HomeReportsInvestment Climate Statements...Custom Report - 4509f6907c hide Investment Climate Statements Custom Report Excerpts: Brazil, India, Nigeria, South Korea, Sri Lanka, Turkey, Zimbabwe Bureau of Economic and Business Affairs Sort by Country Sort by Section In this section / Brazil Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 3. Legal Regime 6. Financial Sector India Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 3. Legal Regime 6. Financial Sector 7. State-Owned Enterprises Nigeria Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 3. Legal Regime 6. Financial Sector 7. State-Owned Enterprises 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics South Korea Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 3. Legal Regime 6. Financial Sector 7. State-Owned Enterprises Sri Lanka Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 3. Legal Regime 6. Financial Sector 7. State-Owned Enterprises Turkey Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 3. Legal Regime 6. Financial Sector 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics Zimbabwe Executive Summary 1. Openness To, and Restrictions Upon, Foreign Investment 3. Legal Regime 6. Financial Sector 7. State-Owned Enterprises Brazil Executive Summary Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the seventh largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $58 billion, an increase of 133percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.8 billion). In recent years, Brazil has received more than half of South America’s total amount of incoming FDI, and the United States is a major foreign investor in Brazil. According to Brazilian Central Bank (BCB) measurements, U.S. stock was 24 percent ($123.9 billion) of all FDI in Brazil as of the end of 2020, the largest single-country stock by ultimate beneficial owner (UBO), while International Monetary Fund (IMF) measurements assessed the United States had the second largest single-country stock of FDI by UBO, representing 18.7 percent of all FDI in Brazil ($105 billion) and second only to the Netherlands’ 19.9 percent ($112.5 billion). The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts and despite government efforts to resume in 2021, economic and political conditions hampered the process. The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global coronavirus pandemic in 2020. The country’s Gross Domestic Product (GDP) increased 4.6 percent in 2021, in comparison to a 4.1 percent contraction in 2020. As of February 2022, analysts had forecasted 0.3 percent 2022 GDP growth. The unemployment rate was 11.1 percent at the end of 2021, with over one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.4 percent of GDP ($72.4 billion) in 2021, and is projected to rise to 6.8 percent by the end of 2022 according to Brazilian government estimates. Brazil’s debt-to-GDP ratio reached 89.4 percent in 2020 and fell to around 82 percent by the end of 2021. The National Treasury projections show the debt-to-GDP ratio rising to 86.7 percent by the end of 2022, while the Independent Financial Institution (IFI) of Brazil’s Senate projects an 84.8 percent debt-to-GDP ratio. The BCB increased its target for the benchmark Selic interest rate from 2 percent at the end of 2020 to 9.25 percent at the end of 2021, and 11.75 percent in March 2022. The BCB’s Monetary Committee (COPOM) anticipates raising the Selic rate to 12.25 percent before the end of 2022. President Bolsonaro took office on January 1, 2019, and in that same year signed a much-needed pension system reform into law and made additional economic reforms a top priority. Bolsonaro and his economic team outlined an agenda of further reforms to simplify Brazil’s complex tax system and complicated code of labor laws in the country, but the legislative agenda in 2020 was largely consumed by the government’s response to the COVID-19 pandemic. In 2021, the Brazilian government passed a major forex regulatory framework and strengthened the Central Bank’s autonomy in executing its mandate. The government also passed a variety of new regulatory frameworks in transportation and energy sectors, including a major reform of the natural gas market. In addition, the government passed a law seeking to improve the ease of doing business as well as advance the privatization of its major state-owned enterprise Electrobras. Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property. Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil. Table 1: Key Metrics and Rankings Measure Year Index/Rank Website Address TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview Global Innovation Index 2021 57 of 129 https://www.globalinnovationindex.org/analysis-indicator U.S. FDI in partner country ($M USD, historical stock positions) 2020 $70,742 https://apps.bea.gov/international/factsheet/ World Bank GNI per capita 2020 $7,850 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 1. Openness To, and Restrictions Upon, Foreign Investment Brazil was the world’s seventh-largest destination for foreign direct investment (FDI) in 2019, with inflows of $58 billion, according to the United Nations Conference on Trade and Development (UNCTAD). The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, mining, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors in most sectors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors. The Brazilian Trade and Investment Promotion Agency (APEX-Brasil) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil. APEX-Brasil is not a “one-stop shop” for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues. Their services are free of charge. The website for APEX-Brasil is: http://www.apexbrasil.com.br/en . In 2016, the Ministry of Economy created the Direct Investments Ombudsman (OID) at the Board of Foreign Trade and Investments (CAMEX), to provide assistance to foreign investors through a single body for issues related to FDI in Brazil. This structure aims to help and eventually speed up foreign investments in Brazil, providing foreign and national investors with a simpler process for establishing new businesses and implementing additional investments in their current companies. Since 2019, the OID has acted as a “single window” of the Brazilian government for FDI. It supports and guides investors in their requests, recommending solutions to their complaints (Policy Advocacy) as well as proposing improvements to the legislation or administrative procedures to public agencies whenever necessary. The OID is responsible for receiving requests and inquiries on matters related to foreign investments, to be answered together with government agencies and entities (federal, state and municipal) involved in each case (Focal Points Network). This new structure provides a centralized support system to foreign investors, and must respond in a timely manner to investors’ requests. A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (i.e. tax incentives, preference for winning bids) for companies using only local capital. However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), and insurance (Law 11371/2006). Brazil does not have a national security-based foreign investment screening process. Foreign investors in Brazil must electronically register their investment with the Central Bank of Brazil (BCB) within 30 days of the inflow of resources to Brazil. In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI). Since the approval of the Doing Business Law in 2021, companies are no longer required to have an administrator residing in Brazil, but they must appoint a local proxy attorney to receive legal notifications. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM). Brazil does not have an investment screening mechanism based on national security interests. A bill was proposed in the Chamber of Deputies in 2020 (PL 2491) to change the parameters under which to review foreign investments could be reviewed, but the bill has not yet been analyzed by the necessary commissions. To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter a joint venture, acquire a local firm, or enter a partnership with a local company. The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil, but Santander is the only major wholly foreign-owned retail bank. Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies. While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged. Foreign reinsurance firms must have a representational office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP), and maintain a solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-. Foreign ownership of cable TV companies is allowed, and telecom companies may offer television packages with their service. Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package must be Brazilian. The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border. The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. In December 2020, the Senate approved a bill (PL 2963/2019; source: https://www25.senado.leg.br/web/atividade/materias/-/materia/136853 ) to ease restrictions on foreign land ownership and the Chamber of Deputies began to deliberate on the bill; however, the bill was shelved with no plans to advance it further after President Bolsonaro expressed concerns regarding the legislation. Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020. In February 2021, Brazil formalized its initial offer to start negotiations. The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements. Such thresholds vary for different procuring entities and types of procurements. The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies. Brazil’s submission is currently under review with GPA members. By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms. U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms participating in Brazil’s public sector procurement to help these firms win government tenders. Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts, and since October 2020 foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful). A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish) signed in 2017 would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, none of the bloc’s members have ratified the protocol, so it has not entered into force. Despite the restrictions within Mercosul, in January 2022 Brazil and Chile entered into an agreement which includes government procurement. The Organization for Economic Co-operation and Development’s (OECD) December 2021 Economic Forecast Summary of Brazil summarized that with the COVID-19 vaccination campaign accelerating throughout the year, economic activity underpinned by reduced private consumption and investment restarted as restrictions were lifted, and exports benefited from the global recovery, the robust demand for commodities, and a weak exchange rate. However, supply bottlenecks, lower purchasing power, higher interest rates, and policy uncertainty have slowed the pace of recovery. The labor market is experiencing a lag in recovering from the pandemic, and by the end of 2021 unemployment remained above pre-pandemic levels. The residual effect of the government’s significant fiscal stimulus spending in 2020 to reinvigorate the economy contributed to inflationary pressure, further compounded by constrained global supply chains pushing prices up. In response, the COPOM chose to incrementally increase its benchmark SELIC rate from 2 percent in March 2021 to 11.75 percent in March 2022. The COPOM announced that it would continue tightening its monetary policy in an effort to curb inflation and anchor expectations. Prospects for economic growth are weak for 2022 and 2023. The OECD recommended that Brazil strengthen and adhere to its fiscal rules to increase market confidence in establishing sustainable finances and exercising more efficient public spending to create fiscal space for growth-enhancing policies, along with developing a more inclusive social protection program. The IMF’s 2021 Country Report No. 2021/217 (published in September 2021) for Brazil highlighted that its economic performance for the year had been better than expected, partly due to the government’s fiscal response to the pandemic which propelled the economy back to pre-pandemic levels for most sectors. In addition, the IMF noted a favorable economic momentum supported by booming trade and robust private sector credit growth. The IMF assessed that currency depreciation and a surge in commodity prices had led to headline inflation, and that expectations remained negative. The report noted Brazil’s lagging labor market, especially among youths, women, and Afro-Brazilians. The IMF also expressed concerns that emergency cash transfers (which expired in December 2021) were only a short-term solution, and recommended addressing poverty and inequality by strengthening a more permanent social safety net. The IMF concluded that near-term fiscal risks were low, but the high level of public debt continued to pose a medium-term risk. Restoring high and sustained growth, increasing employment, raising productivity, improving living standards, and reducing vulnerabilities would require longer-term policy efforts to eliminate bottlenecks and foster private sector-led investment. The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above). The three reports listed below, with links to the reports, highlight the uncertainty regarding reform plans as the most significant political risk to the economy. OECD Report: IMF Report: WTO Report: A company must register with the National Revenue Service (Receita Federal) to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ). Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment in Brazil. The agency’s services are available to all investors, foreign and domestic. Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives target specific sectors, amounts invested, and job generation. Brazil’s business registration website can be found at: https://www.gov.br/pt-br/servicos/inscrever-ou-atualizar-cadastro-nacional-de-pessoas-juridicas . Brazil enacted its “Doing Business” law, which entered into force on August 26, 2021. The law simplified the process to open a business, sought to facilitate foreign trade by eliminating redundancy as well as further automating its trade processes, and expand the powers of minority shareholders in private companies. Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provides for free market guarantees. The law includes several provisions to simplify regulations and establish norms for the protection of free enterprise and free exercise of economic activity. On August 20, 2021, the Brazilian government included the Foreign Trade Secretariat (SECEX) in the Brazilian Authorized Economic Operator Program (Programa OEA), run by Receita Federal (Internal Federal Revenue service), allowing Government of Brazil-designated OEA certified operators to maintain a low-level risk to achieve benefits in their foreign trade operations related to drawback suspension and exemption regimes. Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet. Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government. After filling out the registration, creating an account, and sending the necessary documentation, business entities can make the authorization request on the Brazilian government’s online portal through a legal representative. The electronic documents will then be analyzed by the Brazilian National Department of Business Registration and Integration (DREI) team. DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period for the applicant to submit any additional information. The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D The regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code and article 1 of DREI Normative Instruction 77/2020. English-language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras . For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 (https://www.in.gov.br/en/web/dou/-/instrucao-normativa-n-81-de-10-de-junho-de-2020-261499054 ). The contact information of the DREI is email@example.com and +55 (61) 2020-2302. References: provides investment measures, laws and treaties enacted by selected countries. provides links to business registration sites worldwide. Brazil does not restrict domestic investors from investing abroad. APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa . APEX-Brasil frequently highlights the United States as a worthwhile destination for outbound investment. APEX-Brasil and SelectUSA (U.S. Department of Commerce) signed a memorandum of cooperation in February 2014 to promote bilateral investment. Brazil incentivizes outward investment. APEX-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad. The agency´s efforts include trade missions, business round tables, promoting the participation of Brazilian companies in major international trade fairs, and arranging technical visits for foreign buyers to Brazil as well as facilitating travel for decision-makers seeking to learn about the Brazilian market and performing other commercial activities designed to strengthen the country’s branding abroad. The main sectors of Brazilian investments abroad are financial services and assets (totaling 62.9 percent of total investments abroad); oil and gas extraction (12 percent); and mineral metal extraction (6.5 percent). Including all sectors, Brazilian investments abroad totaled $448 billion in 2020. The regions that received the largest share of Brazilian outward investments are the Caribbean (43.3 percent), concentrated in the Cayman Islands, British Virgin Islands and Bahamas, and Europe (37.9 percent), primarily the Netherlands and Luxembourg. Regulations on investments abroad are outlined in BCB Ordinance 3,689/2013 (foreign capital in Brazil and Brazilian capital abroad): https://www.bcb.gov.br/pre/normativos/busca/downloadNormativo.asp?arquivo=/Lists/Normativos/Attachments/48812/Circ_3689_v1_O.pdf Sales of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. In 2020, international financial services companies active in Brazil submitted a proposal to Brazilian regulators to allow opening these mutual funds to the general public, and the Brazilian Securities and Exchange Commission is expected to approve their recommendation by June 2022. Discussions with regulators about increasing the share percentages that pension funds and insurers can invest abroad (currently 10 percent for pension funds, 20 percent for insurers, and 40 percent for qualified investors) are ongoing, along with discussions about tax deferral mechanisms to incentivize Brazilian investment abroad. 3. Legal Regime According to the World Bank, it takes approximately 17 days to start a business in Brazil. Brazil is seeking to streamline the process and decrease the amount of time it takes to open a small- or medium-sized enterprise (SME) to only five days through its RedeSimples Program. Similarly, the government has reduced regulatory compliance burdens for SMEs through the continued use of the SIMPLES program, which simplifies the collection of up to eight federal, state, and municipal-level taxes into one single payment. The Doing Business law (14.195/2021) included provisions to streamline the process, such as unifying federal, state and municipal registrations and eliminating requirements such as address analysis and pre-checking business names. In 2020, the World Bank noted that Brazil’s lowest-ranked component in its Ease of Doing Business score was the annual administrative burden for a medium-sized business to comply with Brazilian tax codes with an average of 1,501 hours per year, a significant improvement from 2019’s 1,958 hour average but still much higher than the 160.7 hour average of OECD high-income countries. The total tax rate for a medium-sized business in Brazil is 65.1 percent of profits, compared to the average of 40.1 percent in OECD high-income countries. Business managers often complain of not being able to understand complex and sometimes contradictory tax regulations, despite having large local tax and accounting departments in their companies. Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms. However, some investors complain that in certain instances the processing of rebates for exported goods of the value-added tax collected by individual states (ICMS) favors local companies. Exporters in many states report difficulty receiving their ICMS rebates when their goods are exported. Taxes on commercial and financial transactions are particularly burdensome, and businesses complain that these taxes hinder the international competitiveness of Brazilian-made products. Of Brazil’s ten federal regulatory agencies, the most prominent include: ANVISA, the Brazilian counterpart to the U.S. Food and Drug Administration, which has regulatory authority over the production and marketing of food, drugs, and medical devices ANATEL, the country’s telecommunications regulatory agency, which handles telecommunications as well as the licensing and assigning of radio spectrum bandwidth (the Brazilian FCC counterpart) ANP, the National Petroleum Agency, which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production ANAC, Brazil’s civil aviation agency IBAMA, Brazil’s environmental licensing and enforcement agency ANEEL, Brazil’s electricity regulator that regulates Brazil’s power sector and oversees auctions for electricity transmission, generation, and distribution contracts In addition to these federal regulatory agencies, Brazil has dozens of state- and municipal-level regulatory agencies. The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection. Discussions in all these areas occurred during the 19th plenary of the Commercial Dialogue which took place virtually in October 2021, and continue through ongoing regular exchanges at the working level between the U.S. Department of Commerce, Brazil’s Ministry of Economy, and other agencies and regulators throughout the year. Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis. The Brazilian congress passed Law 13.848 in June 2019 on Governance and Accountability (PLS 52/2013 in the Senate, and PL 6621/2016 in the Chamber). Among other provisions, the law makes RIAs mandatory for regulations that affect “the general interest.” The Chamber of Deputies, the Federal Senate, and the Office of the Presidency maintain websites providing public access to both approved and proposed federal legislation. Brazil is seeking to improve its public comment and stakeholder input process. In 2004, the GoB opened an online “Transparency Portal” with data on funds transferred to and from federal, state, and city governments, as well as to and from foreign countries. It also includes information on civil servant salaries. In December 2021, Brazil’s Securities and Exchange Commision (CMV) issued Resolution 59/2021, establishing the first transparency mechanism for environmental, social, and corporate governance (ESG) practices in the country. The goal of the change was to provide more comprehensive information to potential investors, therefore allowing the market environment to drive changes in business behavior. According to the resolution, starting in January 2023, listed companies will be required to inform the CVM whether they disclose information on ESG indicators and provide details on their reports, such as existence of independent audits, which indicators were used, and if UN Sustainable Development Goals (SDGs) have been considered. The new requirement will also include questions regarding the companies’ consideration of the Task Force on Climate Change-Related Financial Disclosures or other recognized entities’ recommendations, the existence of a gas emission inventory, and the role of management bodies in assessing climate-related risks. Regarding diversity issues, companies will be required to disclose information showing the diversity of the body of administrators and employees as well as salary disparities between executives and staff. In 2022, the Department of State concluded in its annual 2021 Fiscal Transparency Report that Brazil had met minimum fiscal transparency requirements. The International Budget Partnership’s Open Budget Index ranked Brazil slightly ahead of the United States in terms of budget transparency in its most recent (2019) index. The Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, although there is room for improvement in terms of completeness of federal budget documentation. Brazil’s budget documents are publicly available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GoB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate. Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay. Brazil routinely implements Mercosul common regulations. Brazil is a member of the WTO and the government regularly notifies draft technical regulations, such as potential agricultural trade barriers, to the WTO Committee on Technical Barriers to Trade (TBT). Brazil has a civil legal system with state and federal courts. Investors can seek to enforce contracts through the court system or via mediation, although both processes can be lengthy. The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement rulings for the rulings to be considered valid in Brazil. Among other considerations, the foreign judgment must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code regulates commercial disputes, although commercial cases involving maritime law follow an older Commercial Code which has been otherwise largely superseded. Federal judges hear most disputes in which one of the parties is the Brazilian State, and also, rule on lawsuits between a foreign state or international organization and a municipality or a person residing in Brazil. The judicial system is generally independent. The Supreme Federal Court (STF), charged with constitutional cases, frequently rules on politically sensitive issues. State court judges and federal level judges below the STF are career officials selected through a meritocratic examination process. The judicial system is backlogged, and disputes or trials frequently take several years to arrive at a final resolution, including all available appeals. Regulations and enforcement actions can be litigated in the court system, which contains mechanisms for appeal depending upon the level at which the case is filed. The STF is the ultimate court of appeal on constitutional grounds; the STJ is the ultimate court of appeal for cases not involving constitutional issues. In 2019, Brazil established a “one-stop shop” for international investors. The one-stop shop, the Direct Investments Ombudsman (DIO), is a ‘single window’ for investors provided by the Executive Secretariat of CAMEX. It is responsible for receiving requests and inquiries about investments, to be answered jointly with the public agency responsible for the matter (at the federal, state and municipal levels) involved in each case (the Network of Focal Points). This new structure allows for supporting the investor via a single governmental body in charge of responding to investor requests within a short time. Private investors have noted the single window is better than the previous system, but does not yet provide all the services of a true “one-stop shop” to facilitate international investment. The DIO’s website in English is: http://oid.economia.gov.br/en/menus/8 The Administrative Council for Economic Defense (CADE), which falls under the purview of the Ministry of Justice, is responsible for enforcing competition laws, consumer protection, and carrying out regulatory reviews of proposed mergers and acquisitions. CADE was reorganized in 2011 through Law 12529, combining the antitrust functions of the Ministry of Justice and the Ministry of Finance. The law brought Brazil in line with U.S. and European merger review practices and allows CADE to perform pre-merger reviews, in contrast to the prior legal framework that directed the government to review mergers after they had already been completed. In October 2012, CADE performed Brazil’s first pre-merger review. In 2021, CADE conducted 611 total formal investigations. It approved 165 merger and/or acquisition requests and did not reject any requests. Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that own property in Brazil. The Constitution does not address nationalization or expropriation. Decree-Law 3365 allows the government to exercise eminent domain under certain criteria that include, but are not limited to, national security, public transportation, safety, health, and urbanization projects. In cases of eminent domain, the government compensates owners at fair market value. There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests. Brazilian courts have previously ruled in U.S. citizens’ favor for some claims regarding state-level land expropriations. However, as states have filed appeals of these decisions, the compensation process for foreign entities can be lengthy and have uncertain final outcomes. ICSID Convention and New York Convention In 2002, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards. Brazil is not a member of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID). Brazil joined the United Nations Commission on International Trade Law (UNCITRAL) in 2010, and its membership will expire in 2022. Investor-State Dispute Settlement Article 34 of the 1996 Brazilian Arbitration Act (Law 9307) defines a foreign arbitration judgment as any judgment rendered outside of the national territory. The law established that the Superior Court of Justice (STJ) must ratify foreign arbitration awards. Law 9307, updated by Law 13129/2015, also stipulates that a foreign arbitration award will be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law. A 2001 Brazilian Supreme Federal Court (STF) ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to STJ ratification of arbitration decisions, does not violate the federal constitution’s provision that “the law shall not exclude any injury or threat to a right from the consideration of the Judicial Power.” Contract disputes in Brazil can be lengthy and complex. Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law. Federal judges hear most disputes in which one of the parties is the State and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil. Five regional federal courts hear appeals of federal judges’ decisions. International Commercial Arbitration and Foreign Courts Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention). Law 9307/1996 amplifies Brazilian law on arbitration and provides guidance on governing principles and rights of participating parties. Brazil developed a new Cooperation and Facilitation Investment Agreement (CFIA) model in 2015 (https://concordia.itamaraty.gov.br/ ), but it does not include ISDS mechanisms. (See sections on bilateral investment agreements and responsible business conduct.) Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations. In December 2020, Brazil approved a new bankruptcy law (Law 14.112) which largely models the UNCITRAL Model Law on International Commercial Arbitration and addresses criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt. The new law facilitates the judicial and extrajudicial resolution process between debtors and creditors and accelerates reorganization and liquidation processes. Both debtors and creditors are allowed to provide reorganization plans that would eliminate non-performing activities and sell-off assets, thus avoiding bankruptcy. The new law also establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil. 6. Financial Sector The Brazil Central Bank (BCB) in October 2016 implemented a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to a record-low 2 percent by the end of 2020. The downward trend was reversed by an increase to 2.75 percent in March 2021 and reached 10.75 percent in February 2022. Brazil’s banking sector projects that the Selic will reach 12.25 percent by the end of 2022. Inflation for 2021 ended at an annualized 10.06 percent, above the target of 4 percent plus/minus 1.5 percent. The BCB’s Monetary Policy Committee (COPOM) set the BCB’s inflation target at 3.5 percent for 2022 and .25 percent in 2023 (plus/minus 1.5 percent), but as of February 2022 the BCB estimates that inflation will reach 5.4 percent in 2022, above the target again. As of mid-March 2022, Brazil’s annual inflation rate is at 10.75 percent. Brazil’s muddled fiscal policy and heavy public debt burden factor into most analysts’ forecasts that the “neutral” policy rate will remain higher than target rates among Brazil’s emerging-market peers (around five percent) over the reporting period. According to the BCB, in 2021 the ratio of public debt to GDP reached 81.1 percent, compared to a record 89.4 percent in 2020. Analysts project that the debt/GDP ratio may rise to around 85 percent by the end of 2023. The role of the state in credit markets grew steadily beginning in 2008, but showed a reduction in 2020 due to the pandemic. As of January 2022, public banks accounted for about 50 percent of total loans to the private sector (compared to 48.9 percent in 2018). Directed lending (that is, to meet mandated sectoral targets) also rose, and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand a market for long-term private capital. While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil. BNDES also offers export financing. Approvals of new financing by BNDES decreased 4 percent in 2021 from 2020, with the infrastructure sector receiving the majority of new capital. The sole stock market in Brazil is B3 (Brasil, Bolsa, Balcão), created through the 2008 merger of the São Paulo Stock Exchange (Bovespa) with the Brazilian Mercantile & Futures Exchange (BM&F), forming the fourth-largest exchange in the Western hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. In 2020, there were 463 companies traded on the B3 exchange. The B3’s broadest index, the Ibovespa, decreased 11.93 percent in valuation during 2021, due to economic uncertainties related to rising and persistent inflation, particularly in the second half of the year. Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments only on established markets. Wholly-owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. Auditors are personally liable for the accuracy of accounting statements prepared for banks. The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies. Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates. According to BCB data collected for 2020, the average rate offered by Brazilian banks to non-financial corporations was 11.7 percent. The banking sector in Brazil is highly concentrated, with BCB data indicating that the five largest commercial banks (excluding brokerages) account for approximately 82 percent of the commercial banking credit market totaling $800 billion by the end of 2020. Three of the five largest banks by assets in the country, Banco do Brasil, Caixa Econômica Federal, and BNDES, are partially or completely federally-owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies. Citibank sold its consumer business to Itaú Bank in 2016, but maintains its commercial banking interests in Brazil. It is currently the only U.S. bank operating in the country. Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services in Brazil. On November 16, 2020, the BCB launched its instant payment system called “PIX”. PIX is a 24/7 system that offers transfers of any value for people-people (P2P), people-business (P2B), business-people (B2P), business-business (B2B), and government-government (G2G). Brazilian customers in 2021 overwhelmingly embraced PIX, particularly for P2P transfers (which are free), replacing both cash payments and legacy bank electronic transfers which charged relatively high fees and could only take place during business hours. In February 2021, the BCB implemented the first two of four phases of its Open Banking Initiative in an effort to open Brazil’s insulated banking system dominated by relatively few players. The first phase required Brazilian financial institutions to facilitate digitized access to their customer service channels, products, and services related to demand deposit or savings accounts, payment accounts, and credit operations. The second phase of the initiative expanded sharing customer data across a widening scope of bank products including loans. The other two phases, which are scheduled to go into effect in 2022, seek to include sharing customer data on foreign exchange, investments, and pension funds. The BCB expects that increased access to customer information will allow other financial institutions, including competitor banks and fintechs, to offer better and cheaper banking services to incumbent banks’ clients, thereby breaking up the dominance of the six large, incumbent banking institutions. In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately. It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike. In December 2020, Moody’s upgraded a collection of 28 Brazilian banks and their affiliates to stable from negative after the agency had lowered the outlook on the Brazilian system in April 2020 due to economic difficulties. As of March 2021, the rating remained as stable. The Brazilian Securities Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies, assessing penalties in instances of insider trading. To open an account with a Brazilian bank, foreign account holders must present a permanent or temporary resident visa, a national tax identification number (CPF) issued by the Brazilian government, either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income. On average, this process from application to account opening can take more than three months. Foreign Exchange Brazil’s foreign exchange market remains small. The latest Triennial Survey by the Bank for International Settlements conducted in December 2019 showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps, and currency options) was $18.8 billion, down from $19.7 billion in 2016. This was equivalent to around 0.22 percent of the global market in 2019, down from 0.3 percent in 2016. On December 29, 2021, Brazil approved a new Foreign Exchange Regulatory framework, to go into effect in December 2022, which replaces more than 40 separate regulations with a single law and eases foreign investments in the Brazilian market incentivizing increased foreign investment and assisting Brazilian businesses in integrating into global value chains. The new law aims to streamline currency exchange operations and authorizes more enterprises, including fintechs and small businesses, to conduct operations in foreign currencies bypassing retail banks and increasing their competitiveness. In addition, the law expands the list of qualifying activities transacted in foreign-currency denominated accounts (previously restricted only to import/export firms and for loans in which the debtor or creditor was based outside Brazil). Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees. According to an October 2021 Central Bank Financial Stability Report, the banking system remains solid, with growing capitalization indices, and continues to rebuild its capital base. All institutions are able to meet the minimum prudential requirements, and solvency does not pose a risk to financial stability. Stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios. There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil. Foreign investors may freely convert Brazilian currency in the unified foreign exchange market, where buy-sell rates are determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized. The BCB must approve all incoming foreign loans. In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions and practices.” In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity. Loans to government entities require prior approval from the Brazilian senate as well as from the Economic Ministry’s Treasury Secretariat, and must be registered with the BCB. Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB. Early payments can also be made without additional approvals if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt. Remittance Policies Brazilian Federal Revenue Service regulates withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities residing or domiciled outside Brazil. Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties. Investors must register remittances with the BCB. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes. Under Law 13.259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds. The capital gains marginal tax rates are 15 percent for up to $1,000,000 in gains; 17.5 percent for $1,000,000 to $10,000,000 in gains; 20 percent for $10,000,000 to $60,000,000 in gains; and 22.5 percent for more than $60,000,000 in gains. Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962. Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent Contribution for Intervening in Economic Domain (CIDE) tax. Brazil had a sovereign fund from 2008 – 2018, when it was abolished, and the money was used to repay foreign debt. India Executive Summary The Government of India continued to actively court foreign investment. In the wake of COVID-19, India enacted ambitious structural economic reforms that should help attract private and foreign direct investment (FDI). In February 2021, the Finance Minister announced plans to raise $2.4 billion though an ambitious privatization program that would dramatically reduce the government’s role in the economy. In March 2021, parliament further liberalized India’s insurance sector, increasing FDI limits to 74 percent from 49 percent, though still requiring a majority of the Board of Directors and management personnel to be Indian nationals. Parliament passed the Taxation Laws (Amendment) Bill on August 6, 2021, repealing a law adopted by the Congress-led government of Manmohan Singh in 2012 that taxed companies retroactively. The Finance Minister also said the Indian government will refund disputed amounts from outstanding cases under the old law. While Prime Minister Modi’s government had pledged never to impose retroactive taxes, prior outstanding claims and litigation led to huge penalties for Cairn Energy and telecom operator Vodafone. Both Indian and U.S. business have long advocated for the formal repeal of the 2012 legislation to improve certainty over taxation policy and liabilities. India continued to increase and enhance implementation of the roughly $2 trillion in proposed infrastructure projects catalogued, for the first time, in the 2019-2024 National Infrastructure Pipeline. The government’s FY 2021-22 budget included a 35 percent increase in spending on infrastructure projects. In November 2021, Prime Minister Modi launched the “Gati Shakti” (“Speed Power”) initiative to overcome India’s siloed approach to infrastructure planning, which Indian officials argue has historically resulted in inefficacies, wasteful expenditures, and stalled projects. India’s infrastructure gaps are blamed for higher operational costs, especially for manufacturing, that hinder investment. Despite this progress, India remains a challenging place to do business. New protectionist measures, including strict enforcement and potential expansion of data localization measures, increased tariffs, sanitary and phytosanitary measures not based on science, and Indian-specific standards not aligned with international standards effectively closed off producers from global supply chains and restricted the expansion in bilateral trade and investment. The U.S. government continued to urge the Government of India to foster an attractive and reliable investment climate by reducing barriers to investment and minimizing bureaucratic hurdles for businesses. Table 1: Key Metrics and Rankings Measure Year Index/Rank/ Amount Website Address TI Corruption Perception Index 2021 85 of 180 https://www.transparency.org/en/countries/india Innovation Index 2021 46 of 132 https://www.globalinnovationindex.org/analysis-indicator U.S. FDI in partner country (Million. USD stock positions) 2020 $41,904 usdia-position-2020.xlsx (live.com) World Bank GNI per capita (USD) 2020 $1,920 https://databank.worldbank.org/views/reports/reportwidget.aspx?Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf= n&zm=n&country=IND 1. Openness To, and Restrictions Upon, Foreign Investment Changes in India’s foreign investment rules are notified in two different ways: (1) Press Notes issued by the Department for Promotion of Industry and Internal Trade (DPIIT) for most sectors, and (2) legislative action for insurance, pension funds, and state-owned enterprises in the coal sector. FDI proposals in sensitive sectors will, however, require the additional approval of the Home Ministry. The DPIIT, under the Ministry of Commerce and Industry, is the lead investment agency, responsible for the formulation of FDI policy and the facilitation of FDI inflows. It compiles all policies related to India’s FDI regime into a single document that is updated every year. This updated policy compilation can be accessed at: http://dipp.nic.in/foreign-direct–investment/foreign–direct–investment-policy. The DPIIT disseminates information about India’s investment climate and, through the Foreign Investment Implementation Authority (FIIA), plays an active role in resolving foreign investors’ project implementation problems. The DPIIT oftentimes consults with lead ministries and stakeholders. However, there have been specific incidences where some relevant stakeholders reported being left out of consultations. In most sectors, foreign and domestic private entities can establish and own businesses and engage in remunerative activities. However, there are sectors of the economy where the government continues to retain equity limits for foreign capital as well as management and control restrictions. For example, India caps FDI in the Insurance Sector at 74 percent and mandates that insurance companies retain “Indian management and control.” Similarly, India allows up to 100 percent FDI in domestic airlines but has yet to clarify governing substantial ownership and effective control (SOEC) rules. A list of investment caps is accessible in the DPIIT’s consolidated FDI circular at: https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy . The Indian Government has continued to liberalize FDI policies across sectors. Notable changes during 2021 included: Increasing the FDI cap for the insurance sector to 74 percent from 49 percent, albeit while retaining an “Indian management and control” requirement. Increased the FDI cap for the pensions sector to 74 percent from 49 percent. The rider of “Indian management and control” is applicable in the pension sector. Eliminated the FDI cap in the telecom sector. 100 percent FDI allowed for insurance intermediaries. Eliminated the FDI cap for insurance intermediaries and state-run oil companies. Increased the FDI cap for defense manufacturing units to 74 percent from 49 percent and up to 100 percent if the investment is approved under the Government Route review process. Since the abolition of the Foreign Investment Promotion Board (FIPB) in 2017, FDI screening has been progressively liberalized and decentralized. All FDI into India must complete either an “Automatic Route” or “Government Route” review process. FDI in most sectors fall under the Automatic Route, which simply requires a foreign investor to notify India’s central bank, the Reserve Bank of India (RBI), and comply with relevant domestic laws and regulations for that sector. In contrast, investments in specified sensitive sectors – such as defense – require review under the Government Route to obtain the prior approval of the ministry with jurisdiction over the relevant sector along with the concurrence of the DPIIT. In 2020, India issued Press Note 3 requiring all proposed FDI by nonresident entities located in (or having “beneficial owners” in) countries that share a land border with India to obtain prior approval via the Government Route. This screening requirement applies regardless of the size of the proposed investment or relevant sector. The rule primarily impacted the People’s Republic of China, whose companies had more FDI in India, but other neighboring countries affected include Pakistan, Bangladesh, Nepal, Myanmar, and Bhutan. A. Third-party investment policy reviews https://www.oecd.org/economy/india-economic-snapshot/ https://www.worldbank.org/en/country/india/overview https://www.wto.org/english/tratop_e/tpr_e/tp503_e.htm B. Civil society organization reviews of investment policy-related concerns https://www.ncaer.org/publication_details.php?pID=370 https://www.orfonline.org/research/jailed-for-doing-business/ The DPIIT is responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector. The DPIIT also is responsible for the overall industrial policy and facilitating and increasing FDI flows to the country. However, Invest India is the government’s lead investment promotion and facilitation agency and is managed in partnership with the DPIIT, state governments, and business chambers. Invest India works with investors through their investment lifecycle to provide support with market entry strategies, deep dive industry analysis, partner search, and policy advocacy as required. Businesses can register online through the Ministry of Corporate Affairs (MCA) website: http://www.mca.gov.in/ . To fast-track the regulatory approval process, particularly for major projects, the government created the digital multi-modal Pro-Active Governance and Timely Implementation (PRAGATI) initiative in 2015. The Prime Minister personally monitors the PRAGATI process, to ensure government entities meet project deadlines. As of September 2021, the Prime Minister had chaired 38 PRAGATI meetings with 297 projects, worth around $200 billion, approved and cleared. In 2014, the government also formed an inter-ministerial committee, led by the DPIIT, to track investment proposals requiring inter-ministerial approvals. Business and government sources report this committee meets informally on an ad hoc basis as they receive reports from companies and business chambers seeking assistance with stalled projects. According to data from the Ministry of Commerce’s India Brand Equity Foundation (IBEF), outbound investment from India has both increased and changed which countries and sectors it targets. During the last ten years, Overseas Investment Destination (OID) shifted away from resource-rich countries, such as Australia, UAE, and Sudan, toward countries providing higher tax benefits, such as Mauritius, Singapore, the British Virgin Islands, and the Netherlands. Indian firms invest overseas primarily through mergers and acquisitions (M&A) to get direct access to newer and more extensive markets and better technologies and increasingly achieve a global reach. According to RBI data, outward investment from India in 2021 totaled around $29 billion compared with around $30 billion the previous year. The RBI’s recorded total of outward investment includes equity capital, loans, and issuance of guarantees. 3. Legal Regime Policies pertaining to foreign investments are framed by the DPIIT, and implementation is undertaken by lead federal ministries and sub-national counterparts. Some government policies are written in a way that can be discriminatory to foreign investors or favor domestic industry. For example, India bars foreign investors from engaging in multi-brand retail, which also limits foreign e-Commerce investors to a “market-place model.” On most occasions major rules are framed after thorough discussions by government authorities and require the approval of the cabinet and, in some cases, the Parliament as well. However, in some instances the rules have been enacted without any consultative process. The Indian Accounting Standards were issued under the supervision and control of the Accounting Standards Board, a committee under the Institute of Chartered Accountants of India (ICAI), and has government, academic, and professional representatives. The Indian Accounting Standards are named and numbered in the same way as the corresponding International Financial Reporting Standards. The National Advisory Committee on Accounting Standards recommends these standards to the MCA, which all listed companies must then adopt. These can be accessed at: https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/accounting-standards.html India is a member of the South Asia Association for Regional Cooperation (SAARC), an eight- member regional block in South Asia. India’s regulatory systems are aligned with SAARC’s economic agreements, visa regimes, and investment rules. Dispute resolution in India has been through tribunals, which are quasi-judicial bodies. India has been a member of the WTO since 1995, and generally notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade; however, at times there are delays in publishing the notifications. The Governments of India and the United States cooperate in areas such as standards, trade facilitation, competition, and antidumping practices. India adopted its legal system from English law and the basic principles of the Common Law as applied in the UK are largely prevalent in India. However, foreign companies need to adjust for Indian law when negotiating and drafting contracts in India to ensure adequate protection in case of breach of contract. The Indian judiciary provides for an integrated system of courts to administer both central and state laws. The judicial system includes the Supreme Court as the highest national court, as well as a High Court in each state or a group of states which covers a hierarchy of subordinate courts. Article 141 of the Constitution of India provides that a decision declared by the Supreme Court shall be binding on all courts within the territory of India. Apart from courts, tribunals are also vested with judicial or quasi-judicial powers by special statutes to decide controversies or disputes relating to specified areas. Courts have maintained that the independence of the judiciary is a basic feature of the Constitution, which provides the judiciary institutional independence from the executive and legislative branches. The government has a policy framework on FDI, which is updated every year and formally notified as the Consolidated FDI Policy ( https://dpiit.gov.in/foreign-direct-investment/foreign-direct-investment-policy ). The DPIIT issues policy pronouncements on FDI through the Consolidated FDI Policy Circular, Press Notes, and press releases that are also notified by the Ministry of Finance as amendments to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 under the Foreign Exchange Management Act (FEMA), 1999. These notifications take effect from the date of issuance of the Press Notes/Press Releases, unless specified otherwise therein. In case of any conflict, the relevant Notification under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 will prevail. The payment of inward remittance and reporting requirements are stipulated under the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 issued by the RBI. The government has introduced “Make in India” and “Self-Reliant India” programs that include investment policies designed to promote domestic manufacturing and attract foreign investment. The “Digital India” program aims to open new avenues for the growth of the information technology sector. The “Start-up India” program creates incentives to enable start-ups to become commercially viable and grow. The “Smart Cities” program creates new avenues for industrial technological investment opportunities in select urban areas. The central government has successfully established independent and effective regulators in telecommunications, banking, securities, insurance, and pensions. India’s antitrust body, the Competition Commission of India (CCI) reviews cases against cartelization and abuse of dominance and is a well-regarded regulator. The CCI’s investigations wing is required to seek the approval of the local chief metropolitan magistrate for any search and seizure operations. The CCI conducts capacity-building programs for government officials and businesses. Tax experts confirm that India does not have domestic expropriation laws in place. The Indian Parliament on August 6, 2021, repealed a 2012 law that authorized retroactive taxation. In first proposing the repeal on August 5, Finance Minister Nirmala Sitharaman committed the government to refund the disputed amounts from outstanding cases under the old law. The Indian government has been divesting from state owned enterprises (SOEs) since 1991. In February 2021, the Finance Minister detailed an ambitious program to privatize roughly $24 billion in state owned enterprises as part of the FY 2021-22 (March 31-April 1) budget. India made resolving contract disputes and insolvency easier with the enactment of the Insolvency and Bankruptcy Code (IBC) in 2016. The World Bank noted that the IBC introduced the option of insolvency resolution for commercial entities as an alternative to liquidation or other mechanisms of debt enforcement, reshaping the way insolvent companies can restore their financial well-being or are liquidated. The IBC created effective tools for creditors to successfully negotiate and receive payments. As a result, the overall recovery rate for creditors jumped from 26.5 to 71.6 cents on the dollar, and the time required for resolving insolvency also was reduced from 4.3 years to 1.6 years. India is now, by far, one of the best performers in South Asia in resolving insolvency and does better than the average for OECD high-income economies in terms of the recovery rate, time taken, and cost of proceedings. India enacted the Arbitration and Conciliation Act in 1996, based on the United Nations Commission on International Trade Law (UNCITRAL) model to align its adjudication of commercial contract dispute resolution mechanisms with global standards. The government established the International Center for Alternative Dispute Resolution (ICADR) as an autonomous organization under the Ministry of Law and Justice to promote the settlement of domestic and international disputes through alternate dispute resolution. The World Bank has also funded ICADR to conduct training for mediators in commercial dispute settlement. Judgments of foreign courts have been enforced under multilateral conventions, including the Geneva Convention. India is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). However, Indian firms are known to file lawsuits in domestic courts to delay paying an arbitral award. Several cases are currently pending, the oldest of which dates to 1983. In 2021, Amazon received an interim award against Future Retail from the Singapore International Arbitration Centre. However, Future Retail has refused to accept the findings and initiated litigation in Indian courts. India is not a member state to the International Centre for the Settlement of Investment Disputes (ICSID). The Permanent Court of Arbitration (PCA) at The Hague and the Indian Law Ministry agreed in 2007 to establish a regional PCA office in New Delhi, although this remains pending. The office would provide an arbitration forum to match the facilities offered at The Hague but at a lower cost. In November 2009, the Department of Revenue’s Central Board of Direct Taxes established eight dispute resolution panels across the country to settle the transfer-pricing tax disputes of domestic and foreign companies. In 2016 the government approved amendments that would allow Commercial Courts, Commercial Divisions, and Commercial Appellate Divisions of the High Courts Act to establish specialized commercial divisions within domestic courts to settle long-pending commercial disputes. Since formal dispute resolution is expensive and time consuming, many businesses choose methods, including ADR, for resolving disputes. The most used ADRs are arbitration and mediation. India has enacted the Arbitration and Conciliation Act based on the UNCITRAL Model Law. In cases that involve constitutional or criminal law, traditional litigation remains necessary. The introduction and implementation of the IBC in 2016 overhauled of the previous framework for insolvency with much-needed reforms. The IBC created a uniform and comprehensive creditor-driven insolvency resolution process that encompasses all companies, partnerships, and individuals (other than financial firms). According to the World Bank, the time required for resolving insolvency was reduced significantly from 4.3 years to 1.6 years after implementation of the IBC. The law, however, does not provide for U.S. style Chapter 11 bankruptcy provisions. In August 2016, the Indian Parliament passed amendments to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, and the Debt Recovery Tribunals Act. These amendments targeted helping banks and financial institutions recover loans more effectively, encouraging the establishment of more asset reconstruction companies (ARCs), and revamping debt recovery tribunals. The Finance Minister announced in her February 2021 budget speech to Parliament plans to establish the National Asset Reconstruction Company Limited (NARCL), or “bad bank” to resolve large cases of corporate stress. In October 2021, the RBI approved the license to set up the NARCL. On May 10, 2021, the Securities and Exchange Board of India (SEBI) issued a circular to introduce new environment, social, and governance (ESG) reporting requirements for the top 1,000 listed companies by market capitalization. According to this circular, new disclosure will be made in the format of the Business Responsibility and Sustainability Report (BRSR), which is a notable departure from SEBI’s existing Business Responsibility Report and a significant step toward bringing sustainability reporting up to existing financial reporting standards. BRSR reporting will be voluntary for FY 2021-22 and mandatory from FY 2022-23 for the top 1,000 listed companies by market capitalization. This is to provide companies subject to these requirements with sufficient time to adapt to the new requirements. 