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Egypt

Executive Summary

The Egyptian government continues to make progress on economic reforms, and while many challenges remain, Egypt’s investment climate is improving.  The country has undertaken a number of structural reforms since the flotation of the Egyptian Pound (EGP) in November 2016, and after successfully completing a set of difficult macroeconomic reforms as part of a three-year, $12-billion International Monetary Fund (IMF) program, Egypt was one of the fastest-growing emerging markets prior to the COVID-19 outbreak.  Egypt was also the only economy in the Middle East and North Africa to record positive economic growth in 2020, despite the COVID-19 pandemic. Increased investor confidence and the reactivation of Egypt’s interbank foreign exchange (FX) market have attracted foreign portfolio investment and increased foreign reserves.  The Government of Egypt (GoE) increasingly understands that attracting foreign direct investment (FDI) is key to addressing many of its economic challenges and has stated its intention to create a more conducive environment for FDI.  FDI inflows grew 11 percent between 2018 and 2019, from $8.1 to $9 billion, before falling 39 percent to $5.5 billion in 2020 amid sharp global declines in FDI due to the pandemic, according to data from the Central Bank of Egypt and the United Nations Commission on Trade and Development (UNCTAD). UNCTAD ranked Egypt as the top FDI destination in Africa between 2016 and 2020.

Egypt has passed a number of regulatory reform laws, including a new investment law in 2017; a new companies law and a bankruptcy law in 2018; and a new customs law in 2020.  These laws aim to improve Egypt’s investment and business climate and help the economy realize its full potential.  The 2017 Investment Law is designed to attract new investment and provides a framework for the government to offer investors more incentives, consolidate investment-related rules, and streamline procedures.  The 2020 Customs Law is likewise meant to streamline aspects of import and export procedures, including through a single-window system, electronic payments, and expedited clearances for authorized companies. The GoE is still developing implementation rules for the Customs Law.

The government also hopes to attract investment in several “mega projects,” including the construction of a new national administrative capital, and to promote mineral extraction opportunities.  Egypt intends to capitalize on its location bridging the Middle East, Africa, and Europe to become a regional trade and investment gateway and energy hub, and hopes to attract information and communications technology (ICT) sector investments for its digital transformation program.

Egypt is a party to more than 100 bilateral investment treaties, including with the United States.  It is a member of the World Trade Organization (WTO), the African Continental Free Trade Agreement (AfCFTA), and the Greater Arab Free Trade Area (GAFTA).  In many sectors, there is no legal difference between foreign and domestic investors. Special requirements exist for foreign investment in certain sectors, such as upstream oil and gas as well as real estate, where joint ventures are required.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 117 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2020 114 of 190 http://www.doingbusiness.org/en/rankings 
Global Innovation Index 2020 96 of 131 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, on a historical-cost basis 2019 USD 11,000 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2019 USD 2,690 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

10. Political and Security Environment

Stability and economic development remain Egypt’s priorities. The Egyptian government has taken measures to eliminate politically motivated violence while also limiting peaceful protests and political expression. Egypt’s presidential elections in March 2018 and senatorial elections in August 2020 proceeded without incident. Militant groups also committed attacks in the Western Desert and Sinai. The government has been conducting a comprehensive counterterrorism offensive in the Sinai since early 2018 in response to terrorist attacks against military installations and personnel by ISIS-affiliated militant groups. In February 2020, ISIS-affiliated militants claimed responsibility for an attack against a domestic gas pipeline in the northern Sinai. Although the group claimed that the attack targeted the recently opened natural gas pipeline connecting Egypt and Israel, the pipeline itself was undamaged, and the flow of natural gas was not interrupted.

Honduras

Executive Summary

The United States is Honduras’ most important economic partner.  During the past year, the Honduran government has continued to implement reforms to attract investment and promote economic growth, but meaningful improvement has been slow.  Macroeconomic reforms and continued commitment to fiscal stability have led to a stable macroeconomic environment, ongoing financial assistance from the International Monetary Fund (IMF), and stable credit ratings from the major international agencies.

Foreign investors operating in Honduras operate thriving enterprises, but all face challenges including unreliable and expensive electricity, corruption, unpredictable tax application and enforcement, high crime, low education levels, and poor infrastructure. Squatting on private land is a growing problem in Honduras and anti-squatting laws are poorly enforced. Continued low-level protests and uncertainty surrounding the November 2021 general elections are additional concerns for private investors. The World Bank’s Ease of Doing Business Report points to the difficulty of starting a new business, the high burden of paying taxes, and poor contract law enforcement as major disincentives to private investment.

