and a lottery operated by the Ministry of Tourism.  A National Authority of Communication (ANC) under the Ministry of Transport and Telecommunication will eventually shift to become an autonomous and self-funded institution.

Timor-Leste has not adhered to the Organization of Economic Cooperation and Development (OECD) guidelines on Corporate Governance of SOEs.  Line ministers or the Prime Minister’s office supervise SOEs but independent boards of directors administer them.  Senior management reports directly to a 5-7 member Board of Directors.  Line ministers are responsible for nominating or dismissing the President of the Board of Directors with approval from the Council of Ministers

Privatization Program

Timor-Leste does not have a privatization program but continues to voice a desire to privatize its energy and water utilities in the near future.

9. Corruption

Transparency International ranks Timor-Leste at 93 out of 180 countries on its Corruption Perceptions Index in 2019, and the Government of Timor-Leste is continuing to take steps to combat corruption.  In 2010, the Anti-Corruption Commission (CAC), an independent agency, opened its doors, with support from the U.S. Millennium Challenge Corporation.  That same year, the Office of the Prosecutor General also forwarded its first high-profile corruption case to the courts.  Since then, the CAC has referred several cases to the Office of the Prosecutor General, which have resulted in several ongoing investigations.  In 2016, former Minister of Finance Emilia Pires and former Vice-Minister of Health Madalena Hanjam, were convicted of participating in improper procurement of hospital beds.  Both received prison sentences, which were suspended during the appeals process, although Pires was out of the country at the time and has not yet returned.  Entrepreneurs operating in-country report concerns about operational difficulties ascribed to lower-level corrupt bureaucratic processing in areas such as licensing, importation, and taxation.

The government is working to establish internal discipline and performance standards.  In October 2017, the government established a new customs authority and adopted the revised Arusha Declaration towards integrity in customs.  The customs authority is also in the process of implementing the Automatic System for Customs Data (ASYCUDA), a UN-development customs management software, to streamline customs processing and reduce corruption under a USAID-sponsored Customs Reform project.

Under Timorese law, bribery is a crime punishable with up to four years of imprisonment.  It is illegal to bribe a foreign official, although Timorese law would not apply to an attempted bribery of a foreign official overseas.  Bribes cannot be deducted from taxes.

Timor-Leste has signed and ratified the UN Anticorruption Convention; however, it is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

In March 2019, the National Parliament approved a new anti-corruption bill in generality with new identified offenses, including in the private sector, which included penalties for construction fraud and a failure to declare assets or unjustified wealth; however, the details have not been approved, and the law has not been promulgated.

Resources to Report Corruption

Anti-Corruption Commission of Timor-Leste
Rua Sergio Vieira de Mello
Farol
Dili, Timor-Leste
Phone: +670 77305564; +670 77326597; or +670 77326599
Email: keixa@cac.tl

Contact at watchdog organizations:

La’o Hamutuk – Walk Together
PO Box 340, Bebora, Dili Timor-Leste
Phone: +670 3321040
Mobile: +670 77234330
Email: info@laohamutuk.org

Lalenok ba Ema Hotu (LABEH) – The Mirror for the People
Avenida Presidente Nicolao Lobato-Comoro-(in front of SDN.07-Malinamuc)
Comoro
Dili, Timor-Leste
Phone: +670 3331068
Email: gil.silva@labeh.org , info@labeh.org

10. Political and Security Environment

Timor-Leste emerged from a history of colonialism, occupation, and civil strife to the period of domestic calm that it has enjoyed for more than a decade.  After twenty-five years of occupation by Indonesia, under an agreement between the United Nations, former colonial power Portugal, and Indonesia, a popular consultation was held in August 30, 1999 to allow the Timorese to vote on whether to remain part of Indonesia or to become independent.  The majority chose independence.  Timorese militias opposed to the decision organized and, supported by the Indonesian military, commenced a campaign of retribution.  Approximately 1,300 Timorese were killed and as many as 300,000 people were forcibly relocated into West Timor as refugees.  The majority of the country’s infrastructure, including homes, irrigation systems, water supply systems, and schools, and nearly 100 percent of the country’s electrical grid were destroyed.  On September 20, 1999, at the request of the Timorese government, Australia led a deployment of peacekeeping troops (the International Force for East Timor, INTERFET), which ended the violence.

After almost three years of UN administration, Timor-Leste became a fully independent republic with a parliamentary form of government on May 20, 2002.  UN peacekeepers departed in 2005 leaving a special political mission in its stead.  In 2006, however, civil order collapsed due to domestic political struggles, which led to armed conflict between the police and military.  The government of Timor-Leste urgently requested police and military assistance from Australia, New Zealand, Malaysia, and Portugal.  In August 2006, the UN Security Council passed Resolution 1704, creating the United Nations Integrated Mission in Timor-Leste (UNMIT) to assist in restoring stability, rebuilding the security sector institutions, supporting the Government of Timor-Leste to conduct the 2007 presidential and parliamentary elections, and achieving accountability for crimes against humanity and atrocities committed in 1999.  An Australian-led International Stabilization Force (ISF) supported UNMIT’s mission.  Timor-Leste held free, fair, and largely peaceful presidential and parliamentary elections in 2007.  Nobel Peace Prize Laureate José Ramos-Horta assumed the Presidency, and former guerilla leader and outgoing president Xanana Gusmão became Prime Minister.

National elections for president and parliament in 2012 were peaceful, free, and fair.  UNMIT and the ISF departed from Timor-Leste at the end of 2012.  Following free, fair, and peaceful parliamentary elections in July 2017, Mari bin Amude Alkatiri became prime minister of a two-party coalition government.  In a March 2017 presidential election, also judged as free and fair, voters elected Francisco Lu Olo Guterres.  In contrast with previous years, elections proceeded without extensive support from the international community.  Security forces maintained public order with no reported incidents of excessive use of force.  Alkatiri’s government was not able to pass its program or budget.  In January 2018, President Lu Olo dissolved parliament and called for early elections.  The elections, which took place May 2018, were considered fair and transparent.

In January 2020, the coalition government rejected its own budget in protest of the ongoing ministerial vacancies, and the Prime Minister submitted his resignation to the President of Republic.  The Prime Minister subsequently withdrew the request to resign and assumed leadership of the country’s COVID-19 response.  The President maintains the authority to determine whether the country will hold early elections to resolve the political impasse or whether the political parties in parliament should form a new government.  The government has partially funded its operations under the “one-twelfth” budget regime, which enables the government to spend one-twelfth of the previous year’s operating expenses each month.  More recently, the government also approved a one-time $250 million withdrawal from the Petroleum Fund to combat COVID-19 and fund ongoing government operations.

Togo

Executive Summary

Togo’s strong economic growth in 2019 was driven by major reforms that improved the business climate and increased investment.  In the last two years, Togo rose by more than 50 places in the World Bank’s Doing Business report and now ranks 97th – the highest ranking in West Africa.  Agriculture remains one of the engines of economic growth in Togo.  In 2019, Togo became the top exporter of organic products to Europe in the Economic Community of West Africa States (ECOWAS) and the second in Africa after Egypt.  The export volume of these organic products (mainly soybeans and pineapples) more than doubled, from 22,000 tons in 2018 to 45,000 tons in 2019.

The government of Togo implemented various business reforms and completed several large infrastructure projects over the last five years to attract investment.  In 2018, the government launched its five-year National Development Plan (PND) with three major axes.  The plan’s first goal is to leverage the country’s geographic position by transforming Lome into a regional trading center and transport hub.  Togo has already completed hundreds of kilometers of refurbished roadways, expanded and modernized the Port of Lome, and inaugurated in 2016 the new Lome international airport that conforms to international standards.  The second goal is to increase agricultural production through agricultural centers (Agropoles) and increase manufacturing.  The third goal is improving social development, including electrification of the country.  The government is searching for private sector investment to fulfill these PND goals.

In September 2017, the government established the Business Climate Unit (CCA).  Since its establishment, the CCA has coordinated economic reforms and played a key role in improving the business climate for the private sector.  The CCA is composed of a national coordination body and three committees dedicated to the public and private sectors and civil society.  The CCA has improved the ease of doing business in Togo and starting a company in Togo is straightforward.

Nevertheless, Togo must face a number of challenges to maintain this momentum.  Challenges include a weak and opaque legal system, lack of clear land titles, and government interference in various sectors.  Corruption remains a common problem in Togo, especially for businesses.  Often “donations” or “gratuities” result in shorter delays for obtaining registrations, permits, and licenses, thus resulting in an unfair advantage for companies that engage in such practices.  Although Togo has government bodies charged with combatting corruption, corruption-related charges are rarely brought or prosecuted.

The 2019 Investment Code provided a legal framework to attract more investment and promote the economic and social development policy of Togo.  With an improving investment climate and modern transportation infrastructure, Togo’s steadily improving economic outlook offers opportunities for U.S. firms interested in doing business locally and in the sub-region.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 130 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 97 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 126 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 N/A http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 USD 660 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Togo and the other West African Economic and Monetary Union (WAEMU) member countries are working toward greater regional integration with unified external tariffs.  Togo relies on the West African Economic and Monetary Union (WAEMU) Regional Stock Exchange in Abidjan, Cote d’Ivoire to trade equities for Togolese public companies.

WAEMU has established a common accounting system, periodic reviews of member countries’ macroeconomic policies based on convergence criteria, a regional stock exchange, and the legal and regulatory framework for a regional banking system.  The government and central bank respect IMF Article VIII and refrain from restrictions on payments and transfers for current international transactions.  Credit is generally allocated on market terms.  With sufficient collateral, foreign investors are generally able to get credit on the local market.  The private sector in general has access to a variety of credit instruments when and if collateral is available.

Money and Banking System

The penetration of banking services in the country is low and generally only available in major cities.

The government and the banking sector have worked to restore Togo’s reputation as a regional banking center, which was weakened by political upheavals from 1991 to 2005, and several regional and sub-regional banks now operate in Togo, including Orabank, Banque Atlantique, Bank of Africa, Diamond Bank, International Bank of Africa in Togo (BIAT), and Coris Bank.

Additionally, Togo is home to the headquarters of the ECOWAS Bank for Investment and Development (EBID), the West African Development Bank (BOAD – the development bank of the West African Economic and Monetary Union), Oragroup, and Ecobank Transnational Inc. (ETI), the largest independent regional banking group in West Africa and Central Africa, with operations in 36 countries in Sub-Saharan Africa.

The banking sector is generally healthy and the total assets of Togo’s largest banks are approximately $25-30 billion, including Ecobank, a very large regional bank headquartered in Lomé.

Togo’s monetary policy and banking regulations are managed by the Central Bank of West African States (BCEAO).  No known correspondent relationships were lost in the past three years.  No known correspondent banking relationships are in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on the transfer of funds to other FCFA-zone countries or to France.  The transfer of more than FCFA 500,000 (about $1,000) outside the FCFA-zone requires justification documents (e.g. pro forma invoice) to be presented to bank authorities.

The exchange system is free of restrictions for payments and transfers for international transactions.  Some American investors in Togo have reported long delays (30 – 40 days) in transferring funds from U.S. banks to banks located in Togo.  This is reportedly because banks in Togo have limited contacts with U.S. banks to facilitate the transfer of funds.

Togo uses the CFA franc (FCFA), which is the common currency of the eight (8) West African Economic and Monetary Union (WAEMU) countries.  The currency is fixed to the Euro at a rate of 656 FCFA to 1 Euro.

Remittance Policies

The 2012 Investment Code provides for the free transfer of revenues derived from investments, including the liquidation of investments, by non-residents.

Sovereign Wealth Funds

Togo does not maintain a Sovereign Wealth Fund (SWF) or other similar entity.

7. State-Owned Enterprises

The government does not publish a list of State-owned enterprises (SOEs), but there are approximately 16 wholly or majority owned SOEs, and the government owns shares in approximately 25 other large domestic companies.  These SOEs may enjoy non-market based advantages received from the host government, such as the government delaying private enterprise investment in infrastructure that could disadvantage the market share of the SOE.

All SOEs have a Board of Directors and Supervisory Board, although the Togolese government has not specified how it exercises ownership in the form of an ownership policy or governance code.  The SOEs also have auditors who certify their accounts.  Once certified by these auditors, the accounts of these companies are sent to the Court of Auditors, Togo’s supreme audit institution, which verifies and passes judgment on these financial statements and reports to the National Assembly.  The Court publishes the results of its audits annually, including at http://courdescomptestogo.org .

SOEs control or compete in the fuel, cotton, telecommunications, banking, utilities, phosphate, and grain-purchasing markets.  The government monopolizes phosphate via the state-owned New Phosphate Company of Togo (SNPT).

In June 2020, the New Cotton Company of Togo (NSCT) which produces cotton domestically was sold to the Singaporean Company OLAM Group (51%) with 40% to Cotton Producers Consortium (FNGPC) (40%), while the Government of Togo maintained a 9% stake.  Through this privatization, the Government hopes to further develop the textile industry.  Before this privatization, NSCT was 60% state-controlled after the bankruptcy and dissolution of the 100% state-owned Togolese Cotton Company (SOTOCO) in 2009.

In September 2012, Togo sold the formerly state-owned Togolese Development Bank to Orabank Group.  Likewise, in March 2013, Togo sold the formerly state-owned Banque Internationale pour l’Afrique au Togo to the Attijariwafa Bank Group of Morocco.

Following these sales, Union Togolaise de Banque (UTB) and Banque Togolaise pour le Commerce et l’Industrie (BTCI) are now the only two state-owned banks.  Togo’s first call for tenders for these two banks, completed in 2011, was unsuccessful.  Togolese authorities are working in consultation with the IMF to either merge the two banks into a single entity, or try to privatize one or both.  These two remaining state-owned banks hold weak loan portfolios characterized by high exposure (about one-third of total bank credit) to the government, as well as to the cotton and phosphate industries.

In the telecommunications sector, the government combined in 2017 the two state-owned entities Togo Telecom and TogoCell into a holding company, TogoCom.  In November 2019, Agou Holding consortium, made up of the Madagascan conglomerate Axian (majority) and the capital-investor Emerging Capital Partners (ECP) bought a 51% stake in TogoCom.  The Togolese Government maintains a 49% stake.  Agou Holding plans to invest $271 million in TogoCom over seven years to improve international connectivity and expand its high-speed fiber-optic and mobile networks.  However, during its first year such investment was not apparent, with 4G restricted to a small area in Lomé.

The new entity stills directly competes with a private cell phone company, Moov Togo.  Atlantique Telecom, a subsidiary of Emirates Telecommunications Corporation (Etisalat), owns and controls Moov Togo.  The Government of Togo has licensed Togocom and Moov for 4G.  Private company CAFÉ Informatique also offers satellite-based internet access and other services, mainly to the business sector.  Two new internet service providers, Teolis and Vivendi Africa Group (GVA-Togo), entered the market in 2018 and the government is installing new fiber optic cable in the country.

Public utilities such as the Post Office, Lomé Port Authority, Togo Water, and the Togolese Electric Energy Company (CEET) hold monopolies in their sectors.

The National Agency for Food Security (ANSAT) is a government agency that purchases cereals on the market during the harvest for storage. When cereal prices increase during the dry season, it is ANSAT’s task to release cereals into the markets to maintain affordable cereal prices.  When supplies permit, ANSAT also sells cereals on international markets, including Ghana, Niger, and Gabon.

The price of petroleum products is strongly controlled by the Togolese government.  The CSFPPP (Petroleum Product Price Fluctuation Monitoring Committee) orders and sets the prices of petroleum products, launches calls for tenders, and monitors the execution of tender contracts.  Togo imports 30 million liters of refined petroleum products per quarter.

Togo does not adhere to the OECD Guidelines on Corporate Governance for SOEs (link to guidelines at www.oecd.org/daf/ca/oecdguidelinesoncorporategovernanceofstate-ownedenterprises.htm 

Privatization Program

Previous privatization in Togo covered many sectors, such as hotels, banking, and mining.  Foreign investors are encouraged to compete in new privatization programs via a public bidding processes.  The government publishes all notifications in the French language, but unfortunately, a relevant government website is not available.

9. Corruption

The Togolese government has established several important institutions designed in part to reduce corruption by eliminating opportunities for bribery and fraud: the Togolese Revenue Authority, the One-Stop Shop to create new businesses, and the Single Window for import/export formalities.

In 2015, the Togolese government created the High Authority for the Prevention and Fight against Corruption and Related Offenses (HAPLUCIA), which the government designed to be an independent institution dedicated to fighting corruption.  The government appointed members in 2017.  HAPLUCIA encourages private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.  HAPLUCIA presented on February 7, 2019 its strategic plan for the period 2019-2023; it set up a toll-free number, the “8277” to receive complaints and denunciations.

Anti-corruption laws extend to family members of officials, and to political parties and the government does not interfere in the work of anti-corruption NGOs.

In 2011, the government effectively implemented procurement reforms to increase transparency and reduce corruption.  The government announces procurements weekly in a government publication.  Once contracts are awarded, all bids and the winner are published in the weekly government procurement publication.  Other measurable steps toward controlling corruption include joining the Extractive Industries Transparency Initiative (EITI) and establishing public finance control structures and a National Financial Information Processing Unit.

Togo signed the UN Anticorruption Convention in 2003 and ratified it on July 6, 2005.

Resources to Report Corruption

Contact at the government agency or agencies that are responsible for combating corruption:

Essohana Wiyao
President of HAPLUCIA, the High Authority for the Prevention and Fight against Corruption and Related Offenses
Tel. +228 90 21 28 46 / 90 25 77 40
Email: essohanawiyao@yahoo.fr
Lomé, Togo

Directeur, Anti-Corruption
Office Togolais des Recettes (OTR)
41 Rue des Impôts
02 BP 20823
Lomé, Togo
+228 – 22 53 14 00
otr@otr.tg

Contact at a “watchdog” organization:

Samuel Kaninda
Regional Coordinator, West Africa
Transparency International
Alt-Moabit 96
10559 Berlin
Germany
+49 30 3438 20 773
skaninda@transparency.org

10. Political and Security Environment

After a period of sustained political instability and economic stagnation from 1990 to 2007, the government started the country along a gradual path to political reconciliation and democratic reform.  Togo has held multiple presidential and legislative elections that were deemed generally free and fair by international observers, though the most recent legislative elections were boycotted by the majority of the opposition.  Political reconciliation has moved slowly.  A political crisis erupted in 2017 regarding the failure of the government to implement political measures, such as presidential term limits.  After international facilitation between the government and opposition parties, in May 2019 the government implemented non-retroactive term limits and a two-round election system.  The government held local elections in 2019, the first since 1986.  President Faure Gnassingbe was elected for a fourth term on February 22, 2020 in a peaceful election.

Political protests still occur on occasion and can often lead to tire burning, stone throwing, and government responses include the use of tear gas and other crowd control techniques.  There are no known examples over the past ten years of damage to projects and/or installations pertaining to foreign investment due to political violence.

Trinidad and Tobago

Executive Summary

Trinidad and Tobago (TT) is a high-income developing country with a gross domestic product  (GDP) per capita of $17,320 and an annual GDP of $23.9 billion (2018).  It has the largest economy in the English-speaking Caribbean and is the third most populous country in the region with 1.4 million inhabitants.  The International Monetary Fund predicts GDP for 2020 to fall by 4.5 percent due to the early 2020 collapse in global energy prices and the economic impact of coronavirus mitigation.  TT’s investment climate is generally open and most investment barriers have been eliminated, but stifling bureaucracy and opaque procedures remain.
Positive aspects of TT’s investment climate:

  • Stable, democratic political system
  • Educated, English-speaking workforce
  • Well-capitalized and profitable commercial banking system and insurance industry
  • Established rule of law
  • Independent judicial system that is substantively fair
  • In certain sectors, lack of domestic competition
  • No foreign ownership limits

Negative aspects of TT’s investment climate:

  • Foreign exchange shortages that delay payments to foreign firms
  • Widespread perception of corruption among public officials
  • Lack of transparency in public procurement
  • Inefficient and complicated government bureaucracy
  • Time-consuming resolution of legal conflicts, such as enforcement of contracts
  • Violent crime

Energy exploration and production drive TT’s economy.  This sector has historically attracted the most foreign direct investment.  The energy sector usually accounts for approximately half of GDP and 80 percent of export earnings.  Petrochemicals and steel are other sectors accounting for significant foreign investment.  Since the economy is tethered to the energy sector, it is particularly vulnerable to fluctuating prices for hydrocarbons and petrochemicals.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 85 of 183 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 105 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 91 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $6,338 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $15,950 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

The government welcomes foreign portfolio investment.

TT has its own stock market and has an established regulatory framework to encourage and facilitate portfolio investment.  There is enough liquidity in the markets to enter and exit sizeable positions.

Existing policies facilitate the free flow of financial resources into the product and factor markets.

The government and central bank respect IMF article VIII by refraining from restrictions on payment and transfers for current international transactions.  Shortages of foreign exchange, exacerbated by the government’s maintenance of the local currency at values higher than those which the market would bear, however, cause considerable delays in payments and transfers for international transactions.

A full range of credit instruments is available to the private sector.  There are no restrictions on borrowing by foreign investors, who are able to access credit.  Credit is allocated on market terms, but interest rates tend to be higher for foreign borrowers.

Money and Banking System

Banking services are widespread throughout urban areas, but penetration is significantly lower in rural areas.

The banking sector is healthy.

In 2019, the estimated total assets of Trinidad and Tobago’s largest banks was $21.9 billion.

TT has a central bank system.

Foreign banks may establish operations in TT provided they obtain a license from the central bank.  Trinidad and Tobago has lost correspondent banking relationships in the past three years.  The U.S. Mission is not aware of any current correspondent banking relationships that are in jeopardy.

There are no restrictions on a foreigner’s ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment.

Shortages of foreign exchange, exacerbated by the government’s maintenance of the local currency at values higher than those which the market would bear, cause considerable delays in conversion into world currencies.  Businesses continue to report a cumbersome bureaucratic process and a minimum three-month delay in such conversions.

The central bank intervenes to maintain an unofficial peg to the U.S. dollar, using a managed float in which the exchange rate fluctuates mildly day-to-day, and limits the availability of foreign currency.

Remittance Policies

While there are no recent changes or plans to change investment remittance policies to tighten or relax access to foreign exchange for investment remittances, commercial banks have enacted policies that limit access to foreign exchange due to national shortages, on guidance from the Ministry of Finance and the central bank.

Although there are no official time limitations on remittances, timeliness of remittances depends on availability of foreign currency.

Sovereign Wealth Funds

The value of TT’s Heritage and Stabilization Fund the fund as of April 2020 is approximately $5.9 billion, but a $1.1 billion withdrawal to support coronavirus-related economic measures is pending.  The fund invests in U.S. short duration fixed income, U.S. core domestic fixed income, U.S. core domestic equities, and non-U.S. core international equities.

The SWF follows the voluntary code of good practices known as the Santiago Principles. TT participates in the IMF-hosted International Working Group on Sovereign Wealth Funds.

None of the SWF is invested domestically.  There are no potentially negative ramifications for U.S. investors in the local market.

7. State-Owned Enterprises

TT has 55 state-owned enterprises (SOEs), comprised of 42 wholly owned companies, eight majority-owned, and four in which the government has a minority share.  SOEs are in the energy, manufacturing, agriculture, tourism, financial services, transportation, and communication sectors.  Information on the total assets of SOEs, total net income of SOEs and number of people employed by SOEs is not available.  The Investments Division of the Ministry of Finance appoints directors to the boards of state enterprises, reportedly at the direction of the minister of finance.  SOEs are often informally or explicitly obligated to consult with government officials before making major business decisions.  According to TT’s constitution, the government is entitled to:

  • exercise control directly or indirectly over the affairs of the enterprise
  • appoint a majority of directors of the board of directors of the enterprise
  • hold at least 50 per cent of the ordinary share capital of the enterprise

A published list of SOEs for 2020 can be found here: https://www.finance.gov.tt/2019/10/07/state-enterprises-investment-programme-2020/ .

In sectors that are open to both the private sector and foreign competition, SOEs are sometimes favored for government contracts, which might negatively impact U.S. investors in the market.

The country has not adhered to the OECD corporate governance guidelines for SOEs.

Privatization Program

TT does not have a privatization program in place, but the government has issued initial public offerings of various state-owned companies to obtain revenue, primarily in the finance and energy sectors.

Foreign investors can participate in the initial public offerings of SOEs.

The purchase of initial public offering shares on past occasions was open to the public, easy to understand, non-discriminatory, and transparent.  For example: https://ngc.co.tt/media/news/ngl-initial-public-offering-brokerage-details/ 

9. Corruption

Various pieces of legislation address corruption of public officials:

  • The Integrity in Public Life Act requires public officials to disclose assets upon taking office and at the end of tenure.
  • The Freedom of Information Act gives members of the public a general right (with specified exceptions) of access to official documents of public authorities. The intention of the act was to address the public’s concerns of corruption and to promote a system of open and good governance.  In compliance with the act, designated officers in each ministry and statutory authority process applications for information.
  • The Police Complaints Authority Act establishes a mechanism for complaints against police officers in relation to, among other things, police misconduct and police corruption.
  • The Prevention of Corruption Act provides for certain offences and punishment of corruption in public office.

The laws are non-discriminatory in their infrequent application.  Effectiveness of these measures has been limited by a lack of thorough enforcement.

The laws do not extend to family members of officials or to political parties.

TT does not have laws or regulations to counter conflicts of interest in awarding contracts or government procurement.

The government has been a party to the development of corporate governance standards (non-binding) to encourage private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.

Some private companies, particularly the larger ones, use internal controls and compliance programs to detect and prevent bribery of government officials, though this is not a government requirement.

Trinidad and Tobago adheres to the UN Anticorruption Convention.

There are no protections for NGOs involved in investigating corruption, but investigations are not feared since corrupt actors are rarely punished.

U.S. firms often say corruption is an obstacle to FDI, particularly in government procurement, since TT’s procurement processes are not transparent.

Resources to Report Corruption

Name: Mr. Justice Melville Baird
Title: Chairman
Organization: The Integrity Commission
Address: P.O. Box 1253, Port of Spain
The Integrity Commission of Trinidad and Tobago Level 14,
Tower D, International Waterfront Centre, 1A Wrightson Road, Port of Spain
Telephone number: 868-623-8305
Email address: registrar@integritycommission.org.tt

Name: Mr. Dion Abdool
Title: Chairman
Organization: Trinidad and Tobago Transparency Institute (local chapter of Transparency International)
Address: Unit 4-12, Building 7, Fernandes Industrial Centre, Laventille
Telephone number: 868-626-5756
Email address: admin@transparency.org.tt

10. Political and Security Environment

While non-violent demonstrations occur on occasion, widespread civil disorder is not typical.  There have been no serious incidents of political violence since a coup attempt in 1990.

Subsequent to the closure of state oil firm Petrotrin in November 2018, which resulted in the lay-off of nearly 6,000 workers, there were reports of damage to installations.

Certain areas of TT are increasingly insecure due to a critical level of violent crime.

Tunisia

Executive Summary

Tunisia continued to make progress on its democratic transition and successfully held its second round of parliamentary and presidential elections since the 2011 revolution in September and October 2019, which led to the formation of a new government on February 27, 2020.  In 2019, Tunisia’s economy experienced a GDP growth of 1 percent.  The country still faces high unemployment, high inflation, and rising levels of public debt.

In recent years, successive governments have advanced much-needed structural reforms to improve Tunisia’s business climate, including an improved bankruptcy law, an investment code and initial “negative list,” a law enabling public-private partnerships, and a supplemental law designed to improve the investment climate.  The Government of Tunisia (GOT) has also encouraged entrepreneurship through the passage of the Start-Up Act.  The GOT also passed the “organic budget law” to ensure greater budgetary transparency and make the public aware of government investment projects over a three-year period.  These reforms will help Tunisia attract both foreign and domestic investment.

Tunisia’s strengths include its proximity to Europe, sub-Saharan Africa, and the Middle East, free-trade agreements with the EU and much of Africa, an educated workforce, and a strong interest in attracting foreign direct investment (FDI).  Sectors such as agribusiness, aerospace, renewable energy, telecommunication technologies, and services are increasingly promising.  The decline in the value of the dinar over recent years has strengthened investment and export activity in the electronic component manufacturing and textile sectors.

Nevertheless, substantial bureaucratic barriers to investment remain.  State-owned enterprises play a large role in Tunisia’s economy, and some sectors are not open to foreign investment.  The informal sector, estimated at 40 to 60 percent of the overall economy, remains problematic, as legitimate businesses are forced to compete with smuggled goods.