6. Financial Sector Indian stocks experienced significant losses at the start of 2021, stemming from the effects of the COVID-19 pandemic on the economy. By midyear, markets began to recover, with India’s stock benchmarks reaching record highs and becoming among the top performers globally. Indian companies raised a combined $15.57 billion through 121 IPOs in 2021, the highest amount ever raised in a single calendar year compared with the previous high of $8.4 billion in 2017. Foreign investment inflows drove markets higher through February 2021. However, these investments began exiting the market when faced with the potential for faster-than-expected withdrawal of monetary stimulus and the Delta variant of COVID-19. Domestic institutional investors compensated outflows of foreign investment through significant investment in Indian stocks. Foreign investors’ net investment in 2021 was about $7 billion, significantly lower than the $14.5 billion in 2020 and $19 billion in 2019. Domestic investors put about $12.5 billion in 2021 into Indian domestic equity markets. Indian investors opened 27.4 million new stock trading accounts in 2021, up from 10.5 million accounts opened in 2020. The SEBI is considered one of the most progressive and well-run of India’s regulatory bodies. The SEBI regulates India’s securities markets, including enforcement activities and is India’s direct counterpart to the U.S. Securities and Exchange Commission (SEC). The Board oversees seven exchanges: BSE Ltd. (formerly the Bombay Stock Exchange), the National Stock Exchange (NSE), the Metropolitan Stock Exchange, the Calcutta Stock Exchange, the Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange Limited, and the Indian Commodity Exchange. Foreign venture capital investors (FVCIs) must register with the SEBI to invest in Indian firms. They can also set up domestic asset management companies to manage funds. All such investments are allowed under the automatic route, subject to SEBI and RBI regulations, as well as FDI policy. FVCIs can invest in many sectors, including software, information technology, pharmaceuticals and drugs, biotechnology, nanotechnology, biofuels, agriculture, and infrastructure. Companies incorporated outside India can raise capital in India’s capital markets through the issuance of Indian Depository Receipts (IDRs) based on SEBI guidelines. Standard Chartered Bank, a British bank was the only foreign entity to list in India but delisted in June 2020. Experts attribute the lack of interest in IDRs to initial entry barriers, lack of clarity on conversion of the IDRs holdings into overseas shares, lack of tax clarity, and the regulator’s failure to popularize the product. External commercial borrowing (ECB), or direct lending to Indian entities by foreign institutions, is allowed if it conforms to parameters such as minimum maturity; permitted and non-permitted end-uses; maximum all-in-cost ceiling as prescribed by the RBI; funds are used for outward FDI or for domestic investment in industry, infrastructure, hotels, hospitals, software, self-help groups or microfinance activities, or to buy shares in the disinvestment of public sector entities. The rules are published by the RBI: https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11510 According to RBI data, ECB by corporations and non-banking financial companies reached $38.8 billion in 2021. Companies have been increasingly tapping overseas markets for funds to take advantage of low interest rates in global markets. On December 8, 2021, the RBI announced a switch in calculation of interest rates for ECB and trade credits from the London Interbank Offered Rate (LIBOR) to alternative reference rates (ARRs). The RBI has taken several steps in the past few years to bring the activities of the offshore Indian rupee (INR) market in Non-Deliverable Forwards (NDF) onshore, with the goal of deepening domestic markets, enhancing downstream benefits, and obviating the need for an NDF market. FPIs with access to currency futures or the exchange-traded currency options market can hedge onshore currency risks in India and may directly trade in corporate bonds. The RBI allowed banks to freely offer foreign exchange quotes to non-resident Indians. The RBI has stated that trading on INR derivatives would be allowed and settled in foreign currencies in International Financial Services Centers (IFSCs). In June 2020, the RBI allowed foreign branches of Indian banks and branches located in IFSCs to participate in the NDF. With the INR trading volume in the offshore market higher than the onshore market, the RBI felt the need to limit the impact of the NDF market and curb volatility in the movement of the INR. In August 2021, the RBI released a working paper discussing the influence of offshore markets on onshore markets. The International Financial Services Centre at Gujarat International Financial Tech-City (GIFT City) is being developed to compete with global financial hubs. In January 2016, BSE Ltd. was the first exchange to start operations there. The NSE, domestic banks, and foreign banks have also started IFSC banking units in GIFT city. As part of its FY 2021-22 budget proposal, the government recommended establishing an international arbitration center in GIFT City to help facilitate faster resolution of commercial disputes, akin to the operation of the Singapore International Arbitration Centre (SIAC) or London Commercial Arbitration Centre (LCAC). The public sector remains predominant in the banking sector, with public sector banks (PSBs) accounting for about 66 percent of total banking sector assets. However, the share of public banks in total loans and advances has fallen sharply in the last five years (from 70.84 percent in FY 2015-16 to 58.68 percent in FY 2021-22), primarily driven by stressed balance sheets and non-performing loans. In recent years, several new licenses were granted to private financial entities, including two new universal bank licenses and 10 small finance bank licenses. The government announced plans in 2021 to privatize two PSBs. This followed Indian authorities consolidating 10 public sector banks into four in 2019, which reduced the total number of PSBs from 18 to 12. However, the government has yet to introduce the necessary legislation needed to privatize PSBs. Although most large PSBs are listed on exchanges, the government’s stakes in these banks often exceeds the 51 percent legal minimum. Aside from the large number of state-owned banks, directed lending and mandatory holdings of government paper are key facets of the banking sector. The RBI requires commercial banks and foreign banks with more than 20 branches to allocate 40 percent of their loans to priority sectors which include agriculture, small and medium enterprises, export-oriented companies, and social infrastructure. Additionally, all banks are required to invest 18 percent of their net demand and time liabilities in government securities. PSBs continue to face two significant hurdles: capital constraints and poor asset quality. As of September 2021, gross non-performing loans represented 6.9 percent of total loans in the banking system, with the PSBs having a larger share of 8.8 percent of their loan portfolio. The government announced its intention to set up the NARCL and India Debt Resolution Company Limited (IDRCL) to take over legacy stressed assets from bank balance sheets. With the IBC in place, banks are making progress in non-performing asset recognition and resolution. To address asset quality challenges faced by public sector banks, the government has injected $32 billion into public sector banks in recent years. The capitalization largely aimed to address the capital inadequacy of public sector banks and marginally provide for growth capital. Bank mergers and capital raising from the market, improved public sector banks’ total capital adequacy ratio (CAR) from 13.5 percent in September 2020 to 16.6 percent in September 2021. Women’s lack of sufficient access to finance remained a major impediment to women’s entrepreneurship and participation in the workforce. According to experts, women are more likely than men to lack financial awareness, confidence to approach a financial institution, or possess adequate collateral, often leaving them vulnerable to poor terms of finance. Despite legal protections against discrimination, some banks reportedly remained unwelcoming toward women as customers. International Finance Corporation (IFC) analysts have described Indian women-led Micro, Small, and Medium Enterprises (MSME) as a large but untapped market that has a total finance requirement of $29 billion (72 percent for working capital). However, 70 percent of this demand remained unmet, creating a shortfall of $20 billion. The government-affiliated think tank NITI-Aayog provides information on networking, mentorship, and financing to more than 25,000 members via its Women Entrepreneurship Platform (WEP), launched in March 2018. The government’s financial inclusion scheme Pradhan Mantri Jan Dhan Yojana (PMJDY) provides universal access to banking facilities with at least one basic banking account for every adult, financial literacy, access to credit, insurance, and pension. As of March 2, 2022, 249 million women comprised 55 percent of the program’s 448 million beneficiaries. In 2015, the government started the Micro Units Development and Refinance Agency Ltd. (MUDRA), which supports the development of micro-enterprises. The initiative encourages women’s participation and offers collateral-free loans of around $15,000 to non-corporate, non-farm small and micro enterprises. As of October 29, 2021, 215 million loans have been extended to women borrowers. In FY 2016, the Indian government established the National Infrastructure Investment Fund (NIIF), India’s first sovereign wealth fund, to promote investments in the infrastructure sector. The government agreed to contribute $3 billion to the fund, with an additional $3 billion raised from the private sector primarily from foreign sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers, and foreign central banks. Currently, the NIIF manages over $4.3 billion in assets through its funds: Master Fund, Fund of Funds, and Strategic Opportunities Fund. The NIIF Master Fund is focused on investing in core infrastructure sectors including transportation, energy, and urban infrastructure. 7. State-Owned Enterprises The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises ( http://dpe.gov.in ) controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken several steps to improve the performance of SOEs, also called Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. This was necessary as the government planned to disinvest its stake from these entities. According to the Public Enterprise Survey 2019-20, as of March 2020 there were 366 CPSEs, of which 256 are operational with a total turnover of $328 billion. The report revealed that 96 CPSEs were incurring losses and 14 units are under liquidation. Foreign investment is allowed in CPSEs in all sectors. The Master List of CPSEs can be accessed at http://www.bsepsu.com/list-cpse.asp . While the CPSEs face the same tax burden as the private sector, they receive streamlined licensing that private sector enterprises do not on issues such as procurement of land. The government has not generally privatized its assets but instead adopted a gradual disinvestment policy that dilutes government stakes in SOEs without sacrificing control. However as announced in the FY 2021-22 budget, the government has recommitted to the process of privatization of loss-making SOEs with an ambitious disinvestment target of $24 billion. In addition to completing the privatization of national carrier Air India in early 2022, the government has prioritized privatizing the Bharat Petroleum Corporation Limited and reducing its shares in the state-owned Life Insurance Corporation (LIC). Details about the privatization program can be accessed at the Ministry of Finance site for Disinvestment ( https://dipam.gov.in/ ). FIIs can participate in these disinvestment programs. Earlier limits for foreign investors were 24 percent of the paid-up capital of the Indian company and 10 percent for non-resident Indians and persons of Indian origin. The limit is 20 percent of the paid-up capital in the case of public sector banks. There is no bidding process. The shares of the SOEs being disinvested are sold in the open market. Nigeria Executive Summary Nigeria’s economy – Africa’s largest – exited recession with a 3.4% GDP growth rate in 2021 following a contraction of 1.9% the previous year. The IMF forecasts growth rates of under 3% in 2022 and 2023 while the Nigerian National Bureau of Statistics predicts a more robust 4.2% growth rate in 2022. President Muhammadu Buhari’s administration has prioritized diversification of Nigeria’s economy beyond oil and gas, with the stated goals of building a competitive manufacturing sector, expanding agricultural output, and capitalizing on Nigeria’s technological and innovative advantages. With the largest population in Africa, Nigeria is an attractive consumer market for investors and traders, and offering abundant natural resources and a low-cost labor pool. The government has undertaken reforms to help improve the business environment, including by facilitating faster business start-up by allowing electronic stamping of registration documents and making it easier to obtain construction permits, register property, obtain credit, and pay taxes. Foreign direct investment (FDI) inflows nevertheless declined from roughly $1 billion in 2020 to $699 million in 2021 as persistent challenges remain. Corruption is a serious obstacle to Nigeria’s economic growth and is often cited by domestic and foreign investors as a significant barrier to doing business. Nigeria’s ranking in Transparency International’s 2021 Corruption Perception Index fell slightly from its 2020 score of 149 out of 175 countries to154 of 180 in 2021. Businesses report that corruption by customs and port officials often leads to extended delays in port clearance processes and to other issues importing goods. Nigeria’s trade regime is protectionist in key areas. High tariffs, restricted foreign exchange availability for 44 categories of imports, and prohibitions on many other import items have the aim of spurring domestic agricultural and manufacturing sector growth. The government provides tax incentives and customs duty exemptions for pioneer industries including renewable energy. A decline in oil exports, rising prices for imported goods, an overvalued currency, and Nigeria’s expensive fuel subsidy regime continued to exert pressure on the country’s foreign exchange reserves in 2021. Domestic and foreign businesses frequently cite lack of access to foreign currency as a significant impediment to doing business. Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces most businesses to generate a significant portion of their own electricity. Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be weakened by regulatory uncertainty and limited domestic natural gas supply. Security remains a concern to investors in Nigeria due to violent crime, kidnappings for ransom, and terrorism in certain parts of the country. The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country. Nigeria has experienced a rise in kidnappings for ransom and attacks on villages by armed gangs in the North West and North Central regions. Criminal attacks on oil and gas infrastructure in the Niger Delta region that restricted oil production in 2016 have eased, but a significant rise in illegal bunkering and oil theft has left the sector in a similar state of decreased output. Table 1: Key Metrics and Rankings Measure Year Index/Rank Website Address TI Corruption Perceptions Index 2021 154 of 180 http://www.transparency.org/research/cpi/overview Global Innovation Index 2021 118 of 132 https://www.globalinnovationindex.org/analysis-indicator U.S. FDI in partner country ($M USD, historical stock positions) 2020 $6,811 https://apps.bea.gov/international/factsheet/ World Bank GNI per capita 2020 $2,000 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 1. Openness To, and Restrictions Upon, Foreign Investment The Nigerian Investment Promotion Commission (NIPC) Act of 1995, amended in 2004, dismantled controls and limits on FDI, allowing for 100% foreign ownership in all sectors, except those prohibited by law for both local and foreign entities. These include arms and ammunitions, narcotics, and military apparel. In practice, however, some regulators include a domestic equity requirement before granting foreign firms an operational license. Nevertheless, foreign investors receive largely the same treatment as domestic investors in Nigeria, including tax incentives. The Act also created the NIPC with a mandate to encourage and assist investment in Nigeria. The NIPC features a One-Stop Investment Center (OSIC) that includes participation by 27 governmental and parastatal agencies to consolidate and streamline administrative procedures for new businesses and investments. The NIPC is empowered to negotiate special incentives for substantial and/or strategic investments. The Act also provides guarantees against nationalization and expropriation. The NIPC occasionally convenes meetings between investors and relevant government agencies with the objective of resolving specific investor complaints. The NIPC’s role and effectiveness is limited to that of convenor and moderator in these sessions as it has no authority over other government agencies to enforce compliance. The NIPC’s ability to attract new investment is thus limited due to its inability to resolve certain such investment challenges. The Nigerian government continues to promote import substitution policies such as trade restrictions, foreign exchange restrictions, and local content requirements in a bid to funnel investment toward domestic production capacity and to reduce Nigeria’s reliance on foreign imports. The import bans and high tariffs used to advance Nigeria’s import substitution goals have been undermined by smuggling of targeted products through the country’s porous borders, and by corruption in the import quota systems developed by the government to incentivize domestic investment. The government opened land borders in December 2020, which were progressively closed to commercial trade starting in August 2019 with the aim of curbing smuggling and bolstering domestic production. Investment by foreign and domestic private entities is prohibited in industries contained in the “negative list.” These include production of arms and ammunition, narcotic drugs and psychotropic substances, and military and paramilitary wear and accoutrements. The Federal Executive Council maintains the right to amend the list as it deems fit. There are currently no limits on foreign control of investments; however, some Nigerian regulatory bodies have insisted on domestic equity as a prerequisite to doing business. The NIPC Act of 1995, amended in 2004, liberalized the ownership structure of business in Nigeria, allowing foreign investors to own and control 100% of the shares in any company. One hundred percent ownership of firms is allowed in the oil and gas sector while ownership of mineral resources is vested in the federal government. However, the dominant models for oil extraction are joint venture and production sharing agreements between oil companies (both foreign and local) and the federal government. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Act reviewed in 2020. A foreign company intending to operate in Nigeria must incorporate a company or subsidiary. It may apply for an exemption to this requirement if it meets certain conditions including working on a specialized project specifically for the government, or on a project funded by a multilateral or bilateral donor or a foreign state-owned enterprise. However, a foreign entity can invest in a Nigerian company without incorporation. Importers of foreign technology must obtain a certificate from the National Office of Technology Acquisition and Promotion (NOTAP). One of the prerequisites for obtaining the certificate is the provision of a Technology Transfer Agreement duly approved by NOTAP. The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in cases of national interest and stipulates modalities for “fair and adequate” compensation should that occur. The World Bank published an Investment Policy and Regulatory Review of Nigeria in 2019. It provides an overview of Nigeria’s legal and regulatory framework as it affects FDI, foreign investors, and businesses at large and is available at https://documents.worldbank.org/en/publication/documents-reports/documentdetail/305141586325201141/nigeria-2019-investment-policy-and-regulatory-review. The WTO published a trade policy review of Nigeria in 2017, which also includes a brief overview and assessment of Nigeria’s investment climate. That review is available at https://www.wto.org/english/tratop_e/tpr_e/tp456_e.htm. The government established the Presidential Enabling Business Environment Council (PEBEC) in 2016 with the objective of removing constraints to starting and running a business in Nigeria. PEBEC’s implementation was supported by Presidential Executive Orders aimed at improving business transparency and efficiency. PEBEC’s focus areas include: starting a business, cross-border and domestic movement of people and goods, obtaining credit and resolving insolvency, enforcing contracts, registering property, acquiring construction permits and electricity, and paying taxes. PEBEC’s significant achievements were in the areas of starting a business, acquiring construction permits and electricity, registering property, and enforcing contracts. Despite these improvements, Nigeria remains a difficult place to do business, with companies suffering from regulatory uncertainty, policy inconsistency, poor infrastructure, foreign exchange shortages and customs inconsistency and inefficiency. These many challenges are reflected in the fact that Nigeria’s leading trade indices lag behind regional averages. The One-Stop Investment Center (OSIC), housed within the NIPC, co-locates 27 relevant government agencies including the Central Bank of Nigeria (CBN), the Corporate Affairs Commission (CAC), and the Immigration Service to provide fast-tracked, efficient, and transparent services to investors. The OSIC assists with visas for investors, company incorporation, business permits and registration, tax registration, immigration, and customs issues. Investors may pick up documents and approvals that are statutorily required to establish an investment project in Nigeria. In 2021, NIPC launched the electronic OSIC which allows investors to register businesses, submit documents, and pay fees remotely on its Single Window Investors’ Portal (SWIP). All businesses, both foreign and local, are required to register with CAC before commencing operations. CAC began online registration as part of PEBEC reforms. Online registration is straightforward and consists of three major steps: name search, reservation of business name, and registration. A registration guideline is available on the website as is a post-registration portal for enacting changes to company details. The CAC online registration website is https://pre.cac.gov.ng/home. The registration requires the signature of a Legal Practitioner and attestation by a Notary Public or Commissioner for Oaths. Business registration can be completed online but the certificate of incorporation is usually collected at a CAC office upon presentation of the original application and supporting documents. Online registration can be completed in as little as three days if there are no issues with the application. On average, a limited liability company (LLC) in Nigeria can be established in seven days. This average is significantly faster than the 22-day average for Sub-Saharan Africa. It is also faster than the OECD average of nine days. Timing may vary in different parts of the country. Companies must register with the Federal Inland Revenue Service (FIRS) for tax payments purposes. If the company operates in a state other than the Federal Capital Territory, it must also register with the relevant state tax authority. CAC issues a Tax Identification Number (TIN) to all businesses on completion of registration which must be validated on the FIRS website https://apps.firs.gov.ng/tinverification/ and subsequently used to register to pay taxes. The FIRS then assigns a tax office with which the business will engage for tax payments purposes. Some taxes may also be filed and paid online on the FIRS website. Foreign companies are also required to register with NIPC which maintains a database of all foreign companies operating in Nigeria. Investors can register online through NIPC’s SWIP platform: https://swip.nipc.gov.ng/auth.php?a=r. Companies which import capital must do so through an authorized dealer, typically a bank, after which they are issued a Certificate of Capital Importation. This certificate entitles the foreign investor to open a bank account in foreign currency and provides access to foreign exchange for repatriation, imports, and other purposes. A company engaging in international trade must get an import-export license from the Nigerian Customs Service (NCS). Businesses may also be required to register with and/or obtain licenses from other regulatory agencies which supervise the sector within which they operate. Nigeria does not promote outward direct investments. Instead, it focuses on promoting exports especially as a means of reducing its reliance on oil exports and diversifying the sources of its foreign exchange earnings. The Nigerian Export Promotion Council (NEPC) administered a revised Export Expansion Grant (EEG) in 2018 when the federal government set aside 5.1 billion naira ($13 million) in the 2019 budget for the EEG scheme. The Nigerian Export-Import (NEXIM) Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused. NEXIM’s Foreign Input Facility provides normal commercial terms of three to five years (or longer) for the importation of machinery and raw materials used for generating exports. Agencies created to promote industrial exports remain burdened by uneven management, vaguely defined policy guidelines, and corruption. Nigeria’s inadequate power supply and lack of infrastructure, coupled with the associated high production costs, leave Nigerian exporters at a significant disadvantage. Many Nigerian businesses fail to export because they find meeting international packaging and safety standards is too difficult or expensive. Similarly, firms often are unable to meet consumer demand for a consistent supply of high-quality goods in sufficient quantities to support exports and meet demand. Most Nigerian manufacturers remain unable to or uninterested in competing in the international market, given the size of Nigeria’s domestic market. Domestic firms are not restricted from investing abroad. However, the Central Bank of Nigeria (CBN mandates that export earnings be repatriated to Nigeria, and controls access to the foreign exchange required for such investments. Noncompliance with the directive carries sanctions including expulsion from accessing financial services and the foreign exchange market. Nigeria’s Securities and Exchange Commission (SEC) in April 2020 prohibited investment and trading platforms from facilitating Nigerians’ purchase of foreign securities listed on other stock exchanges. SEC cites Nigeria’s Investment and Securities Act of 2007, which mandates that only foreign securities listed on a Nigerian exchange should be sold to the Nigerian investing public. 