The impact of the COVID-19 pandemic on the economy was both immediate and severe.  The March 2020 shutdown of the formal and informal economies placed a tremendous strain on workers who rely on daily wages.  Approximately 175,000 Hondurans were temporarily suspended from their jobs, 250,000 became unemployed, and almost 300,000 saw their income decrease by at least 40 percent.  This economic contraction was further exacerbated by back-to-back Category 4 hurricanes in November, which caused severe flooding and mudslides, damaging roads, washing away 134 bridges, and killing over 100 people. The combined effects of COVID-19 and the November hurricanes caused an economic recession, with GDP contracting by 8 percent in 2020 and job losses as high as 800,000 workers (18 percent of the labor force). Honduran authorities report economic destruction as high as $10 billion from the storms. The storms’ effects were particularly damaging to the agriculture and tourism industries, both crucial for millions of Hondurans. NGOs, development banks and Honduran officials are working to reactivate the economy via cash injections and technical assistance for small business and farms, rehabilitation of key infrastructure, and improving climate change resiliency.

The Government of Honduras (GOH) implements a variety of measures to attract investment and facilitate trade.  Trade policy is overseen by the National Trade Committee, chaired by the Minister of Economic Development.  Honduras is a ratifying country of the WTO Trade Facilitation Agreement, which contains provisions for expediting the movement, release, and clearance of goods, and sets out measures for effective cooperation on customs compliance and trade facilitation.  Honduras, Guatemala, and El Salvador operate a trilateral customs union to foster and increase efficient cross-border trade, but implementation remains inconsistent.  In June 2020, Honduras switched to digitized import permits for agricultural products, reducing costs and dispatch times dramatically. Also in 2020, Honduras and Guatemala launched an online pre-arrival screening protocol to reduce border times and transit costs for goods. Many processes, including applications for permitting and licensing businesses are now available online as part of Honduras’ Sin Filas (no lines) initiative.

Many of the approximately 200 U.S. companies that operate in Honduras take advantage of the commercial framework established by the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR).  Through its participation in CAFTA-DR, Honduras has enhanced U.S. export opportunities and diversified the composition of bilateral trade.  Substantial intra-industry trade now occurs in textiles and electrical machinery, alongside continued trade in traditional Honduran exports such as coffee and bananas.  In addition to liberalizing trade in goods and services, CAFTA-DR includes important requirements relating to investment, customs administration and trade facilitation, technical barriers to trade, government procurement, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environmental protection.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 157 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 133 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 103 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $1,281 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita (USD) 2019 $2,390 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

10. Political and Security Environment

Crime and violence rates remain high and add cost and constraint to investments. Demonstrations occur regularly in Honduras and political uncertainty poses a challenge to ongoing stability. Tensions could increase significantly in advance of the November 2021 presidential and general elections.

U.S. citizens should be aware that large public gatherings might become unruly or violent quickly. For more information, consult the Department of State’s latest travel warning: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Honduras.html.

Although violent crime remains a persistent problem, Honduras has successfully reduced homicides to less than 40 per 100,000 inhabitants, the lowest in a decade.  Cases of violence, extortion, and kidnapping are still relatively common, particularly in urban areas where gang presence is more pervasive.  Drug traffickers continue to use Honduras as a transit point for cocaine and other narcotics en route to the United States and Europe, which fuels local turf battles in some areas and injects illicit funds into judicial proceedings and local governance structures to distort justice.  The business community historically had been a target for ransom kidnappings, but the number of such kidnappings dropped from 92 in 2013 to 13 in 2020, primarily through the establishment of the USG-supported Honduran National Police National Anti-Kidnapping Unit. Although violent crime rates are trending downward, there is a neutral to upward trend in corruption and white-collar crime, including money laundering, that negatively affects economic prosperity and stability for the business community.

Iraq

Executive Summary

The COVID-19 pandemic and subsequent drop in global oil prices continue to reverberate in Iraq.  The Iraqi government has been covering a large fiscal deficit by borrowing domestically and drawing on its foreign reserves.  In December 2020, the GOI devalued Iraq’s dinar by 22% to forestall a liquidity crisis.  This has raised domestic prices for food and other commodities in Iraq’s import-dependent economy.

Widespread protests in October 2019 caused the resignation of then PM Adil Abdul-Mahdi and his government.  After a lengthy period of government formation, the current government of PM Mustafa al-Kadhimi came to power in May 2020.  Sporadic violent protests continue, especially in the country’s south, and Kadhimi has called for early elections, currently scheduled for October.

In October 2020, Iraq’s cabinet approved an economic reform agenda known as the “white paper,” which identified over 200 reforms, legislative amendments, subsidy cuts, and e-government measures that are broadly in line with previous World Bank and IMF reform recommendations.  The white paper acknowledges the scope of Iraq’s structural economic problems and aims to place Iraq on a private sector-driven economic growth path.  While it is clear that Kadhimi and key advisors are intent on reform, it is less clear that these efforts will overcome other long-standing, entrenched political opposition whose stakeholders profit from GOI opacity and inefficiency.