The United States has provided more than USD 500 million in economic growth-related assistance since 2011, in addition to loan guarantees in 2012, 2014, and 2016 that enabled the GOT to borrow nearly USD 1.5 billion at low interest.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 74 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 78 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 70 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 320 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 3,360 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment 

Tunisia’s financial system is dominated by its banking sector, with banks accounting for roughly 85 percent of financing in Tunisia.  Overreliance on bank financing impedes economic growth and stronger job creation.  Equity capitalization is relatively small; Tunisia’s stock market provided 13.2 percent of corporate financing in 2017 according to the Financial Market Council annual report.  Other mechanisms, such as bonds and microfinance, contribute marginally to the overall economy.

Created in 1969, the Bourse de Tunis (Tunis stock exchange) listed 82 companies as of December 2019.  The total market capitalization of these companies was USD 8.41 billion, equivalent to 23.1% of the GDP.  During the last five years, the exchange’s regulatory and accounting systems have been brought more in line with international standards, including compliance and investor protections.  The exchange is supervised and regulated by the state-run Capital Market Board.  Most major global accounting firms are represented in Tunisia.  Firms listed on the stock exchange must publish semiannual corporate reports audited by a certified public accountant.  Accompanying accounting requirements exceed what many Tunisian firms can, or are willing to, undertake.  GOT tax incentives attempt to encourage companies to list on the stock exchange.  Newly listed companies that offer a 30 percent capital share to the public receive a five-year tax reduction on profits.  In addition, individual investors receive tax deductions for equity investment in the market.  Capital gains are tax-free when held by the investor for two years.

Foreign investors are permitted to purchase shares in resident (onshore) firms only through authorized Tunisian brokers or through established mutual funds.  To trade, non-resident (offshore) brokers require a Tunisian intermediary and may only service non-Tunisian customers.  Tunisian brokerage firms may have foreign participation, as long as that participation is less than 50 percent.  Foreign investment of up to 50 percent of a listed firm’s capital does not require authorization.

Money and Banking System

According to the Central Bank of Tunisia (CBT) annual report on banking supervision published in January 2020, Tunisia hosts 30 banks, of which 23 are onshore and seven are offshore.  Onshore banks include three Islamic banks, two microcredit and SME financing banks, and 18 commercial universal banks.

Domestic credit to the private sector provided by banks stood at 68 percent of GDP in 2018.   According to the World Bank, this level is higher than the MENA region average of 56.7 percent.  In the World Bank’s Doing Business 2020 survey, Tunisia’s ranking in terms of ease of access to credit went down from 99 in 2019 to 104 in 2020.  Tunisia’s banking system penetration has grown by four percent annually for the past five years.  87 percent of banks are located in the coastal regions, with about 41 percent in the greater Tunis area alone.  Tunisia’s banking system activity is mainly within the 23 onshore banks, which accounted for 92 percent of assets, 93 percent of loans, and 97 percent of deposits in 2018.  They offer identical services targeting Tunisia’s larger corporations.  Meanwhile, SMEs and individuals often have difficulty accessing bank capital due to high collateral requirements.

Foreign banks are permitted to open branches and establish operations in Tunisia under the offshore regime and are subject to the supervision of the Central Bank.

Government regulations control lending rates.  This prevents banks from pricing their loan portfolios appropriately and incentivizes bankers to restrict the provision of credit.  Competition among Tunisia’s many banks has the effect of lowering observed interest rates; however, banks often place conditions on loans that impose far higher costs on borrowers than interest rates alone.  These non-interest costs may include collateral requirements that come in the form of liens on real estate.  Often, collateral must equal or exceed the value of the loan principal.  Collateral requirements are high because banks face regulatory difficulties in collecting collateral, thereby adding to costs.  According to the CBT banking supervision report, nonperforming loans (NPLs) were at 13.4 percent of all bank loans in 2018, mostly in the agriculture (27.1 percent) and tourism (46 percent) sectors.

Beyond the banks and stock exchange, few effective financing mechanisms are available in the Tunisian economy.  A true bond market does not exist, and government debt sold to financial institutions is not re-traded on a formal, transparent secondary market.  Private equity remains a niche element in the Tunisian financial system.  Firms experience difficulty raising sufficient capital, sourcing their transactions, and selling their stakes in successful investments once they mature.  The microfinance market remains underexploited, with non-governmental organization Enda Inter-Arabe the dominant lender in the field.

The GOT recognizes two categories of financial service activity:  banking (e.g., deposits, loans, payments and exchange operations, and acquisition of operating capital) and investment services (reception, transmission, order execution, and portfolio management).  Non-resident financial service providers must present initial minimum capital (fully paid up at subscription) of 25 million Tunisian dinars (USD 8.5 million) for a bank, 10 million dinars (USD 3.4 million) for a non-bank financial institution, 7.5 million dinars (USD 2.6 million) for an investment company, and 250,000 dinars (USD 85,200) for a portfolio management company.

Foreign Exchange and Remittances

Foreign Exchange 

The Tunisian Dinar can only be traded within Tunisia, and it is illegal to move dinars out of the country.  The dinar is convertible for current account transactions (export-import operations, remittances of investment capital, earnings, loan or lease payments, royalties, etc.).  Central Bank authorization is required for some foreign exchange operations.  For imports, Tunisian law prohibits the release of hard currency from Tunisia as payment prior to the presentation of documents establishing that the merchandise has been shipped to Tunisia.

In 2019, the dinar depreciated 10 percent against the dollar and 5 percent against the Euro.

Non-residents are exempt from most exchange regulations.  Under foreign currency regulations, non-resident companies are defined as having:

  • Non-resident individuals who own at least 66 percent of the company’s capital, and
  • Capital fully financed by imported foreign currency.

Foreign investors may transfer funds at any time and without prior authorization.  This applies to principal as well as dividends or interest capital.  The procedures for repatriation are complex, however, and within the discretion of the Central Bank.  The difficulty in the repatriation of capital and dividends is one of the most frequent complaints of foreign investors in Tunisia.

There are no limits to the amount of foreign currency that visitors can bring to Tunisia to exchange into local currency.  However, amounts exceeding the equivalent of 25,000 dinars (USD 8,500) must be declared to customs at the port of entry.  Non-residents must also report foreign currency imports if they wish to re-export or deposit more than 5,000 dinars (USD 1,700).  Tunisian customs authorities may require currency exchange receipts on exit from the country.

Remittance Policies

Tunisia’s 2016 Investment Law enshrines the right of foreign investors to transfer abroad funds in foreign currency with minimal interference from the Central Bank.  Ministerial decree no. 417 of May 2018 stipulates that the Central Bank of Tunisia must decide on foreign currency remittance requests within 90 days.   In case of no response, the investor may contact the Higher Investment Authority, which will give final approval within 30 days.

Sovereign Wealth Funds

By decree no.85-2011, the GOT established a sovereign wealth fund, “Caisse des Depots et des Consignations” (CDC), to boost private sector investment and promote small and medium enterprise (SME) development.  It is a state-owned investment entity responsible for independently managing a portion of the state’s financial assets.  The CDC was set up with support from the French CDC and the Moroccan CDG (Caisse de Depots et de Gestion) and became operational in early 2012.  The original impetus for the creation of the CDC was to manage assets confiscated from the former ruling family as independently as possible in order to serve the public interest.  More information is available about the CDC at www.cdc.tn .  As of June 2019, CDC had 7.7 billion dinars (USD 2.6 billion) in assets and 317 million dinars (USD 110 million) in capital.

All CDC investments are made locally, with the objective of boosting investments in the interior regions and promoting SME development.

The CDC is governed by a supervisory committee composed of representatives from different ministries and chaired by the Minister of Finance.

7. State-Owned Enterprises

State-owned enterprises (SOEs) are still prominent throughout the economy.  Many compete with the private sector, in industries such as telecommunications, banking, and insurance, while others hold monopolies in sectors considered sensitive by the government, such as railroad transportation, water and electricity distribution, and port logistics.  Importation of basic food staples and strategic items such as cereals, rice, sugar, and edible oil also remains under SOE control.

The GOT appoints senior management officials to SOEs, who report directly to the ministries responsible for the companies’ sector of operation.  SOE boards of directors include representatives from various ministries and personnel from the company itself.  Similar to private companies, the law requires SOEs to publish independently audited annual reports, regardless of whether corporate capital is publicly traded on the stock market.

The GOT encourages SOEs to adhere to OECD Guidelines on Corporate Governance, but adherence is not enforced.  Investment banks and credit agencies tend to associate SOEs with the government and consider them as having the same risk profile for lending purposes.

Privatization Program

The GOT allows foreign participation in its privatization program.  A significant share of Tunisia’s FDI in recent years has come from the privatization of state-owned or state-controlled enterprises.  Privatization has occurred in many sectors, such as telecommunications, banking, insurance, manufacturing, and fuel distribution, among others.

In 2011, the GOT confiscated the assets of the former regime.  The list of assets involved every major economic sector.  According to the Commission to Investigate Corruption and Malfeasance, a court order is required to determine the ultimate handling of frozen assets.

Because court actions frequently take years –and with the government facing immediate budgetary needs – the GOT allowed privatization bids for shares in Ooredoo (a foreign telecommunications company of which 30 percent of shares were confiscated from the previous regime), Ennakl (car distribution), Carthage Cement (cement), City Cars (car distribution), and Banque de Tunisie and Zitouna Bank (banking).  The government is expected to sell some of its stakes in state-owned banks; however, no clear plan has been adopted or communicated so far due to fierce opposition by labor unions.

9. Corruption

Most U.S. firms involved in the Tunisian market do not identify corruption as a primary obstacle to foreign direct investment.  However, some have reported that routine procedures for doing business (customs, transportation, and some bureaucratic paperwork) are sometimes tainted by corrupt practices.  Transparency International’s Corruption Perceptions Index 2019 gave Tunisia a score of 43 out of 100 and a rank of 74 among 180 countries which was the same as in 2018.  Regionally, Tunisia is ranked 7 for transparency among MENA countries and first in North Africa, ahead of Morocco, Algeria, Egypt, and Libya.  Transparency International expressed concern that Tunisia’s score has not improved in recent years despite advances in anti-corruption legislation, including laws to protect whistleblowers, improve access to information, and encourage asset declarations by public officials or individuals with public trust roles.

Recent government efforts to combat corruption include:  the seizure and privatization of assets belonging to Ben Ali’s family members; assurances that price controls on food products, and gasoline are respected; enhancement of commercial competition in the domestic market; establishment of a Minister in Charge of Public Service, Good Governance, Anti-corruption; arrests of corrupt businessmen and officials; and harmonization of Tunisian corruption laws with those of the European Union.

The constitution requires those holding high government offices to declare assets “as provided by law.”  In 2018 parliament adopted the Assets Declaration Law, identifying 35 categories of public officials required to declare their assets upon being elected or appointed and upon leaving office.  By law the National Authority for the Combat Against Corruption (INLUCC) is then responsible for publishing the lists of assets of these individuals on its website.  In addition the law requires other individuals in specified professions that have a public role to declare their assets to INLUCC, although this information would not be made public.  This provision applies to journalists, media figures, civil society leaders, political party leaders, and union officials.  The law also enumerates a “gift” policy, defines measures to avoid conflicts of interest, and stipulates the sanctions that apply in cases of illicit enrichment.  In 2019, Tunisia’s newly elected government officials declared their assets, including the 217 Members of Parliament.

In February 2017, Parliament passed law no. 2017-10 on corruption reporting and whistleblower protection.  The legislation was a significant step in the fight against corruption, as it establishes the mechanisms, conditions, and procedures for denouncing corruption.  Article 17 of the law provides protection for whistleblowers, and any act of reprisal against them is considered a punishable crime.  For public servants, the law also guarantees the protection of whistleblowers against possible retaliation from their superiors.  In September 2017, the GOT established the Independent Access to Information Commission.  This authority was prescribed in the 2016 Access to Information Law to proactively encourage government agencies to comply with the new law and to adjudicate complaints against the government for failing to comply with the law.  Following the passage of the access to information and whistleblower protection laws, the government initiated an anti-corruption campaign led by then prime minister Youssef Chahed.  A series of arrests and investigations targeted well-known businesspersons, politicians, journalists, police officers, and customs officials.  Preliminary charges included embezzlement, fraud, and taking bribes.

Tunisia’s penal code devotes 11 articles to defining and classifying corruption and assigns corresponding penalties (including fines and imprisonment).  Several other regulations also address broader concepts of corruption.  Detailed information on the application of these laws and their effectiveness in combating corruption is not publicly available, and there are no GOT statistics specific to corruption. The Independent Commission to Investigate Corruption, created in 2011, handled corruption complaints from 1987 to 2011.  The commission referred 5 percent of cases to the Ministry of Justice.  In 2012, the commission was replaced by the National Authority to Combat Corruption (INLUCC), which has the authority to forward corruption cases to the Ministry of Justice, give opinions on legislative and regulatory anti-corruption efforts, propose policies and collect data on corruption, and facilitate contact between anti-corruption efforts in the government and civil society.

During a March 16, 2019 press conference, INLUCC president Chawki Tabib said that it takes seven to 10 years on average for corruption cases to be processed in the judicial system.  In 2018 the Tunisian Financial Analysis Committee, which operates under the auspices of the Central Bank as a financial intelligence unit, announced that it froze approximately 200 million dinars ($70 million) linked to suspected money-laundering transactions.  The committee received approximately 600 reports of suspicious transactions related to corruption and illicit financial flows during the year.

Since 1989, a comprehensive law designed to regulate each phase of public procurement has governed the public sector.  The GOT also established the Higher Commission on Public Procurement (HAICOP) to supervise the tender and award process for major government contracts.  The government publicly supports a policy of transparency.  Public tenders require bidders to provide a sworn statement that they have not and will not, either by themselves or through a third party, make any promises or give gifts with a view to influencing the outcome of the tender and realization of the project.  Starting September 2018, the government imposed by decree that all public procurement operations be conducted electronically via a bidding platform called Tunisia Online E-Procurement System (TUNEPS).  Despite the law, competition on government tenders appears susceptible to corrupt behavior.  Pursuant to the Foreign Corrupt Practices Act (FCPA), the U.S. Government requires that American companies requesting U.S. Government advocacy certify that they do not participate in corrupt practices.

Resources to Report Corruption

Contacts at agencies responsible for combating corruption:

Chawki Tabib
President
The National Anti-Corruption Authority (Instance Nationale de Lutte Contre la Corruption – INLUCC)
http://www.inlucc.tn 
71 Avenue Taieb Mhiri, 1002 Tunis Belvédère – Tunisia
+216 71 840 401 / Toll Free: 80 10 22 22
contact@inlucc.tn

“Watchdog” organization

Achraf Aouadi
President
I WATCH Tunisia
14 Rue d’Irak 1002 Lafayette, Tunisia
+ 216 71 844 226
contact@iwatch.tn

10. Political and Security Environment

In September and October 2019, Tunisia held presidential and parliamentary elections, the country’s first since its post-revolution constitution was ratified in 2014, which were widely regarded as well-executed and credible.  The transition of power was smooth and without incident, following a clear procedure outlined by the 2014 constitution.  Newly elected President Kais Saied designated former Minister of Finance Elyes Fakhfakh to form a new coalition government, which he did on February 27.  In the nine years since the revolution, Tunisia has made significant progress in the areas of civil society and rights-based reforms, but economic indicators continue to lag and have been a major driver of frequent protests.  Public opinion polls indicated that corruption, poor economic conditions, and persistently high unemployment fuel public discontent with the political class.  While ideological differences with respect to religion dominate much of the political discord, differing economic ideologies – whether Tunisia will follow a statist economic model or a liberal one – have more tangible effects on policy.  The country’s first municipal elections, held in May 2018, were a critical first step in the decentralization process, which should help alleviate some of the economic disparity between the relatively wealthy coastal areas and the relatively poor interior of the country.

Two major terrorist attacks targeting the tourism sector occurred in 2015, killing dozens of foreign tourists at the Bardo National Museum in Tunis and a beach hotel in Sousse.  Security conditions have markedly improved since then.  Travelers are urged to visit www.travel.state.gov  for the latest travel alerts and warnings regarding Tunisia.

Turkey

Executive Summary

Turkey experienced strong economic growth on the back of the many positive economic and banking reforms it implemented between 2002 and 2007.  After the global economic crisis of 2008-2009, Turkey continued to attract substantial investment as a relatively stable emerging market with a promising trajectory of reforms and a strong banking system.  Turkey saw nine years of gross domestic product (GDP) growth between 2011 and 2018. However, over the last several years, economic and democratic reforms have stalled and by some measures, regressed.  GDP growth was 2.6 percent in 2018 as the economy entered a recession in the second half of the year.  Challenged by the continuing currency crisis, particularly in the first half of 2019, the Turkish economy grew by only 0.9 percent in 2019.  While the Government of Turkey originally projected 5.0 percent GDP growth in 2020, the COVID-19 pandemic has dramatically slowed economic activity and the majority of economists project a growth rate that is negative or near zero for the year.  In April 2020, the World Bank lowered its economic growth forecast for Turkey to 0.5 percent for 2020, while the IMF predicts a contraction of 5 percent.

The government’s economic policymaking remains opaque, erratic, and politicized, contributing to a fall in the value of the lira.  Inflation reached more than 11 percent and unemployment over 13 percent by the end of 2019.  The COVID-19 crisis will likely lower inflation due to reduced demand, but will put upward pressure on the unemployment number.

The government’s push to require manufacturing and data localization in many sectors and the recent introduction of a digital services tax have negatively impacted foreign investment into the country.  Other issues of import include tax reform and the decreasing independence of the judiciary and the Central Bank.  Turkey hosts 3.7 million Syrian refugees, which creates an additional economic burden on the country as the government provides them services such as education and healthcare.

Recent laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, online broadcasting, tax collection, and payment platforms.  In particular, ICT and other companies report GOT pressure to localize data, which it views as a precursor to greater GOT access to user information and source code.  Law #6493 on Payment and Security Systems, Payment Services and e-money Institutions, also requires financial institutions to establish servers in Turkey in order to localize data.  The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses as long as companies 1) localize their IT systems in Turkey, and 2) keep the original data, not copies, in Turkey.  Regulations on data localization, internet content, and taxation/licensing have resulted in the departure of several U.S. tech companies from the Turkish market, and has chilled investment by other possible entrants to the e-commerce and e-payments sectors.  The laws potentially affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

Turkey transitioned from a parliamentary to a presidential system in July 2018, following a referendum in 2017 and presidential election in June 2018.  The opacity of government decision making, lack of independence of the central bank, and concerns about the government’s commitment to the rule of law, combined with high levels of foreign exchange-denominated debt held by Turkish banks and corporates, have led to historically low levels of foreign direct investment (FDI).

While there are still an estimated 1,700 U.S. businesses active in Turkey, many with long-standing ties to the country, the share of American activity is relatively low given the size of the Turkish economy.  Increased protectionist measures add to the challenges of investing in Turkey, which saw 2018-2019 investment flows from the United States and the world drop by 21 percent and 17 percent, respectively.  Although there are still positive growth prospects and some established companies have increased investments, near-term projections indicate that foreign investment will continue to slow.

The most positive aspects of Turkey’s investment climate are its favorable demographics and prime geographical position, providing access to multiple regional markets.  Turkey is an island of relative stability in a turbulent region, making it a popular hub for regional operations.  Turkey has a relatively educated work force, well-developed infrastructure, and a consumption-based economy.

In the past few years, the government has increasingly marginalized critics, confiscated over 1,100 companies worth more than USD 11 billion, and purged more than 130,000 civil servants, often on tenuous terrorism-related charges alleging association with Fethullah Gulen, whom Turkey’s government alleges was behind the 2016 coup attempt.  The political focus on transitioning to a presidential system, cross-border military operations in Syria, the worsening economic climate, and persistent questions about the relationship between the United States and Turkey as well as Turkey’s relationship with the European Union (EU), all may negatively affect consumer confidence and investment in the future.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 91 of 180 https://www.transparency.org/
cpi2019
World Bank’s Doing Business Report 2019 33 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 49 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 4,656 http://apps.bea.gov/international/
di1usdbal
World Bank GNI per capita 2018 10,420 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

The Turkish Government encourages and offers an effective regulatory system to facilitate portfolio investment.  Since the start of 2020, a currency crisis that has been exacerbated by the COVID-19 pandemic, and high levels of dollarization have raised liquidity concerns among some commentators. Existing policies facilitate the free flow of financial resources into product and factor markets.  The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.  Credit is generally allocated on market terms, though the GOT has increased low- and no-interest loans for certain parties, and pressured state-owned, and even private banks to increase their lending, especially for stimulating economic growth and public projects.  Foreign investors are able to get credit on the local market.  The private sector has access to a variety of credit instruments.

The Turkish banking sector, a central bank system, remains relatively healthy. The estimated total assets of the country’s largest banks are as follows: Ziraat Bankasi A.S. – USD 109.43 billion, Is Bankasi – USD 78.81 billion, Halk Bankasi – USD 76.94, Garanti – USD 72.14 billion, Turkiye Vakiflar Bankasi – USD 70.54 billion, Yapi ve Kredi Bankasi – USD 69.23 billion, Akbank – USD 65.19 billion. (Conversion rate: 5.94 TL/1 USD). According to the Turkish Banking Regulation and Supervision Agency (BDDK), the share of non-performing loans in the sector was approximately 5.35 percent at the end of 2019.  The only requirements for a foreigner to open a bank account in Turkey are a passport copy and either an identification number from the Ministry of Foreign Affairs or a Turkish Tax identification number.

The Turkish Government adopted a framework Capital Markets Law in 2012, aimed at bringing greater corporate accountability, protection of minority-shareholders, and financial statement transparency.

The BDDK monitors and supervises Turkey’s banks.  The BDDK is headed by a board whose seven members are appointed for six-year terms.  Bank deposits are protected by an independent deposit insurance agency, the Savings Deposit Insurance Fund (TMSF). Because of historically high local borrowing costs and short repayment periods, foreign and local firms frequently seek credit from international markets to finance their activities.  Foreign banks are allowed to establish operations in the country.

Foreign Exchange and Remittances

Foreign Exchange

Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of capital.  This guarantee is reflected in Turkey’s 1990 Bilateral Investment Treaty (BIT) with the United States, which mandates unrestricted and prompt transfer in a freely-usable currency at a legal market-clearing rate for all investment-related funds.  There is little difficulty in obtaining foreign exchange in Turkey, and there are no foreign-exchange restrictions, though in 2019, the GOT continued to encourage businesses to conduct trade in lira.  An amendment to the Decision on the Protection of the Value of the Turkish Currency was made with Presidential Decree No. 85 in September 2018 wherein the GOT tightened restrictions on Turkey-based businesses conducting numerous types of transactions using foreign currencies or indexed to foreign currencies.  The Turkish Ministry of Treasury and Finance may grant exceptions, however.  Funds associated with any form of investment can be freely converted into any world currency.  The exchange rate is heavily managed by the Central Bank of the Republic of Turkey.  Turkish banking regulations and informal government instructions to Turkish banks limit the supply of Turkish lira to the London overnight swaps market.

There is no limit on the amount of foreign currency that may be brought into Turkey, but not more than 25,000 Turkish lira or €10,000 worth of foreign currency may be taken out without declaration. Although the Turkish Lira (TL) is fully convertible, most international transactions are denominated in U.S. dollars or Euros due to their universal acceptance. Banks deal in foreign exchange and do borrow and lend in foreign currencies. While for the most part, foreign exchange is freely traded and widely available, a May 2019 government decree imposed a settlement delay for FX purchases by individuals of more than $100,000. Foreign investors are free to convert and repatriate their Turkish Lira profits.

As of early 2020 Turkey is facing an ongoing currency crisis that has been exacerbated by the COVID-19 pandemic.  It is not possible to predict what measures the government of Turkey will institute to resolve this crisis, nor what effects these measures would have on foreign exchange.

The exchange rate is heavily managed by the CBRT within a “dirty float” regime.  The BDDK announced April 12, 2020 new limits to foreign exchange transactions. The agency cut the limit for Turkish banks’ forex swap, spot and forward transactions with foreign entities to 1% of a bank’s equity, a move that effectively aims to curtail transactions that could raise hard currency prices. The limit had already been halved to 25% in August 2018, when the currency crisis hit. These moves to shield the lira have meant a de facto departure from Turkey’s floating exchange rate regime over the past year.

Remittance Policies

In Turkey, there have been no recent changes or plans to change investment remittance policies, and indeed the GOT in 2018 actively encouraged the repatriation of funds.  The GOT announced “Assets Peace” in May 2018 which incentivized citizens to bring assets to Turkey in the form of money, gold, or foreign currency by eliminating any tax burden on the repatriated assets. The Assets Peace has been extended until June 30, 2020.  There are also no time limitations on remittances.  Waiting periods for dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees do not exceed 60 days.  There are no limitations on the inflow or outflow of funds for remittances of profits or revenue.

According to the Presidential Decree No. 1948 published in the Official Gazette No. 30994 dated December 30, 2019, the above-mentioned notification and declaration periods for activities related to the “Asset Peace Incentive” defined in Paragraphs 1, 3 and 6 of Temporary Article 90 of Income Tax Code have been extended for six more months following the previous expiration dates.

Turkey enacted Law 7244 on Commuting the Effects of New Coronavirus (COVID-19) Outbreak on Economic and Social Life and Amending Certain Laws on April 17, 2020. The Law temporarily restricts the distribution of corporate dividends until September 30, 2020.  According to the law, companies may distribute only 25% of the net profit gained in the fiscal year 2019, cannot  distribute previous years’ profits, and cannot grant boards of directors the right to distribute advance dividends. President of the Republic of Turkey is authorized to extend or shorten the term for three months.

Sovereign Wealth Funds

The GOT announced the creation of a sovereign wealth fund (SWF) in August 2016.  Unlike traditional sovereign wealth funds, the controversial fund consists of shares of state-owned enterprises (SOEs) and is designed to serve as collateral for raising foreign financing.  However, the SWF has not launched any major projects since its inception.  In September 2018, the President became the Chair of the SWF.  Several leading SOEs, such as natural gas distributor BOTAS, Turkish Airlines, and Ziraat Bank have been transferred to the SWF.  Critics worry management of the fund is opaque and politicized.  The fund’s 2018 audit has not yet been submitted to Parliament, and firms within the fund’s portfolio appear to have increased their debt loads substantially since 2016.  International ratings agencies consider the fund a quasi-sovereign.  The fund was already exempt from many provisions of domestic commercial law and new legislation adopted April 16 granted it further exemptions from the Capital Markets Law and Turkish Commercial Code, while also allowing it to take ownership of distressed firms in strategic sectors.  As part of its response to the COVID-19 pandemic, Turkey recently allowed the SWF to take equity positions in private companies in distress.

7. State-Owned Enterprises

As of 2019, the sectors with active State-owned enterprises (SOEs) include mining, banking, telecom, and transportation.  The full list can be found here: https://www.hmb.gov.tr/kamu-sermayeli-kurulus-ve-isletme-raporlari .  Allegations of unfair practices by SOEs are minimal, and the U.S. Mission is not aware of any ongoing complaints by U.S. firms.  Turkey is not a party to the World Trade Organization’s Government Procurement Agreement.  Turkey is a member of the OECD Working Party on State Ownership and Privatization Practices, and OECD’s compliance regulations and new laws enacted in 2012 by the Turkish Competitive Authority closely govern SOE operations.

Privatization Program

The GOT has made some progress on privatization over the last decade.  Of 278 companies that the state once owned, 210 are fully privatized.  According to the Ministry of Treasury and Finance’s Privatization Administration, transactions completed under the Turkish privatization program generated USD 1.336 million in 2018 and USD 609 million in 2019.  See: https://www.oib.gov.tr/ .  

The GOT has indicated its commitment to continuing the privatization process despite the contraction in global capital flows.  However, other measures, such as the creation of a SWF with control over major SOEs, suggests that the government currently sees greater benefit in using some public assets to raise additional debt rather than privatizing them.  Accordingly, the GOT has shelved plans to increase privatization of Turkish Airlines and instead moved them and other SOEs into the SWF.  Additional information can be found at the Ministry of Treasury and Finance’s Privatization Administration website: https://www.oib.gov.tr/ .

9. Corruption

Corruption remains a concern, a reality reflected in Turkey’s sliding score in recent years in Transparency International’s annual Corruption Perceptions Index, where it ranked 91 of 180 countries and territories around the world in 2019.  Government mechanisms to investigate and punish alleged abuse and corruption by state officials remained inadequate, and impunity remained a problem.  Though independent in principle, the judiciary remained subject to government, and particularly executive branch, interference, including with respect to the investigation and prosecution of major corruption cases.  In some cases, the COVID-19 state of emergency has amplified pre-existing concerns about judicial independence.  (See the Department of State’s annual Country Reports on Human Rights Practices for more details: https://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper).   Turkey is a participant in regional anti-corruption initiatives, specifically co-heading the G20 Anti-Corruption working group with the United States.   Under the new presidential system, the Presidential State Supervisory Council is responsible for combating corruption.