3. Legal Regime Nigeria’s legal, accounting, and regulatory systems comply with international norms, but application and enforcement remain uneven. Opportunities for public comment and input into proposed regulations rarely occur. Professional organizations set standards for the provision of professional services, such as accounting, law, medicine, engineering, and advertising. These standards usually comply with international norms. No legal barriers prevent entry into these sectors. Ministries and regulatory agencies are meant to develop and make public anticipated regulatory changes or proposals and publish proposed regulations before their application. The general public should have the opportunity to comment through targeted outreach, including business groups and stakeholders, and during the public hearing process before a bill becomes law, but this is not always the case. There is no specialized agency tasked with publicizing proposed changes and the time period for comment may vary. Ministries and agencies do conduct impact assessments, including environmental, but assessment methodologies may vary. The National Bureau of Statistics reviews regulatory impact assessments conducted by other agencies. Laws and regulations are publicly available. Fiscal management occurs at all three tiers of government: federal, 36 state governments and Federal Capital Territory (FCT) Abuja, and 774 local government areas (LGAs). Revenues from oil and non-oil sources are collected into the federation account and then shared among the different tiers of government by the Federal Account Allocation Committee (FAAC) in line with a statutory sharing formula. All state governments can collect internally generated revenues, which vary from state to state. The fiscal federalism structure does not compel states to be accountable to the federal government or transparent about revenues generated or received from the federation account. However, the federal government can demand states meet predefined minimum fiscal transparency requirements as prerequisites for obtaining federal loans. For instance, compliance with the 22-point Fiscal Sustainability Plan, which focused on ensuring better state financial performance, more sustainable debt management, and improved accountability and transparency, was a prerequisite for obtaining a federal government bailout in 2016. The federal government’s finances are more transparent as budgets are made public and the financial data are published by the Central Bank of Nigeria (CBN), Debt Management Office (DMO), the Budget Office of the Federation, and the National Bureau of Statistics. The state-owned oil company (Nigerian National Petroleum Corporation (NNPC)) began publishing audited financial data in 2020. Foreign companies operate successfully in Nigeria’s service sectors, including telecommunications, accounting, insurance, banking, and advertising. The Investment and Securities Act of 2007 forbids monopolies, insider trading, and unfair practices in securities dealings. Nigeria is not a party to the WTO’s Government Procurement Agreement (GPA). Nigeria generally regulates investment in line with the WTO’s Trade-Related Investment Measures (TRIMS) Agreement, but the government’s local content requirements in the oil and gas sector and the Information and Communication Technology (ICT) sector may conflict with Nigeria’s commitments under TRIMS. ECOWAS implemented a Common External Tariff (CET) beginning in 2015 with a five-year phase in period. An internal CET implementation committee headed by the Fiscal Policy/Budget Monitoring and Evaluation Department of the Nigerian Customs Service (NCS) was set up to develop the implementation work plans that were consistent with national and ECOWAS regulations. The CET was slated to be fully harmonized by 2020, but in practice some ECOWAS Member States have maintained deviations from the CET beyond the January 1, 2020, deadline. The country has put in place a CET monitoring committee domiciled at the Ministry of Finance, consisting of several ministries, departments, and agencies related to the CET. The country applies five tariff bands under the CET: zero duty on capital goods, machinery, and essential drugs not produced locally; 5% duty on imported raw materials; 10% duty on intermediate goods; 20% duty on finished goods; and 35% duty on goods in certain sectors that the Nigerian government seeks to protect including palm oil, meat products, dairy, and poultry. The CET permits ECOWAS member governments to calculate import duties higher than the maximum allowed in the tariff bands (but not to exceed a total effective duty of 70%) for up to 3% of the 5,899 tariff lines included in the ECOWAS CET. Nigeria has a complex, three-tiered legal system comprised of English common law, Islamic law, and Nigerian customary law. Most business transactions are governed by common law modified by statutes to meet local demands and conditions. The Supreme Court is the pinnacle of the judicial system and has original and appellate jurisdiction in specific constitutional, civil, and criminal matters as prescribed by Nigeria’s constitution. The Federal High Court has jurisdiction over revenue matters, admiralty law, banking, foreign exchange, other currency and monetary or fiscal matters, and lawsuits to which the federal government or any of its agencies are party. The Nigerian court system is generally slow and inefficient, lacks adequate court facilities and computerized document-processing systems, and poorly remunerates judges and other court officials, all of which encourages corruption and undermines enforcement. Judges frequently fail to appear for trials and court officials lack proper equipment and training. The constitution and law provide for an independent judiciary; however, the judicial branch remains susceptible to pressure from the executive and legislative branches. Political leaders have influenced the judiciary, particularly at the state and local levels. The Doing Business report credited business reforms for improving contract enforcement by issuing new rules of civil procedure for small claims courts, which limit adjournments to unforeseen and exceptional circumstances but noted that there can be variation in performance indicators between cities in Nigeria (as in other developing countries). For example, resolving a commercial dispute takes 476 days in Kano but 376 days in Lagos. In the case of Lagos, the 376 days includes 40 days for filing and service, 194 days for trial and judgment, and 142 days for enforcement of the judgment with total costs averaging 42% of the claim. In Kano, however, filing and service only takes 21 days with enforcement of judgement only taking 90 days, but trial and judgment accounts for 365 days with total costs averaging lower at 28% of the claim. In comparison, in OECD countries the corresponding figures are an average of 589.6 days and averaging 21.5% of the claim and in sub-Saharan countries an average of 654.9 days and averaging 41.6% of the claim. The Nigerian Investment Promotion Commission (NIPC) Act allows 100 percent foreign ownership of firms. Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Act of 2020. The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in case of national interest, but the Embassy is unaware of specific instances of such interference by the government. The NIPC website (nipc.gov.ng) provides information on investing in Nigeria, and its One-Stop Investment Center co-locates 27 government agencies with equities in the foreign company registration process. The Nigerian government enacted the Federal Competition and Consumer Protection (FCCPC) Act in 2019. The Act repealed the Consumer Protection Act of 2004 and replaced the previous Consumer Protection Council with a Federal Competition and Consumer Protection Commission while also creating a Competition and Consumer Protection Tribunal to handle issues and disputes arising from the operations of the Act. Under the terms of the Act, businesses will be able to lodge anti-competitive practices complaints against other firms in the Tribunal. The Act prohibits agreements made to restrain competition, such as price fixing, price rigging, collusive tendering, etc. (with specific exemptions for collective bargaining agreements and employment, among other items). The Act empowers the President of Nigeria to regulate prices of certain goods and services on the recommendation of the Commission. The law prescribes stringent fines for non-compliance. The law mandates a fine of up to 10% of the company’s annual turnover in the preceding business year for offences. The law harmonizes oversight for consumer protection, consolidating it under the FCCPC. An entity may seek redress from a court of law if it is not satisfied with the ruling of the FCCPC. The federal government has not expropriated or nationalized foreign assets recently, and the NIPC Act forbids nationalization of a business or assets unless the acquisition is in the national interest or for a public purpose. In such cases, investors are entitled to fair compensation and legal redress. The federal government’s drive to domesticate foreign investments has led to a number of seemingly discriminatory actions against a prominent South African firm. Nigeria’s attorney general demanded the payment of $2 billion which he alleged the company owed in taxes over ten years, a suit which was later dropped in 2020 in favor of negotiations with the FIRS. In 2018, the company paid $53 million to settle a CBN case in which it was accused of illegally repatriating $8.1 billion. Another South African company is involved in a $4.7 billion tax dispute with the FIRS. Reflecting Nigeria’s business culture, entrepreneurs generally do not seek bankruptcy protection. Claims often go unpaid, even in cases where creditors obtain judgments against defendants. Under Nigerian law, the term bankruptcy generally refers to individuals whereas corporate bankruptcy is referred to as insolvency. The former is regulated by the Bankruptcy Act of 1990, as amended by Bankruptcy Decree 109 of 1992. The latter is regulated by the Companies and Allied Matters Act (CAMA) revised in 2020. Insolvency solutions in CAMA 2020 focus on rescuing insolvent corporates, where debt recovery options are feasible, instead of the former objective which focused largely on the wind-up process. Once determined insolvent, company shareholders are allowed to enter into a binding agreement with creditors or apply to a court to appoint an administrator thereby obviating the need for claims by creditors. The debt threshold required for triggering compulsory liquidation is 200,000 naira ($480). The Act also ranks the claims of secured creditors above all other claims and forbids shareholders or administrators from favoring a creditor above another within the same creditor class. The Embassy is not aware of U.S. companies that have had to avail themselves of the insolvency provisions under Nigerian law. 6. Financial Sector The NIPC Act of 1995, amended in 2004, liberalized Nigeria’s foreign investment regime, which has facilitated access to credit from domestic financial institutions. The government, and the CBN in particular, has sought to diversify foreign exchange inflows by encouraging foreign portfolio investments (FPI). High returns on the CBN’s open market operation (OMO) bills as well as the exclusion of certain classes of domestic investors from the market yielded high levels of FPI. However, a tightening of monetary policy, foreign exchange shortages, revised CBN guidelines on OMO bills, and capital restrictions amidst COVID-19 disruptions have led to a decline in FPI. CBN officials indicate that OMO offerings to foreigners will be phased out – a departure from its strategy of attracting hard currency investments to shore up foreign exchange supply – once current obligations have been redeemed due to the large interest repayment burden placed on the CBN. Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments. Some investors consider the capital market, specifically the Nigerian Exchange Group (NXG), a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments. Financial institutions provide credit on market terms, but rates are relatively high due to high inflation and a high benchmark interest rate. The NXG completed a demutualization process in 2021 which transformed the company, previously privately held and called the Nigerian Stock Exchange, to a public company limited by shares. The NXG all-share index closed 2021 with over 42,000 points, a 4% increase from the end of 2020. As of December 2021, the NXG had 157 listed companies with an equity market capitalization of 22.3 trillion naira ($53.5 billion), an increase of 6% from 2020. The share of foreign investment in equity trading declined to 22% in 2021 from 35% in 2020 and over 50% in 2018. This decline is indicative of foreign investors’ diminishing appetite for Nigerian securities especially as repatriation concerns continue to mount. The NXG sovereign bond index declined year-on-year by 14% in 2021. The Securities and Exchange Commission (SEC) is the government agency tasked with regulating and developing the capital market. SEC creates operational guidelines and licenses securities and market intermediaries. The Nigerian government has considered requiring companies in certain sectors such as telecoms, oil, and gas, or over a certain size to list on the NXG as a means to encourage greater corporate participation and sectoral balance in the Nigerian stock exchange, but those proposals have not been enacted. The government employs debt instruments, issuing treasury bills of one year or less, and bonds of various maturities ranging from two to 30 years. Nigeria is increasingly relying on the bond market to finance its widening deficit, especially as domestic bond rates fell well below Nigeria’s Eurobond rates in 2021. In addition, Nigeria continues its reluctance or refusal to accept certain conditionalities attached to multilateral borrowing, and has increasingly forgone World Bank and Africa Development Bank loans that have required it to free the exchange rate, eliminate subsidies, create an agricultural exchange, easing trade restrictions, amont other macro/fiscal reforms. The government’s preferred option in recent times has been the capital market, foreign or domestic. It has also made increased use of Export–Import Bank of China loans, as these conditions are not as rigorous as is the case with multilateral institutions. Domestic borrowing accounted for 76% of new government borrowings in the first eleven months of 2021. Some state governments have issued bonds to finance development projects, while some domestic banks have used the bond market to raise additional capital. Nigeria’s SEC has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies. The CBN is the apex monetary authority of Nigeria; it was established by the CBN Act of 1958 and commenced operations on July 1, 1959. It has oversight of all banks and other financial institutions and is designed to be operationally independent of political interference although the CBN governor is appointed by the president and confirmed by the Senate. The amended CBN Act of 2007 mandates the CBN to have the overall control and administration of the monetary and financial sector policies of the government. The new Banking and Other Financial Institutions Act (BOFIA) of 2020 broadens CBN’s regulatory oversight function to include financial technology companies as it prohibits the operations of unlicensed financial institutions. The revised BOFIA also grants partial immunity to the CBN and its officials from judicial intervention on actions arising from activities undertaken to implement the Act. Furthermore, the Act forbids restorative orders and limits remedies sought against the CBN where it has revoked a license to monetary compensation. Foreign banks and investors are allowed to establish banking business in Nigeria provided they meet the current minimum capital requirement of 25 billion naira ($60 million) and other applicable regulatory requirements for banking license as prescribed by the CBN. The CBN regulations for foreign banks regarding mergers with or acquisitions of existing local banks in the country stipulate that the foreign institutions’ aggregate investment must not be more than 10% of the latter’s total capital. Any foreign-owned bank in Nigeria that wishes to acquire or merge with a local bank must have operated in Nigeria for a minimum of five years. To qualify for merger or acquisition of any of Nigeria’s local banks, the foreign bank must have achieved a penetration of two-thirds of the states of the federation, that is, to have branches in at least 24 out of the 36 states in Nigeria. The CBN also stipulates that the foreign bank or investors’ shareholding arising from the merger or acquisition should not exceed 40% of the total capital of the resultant entity. The CBN currently licenses 24 deposit-taking commercial banks in Nigeria. Following a 2009 banking crisis, CBN officials intervened in eight commercial banks and worked to stabilize the sector through reforms, including the adoption of uniform year-end International Financial Reporting Standards to increase transparency, a stronger emphasis on risk management and corporate governance, and the nationalization of three distressed banks. The CBN has since intervened in the sector using bridge banks and capital injections to avoid bank failures. The CBN has licensed three non-interest banks since it released operational guidelines in 2011. There are six licensed merchant banks which provide asset management and capital market activities, the latter through a subsidiary registered by SEC, and 882 microfinance banks licensed by the CBN to provide services largely to those not served by conventional banks. The CBN reiterated its commitment to increasing the level of financial inclusion in the country from 60% in 2020 to 95% by 2024. The CBN plans to achieve this goal by leveraging technology and relaxing its criteria for financial services market entry. Most notably, telecom companies previously excluded from providing financial services are now eligible for payment service banking and digital financial services licenses. The CBN also licenses agents to provide financial services on behalf of commercial banks and other licensed financial services providers in underserved areas. According to the IMF’s Financial Access Survey for 2021, there were 5,158 bank branches in Nigeria in 2020 which amounted to 4.5 branches per 100,000 adults; the number of automated teller machines per 100,000 adults was to 16.1; there were 142 mobile money agents per thousand square kilometers; and the number of registered mobile money agents per thousand adults fell by more than half to 61. The banking sector remained resilient in 2021 despite the risks and challenges posed by the COVID-19 pandemic. The five largest banks recorded 3%, 9% and 6% increases in revenues, profits, and assets, respectively, in the first half of the year. The CBN reported that non-performing loans (NPLs) declined to 4.9% in December 2021, breaching the 5% prudential threshold for the first time in over a decade. This is a significant decline from 6.4% and 9.4% in June of 2020 and 2021, respectively. The steady fall in NPLs is attributable to the CBN’s post-COVID forbearance measures as well as increased banking sector recoveries, disposals, and write-offs. The industry average capital adequacy ratio (CAR) was 14.5% as of December 2021, compared to a minimum regulatory threshold of 10% for ordinary banks and 15% for domestically systemically important banks (D-SIBS) and banks with international authorization. According to the CBN’s 2019 Financial Stability Report, seven D-SIBs account for 64% of banking assets, 65% of industry deposits, and 66% of industry loans, hence their failure could disrupt the entire financial system and the country’s economy. D-SIBS usually record higher CARs while smaller banks pull down the industry average. D-SIBS recorded an average CAR of 19.8% compared to the then average of 15.2%. Weaker banks thereby pose a risk to Nigeria’s financial system stability. In its first monetary policy meeting of 2022, the CBN noted downside risks to the sector were associated with sluggish post-COVID growth and resolved to “closely monitor” and “swiftly respond to emerging challenges.” Total banking sector assets rose from 51 trillion naira ($122.3 billion) in 2020 to 59 trillion naira ($141.4 billion) while deposits increased to 38.4 trillion naira ($92 billion) in 2021. Nigeria’s five largest banks by assets, considered Tier 1 banks by the CBN, recorded combined total assets of 40 trillion naira ($96 billion) – about two-thirds of the industry total – in the first half of 2021. Access Bank leads the pack with 10.1 trillion naira ($24.2 billion) in assets, followed by Zenith Bank with 8.5 trillion naira (20.4 billion), UBA with 8.3 trillion naira ($20 billion), First Bank with 8 trillion naira ($19.2 billion), and GTB with 5 trillion naira ($12 billion). The CBN has continued its system of liquidity management using unorthodox monetary policies. The measures included an increase in the cash reserve ratio (CRR) to 27.5% – among the highest globally – to absorb the excess liquidity within the system which was a direct consequence of the lack of investment opportunities. The CBN arbitrarily debited banks for carrying excess loanable deposits on their books resulting in the effective CRR for some banks rising as high as 50%, which limited banks’ capacity to lend. The CBN also enforced a 65% minimum loan to deposit ratio in order to increase private sector credit and boost productivity. In December 2020, the CBN released some of the excess CRR back to banks by selling them special bills in an attempt to improve liquidity and support economic recovery. Under Nigerian laws and banking regulations, one of the conditions any foreigner seeking to open a bank account in Nigeria must fulfill is to be a legal resident in Nigeria. The foreigner must have obtained the Nigerian resident permit, known as the Combined Expatriate Residence Permit and Aliens Card which can only be processed by a foreigner that has been employed by a Nigerian company through an expatriate quota. Another requirement is the biometric BVN, which every account holder in Nigeria must have according CBN regulations. Only a company duly registered in Nigeria can open a bank account in the country. Therefore, a foreign company is not entitled to open a bank account in Nigeria unless its subsidiary has been registered in Nigeria. The Nigeria Sovereign Investment Authority (NSIA) manages Nigeria’s sovereign wealth fund. It was created by the NSIA Act in 2011 to harness Nigeria’s robust oil revenues toward economic stability, wealth creation, and infrastructure development. The NSIA received $1 billion seed capital in 2013 which grew to $2.1 billion in 2020 as a result of additional investments and retained earnings. The NSIA manages an additional $1.5 billion from third-party-managed funds for a total assets under management of $3.6 billion. The NSIA is a public agency that subscribes to the Santiago Principles, which are a set of 24 guidelines that assign “best practices” for the operations of Sovereign Wealth Funds globally. The NSIA invests through three ring-fenced funds: the Future Generations Fund is assigned 30% of NSIA’s assets with the objective of preserving and growing the value of said assets for the benefit of future Nigerians. The minimum investment horizon is 20 years, the investment base currency is the U.S. dollar, and the minimum target return is U.S. inflation + 4%. The Fund invests primarily in “growth assets,” “deflation hedges,” and “inflation hedges.” the Nigeria Infrastructure Fund aims to plug Nigeria’s infrastructure gap by investing in, and catalyzing foreign investments for, domestic infrastructure projects. The Fund is assigned 50% of NSIA’s assets. Investments are in naira and U.S. dollars and the return-on-investment target is U.S. inflation plus 5%. The Fund cannot allocate more than 50% of its assets to investment managers (not more than 25% to a single manager) or more than 35% to a single infrastructure sector. The Fund may also invest not more than 10% of its assets in “development projects’ in underserved regions or sectors. Priority sectors are power, healthcare, real estate, technology and communications infrastructure, aviation assets, agriculture, water and sewage treatment and delivery, roads, port, and rail. the Stabilization Fund was created to act as a buffer against short-term economic instability and is assigned 20% of NSIA’s assets. The Fund invests in conservative, short-term, and liquid assets since it may be drawn down to augment government revenue shortages. The base currency is the U.S. dollar. Investment options range from global sovereign and corporate debt, credit focused debt, cash, and to an extent, derivatives. The minimum credit quality rating is “A” over a 12-month period. At least 50% of the NSIA’s assets are invested domestically in infrastructure projects. The NSIA does not take an active role in the management of companies. The Embassy has not received any report or indication that NSIA activities limit private competition. 7. State-Owned Enterprises The government does not have an established practice consistent with the OECD Guidelines on Corporate Governance for state-owned enterprises (SOEs), but SOEs have respective enabling legislations that govern their ownership. To legalize the existence of state-owned enterprises, provisions have been made in the Nigerian constitution relating to socio-economic development and in section 16 (1). The government has privatized many former SOEs to encourage more efficient operations, such as state-owned telecommunications company Nigerian Telecommunications and mobile subsidiary Mobile Telecommunications in 2014. SOEs operate in a variety of sectors ranging from information and communication; power; oil and gas; transportation including rail, maritime, and airports; and finance. Nigeria does not operate a centralized ownership system for its state-owned enterprises. Most SOEs are 100% government owned. Others are owned by the government through the Ministry of Finance Incorporated (MOFI) or solely or jointly by MOFI and various agencies of government. The enabling legislation for each SOE also stipulates its governance structure. The boards of directors are appointed by the president and occasionally on the recommendation of the relevant minister. The boards operate and are appointed in line with the enabling legislation which usually stipulates the criteria for appointing board members. Directors are appointed by the board within the relevant sector. In a few cases, however, appointments have been viewed as a reward to political allies. Operational autonomy varies amongst SOEs. Most SOEs are parastatals of a supervising ministry or the presidency with minimal autonomy. SOEs with regulatory or industry oversight functions are often technically independent of ministerial supervision; however, ministers and other political appointees often interfere in their operations. All SOEs are required to remit a share of their profits or operational surpluses to the federal government. This “independent revenue” more than doubled from 2020 to 1.1 trillion naira ($2.6 billion) in 2021 and exceeded budget projections by 13%. This was as a result of the government’s drive to increase non-oil revenues as well as increasingly stringent oversight of SOE remittances. The 60 largest SOEs (excluding the Nigerian National Petroleum Corporation (NNPC)) generated a combined 1.2 trillion naira ($2.9 billion) in revenues and spent a total 410 billion naira ($983 million) in the first eleven months of 2021. The government often provides certain grants to SOEs that are inefficiently run and/or loss-making. For example, and over the past five years, the government has allocated 102 billion naira ($245 million) to the Transmission Company of Nigeria, 402 billion naira ($964 million) to the Nigerian Bulk Electricity Trading Company, 154 billion naira ($369 million) to the Nigerian Railway Corporation, and 24 billion naira ($58 million) to the Ajaokuta Steel Company. These SOEs wereall ostensibly established to generate and remit revenue. NNPC is Nigeria’s most prominent state-owned enterprise. Under the implementation of the Petroleum Industry Act, NNPC was incorporated as a limited liability company in September 2021, although the incorporation process does not appear to have led to a de facto change in the company’s operations and the government maintains 100% ownership. NNPC Board appointments are made by the presidency, but day-to-day management is overseen by the Group Managing Director (GMD). The GMD reports to the Minister of Petroleum Resources. In the current administration, the President has retained that ministerial role for himself, and the appointed Minister of State for Petroleum Resources acts as the de facto Minister of Petroleum in the president’s stead with certain limitations. NNPC is Nigeria’s biggest and arguably most important state-owned enterprise and is involved in exploration, refining, petrochemicals, products transportation, and marketing. It owns and operates Nigeria’s four refineries (one each in Warri and Kaduna and two in Port Harcourt), all of which are currently and largely inoperable. NNPC remits proceeds from the sale of crude oil less operational expenses to the federation account which is managed by the federal government on behalf of all tiers of government. It is also expected to pay corporate and petroleum profits taxes to the Federal Inland Revenue Service (FIRS). NNPC began publishing audited financial statements in 2020 for the three prior fiscal years, a significant step toward improving transparency of NNPC operations. The government generated crude oil net revenue of 1.5 trillion naira ($3.6 billion) in 2020 in large part due to NNPC’s $10 billion gross revenue and the government’s removal of the gasoline subsidy for half of 2020 in the face of low global oil prices. However, despite higher oil prices, crude oil revenue fell to 970 billion naira ($2.3 billion) in the first eleven months of 2021. This is largely due to declining crude production and the significant subsidy costs which NNPC deducts from revenue before remitting the balance to the government. NNPC’s dual role as industry operator and unofficial regulator as well as its proximity to government lends it certain advantages its competitors lack. For instance, the CBN often prioritizes NNPC’s foreign exchange requests and has offered the corporation a subsidized exchange rate for its importation of petroleum products in the past. In addition, its proximity to government affords it high-level influence. NNPC’s inputs formed a critical part of the government’s position during the drafting of the Petroleum Industry Act of 2021. NNPC’s objection to the sale of an international oil company’s subsidiary with which it operates a joint venture has stayed the government approval required for the divestment. The government also owns equity in some private-sector-run entities. It retained 60% and 40% equity in the generation and distribution companies, respectively, that emerged from the power sector privatization exercise in 2013. Despite being privately-run, revenues across the power sector value chain are hindered by the overall inefficiencies and illiquidity in the sector. Consequently, a government facility finances a sizeable portion of the sector’s activities. The Transmission Company of Nigeria, of which the government retained full ownership, is largely financed by the government. The government owns 49% of Nigeria Liquefied Natural Gas (NLNG) Limited (NLNG) with the balance held by several international oil companies. NLNG is one of Nigeria’s most profitable companies and the dividends paid to the government accounted for nearly 3% of federal government revenues in 2021. The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises, and the Bureau of Public Enterprises (BPE), the implementing agency for designated privatizations. The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises. The BPE has privatized and concessioned more than 140 enterprises since 1999, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, vehicle assembly plants, and electricity generation and distribution companies. The electricity transmission company remains state-owned. Foreign investors can and do participate in BPE’s privatization process. The government also retains partial ownership in some of the privatized companies. The federal government and several state governments hold a 40% stake, managed by BPE, in the power distribution companies. The National Assembly has questioned the propriety of some of these privatizations, with one ongoing case related to an aluminum complex which is the subject of a Supreme Court ruling on ownership. In addition, the failure of the 2013 power sector privatization to restore financial viability to the sector has raised criticism of the privatized power generation and distribution companies. The federal government estimates it will raise 91 billion naira ($218 million) from privatization proceeds in 2022. The government did not earn any revenues from privatization in 2021 despite a 205-billion-naira ($492 million) budget projection. BPE has several ongoing transactions including the sale of government assets in the agricultural sector, the concession of trade fair complexes, and private-public partnership in the Nigeria Commodity Exchange amongst others. Additional information on ongoing transactions can be found on the BPE website: https://bpe.gov.ng/category/transactions/on-going-transactions/. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other Economic Data Year Amount Year Amount Host Country Gross Domestic Product (GDP) ($M USD) 2021 $422,240 2020 $432,294 https://data.worldbank.org/indicator/ NY.GDP.MKTP.CD?locations=NG Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2020 $9,405 BEA data available at BEA : Nigeria – International Trade and Investment Country Facts Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2020 $132 BEA data available at BEA : Nigeria – International Trade and Investment Country Facts Total inbound stock of FDI as % host GDP N/A N/A 2020 0.55% https://data.worldbank.org/indicator/ BX.KLT.DINV.WD.GD.ZS?locations=NG * Source for Host Country Data: Nigerian Bureau of Statistics Table 3: Sources and Destination of FDI Direct Investment from/in Counterpart Economy Data From Top Five Sources/To Top Five Destinations (US Dollars, Millions) Inward Direct Investment Outward Direct Investment Total Inward $74,256 100% Total Outward $13,213 100% Netherlands, The $13,640 18% United Kingdom $2,380 18% United States $9,405 13% Netherlands, The $1,217 9% France $8,798 12% Bermuda $1,014 8% United Kingdom $8,132 11% Ghana $917 7% Bermuda $7,696 10% Norway $808 6% “0” reflects amounts rounded to +/- USD 500,000. Table 4: Sources of Portfolio Investment Data not available. South Korea Executive Summary The Republic of Korea (ROK) offers foreign investors political stability, public safety, world-class infrastructure, a highly skilled workforce, and a dynamic private sector. Following market liberalization measures in the 1990s, foreign portfolio investment has grown steadily, exceeding 37 percent of the Korea Composite Stock Price Index (KOSPI) total market capitalization as of February 2022. Studies by the Korea International Trade Association, however, have shown that the ROK underperforms in attracting FDI relative to the size and sophistication of its economy due to a complicated, opaque, and country-specific regulatory framework, even as low-cost producers, most notably China, have eroded the ROK’s competitiveness in the manufacturing sector. A more benign regulatory environment will be crucial to foster innovative technologies that could fail to mature under restrictive regulations that do not align with global standards. The ROK government has taken steps to address regulatory issues over the last decade, notably with the establishment of a Foreign Investment Ombudsman inside the Korea Trade-Investment Promotion Agency (KOTRA) to address the concerns of foreign investors. In 2019, the ROK government created a “regulatory sandbox” program to spur creation of new products in the financial services, energy, and tech sectors, adding mobility and biohealth in 2021 and 2022. Industry observers recommend additional procedural steps to improve the investment climate, including Regulatory Impact Analyses (RIAs) and wide solicitation of substantive feedback from foreign investors and other stakeholders. The revised U.S.-Korea Free Trade Agreement (KORUS) entered into force January 1, 2019, and helps secure U.S. investors broad access to the ROK market. Types of investment assets protected under KORUS include equity, debt, concessions, and intellectual property rights. With a few exceptions, U.S. investors are treated the same as ROK investors in the establishment, acquisition, and operation of investments in the ROK. Investors may elect to bring claims against the government for alleged breaches of trade rules under a transparent international arbitration mechanism. The ROK has taken a transparent approach in its COVID-19 response, under the leadership of the Korea Disease Control and Prevention Agency. Public health experts brief the public almost every day and the public has largely complied with social distancing guidelines and universal mask-wearing. These measures largely staved off the disease through the end of 2021, by which time over 80 percent of Koreans had been vaccinated and the government began relaxing social distancing measures. In February and March 2022, however, a new wave fueled by the omicron variant rapidly spread, peaking at over 621,000 positive cases on March 17. As of March 28, 2022, more than 12 million Koreans have tested positive for COVID-19 and total infections rose over ten million and deaths mounted. The pandemic’s economic impact has been limited. GDP dropped a mere one percent in 2020 before recovering by four percent in 2021, in part due to aggressive stimulus including more than USD 220 billion in 2020. As a result, the Korean domestic economy fared better than nearly all its OECD peers. The economic impact of the omicron outbreak remains uncertain, and Korea’s export-oriented economy remains vulnerable to external shocks, including supply chain disruptions and high energy prices, going forward. Table 1: Key Metrics and Rankings Measure Year Index/Rank Website Address TI Corruption Perceptions Index 2021 32 of 180 http://www.transparency.org/research/cpi/overview Global Innovation Index 2021 5 of 132 https://www.globalinnovationindex.org/analysis-indicator U.S. FDI in partner country ($M USD, historical stock positions) 2020 $33,888 https://apps.bea.gov/international/factsheet/ World Bank GNI per capita 2020 $32,960 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 1. Openness To, and Restrictions Upon, Foreign Investment The ROK government welcomes foreign investment. In a February 2022 meeting with foreign business leaders, President Moon Jae-in emphasized the ROK’s status as a stable investment destination and promised to increase tax incentives for foreign firms, especially companies working on strategic technologies, such as semiconductors, batteries, and vaccines. The ROK government plans to spend $40 million on supporting foreign businesses that make an investment in fields related to stable supply chains and carbon neutrality and another $26 million to support foreign investors finding plant locations. Hurdles for foreign investors in the ROK include regulatory opacity, inconsistent interpretation of regulations, unanticipated regulatory changes, underdeveloped corporate governance, rigid labor policies, Korea-specific consumer protection measures, and the political influence of large conglomerates, known as chaebol. The 1998 Foreign Investment Promotion Act (FIPA) is the principal law pertaining to foreign investment in the ROK. FIPA and related regulations categorize business activities as open, conditionally- or partly-restricted, or closed to foreign investment. FIPA also includes: Simplified procedures to apply to invest in the ROK; Expanded tax incentives for high-technology investments; Reduced rental fees and lengthened lease durations for government land (including local government land); Increased central government support for local FDI incentives; Creation of “Invest KOREA,” a one-stop investment promotion center within the Korea Trade-Investment Promotion Agency (KOTRA) to assist foreign investors; and Establishment of a Foreign Investment Ombudsman to assist foreign investors. The ROK National Assembly website provides a list of laws pertaining to foreigners, including FIPA, in English ( http://korea.assembly.go.kr/res/low_03_list.jsp?boardid=1000000037 ). The Korea Trade-Investment Promotion Agency (KOTRA) facilitates foreign investment through its Invest KOREA office (also on the web at http://investkorea.org ). For investments exceeding 100 million won (about USD 83,577), KOTRA helps investors establish domestically-incorporated foreign-invested companies. KOTRA and the Ministry of Trade, Industry and Energy (MOTIE) organize a yearly Foreign Investment Week to attract investment to South Korea. In February 2022, President Moon met with executives of foreign-invested firms in the ROK and encouraged them to expand their investments, noting the stable environment the ROK provided for businesses throughout the pandemic. The ROK’s key official responsible for FDI promotion and retention is the Foreign Investment Ombudsman. The position is commissioned by the ROK President and heads a grievance resolution body that collects and analyzes concerns from foreign firms; coordinates reforms with relevant administrative agencies; and proposes new policies to promote foreign investment. More information on the Ombudsman can be found at http://ombudsman.kotra.or.kr/eng/index.do . Foreign and domestic private entities can establish and own business enterprises and engage in remunerative activity across many sectors of the economy. However, under the Foreign Exchange Transaction Act (FETA), restrictions on foreign ownership remain for 30 industrial sectors, including three that are closed to foreign investment (see below). Relevant ministries must approve investments in conditionally- or partially-restricted sectors. Most applications are processed within five days; cases that require consultation with more than one ministry can take 25 days or longer. The ROK’s procurement processes comply with the World Trade Organization (WTO) Government Procurement Agreement. The following is a list of restricted sectors for foreign investment. Figures in parentheses generally denote the Korean Industrial Classification Code, while those for air transport industries are based on the Civil Aeronautics Laws: Completely Closed Nuclear power generation (35111) Radio broadcasting (60100) Television broadcasting (60210) Restricted Sectors (no more than 25 percent foreign equity) News agency activities (63910) Restricted Sectors (less than 30 percent foreign equity) Newspaper publication, daily (58121) (Note: Other newspapers with the same industry code 58121 are restricted to less than 50 percent foreign equity.) Hydroelectric power generation (35112) Thermal power generation (35113) Solar power generation (35114) Other power generation (35119) Restricted Sectors (no more than 49 percent foreign equity) Newspaper publication, non-daily (58121) (Note: Daily newspapers with the same industry code 58121 are restricted to less than 30 percent foreign equity.) Television program/content distribution (60221) Cable networks (60222) Satellite and other broadcasting (60229) Wired telephone and other telecommunications (61210) Mobile telephone and other telecommunications (61220) Other telecommunications (61299) Restricted Sectors (no more than 50 percent foreign equity) Farming of beef cattle (01212) Transmission/distribution of electricity (35120) Sale of electricity (35130) Wholesale of meat (46313) Coastal water passenger transport (50121) Coastal water freight transport (50122) International air transport (51) Domestic air transport (51) Small air transport (51) Publishing of magazines and periodicals (58122) Open but Separately Regulated under Relevant Laws Growing of cereal crops and other food crops, except rice and barley (01110) Other inorganic chemistry production, except fuel for nuclear power generation (20129) Other nonferrous metals refining, smelting, and alloying (24219) Domestic commercial banking, except special banking areas (64121) Radioactive waste collection, transportation, and disposal, except radioactive waste management (38240) The Special Act to Protect National Strategic Industries will take effect from August 4, 2022, which will require stricter investment screening on foreign investments into companies with national core and strategic technologies as prescribed in the National Core Technology list. The Ministry of Trade, Industry and Energy (MOTIE) is currently drafting the implementation regulations. The WTO conducted its eighth Trade Policy Review of the ROK in October 2021. The Review does not contain any explicit policy recommendations. It can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp514_e.htm The ROK has not undergone investment policy reviews from the OECD or United Nations Conference on Trade and Development (UNCTAD) within the past three years. The Korea International Trade Association (KITA) published a report on September 3, 2018 on foreign direct investment in the ROK and its impact on exports. It can be found at: https://www.kita.net/cmmrcInfo/internationalTradeStudies/researchReport/focusBriefDetail.do?pageIndex=4&no=1842&classification=7&searchReqType=detail&pcRadio=7&searchClassification=7&searchStartDate=&searchEndDate=&searchCondition=TITLE&searchKeyword=&continent_nm=&continent_cd=&country_nm=&country_cd=§or_nm=§or_cd=&itemCd_nm=&itemCd_cd=&searchOpenYn= Registering a business remains a complex process that varies according to the type of business, and requires interaction with KOTRA, court registries, and tax offices. Foreign corporations can enter the market by establishing a local corporation, local branch, or liaison office. The establishment of local corporations by a foreign individual or corporation is regulated by the Foreign Investment Promotion Act (FIPA) and the Commercial Act; the latter recognizes five types of companies, of which stock companies with multiple shareholders are the most common. Although registration can be filed online, there is no centralized online location to complete the process. For small- and medium-sized enterprises (SMEs) and micro-enterprises, the online business registration process takes approximately three to four days and is completed through Korean language websites. Registrations can be completed via the Smart Biz website, https://www.startbiz.go.kr/ . The UN’s Global Enterprise Registration (GER), which evaluates whether a country’s online registration process is clear and complete, awarded Smart Biz 5.5 of 10 possible points and suggested improvements in registering limited liability companies. The Invest KOREA information portal received 2 of 10 points. The Korea Commission for Corporate Partnership and the Ministry of Gender Equality and Family ( http://www.mogef.go.kr/ ) are charged with improving the business environment for minorities and women. (Note: President-elect Yoon, who takes office on May 10, 2022, pledged during the campaign to abolish the Ministry of Gender Equality and Family (MOGEF).) The ROK does not restrict outward investment. The ROK has several institutions to assist small business and middle-market firms with such investments. KOTRA has an Outbound Investment Support Office that provides counseling to ROK firms and holds regular investment information sessions. The ASEAN-Korea Centre, which is primarily funded by the ROK government, provides counseling and business introduction services to Korean SMEs considering investments in the Association of Southeast Asian Nations (ASEAN) region. The Defense Acquisition Program Administration opened an office in 2019 to advise Korean defense SMEs on exporting unrestricted defense articles. 3. Legal Regime ROK regulatory transparency has improved, due in part to Korea’s membership in the WTO and negotiated FTAs. However, the foreign business community continues to face numerous rules and regulations unique to the ROK. National Assembly legislation on environmental protection or the promotion of SMEs, while broadly targeting big businesses, has created new trade barriers that disadvantage foreign companies. Also, some laws and regulations lack sufficient detail and are subject to differing interpretations by government regulatory officials. In other cases, ministries issue non-legally binding guidelines on implementation of regulations, yet these become the bases for legal decisions in ROK courts. Regulatory authorities also issue oral or internal guidelines or other legally-enforceable dictates that prove burdensome for foreign firms. Intermittent ROK government deregulation plans to eliminate oral guidelines or impose the same level of regulatory review as written regulations have not led to concrete changes. Despite KORUS FTA provisions designed to address transparency issues, they remain persistent and prominent. The ROK constitution allows both the legislative and executive branches to introduce bills. Ministries draft subordinate statutes (presidential decrees, ministerial decrees, and administrative rules), which largely govern the procedural matters addressed by the respective laws. Administrative agencies shape policies and draft bills on matters within their respective jurisdictions. Drafting ministries must clearly define policy goals and complete regulatory impact assessments (RIAs). When a ministry drafts a regulation, it must consult with other relevant ministries before it releases the regulation for public comment. The constitution also allows local governments to exercise self-rule legislative authority to draft ordinances and rules within the scope of federal acts and subordinate statutes. The enactment of laws and their subordinate statutes, ranging from the drafting of bills to their promulgation, must follow formal ROK legislative procedures in accordance with the Regulation on Legislative Process enacted by the Ministry of Government Legislation. Since 2011, all publicly listed companies must follow International Financial Reporting Standards (IFRS, or K-IFRS in the ROK). The Korea Accounting Standards Board facilitates ROK government endorsement and adoption of IFRS and sets accounting standards for companies not subject to IFRS. According to the Administrative Procedures Act, authorities proposing laws and regulations (acts, presidential decrees, or ministerial decrees) must seek public comments at least 40 days prior to their promulgation. Regulations are sometimes promulgated after only the minimum required comment period and with minimal consultation with industry. The Official Gazette and the websites of relevant ministries and the National Assembly simultaneously post the Korean language text of draft acts and regulations, accompanied by executive summaries, for a 40-day comment period. Comments are not made public, and firms may struggle to translate complex documentation, analyze, and respond adequately before the expiration of this period. After the comment period, the Ministry of Government Legislation reviews the laws and regulations to ensure they conform to the constitution and monitors government adherence to the Regulation on Legislative Process. While the Regulatory Reform Committee (RRC), under the executive branch, reviews all laws and regulations to minimize government intervention in the economy and to abolish all economic regulations that fall short of international standards or hamper national competitiveness, the committee has been less active in recent years. In January 2019, Korea introduced a “regulatory sandbox” program intended to reduce the regulatory burden on companies that seek to test innovative ideas, products, and services. Depending on the business sector in which a particular proposal falls, either MOTIE, the Ministry of Science and ICT, or the Financial Services Commission manages the program. The program is open to Korean companies and foreign companies with Korean branch offices. Websites and applications are only available in Korean. The business community has welcomed this effort by regulators to spur innovation. The ROK government has taken major steps to promote the environmental, social, and governance (ESG) practices of companies in the past year with the goal to require ESG disclosure for all listed companies with total assets valued at 2 trillion won (about $1.7billion) or more by 2025, and all listed companies by 2030. In December 2021, Korea’s Financial Services Commission and the Korea Exchange launched a an ESG information platform for listed companies ( http://esg.krx.co.kr/ ). Korea’s National Pension Service also plans to invest half of its assets into ESG companies by the end of 2022. The ROK government enforces regulations through penalties (fines, enforcing corrective measures, or criminal charges) in the case of violations of the law. The government’s enforcement actions can be challenged through an appeal process or administrative litigation. The CEOs of local branches can be held legally responsible for all actions of their company and at times have been arrested, charged for company infractions, and placed under travel bans while awaiting or undergoing court procedures. Foreign CEOs have cited this as a significant burden to their business operations in Korea. For large companies with over 5 trillion won of local assets (about $4.2 billion), the ROK Government may designate a single person or entity (for example, the largest subsidiary) to be subject to additional regulatory scrutiny and potential liability for company actions. Industry contacts have indicated the Korea Fair Trade Commission (KFTC) is considering making such designations for foreigners or entities based outside of the ROK. The ROK’s public finances and debt obligations are generally transparent, with the exception of state-owned enterprise debt. The ROK has revised local regulations to implement commitments under international treaties and trade agreements. Treaties duly concluded and promulgated in accordance with the constitution and the generally recognized rules of international law are accorded the same standing as domestic laws. ROK officials consistently express intent to harmonize standards with global norms by benchmarking the United States and the EU. The U.S., U.K., and Australian governments exchange regulatory reform best practices with the ROK government to encourage local regulators to employ more regulatory analytics, increase transparency, and improve compliance with international standards; however, unique local rules and regulations continue to pose difficulties for foreign companies operating in the ROK. The ROK is a member of the WTO and notifies the Committee on Technical Barriers to Trade of all draft technical regulations. The ROK is also a signatory of the Trade Facilitation Agreement (TFA). The ROK amended the ministerial decree of the Customs Act in 2015, creating a committee charged with implementing the TFA. The ROK is a global leader of modernized and streamlined procedures for transportation and customs clearance. Industry sources report the Korea Customs Service enforces rules of origin issues largely in compliance with ROK obligations under its free trade agreements. The ROK legal system is based on civil law. Subdivisions within the district and high courts govern commercial activities and bankruptcies and enforce property and contractual rights with monetary judgments, usually levied in the domestic currency. The ROK has a written commercial law, and matters regarding contracts are covered by the Civil Act. There are also three specialized courts in the ROK: patent, family, and administrative courts. The ROK court system is independent and not subject to government interference in cases that may affect foreign investors. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. Rulings by district courts can be appealed to higher courts and to the Supreme Court. There is no principle of stare decisis or precedent. The Constitutional Court rules on constitutional issues and is comprised of nine justices who are appointed by the President. The ROK has a transparent legal system with a strong rule-of-law tradition and an independent judiciary. FIPA is the principal basic law pertaining to foreign investment in the ROK. The Invest KOREA website ( http://investkorea.org ) provides information on relevant laws, rules, and procedures for foreign investment in the ROK. Laws and regulations enacted within the past year include: On April 6, 2021, an amended Labor Standards Act (LSA) took effect. The amendments modify certain restrictions on allowable work hours for employees and add certain health and safety requirements for overtime labor. On January 26, 2021, the Serious Accidents Punishment Act (SAPA) was enacted. The law entered into force for businesses with 50 or more employees on January 27, 2022. The Act holds CEOs personally accountable for workplace accidents and occupational illnesses. It also expands the scope of obligations for worker protections and strengthens penalties for violations. In August 2021, the ROK became the first country in the world to pass legislation banning digital platform operators from requiring app developers to use the platforms’ in-app payment systems. The law entered into force on March 15, 2022. Key pending/proposed laws and regulations as of March 2022 include: The 2011 Personal Information Protection Act imposed stringent requirements on service providers seeking to transfer customers’ personal data outside Korea. In September 2021, the Personal Information Protection Commission submitted a proposed amendment to increase the fines to three percent of a company’s total global revenue. The proposed amendment would also grant the Personal Information Protection Committee the authority to suspend a company’s cross border data transfers in the case of a significant violation. As of March 2022, there are several proposed bills in the National Assembly seeking to mandate global over-the-top (OTT) providers pay network usage fees to Korean internet service providers. The Korea Fair Trade Commission (KFTC) reviews and regulates competition and consumer safety matters under the Monopoly Regulation and Fair Trade Act (MRFTA). The amended MRFTA, which came into effect in December 2021, includes strengthened provisions on information exchange between companies, cartel law enforcement, and administrative fine levels. KFTC has a broad mandate that includes promoting competition, strengthening consumer rights, and creating a suitable environment for SMEs. In addition to investigating corporate and financial restructuring, the KFTC can levy sizeable administrative fines and issue corrective measures for violations of law and for failure to cooperate with investigators. Decisions by KFTC are subject to appeal in Korean courts. As part of KORUS implementation, KFTC instituted a “consent decree” process in 2014, whereby firms can settle disputes with KFTC without resorting to the court system. Over the last several years, a number of U.S. firms have raised concerns that KFTC targets foreign companies with aggressive enforcement. An amendment to the MRFTA in September 2020 improved the administrative decision-making process by the KFTC, including permitting access to confidential business information, limited to outside legal counsel, in order to protect possible trade secrets. The ROK follows generally-accepted principles of international law with respect to expropriation. ROK law protects foreign-invested enterprise property from expropriation or requisition. Private property can be expropriated for public purposes such as urban redevelopment, new industrial complexes, or constructing roads, and claimants are afforded due process and compensation. Private property expropriation in the ROK for public use is generally conducted in a non-discriminatory manner, with claimants compensated at or above market value. Embassy Seoul is aware of one case in which a U.S. investor filed an investor-state dispute lawsuit in 2018 against the ROK government, claiming that the government had violated the KORUS FTA in expropriating the investor’s land. The case was dismissed in the ROK judicial system on jurisdictional grounds in September 2019. The ROK government allotted USD 26 billion in its 2022 budget for land expropriation – a 36 percent decrease from the previous year. The Debtor Rehabilitation and Bankruptcy Act (DRBA) stipulates that bankruptcy is a court-managed liquidation procedure where both domestic and foreign entities are afforded equal treatment. The procedure commences after a filing by a debtor, creditor, or a group of creditors, and determination by the court that a company is bankrupt. The court designates a Custodial Committee to take an accounting of the debtor’s assets, claims, and contracts. The Custodial Committee may grant voting rights among creditors. Shareholders and contract holders may retain their rights and responsibilities based on shareholdings and contract terms. Debtors may be subject to arrest once a bankruptcy petition has been filed, even if the debtor has not been declared bankrupt. Individuals found guilty of negligent or false bankruptcy are subject to criminal penalties. The Seoul Bankruptcy Court (SBC) has nationwide jurisdiction to hear major bankruptcy or rehabilitation cases and to provide effective, specialized, and consistent guidance in bankruptcy proceedings. Any Korean company with debt equal to or above KRW 50 billion (about USD 41.8 million) and/or 300 or more creditors may file for bankruptcy rehabilitation with the SBC. Thirteen local district courts continue to oversee smaller bankruptcy cases in areas outside Seoul. 