An uneven security environment, including the threat of resurgent extremist groups, remains an impediment to investment in many parts of the country.  Other lingering effects of the fight against ISIS include major disruptions of key domestic and international trade routes and the destruction of economic infrastructure.  Many militia groups that participated in the fight against ISIS remain deployed and are only under nominal government control.  Several militias have been implicated in a range of criminal and extralegal activities in commercial sectors, including extortion.  However, the security situation varies throughout the country and is generally less problematic in the Iraqi Kurdistan Region (IKR).

Investors in Iraq continue to face extreme challenges resolving issues with GOI entities, including procurement disputes, receiving timely payments, and winning public tenders.  Difficulties with corruption, registration, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints from companies operating in Iraq.  Shifting and unevenly enforced regulations create additional burdens for investors.

Despite these challenges, the Iraqi market offers some potential for U.S. exporters.  Iraq regularly imports agricultural commodities, machinery, consumer goods, and defense articles.  While non-oil bilateral trade with the United States was $771.9 million in 2020, Iraq’s economy had an estimated GDP of $200 billion.  Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas sectors, and have been financed almost entirely by oil revenues.  Increasingly, the GOI has asked investors and sellers to provide financing options and allow for deferred payments.

Investors in the IKR face many of the same challenges as investors elsewhere in Iraq, but the IKR has a traditionally more stable security situation.  However, the region’s economy has struggled to recover from the 2014 ISIS offensive, the drop in oil prices, the aftermath of the 2017 Kurdish independence referendum, and ongoing disputes with the central government over revenue sharing.

The U.S. government and the GOI have revived the 2008 U.S.-Iraq Strategic Framework Agreement and the Trade and Investment Framework Agreement (TIFA) and held the second TIFA meeting in June 2019 and Strategic Dialogue in 2020 with good success.  The American Chamber of Commerce in Iraq provides a platform for commercial advocacy for the U.S. business community.  Local businesses also are re-energizing an American Chamber of Commerce presence in the IKR.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 160 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 172 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index N/A N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) N/A N/A https://apps.bea.gov/international/factsheet/
World Bank GNI per capita N/A N/A http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

10. Political and Security Environment

Iraqi forces continue to carry out counter-terrorism operations against ISIS cells throughout the country.  Terrorist attacks within the IKR occur less frequently than in other parts of Iraq, although the KRG, U.S. government facilities, and Western interests remain possible targets.  In addition, Iran-aligned militias may threaten U.S. citizens and companies throughout Iraq.

As of its latest Travel Advisory on January 25, the Department of State maintains a Level Four Travel Advisory for Iraq and advises travelers not to travel to Iraq due to COVID-19, terrorism, kidnapping, and armed conflict.  U.S. government personnel in Iraq are required to live and work under strict security guidelines.  Travelers should review the embassy’s official COVID-19 page, which is updated weekly, before traveling:  https://iq.usembassy.gov/covid-19-information/.

State Department guidance to U.S. businesses in Iraq advises the use of protective security details.  Detailed security information is available on the U.S. Embassy website: http://iraq.usembassy.gov/.  Some U.S. and third country businesspeople travel throughout much of Iraq; however, in general their movement is restricted and most travel with security advisors and protective security teams.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs

The U.S. International DFC provides debt and equity financing, political risk insurance, and technical development to mobilize private sector investment to advance development in emerging economies. DFC’s current investments in Iraq surpass $280 million across sectors such as energy and financial services.

During the 2020 U.S.-Iraq Strategic Dialogue, the DFC signed a $1 billion MOU with the MOF to enable private sector investment in Iraq.

Iraq is a signatory to the Riyadh Convention and took steps towards ratification of the New York Convention on Arbitration in March 2021, which is typically a requirement for DFC political risk insurance.

Israel

Executive Summary

Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has the third most companies listed on the NASDAQ, after the United States and China. Various Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.

The economic impact of the COVID-19 pandemic on Israel is unprecedented but successful pre-pandemic economic policy buffers – steady/strong growth, low debt, a resilient tech sector among them — mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy enjoyed strong growth prior to the COVID-19 pandemic. With low inflation and fiscal deficits that have usually met targets pre-pandemic, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel, through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.

The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods that reached USD 25.5 billion in 2020 and USD 33.9 billion in 2019, according to the U.S. Census Bureau, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 36.6 billion in 2019, according to the U.S. Department of Commerce. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, open, and led by a cutting-edge high-tech sector.

The Israeli government generally continues to take slow, deliberate actions to remove some trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies, usually in favor of domestic producers.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 35 of 175 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 35 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 13 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $28.5 billion https://www.bea.gov/sites/default/files/2020-07/dici0720_0.pdf
World Bank GNI per capita 2019 $43,100 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

10. Political and Security Environment

For the latest safety and security information regarding Israel and the current travel advisory level, see the Travel Advisory for Israel, the West Bank, and Gaza ( https://travel.state.gov/content/travel/en/traveladvisories/traveladvisories/israel-west-bank-and-gaza-travel-advisory.html).