Public procurement reforms were designed in Turkey to make procurement more transparent and less susceptible to political interference, including through the establishment of an independent public procurement board with the power to void contracts.  Critics claim, however, that government officials have continued to award large contracts to firms friendly with the ruling Justice and Development Party (AKP), especially for large public construction projects.

Turkish legislation outlaws bribery, but enforcement is uneven.  Turkey’s Criminal Code makes it unlawful to promise or to give any advantage to foreign government officials in exchange for their assistance in providing improper advantage in the conduct of international business.

The provisions of the Criminal Law regarding bribing of foreign government officials are consistent with the provisions of the Foreign Corrupt Practices Act of 1977 of the United States (FCPA).  There are, however, a number of differences between Turkish law and the FCPA.  For example, there is no exception under Turkish law for payments to facilitate or expedite performance of a “routine governmental action” in terms of the FCPA.  Another difference is that the FCPA does not provide for punishment by imprisonment, while Turkish law provides for punishment by imprisonment from 4 to 12 years.  The Presidential State Supervisory Council, which advises the Corruption Investigations Committee, is responsible for investigating major corruption cases brought to its attention by the Committee.  Nearly every state agency has its own inspector corps responsible for investigating internal corruption.  The Parliament can establish investigative commissions to examine corruption allegations concerning cabinet ministers; a majority vote is needed to send these cases to the Supreme Court for further action.

Turkey ratified the OECD Convention on Combating Bribery of Public Officials and passed implementing legislation in 2003 to provide that bribes of foreign, as well as domestic, officials are illegal.  In 2006, Turkey’s Parliament ratified the UN Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

ORGANIZATION: Presidential State Supervisory Council
ADDRESS: Beştepe Mahallesi, Alparslan Türkeş Caddesi, Devlet Denetleme Kurulu, Yenimahalle
TELEPHONE NUMBER: Phone: +90 312 470 25 00  Fax : +90 312 470 13 03
NAME: Seref Malkoc
TITLE: Chief Ombudsman

ORGANIZATION: The Ombudsman Institution
ADDRESS: Kavaklidere Mah. Zeytin Dali Caddesi No:4 Cankaya ANKARA
TELEPHONE NUMBER: +90 312 465 22 00
EMAIL ADDRESS: iletisim@ombudsman.gov.tr

10. Political and Security Environment

The period between 2015 and 2016 was one of the more violent in Turkey since the 1970s.  However, since January 2017, Turkey has experienced historically low levels of violence even when compared to past periods of calm, and the country has greatly ramped up internal security measures.  Turkey can experience politically-motivated violence, generally at the level of aggression against opposition politicians and political parties.  In a more dramatic example, a July 2016 attempted coup resulted in the death of more than 240 people, and injured over 2,100 others.  Since the July 2015 collapse of the cessation of hostilities between the government and the terrorist Kurdistan Workers’ Party (PKK), along with sister organizations like the Kurdistan Freedom Hawks (TAK), have regularly targeted security forces, with civilians often getting injured or killed, by PKK and TAK attacks. (Both the PKK and TAK have been designated as terrorist organizations by the United States.)

Other U.S.-designated terrorist organizations such as the Islamic State of Iraq and Greater Syria (ISIS) and the leftist Revolutionary People’s Liberation Party/Front (DHKP/C) are present in Turkey and have conducted attacks in 2013, 2015, 2016, and early 2017.  The indigenous  DHKP/C, for example, which was established in the 1970s and designated a terrorist organization by the U.S. in 1997, is responsible for several attacks against the U.S. Embassy in Ankara and the U.S. Consulate General Istanbul in recent years, including a 2013 suicide bombing at the embassy in 2013 that killed one local employee.  The DHKP/C has stated its intention to commit further attacks against the United States, NATO, and Turkey.  Still, widespread internal security measures, especially following the failed July 2016 coup attempt, seem to have hobbled its success. In addition, violent extremists associated with ISIS and other groups transited Turkey en route to Syria in the past, though increased scrutiny by government officials and a general emphasis on increased security has significantly curtailed this access route to Syria, especially when compared to the earlier years of the conflict.

There have been past instances of violence against religious missionaries and others perceived as proselytizing for a non-Islamic religion in Turkey, though none in recent years.  On past occasions, perpetrators have threatened and assaulted Christian and Jewish individuals, groups, and places of worship, many of which receive specially-assigned police protection, both for institutions and leadership.  Anti-Israeli sentiment remains high, anti-Semitic discourse periodically features in both popular rhetoric and public media, and evangelizing activities by foreigners tend to be viewed suspiciously by the country’s security apparatus. Still, government officials also often point to religious minorities in Turkey positively, as a sign of the country’s diversity, and religious minority figures periodically meet with the country’s president and other senior members of national political leadership.

Turkmenistan

Executive Summary

Turkmenistan is slightly larger than the state of California but is sparsely inhabited, with abundant hydrocarbon resources, particularly natural gas.  Turkmenistan’s economy depends heavily on the production and export of natural gas, oil, petrochemicals and, to a lesser degree, cotton, wheat, and textiles.  The economy is still recovering from a deep recession that followed the late 2014 collapse in global energy prices.  The current investment climate is considered high risk for U.S. foreign direct investment.

Official figures from the government of Turkmenistan show that the country’s GDP at the official exchange rate was USD 40.76 billion in 2018 and USD 38 billion in 2017.  The black-market exchange rate for dollars, on average 4 times the official rate in 2017-2018, suggests the true GDP numbers are much lower.  An official number for 2019 GDP was not yet available, though the government reported an implausibly high GDP growth of 6.2 percent in 2019.  GDP growth in 2018 was reported as 6.5 percent.  Most economic indicators released by the government are widely seen as unreliable.

Many businesses assert the government has not taken serious measures to incentivize foreign direct investment outside the petroleum industry and there is no significant U.S. FDI in Turkmenistan.  Most U.S. commercial activity in Turkmenistan is related to exports. Some companies, such as General Electric and John Deere, have established themselves as key suppliers of industrial equipment in certain sectors, but their business operations are largely limited to sales to the Turkmen government.  Delays in payment to foreign companies are common and some firms require upfront payment prior to delivery of goods.

A lack of established rule of law, an opaque regulatory framework, and rampant corruption remain serious problems in Turkmenistan.  Contracts are often awarded to companies with close ties to the President’s family.  The government strictly controls foreign exchange flows and limits on currency conversion make it difficult to repatriate profits or make payments to foreign suppliers.  In 2019 the black market rate was relatively steady, hovering around 18 manat/dollar, while the official exchange rate was pegged at 3.5 manat (TMT)/dollar.  The COVID-19 pandemic put additional pressure on Turkmenistan’s hard currency reserves and caused the black-market rate to spike to 21 manat/dollar in the first part of 2020.

Although Turkmenistan regularly amends its laws to meet international standards, many businesses have complained that the country often fails to implement or consistently enforce investment-related legislation.  There are no meaningful legal protections against government expropriation of assets and there is no independent judiciary.  In December 2016, the government expropriated the largest (and only foreign-owned) grocery store in Ashgabat, as well as the shopping center where it was located and a business center, without compensation or other legal remedy.  There have also been consistent reports in recent years of officials associated with the family of President Gurbanguly Berdimuhamedov seizing local companies.  In some cases, local business owners have reportedly been jailed using security-related laws as a pretext to reopen the business under new ownership.

Political stability is the most positive aspect of doing business in Turkmenistan.  Where opportunities exist, U.S. companies may be able to secure contracts with the Turkmen government for export of goods or services, in particular for construction materials, agricultural equipment, oil and gas extraction parts, medical devices, and food processing equipment.  Many foreign firms working with the Turkmen government are able to provide some form of financing, often through export credit agencies and development banks.  The Turkmen government has expressed interest in attracting more U.S. companies to compete for tenders and take part in infrastructure projects and bringing more western technology to the Turkmen market.

Key issues to watch:  developments in the financial sector, including the TMT/USD black market exchange rate and the severity of restrictions on currency conversion, will determine to some extent the health of the investment climate.  The COVID-19 pandemic is expected to have lasting economic consequences for Central Asia in particular, although the extent of the crisis remains to be seen.  Downward pressure on global energy prices and fundamental shifts in natural gas markets are also expected to have an outsized impact on Turkmenistan’s government revenue.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 165 of 180 https://www.transparency.org/country/TKM
World Bank’s Doing Business Report 2020 N/A https://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/
userfiles/file/reportpdf/GII_2019_EN_English.pdf
U.S. FDI in partner country ($M USD, stock positions) 2019 N/A https://apps.bea.gov/international/factsheet/
factsheet.cfm?Area=343&UUID=912a1109-
0ce4-466a-8e93-3c0adb2c4b89
World Bank GNI per capita 2018 6,740 https://data.worldbank.org/
indicator/NY.GNP.PCAP.CD?locations=TM

6. Financial Sector

Capital Markets and Portfolio Investment

Turkmenistan’s underdeveloped financial system and severe hard currency shortage significantly hinder the free flow of financial resources.  The largest state banks include:  the State Bank for Foreign Economic Relations (Vnesheconombank), Dayhanbank, Turkmenbashy Bank, Turkmenistan Bank, and Halk Bank.  These banks have narrow specializations—foreign trade, agriculture, industry, social infrastructure, and savings and mortgages, respectively.  Senagat Bank took over Garagum Bank in 2017 and now is the sole remaining local bank providing general banking services for businesses.  In September 2011, the government established the State Development Bank to provide loans to state-owned and private enterprises implementing projects that increase production and create jobs.  The government also established Rysgal Bank in 2011 to provide general banking services to the members of the Union of Industrialists and Entrepreneurs.  There are also five foreign commercial banks in the country: a joint Turkmen-Turkish bank (joint venture of Dayhanbank and Ziraat Bank), a branch of the National Bank of Pakistan, a branch of Saderat Bank of Iran, as well as Deutsche Bank and Commerzbank offices, which provide European bank guarantees for companies and for the Turkmen government but do not provide general banking services.  Insufficient liquidity can make it difficult for investors to exit the market easily.  There were no reported cases where foreign investors received credit on the local market.  The Union of Industrialists and Entrepreneurs, a nominally- independent organization of private companies and businesspeople, is in fact closely controlled by the government and issues loans with no more than one per cent interest per annum to its member companies to finance projects in strategic sectors, including animal husbandry, agriculture, food production and processing, and industrial development.  According to unofficial reports, credit is not allocated on market terms.  The European Bank for Reconstruction and Development (EBRD) provides some loans to private small- and medium-sized enterprises (SMEs) in Turkmenistan.  In November 2018, the Asian Development Bank (ADB) announced it allocated a USD 500 million loan to Turkmenistan to reinforce its power transmission network, improve reliability of power supply and increase electricity exports.  The Islamic Development Bank is also active in Turkmenistan and provides financing for infrastructure projects, including USD 700 million for the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline.  There is no publicly available information to confirm whether the government or Central Bank respect IMF Article VIII.  There is no stock market in the country.

Money and Banking System

The total assets of the country’s largest bank, Vnesheconombank, were TMT 36.2 billion or about $10.4 billion at the official exchange rate as of December 31, 2018.  The bank’s financial statements are published at: http://www.tfeb.gov.tm/en/about-bank-en/financial-statements .

Vnesheconombank’s list of correspondent banks is available at: http://www.tfeb.gov.tm/index.php/en/about-bank-en/correspondent-relations .

The assets of other banks are believed to be much smaller.  All banks, including commercial banks, are tightly regulated by the state.  Commercial banks are prohibited from providing services to state enterprises.

State banks primarily service state enterprises and allocate credit on subsidized terms to state entities.  Foreign investors are only able to secure credit on the local market through the Pakistan National Bank and equity loans from EBRD and Turkmen-Turkish Bank.  There are no capital markets in Turkmenistan, although the 1993 Law on Securities and Stock Exchanges outlines the main principles for issuing, selling, and circulating securities.  The 1999 Law on Joint Stock Societies further provides for the issuance of common and preferred stock and bonds and convertible securities in Turkmenistan, but in the absence of a stock exchange or investment company, there is no market for securities.  In late 2015, the President signed a decree on the issuance of government bonds for a term of up to five years on the basis of the refinancing rate of the Central Bank of Turkmenistan (five percent).  The bonds have not yet been issued as of March 2020.  The Embassy is not aware of any official restrictions on a foreigner’s ability to establish a bank account based on residency status, though in practice foreigners may only open foreign currency accounts, and not manat accounts.  There is no publicly available information on any rules related to hostile takeovers.

Foreign Exchange and Remittances

Foreign Exchange

The government tightly controls the country’s foreign exchange flows.  On January 1, 2009, Turkmenistan introduced the re-denominated manat (TMT), which had a fixed exchange rate of 2.85 TMT/1 USD until January 1, 2015, when Turkmenistan devalued its currency against the U.S. dollar to 3.50 TMT/1 USD.  In October 2011, Turkmenistan adopted the Law on Hard Currency Control and the Regulation of Foreign Economic Relations as a step towards bringing the national legislation into compliance with international standards.  The Central Bank controls the fixed rate by releasing U.S. dollars into official exchange markets.  Foreign exchange regulations adopted in June 2008 allow the Central Bank to provide banks with access to foreign exchange.  These regulations also allowed commercial banks to open correspondent accounts.

For the last several years, the government has been unable to meet demand for U.S. dollars.  For example, debit cards have daily and monthly withdrawal limits.  (The limits fluctuate, but tend to hover around USD 5 per day and USD 150 per month.).  The government has also imposed administrative procedures that make withdrawals more cumbersome (e.g. proof of residency is now required).  On January 12, 2016, the Central Bank of Turkmenistan further restricted access to foreign currency and issued a press release preventing banks from selling U.S. dollars at the country’s exchange points.  In addition, when an individual purchases foreign currency through a wire transfer (limited to the equivalent of the monthly salaries of the individual and his/her immediate family members’ monthly salaries), the currency (at an exchange rate of 3.50 TMT/1 USD) must be deposited onto the individual’s international debit card (Visa or MasterCard).  The individual does not receive cash.  There have been media reports in the past that Vnesheconombank has blocked the Visa cards of some of its customers without notice.  Moreover, the TMT used to purchase the foreign currency must be transferred through the individual’s TMT account.  If the individual wishes to pay cash, he or she must prove the origins of the cash with an official document.  The government also introduced an amendment to the Administrative Offenses Code that raises the fines for illegal foreign exchange transactions (i.e., selling and purchasing foreign currency via informal channels) and also trading in foreign currency on the territory of Turkmenistan.

Turkmen manat is not freely convertible, and the inability to convert enough manat into a hard currency is problematic for many companies operating in Turkmenistan.  The energy sector is somewhat shielded from the problem, as oil producers operating under the Petroleum Law (2008) receive a share of their profit in crude oil, which they ship to other Caspian Sea littoral states.  In many cases, petrochemical investors have negotiated deals with the government to recoup their investment in the form of future petroleum products.  Some U.S. companies, however, are not being paid by various government agencies and ministries for services and goods delivered.  Converting the local currency and repatriating funds remains a challenge for foreign companies and their local distributors operating in Turkmenistan.

Turkmenistan imports the vast majority of its industrial equipment and consumer goods.  The government’s export earnings, foreign exchange reserves, and foreign loans pay for industrial equipment and infrastructure projects.

At the end of 2015, a black market for U.S. dollars emerged in Turkmenistan.  During the period covered by this report, the black market rate was relatively steady at roughly TMT 18/USD in 2019.  In 2020, the black market rate spiked to TMT 20/USD during the COVID-19 pandemic.

Remittance Policies

Foreign investors generating revenue in foreign currency do not generally have problems repatriating their profits; the problem lies with foreign companies earning manat.  These companies struggle to convert and repatriate earnings.  Some foreign companies receiving income in Turkmen manat seek indirect ways to convert local currency to hard currency through the local purchase of petroleum and textile products for resale on the world market.  Since the government of Turkmenistan introduced numerous limitations on foreign currency exchange in January 2016, converting local currency remains a challenge in many sectors. Some foreign companies have complained of non-payment or major delays in payment by the government.

In June 2010, Turkmenistan became a full member of the Eurasian Group (EAG), a regional organization to combat money laundering and terrorism financing.  EAG is an associate member of the Financial Action Task Force (FATF).   EAG aims to increase the transparency of financial systems in the region, including measures related to correspondent banking, money and value  transfer services, and wire transfer services.

Sovereign Wealth Funds

The government maintains a sovereign wealth fund known as the Stabilization Fund, which mainly holds state budget surpluses.  The government also keeps a separate fund known as the Foreign Exchange Reserve Fund (FERF) for oil and gas revenues. There is no publicly available information about the size of these funds or how they are managed.

7. State-Owned Enterprises

State-owned enterprises (SOEs) dominate Turkmenistan’s economy and control the lion’s share of the country’s industrial production, especially in onshore hydrocarbon production, transportation, refining, electricity generation and distribution, chemicals, transportation, and construction material production.  Education, healthcare, and media enterprises are, with some rare exceptions, also state owned and tightly controlled.  SOEs are also to varying degrees involved in agriculture, food processing, textiles, communications, construction, trade, and services.  Although SOEs are often inefficient, the government considers them strategically important.  While there are some small-scale private enterprises in Turkmenistan, the government continues to exert significant influence in this area.  There are no mechanisms to ensure transparency or accountability in the business decisions or operations of SOEs.  There is no publicly available information on the total assets of SOEs, total net income of SOEs, the number of people employed by SOEs and the expenses these SOEs allocate to research and development (R&D).  There is no published list of SOEs.  Turkmenistan is not a member of the WTO and is not a party to the Government Procurement Agreement (GPA) within the framework of the WTO.  SOEs are not uniformly subject to the same tax burden as their private sector competitors.

Privatization Program

Efforts to privatize former state enterprises have attracted little foreign or domestic investment.  Outdated technology, poor infrastructure, and bureaucratic obstacles can make privatized enterprises unattractive for foreign and local investors.

In November 2012, Turkmenistan adopted a national program related to the privatization of state-owned enterprises and facilities.  The document identifies the main goals and procedures for privatizing state property.  The program was implemented in three phases:  privatization of small enterprises (2013), privatization of medium-sized enterprises (2014-2015), and privatization of large enterprises (2016-2017).

The privatization of state enterprises in construction, transportation, and communications and the creation of joint stock companies are part of the program.  Strategic facilities, as identified by the government, are not subject to privatization, including those related to natural resources.  Other property not subject to privatization includes objects of cultural importance, the property of the armed and security forces, government institutions, research institutes, the facilities of the Academy of Sciences, the integrated energy system, and the public transportation system.

The rules and procedures governing privatization in Turkmenistan lack transparency.  Foreign investors are allowed to participate in the bidding process only after they have been approved by the State Agency for Protection from Economic Risks under the Ministry of Finance and Economy.  In December 2013, the parliament passed the Law on the Denationalization and Privatization of State Property, which took effect in July 2014.  The official newspaper Biznes Reklama (Business Advertising) of the Ministry of Trade and Foreign Economic Affairs published the following state statistics on privatized state property as of January 1, 2019.  It is difficult to verify the validity of these numbers.

Privatized State Property in Turkmenistan
2010-2018
2010 2011 2012 2013 2014 2015 2016 2017 2018
Entities available for privatization 20 24 31 32 118 154 200 247 333
Entities Privatized 20 4 7 1 86 36 46 47 86

Despite official comments emphasizing the importance of private sector growth, supporting privatization has been low on the government’s agenda.  All land is government owned.  Private citizens have some land usage rights, but these rights exclude the sale or mortgage of land.  Land rights can be transferred only through inheritance.  Foreign companies or individuals are permitted to lease land for non-agricultural purposes, but only the cabinet of ministers has the authority to grant leases.  Since 2018, the government offers some agricultural land for long-term 99-year leases to farmers.  As of 2019, 40 such leases existed.

The government has attempted to introduce an element of competition for state contracts by announcing international tenders for some projects.  The tender process is nontransparent.  On December 20, 2014, Turkmenistan adopted the Law on Tenders that went into effect on July 1, 2015.  The law ostensibly seeks to develop competition among bidders, improve transparency and implementation of tender procedures, and ensure compliance with international standards.

9. Corruption

There is no single specifically designated government agency responsible for combating corruption.  In June 2017, Turkmenistan set up the State Service for Combating Economic Crimes (SSCEC) to investigate officials and state-owned enterprises on corruption charges.  The SSCEC, which reports to the Minister of Internal Affairs, does not appear to be an independent and objective investigative body.  There is no independent corruption watchdog organization.

Anti-corruption laws are not generally enforced, and rampant corruption remains a problem.  Formally, the Ministry of Internal Affairs (including the police), the Ministry of National Security, and the General Prosecutor’s Office are responsible for combating corruption.  President Berdimuhamedov has publicly stated that corruption will not be tolerated.  In 2020, Transparency International ranked Turkmenistan 165 among 180 countries in its Corruption Perceptions Index.  Foreign firms have identified widespread government corruption, including in the form of bribe seeking, as an obstacle to investment and business development throughout all economic sectors and regions.  It is most pervasive in the areas of government procurement, the awarding of licenses, and customs.  In March 2014, the parliament adopted a law on Combating Corruption to help identify and prosecute cases of corruption.  The law prohibits government officials from accepting gifts (in person or through an intermediary) from foreign states, international organizations, and political parties.  It also severely limits the ability of government officials to travel on business at the expense of foreign entities.  Notwithstanding the 2014 law, corruption remains rampant.  There are no NGOs involved in monitoring or investigating corruption.  Certain government officials including traffic police are known to ask for bribes.

10. Political and Security Environment

Turkmenistan’s political system has remained stable since Gurbanguly Berdimuhamedov became president in February 2007 and, with the exception of a reported coup attempt in 2002, there is no history of politically-motivated violence.  There have been no recorded examples of damage to projects or installations.

The government does not permit political opposition and maintains a tight grip on all politically sensitive issues, in part by requiring all organizations to register their activities.  The Ministry of National Security and the Ministry of Internal Affairs actively monitor locals and foreigners.  The country’s parliament passed a Law on Political Parties in January 2012 that defines the legal grounds for the establishment of political parties, including their rights and obligations.  In August 2012, under the directive of President Berdimuhamedov, Turkmenistan created a second political party, the Party of Industrialists and Entrepreneurs.  This pro-government party, created from the membership of the Union of Industrialists and Entrepreneurs, has a platform nearly identical to the President’s Democratic Party.  The same is true for the Agrarian Party, which was created in September 2014 in an effort to move Turkmenistan towards a multi-party system.  Organized crime is rare, and authorities have effectively rooted out organized crime groups and syndicates.  Turkmenistan does not publish crime statistics or information about crime.

The Department of State has reported significant human rights issues in Turkmenistan.  These issues include: reports of torture by police and prison officials; arbitrary detention; harsh and life-threatening prison conditions; political prisoners; arbitrary or unlawful interference with privacy; serious problems with the independence of the judiciary; severe restrictions on free expression, the press, and the internet, including threats of violence and threats of unjustified arrests or prosecutions against journalists; censorship and site blocking; interference with the freedoms of peaceful assembly and freedom of association; severe restrictions of religious freedom; substantial restrictions on freedom of movement; restrictions on political participation; widespread corruption; trafficking in persons; and the existence of laws criminalizing consensual same-sex sexual activity between men.

The Department of State’s 2019 Human Rights Report for Turkmenistan is available at: https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/turkmenistan/

Uganda

Executive Summary

Uganda’s investment climate continues to present both important opportunities and major challenges for U.S. investors. With a market economy, ideal climate, ample arable land, young and largely English-speaking population, and at least 1.4 billion barrels of recoverable oil, Uganda offers numerous opportunities for investors. Uganda’s gross domestic product (GDP) grew by 6.5 percent in fiscal year (FY) 2018/2019. The International Monetary Fund (IMF) had projected 5.5 – 6 percent growth in FY 2019/2020, though the combined impact of the COVID-19 pandemic and related restrictions, the current locust infestation, and the negative economic effects associated with Uganda’s impending elections are likely to reduce this figure. Uganda maintains a liberal trade and foreign exchange regime. Foreign direct investment (FDI) surged by a whopping 80 percent to USD 1.75 billion in FY 2018/2019, driven by the construction and manufacturing sub-sectors. Uganda’s power, agricultural, construction, infrastructure, technology, and healthcare sectors present important opportunities for U.S. business and investment.

President Yoweri Museveni and government officials vocally welcome foreign investment in Uganda. However, the government’s actions sometimes do not support its rhetoric. Closing political space, poor economic management, endemic corruption, growing sovereign debt, weak rule of law, and the government’s failure to invest adequately in the health and education sectors all create risks for investors. U.S. firms may also find themselves competing with third country firms that cut costs and win contracts by disregarding environmental regulations and labor rights, dodging taxes, and bribing officials. Shortages of skilled labor and a complicated land tenure system also impede investment.

An uncertain mid-to-long-range political environment also increases risk to foreign businesses and investors. Domestic political tensions have increased in the run-up to the 2021 elections as 34-year incumbent President Museveni faces new challengers and a disenfranchised youth demographic that comprises 77 percent of the population.

On the legislative front, in a move aimed ostensibly at reducing the repatriation of hard currency profits, in October 2019, the government approved the Communications Licensing Framework which imposed a 20 percent mandatory stock listing requirement on mobile telecommunication service providers. The same framework also requires telecommunication infrastructure companies to sell 20 percent of their equity to Ugandan citizens.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2019 137 of 180 https://www.transparency.org/cpi2019
World Bank’s Doing Business Report 2020 116 of 190 https://www.doingbusiness.org/en/data/
exploreeconomies/uganda
Global Innovation Index 2019 102 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 USD 42 million https://apps.bea.gov/international/
factsheet/factsheet.cfm?Area=446
World Bank GNI per capita 2018 USD 620 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD?locations=UG

6. Financial Sector

Capital Markets and Portfolio Investment

The government generally welcomes foreign portfolio investment and has put in place a legal and institutional framework to manage such investments. The Capital Markets Authority (CMA) licenses brokers and dealers and oversees the Uganda Securities Exchange (USE), which is now trading the stock of 18 companies. Liquidity remains constrained to enter and exit sizeable positions on the USE. Capital markets are open to foreign investors and there are no restrictions for foreign investors to open a bank account in Uganda. However, the government imposes a 15 percent withholding tax on interest and dividends. Foreign-owned companies may trade on the stock exchange, subject to some share issuance requirements. The government respects IMF Article VIII and refrains from restricting payments and transfers for current international transactions.

Credit is available from commercial banks on market terms and foreign investors can access credit. However, the high yields on GOU-issued (risk-free) securities pushes up interest rates on commercial loans, undermining the private sector’s access to affordable credit.

Money and Banking System

Formal banking participation remains low, with only 20 percent of Ugandans having access to bank accounts, many via their membership in formal savings groups. However, only about five million Ugandans have bank accounts, while more than 24 million use mobile money to conduct basic financial transactions. Uganda’s banking and financial sector is generally healthy, though non-performing loans remain a problem. According to the Bank of Uganda’s 2019 Financial Stability Report, Uganda’s non-performing loan rate stood at 3.8 percent at the end of June 2019. Uganda has 26 commercial banks with the top six controlling at least 60 percent of the banking sector’s total assets, valued at USD 8.6 billion. The Bank of Uganda regulates the banking sector, and foreign banks may establish branches in the country. In February, the Financial Action Taskforce added Uganda to its “Grey List” due to the country’s insufficient implementation of its anti-money laundering and countering financing of terrorism policies. As a result, Uganda’s correspondent banking relationships will face increased oversight, increasing transaction costs, and potentially jeopardizing some correspondent banking relationships. Uganda does not restrict foreigners’ ability to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Uganda keeps open capital accounts, and there are no restrictions on capital transfers in and out of Uganda. If, however, an investor benefited from tax incentives on the original investment, he or she will need to seek a “certificate of approval to “externalize” the funds. Investors may convert funds associated with any form of investment into any world currency. The Ugandan shilling (UGX) trades on a market-based floating exchange rate.

Remittance Policies

There are no restrictions for foreign investors on remittances to and from Uganda.

Sovereign Wealth Funds

In 2015, the government established the Uganda Petroleum Fund (PF) to receive and manage all government revenues from the oil and gas sector. By law, the government must spend a portion of proceeds from the fund on oil-related infrastructure, with parliament appropriating the remainder of revenues through the normal budget procedure. At the end of 2019, the PF had a balance of USD 20 million. The 2019 Auditor General’s report concluded that the absence of a policy regarding the management of the PF has led to inefficient and ineffective spending and investment decisions. In 2019, the GOU established the Petroleum Investment Advisory Committee (Committee) to oversee the investment of PF funds, however, the Committee did not pass the proposed Petroleum Investment Reserve Policy (Policy), which aimed to establish the investment guidelines. In the absence of the Policy, PF funds continue to be allocated to the national budget.