6. Financial Sector The ROK has an effective regulatory system that encourages portfolio investment. The Korea Exchange (KRX) is comprised of a stock exchange, futures market, and stock market following the 2005 merger of the Korea Stock Exchange, Korea Futures Exchange, and Korean Securities Dealers Automated Quotations (KOSDAQ) stock markets. It is tracked by the Korea Composite Stock Price Index (KOSPI). There is sufficient liquidity in the market to enter and exit sizeable positions. At the end of February 2022, over 2,496 companies were listed with a combined market capitalization of USD 21 trillion. The ROK government uses various incentives, such as tax breaks, to facilitate the free flow of financial resources into the product and factor markets. The ROK does not restrict payments and transfers for current international transactions, in accordance with the general obligations of member states under International Monetary Fund (IMF) Article VIII. Credit is allocated on market terms. The private sector has access to a variety of credit instruments. While non-resident foreigners can issue bonds in South Korean won, they are otherwise unable to borrow money in local currency. Foreign portfolio investors enjoy open access to the ROK stock market. Aggregate foreign investment ceilings were abolished in 1998, and foreign investors owned 36.7 percent of benchmark KOSPI stocks and 9.9 percent of the KOSDAQ as of February 2022. Foreign portfolio investment decreased slightly over the past year. Foreign investors owned 32.4 percent of benchmark stocks and 9.4 percent of listed bonds, according to the Korea Exchange. U.S. investors represent 40.4 percent of total foreign holdings, which has been increasing gradually over the last three years. The ROK Financial Services Commission in March 2020 banned the short-selling of stocks to stabilize stock price volatility during the COVID-19 pandemic. The ban partially expired only for short-selling stocks from companies included in the KOSPI 200 and KOSDAQ 150 in May 2021. The ban on short-selling stock from other companies is set to expire in May 2022. Financial sector reforms enacted to increase transparency and promote investor confidence are often cited as a reason for the ROK’s rapid rebound from the 2008 global financial crisis. Since 1998, the ROK government has recapitalized its banks and non-bank financial institutions, closed or merged weak financial institutions, resolved many non-performing assets, introduced internationally accepted risk assessment methods and accounting standards for banks, forced depositors and investors to assume appropriate levels of risk, and taken steps to help end the policy-directed lending of the past. These reforms addressed the weak supervision and poor lending practices in the Korean banking system that helped cause and exacerbate the 1997-1998 Asian financial crisis. The ROK banking sector is healthy overall, with a low non-performing loan ratio of 0.5 percent at the end of 2021, dropping 0.14 percentage points from the prior year. Korean commercial banks held more than USD 2.7 trillion in total assets at the end of 2021. Foreign commercial banks or branches can establish local operations, which would be subject to oversight by ROK financial regulators. The ROK has not lost any correspondent banking relationships in the past three years, nor are any relationships in jeopardy. There are no legal restrictions on a foreigner’s ability to establish a bank account in the ROK; however, commercial banks may refuse to accept foreign nationals as customers unless they show local residency or identification documents. The Bank of Korea (BOK) is the central bank. The Korea Investment Corporation (KIC) is a wholly government-owned sovereign wealth fund established in July 2005 under the KIC Act. KIC’s steering committee is comprised of its Chief Executive Officer, the Minister of Economy and Finance, the Bank of Korea Governor, and six private sector members appointed by the ROK President. KIC is on the Public Institutions Management Act (PIMA) list. The KIC Act mandates that KIC manage assets entrusted by the ROK government and central bank; the KIC generally adopts a passive role as a portfolio investor. The corporation’s assets under management stood at USD 201 billion at the end of August 2021. KIC is required by law to publish an annual report, submit its books to the steering committee for review, and follow all domestic accounting standards and rules. It follows the Santiago Principles and participates in the IMF-hosted International Working Group on Sovereign Wealth Funds. The KIC does not invest in domestic assets, aside from a one-time USD 23 million investment into a domestic real estate fund in January 2015. 7. State-Owned Enterprises Many ROK state-owned enterprises (SOEs) continue to exert significant control over the economy. There are 36 SOEs active in the energy, real estate, and infrastructure (i.e., railroad and highway construction) sectors. The legal system has traditionally ensured a role for SOEs as sectoral leaders, but in recent years, the ROK has sought to attract more private participation in the real estate and construction sectors. SOEs are currently subject to the same regulations and tax policies as private sector competitors and do not have preferential access to government contracts, resources, or financing. The ROK is party to the WTO Government Procurement Agreement; a list of SOEs subject to WTO government procurement provisions is available in Annex 3 of Appendix I to the Government Procurement Agreement (GPA). The state-owned Korea Land and Housing Corporation enjoys privileged status on state-owned real estate projects, notably housing. The court system functions independently and gives equal treatment to SOEs and private enterprises. The ROK government does not provide official market share data for SOEs. It requires each entity to disclose financial information, number of employees, and average compensation figures. The PIMA gives the Ministry of Economy and Finance oversight authority over many SOEs, mainly pertaining to administration and human resource management. However, there is no singular government entity that exercises ownership rights over SOEs. SOEs subject to PIMA must report to a cabinet minister. Alternatively, the ROK President or relevant cabinet minister appoints a CEO or director, often from among senior government officials. PIMA explicitly obligates SOEs to consult with government officials on budget, compensation, and key management decisions (e.g., pricing policy for energy and public utilities). For other issues, government officials informally require either prior consultation or subsequent notification of SOE decisions. Market analysts generally acknowledge the de facto independence of SOEs listed on local security markets, such as the Industrial Bank of Korea and Korea Electric Power Corporation; otherwise, SOEs are regarded either as fully-guaranteed by the government or as parts of the government. The ROK adheres to the OECD Guidelines for Multinational Enterprises and reports significant changes in the regulatory framework for SOEs to the OECD. A list of South Korean SOEs is available in Korean at: http://www.alio.go.kr/home.html . The ROK government does not confer advantages on SOEs competing in the domestic market. Although the state-owned Korea Development Bank may enjoy lower financing costs because of a governmental guarantee, this does not appear to have a major effect on U.S. retail banks operating in Korea. Privatization of government-owned assets has historically faced protests by labor unions and professional associations, and has sometimes suffered a lack of interested buyers. No state-owned enterprises were privatized between 2002 and November 2016. In December 2016, the ROK sold part of its stake in Woori Bank, recouping USD 2.1 billion. As of March 2021, the government holds a 17.25 percent stake in Woori Bank. Most analysts do not expect significant movement toward privatization in the near future. Foreign investors may participate in privatization programs if they comply with ownership restrictions stipulated for the 30 industrial sectors indicated in the FETA (see Section 1: Openness To, and Restrictions Upon, Foreign Investment). These programs have a public bidding process that is clear, non-discriminatory, and transparent. Sri Lanka Executive Summary Sri Lanka, a lower middle-income country with a Gross Domestic Product (GDP) per capita of about $3,680 and a population of approximately 22 million, is experiencing an economic crisis stemming from an unsustainable debt load and perennial deficits on both the international balance of payments and the government budget. The island’s strategic location off the southern coast of India along the main east-west Indian Ocean shipping lanes gives Sri Lanka a regional logistical advantage, especially as India does not have deep-water ports comparable to what Sri Lanka offers. Sri Lanka is transitioning from a predominantly rural-based economy to a more urbanized economy focused on manufacturing and services. Sri Lanka’s export economy is dominated by apparel and cash-crop exports, mainly tea, but technology service exports are a significant growth sector. Prior to the April 21, 2019, Easter Sunday attacks, the tourism industry was rapidly expanding, but the attacks led to a significant decline in tourism that continued into 2020 and 2021 due to COVID-19 and the government’s related decision to close its main international airport for commercial passenger arrivals in March 2020. After reopening to visitors early in 2021, tourism revenue for the year reached $261 million, dropping 61 percent year-over-year (YoY) compared to $682 million in 2020. Migrant labor remittances are a significant source of foreign exchange, which saw an increase in 2020 due to the collapse of informal money transfer systems during the pandemic, despite the job losses to Sri Lankan migrant workers, especially in the Middle East. However, worker remittances saw a decline of 22.7 percent in 2021, largely due to inflationary pressures and the expectation of a future depreciation of the exchange rate, which occurred in March 2022. Remittances totaled $5.4 billion for 2021 in comparison to $7.1 billion in 2020. The administration of President Gotabaya Rajapaksa, who was elected in November 2019, has attempted to promote pro-business positions, including announcing tax benefits for new investments to attract foreign direct investment (FDI). As outlined in its election manifesto, the Rajapaksa government’s economic goals include positioning Sri Lanka as an export-oriented economic hub at the center of the Indian Ocean (with government control of strategic assets such as Sri Lankan Airlines), improving trade logistics, attracting export-oriented FDI, and boosting firms’ abilities to compete in global markets. However, COVID-19 and the subsequent lockdowns brought new economic challenges, forcing the government to adapt policies to the situation on the ground. In April 2020, the Ministry of Finance restricted imports of luxury and semi-luxury consumer products such as consumer durables, motor vehicles, and the import of certain agricultural products as a means of saving foreign reserves and creating employment in labor intensive agriculture. Further restrictions on goods deemed non-essential were added in March 2022. With the IMF estimating a public debt-to-GDP ratio at 118.9 percent (of which 65.6 percent is foreign debt), Sri Lanka is facing a liquidity crisis that is exacerbated by an increasing trade deficit. Exports have helped buoy Sri Lankas FX reserves, growing 19.9 percent in 2021. However, imports continued to outstrip this growth by a significant margin with an increase of 46.8 percent in 2021. Exports of goods increased by 24.4 percent to $12.5 billion in 2021, up from $10 billion in 2020. Exports of services for the year 2020 amounted to $3 billion, down from $7.5 billion in 2019. In September 2021, the government committed to cease building new coal-fired power plants and achieve net-zero carbon emissions by 2050 at the United Nations International Energy Forum. Sri Lanka has set a target of achieving 70 percent of all its electricity generation from renewable sources by 2030. However, renewable energy companies accuse the Ceylon Electricity Board of being in arrears to the tune of $60 million (as of May 2022) after not paying for renewable energy supplied to the national grid since August 2021. FDI in Sri Lanka has largely been concentrated in tourism, real estate, mixed development projects, ports, and telecommunications in recent years. With a growing middle class, investors also see opportunities in franchising, information technology services, and light manufacturing for the domestic market. The Board of Investment (BOI) is the primary government authority responsible for investment, particularly foreign investment, aiming to provide “one-stop” services for foreign investors. The BOI is committed to facilitating FDI and can offer project incentives, arrange utility services, assist in obtaining resident visas for expatriate personnel, and facilitate import and export clearances. Sri Lanka’s GDP grew by 3.6 percent according to the International Monetary Fund (IMF) in 2021 and is expected to grow by 3.3 percent in 2022. FDI rose to approximately 0.9 percent of GDP in 2021, higher than the 0.5 percent in 2020 and 0.8 percent in 2019 and half of the 1.8 percent in 2018. The IMF projects a GDP growth of 1.2 percent in 2022. Table 1: Key Metrics and Rankings Measure Year Index/Rank Website Address TI Corruption Perceptions Index 2021 102 of 180 http://www.transparency.org/research/cpi/overview Global Innovation Index 2021 95of 132 https://www.globalinnovationindex.org/analysis-indicator U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD $165 million https://apps.bea.gov/international/factsheet/ World Bank GNI per capita 2020 USD $3,720 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 1. Openness To, and Restrictions Upon, Foreign Investment Sri Lanka is a constitutional multiparty socialist republic. In 1978, Sri Lanka began moving away from socialist, protectionist policies and increasing foreign investment, although changes in government are often accompanied by swings in economic policy. While the incumbent government largely promoted pro-business positions, including announcing tax benefits for new investments to attract FDI, the government also made interventionist policies to arrest the ongoing economic fallout from COVID-19. This in turn has altered the field of foreign direct investment towards manufacturing intended to the domestic market. The BOI (www.investsrilanka.com ), an autonomous statutory agency, is the primary government authority responsible for investment, particularly foreign investment, with BOI aiming to provide “one-stop” services for foreign investors. BOI’s Single Window Investment Facilitation Taskforce (SWIFT) helps facilitate the investment approvals process and works with other agencies in order to expedite the process. BOI can grant project incentives, arrange utility services, assist in obtaining resident visas for expatriate personnel, and facilitate import and export clearances. Importers to Sri Lanka face high barriers. According to a World Bank study, Sri Lanka’s import regime is one of the most complex and protectionist in the world. U.S. stakeholders have raised concerns the government does not adequately consult with the private sector prior to implementing new taxes or regulations – citing the severe import restrictions imposed as a reaction to COVID-19 as an example. These restrictions, quickly imposed without consulting the private sector, further complicated Sri Lanka’s import regime. Similarly, stakeholders have raised concerns that the government does not allow adequate time to implement new regulations. Additionally, the Sri Lankan government has banned the importation of several “non-essential” items since April 2020 in an attempt to curtail foreign exchange outflow which has now expanded in 2022 to additional goods subject to import licenses. Sri Lanka is a challenging place to do business, with high transaction costs aggravated by an unpredictable economic policy environment, inefficient delivery of government services, and opaque government procurement practices. Investors noted concerns over the potential for contract repudiation, cronyism, and de facto or de jure expropriation. Public sector corruption is a significant challenge for U.S. firms operating in Sri Lanka and a constraint on foreign investment. While the country generally has adequate laws and regulations to combat corruption, enforcement is weak, inconsistent, and selective. U.S. stakeholders and potential investors expressed particular concern about corruption in large infrastructure projects and in government procurement. Historically, the main political parties do not pursue corruption cases against each other after gaining or losing political positions. While Sri Lanka is a challenging place for businesses to operate, investors report that starting a business in Sri Lanka is relatively simple and quick, especially when compared to other lower middle-income markets. However, scalability is a problem due to the lack of skilled labor, a relatively small talent pool and constraints on land ownership and use. Investors note that employee retention is generally good in Sri Lanka, but numerous public holidays, a reluctance of employees to work at night, a lack of labor mobility, and difficulty recruiting women decrease efficiency and increase start-up times. A leading international consulting firm claims the primary issue affecting investment is lack of policy consistency. Foreign ownership is allowed in most sectors, although foreigners are prohibited from owning land with a few limited exceptions. Foreigners can invest in company shares, debt securities, government securities, and unit trusts. Many investors point to land acquisition as the biggest challenge for starting a new business. Generally, Sri Lanka prohibits the sale of public and private land to foreigners and to enterprises with foreign equity exceeding 50 percent. However, on July 30, 2018, Sri Lanka amended the Land (Restriction of Alienation) Act of 2014 to allow foreign companies listed on the Colombo Stock Exchange (CSE) to acquire land. Foreign companies not listed on the CSE—but engaged in banking, financial, insurance, maritime, aviation, advanced technology, or infrastructure development projects identified and approved as strategic development projects—may also be exempted from restrictions imposed by the Land Act of 2014 on a case-by-case basis. The government owns approximately 80 percent of the land in Sri Lanka, including the land housing most tea, rubber, and coconut plantations, which are leased out, typically on 50-year terms. Private land ownership is limited to fifty acres per person. Although state land for industrial use is usually allotted on a 50-year lease, the government may approve 99-year leases on a case-by-case basis depending on the project. Many land title records were lost or destroyed during the civil war, and significant disputes remain over land ownership, particularly in the North and East. The government has started a program to return property taken by the government during the war to residents in the North and East. The government allows up to 100 percent foreign investment in any commercial, trading, or industrial activity except for the following heavily regulated sectors: banking, air transportation; coastal shipping; large scale mechanized mining of gems; lotteries; manufacture of military hardware, military vehicles, and aircraft; alcohol; toxic, hazardous, or carcinogenic materials; currency; and security documents. However, select strategic sectors, such as railway freight transportation and electricity transmission and distribution, are closed to any foreign capital participation. Foreign investment is also not permitted in the following businesses: pawn brokering; retail trade with a capital investment of less than $5 million; and coastal fishing. Foreign investments in the following areas are restricted to 40 percent ownership: a) production for export of goods subject to international quotas; b) growing and primary processing of tea, rubber, and coconut, c) cocoa, rice, sugar, and spices; d) mining and primary processing of non-renewable national resources, e) timber based industries using local timber, f) deep-sea fishing, g) mass communications, h) education, i) freight forwarding, j) travel services, k) businesses providing shipping services. In areas where foreign investments are permitted, Sri Lanka treats foreign investors the same as domestic investors. However, corruption reportedly may make it difficult for U.S. firms to compete against foreign bidders not subject to the U.S. Foreign Corrupt Practices Act when competing for public tenders. Sri Lanka has not undergone any third-party investment policy reviews in the last five years. 2004 UNCTAD Report: https://investmentpolicy.unctad.org/publications/82/investment-policy-review-of-sri-lanka The Department of Registrar of Companies ( www.drc.gov.lk ) is responsible for business registration. Online registration ( http://eroc.drc.gov.lk/ ) was introduced and registration averages four to five days. In addition to the Registrar of Companies, businesses must register with the Inland Revenue Department to obtain a taxpayer identification number (TIN) for payment of taxes and with the Department of Labor for social security payments. The government supports outward investment, and the Export Development Board offers subsidies for companies seeking to establish overseas operations, including branch offices related to exports. New outward investment regulations came into effect November 20, 2017. Sri Lankan companies, partnerships, and individuals are permitted to invest in shares, units, debt securities, and sovereign bonds overseas subject to limits specified by the new Foreign Exchange Regulations. Sri Lankan companies are also permitted to establish overseas companies. Investments over the specified limit require the Central Bank Monetary Board’s approval. All investments must be made through outward investment accounts (OIA). All income from investments overseas must be routed through the same OIA within three months of payment. (Note: In the wake of the COVID-19 pandemic, the Sri Lankan government introduced a series of measures attempting to ease pressure on the Sri Lankan rupee. These measures included a temporary suspension on OIA transactions and additional foreign exchange controls for outward investments) 3. Legal Regime Many foreign and domestic investors view the regulatory system as unpredictable with outdated regulations, rigid administrative procedures, and excessive leeway for bureaucratic discretion. BOI is responsible for informing potential investors about laws and regulations affecting operations in Sri Lanka, including new regulations and policies that are frequently developed to protect specific sectors or stakeholders. Effective enforcement mechanisms are sometimes lacking, and investors cite coordination problems between BOI and relevant line agencies. Lack of sufficient technical capacity within the government to review financial proposals for private infrastructure projects also creates problems during the tender process. Corporate financial reporting requirements in Sri Lanka are covered in a number of laws, and the Institute of Chartered Accountants of Sri Lanka (ICASL) is responsible for setting and updating accounting standards to comply with current accounting and audit standards adopted by the International Accounting Standards Board (IASB) and the International Auditing and Assurance Standards Board (IAASB). Sri Lanka follows International Financial Reporting Standards (IFRS) for financial reporting purposes set by the IASB. Sri Lankan accounting standards are applicable for all banks, companies listed on the stock exchange, and all other large and medium-sized companies in Sri Lanka. Accounts must be audited by professionally qualified auditors holding ICASL membership. ICASL also has published accounting standards for small companies. The Accounting Standards Monitoring Board (ASMB) is responsible for monitoring compliance with Sri Lankan accounting and auditing standards. Overall legislative authority lies with Parliament. Line ministries draft bills and, together with regulatory authorities, are responsible for crafting draft regulations, which may require approval from the National Economic Council, the Cabinet, and/or Parliament. Bills are published in the government gazette http://documents.gov.lk/en/home.php at least seven days before being placed on the Order Paper of the Parliament (the first occasion the public is officially informed of proposed laws) with drafts being treated as confidential prior to this. Any member of the public can challenge a bill in the Supreme Court if they do so within one week of its placement on the Order Paper of the Parliament. If the Supreme Court orders amendments to a bill, such amendments must be incorporated before the bill can be debated and passed. Regulations are made by administrative agencies and are published in a government gazette, similar to a U.S. Federal Notice. In addition to regulations, some rules are made through internal circulars, which may be difficult to locate. The Central Bank and the Finance Ministry published information on Central Government debt including contingent liabilities and government finance. Central Bank publishes information on debt of major SOE’s. Debt obligations are available online in the Central Bank Annual Report; Fiscal Management Report of the Finance Ministry; Annual Report of the Ministry of Finance. Information on contingent liabilities is available in the Annual Report of the Ministry of Finance. Since 2018, the Central Bank published guaranteed debt and central government debt annually. The government does not promote or require companies’ environmental, social, and governance (ESG) disclosures, however most large companies listed on the Colombo Stock Exchange disclose these. Sri Lanka is a member of the World Trade Organization (WTO) and has made WTO notifications on customs valuation, agriculture, import licensing, sanitary and phytosanitary measures, the Agreement on Technical Barriers to Trade, the Agreement on Trade-Related Investment Measures, and the Agreement on Trade-Related Aspects of Intellectual Property Rights. Sri Lanka ratified the WTO Trade Facilitation Agreement (TFA) in 2016 and a National Trade Facilitation Committee was tasked with undertaking reforms needed to operationalize the TFA. The WTO conducted a review of the TFA in June 2019 in which Sri Lankan officials noted challenges related to accessing technical assistance and capacity building support for implementation of TFA recommendations. In September 2021 Sri Lanka requested for extension of its definitive implementation dates on certain provisions based on Article 17 of the Trade Facilitation Agreement. Sri Lanka’s legal system reflects diverse cultural influences. Criminal law is fundamentally British-based while civil law is Roman-Dutch. Laws on marriage, divorce, inheritance, and other issues can also vary based on religious affiliation. Sri Lankan commercial law is almost entirely statutory, reflecting British colonial law, although amendments have largely kept pace with subsequent legal changes in the United Kingdom. Several important legislative enactments regulate commercial issues: the BOI Law; the Intellectual Property Act; the Companies Act; the Securities and Exchange Commission Act; the Banking Act; the Inland Revenue Act; the Industrial Promotion Act; and the Consumer Affairs Authority Act. Sri Lanka’s court system consists of the Supreme Court, the Court of Appeal, provincial High Courts, and the Courts of First Instance (district courts with general civil jurisdiction) and Magistrate Courts (with criminal jurisdiction). Provincial High Courts have original, appellate, and reversionary criminal jurisdiction. The Court of Appeal is an intermediate appellate court with a limited right of appeal to the Supreme Court. The Supreme Court exercises final appellate jurisdiction for all criminal and civil cases. Citizens may apply directly to the Supreme Court for protection if they believe any government or administrative action has violated their fundamental human rights. The principal law governing foreign investment is Law No. 4 (known as the BOI Act), created in 1978 and amended in 1980, 1983, 1992, 2002, 2009 and 2012. The BOI Act and implementing regulations provide for two types of investment approvals, one for concessions and one without concessions. Under Section 17 of the Act, the BOI is empowered to approve companies satisfying minimum investment criteria with such companies eligible for duty-free import concessions. The BOI acts as the “one-stop-shop” to facilitate all the requirements of the foreign investors to Sri Lanka. Investment approval under Section 16 of the BOI Act permits companies to operate under the “normal” laws and applies to investments that do not satisfy eligibility incentive criteria. From April 1, 2017, Inland Revenue Act No. 24 of 2017 created an investment incentive regime granting a concessionary tax rate (for specific sectors) and capital allowances (depreciation) based on capital investments. Commercial Hub Regulation No 1 of 2013 applies to transshipment trade, offshore businesses, and logistic services. The Strategic Development Project Act of 2008 (SDPA) provides tax incentives for large projects that the Cabinet identifies as “strategic development projects.” https://investsrilanka.com/ Sri Lanka does not have a specific competition law. Instead, the BOI or respective regulatory authorities may review transactions for competition-related concerns. In March of 2017, Parliament approved the “Anti-Dumping and Countervailing” and “Safeguard Measures” Acts. These laws provide a framework against unfair trade practices and import surges and allow government trade agencies to initiate investigations relating to unfair business practices to impose additional and/or countervailing duties. Since economic liberalization policies began in 1978, the government has not expropriated a foreign investment, with the last expropriation dispute resolved in 1998. The land acquisition law (Land Acquisition Act of 1950) empowers the government to take private land for public purposes with compensation based on a government valuation. The Companies Act and the Insolvency Ordinance provide for dissolution of insolvent companies, but there is no mechanism to facilitate the reorganization of financially troubled companies. Other laws make it difficult to keep a struggling company solvent. The Termination of Employment of Workmen Special Provisions Act (TEWA), for example, makes it difficult to fire or lay off workers who have been employed for more than six months for any reason other than serious, well-documented disciplinary problems. In the absence of comprehensive bankruptcy laws, extra-judicial powers granted by law to financial institutions protect the rights of creditors. A creditor may petition the court to dissolve the company if the company cannot make payments on debts in excess of LKR 50,000 ($320.00). Lenders are also empowered to foreclose on collateral without court intervention. However, loans below LKR 5 million ($32,000) are exempt, and lenders cannot foreclose on collateral provided by guarantors to a loan. Sri Lanka ranked 94 out of 190 countries in the resolving insolvency index in the World Bank’s Doing Business Report 2020. Resolving insolvency takes, on average, 1.7 years at a cost equivalent to 10 percent of the estate’s value. 