The security situation remains complex in Israel and the West Bank, and can change quickly depending on the political environment, recent events, and geographic location. Terrorist groups and lone-wolf terrorists continue plotting possible attacks in Israel, the West Bank, and Gaza. Terrorists may attack with little or no warning, targeting tourist locations, transportation hubs, markets or shopping malls, and local government facilities. Violence can occur in Jerusalem and the West Bank without warning. Terror attacks in Jerusalem and the West Bank have resulted in the deaths and injury of U.S. citizens and others. Hamas, a U.S. government-designated foreign terrorist organization, controls security in Gaza. The security environment within Gaza and on its borders is dangerous and volatile.

Nicaragua

Executive Summary

Investors should be extremely cautious about investing in Nicaragua under President Daniel Ortega’s authoritarian government. Almost three years have passed since the 2018 political-economic crisis left over 300 peaceful protesters killed, 2,000 protestors injured, and over 100,000 Nicaraguans displaced and seeking asylum outside of Nicaragua. The Ortega regime continues to suspend constitutionally guaranteed civil rights, detain political prisoners, and disregard the rule of law, creating an unpredictable investment climate rife with reputational risk and arbitrary regulation. Presidential elections are scheduled for November 2021. Failure to restore civil liberties and guarantee free and fair elections could spark renewed unrest and lead to the further isolation of the Ortega regime.

According to the International Monetary Fund, Nicaragua’s economy contracted 3.8 percent in 2018, 5.8 percent in 2019, and an estimated 3.5 percent in 2020. The World Bank expects the economy to grow 0.9 percent in 2021 as it recovers from the COVID-19 pandemic, less than the 2.5-3.5 percent forecast by the Nicaraguan Central Bank.

In 2020, the Ortega–controlled National Assembly approved six additional repressive laws that should alarm investors. Some of the most concerning laws include a “gag” law that criminalizes political speech; a “foreign agents law” that requires organizations and individuals to report foreign assistance and prevents any person receiving foreign funding from running for office; and a “consumer protection law” that could prevent financial institutions from making independent decisions on whether to service financial clients, including sanctioned entities. Tax authorities have seized properties following reportedly arbitrary tax bills and jailed individuals without due process until taxes were negotiated and paid. Furthermore, arbitrary fines and customs inspections prejudice foreign companies that import products.

The COVID-19 global pandemic impacted Nicaragua’s economy, upsetting tourism and investment. The government’s attempts to conceal the scope of the pandemic, including the number of new cases and deaths, may have hurt consumer and investor confidence. Inflation increased another 3 percent after rising 6.1 percent in 2019, and the number of Nicaraguans insured through social security, a measure of the robustness of the formal economy, fell 19 percent since March 2018. These conditions pose significant challenges for doing business in Nicaragua. Credit largely disappeared in early 2019 before starting to return later in the year and in 2020. The government’s 2019 tax reforms continue to hurt business profit margins and raise consumer prices. Most international organizations ended their assistance to the government due to human rights concerns, with the exception of some humanitarian assistance related to the COVID-19 pandemic and Hurricanes Eta and Iota.

Nicaragua’s economy still has significant potential for growth if institutional and rule of law challenges can be overcome and investor confidence can be restored. Its assets include: ample natural resources; a well-developed agricultural sector; a highly organized and sophisticated private sector committed to a free economy; ready access to major shipping lanes; and a young, low-cost labor force that supports a vibrant manufacturing sector. The United States is Nicaragua’s largest trading partner—it is the source of roughly one quarter of Nicaragua’s imports, and the destination of approximately two-thirds of Nicaragua’s exports.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 159 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 142 of 190 http://www.doingbusiness.org/en/rankings
https://www.doingbusiness.org/en/data/
exploreeconomies/nicaragua
Global Innovation Index N/A N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) N/A N/A https://apps.bea.gov/international/factsheet/
World Bank GNI per capita N/A N/A http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

10. Political and Security Environment

President Daniel Ortega and his wife and Vice President Rosario Murillo dominate Nicaragua’s highly centralized, authoritarian political system. Ortega is serving in his third consecutive term as president after the Ortega-controlled Supreme Court ruled that a constitutional ban on the re-election of a sitting president was unenforceable. Ortega’s rule has been marked by increasing human rights abuses, consolidation of executive control, and consolidation of strategic business sectors that enrich him and his inner circle.