7. State-Owned Enterprises

Uganda has thirty State Owned Enterprises (SOEs). However, the GOU does not publish a list of its SOEs, and the public is unable to access detailed information on SOE ownership, total assets, total net income, or number of people employed. While there is insufficient information to assess the SOEs’ adherence to the OECD Guidelines of Corporate Governance, the GOU’s 2019 Office of Auditor General report noted corporate governance issues in some SOEs. SOEs do not get special financing terms and are subject to hard budget constraints. According to the Ugandan Revenue Authority Act, they have the same tax burden as the private sector. According to the Land Act, private enterprises have the same access to land as SOEs. One notable exception is the Uganda National Oil company (UNOC), which receives proprietary exploration data on new oil discoveries in Uganda. UNOC can then sell this information to the highest bidder in the private sector to generate income for its operations.

Privatization Program

The government privatized many SOEs in the 1990s. Uganda does not currently have a privatization program.

9. Corruption

Uganda has generally adequate laws to combat corruption, and an interlocking web of anti-corruption institutions. The Public Procurement and Disposal of Public Assets Authority Act’s Code of Ethical Standards (Code) requires bidders and contractors to disclose any possible conflict of interest when applying for government contracts. However, endemic corruption remains a serious problem and a major obstacle to investment. Transparency International ranked Uganda 137 out of 180 countries in its 2019 Corruption Perception Index. While anti-corruption laws extend to family members of officials and political parties, in practice many well-connected individuals enjoy de facto impunity for corrupt acts and are rarely prosecuted in court.

The government does not require companies to adopt specific internal procedures to detect and prevent bribery of government officials. Larger private companies implement internal control policies; however, with 80 percent of the workforce in the informal sector, much of the private sector operates without such systems. While Uganda has signed and ratified the UN Anticorruption Convention, it is not yet party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and does not protect non–governmental organizations investigating corruption. Some corruption watchdog organizations allege government harassment.

U.S. firms consistently identify corruption as a major hurdle to business and investment. Corruption in government procurement processes remains particularly problematic for foreign companies seeking to bid on GOU contracts.

Resources to Report Corruption

Contacts at government agency or agencies are responsible for combating corruption:
Justice Irene Mulyagonja
Inspector General of Government
Inspectorate of Government
Jubilee Insurance Centre, Plot 14, Parliament Avenue, Kampala
Telephone: +256-414-344-219
Website: www.igg.go.ug 

Public Procurement and Disposal of Public Assets Authority (PPDA)
UEDCL Towers Plot 39 Nakasero Road
P.O. Box 3925, Kampala Uganda
Telephone: +256-414-311100.
Email: info@ppda.go.ug
Website: https://www.ppda.go.ug/ 

Contact at “watchdog” organization:
Anti-Corruption Coalition Uganda
Cissy Kagaba
Telephone: +256-414-535-659
Email: kagabac@accu.or.ug
Website: http://accu.or.ug 

10. Political and Security Environment

Uganda has experienced periodic political violence associated with elections and other political activities. Security services routinely use excessive force to stop peaceful protests and demonstrations. There are no prominent examples in the past ten years of such violence leading to significant damage of projects or installations. There has been an uptick in crime over the past several years, and political tensions are likely to increase in the run up to 2021 general elections.

Ukraine

Executive Summary

Prior to the onset of the COVID-19 epidemic, Ukraine’s economy had significantly improved in the years since the severe financial crisis and near collapse of the banking system triggered by Russia’s military intervention in 2014.  Hard-won reforms had brought macro-economic stability and some improvements to the business environment.  The April 2019 election of President Zelenskyy, who campaigned on a platform of ending the conflict with Russia, eliminating corruption, and adopting economic policies that deliver European standards of growth and opportunity, further improved the economic outlook for Ukraine.  As part of this revolution at the ballot box, 80 percent of the Rada (parliament) was replaced and the president’s party, Servant of the People, won a majority of seats.  The government and the Rada then set out to pursue the new president’s ambitious reform agenda, and passed approximately 100 laws in 100 days, including dozens to improve the business environment and attract international investment. This new “turbo regime” also took on controversial economic reforms, such as lifting the moratorium on the sale of agricultural land.

Ukraine’s economic recovery nevertheless remains fragile as it continues to struggle to overcome years of corruption and government mismanagement, and as vested interests and oligarchic influences continue to manipulate public policy for personal gain.  The latter has jeopardized a new IMF assistance program, which is the linchpin for international financial support for Ukraine and a crucial factor in maintaining investor confidence in the country.  Moreover, the President’s decision to completely overhaul the Cabinet on March 6, 2020 raised concerns over the future of the reforms and the power oligarchs continue to wield.  It also resulted in a lot of uncertainty just as Ukraine began to face the immense public health and economic challenges brought on by an unanticipated global health pandemic.  Due to COVID-19, external demand for Ukrainian goods is collapsing and internal measures to reduce the spread of coronavirus have had a major disruptive impact on both domestic production and consumption.  The IMF forecasts that Ukraine’s GDP will contract by 7.7 percent in 2020.

Ukraine has significant investment potential given its large consumer market, highly educated and cost-competitive work force, and abundant natural resources. Ukraine’s Association Agreement with the EU gives Ukraine preferential market access and is accelerating Ukraine’s economic integration with the EU. U.S. companies have found success in Ukraine, particularly in the agriculture, consumer goods, and technology sectors. Ukraine is an agricultural powerhouse, and is the world’s third-largest grain exporter. Ukraine’s IT service and software R&D sectors show great potential due to the country’s large, skilled workforce.

Foreign direct investment (FDI) remains low, however, with net inflow in 2019 equaling only two percent of GDP. Foreign investors cite corruption in the judiciary, poor infrastructure, powerful vested interests, and weak protection of property rights as some of the major challenges to doing business. The conflict with Russia also continues to impede greater investment in Ukraine. In the Russia-controlled areas in the Donbas region of Ukraine, the conflict with Russia-led forces has resulted in significant damage to freight rail, mines, and industrial facilities. Investors should note that the situation in both Crimea (unlawfully occupied by Russia since the spring of 2014) and in occupied areas of Donbas remains dire. U.S. sanctions prohibit U.S. companies from participating in most transactions involving Crimea.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 126 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 64 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 47 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $402 http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 $2,660 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

The Ukrainian government encourages foreign portfolio investment in Ukraine, but the capital market is underdeveloped.  Ukraine’s capital market consists of two separate sectors: a stock market and a commodity market.  Liquidity is limited and investors have limited investment options.  The stock market includes ten stock exchanges and a settlement center.  Government bonds constitute 95 percent of the trades. A few corporate securities are listed, but the volume of their trades is insignificant.  Only Ukrainian-licensed securities traders may handle securities transactions, though there are limited exceptions.  In January 2020, China’s Bohai Commodity Exchange acquired a 49.9% stake in one of Ukraine’s leading stock exchanges, JSC PFTS Stock Exchange.  The commodity market in Ukraine does not have a transparent regulatory framework.  It includes hundreds of commodity exchanges, and other participants that are not licensed or subject to any supervision.

The regulator of Ukraine’s capital market, the National Securities and Stock Market Commission, lacks financial and operational independence and, therefore, Ukraine is not a signatory of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information of the International Organization of Securities Commissions.  Legislation to strengthen the independence of the Securities Commission was submitted to the Parliament but has not yet passed.  In November 2019, Ukraine adopted the so-called “Split” law, which regulates the non-banking financial services sector.  According to the law, the National Bank of Ukraine will supervise and regulate the insurance market, leasing and factoring companies, credit unions, credit bureaus, pawnshops and other financial companies, while the National Securities and Stock Market Commission will regulate private funds, including: pension funds, construction financing, and real estate transactions. The law provides for a transition period through June 30, 2020.

Ukraine has restrictions in place on payments and transfers for current international transactions.  However, legislation adopted in 2018 on currency regulations came into effect in February 2019 that has begun to loosen some of these restrictions.  Ongoing currency liberalization, along with the legislation and regulatory reform, should facilitate foreign investments into securities, including corporate ones.  Credit is largely allocated on market terms, and foreign investors are able to get credit on the local market through a variety of credit instruments, though interest rates remain high. The credit market environment has long lacked transparency; enforcement of key laws and regulations has been weak; and investors, both domestic and foreign, continue to face significant uncertainty.

Money and Banking System

Ukraine’s banking sector has seen remarkable progress following the 2014-2015 crisis thanks in large part to the authorities’ banking sector cleanup, which resulted in the closure of over 100 banks for insolvency or money laundering activities, as well as sound policies from Ukraine’s independent central bank, the National Bank of Ukraine.  The number of unprofitable banks has steadily decreased in the past few years; only six banks were unprofitable in 2019 compared to 13 in 2018.  The banking sector nearly tripled 2018’s record high net profit of UAH 21.7 billion ($775 million), reporting a cumulative profit of UAH 60 billion ($2.4 billion) for 2019.  State-owned PrivatBank earned half of the total profits in the banking system.  Interests were the main source of the total profit. Foreign banks’ profits amounted to UAH 18.5 billion ($740 million) in 2019.

Non-performing loans, however, remain one of the biggest unresolved issues of the banking sector accounting for 48.4 percent of loans in 2019.  State-owned banks hold nearly 75 percent of total NPLs.  Moreover, the penetration of banking services in Ukraine remains low, as only approximately 63 percent of Ukrainians have a banking account.  There are approximately 75 banks operating in Ukraine, with the top 20 banks accounting for 92 percent of net assets in 2019.  As of end-2019, the banking sector’s net assets amounted to UAH 1.49 trillion ($57 billion).

Foreign-licensed banks may carry out all activities conducted by domestic banks, and there is no ceiling on participation in the banking system, including operating via subsidiaries.  A foreign company can open a bank account in Ukraine for the purposes of investment operations; otherwise, it needs to register a representative office in Ukraine.  A nonresident private person can open a bank account in Ukraine.  A foreign investor may open an account in a bank operating in Ukraine and transfer in funds for further investment or invest directly to an account of a Ukrainian resident company.  In 2017, the National Bank of Ukraine began allowing foreign investors to use escrow accounts to make investments in Ukraine.

Foreign Exchange and Remittances

Foreign Exchange

The National Bank of Ukraine (NBU) in 2019 continued to liberalize currency controls and restrictions on repatriating funds, which had been put in place to stabilize the Ukrainian foreign exchange market during the 2014 economic crisis.  In February 2019, the Law “On Currency and Currency Transactions,” came into effect, marking the start of the most radical overhaul of the country’s currency environment in over a quarter of a century.  Under the new law, individuals can purchase foreign currency online and against credit money.  Individuals can transfer up to EUR 50,000 ($55,000) abroad every year, with the daily limit raised to $5500 from $1800. Even though many restrictions for foreign currency transactions have been loosened, the new regulations still require Ukrainian banks to verify most foreign currency transactions. This rule applies to a majority of cross-border payments by Ukrainian residents.

The NBU has abolished all restrictions related to the repatriation of dividends. As of July 2019, dividends can be paid to a foreign investor’s account in Ukraine or abroad without limits and for any year. The NBU also cancelled the mandatory sale of currency proceeds by businesses from June 2019.  In addition, it removed the hryvnia reserve requirement banks had to keep for foreign currency purchases, and it now allows unlimited daily purchase of foreign currency by individuals through banks, financial institutions, and via online banking.  In September 2019, the NBU cancelled a monthly EUR 5 million limit for the repatriation of proceeds received by a foreign investor from selling shares of a Ukrainian company, decreasing its charter capital or withdrawing investment from a Ukrainian company.  A cap on the repatriation of the above-specified proceeds of foreign investment was introduced by the NBU back in 2014 in order to restrict the outflow of capital from Ukraine.  The NBU has developed a road map for removing currency restrictions with the goal of reaching a full capital flow regime.  The roadmap is publicly available on its website in both Ukrainian and English.  Further liberalization is contingent on implementation of BEPS legislation and general macro-economic conditions.

The NBU has had a floating exchange rate policy for the last five years, though the NBU carries out currency interventions to meet two objectives: reducing excessive currency fluctuations and replenishment of international reserves.

Remittance Policies

In December 2019, the central bank of Ukraine doubled the e-limit for some retail foreign currency remittances, including for investment abroad or foreign deposits, to EUR 100,000 ($110,000) per year.  As long as they comply with the e-limit, individuals are permitted to remit foreign currency (or the national currency hryvnia) abroad or to current accounts of corporate nonresidents in Ukraine opened in order to meet liabilities to nonresidents under health insurance agreements, invest abroad, deposit funds to their accounts outside Ukraine, or issue a foreign currency loan to a nonresident.

Sovereign Wealth Funds

Ukraine does not maintain or operate a sovereign wealth fund.

7. State-Owned Enterprises

The Government of Ukraine operates 1,600 state-owned enterprises (SOEs) out of 3,358 registered SOEs, with an economic output of approximately ten percent of GDP.  While the government lists 3,358 enterprises, more than 1,700 of them no longer operate as functioning businesses.  SOEs in Ukraine are defined as companies which the state owns at least 50 percent +1 share.  SOEs are active in areas such as energy, machine-building, and infrastructure.  More than half of the SOEs are small and inefficient, with ties to corrupt interests, illegal shadow owners, and Soviet-era management practices, which are the real barriers to privatization.  Some of the companies have significant environmental problems, legacy legal issues, or oligarchs as minority owners—all issues that could keep foreign investors away.

There is no common public list of all SOEs in Ukraine and each ministry publishes a list of SOEs under its respective management.  The Ministry of Economic Development and Trade periodically updates information on annual financial reports of significant SOEs (100 of the largest SOEs), which it publishes on the ministry website.

http://www.me.gov.ua/Documents/List?lang=uk-UA&id=40a27e1b-8234-43d3-a37f-c4c752729fca&tag=FinansovaZvitnistPidprimstv 

Ukraine’s law on corporate governance requires SOEs to publicize annual financial reports and disclosures on official websites, including information on financial indicators, company officials, transactions, etc.  The law also stipulates that SOEs publish their annual financial statements and audits, though a review of SOE financial statements and audits showed that SOEs did not rigorously adhere to the law.  Independent and government board members were selected in 2018 in certain strategic SOEs, including Naftogaz, Ukrzaliznytsia, Ukrenergorynok, Ukrposhta, and Ukrenergo.  In 2019, the government continued its corporate governance reform efforts, and created independent supervisory boards in strategic SOEs in the defense industry.  These long overdue reforms were an important step towards improving the management, efficiency, and responsiveness of the companies.  Since late 2019, some rollbacks of corporate governance protections at SOEs have been observed, especially in SOEs in the energy and infrastructure sectors such as Naftogaz, Ukrenergo, and Energoatom.

SOE senior managers traditionally report directly to the Ministry overseeing the relevant SOE’s area of expertise.  Ukrainian law specifies that ministries are not permitted to interfere with the daily economic activities of an SOE, but numerous anecdotal reports indicate that ministries and vested interests ignore this restriction.  The Cabinet of Ministers has the power to decide on the creation, reorganization, and liquidation of SOEs, and to adopt and enforce SOE charters.  It can delegate this authority to the ministry charged with supervising the SOE.  The Cabinet of Ministers may also delegate to ministries the permission to create joint ventures with state property and prepare proposals to divide state property between the national and municipal levels.

Most SOEs rely on government subsidies to function and cannot directly compete with private firms.  Several SOEs capable of making a profit have already been privatized, and the result has been that the most inefficient firms have remained in government hands.  The Ukrainian government continues to heavily subsidize state-owned enterprises (especially in the coal mining, rail transportation, gas, and communal heating sectors) and has sometimes paid outstanding debts of some SOEs with sovereign loan guarantees.  SOE access to extensions of tax payment deadlines remains nontransparent, especially where SOEs are directed to sell their products at below-market prices.

Privatization Program

The Government of Ukraine approved a revised list of 21 SOEs designated for large privatization on January 16, 2019.  The government also approved a list of smaller-scale SOEs to put up for sale in 2019.  Despite an ambitious annual plan, the budget received only UAH 0.5 billion ($20 million) from privatization, which was 3.1 percent of the original plan for 2019.  Influence from vested interests led to the government’s decision to cancel the sale in late 2019 of Centrenergo despite a promising start to the process.  In 2019, several advisors appointed to supervise the privatization of SOEs designated for sale fell victim to legal challenges launched by vested interests.  In 2020, the government unblocked the advisor assignments, allowing the privatization processes to continue.  Nonetheless, Ukraine’s failure to complete a single major privatization in three years raises concern about the government’s commitment to privatization.

Ukraine’s new government has vowed to implement a series of major privatization reforms, including a dramatic reduction of the number of SOEs deemed strategic and exempt from sale.  As a first step, the Ukrainian Parliament voted in October 2019 to nullify legislation from 1999 banning the privatization of a lengthy list of state assets.  Over the next year, the Cabinet of Ministers will have to create a new list designating which companies the state should control.  Objects of strategic infrastructure, such as defense enterprises, public broadcasting, cultural and social importance, will still be barred from the privatization.  In February 2020 as part af an effort to reform state-owned companies, the government started the legislative process to permit partial privatization of some previously excluded SOEs, including Naftogaz, MainGasPipelines of Ukraine, UkrTransGaz, UkrNafta, Ukrgasvydobuvannya, Ukrzaliznytsia (UZ) and UkrPoshta.  The United States has provided significant technical assistance to Ukraine to support an open and transparent privatization process.

The State Property Fund (SPC) oversees privatizations in Ukraine.  The rules on privatization apply to foreign and domestic investors and, theoretically, establish a level playing field.  However, observers have pointed to numerous instances in past privatizations where interests have influenced the process to fit a pre-selected bidder.  Despite these concerns, the government has stated that there would be no revisions of past privatizations, but there are ongoing court cases wherein private companies are challenging earlier privatizations.

9. Corruption

Ukraine has numerous laws to combat corruption by public officials, and following the Revolution of Dignity in 2014 the government launched new anti-corruption institutions, including the National Anti-Corruption Bureau (NABU) to investigate corruption by public officials, the Special Anti-Corruption Prosecutor’s Office (SAPO), and the National Agency for Prevention of Corruption (NAPC).  In addition, legislation was adopted that mandated that public officials declare their assets on a publicly viewable online system.  These new institutions, however, have had an uneven track record.  After the successful 2016 launch of the asset declaration system for public officials, the NAPC failed to fulfill its mandate to verify officials’ declarations and to fairly manage political party finance reporting until being rebooted following the election of President Zelenskyy in April 2019.  NABU and SAPO have taken 245 corruption cases to court since 2015, including indictments of high-level officials, but had failed to obtain a single conviction as cases became mired in court proceedings until the launch of the High Anti-Corruption Court in September 2019.

Foreign businesses, including U.S. companies, continue to identify corruption in many sectors as a significant obstacle to FDI.  Reform of public procurement has been a success story, with the introduction of the online ProZorro system providing transparency for most procurement, except in the defense sector, which remains non-transparent and allegedly a continuing source of corruption.  The Ukrainian parliament is currently reviewing draft legislation to reform the defense procurement process and likely will adopt the bill in the coming months.   However, declassification of the process will be largely contingent on amendments made to the Law on State Secrets.  The energy sector has seen some improvements, including reforms at the large oil and gas SOE Naftogaz, but participants in the sector continue to complain of significant and sometimes insurmountable corruption.  Government interference in the corporate governance of Naftogaz is a persistent concern and has now spread to Ukrenergo, Energoatom, and Ukrhydroenergo, among others.  There are allegations of corruption at specific SOEs in a variety of sectors, as well as allegations that external corrupt forces interfere regularly in SOE operations.

There are a number of NGOs actively involved in investigating corruption and advocating for anti-corruption measures.  In 2017, the Parliament passed a law with broad requirements for non-governmental individuals engaged in anti-corruption activities to file public asset declarations.

Resources to Report Corruption

NABU, established in October 2014, is the appropriate resource for the reporting of high-level corruption.

Government of Ukraine contact for combating corruption:
National Anti-Corruption Bureau
3, Vasyl Surikov St, Kyiv, Ukraine 03035
Hot-line:  0-800-503-200
info@nabu.gov.ua
Corruption Reporting eForm: http://nabu.gov.ua/povidomlennya-pro-kryminalne-pravoporushennya 

Contact at Transparency International:
Mr. Andriy Borovyk
Executive Director|
Transparency International Ukraine
2A provulok Kostia Hordiienka, 1st floor, Kyiv, Ukraine 01024
+38(044) 360-52-42
office@ti-ukraine.org

10. Political and Security Environment

Russia’s military aggression entered its sixth year in the eastern oblasts of Donetsk and Luhansk, as did its illegal occupation of the Crimean peninsula.  Residents of Russia-controlled areas are subject to political violence at the hands of Russia’s proxy authorities.  Civilian casualties in eastern Ukraine from landmines, shelling, and small arms fire have decreased steadily since 2017, but continued to occur with some regularity.  Infrastructure for water, gas, and electricity remained at risk of conflict-related damage, and fighting routinely disrupted maintenance of aging facilities, thereby threatening essential service delivery to populated areas.  Russia-led forces control approximately 400 km of Ukraine’s international border with Russia through which Russia supplies and equips its proxy forces, who receive logistical and command support from Russian Army soldiers.  Russia continued its illegal occupation of the Autonomous Republic of Crimea and the City of Sevastopol, and reports of political violence, repression, and religious persecution continue.

The 2019 presidential elections, and subsequent early parliamentary elections fundamentally reformatted Ukraine’s political space, bringing to power a new political party with little prior governance experience.  The new parliament initially adopted rapid legal changes, but the perceived lack of a coherent strategy lead to growing social dissatisfaction.  Presidential dissatisfaction with progress on reform and economic performance led to the replacement of the Presidential Chief of Staff and a complete overhaul of the Cabinet in the spring of 2020.  The president remains personally popular, but popularity for the parliament and the Cabinet has declined.  Protests have been limited to those against “capitulation” to Russia, especially in October 2019, and more recently against specific legislation such as land reform.  Protests have decreased as COVID-19-related quarantine restrictions on large public gatherings have been implemented.

United Arab Emirates

Executive Summary

The Government of the United Arab Emirates (UAE) is pursuing economic diversification to promote the development of the private sector as a complement to the historical economic dominance of the state.  The country’s seven emirates have implemented numerous initiatives, laws, and regulations to develop a more conducive environment for foreign investment.  The UAE maintains a position as a major trade and investment hub for a large geographic region which includes not only the Middle East and North Africa, but also South Asia, Central Asia, and Sub-Saharan Africa.  Multinational companies cite the UAE’s political and economic stability, population and Gross Domestic Product (GDP) growth, fast-growing capital markets, and a perceived absence of systemic corruption as positive factors contributing to the UAE’s attractiveness to foreign investors.

While the UAE implemented an excise tax on certain products in October 2017 and a five percent Value-Added Tax (VAT) on all products and services beginning in January 2018, many investors continue to cite the absence of corporate and personal income taxes as a strength of the local investment climate, relative to other regional options.

While foreign investment continues to grow, the regulatory and legal framework in the UAE continues to favor local over foreign investors.  There is no national treatment for investors in the UAE, and foreign ownership of land and stocks remains restricted.  In September 2018, the UAE issued Decree-Law No. 19 on Foreign Direct Investment (FDI), which grants licensed foreign investment companies the same treatment as national companies, within the limits permitted by the legislation in force.  A negative list of economic sectors restricted from 100 percent foreign ownership includes 14 major industries.  On March 3, 2020, the Cabinet approved a positive list of economic sectors eligible for 100 percent foreign ownership.  This list covers activities in 13 sectors, including renewable energy, space, agriculture, manufacturing, transport and logistics, hospitality & food services, information and communications services, professional and scientific and technical activities, administrative and support services, education, health care, arts and entertainment, and construction.  The Cabinet confirmed that it will allow individual emirates to set foreign investor ownership limits in each activity.

Foreign investors expressed concern over spotty intellectual property rights protection, a lack of regulatory transparency, and weak dispute resolution mechanisms and insolvency laws.  In 2020 the Cabinet approved a resolution concerning combating commercial fraud.  This resolution established a unified federal mechanism to deal with commercial fraud across the UAE and outlined a process for removal and destruction of counterfeit products.  Labor rights and conditions, although improving, continue to be an area of concern as the UAE prohibits both labor unions and worker strikes.

Free trade zones form a vital component of the local economy and serve as major re-export centers to other markets in the Gulf, South Asia, and Africa.  U.S. and multinational companies indicate that these zones tend to have stronger and more equitable frameworks than the onshore economy.  For example, in free trade zones foreigners may own up to 100 percent of the equity in an enterprise, have 100 percent import and export tax exemptions, have 100 percent exemption from commercial levies, and may repatriate 100 percent of capital and profits.  Goods and services delivered onshore by free zone companies are subject to the five percent VAT.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019  21 of 180 http://www.transparency.org/
research/cpi/overview
World Bank “Ease of Doing Business” Report 2019 16 of 190 www.doingbusiness.org/rankings
Global Innovation Index 2019 36 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($B USD, stock positions) 2018 $17.3 https://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 $40,880 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

UAE government efforts to create an environment that fosters economic growth and attracts foreign investment has resulted in:  i) no taxes or restrictions on the repatriation of capital; ii) free movement of labor and low barriers to entry (effective tariffs are five percent for most goods); and iii) an emphasis on diversifying the economy away from oil, which offers a broad array of investment options for FDI.  Key drivers of the economy include real estate, energy, tourism, logistics, manufacturing, and financial services.

The UAE has three stock markets:  Abu Dhabi Securities Exchange, Dubai Financial Market, and NASDAQ Dubai.  The regulatory body, the Securities and Commodities Authority (SCA), classifies brokerages into two groups:  those which engage in trading only while the clearance and settlement operations are conducted through clearance members, and those which engage in trading clearance and settlement operations for their clients.  Under the regulations, trading brokerages require paid-up capital of USD 820,000, whereas trading and clearance brokerages need USD 2.7 million.  USD 367,000 in bank guarantees is required for brokerages to trade on the bourses.

The UAE issued investment funds regulations in September 2012, known as the “twin peak” regulatory framework designed to govern the marketing of investment funds established outside the UAE to domestic investors, and the establishment of local funds domiciled inside the UAE.  This regulation gave the SCA, rather than the Central Bank, authority over the licensing, regulation and oversight of the marketing of investment funds.  The marketing of foreign funds, including offshore UAE-based funds, such as those domiciled in the DIFC, requires the appointment of a locally-licensed placement agent.  The UAE government has also encouraged certain high-profile projects to be undertaken via a public joint stock company to allow the issuance of shares to the public.  Further, the UAE government requires any company carrying out banking, insurance, or investment services for a third party to be a public joint stock company.

In 2019, SCA issued a number of capital-related decisions.  In May 2019, SCA issued a decision concerning the Capital Adequacy Criteria of Investment Manager and Management Company, which stipulates that the investment manager and the management  company must allocate capital to constitute a buffer for credit risk, market risk, or operational risk, even if it does not appear as a line item in the balance sheet.

In 2019, SCA also issued a decision concerning Real Estate Investment Fund control, which stipulates that a public or private real estate investment fund shall invest at least 75 percent of its assets in real estate assets.  According to this decision, a real estate investment fund may establish or own one or more real estate services companies provided that its investment in the ownership of each company and its subsidiaries shall not be more than 20 percent of the fund’s total assets.

Credit is generally allocated on market terms, and foreign investors can access local credit markets.  Interest rates are usually very close to those in the United States considering the local currency is pegged to the dollar.  There have been complaints that GREs crowd out private sector borrowers.

Money and Banking System

The UAE has a robust banking sector with 49 banks, 27 of which are foreign institutions.  The number of national bank branches declined to 656 at the end of 2019, compared to 743 at the end of December 2018, due to bank mergers and an ongoing transition to online banking.

Non-performing loans (NPL) comprised 6.2 percent of outstanding loans in 2019, compared with 5.7 percent in 2018, according to figures from the Central Bank of the UAE (CBUAE).  Under a new reporting standard, the NPL ratio of the UAE banking system for the year-end 2018 stood at 5.6 percent, compared to 7.1 percent under the previous methodology.  The CBUAE recorded total sector assets of USD 839 billion as of January 2020.

There are some restrictions on foreigners’ ability to establish a current bank account, and legal residents and Emiratis can access loans under more favorable terms than non-residents.

Foreign Exchange and Remittances

Foreign Exchange Policies

According to the IMF, the UAE has no restrictions on making payments and transfers for international transactions, except security-related restrictions.   Currencies are traded freely at market-determined prices.  The UAE dirham has been pegged to the dollar since 2002.  The mid-point between the official buying and selling rate for the dirham (AED or Dhs) is fixed at AED 3.6725 per USD.

Remittance Policies

The Central Bank of the UAE initiated the creation of the Foreign Exchange & Remittance Group (FERG), made up of various exchange companies, which is registered with the Dubai Chamber of Commerce & Industry.  Unlike their counterparts across the world that deal mainly in money exchange, exchange companies in the UAE are the primary conduits for transferring large volumes of remittances through official channels.  According to migration and remittance data from the World Bank, in 2018 the UAE had migrant remittance outflows of USD 42.2 billion.  The Central Bank reported migrant remittances totaling USD 44.9 billion in 2019.  Exchange companies are important partners in the UAE government’s electronic salary transfer system, called the Wage Protection System, designed to ensure workers are paid according to the terms of their employment.  They also handle various ancillary services ranging from credit card payments, to national bonds, and traveler’s checks.