6. Financial Sector The Securities and Exchange Commission (SEC) governs the CSE, unit trusts, stockbrokers, listed public companies, margin traders, underwriters, investment managers, credit rating agencies, and securities depositories. https://cse.lk/ Foreign portfolio investment is encouraged. Foreign investors can purchase up to 100 percent of equity in Sri Lankan companies in permitted sectors. Investors may open an Inward Investment Account (IIA) with any commercial bank in Sri Lanka to bring in investments. As of January 31, 2022, 297 companies representing 20 business sectors are listed on the CSE. As stock market liquidity is limited, investors need to manage exit strategies carefully. In accordance with its IMF Article VIII obligations, the government and the Central Bank of Sri Lanka (CBSL) generally refrain from restrictions on current international transfers. When the government experiences balance of payments difficulties, it tends to impose controls on foreign exchange transactions. Due to pressures on the balance of payments caused by the COVID-19 and the subsequent economic crisis, Sri Lanka took several measures to restrict imports and limit outward capital transactions in 2020, these limits are still in place as of March 2022. Further, import restrictions The state consumes over 50 percent of the country’s domestic financial resources and has a virtual monopoly on the management and use of long-term savings. This inhibits the free flow of financial resources to product and factor markets. High budget deficits have caused interest rates to rise and resulted in higher inflation. On a year-to-year basis, inflation was approximately 17.5 percent in February of 2022, and the average prime lending rate was 9.91 percent. Retained profits finance a significant portion of private investment in Sri Lanka with commercial banks as the principal source of bank finance and bank loans as the most widely used credit instrument for the private sector. Large companies also raise funds through corporate debentures. Credit ratings are mandatory for all deposit-taking institutions and all varieties of debt instruments. Local companies can borrow from foreign sources. FDI finances about 6 percent of overall investment. Foreign investors can access credit on the local market and are free to raise foreign currency loans. Sri Lanka has a diversified banking system. In terms of physical access to outlets, Sri Lanka also enjoys high levels of banking penetration, with bank branch density at 17 per 100,000 adults, compared to the South Asia regional average of 10.2. There are 25 commercial banks: 13 local and 12 foreign. In addition, there are seven specialized local banks. Citibank N.A. is the only U.S. bank operating in Sri Lanka. Several domestic private commercial banks have substantial government equity acquired through investment agencies controlled by the government. Banking has expanded to rural areas, and by end of 2020 there were over 3,619 commercial bank branches and over 6,176 Automated Teller Machines throughout the country. Both resident and non-resident foreign nationals can open foreign currency banking accounts. However, non-resident foreign nationals are not eligible to open Sri Lankan Rupee accounts. A foreign individual can open a Personal Foreign Currency Account or (PFC account). This is a special type of account that can be opened in foreign currencies carried by the overseas client. Just like an ordinary bank account, this type of account gives interests against the deposits. CBSL https://www.cbsl.gov.lk/ is responsible for supervision of all banking institutions and has driven improvements in banking regulations, provisioning, and public disclosure of banking sector performance as well as setting exchange rates, which have shifted regularly with the ongoing economic crisis. Credit ratings are mandatory for all banks. CBSL introduced accounting standards corresponding to International Financial Reporting Standards for banks on January 1, 2018, and the application of the standards substantially increased impairment provisions on loans. The migration to the Basel III capital standards began in July of 2017 on a staggered basis, with full implementation was kicking in on January 1, 2019 and some banks having had to boost capital to meet full implementation of Basel III requirements. In addition, banks must increase capital to meet CBSL’s new minimum capital requirements deadline, which is set for December 31, 2022. A staggered application of capital provisions for smaller banks unable to meet capital requirements immediately will likely be allowed. Total assets of the banking industry stood at LKR 16,923 billion ($64 billion) as of December 31, 2020. The two fully state-owned commercial banks – Bank of Ceylon and People’s Bank – are significant players, accounting for about 33 percent of all banking assets. The Bank of Ceylon currently holds a non-performing loan (NPL) ratio of 6 percent (up from 4.89 percent in 2020). The People’s Bank currently holds a NPL ratio of 3.85 percent (up from 3.68 percent in 2019). Both banks have significant exposure to SOEs but, these banks are implicitly guaranteed by the state. The debt moratorium issued by the CBSL for distressed borrowers will expired in 2022, the impact of this is yet to be reflected on the banking sector NPLs. In October 2019, Sri Lanka was removed from the Financial Action Task Force (FATF) gray list after making significant changes to its Anti-Money Laundering/Countering the Finance of Terrorism (AML/CFT) laws. CBSL is exploring the adoption of blockchain technologies in its financial transactions and appointed two committees to investigate the possible adoption of blockchain and cryptocurrencies. Sri Lanka has a rapidly growing alternative financial services industry that includes finance companies, leasing companies, and microfinance institutes. In response, CBSL has established an enforcement unit to strengthen the regulatory and supervisory framework of non-banking financial institutions. Credit ratings are mandatory for finance companies as of October 1, 2018. The government also directed banks to register with the U.S. Internal Revenue Service (IRS) to comply with the U.S. Foreign Accounts Tax Compliance Act (FATCA). Almost all commercial banks have registered with the IRS. Sri Lanka does not have a sovereign wealth fund. The government manages and controls large retirement funds from private sector employees and uses these funds for budgetary purposes (through investments in government securities), stock market investments, and corporate debenture investments. 7. State-Owned Enterprises SOEs are active in transport (buses and railways, ports and airport management, airline operations); utilities such as electricity; petroleum imports and refining; water supply; retail; banking; telecommunications; television and radio broadcasting; newspaper publishing; and insurance. Following the end of the civil war in 2009, Sri Lankan armed forces began operating domestic air services, tourist resorts, and farms crowding out some private investment. In total, there are over 400 SOEs of which 55 have been identified by the Sri Lanka Treasury as strategically important, and 345 have been identified as non-commercial. The current government has not adopted a strategy of privatizing SOEs. Several attempts to sell the government’s stake in the heavily indebted national carrier, Sri Lankan Airlines, were not successful. The government is also seeking to improve the efficiency of SOEs through private sector management practices. SOE labor unions and opposition political parties often oppose privatization and are particularly averse to foreign ownership. Privatization through the sale of shares in the stock market is likely to be less problematic. 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 pushed Turkey’s economy to grow by 1.8 percent in 2020 despite the pandemic, though high inflation and persistently high unemployment have been exacerbated. In 2021, Turkey’s GDP grew 11 percent year-over-year (YOY), the highest growth rate in ten years. However, this year growth is expected to be around 3.3 percent, but with significant downside risks. The spending of over USD 100 billion in foreign reserves in a vain attempt to stop the lira’s devaluation, and unorthodox monetary policies that have fueled inflation have left Turkey vulnerable to external shocks. Despite recent growth, the government’s economic policymaking remains opaque, erratic, and politicized, contributing to long-term and sometimes acute depreciation of the Turkish lira. In September 2021, the Central Bank of Turkey embarked on a series of rate cuts that lowered the key interest rate by 500 basis points, leaving real rates deeply negative. Inflation in 2021 was 48.7 percent and unemployment 11.2 percent, with a slight recovery in labor force participation (52.9 percent). Macroeconomic instability and the government’s push to require manufacturing and data localization in many sectors have negatively impacted foreign investment into the country. Turkey has maintained its 2020 digital service taxes but agreed to a plan to rescind the tax once pillar one of the OECD Inclusive Framework on a global minimum tax is implemented. Other issues of importance include tax reform and the decreasing independence of the judiciary and the Central Bank. 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. ICT and other companies report Government of Turkey (GOT) pressure to localize data, which the GOT views as a precursor to greater access to user information and source code. Law No. 6493 on Payment and Security Systems, Payment Services, and E-money Institutions also requires financial institutions to establish servers in Turkey to localize data. The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses if companies localize their IT systems in Turkey and keep the original data (not copies) in Turkey. Regulations on data localization, internet content, and taxation/licensing have chilled investment by other possible entrants to the e-commerce and e-payments sectors. The laws affect all companies that collect private user data, such as payment information provided online for a consumer purchase. In 2020, a law requiring social network providers (SNPs) that serve more than one million users in Turkey to appoint a domestic representative entered into force. The SNPs in-country representatives are obliged to accept service of documents from the Information and Communication Technologies Authority (ICTA), which mainly requests removal of content on the grounds of articles 9 and 9/A of local Law No. 5651. The SNP’s country representative must be a Turkish citizen or a legal person registered in Turkey, and easily accessible to local users. The immediate impact of the COVID-19 pandemic on the economy was sharp, but Turkey managed to contain the number of COVID-19 cases relatively effectively with targeted lockdowns and thanks to its strong health-services infrastructure. The tourism sector, which generates demand for products and various service sectors, was particularly affected. The GOT provided support to protect corporate liquidity, employment, and household incomes. Government investment incentives were refined during the pandemic to attract FDI and encourage green investments. The pandemic exacerbated structural challenges related to high unemployment and the country’s widespread informal economy, which hit the informal sector workers and the self-employed the hardest. While there has been progress in creating quality jobs over the past 15 years, the number of jobs decreased after both the 2018 financial turmoil and because of COVID-19. Turkey ratified the Paris Agreement in 2021 and continues to make progress on its green initiatives. Turkey’s FDI incentive packages are updated regularly, and in 2021 they were altered to include more incentives targeted at green projects as identified by the Ministry of Industry and Technology. 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. Investment inflows in 2021 were USD 14.1 billion, an increase of 19 percent from 2019 and the highest rate in the last five years. However, real estate acquisition by foreign nationals accounted for 41 percent of the total inflows in 2021 with USD 5.8 billion, and equity capital inflows were the biggest slice of the FDI pie with USD 7.6 billion. Increased protectionist measures continue to add to the challenges of investing in Turkey. Progress in combatting corruption is also necessary for many of the GOT’s current and future policies to work effectively. 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 Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview Global Innovation Index 2021 41 of 132 https://www.globalinnovationindex.org/analysis-indicator U.S. FDI in partner country ($M USD, historical stock positions) 2020 $5,814 https://apps.bea.gov/international/factsheet/ World Bank GNI per capita 2020 $9,050 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD 1. Openness To, and Restrictions Upon, Foreign Investment Turkey acknowledges that it needs to attract significant new foreign direct investment (FDI) to meet its ambitious development goals. As a result, Turkey has one of the most liberal legal regimes for FDI among Organization for Economic Cooperation and Development (OECD) members. According to the Central Bank of Turkey’s balance of payments data, Turkey attracted a total of USD 7.59 billion of FDI in 2021, almost USD 1.8 billion higher than 2020’s USD 5.79 billion. The figures demonstrate that Turkey needs to take steps to stabilize its macroeconomic fundamentals, in addition to improve enforcement of international trade rules, ensure the transparency and timely execution of judicial awards, increase engagement with foreign investors on policy issues, and to implement consistent monetary and fiscal economic policies to promote strong, sustainable, and balanced growth. Turkey also needs to take other political measures to increase stability and predictability for investors. A stable banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increased labor market flexibility, improved labor skills, and continued privatization of state-owned enterprises would, if pursued, have the potential to improve the investment environment in Turkey. Most sectors open to Turkish private investment are also opened to foreign participation and investment. All investors, regardless of nationality, face similar challenges: macroeconomic instability, excessive bureaucracy, a slow judicial system, relatively high and inconsistently applied taxes, and frequent changes in the legal and regulatory environment. Structural reforms that would create a more transparent, equal, fair, and modern investment and business environment remain stalled. Venture capital and angel investing are still relatively new in Turkey. Turkey does not screen, review, or approve FDI specifically. However, the government has established regulatory and supervisory authorities to regulate different types of markets. Important regulators in Turkey include the Competition Authority; the Excessive Pricing Evaluation Board; Energy Market Regulation Authority; Banking Regulation and Supervision Authority; Information and Communication Technologies Authority; Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board; Privatization Administration; Public Procurement Authority; Radio and Television Supreme Council; and Public Oversight, Accounting, and Auditing Standards Authority. Screening mechanisms are executed to maintain fair competition and for other economic benefits. If an investment fails a review, possible outcomes can vary from a notice to remedy, which allows for a specific period to correct the problem, to penalty fees. The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes. There are no general limits on foreign ownership or control. However, there is increasing pressure in some sectors for foreign investors to partner with local companies and transfer technology, and some discriminatory barriers to foreign entrants, based on “anti-competitive practices,” especially in the information and communication technology (ICT) sector and the pharmaceuticals sector. In many areas, Turkey’s regulatory environment is business friendly. Investors can establish a business in Turkey irrespective of nationality or place of residence. There are no sector-specific restrictions that discriminate against foreign investor access, which are prohibited by World Trade Organization (WTO) regulations. The OECD published an Environmental Performance Review for Turkey in February 2019, noting the country was the fastest growing among OECD members, and an Economic Survey of Turkey in 2021, which noted that investor confidence in policy predictability could not be consolidated, and risk premium and exchange rate volatility remained very high. The OECD survey which includes details on policy recommendations can be found at: https://www.oecd.org/turkey/oecd-environmental-performance-reviews-turkey-2019-9789264309753-en.htm Turkey’s most recent investment policy review through the World Trade Organization (WTO) was conducted in March 2016. Turkey has cooperated with the World Bank to produce several reports on the general investment climate that can be found at: https://www.wto.org/english/tratop_e/tpr_e/tp431_e.htm The International Investors Association (YASED)’s members represent 85 percent of all FDI in Turkey. YASED has a working group structure to support the demands of investors and targets common themes to express investors’ perspectives and concerns to the government to shape the policymaking processes. YASED’s publications can be found at: https://www.yased.org.tr/reports The Presidency of the Republic of Turkey Investment Office is the official organization for promoting Turkey’s sectoral investment opportunities to the global business community and assisting investors before, during, and after their entry into Turkey. Its website is clear and easy to use, with information about legislation and company establishment. https://www.invest.gov.tr/en/pages/home-page.aspx The conditions for foreign investors setting up a business and transferring shares are the same as those applied to local investors. International investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations, and aligns the Turkish business environment with EU legislation as well as with the EU accession process. Turkey defines micro, small, and medium-sized enterprises according to Decision No. 2022/5315 of the Official Gazette dated March 17, 2022: Micro-sized enterprises: fewer than 10 employees and less than or equal to 5 million Turkish lira in net annual sales or financial statement. Small-sized enterprises: fewer than 50 employees and less than or equal to 50 million Turkish lira in net annual sales or financial statement. Medium-sized enterprises: fewer than 250 employees and less than or equal to 250 million Turkish lira in net annual sales or financial statement. The government promotes outward investment via investment promotion agencies and other platforms. It does not restrict domestic investors from investing abroad. 3. Legal Regime The GOT has adopted policies and laws that, in principle, should foster competition and transparency. The GOT makes its budgetary spending reports available online. Copies of draft bills are generally made available to the public by posting them to the websites of the relevant ministry, Parliament, or Official Gazette. Foreign companies in several sectors; however, claim that regulations are applied in a nontransparent manner. Public tender decisions and regulatory updates can be opaque and politically driven. Accounting, legal, and regulatory procedures appear to be consistent with international norms, including standards set forth by the International Financial Reporting Standards (IFRS), the EU, and the OECD. Publicly traded companies adhere to international accounting standards and are audited by well-respected international firms. Turkey is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and is party to the Inclusive Framework’s October 2021 deal on the two-pillar solution to global tax challenges, including a global minimum corporate tax. In 2021, Turkey’s Office of the Presidency partnered with the United Nations Development Program (UNDP) to assess the Impact Investing Ecosystem in Turkey and the Sustainable Development Goal (SDG) Investor Map Turkey. These efforts provided preliminary steps towards environmental, social, and governance (ESG) regulations. Turkey’s Capital Markets Board (CMB) amended its Corporate Governance Communique on Turkey’s Sustainability Principles Compliance Framework for publicly traded companies in 2020. The Framework offers publicly traded companies an opportunity to take their social, environmental, and governance impact seriously, beyond shareholders’ demands. There is no standard ESG legal framework but the GOT recommends that all companies operating in Turkey proactively adopt EGT standards. Turkey is a candidate for EU membership; however, the accession process has stalled, with the opening of new chapters put on hold. Some, though not all, Turkish regulations have been harmonized with the EU, and the country has adopted many European regulatory norms and standards. Turkey is a member of the WTO, though it does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). Turkey’s legal system is based on civil law, provides means for enforcing property and contractual rights, and has written commercial and bankruptcy laws. Turkey’s court system is overburdened, which sometimes results in slow decisions and judges lacking sufficient time to consider complex issues. Judgments of foreign courts, under certain circumstances, need to be upheld by local courts before they are accepted and enforced. Recent developments reinforce the Turkish judicial system’s need to undertake significant reforms to adopt fair, democratic, and unbiased standards. The government is currently implementing a series of judicial reform packages introduced since 2019, but Amnesty International noted the reforms “fail to bring Turkey’s laws in line with human rights law and standards, and rather tinker at the edges of a system marked by the deepening erosion of independence of the judiciary.” The judiciary remains subject to influence, particularly from the executive branch, and faces significant challenges that limit judicial independence. The judicial reform strategy’s nine priorities are: protecting and improving rights and freedoms, improving judicial independence, objectivity and transparency, improving both the quality and quantity of human resources, increasing performance and productivity, enabling the right of defense to be used effectively, making justice more approachable, increasing the effectiveness of the penal justice system, simplifying civil justice and administrative procedures, and popularizing alternative mediation methods. Turkey’s investment legislation is simple and complies with international standards, offering equal treatment for all investors. The New Turkish Commercial Code No. 6102 (“New TCC”) was published in February , 2011. The backbone of the investment legislation is made up of the Encouragement of Investments and Employment Law No. 5084, Foreign Direct Investments Law No. 4875, international treaties, and various laws and related sub-regulations on the promotion of sectorial investments. Regulations related to mergers and acquisitions include: the Turkish Code of Obligations: Article 202 and Article 203; the Turkish Commercial Code: Articles 134-158; the Execution and Bankruptcy Law: Article 280; the Law on the Procedures for the Collection of Public Receivables: Article 30; and the Law on Competition: Article 7. https://www.invest.gov.tr/en/ The Competition Authority is the sole authority on competition issues in Turkey and handles private sector transactions. Public institutions are exempt from its authority. The Constitutional Court can overrule the Competition Authority’s finding of innocence in a competition case. There have been some cases of Turkish courts blocking foreign company operations based on competition concerns, with a few investigations into foreign companies initiated. Such cases can take over a year to resolve, during which time the companies can be prohibited from doing business in Turkey, which benefits their (local) competitors. The Government of Turkey established a related board, called the Excessive Pricing Evaluation Board, in 2019 and under the authority of the Ministry of Trade. As inflation has increased, exacerbated by the economic impacts of the COVID-19 pandemic, some private sector contacts note a marked increase in the frequency and aggressiveness of audits by the board. The board reportedly uses a “secret comparable,” whereby a product’s price is compared against that of another company whose name is not revealed. In 2021, an increasingly active Competition Authority of Turkey (RK) has stepped up its investigations with the purported intent of protecting consumers from anticompetitive behavior and price gouging. On October 29, 2022, RK fined five supermarkets and one supplier a combined USD 283 million for violating antitrust regulations. Under the U.S.