These abuses of power came to a head in April 2018 when Ortega’s security forces killed over 300 peaceful protesters. Government tactics included the use of live ammunition, snipers, fire as a weapon, and armed vigilante forces. Protesters built makeshift roadblocks and confronted the national police (NNP) and parapolice with rocks and homemade mortars. The ensuing conflict left over 325 dead, thousands injured, and more than 100,000 exiled in neighboring countries. Hundreds were illegally detained and tortured. Beginning in August 2018, the Ortega government instituted a policy of “exile, jail, or death” for anyone perceived as regime opponents. It amended terrorism laws to include prodemocracy activities and used the legislature and justice system to characterize civil society actors as terrorists, assassins, and coup-mongers. Political risk has increased dramatically as a result, and the future of the country’s political institutions remains very uncertain.

The NNP presence is ubiquitous throughout Nicaragua, including with randomized checkpoints. Excessive use of force, false imprisonment, and other harassment against opposition leaders—including many private sector leaders—is common. On March 5, 2020, the United States sanctioned the NNP for its human rights abuses against the people of Nicaragua.

Widespread dissatisfaction with Ortega’s authoritarian rule continues. Elections are scheduled for November 2021, and Ortega plans to compete for a fourth consecutive presidential term, raising doubts whether the Ortega regime will permit elections that are free and fair. The Department of State’s Bureau of Consular Affairs advises that travelers reconsider travel to Nicaragua due to limited healthcare availability and arbitrary enforcement of laws.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs

The U.S. International Development Finance Corporation (DFC) does not currently support projects in Nicaragua.

Panama

Executive Summary

Given its dollarized economy, a stable democratic government, the Panama Canal, the world’s second largest free trade zone, a network of free trade agreements, and a strategic geographical location, Panama attracts high levels of foreign direct investment from around the world and has solid potential as a foreign direct investment (FDI) magnet and regional hub for a number of sectors. Panama attracts more U.S. FDI than any other country in Central America, closing 2019 with $5.27 billion, according to the U.S. Bureau of Economic Analysis.

Over the last decade, Panama had been one of the Western Hemisphere’s fastest growing economies. However, 2020 was a difficult year for Panama, which saw a GDP contraction of 17.9 percent, 18.5 percent unemployment, government revenues down by a third, and downgrades in its investment grade sovereign bond rating. Analysts forecast 4-5 percent GDP gains for 2022-2025. The global crisis hit many of Panama’s key industries, including tourism, construction, real estate, aviation, and services ancillary to trade. However, key industries such as banking, mining, the maritime sector, and Canal operations have remained stable throughout the crisis.

Panama faces structural challenges even beyond those caused by the COVID-19 pandemic, including corruption, an inefficient judicial system, an under-educated workforce, and an inflexible labor code, which often discourage additional foreign investments or complicate existing ones. With a population of just over four million, Panama’s small market size is not worth the perceived risk of investment for many companies. The World Bank classified Panama in July 2018 as a “high-income” jurisdiction in its annual country classifications, after its Gross National Income per capita moved past the threshold for high-income classification. Nevertheless, Panama is one of the most unequal countries in the world, with the 17th highest Gini Coefficient and a national poverty rate of 18 percent, with pockets of 90 percent poverty in indigenous regions.

The Cortizo administration has addressed investment challenges by prioritizing key economic reforms required to improve the investment climate and passing a new investment incentives measure for the manufacturing industry. It also created a new Minister Counselor for Investment position that reports directly to the President, with the aim of attracting new investors and dislodging barriers that confront current ones. Unfortunately, the pandemic has caused the government to pivot to crisis management and basic economic recovery, although efforts to attract investment continue. Panama also remains on the Financial Action Task Force’s grey list for systemic deficiencies that impede progress in combatting money laundering and terrorist financing.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 111 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 86 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 73 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $5,272 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $14,950 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

10. Political and Security Environment

Panama is a peaceful and stable democracy. On rare occasions, large-scale protests can turn violent and disrupt commercial activity in affected areas. Mining and energy projects have been sensitive issues, especially those that involve development in designated indigenous areas called Comarcas. One U.S. company has reported not only protests  and obstruction of access to one of its facilities, but expensive acts of vandalism against its property. The unrest is related to disagreements over compensation for affected community members. The GoP has attempted to settle the dispute, but without complete success..

In May 2019, Panama held national elections that international observers agreed were free and fair. The transition to the new government was smooth. Panama’s Constitution provides for the right of peaceful assembly, and the government respects this right. No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required. Unions, student groups, employee associations, elected officials, and unaffiliated groups frequently attempt to impede traffic and disrupt commerce in order to force the government or private businesses to agree to their demands.

Strife between rival gangs and turf battles in the narcotraffic trade led to a rising homicide rate through the first seven months of 2020, although early indications suggest the wave of gang homicides is receding. The 2020 homicide rate of 11.62 per 100,000 people is still among the lowest in Central America. Crimes other than homicides and cattle rustling were significantly lower in 2020, most likely due to pandemic-related movement restrictions and increased police presence to enforce the restrictions.