Sovereign Wealth Funds

Abu Dhabi is home to two sovereign wealth funds—the Abu Dhabi Investment Authority (ADIA), and Mubadala Investment Company—with estimated total assets of approximately USD $1 trillion as of June 2019.  Each fund has a chair and board members appointed by the Ruler of Abu Dhabi.  President Khalifa Bin Zayed Al Nahyan is the chair of ADIA and Abu Dhabi Crown Prince Mohammed Bin Zayed Al Nahyan is the chair of Mubadala.  Emirates Investment Authority, the UAE’s federal sovereign wealth fund, is modest by comparison, with estimated assets of about USD 15 billion.  The Investment Corporation of Dubai (ICD) is Dubai’s primary sovereign wealth fund, with an estimated USD 264 billion in assets according to ICD’s June 2019 financial report.

UAE funds vary in their approaches to managing investments.  ADIA generally does not actively seek to manage or take an operational role in the public companies in which it invests, while Mubadala tends to take a more active role in particular sectors, including oil and gas, aerospace, infrastructure, and early-stage venture capital.  ADIA exercises its voting rights as a shareholder in certain circumstances to protect its interests, or to oppose motions that may be detrimental to shareholders as a body.  According to ADIA, the fund carries out its investment program independently and without reference to the government of Abu Dhabi.

In 2008, ADIA agreed to act alongside the IMF as co-chair of the International Working Group of sovereign wealth funds, which eventually became the International Forum of Sovereign Wealth Funds (IFSWF).  Comprising representatives from 31 countries, the IFSWF was created to demonstrate that sovereign wealth funds had robust internal frameworks and governance practices, and that their investments were made only on an economic and financial basis.

7. State-Owned Enterprises

State-owned enterprises (SOEs) are a key component of the UAE economic model.  There is no

published list of SOEs or GREs, at the national or individual emirate level.  Some SOEs, such as the influential Abu Dhabi National Oil Company (ADNOC), are strategically important companies and a major source of revenue for the government.  Mubadala established Masdar in 2006 to develop renewable energy and sustainable technologies industries.  A number of SOEs, such as Emirates Airlines and Etisalat, the largest local telecommunications firm, have in recent years emerged as internationally recognized brands.  Some but not all of these companies have competition.  In some cases, these firms compete against other state-owned firms (Emirates and Etihad airlines, for example, or telecommunications company Etisalat against du).  While they are not granted full autonomy, these firms leverage ties between entities they control to foster national economic development.  Perhaps the best example of such an economic ecosystem is Dubai, where SOEs have been used as drivers of diversification in sectors including construction, hospitality, transport, banking, logistics, and telecommunications.  Sectoral regulations in some cases address governance structures and practices of state-owned companies.  The UAE is not party to the WTO Government Procurement Agreement.

Privatization Program

There is no privatization program in the UAE.  There have been several listings of portions of SOEs, on local UAE stock exchanges, as well as some “greenfield” IPOs focused on priority projects.

9. Corruption

The UAE has stiff laws, regulations, and enforcement against corruption and has pursued several high-profile cases.  For example, the UAE federal penal code and the federal human resources law criminalize embezzlement and the acceptance of bribes by public and private sector workers.  The Dubai financial fraud law criminalizes receipt of illicit monies or public funds.  There is no evidence that corruption of public officials is a systemic problem.  The State Audit Institution and the Abu Dhabi Accountability Authority investigate corruption in the government.  The Companies Law requires board directors to avoid conflicts of interest.  In practice, however, given the multiple roles occupied by relatively few senior Emirati government and business officials, myriad conflicts of interest exist.  Business success in the UAE also still depends much on personal relationships.

The monitoring organizations GAN Integrity and Transparency International describe the corruption environment in the UAE as low-risk, and rate the UAE highly with regard to anti-corruption efforts both regionally and globally.  Some third-party organizations note, however, that the involvement of members of the ruling families and prominent merchant families in certain businesses can create economic disparities in the playing field, and most foreign companies outside the UAE’s free zones must rely on an Emirati national partner, often with strong connections, who retains majority ownership.  The UAE has ratified the United Nations Convention against Corruption.  There are no civil society organizations or NGOs investigating corruption within the UAE.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Dr. Harib Al Amimi
President
State Audit Institution
20th Floor, Tower C2, Aseel Building, Bainuna (34th) Street, Al Bateen, Abu Dhabi, UAE
+971 2 635 9999
info@saiuae.gov.ae

10. Political and Security Environment

There have been no reported instances of politically-motivated property damage in recent years.

United Kingdom

Executive Summary

The United Kingdom (UK) actively encourages foreign direct investment (FDI).  The UK imposes few impediments to foreign ownership and throughout the past decade, has been Europe’s top recipient of FDI.  The UK government provides comprehensive statistics on FDI in its annual inward investment report:  https://www.gov.uk/government/statistics/department-for-international-trade-inward-investment-results-2018-to-2019.

At the time of writing, Her Majesty’s Government (HMG) is enforcing social distancing guidelines in an effort to stop the spread of the COVID-19 pandemic.  Non-essential businesses are closed and Britons have been told to stay and work at home.  This has led to a sharp and abrupt fall in economic growth, investment, trade, and employment.  HMG has initiated several programs to mitigate the economic damage of the lockdown.  The Coronavirus Job Retention Scheme (CJRS) pays up to 80 percent of a furloughed worker’s monthly wage, up to £2,500 ($ 3,100) and several programs have been established, in coordination with the Bank of England, to provide HMG-backed bridge financing loans for firms facing cash flow issues.

On June 23, 2016, the UK held a referendum on its continued membership in the European Union (EU) resulting in a decision to leave.  The UK formally withdrew from the EU’s political institutions on January 31, 2020, while remaining a de facto member of the bloc’s economic and trading institutions during a transition period that is scheduled to end on December 31, 2020.  The terms of the UK’s future relationship with the EU are still under negotiation, but it is widely expected that trade between the UK and the EU will face more friction following the UK’s exit from the single market.  At present, the UK enjoys relatively unfettered access to the markets of the 27 other EU member states, equating to roughly 450 million consumers and $15 trillion worth of GDP.  Prolonged COVID and Brexit-related uncertainty may continue to diminish the overall attractiveness of the UK as an investment destination for U.S. companies.

On the other hand, the United States and the UK launched free trade agreement virtual negotiations in May 2020.  Market entry for U.S. firms is facilitated by a common language, legal heritage, and similar business institutions and practices.  The UK is well supported by sophisticated financial and professional services industries and has a transparent tax system in which local and foreign-owned companies are taxed alike.  The British pound is a free-floating currency with no restrictions on its transfer or conversion.  Exchange controls restricting the transfer of funds associated with an investment into or out of the UK do not exist.

UK legal, regulatory, and accounting systems are transparent and consistent with international standards.  The UK legal system provides a high level of protection.  Private ownership is protected by law and monitored for competition-restricting behavior.  U.S. exporters and investors generally will find little difference between the United States and the UK in the conduct of business, and common law prevails as the basis for commercial transactions in the UK.

The United States and UK have enjoyed a “Commerce and Navigation” Treaty since 1815 which guarantees national treatment of U.S. investors.  A Bilateral Tax Treaty specifically protects U.S. and UK investors from double taxation.  There are early signs of increased protectionism against foreign investment, however.  HM Treasury announced a unilateral digital services tax, which came into force in April 2020, taxing certain digital firms—such as social media platforms, search engines, and marketplaces—two percent on revenue generated in the UK.

The United States is the largest source of FDI into the UK.  Thousands of U.S. companies have operations in the UK, including all of the Fortune 100 firms.  The UK also hosts more than half of the European, Middle Eastern, and African corporate headquarters of American-owned firms.  For several generations, U.S. firms have been attracted to the UK both for the domestic market and as a beachhead for the EUSingle Market.

Companies operating in the UK must comply with the EU’s General Data Protection Regulation (GDPR).  The UK has incorporated the requirements of the GDPR into UK domestic law though the Data Protection Act of 2018.  After it leaves the EU, the UK will need to apply for an adequacy decision from the EU in order to maintain current data flows.

Table 1
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 12 of 180 www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report “Ease of Doing Business” 2019 8 of 190 www.doingbusiness.org/rankings 
Global Innovation Index 2019 5 of 127 www.globalinnovationindex.org/
gii-2018-report
 
U.S. FDI in partner country (M USD, stock positions) 2018 $757,781 apps.bea.gov/international/factsheet/ 
World Bank GNI per capita 2018 $41,770 data.worldbank.org/indicator/
NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

The City of London houses one of the largest and most comprehensive financial centers globally.  London offers all forms of financial services:  commercial banking, investment banking, insurance, venture capital, private equity, stock and currency brokers, fund managers, commodity dealers, accounting and legal services, as well as electronic clearing and settlement systems and bank payments systems.  London is highly regarded by investors because of its solid regulatory, legal, and tax environments, a supportive market infrastructure, and a dynamic, highly skilled workforce.

The UK government is generally hospitable to foreign portfolio investment.  Government policies are intended to facilitate the free flow of capital and to support the flow of resources in product and services markets.  Foreign investors are able to obtain credit in local markets at normal market terms, and a wide range of credit instruments are available.  The principles underlying legal, regulatory, and accounting systems are transparent, and they are consistent with international standards.  In all cases, regulations have been published and are applied on a non-discriminatory basis by the Bank of England’s Prudential Regulation Authority (PRA).

The London Stock Exchange is one of the most active equity markets in the world.  London’s markets have the advantage of bridging the gap between the day’s trading in the Asian markets and the opening of the U.S. market.  This bridge effect is also evidenced by the fact that many Russian and Central European companies have used London stock exchanges to tap global capital markets.  The Alternative Investment Market (AIM), established in 1995 as a sub-market of the London Stock Exchange, is specifically designed for smaller, rapidly expanding companies.  The AIM has a more flexible regulatory system than the main market and has no minimum market capitalization requirements.  Since its launch, the AIM has raised more than $85 billion (GBP 68 billion) for more than 3,000 companies.

Money and Banking System

The UK banking sector is the largest in Europe and represents the continent’s deepest capital pool.  More than 150 financial services firms from the EU are based in the UK.  The financial and related professional services industry contributed approximately 10 percent of UK Economic Output in 2019, employed approximately 2.3 million people, and contributed the most to UK tax receipts of any sector.  The long-term impact of Brexit on the financial services industry is uncertain at this time.  Some firms have already moved limited numbers of jobs outside the UK in order to service EU-based clients, but anticipate the UK will remain a top financial hub.

The Bank of England (BoE) serves as the central bank of the UK.  According to BoE guidelines, foreign banking institutions are legally permitted to establish operations in the UK as subsidiaries or branches.  Responsibilities for the prudential supervision of a non-European Economic Area (EEA) branch are split between the parent’s home state supervisors and the PRA.  However, the Prudential Regulation Authority (PRA) expects the whole firm to meet the PRA’s threshold conditions.  The PRA expects new non-EEA branches to focus on wholesale and corporate banking and to do so at a level that is not critical to the UK economy.  The FCA is the conduct regulator for all banks operating in the United Kingdom.  For non-EEA branches the FCA’s Threshold Conditions and conduct of business rules apply, including areas such as anti-money laundering.  Eligible deposits placed in non-EEA branches may be covered by the UK deposit guarantee program and therefore non-EEA branches may be subject to regulations concerning UK depositor protection.

There are no legal restrictions that prohibit non-UK residents from opening a business bank account; setting up a business bank account as a non-resident is in principle straightforward.   However, in practice most banks will not accept applications from overseas due to fraud concerns and the additional administration costs.  To open a personal bank account, an individual must at minimum present an internationally recognized proof of identification and prove residency in the UK.  This is a problem for incoming FDI and American expatriates.  Unless the business or the individual can prove UK residency, they will have limited banking options.

Foreign Exchange and Remittances

Foreign Exchange

The British pound sterling is a free-floating currency with no restrictions on its transfer or conversion.  Exchange controls restricting the transfer of funds associated with an investment into or out of the UK are not exercised.

Remittance Policies

Not applicable.

Sovereign Wealth Funds

The United Kingdom does not maintain a national wealth fund.  Although there have at time been calls to turn The Crown Estate – created in 1760 by Parliament as a means of funding the British monarchy – into a wealth fund, there are no current plans in motion.  Moreover, with assets of just under $12 billion, The Crown Estate would be small in relation to other national funds.

7. State-Owned Enterprises

There are 20 partially or fully state-owned enterprises in the UK.  These enterprises range from large, well-known companies to small trading funds.  Since privatizing the oil and gas industry, the UK has not established any new energy-related state-owned enterprises or resource funds.

Privatization Program

The privatization of state-owned utilities in the UK is now essentially complete.  With regard to future investment opportunities, the few remaining government-owned enterprises or government shares in other utilities are likely to be sold off to the private sector when market conditions improve.

9. Corruption

Although isolated instances of bribery and corruption have occurred in the UK, U.S. investors have not identified corruption of public officials as a factor in doing business in the UK.

The Bribery Act 2010 came into force on July 1, 2011.  It amends and reforms the UK criminal law and provides a modern legal framework to combat bribery in the UK and internationally.  The scope of the law is extra-territorial.  Under the Bribery Act, a relevant person or company can be prosecuted for bribery if the crime is committed abroad.  The Act applies to UK citizens, residents and companies established under UK law.  In addition, non-UK companies can be held liable for a failure to prevent bribery if they do business in the UK.

Section 9 of the Act requires the UK Government to publish guidance on procedures that commercial organizations can put in place to prevent bribery on their behalf.  It creates the following offenses: active bribery, described as promising or giving a financial or other advantage, passive bribery, described as agreeing to receive or accepting a financial or other advantage; bribery of foreign public officials; and the failure of commercial organizations to prevent bribery by an associated person (corporate offense).  This corporate criminal offense places a burden of proof on companies to show they have adequate procedures  in place to prevent bribery (http://www.transparency.org.uk/our-work/business-integrity/bribery-act/adequate-procedures-guidance/ ).  To avoid corporate liability for bribery, companies must make sure that they have strong, up-to-date and effective anti-bribery policies and systems.  The Bribery Act creates a corporate criminal offense making illegal the failure to prevent bribery by an associated person.  The briber must be “associated” with the commercial organization, a term which will apply to, amongst others, the organization’s agents, employees, and subsidiaries.  A foreign corporation which “carries on a business, or part of a business” in the UK may therefore be guilty of the UK offense even if, for example, the relevant acts were performed by the corporation’s agent outside the UK.  The Act does not extend to political parties and it is unclear whether it extends to family members of public officials.

UN Anticorruption Convention, OECD Convention on Combatting Bribery 

The UK formally ratified the OECD Convention on Combating Bribery in December 1998.  The UK also signed the UN Convention Against Corruption in December 2003 and ratified it in 2006.  The UK has launched a number of initiatives to reduce corruption overseas.  The OECD Working Group on Bribery (WGB) criticized the UK’s implementation of the Anti-Bribery convention.  The OECD and other international organizations promoting global anti-corruption initiatives pressured the UK to update its anti-bribery legislation which was last amended in 1916.  In 2007, the UK Law Commission began a consultation process to draft a Bribery Bill that met OECD standards.  A report was published in October 2008 and consultations with experts from the OECD were held in early 2009.  The new Bill was published in draft in March 2009 and adopted by Parliament with cross-party support as the 2010 Bribery Act in April 2010.

Resources to Report Corruption 

UK law provides criminal penalties for corruption by officials, and the government routinely implements these laws effectively.  The Serious Fraud Office (SFO) is an independent government department, operating under the superintendence of the Attorney General with jurisdiction in England, Wales, and Northern Ireland.  It investigates and prosecutes those who commit serious or complex fraud, bribery, and corruption, and pursues them and others for the proceeds of their crime.

All allegations of bribery of foreign public officials by British nationals or companies incorporated in the United Kingdom—even in relation to conduct that occurred overseas—should be reported to the SFO for possible investigation.  When the SFO receives a report of possible corruption, its intelligence team makes an assessment and decides if the matter is best dealt with by the SFO itself or passed to a law enforcement partner organization, such as the Overseas Anti-Corruption Unit of the City of London Police (OACU) or the International Corruption Unit of the National Crime Agency.  Allegations can be reported in confidence using the SFO’s secure online reporting form: https://www.sfo.gov.uk/contact-us/reporting-serious-fraud-bribery-corruption/ 

Details can also be sent to the SFO in writing:

SFO Confidential
Serious Fraud Office
2-4 Cockspur Street
London, SW1Y 5BS
United Kingdom

10. Political and Security Environment

The UK is politically stable but continues to be a target for both domestic and global terrorist groups.  Terrorist incidents in the UK have significantly decreased in frequency and severity since 2017, which saw five terrorist attacks that caused 36 deaths.  In 2019, the UK suffered one terrorist attack resulting in three deaths (including the attacker), and another two attacks in early 2020 caused serious injuries and resulted in the death of one attacker.  In November 2019, the UK lowered the terrorism threat level to substantial, meaning the risk of an attack was reduced from “highly likely” to “likely.”  UK officials categorize Islamist terrorism as the greatest threat to national security, though officials identify a rising threat from racially or ethnically motivated extremists, which they refer to as “extreme right-wing” terrorism.  Since March 2017, police and security services have disrupted 15 Islamist and seven extreme right-wing plots.

Environmental advocacy groups in the UK have been involved with numerous protests against a variety of business activities, including: airport expansion, bypass roads, offshore structures, wind farms, civilian nuclear power plants, and petrochemical facilities.  These protests tend not to be violent but can be disruptive, with the aim of obtaining maximum media exposure.

Brexit has waned as a source of political instability.  Nonetheless, the June 2016 EU referendum campaign was characterized by significant polarization and widely varying perspectives across the country.  Differing views about what should be the terms of the future UK-EU relationship continue to polarize political opinion across the UK.  The people of Scotland voted to remain in the EU and Scottish political leaders have indicated that the UK leaving the EU may provide justification to pursue another Referendum on Scotland leaving the UK.  A failure to fully implement the Withdrawal Agreement could contribute to political and sectarian tensions in Northern Ireland.

The process of Brexit itself has been politically fraught.  The UK was originally due to leave the EU on March 29, 2019, but then-Prime Minister (PM) Theresa May and her successor Boris Johnson had to ask for four delays in total as they both were unable to bring together a majority in the House of Commons to ratify the Withdrawal Agreement setting out the terms of the UK’s departure from the bloc.  The prolonged political paralysis resulted in an early General Election on December 12, 2019, which gave PM Johnson a solid 80-seat majority in the House of Commons and a clear mandate to press ahead with the UK’s withdrawal from the EU.  The UK formally departed the bloc on January 31, 2020, following the ratification of the Withdrawal Agreement, and entered a transition period during which the country is effectively still a member of the EU without voting rights, while continuing talks on its long-term future economic and security arrangements with the bloc.  The transition is currently scheduled to end on December 31, 2020, and HMG has categorically ruled out any extension.  The challenging timeline for negotiating an agreement of such breadth and complexity makes the prospect of no deal at the end of the transition period a real possibility at the time of writing.

Both main political parties have recently tacked in a less business-friendly direction.  The Conservative Party, traditionally the UK’s pro-business party, was, until the COVID-19 pandemic, focused on implementing Brexit, a process many international businesses oppose because they expect it to make trade in goods, services, workers, and capital with the UK’s largest trading partners more problematic and costly, at least in the short term.  In addition, the Conservative Party has implemented a Digital Services Tax (DST), a 2% tax on the revenues of predominantly American search engines, social media services and online marketplaces which derive value from UK users.  The DST has delayed a reduction in the Corporation Tax rate from 19 percent to 17 percent.  The Conservative Party also intends to limit and reduce international immigration, an issue that was a main driver of the UK’s vote to leave the EU.  The opposition Labour Party, until a resounding electoral loss in December 2019, was led by Jeremy Corbyn MP and Chancellor John McDonnell MP, who promoted policies opposed by business groups including laws that would give employees and shareholders the right to a binding vote on executive remuneration, make trade union rights stronger and more expansive, increase corporation tax, and nationalize utility companies.  The Labour Party’s new leader, former Brexit Shadow Secretary, Sir Keir Starmer MP, although widely acknowledged to be more economically centrist, has proposed few policies as the UK’s political system contends with the COVID-19 crisis.

Uruguay

Executive Summary

The Government of Uruguay (GoU) recognizes the important role foreign investment plays in economic development and offers a stable investment climate that does not discriminate against foreign investors. Uruguay’s legal system treats foreign and national investments equally, most investments are allowed without prior authorization, and investors can freely transfer the capital and profits from their investments abroad. International investors can choose between arbitration and the judicial system to settle disputes. Local courts recognize and enforce foreign arbitral awards.

In 2019, Transparency International ranked Uruguay as the most transparent country in Latin America and the Caribbean. The World Bank’s 2020 “Doing Business” Index placed Uruguay fourth out of twelve countries in South America. Uruguay is a stable democracy. U.S. firms have not identified corruption as an obstacle to investment. As of April 2020, Standard & Poor and Moody’s rate Uruguay two steps above the investment grade threshold with a stable outlook.

Domestic and foreign investment rose substantially from 2004-2014 following Uruguay´s economic boom, but have dropped significantly since 2015 despite tax incentives for investors passed in mid-2018. About 120 U.S. firms operate locally and are invested among a wide array of sectors, including forestry, tourism and hotels, services, and telecommunications. In 2018, the United States was the second largest investor in Uruguay, reflecting its longstanding presence in the country. Uruguay has bilateral investment treaties with over 30 countries, including the United States. The United States does not have a double-taxation treaty with Uruguay. Both countries have a Trade and Investment Framework Agreement in place, and have signed agreements on open skies, trade facilitation, customs mutual assistance, promotion of small and medium enterprises, and social security totalization.

Over the past decade, Uruguay strengthened bilateral trade, investment, and political ties with China, its principal trading partner. In August 2018, Uruguay was the first country in the Southern Cone to join China’s One Belt One Road initiative. Uruguay formally joined the Asian Infrastructure Investment Bank in 2020. In recent years, China has signaled openness to a free trade agreement either with Uruguay bilaterally or with Mercosur.

A 2018 survey by Uruguay’s Ministry of Economy and Finance showed that about half of foreign investors were satisfied or very satisfied with Uruguay´s investment climate, principally its rule of law, low political risk, macroeconomic stability, strategic location, and investment incentives. Almost all investors were satisfied or highly satisfied with Uruguay’s 11 free trade zones and free ports. However, roughly one-fourth of investors were dissatisfied with at least one aspect of doing business locally, expressing concerns about high labor costs and taxes, high energy costs, as well as unions and labor conflicts. Following a March 2020 change of government from the left-leaning Frente Amplio to a coalition under the centrist Partido Nacional party, private sector representatives expect the new administration will have a more balanced approach on labor relations.

Uruguay is a founding member of Mercosur, the Southern Cone Common Market created in 1991 that is headquartered in Montevideo and also comprises Argentina, Brazil, and Paraguay. (Note: Venezuela joined the bloc in June 2012 and was suspended in December 2016.) Uruguay has separate trade agreements with Bolivia, Chile, Colombia, Ecuador, and Peru, all of which are also Mercosur associate members. Uruguay and Mexico have a comprehensive trade agreement in place since 2004, and in 2018, Uruguay extended its existing free trade agreement with Chile to increase trade in goods and services.

Uruguay’s strategic location (in the center of Mercosur’s wealthiest and most populated area), and its special import regimes (such as free zones and free ports) make it a well-situated distribution center for U.S. goods into the region. Several U.S. firms warehouse their products in Uruguay’s tax-free areas and service their regional clients effectively. With a small market of high-income consumers, Uruguay can also be a good test market for U.S. products. U.S.-Uruguay IT services trade is also a recent growth area.

Table 1: International Rankings and Statistics
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 21 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2020 101 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 66 of 129 https://www.globalinnovationindex.org/
analysis-indicator_Global_Innovation_Index
U.S. FDI in Partner Country ($M USD, stock positions) 2018 1,314 https://apps.bea.gov/international/di1usdbal
World Bank GNI per capita 2018 15,650 https://data.worldbank.org/indicator/
NY.GNP.PCAP.CD?locations=UY

6. Financial Sector

Capital Markets and Portfolio Investment

Uruguay passed a capital markets law (No. 18,627) in 2009 to jumpstart the local capital market. However, despite some successful bond issuances by public firms, the local capital market remains underdeveloped and highly concentrated in sovereign debt. This makes it very difficult to finance business ventures through the local equity market, and restricts the flow of financial resources into the product and factor markets. Due to its underdevelopment and lack of sufficient liquidity, Uruguay typically receives only “active” investments oriented to establishing new firms or gaining control over existing ones and lacks “passive investments” from major investment funds.

The government maintains an open attitude towards foreign portfolio investment; there is no effective regulatory system to encourage or facilitate it. Uruguay does not impose any restrictions on payments and transfers for current international transactions.

Uruguay allocates credit on market terms, but long-term banking credit has traditionally been difficult to obtain. Foreign investors can access credit on the same market terms as nationals.

As part of the process of complying with OECD requirements (see Bilateral Investment Agreements section), Uruguay banned “bearer shares” in 2012, which had been widely used. Private firms do not use “cross shareholding” or “stable shareholder” arrangements to restrict foreign investment, nor do they restrict participation in or control of domestic enterprises.

Money and Banking System

Uruguay established the Central Bank (BCU) in 1967 as an autonomous state entity. With over 40 percent of the market, the government-owned Banco de la República Oriental del Uruguay (BROU) is the nation’s largest bank. The rest of the banking system comprises a government-owned mortgage bank and nine international commercial banks. The BCU’s Superintendent of Financial Services regulates and supervises foreign and domestic banks or branches alike. The banking sector is healthy, with good capital and liquidity ratios.

Since Uruguay’s establishment of a financial inclusion program in 2011, and especially after the passage of a financial inclusion law in 2014 (No. 19,210), the use of debit cards, credit cards, and bank account holders has increased significantly. Uruguay has authorized a number of private sector firms to issue electronic currency. In 2018, the BCU and the BROU developed a pilot program to assess the possibility of implementing an electronic currency, the e-peso. With regard to technological innovation in the financial sector, the first regional Fintech Forum was held in Montevideo in 2017, leading to the creation of the Fintech Ibero-American Alliance. While some local firms have developed domestic and international electronic payment systems, emerging technologies like blockchain and crypto currencies remain underdeveloped.

Mostly related to the United States’ Foreign Account Tax Compliance Act provisions, there have been some cases of U.S. citizens having difficulties establishing a first-time bank account.

Foreign Exchange and Remittances

Foreign Exchange

Uruguay maintains a long tradition of not restricting the purchase of foreign currency or the remittance of profits abroad. Free purchases of any foreign currency and free remittances were preserved even during the severe 2002 financial crisis.

Uruguay does not engage in currency manipulation to gain competitive advantage. Since 2002, the peso has floated relatively freely, albeit with intervention from the Central Bank aimed at reducing the volatility of the price of the dollar. Foreign exchange can be obtained at market rates and there is no black market for currency exchange.

Remittance Policies

Uruguay maintains a long tradition of not restricting remittance of profits abroad.

Article 7 of the U.S. – Uruguay BIT provides that both countries “shall permit all transfers relating to investments to be made freely and without delay into and out of its territory.” The agreement also establishes that both countries will permit transfers “to be made in a freely usable currency at the market rate of exchange prevailing at the time of the transfer.”

Sovereign Wealth Funds

There are no sovereign wealth funds in Uruguay.

7. State-Owned Enterprises

The State still plays a dominant role in the economy and Uruguay maintains government monopolies or oligopolies in certain areas, including the importing and refining of oil, workers compensation insurance, and landline telecommunications.

Uruguay’s largest state-owned enterprises (SOEs) include the petroleum, cement, and alcohol company ANCAP, telecommunications company ANTEL, electric utility UTE, water utility OSE, and Uruguay’s largest bank BROU. While deemed autonomous, in practice these enterprises coordinate in several areas — mainly on tariffs — with their respective ministries and the executive branch. The boards of these entities are appointed by the executive branch, require parliamentary approval, and remain in office for the same term as the executive branch. Uruguayan law requires SOEs to publish an annual report, and independent firms audit their balances. There is no consolidated published list of SOEs.

Some traditionally government-run monopolies are open to private-sector competition. Cellular and international long-distance services, insurance, and media services are open to local and foreign competitors. Uruguay permits private-sector generation of power and private interests dominate renewable energy production, but the state-owned power company UTE holds a monopoly on the transfer of electrical power through transmission and distribution lines from one utility’s service area to another’s, otherwise known as wheeling rights. State-owned companies tend to have the largest market share even in sectors open to competition. Potential cross-subsidies likely give SOEs an advantage over their private sector competitors.