-Turkey Bilateral Investment Treaty (BIT), expropriation can only occur in accordance with due process of law, can only be for a public purpose, and must be non-discriminatory. Compensation must be prompt, adequate, and effective. The GOT occasionally expropriates private real property for public works or for state industrial projects. The GOT agency expropriating the property negotiates the purchase price. If the owners of the property do not agree with the proposed price, they are able to challenge the expropriation in court and ask for additional compensation. There are no known outstanding expropriation or nationalization cases for U.S. firms. Although there is not a pattern of discrimination against U.S. firms, the GOT has aggressively targeted businesses, banks, media outlets, and mining and energy companies with alleged ties to the so-called “Fethullah Terrorist Organization (FETO)” and/or the July 2016 attempted coup, including the expropriation of over 1,100 private companies worth more than USD 11 billion. ICSID Convention and New York Convention Turkey is a member of the International Centre for the Settlement of Investment Disputes (ICSID) and is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Foreign arbitral awards will be enforced if the country of origin of the award is a New York Convention state, if the dispute is commercial under Turkish law, and if none of the grounds under Article V of the New York Convention are proved by the opposing party. Investor-State Dispute Settlement U.S. investors generally have full access to Turkey’s local courts and the ability to take the government directly to international binding arbitration if a breach of the U.S.-Turkey Bilateral Investment Treaty has occurred. International Commercial Arbitration and Foreign Courts Turkey adopted the International Arbitration Law, based on the United Nations Commission on International Trade Law (UNCITRAL) model law, in 2001. Local courts accept binding international arbitration of investment disputes between foreign investors and the state. In practice, however, Turkish courts have sometimes failed to uphold international arbitration awards involving private companies and have favored Turkish firms. There are two main arbitration bodies in Turkey: the Union of Chambers and Commodity Exchanges of Turkey (www.tobb.org.tr ) and the Istanbul Chamber of Commerce Arbitration and Mediation Center (www.itotam.com/en ). Most commercial disputes can be settled through arbitration, including disputes regarding public services. Parties decide the arbitration procedure, set the arbitration rules, and select the language of the proceedings. The Istanbul Arbitration Center was established in October 2015 as an independent, neutral, and impartial institution to mediate both domestic and international disputes through fast-track arbitration, emergency arbitrator, and appointments for ad hoc procedures. Its decisions are binding and subject to international enforcement (www.istac.org.tr/en ). As of January 2019, some commercial disputes may be subject to mandatory mediation; if the parties are unable to resolve the dispute through mediation, the case moves to a trial. Turkey criminalizes bankruptcy and has a bankruptcy law based on the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in t 1932, and numbered 2128. 6. Financial Sector 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 banks to increase their lending, especially for stimulating economic growth and public projects. Foreign investors can get credit on the local market. The private sector has access to a variety of credit instruments. 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. Turkish capital markets in 2020 drew growing interest from domestic investors, according to data from the Central Registry Agency (MKK). In 2021, the number of local real investors reached 2.3 million, up an average of 65,200 per month, with the total portfolio value reaching USD 22.2 billion. The Turkish banking sector remains relatively healthy. The estimated total assets of the country’s largest banks were as follows at the end of 2021: Ziraat Bankasi A.S. – USD 102.69 billion, Turkiye Vakiflar Bankasi – USD 77.08 billion, Halk Bankasi – USD 67.49 billion, Is Bankasi – USD 69.44 billion, Garanti Bankasi– USD 56.78 billion, Yapi ve Kredi Bankasi – USD 58.51 billion, Akbank – USD 57.15 billion. According to the Turkish Banking Regulation and Supervision Agency (BDDK), the share of non-performing loans in the sector was approximately 3.15 percent at the end of 2021, though there appears to have been some regulatory forbearance during the COVID pandemic. 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 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 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. Throughout 2021, 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. A limit on banks’ currency swap, forward and option transactions with non-resident partners at 10 percent of their capital since September 2020. In November 2020, the limit for swaps, forward and option transactions where banks pay Turkish lira at maturity was raised to up to 30 percent, depending on their remaining maturities. Turkey took a variety of such measures to prop up the Turkish lira, including the mandatory surrender and repatriation requirements on FX export proceeds; generally, within 180 days and at least 80 percent had to be surrendered to a local bank in exchange for Turkish liras. In January 2020, the surrender requirement was dropped, but the repatriation requirement remained. However, in January 2022 the Central Bank of the Republic of Turkey (CBRT) announced it would buy 25 percent of all euro, dollar, or British Pound-denominated export income from exporters. 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 euros worth of foreign currency may be taken out without declaration. Although the Turkish lira 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 USD 100,000; there is also a 0.2 percent tax on FX purchases. The settlement delay provision was repealed in December of 2020. Foreign investors are free to convert and repatriate their Turkish lira profits. The exchange rate was heavily managed by the CBRT with a “dirty float” regime until November 2020, when a new central bank governor assumed responsibility. After several months of increased policy rates, tight monetary policy, and a more stable Turkish lira, the governor was fired, because of which the lira quickly depreciated by 10 percent. Macroeconomic policy has remained largely unpredictable since then. Remittance Policies In Turkey, there have been no recent changes or plans to change investment remittance policies. 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. The GOT announced the creation of a sovereign wealth fund (called the Turkey Wealth Fund, or TVF) 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 TVF has not launched any major projects since its inception. Several leading SOEs, such as natural gas distributor BOTAS, Turkish Airlines, and Ziraat Bank have been transferred to the TVF, which in 2020 became the largest shareholder in domestic telecommunications firm Turkcell. Critics worry management of the fund is opaque and politicized. The fund’s consolidated financial statements are available on its website (https://www.tvf.com.tr/en/investor-relations/reports ), although independent audits are not made publicly available. 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, 2020, 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. Turkey issued government debt securities worth USD 4.16 billion in April 2019 to support its state banks and TVF injected 21 billion Turkish Lira of additional capital in May 2020 into three public banks engaged in COVID-19 measures (Ziraat, Halkbank and Vakifbank). 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy Host Country Statistical source* USG or international statistical source USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other Economic Data Year Amount Year Amount Host Country Gross Domestic Product (GDP) ($M USD) 2021 $795,950 2020 $719,920 * www.turkstat.gov.tr Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other U.S. FDI in partner country ($M USD, stock positions) 2021 $1,430 2020 $5,814 BEA data available athttps://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data *https://evds2.tcmb.gov.tr/index.php?/evds/dashboard/4944 Host country’s FDI in the United States ($M USD, stock positions) 2020 $1,557 2020 $2,578 BEA data available at https://www.bea.gov/international/ direct-investment-and-multinational- enterprises-comprehensive-data Total inbound stock of FDI as % host GDP 2019 19.9% 2019 21.9% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World percent20Investment percent20Report/Country-Fact-Sheets.aspx * www.tcmb.gov.tr The IMF’s Coordinated Direct Investment Survey (CDIS) data is not consistent with Turkey’s data as reported by the Central Bank of the Republic of Turkey, which can be found at: https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Istatistikler/Odemeler+Dengesi+ve+Ilgili+Istatistikler/Uluslararasi+Yatirim+Pozisyonu/ Table 3: Sources and Destination of FDI Direct Investment from/in Counterpart Economy Data (through 2020) From Top Five Sources/To Top Five Destinations (US Dollars, Millions) Inward Direct Investment Outward Direct Investment Total Inward 124923 100% Total Outward 50,726 100% Qatar 32,445 26% North Macedonia 19,668 39% North Macedonia 17,994 4% United Kingdom 5,211 10% United Kingdom 13,083 10% Germany 2,561 5% Germany 9,360 7% Austria 2,286 .5% Luxembourg 5,291 4% Jersey 2,285 4.5% “0” reflects amounts rounded to +/- USD 500,000. IMF’s Coordinated Direct Investment Survey (CDIS) data available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410 Zimbabwe Executive Summary Zimbabwe suffered serious economic contractions in 2019 and 2020 due to the economic mismanagement, the extended effects of the COVID-19 pandemic, and climate shocks that crippled agriculture and electricity generation. According to the government of Zimbabwe, the economy recovered strongly, growing by 7.8 percent, in 2021 although the International Monetary Fund (IMF) estimates the economy grew by 6.1 percent, thanks to increased agricultural production, high commodity prices, and improved capacity utilization in the manufacturing sector. The government expects the economy to grow by 5.5 percent in 2022 as the negative impacts of COVID-19 subside. International financial institutions also project positive but more modest growth, with the IMF forecasting a real GDP growth of 3.1 percent in 2022. Inflation remained high in 2021, but steadily declined to end the year at 60.6 percent. Authorities attributed the decline to the introduction of a weekly foreign exchange auction system in June 2020 and fiscal consolidation that resulted in near balanced budgets in 2020 and 2021. However, the inflation rate has continued to rise to 72.7 percent by March 2022 due to the negative effects of the Russia-Ukraine war on commodity prices as well as the depreciation of the Zimbabwe dollar. Zimbabwe’s local currency has lost 79 percent of its value relative to the U.S. dollar since the government adopted an auction system on June 23, 2020. A gap between the auction and parallel-market exchange rates has persisted, with U.S. dollars more than twice as expensive on the parallel market. To improve the ease of doing business, the government formed the Zimbabwe Investment and Development Agency (ZIDA) in 2020, intended as a one-stop-shop to promote and facilitate both domestic and foreign investment in Zimbabwe. 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. It has made gradual progress in improving the business environment by reducing regulatory costs, but policy inconsistency and weak institutions 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 also expropriated land without compensation. The Finance Act (No 2) at the end of 2020 amended the Indigenization Act by removing language designating diamonds and platinum as the only minerals subject to indigenization (requiring majority ownership by indigenous Zimbabweans), finally ending indigenization requirements in all sectors. However, the new legislation also granted broad discretion to the government to designate minerals as subject to indigenization in the future. The government subsequently issued statements to reassure investors that no minerals will be subject to indigenization, including diamonds and platinum. The government ended its 2019 ban on using foreign currencies for domestic transactions in March 2020. However, the authorities decreed businesses selling in foreign exchange must surrender 20 percent of the receipts to the central bank in exchange for local currency at the overvalued auction rate. Exporters must surrender 40 percent of foreign currency earnings at the unfavorable auction rate. Zimbabwe owes approximately US$10.7 billion (US$6.5 billion of which is in arrears) to international financial institutions accounting for 71 percent of the country’s GDP. The country’s high external debt (public and private) limits its 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. Although the United States has a targeted sanctions program against Zimbabwe, it currently applies to only 83 individuals and 37 entities. The U.S. Government imposed sanctions against specifically identified individuals and entities in Zimbabwe, as a result of the actions and policies of certain members of the Government of Zimbabwe and other persons that undermine democratic institutions or processes in Zimbabwe, violate human rights, or facilitate corruption. U.S. companies can do business with Zimbabwean individuals and companies that are not on the specially designated nationals (SDN) list. After reaching US$745 million in 2018, Zimbabwe witnessed significant declines in foreign direct investment (FDI). According to data from the United Nations Conference on Trade and Development (UNCTAD), FDI inflows into Zimbabwe fell from US$280 million in 2019 to US$194 million in 2020. Table 1: Key Metrics and Rankings Measure Year Index/Rank Website Address TI Corruption Perceptions Index 2021 157 of 180 http://www.transparency.org/research/cpi/overview Global Innovation Index 2021 113 of 132 https://www.globalinnovationindex.org/analysis-indicator U.S. FDI in partner country ($M USD, historical stock positions) 2020 (D) https://apps.bea.gov/international/factsheet/ World Bank GNI per capita 2020 USD 1,140 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD (D) – Information suppressed to avoid disclosure of data of individual companies. 1. Openness To, and Restrictions Upon, Foreign Investment To attract FDI and improve the country’s competitiveness, the government has encouraged public-private partnerships and emphasized the need to improve the investment climate by lowering the cost of doing business as well as restoring the rule of law and sanctity of contracts. Implementation, however, has been limited. The government amended the Indigenization Act by removing diamonds and platinum from minerals subject to indigenization (requiring majority ownership by indigenous Zimbabweans), although the new legislation appeared to grant broad discretion to the GOZ to designate minerals as subject to indigenization in the future. Subsequently, the GOZ reassured investors that no minerals will be subject to indigenization, including diamonds and platinum. However, there are smaller sectors “reserved” for Zimbabweans (see below). To improve the ease of doing business, the government enacted legislation that led to the formation of the Zimbabwe Investment and Development Agency (ZIDA) in 2020. ZIDA replaced the Zimbabwe Investment Authority and serves as a one-stop-shop center in promoting and facilitating both domestic and foreign investment in Zimbabwe. While the government has committed to prioritizing investment retention, there are still no mechanisms or formal structures to maintain ongoing dialogue with investors. Foreign and domestic private entities have a right to establish and own business enterprises and engage in all forms of remunerative activity, but foreign ownership of businesses in certain reserved sectors is limited. Foreign investors are free to invest in most sectors without any restrictions as the government aims to bring in new technologies, value-add manufacturing, and generate employment. According to the ZIDA Act, “foreign investors may invest in, and reinvest profits of such investments into, any and all sectors of the economy of Zimbabwe, and in the same form and under the same conditions as defined for Zimbabweans under the applicable laws and regulations of Zimbabwe.” However, the government reserves certain sectors for Zimbabweans such as passenger buses, taxis and car hire services, employment agencies, grain milling, bakeries, advertising, dairy processing, and estate agencies. The country screens FDI through the ZIDA in liaison with relevant line ministries to confirm compliance with the country’s laws. According to the country’s laws, U.S. investors are not especially disadvantaged or singled out by any of the ownership or control mechanisms relative to other foreign investors. In its investment guidelines, the government states its commitment to non-discrimination between foreign and domestic investors and among foreign investors. In a 2019 review, Global Witness recommended reform of Zimbabwe’s shadowy diamond sector through publication of all diamond mining contracts, shareholdings, and their ultimate beneficial owners; production of timely annual reports, including audited accounts detailing revenues raised and all payments to the Treasury and all transfers to private shareholders. https://www.globalwitness.org/en/blog/time-zimbabwes-opaque-diamond-sector/ The Zimbabwe Environmental Lawyers Association (ZELA) published in October 2021 and March 2022 reports focused on the investment climate around the extractive sector. Though the reports view the extractive sector through the lens of PRC engagement, the information on laws, regulations, and gaps in legislation and enforcement remain relevant for all interested investors. The Handbook of Zimbabwe-China Economic Relations: Zimbabwe Open for Business: Progress Check on Implementation: Policy inconsistency, administrative delays and costs, and corruption hinder business facilitation. Zimbabwe does not have a fully online business registration process, though one can begin the process and conduct a name search online via the ZimConnect web portal. The government created the Zimbabwe Investment Development Agency (ZIDA, https://www.zidainvest.com/ ) which replaced the Zimbabwe Investment Authority (ZIA), the Special Economic Zones Authority, and the Joint Venture Unit to oversee the licensing and implementation of investment projects in the country. The Agency has established a one-stop investment services center (OSISC) which houses several agencies that play a role in the licensing, establishment, and implementation of investment projects including the Zimbabwe Revenue Authority (ZIMRA), Environmental Management Agency (EMA), Reserve Bank of Zimbabwe (RBZ), National Social Security Authority (NSSA), Zimbabwe Energy Regulatory Authority (ZERA), Zimbabwe Tourism Authority, the State Enterprises Restructuring Agency, and specialized investment units within relevant line ministries. The business registration process currently takes 27 days. Zimbabwe does not promote or incentivize outward investment due to the country’s tight foreign exchange reserves. Although the government does not restrict domestic investors from investing abroad, any outward investment requires approval by exchange control authorities. Firms interested in outward investment would face difficulty accessing the limited foreign currency at the more favorable official exchange rate. 3. Legal Regime The government officially encourages competition within the private sector and seeks to improve the ease of doing business, but the bureaucracy within regulatory agencies lacks transparency, and corruption is prevalent. Investors complain of policy inconsistency and unpredictability. Moreover, Zimbabwe does not have a centralized online location where key regulatory actions are published, and investors must contact ZIDA. The government at times uses statutory instruments and temporary presidential powers to alter legislation impacting economic policy. These powers have limited duration – the government must pass legislation within six months for the presidential powers to become permanent. These measures, which can appear without warning, often surprise businesses and lack implementation details, leading firms to delay major business decisions until gaining clarity. For example, the government unexpectedly prohibited the use of foreign currencies for domestic transactions in June 2019 but lifted the ban in March 2020, amidst the COVID-19 pandemic and growing economic pressure. The government has made changes to the share of foreign currency earnings exporters must surrender to the central bank without warning or stakeholder consultations. The standard legislative process, on the other hand, does provide ample opportunity for public review and comment before the final passage of new laws. The development of regulations follows a standard process and includes a period for public review and comment. According to the Department of State’s 2021 Fiscal Transparency Report, public budget documents do not provide a full picture of government expenditures, and there is a notable lack of transparency regarding state-owned enterprises and the extraction of natural resources. Information on public finances is generally unreliable, as actual revenues and expenditures have deviated significantly from the enacted budgets. Information on some debt obligations is publicly available, but not information on contingent debt. Zimbabwe is a member of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA), and it is a signatory to the SADC and COMESA trade protocols establishing free trade areas (FTA) with the aim of growing into a customs union. Zimbabwe is also a member of the African Continental Free Trade Area (AfCFTA) which came into force on January 1, 2021, with the aim of creating a single continental market and paving the way for the establishment of a customs union. Although the country is also a member of the World Trade Organization (WTO), it normally notifies only SADC and COMESA of measures it intends to implement. According to the country’s law and constitution, Zimbabwe has an independent judicial system whose decisions are binding on the other branches of government. The country has written commercial law and, in 2019, established four commercial courts at the magistrate level. The government also trained 55 magistrates in the same year. Administration of justice in commercial cases that do not touch on political interests is still generally impartial, but for politicized cases government interference in the court system has hindered the delivery of impartial justice. Regulations or enforcement actions are appealable and are adjudicated in the national court system. Foreign investors are free to invest in most sectors including mining without any restrictions. In 2020, the government amended the Indigenization and Economic Empowerment Act which required majority ownership by indigenous Zimbabweans to attain its goal to bring in new technologies, generate employment, and value-added manufacturing. In certain sectors, such as primary agriculture, transport services, and retail and wholesale trade including distribution, foreign investors may not own more than 35 percent equity. The ZIDA ( https://www.zidainvest.com/ ), which now acts a one-stop shop for investors, promotes and facilitates both local and foreign direct investment. The government officially encourages competition within the private sector according to the Zimbabwe Competition Act. The Act provided for the formation of the Tariff and Competition Commission charged with investigating restrictive practices, mergers, and monopolies in the country. The Competition and Tariff Commission (CTC) is an autonomous statutory body established in 2001 with the dual mandate of implementing and enforcing Zimbabwe’s competition policy and law and executing the country’s trade tariffs policy. The Act provides for transparent norms and procedures. Although the decision of the Commission is final, any aggrieved party can appeal the decision to the Administrative Court. In 2000, the government began to seize privately-owned agricultural land and transfer ownership to government officials and other regime supporters. In April 2000, the government amended the constitution to grant the state’s right to assert eminent domain, with compensation limited to the improvements made on the land. In September 2005, the government amended the constitution again to transfer ownership of all expropriated land to the government. Since the passage of this amendment, top government officials, supporters of the ruling Zimbabwe African National Union – Patriotic Front (ZANU-PF) party, and members of the security forces have continued to disrupt production on commercial farms, including those owned by foreign investors, those owned by black indigenous farmers, and those covered by bilateral investment agreements. Similarly, government officials have sought to impose politically connected individuals as indigenous partners on privately and foreign-owned wildlife conservancies. In 2006, the government began to issue 99-year leases for land seized from commercial farmers, retaining the right to withdraw the lease at any time for any reason. These leases, however, are not readily transferable, and banks do not accept them as collateral for borrowing and investment purposes. The government continues to seize commercial farms without compensating titleholders, who have no recourse to the courts. The seizures continue to raise serious questions about respect for property rights and the rule of law in Zimbabwe. In 2017, the government announced its intention to compensate farmers who lost their land and made small partial payments to the most vulnerable claimants. In July 2020, the government and white commercial farmers who lost land to the land reform program signed a US$3.5 billion Global Compensation Deed Agreement for improvements made by commercial farmers on the farms. The government promised to pay a 50 percent deposit within 12 months of signing the agreement and 25 percent of the remainder in each subsequent year so that it makes full payment over five years. Given fiscal constraints, it remains unclear how the government will finance this sum. As of July 2021, the GOZ paid a token US$1 million towards compensating former commercial farmers, but it still lacks a credible plan to pay the remaining US$3.499 billion and has pushed back its deadline for doing so. In the event of insolvency or bankruptcy, Zimbabwe applies the Insolvency Act. All creditors have equal rights against an insolvent estate. Zimbabwe does not criminalize bankruptcy unless it is the result of fraud, but the government blacklists a person declared bankrupt from undertaking any new business. 6. Financial Sector Zimbabwe has two stock exchanges in Harare and Victoria Falls. The Zimbabwe Stock Exchange (ZSE) in Harare currently has 51 publicly listed companies with a total market capitalization of US$13 billion as of March 16, 2022. 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. Regarding 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. 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 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. Zimbabwe launched the Victoria Falls Stock Exchange (VFEX) in September 2020. Four companies have listed on the VFEX with a market capitalization of US$256 million as of March 16, 2022. The country respects the IMF’s Article VIII and refrains from restrictions on payments and transfers for current international transactions provided there is sufficient foreign exchange to finance the transactions. Depending on foreign currency availability, foreign companies with investments in Zimbabwe can borrow locally on market terms. Although credit is allocated on market terms and foreigners are allowed to borrow on the local market, lack of foreign exchange constrains the financial sector from extending credit to the private sector. 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)) maintains the banking sector is generally stable despite a harsh operating environment characterized by high credit risk, high inflation, and foreign exchange 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 (AML/CFT) guidelines in developed countries. However, in March 2022, the Financial Action Task Force (FATF) removed Zimbabwe from the “gray list” in response to “significant progress in improving its AML/CFT regime” and Zimbabwe is no longer subject to the FATF’s increased monitoring process. As of December 31, 2021, the sector had 19 operating institutions, comprising 13 commercial banks, five building societies, and one savings bank. According to the RBZ, as of December 2021, 11out of 13 operating commercial banking institutions and two out of five building societies complied with the prescribed minimum core capital requirements. The level of non-performing loans rose slightly from 0.31 percent in December 2020 to 0.94 percent by December 2021. The RBZ attributed the increase to the disruptive effects of the COVID-19 pandemic. The RBZ reports the total loans-to-deposits ratio rose from 40.4 percent in December 2020 to 48.3 percent in December 2021. According to the central bank, total deposits (including interbank deposits), rose from ZWL$204.13 billion in December 2020 to ZWL$476.35 billion in December 2021, an increase of 76 percent in U.S. dollar terms. The total assets of the banking sector stood at ZWL$763 billion or US$7 billion at the end of December 2021 up from ZWL$349.6 billion or US$4.3 billion on December 31, 2020. The government set aside US$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. In 2021, state media listed the SWF as a shareholder of a new major mining company in Zimbabwe. 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. SOE poor management and lack of profitability has imposed significant costs on the rest of the economy. 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, postal services, and financial sectors for immediate reform, but the privatizations have not yet concluded. 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.