Saudi Arabia

Executive Summary

In 2020, the Saudi Arabian government (SAG) continued its ambitious socio-economic reforms, collectively known as “Vision 2030.” Spearheaded by Crown Prince Mohammed bin Salman, Vision 2030 provides a roadmap for the development of new economic sectors, including tourism and entertainment, and for a significant transformation toward a digital, knowledge-based economy. The reforms are aimed at diversifying the Saudi economy away from its reliance on oil and creating more private sector jobs for a young and growing population.

To help accomplish these goals, the Saudi Arabian government (SAG) took additional steps in 2020 to improve the Kingdom’s investment climate, attract increased foreign investment, and encourage greater domestic and international private sector participation in its economy. To accelerate development and facilitate investment, the SAG elevated two Saudi authorities to full ministries in 2020: the Saudi Arabian General Investment Authority became the Ministry of Investment, and the Saudi Commission for Tourism and National Heritage became the Ministry of Tourism. On March 30, 2021, the SAG also announced the new Shareek program, an initiative designed to generate $3.2 trillion of domestic investment from the SAG, the sovereign wealth Public Investment Fund, and the private sector into Saudi Arabia’s economic development.

The Saudi Arabian government and its new stand-alone intellectual property rights (IPR) agency, the Saudi Authority for Intellectual Property (SAIP), have taken important steps since 2018 to improve IPR protection, enforcement, and awareness. In 2020, SAIP continued its inspection campaigns and seized millions of items that violated IPR protection. However, despite making measurable progress, the continued lack of effective protection of IPR in the pharmaceutical sector remains a significant concern. Several U.S. and international pharmaceutical companies allege the SAG violated their IPR and the confidentiality of trade data by licensing local firms to produce competing generic pharmaceuticals without approval. Industry attempts to engage the SAG on these issues have not led to satisfactory outcomes for the affected companies, while legal recourse and repercussions for IPR violations remain poorly defined. Primarily for these reasons, the U.S. Trade Representative included Saudi Arabia on its Special 301 Priority Watch List for the second consecutive year.

Infrastructure development remains a priority component of Saudi Arabia’s Vision 2030 aspiration to become the most important logistics hub in the region, linking Asia, Europe, and Africa. By establishing new business partnerships and facilitating the flow of goods, people, and capital, the country seeks to increase interconnectivity and economic integration with other Gulf Cooperation Council (GCC) countries. Improvements to transportation, such as the $23 billion Riyadh metro, are intended to support this plan. In addition, Saudi Arabia continues to create and expand “economic cities” – including plans for special economic zones – throughout the Kingdom as hubs for petrochemicals, mining, logistics, manufacturing, and digital industries. The Kingdom also continued its early-stage work on infrastructure for NEOM, a futuristic city in northwest Saudi Arabia that Saudi officials have said will cost $500 billion to develop.

Saudi Arabia is launching an $800 billion project to double the size of Riyadh city in the next decade and transform it into an economic, social, and cultural hub for the region. The project includes 18 “mega-projects” in the capital city to improve livability, strengthen economic growth, and more than double the population to 15-20 million by 2030. The SAG is seeking private sector financing of $250 billion for these projects with similar contributions from income generated by its financial, tourism, and entertainment sectors. While specific details of a new initiative announced in February 2021 to attract multinational companies’ regional headquarters offices to Saudi Arabia have not been finalized, senior SAG officials have said publicly that beginning in 2024, government contracts will only be awarded to companies whose regional headquarters are located in the Kingdom. “Saudization” polices requiring certain businesses to employ a quota of Saudi workers have led to disruptions in some private sector activities.

In recognition of the progress made in its investment and business climate, Saudi Arabia’s rankings on several world indexes improved between 2019 and 2021. The country jumped 13 places on the IMD World Competitiveness Yearbook 2019, the biggest gain of any country surveyed, and increased two more spots in 2020 to 24th place, supported by improvements to government and business efficiency. The World Bank ranked Saudi Arabia the world’s top reformer and improver in its Doing Business 2020 report. The Kingdom rose 30 places, from 92nd to 62nd, and improved in 9 out of 10 areas measured in the report. World Economic Forum’s 2020 Global Competitiveness Report Special Edition ranked Saudi Arabia among the top 10 countries in the world for digital skills. The report attributed this progress to a number of factors including the adoption of information and communication technology, flexible work arrangements, national digital skills, and the legal digital framework.

On the social front, the removal of guardianship laws and travel restrictions for adult women, the introduction of workplace protections, and recent judicial reforms that provide additional protection have enabled more women to enter the labor force. From 2016 to 2020, the Saudi female labor participation rate increased from 19 percent to 33 percent.