Uruguay does not adhere to the OECD’s Guidelines on Corporate Governance of State-Owned Enterprises. The new government plans to reform and increase the efficiency of its SOEs.

Privatization Program

Uruguay has not undertaken a major privatization program in recent decades. While Uruguay opened some previously government-run monopolies to private-sector competition, the government continues to maintain a monopoly in the import and refining of petroleum as well as landline telecommunications.

Parliament passed a public-private partnership (PPP) law in 2011 and created regulations with decree 007/12. The law allows private sector companies to design, build, finance, operate, and maintain certain infrastructure, including brownfield projects. With some exceptions (such as medical services in hospitals or educational services in schools), PPPs can also be applied to social infrastructure. The return for the private sector company may come in the form of user payments, government payments, or a combination of both.

In 2015, Uruguay passed new regulations (Decree 251/15) to simplify the procedures and expedite the PPP process. The only fully operational project to date is a USD$93 million prison. As of April 2020, there are three PPP projects in the implementation phase, the largest of which is a 170-mile railroad for approximately USD$1 billion. There is a pipeline of ten other projects for USD$873 million, in different stages of development, related to roads, education, and health.

9. Corruption

Transparency International’s 2019 edition of the Corruption Perception Index ranked Uruguay as having the lowest levels of perceived corruption in Latin America and the Caribbean in its 2019 edition of the Corruption Perception Index. Overall, U.S. firms have not identified corruption as an obstacle to investment.

Uruguay has laws to prevent bribery and other corrupt practices. It approved a law against corruption in the public sector in 1998 (No. 17,060), and the acceptance of a bribe is a felony under Uruguay’s penal code. The government prosecuted some high-level Uruguayan officials from the executive, parliamentary, and judiciary branches for corruption in recent years. The government neither encourages nor discourages private companies to establish internal codes of conduct.

The Transparency and Public Ethics Board (JUTEP by its Spanish acronym, http://www.jutep.gub.uy/ ) is the government office responsible for dealing with public sector corruption. Traditionally a low-profile office and still with a limited scope, it gained relevance in face of a case that ended in the resignation of Uruguay´s Vice-President in 2017. Since then, JUTEP has played a role in denouncing alleged nepotism in the public sector. There are no major NGOs involved in investigating corruption.

A 2017 law (No. 19,574) sets an integral framework against money laundering and terrorism finance, brings Uruguay into compliance with OECD and UN norms, and includes corruption as a predicate crime. Uruguay signed and ratified the UN’s Anticorruption Convention. It is not a member of the OECD and therefore is not party to the OECD’s Convention on Combating Bribery.

Resources to Report Corruption

Government agency responsible for combating corruption:

Junta de Transparencia y Ética Publica
As of May 2020 the presidency is vacant
Address: Rincon 528, 8th floor, ZC 11000
Tel: (598) 2917 0407
E-mail: secretaria@jutep.gub.uy

Local branch of Transparency International: http://www.uruguaytransparente.uy 

10. Political and Security Environment

Uruguay is a stable democracy in which respect for the rule of law and transparent national debates to resolve political differences are the norm. The majority of the population is committed to non-violence. In 2020, the Economist magazine ranked Uruguay as one of only two “full democracies” in South America. There have been no cases of political violence or damage to projects or installations over the past decade.

Violent crime is on the rise in Uruguay. Rising crime rates have alarmed business owners. The issue of deteriorating citizen security was a central issue in the October 2019 presidential election and is a top priority of the new administration. 11. Labor Policies and Practices

Uzbekistan

Executive Summary

With over 34 million citizens – the largest population in Central Asia, rich reserves of natural resources, and relatively well-developed infrastructure, Uzbekistan has the potential to become one of the strongest economies in the post-Soviet area.  Uzbekistan has demonstrated stable economic development in recent years, reporting 5.6% GDP growth in 2019.  The country’s leadership continues to implement large-scale economic reform policies targeted at boosting growth through modernization of state-owned monopolies and creating a supportive climate for private and foreign direct investment.  During the reporting period, policy priorities were focused on improving Uzbekistan’s investment attractiveness including through adoption of a new currency regulation law to guarantee freedom of current cross-border and capital movement transactions; a new law on investment activities to guarantee foreign investors’ rights; and, a new tax code featuring lower and more equitable tax rates and simplified reporting requirements.

The policy of liberalization reforms, initiated by the government in 2016, is paying off: the total volume of foreign direct investment (FDI) attracted to Uzbekistan has grown from about $1.6 billion in 2018 to $4.2 billion in 2019.  Uzbekistan was named as one of the top 20 “global improvers” in the World Bank’s 2020 Doing Business report, and the 2019 Country of the Year award winner by The Economist magazine.  Over 10,600 companies with foreign capital were operating in Uzbekistan as of February 1, 2020; approximately 3,000 of them were created in 2019.  FDIs and private investments are critical for sustaining Uzbekistan’s economic development; however, the government continues to channel investments into export-oriented and import substituting industries.  According to Uzbekistan’s official statistics, the total volume of capital investments exceeded $21.5 billion in 2019.  Financing sources included $4.2 billion FDIs and $5.6 billion as foreign loans.  Major industries include mining, oil, and gas extractives, electricity generation, construction, agriculture, textiles, transportation, metallurgy, non-metal/non-mineral production, and chemical production.

In November 2019, President Mirziyoyev created the Council of Foreign Investors, a body where executives and representatives of foreign companies, banks, investment companies, international financial institutions and foreign government financial organizations will be given the opportunity to advise the GOU on measures it could take to improve the investment climate.  In February 2019, Uzbekistan for the first time placed five- and ten-year Eurobonds worth $1 billion in the London Stock Exchange.  This success opened the country to foreign fixed income investors and set a benchmark for future foreign bond issuances by Uzbekistan-based companies.

At the same time, the government’s poor progress in reducing the domination of state-owned monopolies in the economy, continued non-transparent public procurement practices, and cases of government agencies’ and state-owned enterprises’ inconsistent compliance with contract commitments have negatively impacted Uzbekistan’s investment climate.  Furthermore, private businesses have expressed concerns about local government development policies failing to adhere to recently adopted legislation on the protection of private property.  Small businesses have reported expropriation of their property in favor of well-connected companies or development projects supported by regional or municipal authorities.  Enforcement of legislation on protection of intellectual property rights also remains insufficient.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 153 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 69 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $71 million http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 $2,020 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Prior to 2017, the government focused on investors capable of providing technology transfers and employment in local industries, and had not prioritized attraction of portfolio investments.  In 2017, the GOU announced its plans to improve the capital market and use stock market instruments to meet its economic development goals.  The government created a new Agency for the Development of Capital Markets (CMDA) in January 2019 as the institution responsible for development and regulation of the securities market and protection of the rights and legitimate interests of investors in securities market.  CMDA is currently implementing a capital markets development strategy for 2020-2025.  According to CMDA officials, the goal of the strategy is to make the national capital market big enough to attract not only institutional investors, but to become a key driver of domestic wealth creation.  The U.S. Government is supporting this strategy through a technical assistance program led by the Department of the Treasury.

Uzbekistan has its own stock market, which supports trades through the Republican Stock Exchange “Tashkent,” Uzbekistan’s main securities trading platform and only corporate securities exchange (https://www.uzse.uz).  The stock exchange mainly hosts equity and secondary market transactions with shares of state-owned enterprises.  In most cases, government agencies determine who can buy and sell shares and at what prices, and it is often impossible to locate accurate financial reports for traded companies.

The GOU is continuing to liberalize banking sector regulations to facilitate free flows of financial resources into the market.  The law adopted on March 20, 2019 (ZRU-531) has considerably simplified repatriation of capital invested in Uzbekistan’s industrial assets, securities and stock market profits.  According to the new rules, foreign investors that have resident entities in Uzbekistan can convert their dividends and other incomes to foreign currencies and transfer them to their accounts in foreign banks.  Non-resident entities that buy and sell shares of local companies can open bank accounts in Uzbekistan to accumulate their revenues.

Uzbekistan formally accepted IMF Article VIII in October 2003, but due to excessive protectionist measures of the government, businesses had limited access to foreign currency, which stimulated the grey economy and the creation of multiple exchange rate systems.  Effective September 5, 2017, the GOU eliminated the difference between the artificially low official rate and the black-market exchange rate and allowed unlimited non-cash foreign exchange transactions for businesses.  The Law on Currency Regulation (ZRU-573), which fully liberalized currency operations, current cross-border and capital movement transactions, received final approved on October 22, 2019.

Under the law, foreign investors and private sector businesses can have access to various credit instruments on the local market, but the still-overregulated financial system yields unreliable credit terms.  Access to foreign banks is limited and is usually only granted through their joint ventures with local banks.  Commercial banks, to a limited degree, can use credit lines from international financial institutions to finance small and medium sized businesses.

Money and Banking System

As of March 2020, 30 commercial banks operate in Uzbekistan.  Five commercial banks are state-owned, thirteen banks are registered as joint-stock financial organizations (eight of which are partly state-owned), six banks have foreign capital, and six banks are private.  Commercial banks have 854 branches and about 1,100 retail offices throughout the country.  State-owned banks hold 87% of banking sector capital and 84% of banking sector assets, leaving privately owned banks as relatively small niche players.  The nonbanking sector is represented by 56 microcredit organizations and 61 pawn shops.

According to assessments of international rating agencies, including Fitch and Moody’s, the banking sector of Uzbekistan is stable and poses limited near-term risks, primarily due to high concentration and domination of the public sector, which controls over 80% of assets in the banking system.  The average rate of capital adequacy within the system is 23.4%, and the current liquidity rate is 98.1%.  The growing volume of state-led investments in the economy supports the stability of larger commercial banks, which often operate as agents of the government in implementing its development strategy.  Privately owned commercial banks are relatively small niche players.  The government and the Central Bank of Uzbekistan (CBU) still closely monitor commercial banks.

Official information on non-performing assets is not publicly available.  According to the IMF’s 2019 Article IV Consultation report, the share of nonperforming loans out of total gross loans is about 1.3-1.4%.  A majority of Uzbekistan’s commercial banks have earned “stable” ratings from international rating agencies.

In February 2020, the banking sector’s capitalization was about $5.5 billion, and the value of total bank assets in the whole country was equivalent to $28.9 billion.  The three largest state-owned banks – the National Bank of Uzbekistan, Asaka Bank, and Uzpromstroybank – hold 50% of the banking sector’s capital ($2.7 billion) and 49.1% of the assets ($14.4 billion).

Uzbekistan maintains a central bank system.  The Central Bank of Uzbekistan (CBU) is the state issuing and reserve bank and central monetary authority.  The bank is accountable to the Supreme Council of Uzbekistan and is independent of the executive bodies (the bank’s organization chart is available here: http://www.cbu.uz/en/).

In general, any banking activity in Uzbekistan is subject to licensing and regulation by the Central Bank of Uzbekistan.  Foreign banks often feel pressured to establish joint ventures with local financial institutions.  Currently there are six small banks with foreign capital operating in the market, and six foreign banks have accredited representative offices in Uzbekistan, but do not provide direct services to local businesses and individuals.  Information about the status of Uzbekistan’s correspondent banking relationships is not publicly available.

Foreigners and foreign investors can establish bank accounts in local banks without restrictions.  They also have access to local credit, although the terms and interest rates do not represent a competitive or realistic source of financing.

Foreign Exchange and Remittances

Foreign Exchange

Uzbekistan adopted Article VIII of the IMF’s Articles of Agreement in October 2003, but full implementation of its obligations under this article began only in September 2017.  In accordance with new legislation (ZRU 531 of March 2019 and ZRU-573 of October 2019), all businesses, including foreign investors, are guaranteed the ability to convert their dividends and other incomes in local currencies to foreign currencies and transfer to foreign bank accounts for current cross-border, dividend payments, or capital repatriation transactions without limitations, provided they have paid all taxes and other financial obligations in compliance with local legislation.  Uzbekistan authorities may stop the repatriation of a foreign investor’s funds in cases of insolvency and bankruptcy, criminal acts by the foreign investor, or when so directed by arbitration or a court decision.

The exchange rate is determined by the CBU, which insists that it is based on free market forces (9,514 soum per U.S dollar as of March 3, 2020).  After the almost 50% devaluation of the national currency in September 2017, the exchange rate has been relatively stable, supported by strong FX reserves ($29.4 billion by February 1, 2020).  The CBU reported it had made $3.6 billion interventions in 2019 in the forex market to support the local currency.

Remittance Policies

President Mirziyoyev launched foreign exchange liberalization reform on September 2017 by issuing a decree “On Priority Measures for Liberalization of Monetary Policy.”  The Law on Currency Regulation (ZRU-573), adopted on October 22, 2019, has liberalized currency exchange operations, current cross-border, and capital movement transactions.  Business entities can purchase foreign currency in commercial banks without restrictions for current international transactions, including import of goods, works and services, repatriation of profits, repayment of loans, payment of travel expenses and other transfers of a non-trade nature.

Banking regulations mandate that the currency conversion process should take no longer than one week.  In 2019 businesses reported that they observed no delays with conversion and remittance of their investment returns, including dividends; return on investment, interest and principal on private foreign debt; lease payments; royalties; and management fees.

Sovereign Wealth Funds

The Fund for Reconstruction and Development of Uzbekistan (UFRD) serves as a sovereign wealth fund.  Uzbekistan’s Cabinet of Ministers, Ministry of Finance, and the five largest state-owned banks were instrumental in establishing the UFRD, and all those institutions have membership on its Board of Directors.

The fund does not follow the voluntary code of good practices known as the Santiago Principles, and Uzbekistan does not participate in the IMF-hosted International Working Group on sovereign wealth funds.  The GOU established the UFRD in 2006, using it to sterilize and accumulate foreign exchange revenues, but officially the goal of the UFRD is to provide government-guaranteed loans and equity investments to strategic sectors of the domestic economy.

The UFRD does not invest, but instead provides debt financing to SOEs for modernization and technical upgrade projects in sectors that are strategically important for Uzbekistan’s economy.  All UFRD loans require government approval.

7. State-Owned Enterprises

State-owned enterprises (SOEs) dominate those sectors of the economy recognized by the government as being of national strategic interest.  These include energy (power generation and transmission, and oil and gas refining, transportation and distribution), metallurgy, mining (ferrous and non-ferrous metals and uranium), telecommunications (fixed telephony and data transmission), machinery (the automotive industry, locomotive and aircraft production and repair), and transportation (airlines and railways).  Most SOEs register as joint-stock companies, and a minority share in these companies usually belongs to employees or private enterprises.  Although SOEs have independent boards of directors, they must consult with the government before making significant business decisions.

The government owns majority or blocking minority shares in numerous non-state entities, ensuring substantial control over their operations, as it retains the authority to regulate and control the activities and transactions of any company in which it owns shares.  The Agency for Management of State-owned Assets is responsible for management of Uzbekistan’s state-owned assets, both those located in the country and abroad.  There are no publicly available statistics with the exact number of wholly and majority state-owned enterprises, the number of people employed, or their contribution to the GDP.  According to some official reports and fragmented statistics, there are over 3,500 SOEs in Uzbekistan, including 27 large enterprises and holding companies, about 2,900 unitary enterprises, and 486 joint stock companies, which employ about 1.5-1.7 million people, or about 13% of all domestically employed population.  Their share in the GDP was about 45% in 2019.

The published list of major Uzbekistani SOEs is available on the official GOU website (listing large companies and banks only): http://www.gov.uz/en/pages/government_sites.

In theory, private sector or foreign companies can be more competitive than local SOEs in sectors that are not under the control of state-owned monopolies, but regulations make them dependent on government SOEs.

By law, SOEs are obligated to operate under the same tax and regulatory environment as private businesses.  In practice, however, private enterprises do not enjoy the same terms and conditions.  A May 2019 IMF Staff Report mentioned that SOEs absorbed disproportionate shares of skilled labor, energy, and financial resources, while facing weak competition enforcement and enjoying a wealth of investment preferences.  The government leverages licensing and access to some commodities and utilities to protect quasi-governmental institutions and companies from commercial competition.  Private businesses face more than the usual number of bureaucratic hurdles if they compete with the government or a government-controlled firm.  Most SOEs have a range of advantages, including various tax holidays, as well as better access to commodities, energy and utility supplies, local and external markets, and financing.

On December 28, 2018, President Mirziyoyev ordered the GOU to develop a plan to restructure its SOEs.  He noted that strong involvement of the state in the fuel and energy, petrochemical, chemical, transport, and banking sectors was hampering their development.  The Agency for

Management of State Assets was ordered to implement a program on strengthening SOE corporate governance.  In February 2020, the GOU proposed an SOE reform roadmap, which is expected to be approved on May 1, 2020.  The reform will cover 13 large SOEs in the telecommunications, transportation, construction, food processing, automotive, machinery, wheat, cotton and chemical industries, as well as movie-making enterprises.  The government plans to optimize the structure of these enterprises to increase their efficiency.  Per the roadmap, 781 low-performing assets of these SOEs will be offered for privatization.  It is expected that a broader scale optimization reform will also cover the largest SOEs, which control the mining/base metal sectors of the economy.  The relevant draft of the decree has been published for public review.  Implementation of this SOE optimization and reform program will likely take some time, as the GOU seeks to avoid high social costs, such as mass unemployment.

Privatization Program

GOU policy papers indicate it is prioritizing further privatization of state-owned assets.  The GOU’s goal is to reduce the public share of capital in the banking sector and business entities through greater attraction of foreign direct investments, local private investments, and promotion of public-private partnerships.  By law, privatization of non-strategic assets does not require government approval and can be cleared by local officials.  Foreign investors are allowed to participate in privatization programs.  For investors that privatize assets at preferential terms, the payment period is three years, and the investment commitment fulfillment term is five years.  According to official reports, 842 state owned enterprises and facilities were privatized in 2019.  Privatization earnings of the state budget were equivalent to $54.3 million.

In May 2018, the Mirziyoyev administration first announced upcoming restructuring and privatization in various industries but noted that SOEs in extractive industries (energy, hydrocarbons and gold) would stay under state ownership.  On February 26, 2020, a draft of SOE privatization plan was posted by the State Assets Management Agency for public review.  The plan includes privatization of 1,115 enterprises, and public-private-partnerships in 42 enterprises.  Companies that operate critical infrastructure and enterprises that qualify as companies of strategic importance will remain in full state ownership.  The GOU timeline calls for this privatization program to be approved in May 2020 and implemented by 2025.

Senior government officials see privatization as a solution to improve the economic performance of inefficient large SOEs and as an instrument to attract private investments, primarily through public-private-partnership agreements.  They view such investments as critical for the creation of new jobs and mitigation of state budget deficits.  The GOU believes it needs to prepare SOEs for privatization, including modernization of equipment and organizational and financial restructuring of each underperforming industry.  Therefore, large scale privatization may be a long way off.

Privatization programs officially have a public bidding process, but it is often confusing, discriminatory, and non-transparent.  Large privatization deals with the involvement of foreign investment require GOU approval.  Formally, such approval can be issued after examination by the Contracts Detailed Due Diligence Center under the Ministry of Economy.  Many investors note a lack of transparency at the final stage of the bidding process, when the government negotiates directly with bidders before announcing the results.  In some cases, the bidders have been foreign-registered front companies associated with influential Uzbekistani families.

9. Corruption

Uzbekistan’s legislation and Criminal Code both prohibit corruption.  President Mirziyoyev has declared combatting widespread corruption one of his top priorities.  On January 3, 2017, he approved the law “On Combating Corruption.” The law is intended to raise the efficiency of anti-corruption measures through the consolidation of efforts of government bodies and civil society in preventing and combating cases of corruption, attempted corruption, and conflict of interest, ensuring punishment for such crimes.  On May 27, 2019, Presidential Decree UP-5729 launched the State Anti-Corruption Program for 2019-2021 and created the Interagency Commission for Combating Corruption.  The program is focused on strengthening the independence of the judiciary system, developing a fair and transparent public service system requiring civil servants to declare their incomes and establishing mechanisms to prevent conflicts of interest, facilitating civil society and media participation in combating corruption, and other measures.

Formally, the anti-corruption legislation extends to all government officials, their family members, and members of all political parties of the country.  However, Uzbekistan has not yet introduced asset declaration requirements for government officials or their family members, although legislation with such a requirement was drafted in October 2019 and is expected to be enforced from January 2020 onwards.  Currently, the Prosecutor General’s Office of Uzbekistan (PGO) is the main government arm tasked with fighting corruption.  Since Mirziyoyev took office in September 2016, the government has prosecuted a number of officials under anti-corruption laws, and punishment has varied from a fine to imprisonment with confiscation of property.  According to official statistics, 1,200 corruption-related crimes were registered in 2018 and 1,071 in 2019.

The process of awarding GOU contracts continues to lack transparency.  According to a presidential decree issued on January 10, 2019, all government procurements must now go through a clearance process within the Ministry of Economy.  Procurement contracts involving public funds or performed by state enterprises with values of over $100,000 need additional clearances from other relevant government agencies.

The law “On Combating Corruption” prescribes a range of measures for preventing corruption, including through raising public awareness and introduction of transparent rules for public-private interactions.  The law, however, does not specifically encourage companies to establish relevant internal codes of conduct.

Currently only a few local companies created by or with foreign investors have effective internal ethics programs.

Uzbekistan is a member of the OECD Anti-Corruption Network (ACN) for Eastern Europe and Central Asia.  One of the latest OECD reports on anti-corruption reforms in Uzbekistan (March 21, 2019) says that, although Uzbekistan has already undertaken a number of key anti-corruption reforms, the GOU now needs to systematize its anti-corruption policy by making it strategic in nature.  Uzbekistan is ranked 153 out of 180 rated countries in Transparency International’s 2019 Corruption Perceptions Index.

There are very few officially registered local NGOs available to investigate corruption cases and Embassy Tashkent is not aware of any genuine NGOs that are presently involved in investigating corruption.  The law “On Combating Corruption” encourages more active involvement of NGOs and civil society in investigation and prevention of crimes related with corruption.

U.S. businesses have cited corruption and lack of transparency in bureaucratic processes, including public procurements and licensing, as among the main obstacles to foreign direct investment in Uzbekistan.

Resources to Report Corruption

The government agencies that are responsible for combating corruption are the Prosecutor General’s Office and the Ministry of Justice.  Currently, no international or local nongovernmental watchdog organizations have permission to monitor corruption in Uzbekistan.

Contact information for the office of Uzbekistan’s Prosecutor General:

Address: 66, Akademik Gulyamov St., 100047, Tashkent, Uzbekistan
Website: www.prokuratura.uz
Hotline telephone numbers: +998(71) 1007, 232-4391, 232-4550,

Contact information for the office of Uzbekistan’s Ministry of Justice:

Address: 5, Sayilgoh Street, 100047, Tashkent, Uzbekistan
Website: http://www.minjust.uz/en/, http://www.minjust.uz/ru/anticorruption/feedback/
Hotline telephone numbers: +998(71) 1008, 233-2610, 233-1305, 236-0509
E-mail: info@minjust.gov.uz

10. Political and Security Environment

Uzbekistan does not have a history of politically motivated violence or civil disturbance.  There have not been any examples of damage to projects or installations over the past ten years.  Uzbekistani authorities maintain a high level of alert and aggressive security measures to thwart terrorist attacks. The environment in Uzbekistan is not growing increasingly politicized or insecure.

Vietnam

Executive Summary

Vietnam continues to welcome foreign direct investment (FDI) and the government has policies in place that are broadly conducive to U.S. investment. Factors that attract foreign investment to Vietnam include ongoing economic reforms, new free trade agreements, a young and increasingly urbanized population, political stability, and inexpensive labor costs.

Vietnam attracted USD 143 billion in cumulative FDI over the past 10 years (2010-2019 inclusive). Of this, 59 percent went into manufacturing – especially in the electronics, textiles, footwear, and automobile parts industries – as many companies shifted supply chains to Vietnam. In 2019, Vietnam attracted USD 20.3 billion in FDI. The government approved the following significant FDI projects in 2019: Beerco Limited’s USD 3.9 billion acquisition of Vietnam Beverage; Center of Techtronic Tools’ project to develop a USD 650 million research and development center in Ho Chi Minh City; Charmvit’s USD 420 million for an amusement park and horse racing field in Hanoi; and LG Display’s USD 410 million expansion.

In 2019, Vietnam advanced some reforms to make the country more FDI-friendly. In particular, the government issued Resolution 55, which aims to attract USD 50 billion of foreign investment by 2030 by amending regulations that inhibit foreign investments and by codifying quality, efficiency, advanced technology, and environmental protection criteria. In addition, Vietnam passed the 2019 Securities Law, which states the government’s intention to remove foreign ownership limits (but does not give specifics) and the 2019 Labor Code, which adds flexibility for labor contracts.

Despite the comparatively high level of FDI inflows as a percentage of the GDP (8 percent in 2019), significant challenges remain in the business climate. These include corruption, a weak legal infrastructure and judicial system, poor enforcement of intellectual property rights (IPR), a shortage of skilled labor, restrictive labor practices, impediments to infrastructure investments, and the government’s slow decision-making process.

Although Vietnam jumped 10 spots – from 77 to 67 – in the World Economic Forum’s (WEF) 2019 Global Competitiveness Index, WEF recommends that Vietnam continue reforms to improve its attractiveness to foreign investors by simplifying legal procedures and streamlining the bureaucratic process related to decision making.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into force in Vietnam on January 14, 2019, and Vietnamese officials have said they will approve the EU-Vietnam Free Trade Agreement (EVFTA) in late 2020. These agreements will facilitate FDI inflows into Vietnam, provide better market access for Vietnamese exports, and encourage reforms that will help all foreign investors. However, while these agreements lower trade and investment barriers for participating countries, they may make it more difficult for U.S. companies to compete.

COVID-19 buffeted Vietnam’s economy in early 2020, resulting in layoffs and unemployment, decreased consumption, and a projected decrease in the country’s growth rate. In March 2020, the government started enacting fiscal and monetary policies to counter the effects of the pandemic, including a stimulus worth USD 30 billion and monetary policy designed to inject upwards of USD 11 billion into the economy.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 96 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2019 70 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 42 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 2,010 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 USD 2,360 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

The Vietnamese government generally encourages foreign portfolio investment. The country has two stock markets – the Ho Chi Minh City Stock Exchange, which lists publicly traded companies, and the Hanoi Stock Exchange, which lists bonds and derivatives. Vietnam also has a market for unlisted public companies (UPCOM) at the Hanoi Securities Center.

Although Vietnam welcomes portfolio investment, the country sometimes has difficulty in attracting such investment. Morgan Stanley Capital International (MSCI) classifies Vietnam as a Frontier Market, which precludes some of the world’s biggest asset managers from investing in its stock markets. Vietnam is improving its legal framework to reach its goal of meeting the “emerging market” criteria in 2020 and attracting more foreign capital. However, exogenous events may make this difficult: in the first quarter of 2020, foreign investors withdrew USD 500 million in portfolio assets from Vietnam due to the COVID-19 pandemic.

There is enough liquidity in the markets to enter and maintain sizable positions. Combined market capitalization at the end of 2019 was approximately USD 189 billion, equal to 73 percent of Vietnam’s GDP, with the Ho Chi Minh City Stock Exchange accounting for USD 141 billion, the Hanoi Exchange USD 8 billion, and the UPCOM USD 40 billion. Bond market capitalization reached over USD 50 billion in 2019, the majority of which were government bonds, largely held by domestic commercial banks.

Vietnam complies with International Monetary Fund (IMF) Article VIII. The government notified the IMF that it accepted the obligations of Article VIII, Sections 2, 3, and 4, effective November 8, 2005.

Local banks generally allocate credit on market terms, but the banking sector is not as sophisticated or capitalized as those in advanced economies. Foreign investors can acquire credit in the local market, but both foreign and domestic firms often seek foreign financing since Vietnamese banks do not have sufficient capital at appropriate interest rate levels for a significant number of FDI projects.

Money and Banking System

Vietnam’s banking sector has been stable since recovering from the 2008 global recession. Nevertheless, the SBV estimated in 2018 that half of Vietnam’s population is underbanked or lacks bank accounts due to a preference for cash, distrust in commercial banking, limited geographical distribution of banks, and a lack of financial acumen. The World Bank’s Global Findex Database 2017 (the most recent available) estimated that only 31 percent of Vietnamese over the age of 15 had an account at a financial institution or through a mobile money provider.

Although the banking sector was stable during 2019, COVID-19 may challenge the sector. Ratings agency Moody’s reported, on April 7, 2020, that “the consumer finance industry in Vietnam is vulnerable to disruptions given its risky borrower profile,” and noted that layoffs, underemployment, and business closures resulting from COVID-19 further decrease the creditworthiness of borrowers. At the end of 2019, the SBV reported that the percentage of non-performing loans (NPLs) in the banking sector was 1.9 percent, a significant improvement from the 2.4 percent at the end of 2018.