Development of the Saudi tourism sector is also a priority under Vision 2030, with plans to develop tourist attractions that meet the highest international standards and develop potential UNESCO World Heritage Sites. In addition to introducing a new tourism visa in 2019 for non-religious travelers, the SAG no longer requires that foreign travelers staying in the same hotel room provide proof of marriage or family relations. Construction of several multi-billion dollar giga-projects focused on tourism, including Qiddiya, the Red Sea Project, and Amaala, continue to progress. The SAG is seeking private investments through its Tourist Investment Fund, which has initial capital of $4 billion, and the Kafalah program, which provides loan guarantees of up to $400 million. In addition, the Tourism Fund signed MOUs with local banks to finance projects valued up to $40 billion in an effort to stimulate tourism investment and increase the sector’s contribution to GDP. Due to the global pandemic, the SAG paused its Saudi Seasons initiative comprised of 11 annual tourism ‘seasons’ held in each region of the country, but has announced the program will resume in November 2021.

The Saudi entertainment and sporting events sector is growing rapidly. AMC, Vox, and other cinema companies continue to develop hundreds of movie theaters. The SAG is seeking to sign agreements for film production studios in Saudi Arabia for end-to-end film production. Saudi film festivals, like the Red Sea Film Festival, are being developed to meet the SAG’s Vision 2030 Quality of Life objectives. The SAG has also hosted several world class sporting events including the European Tour, Diriyah ePrix, Dakar Rally, Saudi Formula One Grand Prix, Diriyah Tennis Cup, WWE Crown Jewel, and Supercoppa. In addition, several festivals and concerts have demonstrated strong demand for a variety of art and culture content.

Investor concerns persist, however, over the rule of law, business predictability, and political risk. Although some have recently been released, the continued detention and prosecution of activists, including prominent women’s rights activists, remains a significant concern, while there has been little progress on fundamental freedoms of speech and religion. Pressure on Saudi Arabia’s fiscal situation from the sharp downturn in oil prices and demand in 2020, as well as the unexpected spending needed to respond to COVID-19, will likely dampen some of the SAG’s ambitious plans. Despite budget cuts imposed in 2020 and the possibility that further spending reductions may be forthcoming, companies working on the SAG’s giga-projects reported the ongoing availability of funding in 2020. Revenues generated by the tripling of Saudi Arabia’s value-added tax rate from 5 to 15 percent in July 2020 have helped ease fiscal stress.

The pressure to generate non-oil revenue and provide more jobs for Saudi citizens have prompted the SAG to implement measures that may weaken the country’s investment climate going forward. Increased fees for expatriate workers and their dependents, as well as “Saudization” polices requiring certain businesses to employ a quota of Saudi workers, have led to disruptions in some private sector activities and may lead to a decrease in domestic consumption levels.

Finally, while some U.S. companies, including those with significant experience in Saudi Arabia, continue to experience payment delays for SAG contracts, many were paid in full from late 2020 through the beginning of 2021. The SAG has committed to speed up its internal payment process and pay companies in a timely manner.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 52 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report 2020 62 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2020 66 of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $10,826 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $22,840 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

10. Political and Security Environment

Saudi Arabia is a monarchy ruled by King Salman bin Abdulaziz Al Saud. The King’s son, Crown Prince Mohammed bin Salman, has assumed a central role in government decision-making. The Department of State regularly reviews and updates a travel advisory to apprise U.S. citizens of the security situation in Saudi Arabia and frequently reminds U.S. citizens of recommended security precautions. In addition to a Global Travel Advisory due to COVID-19, the Department of State has a current travel advisory for Saudi Arabia that was updated in August 2020. The Travel Advisory urges U.S. citizens to exercise increased caution when traveling to Saudi Arabia due to terrorism and the threat of missile and drone attacks on civilian targets and to not travel within 50 miles of the Saudi Arabia-Yemen border.

Please visit www.travel.state.gov  for further information, including the latest Travel Advisory.

Due to risks to civil aviation operating within the Persian Gulf and the Gulf of Oman region, including Saudi Arabia, the Federal Aviation Administration (FAA) has issued an advisory Notice to Airmen (NOTAM).

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, and it weathered the global economic crisis of 2008-2009 better than most countries, establishing itself as a relatively stable emerging market with a promising trajectory of reforms and a strong banking system.  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.   Turkey’s expansionist monetary policy and spending of over USD 100 billion in central bank foreign reserves caused Turkey’s economy to grow by 1.8 percent in 2020 despite the pandemic, though high inflation and persistently high unemployment have been exacerbated.  This year growth is expected to be around 3.5 percent with significant downside risks.

Despite recent growth, the government’s economic policymaking remains opaque, erratic, and politicized, contributing to long-term and sometimes acute lira depreciation.  Inflation in 2020 was 14.6 percent and unemployment 13.2 percent, though the labor force participation rate dropped significantly as well. 