The banking sector’s estimated total assets stood at USD 519 billion, of which USD 222 billion belonged to seven state-owned and majority state-owned commercial banks – accounting for 42 percent of total assets. Though classified as joint-stock (private) commercial banks, the Bank of Investment and Development Bank (BIDV), Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), and Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) all are majority-owned by SBV. In addition, the SBV holds 100 percent of Agribank, Global Petro Commercial Bank (GPBank), Construction Bank (CBBank), and Oceanbank.

The U.S. Mission in Vietnam did not find any evidence that a Vietnamese bank had lost a correspondent banking relationship in the past three years; there is also no evidence that a correspondent banking relationship is currently in jeopardy.

Foreign Exchange and Remittances

Foreign Exchange

There are no legal restrictions on foreign investors converting and repatriating earnings or investment capital from Vietnam. A foreign investor can convert and repatriate earnings provided the investor has the supporting documents required by law and has applied to remit money. The SBV sets the interbank lending rate and announces a daily interbank reference exchange rate. SBV determines the latter based on the previous day’s average interbank exchange rates, while considering movements in the currencies of Vietnam’s major trading and investment partners. The Vietnamese government generally keeps the exchange rate at a stable level compared to major world currencies.

Remittance Policies

Vietnam mandates that in-country transactions must be made in the local currency – Vietnamese dong (VND). The government allows foreign businesses to remit lawful profits, capital contributions, and other legal investment earnings via authorized institutions that handle foreign currency transactions. Although foreign companies can remit profits legally, sometimes these companies find difficulties bureaucratically, as they are required to provide supporting documentation (audited financial statements, import/foreign-service procurement contracts, proof of tax obligation fulfillment, etc.). SBV also requires foreign investors to submit notification of profit remittance abroad to tax authorities at least seven working days prior to the remittance; otherwise there is no waiting period to remit an investment return.

The inflow of foreign currency into Vietnam is less constrained. There are no recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

Sovereign Wealth Funds

Vietnam does not have a Sovereign Wealth Fund.

7. State-Owned Enterprises

In 2018, the government created the Commission for State Capital Management at Enterprises (CMSC) to manage SOEs with increased transparency and accountability. The CMSC’s goals include accelerating privatization in a transparent manner, promoting public listings of SOEs, and transparency in overall financial management of SOEs.

SOEs do not operate on a level playing field with domestic companies and continue to benefit from preferential access to resources such as land, capital, and political largesse. In the 2019 PCI report, however, the percentage of surveyed firms agreeing with the statement “SOEs find it easier to win state contracts” dropped to 21 percent from 27 percent in 2015.

Third-party market analysts note that a significant number of SOEs have extensive liabilities, including pensions owed, real estate holdings in areas not related to the SOE’s ostensible remit, and a lack of transparency with respect to operations and financing.

Privatization Program

Vietnam officially started privatizing SOEs in 1998. The process has been slow because privatization has historically transferred only a small share of an SOE (two to three percent) to the private sector, and investors have had concerns about the financial health of many companies. Additionally, the government has inadequate regulations with respect to privatization procedures.

9. Corruption

Vietnam has laws to combat corruption by public officials, and they extend to all citizens. Corruption is due, in large part, to low levels of transparency, accountability, and media freedom, as well as poor remuneration for government officials and inadequate systems for holding officials accountable. Competition among agencies for control over businesses and investments has created overlapping jurisdictions and bureaucratic procedures that, in turn, create opportunities for corruption.

The government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption (chaired by the Communist Party of Vietnam General Secretary Nguyen), the Government Inspectorate, and line ministries and agencies. Formed in 2007, the Central Steering Committee for Anti-Corruption has been under the purview of the CPV Central Commission of Internal Affairs since February 2013. The National Assembly provides oversight on the operations of government ministries. Civil society organizations have encouraged the government to establish a single independent agency with oversight and enforcement authority to ensure enforcement of anti-corruption laws.

Resource to Report Corruption

Contact at government agency responsible for combating corruption:

Mr. Phan Dinh Trac
Chairman, Communist Party Central Committee Internal Affairs
4 Nguyen Canh Chan; +84 0804-3557
Contact at NGO:
Ms. Nguyen Thi Kieu Vien
Executive Director, Towards Transparency
Transparency International National Contact in Vietnam
Floor 4, No 37 Lane 35, Cat Linh street, Dong Da, Hanoi, Vietnam; +84-24-37153532
Fax: +84-24-37153443;
kieuvien@towardstransparency.vn

10. Political and Security Environment

Vietnam is a unitary single-party state, and its political and security environment is largely stable. Protests and civil unrest are rare, though there are occasional demonstrations against perceived or real social, environmental, labor, and political injustices.

In August 2019, online commentators expressed outrage over the slow government response to an industrial fire in Hanoi that released unknown amounts of mercury. Other localized protests in 2019 and early 2020 broke out over alleged illegal dumping in waterways and on public land, and the perceived government attempts to cover up potential risks to local communities.

Citizens sometimes protest actions of the People’s Republic of China (PRC), usually online. For example, they did so in June 2019, when China Coast Guard vessels harassed the operations of Russian oil company Rosneft in Block 06-01, Vietnam’s highest-producing natural gas field.

In April 2016, after the Formosa Steel plant discharged toxic pollutants into the ocean and caused a large number of fish deaths, the affected fishermen and residents in central Vietnam began a series of regular protests against the company and the government’s lack of response to the disaster. Protests continued into 2017 in multiple cities until security forces largely suppressed the unrest. Many activists who helped organize or document these protests were subsequently arrested and imprisoned.

West Bank and Gaza

Executive Summary

The Palestinian economy is small and relatively open.  While 95 percent of firms in the West Bank and Gaza are family owned small- and medium-sized enterprises employing less than 20 people, large holding companies dominate certain sectors.  Palestinian businesses have a reputation for professionalism and quality products.  The private sector is mostly firms with moderate productivity, low investment, and limited competition, the majority of which are operating in retail and wholesale trade activities.  Due to the small size of the local market (about 5 million consumers with relatively low purchasing power), access to foreign markets through trade is essential for private sector growth.  Enterprises are highly dependent on Israel for either inputs or as a market, and 90 percent of Palestinian exports are sold to Israel.  Preliminary 2019 export statistics obtained from the Palestine Central Bureau of Statistics (PCBS) show total exports of USD 1.068 billion, representing a 3 percent increase over 2018 (USD 1.068 billion).

Large Palestinian enterprises are connected internationally, with partnerships extending to Asia, Europe, the Gulf, and the Americas.  However, Israeli government restrictions on the movement and access of goods and people between the West Bank, Gaza, and external markets reflect Israeli security concerns and continue to limit Palestinian private sector growth.  Roughly 40 percent of the West Bank falls under the civil control of the Palestinian Authority (PA), referred to as Area A and Area B following the 1993 Oslo Accords and the 1994 economic agreement commonly known as the Paris Protocol.  The Israeli government maintains full administrative and security control of Area C, which comprises roughly 60 percent of the West Bank.  A recent USAID study found that high transaction costs stemming from limitations on movement, access, and trade are the most immediate impediment to Palestinian economic growth, followed by energy and water insecurity.

The Palestinian labor force is well educated, boasting a 98 percent literacy rate; the West Bank and Gaza enjoy high technology penetration.  Nevertheless, already high unemployment persisted in 2019.  According to the latest figures available from the PCBS (2019 Q4), the combined West Bank and Gaza (WBG) unemployment rate in the fourth quarter of 2019 was 24 percent.  While the 14 percent unemployment rate in the West Bank has remained stable in recent years, in Gaza 43 percent of workers are unemployed, according to the PCBS.  The rates were even higher for youth, especially educated youth.  The public sector continues to be the largest Palestinian employer, providing 21.3 percent of all jobs.  The PCBS projects measures to mitigate Coronavirus could increase unemployment by roughly 36 percent if business closures persist until the end of June.

In 2019, the economy grew by less than 0.9 percent, according to the World Bank.  For 2020, the World Bank estimates negative economic growth (-7.6 percent) due to Coronavirus response measures taken by the PA to combat the pandemic, affecting all economic sectors; this decline is expected to continue through 2021.  With population growth at roughly 3 percent per year, real per capita GDP is projected to decline as unemployment and poverty rates rise.  Ongoing political, economic, and fiscal uncertainty has generally deterred large-scale internal and foreign direct investment.  Foreign direct investment, representing 1 percent of GDP, is also very low in comparison with fast-growing economies.

According to the World Bank, in 2019 investment rates remained low, with the majority channeled into non-traded activities that generate low productivity employment and returns that are less affected by political risk, such as internal trade and real estate development.  Private investment levels, averaging about 15-16 percent of GDP in recent years, have been low compared with rates of over 25 percent in fast-growing middle-income economies.  The manufacturing and agricultural sectors’ contribution to GDP is also in decline.  Manufacturing fell from 19 percent of GDP in 1994 to 11 percent in 2018 and agriculture fell from 12 percent of GDP in 1994 to less than 3 percent in 2018.  To reverse these trends, the Palestinian Investment Promotion Agency (PIPA) included both sectors in its National Export Strategy.  Target sectors include:

  • Stone and marble
  • Tourism
  • Agriculture, including olive oil, fresh fruits, vegetables, and herbs
  • Food and beverage, including agro-processed meat
  • Textiles and garments
  • Manufacturing, including furniture and pharmaceuticals
  • Information and communication technology (ICT)
  • Renewable energy

In 2019, the PA ran a current account deficit of nearly USD 1.2 billion, of which around USD 500 million was covered by direct budget support from foreign donors.  The remaining USD 700 million was converted into new debt to local banks, private sector suppliers of goods and services, and the PA civil servants’ pension fund.  The PA remains heavily dependent on Israeli transfers of PA clearance revenues – taxes and import duties collected by Israel on the PA’s behalf, and transferred to the PA on a monthly basis – which comprised 70 percent of all PA revenues in 2019.  The PA’s continued practice of making prisoner and “martyr” payments –paying families of Palestinian security prisoners in Israeli jails and Palestinians killed or seriously injured due to the Israeli-Palestinian conflict, including terrorists – jeopardized these transfers, as the United States and Israel each recently passed legislation imposing penalties to deter such payments, known as the Taylor Force Act and Anti-Terrorism Clarification Act (ATCA) in the United States.

Future economic growth depends on a series of factors: further easing of Israeli movement and access restrictions, balanced with Israeli security concerns; expanded external trade and private sector growth; PA approval and implementation of long-pending commercial legislative reforms; political stability; increased water and energy supply to the productive sectors at lower cost; and PA fiscal stability.  Economic sectors that are not dependent on traditional infrastructure and freedom of movement, such as information and communications technologies (ICT), are able to grow somewhat independently of these factors and therefore have enjoyed greater success in the Palestinian economy during the past decade.  The 2018 introduction of Third Generation (3G) communications technology into the West Bank stimulated further development of businesses that benefitted from real-time GPS/location data.

Although the Palestinian economy is in a slow decline, investment opportunities continue to exist in information technology, stone and marble, real estate development, light manufacturing, agriculture, and agro-industry.  Coronavirus pandemic response measures have had a significant negative impact on both the stone and marble industry and the tourism sector, previously considered growth areas.  While the economy overall should start recovering after Coronavirus response measures are lifted, the tourism sector is projected to continue to be adversely impacted by the loss of inbound tourism throughout 2020, negatively affecting 37,800 tourism industry workers.

This report focuses on investment issues related to areas under the administrative jurisdiction of the PA, except where explicitly stated.  Where applicable, this report addresses issues related to investment in the Gaza, although the de facto Hamas-led government’s implementation of PA legislation and regulations may differ significantly from the West Bank’s.  For issues where PA law is not applicable, Gazan courts typically refer to Israeli and Egyptian law; however, Hamas does not consistently apply PA, Egyptian, or Israeli law.  These inconsistencies in the legal environment, among a number of other, more challenging factors, are strong deterrents to private investment in Gaza.

Due to evolving circumstances, potential investors are encouraged to contact the PA Ministry of National Economy (www.mne.gov.ps), Palestinian Investment Promotion Agency (www.PIPA.ps), the Palestine Trade Center (www.paltrade.org), and the Palestinian-American Chamber of Commerce (www.pal-am.com); as well as the U.S. Embassy in Jerusalem (https://il.usembassy.gov/embassy/ ) and the U.S. Commercial Service (http://export.gov/westbank) for the latest information.

6. Financial Sector

Capital Markets and Portfolio Investment

In 2004, the PA enacted the Capital Markets Authority Law and the Securities Commission Law and created the Capital Market Authority to regulate the stock exchange, insurance, leasing, and mortgage industries.  In 2010, a Banking Law was adopted to bring the Palestinian Monetary Authority’s (PMA) regulatory capabilities in line with the Basel Accords, a set of recommendations for regulations in the banking industry.  The 2010 law provides a legal framework for the establishment of deposit insurance, management of the Real Time Gross Settlement (RTGS) system, and treatment of weak banks in areas such as merger, liquidation, and guardianship.  It also gives the PMA regulatory authority over the microfinance sector.  In 2013, the PA passed a Commercial Leasing Law and in 2015 the MONE finalized a registry for moveable assets, intended to facilitate secured transactions, especially for small and medium-sized businesses.  In April 2016, the PA passed the Secured Transactions Law, which established the legal grounds and modern systems to regulate the use of movable assets as collateral.

Notwithstanding this regulatory environment, the World Bank’s 2020 Ease of Doing Business report assigned the West Bank and Gaza a particularly low score for protecting minority investors (114 out of 190) and resolving insolvency (168 out of 190).  Founders of recently established SMEs complain that loan terms from Palestinian creditors fail to allow the borrower enough time to establish a sustainable business, although the new Moveable Assets Registry, coupled with the Secured Transactions Law and Commercial Leasing Law, led to a substantial improvement in the Getting Credit ranking (25 out of 190) from 2018.

The Palestine Exchange (PEX) was established in 1995 to promote investment in the West Bank and Gaza.  Launched as a private shareholding company, it was transformed into a public shareholding company in February 2010.  The PEX was fully automated upon establishment – the first fully automated stock exchange in the Arab world, and the only Arab exchange that is publicly traded and fully owned by the private sector.  The PEX operates under the supervision of the Palestinian Capital Market Authority.  PEX’s 49 listed companies are divided into five sectors:  banking and financial services, insurance, investment, industry, and services, with a USD 3.5 billion market capitalization.  Shares trade in Jordanian dinars and U.S. dollars.  PEX member securities companies (brokerage firms) operations are found  across the West Bank and Gaza and authorized custodians are available to work on behalf of foreign investors.

Money and Banking System

The Palestinian banking sector continues to perform well under the supervision of the PMA.  World Bank reports to the Ad Hoc Liaison Committee (AHLC) have consistently noted that the PMA is effectively supervising the banking sector.  The PMA continues to enhance its institutional capacity and provides rigorous supervision and regulation of the banking sector, consistent with international practice.

An Anti-Money Laundering Law that was prepared in line with international standards with technical assistance from the International Monetary Fund (IMF) and USAID came into force in October 2007.  In December 2015, the PA President signed the Anti-Money Laundering and Terrorism Financing Decree Law Number 20 for the PA to join the Middle East and North Africa Financial Action Task Force (MENA/FATF), a voluntary organization of regional governments focused on combating money laundering and the financing of terrorism and proliferation.  Improvements contained in the 2015 law make terrorist financing a criminal offense and defines terrorists, terrorist acts, terrorist organizations, foreign terrorist fighters, and terrorist financing (AML/CFT).  The PMA completed a National Risk Assessment (NRA)–an AML/CTF self-assessment–in 2018.  The PMA is implementing the recommendations from the self-assessment to strengthen the AML/CTF regime in preparation for a MENA/FATF member  review of the Palestinian economy’s AML/CFT safeguards scheduled for August 2020. However, the MENA FATF review is postponed due to the current coronavirus pandemic.  The PMA is considered a regional leader in AML/CTF safeguards and its representatives provide training to other Arab governments.

Credit is affected by uncertain political and economic conditions and by the limited availability of real estate collateral due to non-registration of most West Bank land.  Despite these challenges, the sector’s loan-to-deposit ratio continues to increase towards parity, moving from 58 percent at the end of 2015 to 68 percent at the end of 2019.  The PMA has achieved this in part by encouraging banks to participate in loan guarantee programs sponsored by the United States and international financial institutions, by supporting a national strategy on microfinance, and by imposing restrictions on foreign placements.  The MONE’s enactment of the Secured Transactions Law in April 2016 allows for use of moveable assets, such as equipment, as collateral for loans.  Non-performing loans are less than three percent of total loans, due to credit bureau assessments of borrowers’ credit worthiness and a heavy collateral system.

Palestinian banks have remained stable in general but have suffered from a deterioration in relations with Israeli correspondent banks since the Hamas takeover of Gaza in 2007, at which time Israeli banks cut ties with Gaza branches and gradually restricted cash services provided to West Bank branches.  All Palestinian banks were required to move their headquarters to Ramallah in 2008.  Israeli restrictions on the movement of cash between West Bank and Gaza branches of Palestinian banks have caused intermittent liquidity crises in Gaza and for all major currencies–U.S. dollars, Jordanian dinars, and Israeli shekels (ILS).  An Israeli government decision in late 2018 to increase the deposit transfer amount from Palestinian banks to the Bank of Israel to NIS 1 billion monthly (an increase from NIS 350 million per month) helped reduce the excess amount of shekels in the West Bank and Gaza.

The PMA regulates and supervises 14 banks (6 Palestinian, 7 Jordanian, and 1 Egyptian) with 370 branches and offices in the West Bank and Gaza, with USD 17.2 billion net assets.  No Palestinian currency exists and, as a result, the PA places no restrictions on foreign currency accounts.  The PMA is responsible for bank regulation in both the West Bank and Gaza.  Palestinian banks are some of the most liquid in the region, with net deposits of USD 13.2 billion and gross credit of USD 9 billion as of the end of 2019.

Foreign Exchange and Remittances

Foreign Exchange

The PA does not have its own currency.  According to the 1995 Interim Agreement, the Israeli Shekel (NIS/ILS) freely circulates in the West Bank and Gaza and serves as means of payment for all purposes, including official transactions.  The exchange of foreign currency for NIS and vice-versa by the PMA is carried out through the Bank of Israel Dealing Room, at market exchange rates.

Remittance Policies

The Investment Law guarantees investors the free transfer of all financial resources out of the Palestinian territories, including capital, profits, dividends, wages, salaries, and interest and principal payments on debts.  Most remittances under USD 10,000 can be processed within a week.  In addition to the Israeli Shekel (NIS), U.S. dollars (USD) and Jordanian dinars (JD) are widely used in business transactions.  There are no other PA restrictions governing foreign currency accounts and currency transfer policies.  Banks operating in the West Bank and Gaza, however, are subject to Israeli restrictions on correspondent relations with Israeli banks and the ability to transfer shekels into Israel, which occasionally limit services such as wire transfers and foreign exchange transactions.

Sovereign Wealth Funds

The privately-run Palestine Investment Fund (PIF) acts as a sovereign wealth fund, owned by the Palestinian people.  According to PIF’s 2018 annual report (the most recent available), its assets reached USD 1 billion and net income  USD 37  million.  PIF’s investments in 2018 were concentrated in infrastructure, energy, telecommunications, real estate and hospitality, micro/small/medium enterprises, large caps, and capital market investments.  90 percent of PIF investments are domestic, but excess liquidity is invested in international and regional fixed income and equity markets.  In 2014, the fund established the Palestine for Development Foundation, a separate not-for-profit foundation managing PIF’s corporate social responsibility initiatives, which are primarily focused on support to Palestinians in the West Bank, Gaza, Jerusalem, and abroad.  Since 2003, PIF has transferred over USD 797.6  million to the PA in annual dividends, but PIF leadership does not report to the PA per PIF bylaws.  International auditing firms conduct both internal and external annual audits of the PIF.

7. State-Owned Enterprises

Although there are no state-owned enterprises (SOEs), some observers have noted that the PIF essentially acts as a sovereign wealth fund for the PA, and enjoys a competitive advantage in some sectors, including housing and telecommunications, due to its close ties with the PA.  The import of petroleum products falls solely under the mandate of the Ministry of Finance’s General Petroleum Corporation, which then re-sells the products to private distributors at fixed prices.

Privatization Program

There is no PA privatization program for industries within the West Bank and Gaza.

9. Corruption

According to the World Bank 2014 Investment Climate Assessment report, Palestinian firms do not consider corruption to be one of the most serious problems they face.  Seven percent of the firms surveyed reported having experienced a request from a government official for a bribe. According to USAID’s West Bank and Gaza Inclusive Growth Diagnostic Study conducted in 2017, only 11 percent of the Palestinian firms surveyed reported ever being asked to pay a bribe, compared to 48 percent in Egypt.  Private sector businesses assert that the PA has been successful in reducing institutional corruption and local perceptions of line ministries and PA agencies are generally favorable.

The Anti-Graft Law (AGL) of 2005 criminalizes corruption, and the State Audit and Administrative Control Law and the Civil Service Law both aim to prevent favoritism, conflict of interest, or exploitation of position for personal gain.  The AGL was amended in 2010 to establish a specialized anti-graft court and the Palestinian Anti-Corruption Commission, which was tasked with collecting, investigating, and prosecuting allegations of public corruption.  The Anti-Corruption Commission, first appointed in 2010, has indicted several high-profile PA officials.  Palestinian civil society and media are active advocates of anti-corruption measures and there are international and Palestinian non-governmental organizations that work to raise public awareness and promote anti-corruption initiatives.  The most active of these is the Coalition for Integrity and Accountability (AMAN), which is the Palestinian chapter of Transparency International (http://www.aman-palestine.org/eng/index.htm ).

UN Anticorruption Convention, OECD Convention on Combatting Bribery

In April 2014, the PA acceded to the UN Anticorruption Convention.  The PA is not a party to the OECD Convention on Combatting Bribery.

Resources to Report Corruption:

Contact at U.S. Embassy in Jerusalem:
Palestinian Affairs Unit
Economic Section
+972 2 622 6952
JerusalemECON@State.Gov

Contact at government agency or agencies responsible for combating corruption:
The Coalition for Accountability and Integrity – AMAN
+972-2-298-9506
info@aman-palestine.org
http://www.aman-palestine.org 

10. Political and Security Environment

The security environment in the West Bank and Gaza remains complex.  The security situation can change rapidly, depending on the political situation, recent events, and the geographic region.  Potential investors should regularly consult the State Department’s latest travel warnings, available at https://travel.state.gov.  According to a comprehensive USAID study published in 2017, restrictions on movement and access to resource and markets–reflecting Israeli security concerns–remained the key obstacles to investment.

Violent clashes between security forces and Palestinian residents of the West Bank and Gaza as well as between Israeli settlers and Palestinians have resulted in numerous deaths and injuries.  During periods of unrest, the Israel government may restrict access to and within the West Bank and may place some areas under curfew.  In June 2007, Hamas, a designated Foreign Terrorist Organization (FTO), violently seized control of the Gaza Strip.  The security environment within Gaza and on its borders is dangerous and volatile.  Violent demonstrations and shootings occur on a frequent basis and the collateral risks are high.  While Israel and Hamas continue to observe the temporary cease-fire that ended the latest war between Israel and Gaza  in 2014, periodic mortar and rocket fire and Israeli military responses continue to occur.  Following the 2007 Hamas takeover, the Israeli government implemented a closure policy that restricted imports to limited humanitarian and commercial shipments, effectively blocking exports from Gaza until 2015, when exports rebounded to an average of 115 truckloads per month.

The economic situation and investment outlook in Gaza have continuously deteriorated since the 2007 takeover, with especially bad periods following Israeli combat operations there:  December 2008-January 2009 (Operation Cast Lead); November 2012 (Operation Pillar of Defense); and July-August 2014 (Operation Protective Edge).  The Israeli government has at times eased its closure policy by lifting some restrictions on goods imported into and exported out of Gaza.  The Israeli government allows limited exports (transshipments) to overseas markets and to Israel,  and some sales to the West Bank.

Zambia

Executive Summary

The Republic of Zambia is a landlocked country in southern Africa that shares its borders with eight countries: Angola, Democratic Republic of the Congo, Tanzania, Malawi, Mozambique, Zimbabwe, Botswana, and Namibia. The country has an estimated population of 17.35 million and GDP per capita of $1,430, according to the World Bank.

The economy slowed to 1.8 percent growth in 2019, down from four percent in 2018 and well below initial IMF projections. Zambia’s economy was hit by drought in the south and west that lowered 2018 and 2019 agricultural production and hydropower electricity generation considerably. Inflation also rose from 7.5 percent in 2018 to 9.2 percent in 2019 and is expected to remain above the Bank of Zambia’s target range of six to eight percent in 2020. Severe electricity rationing continues and has dampened activity in almost all economic sectors. In 2019 copper production, the country’s largest export, fell 12.5 percent from 2018 levels, attributed to an onerous mining tax regime implemented in 2019 and falling global market demand.

Zambia’s external debt grew to $11.2 billion in 2019, up from $10.2 billion at the end of 2018. The fiscal deficit at the end of 2019 was 8.2 percent of GDP, well above the 6.5 percent target. The kwacha also depreciated against the dollar by 18.2 percent in 2019, increasing the cost of external debt service. Investor appetite for domestic bonds continued to shrink, and short- and long-term domestic borrowing costs rose. Government austerity and fiscal consolidation remain key to ensuring that the macroeconomic fundamentals do not deteriorate further, but these challenges have been exacerbated by the COVID-19 pandemic. Foreign exchange reserves stood at $1.45 billion year-end 2019 (representing 1.9 months of import cover) from $1.59 billion year-end 2018.

Budget execution by the Government of the Republic of Zambia (GRZ) has historically been poor, with documented evidence of significant extra-budgetary spending and annual budgets that are widely viewed as aspirational rather than accurate. The IMF continues to delay a much-discussed loan package due to the GRZ’s unsustainable debt trajectory and lack of transparency on its Chinese debt pipeline.

The Embassy works closely with the American Chamber of Commerce of Zambia (AmCham) to support its 60+ American and Zambian firms seeking to increase two-way trade. Agriculture and mining continue to be the headlining sectors of Zambia’s economy. U.S. firms are present or exploring new projects in tourism, power generation, agriculture, and services.

Despite broad economic reforms in the early 2000s, Zambia still struggles to diversify its economy and accelerate private-led growth to address the poverty of its people. Cumbersome administrative procedures, unpredictability of legal and regulatory changes, lack of transparency in government contracting, the high cost of doing business due to poor infrastructure, the high cost of finance, inadequate human resources, and the lack of reliable electricity and internet service remain concerns.

Note: Due to the ongoing global COVID-19 pandemic, in April 2020, Zambia’s Finance Minister forecasted 2020 GDP will be -2.3 percent, a sharp contraction from the over 3 percent growth that had been projected. Inflation is expected to rise to 13.4 percent. The GRZ is currently seeking emergency funding, debt relief, and debt restructuring to mitigate the pandemic’s economic impact.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 113 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 85 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 124 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 $47 https://apps.bea.gov/international/
factsheet/factsheet.cfm
World Bank GNI per capita 2018 $1,430 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Government policies generally facilitate the free flow of financial resources to support the entry of resources in the product and factor market. Banking supervision and regulation by the Bank of Zambia (BoZ) has improved slightly over the past few years. Improvements include revoking licenses of some insolvent banks, denying bailouts, limiting deposit protection, strengthening loan recovery efforts, and upgrading the training of and incentives for bank supervisors. High domestic lending rates and the limited accessibility of domestic financing constrain business. High returns on government securities encourage commercial banks to invest heavily in government debt to the exclusion of financing productive private sector investments.

The Lusaka Stock Exchange (LuSE), established in 1993, is structured to meet international recommendations for clearing and settlement system design and operations. There are no restrictions on foreign participation in the LuSE, and foreigners may invest in stocks on the same terms as Zambians. The LuSE has offered trading in equity securities since its inception and, in March 1998, the LuSE became the official market for selling Zambian government bonds. Investors intending to trade a listed security or government bond are now mandated to trade via the LuSE. The market is regulated by the Securities Act of 1993 and enforced by the Securities and Exchange Commission (SEC) of Zambia. Secondary trading of financial instruments in the market is very low or non-existent in some areas. As of the beginning of 2018, there are 22 companies listed on the LuSE with a portfolio worth about K63 billion (USD 6.6 billion).

Existing policies facilitate the free flow of financial resources into the product and factor markets. The government and the BoZ respect IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and foreign investors can get credit on the local market, although local credit is relatively expensive and most investors therefore prefer to obtain credit outside the country.

Money and Banking System

The financial sector is comprised of three sub-sectors according to financial sector supervisory authorities. The banking and financial institutions sub-sector is supervised by the BoZ, the securities sub-sector by the SEC, and the pensions and insurance sub-sector by the Pensions and Insurance Authority. Zambia’s banking sector is considered relatively well-developed in the African context, but the sector remains highly concentrated. There are currently 19 banks in Zambia with the largest four banks holding nearly two-thirds of total banking assets. The dominance of the four largest banks in deposits and total assets has been diluted by increased market capture of smaller banks and new industry entrants, an indication of growing competitive intensity in this segment of the banking market. Government policies generally facilitate the free flow of financial resources to support the entry of resources in the product and factor market. There continued to be a steady increase in electronic banking and related services over the last few years. As stated above, banking supervision and regulation by the BoZ has improved slightly over the past few years. The Banking and Financial Services Act, Chapter 387, and the Bank of Zambia Act, Chapter 360, govern the banking industry.

The BoZ’s current policy rate, as of February 2019, is 9.75 percent. The commercial lending rate ranged between 23 and 26 percent as of 2018, among the highest in the region. The persistence of high interest rates led the government to urge commercial banks to reduce their lending rates in order to stimulate private sector growth and the economy as a whole. One factor inhibiting more affordable lending is a culture of tolerating loan default, which many borrowers view as a minor transgression. Non-performing loans (NPLs) are growing, with some estimates as high as 15 percent. The government contributes to this problem, as it has arrears of about USD 1.3 billion to government contractors who reportedly hold a high percentage of the NPLs.

Lender data reporting remains erratic and credit rating information is not widely available. In addition, high returns on government securities encourage commercial banks to invest heavily in government debt, to the exclusion of financing productive private sector investments. Banking officials acknowledge that they need to upgrade the risk assessment and credit management skills of their institutions to better serve borrowers. At the same time, they argue that widespread financial illiteracy limits borrowers’ ability to access credit. Banks provide credit denominated in foreign currency only for investments aimed at producing goods for export. Banks provide services on a fee-based model and banking charges are generally high. Home mortgages are available from several leading Zambian banks, although interest rates are still very high.

To operate a bank in Zambia, the bank must be licensed by the Registrar of Banks, Financial Institutions, and Financial Businesses (“the Registrar”) whose office is based at the BoZ. The decision to license banks lies with the Registrar. Foreign banks or branches are allowed to operate in country as long as they fulfill BoZ requirements and meet the minimum capital requirement of USD 100 million for foreign banks and USD 20 million for local banks. According to the BoZ, many banks in the country have correspondent banking relationships; it is difficult to assess how many there are or whether any bank has lost any correspondent banking relationships in the past three years. It is also difficult to analyze if any of those correspondent relationships are currently in jeopardy as the daily management of those relationships are carried out by the individual banks and not by the BoZ.

The Non-Bank Financial Institutions (NBFIs) are licensed and regulated in accordance with the provisions of the Banking and Financial Services Act of 1994 (BFSA) and related Regulations and Prudential Guidelines. As key players in the financial sector, NBFIs are subject to regulatory requirements governing their prudential position, consumer protection, and market conduct in order to safeguard the overall soundness and stability of the financial system. The NBFIs comprise 8 leasing and finance companies, 3 building societies, 1 credit reference bureau, 1 savings and credit institution, 1 development finance institution, 80 bureau de change, 1 credit reference bureau, and 34 micro-finance institutions.

Private firms are open to foreign investment through mergers and acquisitions. The CCPC reviews and handles big mergers and acquisitions. The High Court of Zambia may reverse decisions made by the Commission. Under the CCPA, foreign companies without a presence in Zambia and taking over local firms do not, however, have to notify their transactions to the Commission, as it has not established disclosure requirements for foreign companies acquiring existing businesses in Zambia. In the past decade, some mergers and acquisitions include Bharti Airtel’s purchase of Zain/Celtel Zambia, the acquisition of a huge U.S. multinational energy corporation’s assets in Zambia by Engen Petroleum, a large U.S. retailer takeover of Game Stores through the acquisition of Massmart Holdings Limited of South Africa, Barrick Gold Corp takeover of Equinox Lumwana Copper Mines, the purchase of BP shares in Southern Africa, including BP Zambia, by Puma Energy, the Jinchuan Group Limited takeover of Metorex Chibuluma Copper Mine, Atlas Mara’s acquisition of Finance Bank Zambia and subsequent combination with BANC ABC, and private equity house EMR Capital’s purchase of eighty percent of indirect interest in Lubambe Mine, held equally by African Rainbow Minerals (ARM) and Vale International.

Foreign Exchange and Remittances

Foreign Exchange

There are currently no restrictions or limitations placed on foreign investors converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, and lease payments) into freely usable currency and at a legal market-clearing rate. Investors are free to repatriate capital investments, as well as dividends, management fees, interest, profit, technical fees, and royalties. Foreign nationals can also transfer and/or remit wages earned in Zambia. Funds associated with investments can be freely converted into internationally convertible currencies. The BoZ pursues a flexible exchange rate policy, which generally allows the currency to freely float, though it has intervened heavily to support the local currency, the kwacha, in 2014 to 2016. Transfers of currency are protected by IMF Article VII.

In March 2014, the government announced the revocation of SI Number 33 (mandating use of the kwacha for domestic transactions) and SI Number 55 (monitoring foreign exchange transactions). The government experienced challenges implementing these statutory instruments and – along with problems of fiscal management and weakening global copper prices – the SIs were perceived as undermining confidence in Zambia’s economy and currency, leading to sharp depreciation of the kwacha. The decision to revoke the SIs was widely praised in the business community. The kwacha, however, has remained weak in historical terms against the dollar and in early April 2020 was trading between 18.3-18.9 kwacha per dollar.

Over-the-counter cash conversion of the kwacha into foreign currency is restricted to a USD 5,000 maximum per transaction for account holders and USD 1,000 for non-account holders. No exchange controls exist in Zambia for anyone doing business as either a resident or non-resident. There are no restrictions on non-cash transactions. The exchange rate of the Zambian national currency is mostly determined by market forces; because the volume and value of exports from Zambia are overwhelmingly related to the extractive industries sector, mining companies’ financial transactions play a major role in exchange rate determination.

Remittance Policies

There are no recent changes or plans to change investment remittance policies that tighten or relax access to foreign exchange for investment remittances. There are no restrictions on converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, or lease payments) into freely usable currency at the legal market clearing rate. Foreign investors can remit through a legal parallel market, including one utilizing convertible, negotiable instruments such as dollar-denominated government bonds issued in lieu of immediate payment in dollars. There are no limitations on the inflow or outflow of funds for remittances of profits or revenue and there is no evidence to show that Zambia manipulates the currency. Zambia is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which in 2018, conducted an on-site assessment of the implementation of anti-money laundering and counter-terrorist financing (AML/CTF) measures in Zambia. ESAAMLG coordinates with other international organizations concerned with combating money laundering, studying emerging regional typologies, developing institutional and human resource capacities to deal with these issues, and coordinating technical assistance where necessary. In June 2019, Zambia adopted the recommendations. Zambia has demonstrated commitment to establish an AML/CTF framework. The enactment of the Prohibition and Prevention of Money Laundering Act and the Anti-Terrorism Act, establishment of the Anti-Money Laundering Investigations Unit and the Financial Intelligence Center as the sole designated national agencies mandated to handle AML/CTF and other serious offences, and September 2018 accession to the Egmont Group reflect this commitment.

Sovereign Wealth Funds

The GRZ had planned to launch a Sovereign Wealth Fund (SWF) following the 2015 reincorporation of the Industrial Development Corporation (IDC) as the parastatal holding company, but has yet to establish the fund.

7. State-Owned Enterprises

There are currently 34 state-owned enterprises (SOEs) operating in different sectors in Zambia including agriculture, education, energy, financial services, infrastructure, manufacturing, medical, mining, real estate, technology, media and communication, tourism, and transportation and logistics. Most SOEs are wholly owned or majority owned by the government under the IDC established in 2015. Zambia has two categories of SOEs: those incorporated under the Companies Act and those established by particular statutes, referred to as statutory corporations. There is a published list of SOEs in the Auditor General’s annual reports; SOE expenditure on research and development is not detailed. There is no exhaustive list or online location of SOEs’ data for assets, net income, or number of employees. Consequently, inaccurate information is scattered throughout different government agencies/ministries. The majority of SOEs have serious operational and management challenges.

In principle, SOEs do not enjoy preferential treatment by virtue of government ownership, however, they may obtain protection when they are not able to compete or face adverse market conditions. The Zambia Information Communications Authority Act has a provision restricting the private sector from undertaking postal services that would directly compete with the Zambia Postal Services Corporation. Zambia is not party to the Government Procurement Agreement (GPA) within the framework of the WTO, however 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 Zambia are governed by Boards of Directors appointed by government in consultation with and including members from the private sector. The chief executive of the SOE reports to the board chairperson. In the event that the SOE declares dividends, these are paid to the Ministry of Finance. The board chair is informally obliged to consult with government officials before making decisions. The line minister appoints members of the Board of Directors from public services, private sector, and civil society. The independence of the board, however, is limited as most boards are comprised of a majority of government officials and board members that are appointed by the line minister from the private sector or civil society can be removed.

SOEs can and do purchase goods or services from the private sector, including foreign firms. SOEs are not bound by the GPA and can procure their own goods, works, and services. SOEs are subject to the same tax policies as their private sector competitors and are not afforded material advantages such as preferential access to land and raw materials. SOEs are audited by the Auditor General’s Office, using international reporting standards. Audits are carried out annually, but delays in finalizing and publishing results are common. Controlling officers appear before a Parliamentary Committee for Public Accounts to answer audit queries. Audited reports are submitted to the president for tabling with the National Assembly, in accordance with Article 121 of the Constitution and the Public Audit Act, Chapter 378.

In 2015, the government transferred most SOEs from the Ministry of Finance to the revived Industrial Development Corporation (IDC). The move, according to the government, was to allow line ministries to focus on policy making thereby giving the IDC direct mandate and authorization to oversee SOE performance and accountability on behalf of the government. In 2016, the government stated its intent to review state owned enterprises in order to improve their performance and contribution to the treasury and directed the IDC to conduct a situational analysis of all the SOEs under its portfolio with a view to recapitalize successful businesses while hiving off ones that are no longer viable; these reviews are ongoing. The IDC’s oversight responsibilities include all aspects of governance, commercial, financing, operational, and all matters incidental to the interests of the state as shareholder. Zambia strives to adhere to OECD Guidelines on Corporate Governance to ensure a level playing field between SOEs and private sector enterprises.

Privatization Program

There were no sectors or companies targeted for privatization in 2019. The privatization of parastatals began in 1991, with the last one occurring in 2007. The divestiture of state enterprises mostly rests with the IDC, as the mandated SOE holding company. The Privatization Act includes the provision for the privatization and commercialization of SOEs; most of the privatization bidding process is advertised via printed media and the IDC‘s website (www.idc.co.zm ). There is no known policy that forbids foreign investors from participating in the country’s privatization programs.

9. Corruption

Zambia’s anti-corruption activities are governed by the Anti-Corruption Act of 2010 and the National Anti-Corruption Policy of 2009, which stipulate penalties for different offenses. While legislation and stated policies on anti-corruption are adequate, implementation sometimes falls short. The Public Interest Disclosure (Protection of Whistleblowers) Act of 2010 provides for the disclosure of conduct adverse to the public interest in the public and private sectors; however, like with other laws and policies, enforcement is weak. Zambia lacks adequate laws on asset disclosure, evidence, and freedom of information. In March 2019, Cabinet approved the Access to Information Bill (ATI); the draft bill had not been made public or presented to Parliament as of March 2019. The bill aims to ensure the government is proactive and organized in disseminating information to the public. Versions of the ATI Bill have been pending since 2002.

Zambia had made some progress in the fight against corruption in the last decade, as reflected by improvements recorded in several governance indicators. However, recent years have seen the persistent perception that corruption has increased, and it remains a primary impediment to governance and development programs. In the 2018 Corruption Perception Index (CPI) report, Zambia ranked 105 out of 180 countries, which is a drop from 96 in the 2017 report. The legal and institutional frameworks against corruption have been strengthened, and efforts have been made to reduce red tape and streamline bureaucratic procedures, as well as to investigate and prosecute corruption cases, including those involving high-ranking officials. Most of these cases, however, remain on the shelves waiting to be tried while officials remain free, sometimes still occupying the positions through which the alleged corruption took place. In March 2018, Parliament passed the Public Finance Management Bill that will allow the government to prosecute public officials for misappropriating funds, something previous legislation lacked. The government has not yet established implementing regulations. In spite of progress made, corruption remains a serious issue in Zambia, affecting the lives of ordinary citizens and their access to public services. Corruption in the police service emerges as an area of particular concern (with frequency of bribery well above that found in any other sector), followed by corruption in the education and health services. The government has cited corruption in public procurements and contracting procedures as major areas of concern.

The Anti-Corruption Commission (ACC) is the agency mandated to spearhead the fight against corruption in Zambia. The Anti-Money Laundering Unit of the Drug Enforcement Commission (DEC) also assists with investigation of allegations of misconduct. An independent Financial Intelligence Center (FIC) was established in 2010, but does not have the authority to prosecute financial crimes. In November 2012, the FIC Board of Directors was appointed and sworn in with a challenge to implement its mandate. Zambia’s anti-corruption agencies generally do not discriminate between local and foreign investors. Transparency International has an active Zambian chapter.

The government encourages private companies to establish internal codes of conduct that prohibit bribery of public officials. Most large private companies have internal controls, ethics, and compliance programs to detect and prevent bribery. The Integrity Committees (ICs) Initiative is one of the strategies of the National Anti-Corruption Policy (NACP), which is aimed at institutionalizing the prevention of corruption. The NACP received Cabinet’s approval in March 2009 and the Anti-Corruption Commission spearheads its implementation. The NACP targets eight institutions, including the Zambia Revenue Authority, Immigration Department, and Ministry of Lands. The government has taken measures to enhance protection of whistleblowers and witnesses with the enactment of the Public Disclosure Act as well as to strengthen protection of citizens against false reports, in line with Article 32 of the UN Convention.

U.S. firms have identified corruption as an obstacle to foreign direct investment. Corruption is most pervasive in government procurement and dispute settlement. Giving or accepting a bribe by a private, public, or foreign official is a criminal act, and a person convicted of doing so is liable to a fine or a prison term not exceeding five years. A bribe by a local company or individual to a foreign official is a criminal act and punishable under the laws of Zambia. A local company cannot deduct a bribe to a foreign official from taxes. Many businesses have complained that bribery and kickbacks, however, remain rampant and difficult to police, as some companies have noted government officials’ complicity in and/or benefitting from corrupt deals.

Zambia signed and ratified the United Nations Convention against Corruption in December 2007. Other regional anti-corruption initiatives are the SADC Protocol against Corruption, ratified July 8, 2003, and the AU Convention on Preventing and Combating Corruption, ratified March 30, 2007. Zambia is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, but is a party to the Anticorruption Convention. Currently, there are no local industries or non-profit groups that offer services for vetting potential local investment partners. Normally, the U.S. Embassy provides limited vetting of potential local investment partners for U.S. businesses, when contracted as a commercial service.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Mr. Kapetwa Phiri
Director General, Anti-Corruption Commission
Kulima House, Cha Cha Cha Road, P.O. Box 50486, Lusaka
+260 211 237914
e-mail: kphiri@acc.gov.zm

Contact at “watchdog” organization:

Mr. Maurice Nyambe
Executive Director, Transparency International Zambia
3880 Kwacha Road, Olympia Park, P.O. Box 37475, Lusaka
+260 211 290080
e-mail: MNyambe@tizambia.org.zm

10. Political and Security Environment

Zambia does not have a history of large-scale political violence. It has a laudable record of democratic elections, which has resulted in two peaceful transitions of power from one party to another since independence in 1964. More recently, political tensions have been on the rise. Before and during the 2016 elections, there were numerous clashes of supporters of different political parties, resulting sometimes in injuries and arrests. The leading opposition party contested the election results, leading to a heightened state of political tension that continues to flare up whenever by-elections are held. The U.S. government acknowledged the 2016 election results as representative of Zambians’ choice on election day. In July of 2017, the Zambian parliament approved a 90-day state of emergency decreed by President Edgar Lungu following a series of incidents of arson at local markets, but arrests were never made and critics saw the move as an effort by Lungu to tighten his grip on power by restricting public gatherings. Media freedoms have been curtailed in Zambia, with government institutions taking numerous actions to silence private media critical of the ruling party. Similarly, the government often harasses those who raise voices critical of government actions.

In early 2020, there were pockets of civil uprisings throughout the country. The unrest was triggered by a spate of “gassing” incidents, in which an unidentified gas was sprayed on people in their homes and/or in public, which sickened and injured people, and by rumors of witchcraft and ritual killings. Community protests and patrolling at times spawned protests, riots, and vigilante justice that at times caused unjust personal harm or property damage. The incidents were also fueled by political rivalry and the economic downturn. The situation calmed by mid-February after government implemented curfews and made arrests.

Zimbabwe

Executive Summary

Investor optimism following the 2017 fall of President Robert Mugabe has dissipated as the Mnangagwa government has been slow to follow through on its promise of reforms to improve the business environment.  The economy suffered hyperinflation and contracted sharply in 2019, worsened by climate shocks that crippled agriculture and electricity generation.  Unsustainable monetary policy has led to a protracted currency crisis, which continues to strain the economy.  The Zimbabwe dollar, introduced in February 2019, has already lost approximately 98 percent of its value on the black market.  Failure to implement monetary reforms to complement finance ministry efforts to rein in the budget deficit undermined public confidence in the financial sector.  The government adopted a stabilization and reform agenda supported by an IMF Staff-Monitored Program (SMP), but by February 2020 the IMF reported the SMP had gone off-track due to government failures to fully implement reforms.  Zimbabwe remains in arrears to the World Bank and other multilateral and bilateral creditors, restricting many forms of multilateral assistance.  Although the government has repeatedly affirmed its commitment to improve transparency, streamline business regulations, and address corruption, the last two years have brought limited progress.

Zimbabwe has attracted less than USD 600 million a year on average in foreign direct investment over the past decade.  Zimbabwe’s incentives to attract FDI include tax breaks for new investment by foreign and domestic companies and making capital expenditures on new factories, machinery, and improvements fully tax deductible.  The government waives import taxes and surtaxes on capital equipment.  The government has made slow progress at improving the business environment by reducing regulatory costs but policy inconsistency, weak institutions, and lack of fiscal discipline have continued to frustrate businesses.  Corruption remains rife and there is little protection of property rights, particularly with respect to agricultural land. Historically, the government has committed to protect property rights but has, at times, resorted to expropriating land without compensation.

In 2016, Zimbabwe introduced a surrogate currency (commonly called the “bond note” or Zimbabwe dollar), officially pegged to the U.S. dollar, used only for domestic transactions.  Money printing caused the local currency to lose value, and in February 2019, the Reserve Bank of Zimbabwe (RBZ) de-linked the local currency from the U.S. dollar and has not yet implemented a market-clearing exchange rate regime.  As a result, it remains difficult to access dollars at the official exchange rate.  This has given rise to an unstable black market for U.S. dollars with the price of dollars sometimes double the official exchange rate.  The government banned the use of foreign currencies for domestic transactions in June 2019, further complicating the business environment, but introduced some exceptions for investors and further relaxed rules in March 2020 amidst the COVID-19 pandemic.  Year-on-year inflation jumped from 10.6 percent in 2018 to 676 percent by March 2020, reflecting monetary expansion, currency depreciation, and the removal of subsidies on fuel and electricity.

Zimbabwe’s arrears in payments to international financial institutions and its high external debt (public and private) of over USD 10.7 billion limit the country’s ability to access official development assistance at concessional rates.  Additionally, domestic banks do not offer financing for periods longer than two years, with most financing limited to 180 days or less.  The sectors that attract the most investor interest include agriculture (tobacco, in particular), mining, energy, and tourism.  Zimbabwe has a well-earned reputation for the high education levels of its workers.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 158 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 140 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 122 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD -2 http://www.bea.gov/
World Bank GNI per capita 2018 USD 1790 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

6. Financial Sector

Capital Markets and Portfolio Investment

Zimbabwe’s stock market currently has 56 publicly listed companies, but just 12 of them account for about 71 percent of total market capitalization, which stood at USD 2.5 billion on April 24, 2020.  Stock and money markets are open to foreign portfolio investment. Foreign investors can take up to a maximum of 49 percent of any locally listed company with any single investor limited to a maximum of 15 percent of the outstanding shares.  With regard to the money market, foreign investors may buy up to 100 percent of the primary issues of bonds and stocks and there is no limit on the level of individual participation.  However, foreign investors have low appetite for such instruments given the prevailing harsh economic environment.

There is a 1.48 percent withholding tax on the sale of marketable securities, while the tax on purchasing stands at 1.73 percent.  Totaling 3.21 percent, the rates are comparable with the average of 3.5 percent for the region.  As a way of raising funds for the state, the government mandated that insurance companies and pension funds invest between 25 and 35 percent of their portfolios in prescribed government bonds.  Zimbabwe’s high inflation has greatly eroded the value of domestic debt instruments and resulted in negative real interest rates on government bonds.  Nevertheless, the government has been borrowing from the local market by issuing treasury bills to financial institutions to finance government expenditure.

Money and Banking System

Three major international commercial banks and several regional and domestic banks operate in Zimbabwe, but they have reduced their branch network substantially in line with declining business opportunities.  The central bank (Reserve Bank of Zimbabwe (RBZ)) believes that the banking sector is generally stable despite a harsh operating environment characterized by high credit risk, high inflation, and foreign exchange and liquidity constraints.  Most Zimbabwean correspondent banking relationships are in jeopardy or have already been severed due to international bank efforts to reduce risk (de-risking) connected to the high penalties for non-compliance with prudential anti-money laundering/counter-terrorism finance guidelines in developed countries.  As of December 31, 2019, the sector had 19 operating institutions, comprising 13 commercial banks, five building societies, and one savings bank.  According to the RBZ, as of December 2019, all operating banking institutions complied with the prescribed minimum core capital requirements.  The level of non-performing loans fell from 6.92 percent in December 2018 to 1.75 percent by December 2019 largely reflecting the banks’ low appetite to lend to high risk clients.  The RBZ reports that the total loans to deposits ratio fell from 40.7 percent in December 2018 to 36.6 percent as of December 31, 2019.

According to the central bank, the total deposits (including interbank deposits), rose from ZWL 14 billion in December 2018 to ZWL 34.5 billion by December 2019, but fell 84 percent in US dollar terms.

Foreign Exchange and Remittances

Foreign Exchange

The RBZ retains a portion (which varies by sector) of foreign currency earned by exporters.  The levels have changed periodically, but as of May 2020, most exporters retained 80 percent of their foreign currency earnings, with 55 percent for gold producers, 50 percent for all other minerals, and 30 percent for tobacco and cotton farmers.

Weak investment inflows, Zimbabwe’s fiscal and current account deficits, and the RBZ’s inability to defend the official exchange rate have resulted in a shortage of foreign exchange available at the official rate.  Consequently, investors cannot freely convert any funds associated with any form of investment into any world currency.  Businesses rely on a black market for foreign exchange to make external payments.

In February 2019, after months of tacitly accepting that domestic bank balances officially denominated in U.S. dollars no longer reflected U.S. dollar values, Zimbabwe reintroduced its own domestic currency, the Zimbabwe dollar.  In June 2019, the government banned the use of foreign currencies in domestic transactions in favor of the Zimbabwe dollar.  The consistent gap between the black market and official exchange rate implies the RBZ has not allowed market forces to determine the official exchange rate, and it is unable to make sufficient interventions to defend the rate.  Instead, the RBZ has periodically devalued the Zimbabwe dollar but has never let it fall to a market-clearing rate.  In April 2020, the RBZ instituted an official fixed exchange rate of 25:1, while U.S. dollars remained over twice as expensive on the black market.

Remittance Policies

Foreigners can remit capital appreciation, dividend income, and after-tax profits provided the foreign exchange is available.  Firms may find difficulty in accessing foreign exchange at the more favorable official rate.

Sovereign Wealth Funds

Zimbabwe does not have a sovereign wealth fund (SWF).  The government set aside USD 1 million toward administrative costs related to the setting up of a SWF in its 2016 Budget.  Although the government proposed to capitalize the SWF through a charge of up to 25 percent on royalty collections on mineral sales, as well as through a special dividend on the sale of diamond, gas, granite and other minerals, it has not done so.

7. State-Owned Enterprises

Zimbabwe has 107 state-owned enterprises (SOEs), defined as companies wholly owned by the state.  A list of the SOEs appears here .  Many SOEs support vital infrastructure including energy, mining, and agribusiness.  Competition within the sectors where SOEs operate tends to be limited.  However, the government of Zimbabwe (GOZ) invites private investors to participate in infrastructure projects through public-private partnerships (PPPs).  Most SOEs have public function mandates, although in more recent years, they perform hybrid activities of satisfying their public functions while seeking profits.  SOEs should have independent boards, but in some instances such as the recent case of the Zimbabwe Mining Development Corporation (ZMDC), the government allows the entities to function without boards.

Zimbabwe does not appear to subscribe to the Organization for Economic Cooperation and Development (OECD) guidelines on corporate governance of SOEs.  SOEs are subject to the same taxes and same value added tax rebate policies as private sector companies.  SOEs face several challenges that include persistent power outages, mismanagement, lack of maintenance, inadequate investment, a lack of liquidity and access to credit, and debt overhangs.  As a result, SOEs have performed poorly.  Few SOEs produce publicly available financial data and even fewer provide audited financial data.  This has imposed significant costs on the rest of the economy.

Privatization Program

Although the government committed itself to privatize most SOEs in the 1990s, it only successfully privatized two parastatals.  In 2018, the government announced it would privatize 48 SOEs.  So far, it has only targeted five in the telecommunications sector, postal services, and financial sector for immediate reform.  The government encourages foreign investors to take advantage of the privatization program to invest in the country, but inter-SOE debts of nearly     USD 1 billion pose challenges for privatization plans.  According to the government’s investment guidelines, it is still working out the process under which it will dispose its shareholding to the private sector.

9. Corruption

Endemic corruption presents a serious challenge to businesses operating in Zimbabwe.  Zimbabwe’s scores on governance, transparency and corruption perception indices are well below the regional average.  U.S. firms have identified corruption as an obstacle to FDI, with many corruption allegations stemming from opaque procurement processes.

While anti-corruption laws exist, enforcement is weak as law enforcement agencies lack political will and resources.  As a result, Transparency International ranked Zimbabwe 158 out of 180 countries and territories surveyed in 2019 in regards to perceptions of corruption.  In 2005, the government enacted an Anti-Corruption Act that established a government-appointed Zimbabwe Anti-Corruption Commission (ZACC), the structure of which has evolved over time.  Following the end of Robert Mugabe’s rule in November 2017, the government pledged to address governance and corruption challenges by appointing a new ZACC chaired by a former High Court Judge and granting it new powers.  President Mnangagwa also established a special unit within his office to deal with corruption cases.  Despite these developments, the government has a track record of prosecuting individuals selectively, focusing on those who have fallen out of favor with the ruling party and ignoring transgressions by members of the favored elite.  Accusations of corruption seldom result in formal charges and convictions.  Zimbabwe does not provide any special protections to NGOs investigating corruption in the public sector.

While Zimbabwe does not have laws that guard against conflict of interest with respect to the conduct of private companies, existing rules on the Zimbabwe Stock Exchange compel listed companies to disclose, through annual reports, minimum disclosure requirements.  Regarding SOEs, the government has specified laws that require managers and directors to declare their financial interests.  In 2016, the World Bank report on the extent of conflict of interest regulation index (0-10), put Zimbabwe at 5.

While Zimbabwe signed the United Nations Convention against Corruption in 2004  and ratified the treaty in 2007, it is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Transparency International Zimbabwe
96 Central Avenue,
P O Box CY 434, Causeway
Harare
+263 4 793 246/7
tiz@tizim.org; info@tizim.org

10. Political and Security Environment

Political parties, labor organizations, and civil society groups sometimes encounter state-sponsored intimidation and repression from government security forces and Zimbabwe African National Union – Patriotic Front (ZANU–PF)-linked activists. Disagreements between and within political parties occasionally resulted in violence targeting political party members.  Political tensions and civil unrest persist since the end of Robert Mugabe’s rule in November 2017.  On August 1, 2018, the army fired upon people demonstrating against the delay in announcing official presidential election results, killing six. In response to January 2019 demonstrations against rising fuel prices, security forces killed 17, raped 16, injured 100s and arrested 800 people over the course of several weeks.  The crackdown targeted members of the opposition political party, civil society groups, and labor leaders. Political uncertainty remains high.  Violent crime, such as assault, smash and grabs, and home invasion, is common.  Local police lack the resources to respond effectively to serious criminal incidents.  Incidents of violence have typically not targeted investment projects.