The government’s push to require manufacturing and data localization in many sectors and the introduction of a 7.5 percent digital services tax in 2020 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 3.6 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, social media platforms, online marketing, online broadcasting, tax collection, and payment platforms.  In particular, ICT and other companies report Government of Turkey (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.    

The opacity and inconsistency of government economic decision making, and concerns about the government’s commitment to the rule of law, 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 2019-2020 investment flows from the world drop by 3.5 percent, although investment flows from the United States increased by 135 percent.

Turkey’s investment climate is positively influenced by 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.   

Table 1: Key Metrics and Rankings 

Measure  Year  Index/Rank  Website Address 
TI Corruption Perceptions Index  2020  86 of 180  https://www.transparency.org/cpi2019 
World Bank’s Doing Business Report  2020  33 of 190  http://www.doingbusiness.org/en/rankings 
Global Innovation Index  2020  51 of 131  https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions)  2019  3,333  https://www.bea.gov/sites/default/files/2020-07/dici0720_0.pdf  
World Bank GNI per capita  2019  9,690 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

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 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-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.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs

The U.S. International Development Finance Corporation (DFC) replaced the Overseas Private Investment Corporation (OPIC) in December 2019, and continues to offer programs in Turkey, including political risk insurance for U.S. investors, under its bilateral agreement.  Since 1987, Turkey has been a member of the Multinational Investment Guarantee Agency (MIGA), most recently financing a public hospital project in 2019. 

Ukraine

Executive Summary

Ukraine offers a large consumer market, a highly educated and cost-competitive work force, and abundant natural resources. The government continues to advance legislation to capitalize on this potential.  In March 2020, parliament passed a law to lift the decades-old moratorium on the sale of agricultural land, effective July 1, 2021.  The World Bank projects that the establishment of the agricultural land market could attract $5 billion in investment.  Ukraine has continued to pass necessary legislation on intellectual property rights (IPR), including a new patent law bringing Ukraine’s patent regime closer in line with EU patent conventions.  The government also launched a new centralized body to speed up the review and issuance of patents.  On March 30, 2021, the Rada lifted a block on large privatizations and is looking at ways to facilitate the privatization process.

Ukraine’s Association Agreement with the EU gives the country preferential market access and is accelerating its economic integration with the bloc.  Many U.S. companies have found success in Ukraine, particularly in the agriculture, consumer goods, and technology sectors.  Ukraine is an agricultural powerhouse and the world’s second-largest grain exporter.  Ukraine has long had a skilled workforce in the IT service and software R&D sectors.  In recent months the Ukrainian government has increased its targeted recruitment of high-level IT talent into Ukraine.

Despite Ukraine’s potential, foreign direct investment (FDI) remains low. Ukraine experienced a net outflow of investment in 2020.  In addition to the pandemic, foreign investors cite corruption, particularly in the judiciary, as a key challenge to doing business in Ukraine.  To attract foreign investment the government adopted a new law in early 2021 granting considerable financial and operational incentives to companies that make large investments in Ukraine.

The April 2019 election of President Zelenskyy raised hopes that Ukraine would make the breakthrough reforms necessary to unlock its vast economic potential.  The government has worked to protect the gains of recent years and to implement many of the administration’s promises. Vested and corrupt interests, however, have resisted and even succeeded in rolling back some of the critical reforms enacted since the 2014 Revolution of Dignity.

Since 2014, Ukraine passed numerous reforms, including the launch of a number of anti-corruption institutions.  In fall 2020, however, the Constitutional Court of Ukraine invalidated key provisions of laws underpinning two of these institutions — the National Anti-Corruption Bureau (NABU) and the National Agency on Corruption Prevention (NACP).  These rulings have rolled back key provisions of prior IMF programs, preventing new disbursements of IMF, World Bank, and EU concessionary loans.  The Constitutional Court is also reviewing cases challenging the constitutionality of the High Anti-Corruption Court (HACC) and the Deposit Guarantee Fund.  The government and parliament are negotiating with international partners on legislation to reverse the effects of the rulings.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2020 117 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 2020 45of 131 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $596 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $3,370 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

10. Political and Security Environment

Russia’s military aggression entered its eighth year in the eastern oblasts of Donetsk and Luhansk, as did its illegal occupation of Crimea.  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.  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, which 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.

Since the 2019 Ukrainian presidential and parliamentary elections, the new administration’s efforts to take measurable steps toward peace, anti-corruption initiatives, and integration into Western institutions have faced push back from vested interests However, the government has demonstrated its commitment to reform in the face of adverse court decisions overturning key reform legislation.  The president has rallied his party’s majority in parliament to adopt laws to address many of these court decisions, but more needs to be done.  Protests in support of judicial reform drew up to 10,000 people in late February 2021.

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The Lessons of 1989: Freedom and Our Future