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Algeria

Executive Summary

Algeria’s state enterprise-dominated economy is challenging for U.S. businesses, but multiple sectors offer opportunities for long-term growth.  The government is prioritizing investment in agriculture, information and communications technology, mining, hydrocarbons (both upstream and downstream), renewable energy, and healthcare.

The election of President Abdelmadjid Tebboune in December 2019 eliminated some of the uncertainty that marked the eight-month interim government which led the country following the April 2019 resignation of President Abdelaziz Bouteflika.  In response to continuing demands for political reform, Tebboune issued a draft of a new constitution in May 2020, and has proposed legislative elections before the end of the year.

In 2019, the government eliminated the so-called “51/49” restriction that required majority Algerian ownership of all new businesses.  The requirement will be retained for “strategic sectors,” identified as hydrocarbons, mining, defense, and pharmaceuticals manufacturing.  The government also passed a new hydrocarbons law, improving fiscal terms and contract flexibility in order to attract new international investors.  Following the enactment of this legislation, major international oil companies have signed memorandums of understanding with national hydrocarbons company Sonatrach.

Algeria’s economy is driven by hydrocarbons production.  Hydrocarbons account for 93 percent of export revenues and are the largest source of government income.  With the drop in oil prices in March 2020, the government calculated revenues would drop to roughly half of what the 2020 budget originally anticipated.  The government reduced investment by fifty percent in the energy sector, and investment in other sectors is likely to suffer large decreases and may only proceed if the historically debt-resistant government obtains foreign financing.  The government’s 2020 budget indicated such debt was possible, but officials have equivocated in public statements.  The government hopes to attract foreign direct investment (FDI) to boost employment and replace imports with local production.  Traditionally, Algeria has pursued protectionist policies to encourage the development of local industries.  The import substitution policies it employs tend to generate regulatory uncertainty, supply shortages, increased prices, and limited selection.

The government has taken measures to minimize the economic impact of the COVID-19 outbreak, including delaying tax payments for small businesses, extending credit and restructuring loan payments, and decreasing banks’ reserve requirements.

Economic operators deal with a range of challenges, including complicated customs procedures, cumbersome bureaucracy, difficulties in monetary transfers, and price competition from international rivals, particularly from China, Turkey, and France.  International firms that operate in Algeria complain that laws and regulations are constantly shifting and applied unevenly, raising commercial risk for foreign investors.  An ongoing anti-corruption campaign has increased wariness regarding large-scale investment projects.  Business contracts are subject to changing interpretation and revision of regulations, which has proved challenging to U.S. and international firms.  Other drawbacks include limited regional integration.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 106 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 157 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 113 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2019 $2,749 https://apps.bea.gov/international/
factsheet//
World Bank GNI per capita 2019 USD 3,970 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Algerian economy is both challenging and potentially highly rewarding.  While the Algerian government publicly welcomes FDI, a difficult business climate, an inconsistent regulatory environment, and sometimes contradictory government policies complicate foreign investment.  There are business opportunities in nearly every sector, including energy, power, water, healthcare, telecommunications, transportation, recycling, agribusiness, and consumer goods.

Algeria’s urgency to diversify its economy away from reliance on hydrocarbons has increased amid low and fluctuating oil prices since mid-2014.  The government has sought to reduce the country’s trade deficit through import substitution policies and import tariffs.  Despite higher oil prices in 2018 that reduced the trade deficit, Algeria’s decreasing hydrocarbons exports have kept government rhetoric focused diversification.  On January 29, 2019, the government implemented tariffs between 30-200 percent on over one-thousand goods it assessed were destined for direct sale to consumers.  Companies that set up local manufacturing operations can receive permission to import materials the government would not otherwise approve for import if the importer can show materials will be used in local production.  Certain regulations explicitly favor local firms at the expense of foreign competitors, most prominently in the pharmaceutical sector, where an import ban the government implemented in 2009 remains in place on more than 360 medicines and medical devices.  Frequent, unpredictable changes to business regulations have added to the uncertainty in the market.

Algeria  eliminated state enterprises’  “right of first refusal” on most transfers of foreign holdings to foreign shareholders, with the exception of identified “strategic” sectors..

There are two main agencies responsible for attracting foreign investment, the National Agency of Investment Development (ANDI) and the National Agency for the Valorization of Hydrocarbons (ALNAFT).

ANDI is the primary Algerian government agency tasked with recruiting and retaining foreign investment.  ANDI runs branches in each of Algeria’s 48 governorates (“wilayas”) which are tasked with facilitating business registration, tax payments, and other administrative procedures for both domestic and foreign investors.  U.S. companies report that the agency is understaffed and ineffective.  Its “one-stop shops” only operate out of physical offices and do not maintain dialogue with investors after they have initiated an investment.  The agency’s effectiveness is undercut by its lack of decision-making authority, particularly for industrial projects, which is exercised by the Ministry of Industry and Mines, the Minister of Industry and Mines himself, and in many cases the Prime Minister.

ALNAFT is charged with attracting foreign investment to Algeria’s upstream oil and gas sector.  In addition to organizing events marketing upstream opportunities to potential investors, the agency maintains a paid-access digital database with extensive technical information about Algeria’s hydrocarbons resources.

Limits on Foreign Control and Right to Private Ownership and Establishment

Establishing a presence in Algeria can take any of three basic forms:  1) a liaison office with no local partner requirement and no authority to perform commercial operations, 2) a branch office to execute a specific contract, with no obligation to have a local partner, allowing the parent company to conduct commercial activity (considered a resident Algerian entity without full legal authority), or 3) a local company with 51 percent of capital held by a local company or shareholders.  A business can be incorporated as a joint stock company (JSC), a limited liability company (LLC), a limited partnership (LP), a limited partnership with shares (LPS), or an undeclared partnership.  Groups and consortia are also used by foreign companies when partnering with other foreign companies or with local firms.

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity.  However, the 51/49 rule requires majority Algerian ownership in all projects involving foreign investments.  The rule was removed from the 2016 investment law, but remains in force by virtue of its inclusion in the 2016 annual finance law, which requires foreign investment activities be subject to the incorporation of an Algerian company in which at least 51 percent of capital stock is held by resident national shareholders.

On December 30, 2019, the Algerian government’s Official Journal published its 2020 finance law, which limited the 51/49 rule to “strategic sectors,” identified as hydrocarbons, mining, defense, and pharmaceuticals.

The 51/49 investment rule poses challenges for various types of investors.  For example, the requirement hampers market access for foreign small and medium-sized enterprises (SMEs), as they often do not have the human resources or financial capital to navigate complex legal and regulatory requirements.  Large companies can find creative ways to work within the law, sometimes with the cooperation of local authorities who are more flexible with large investments that promise of significant job creation and technology and equipment transfers.  SMEs usually do not receive this same consideration.  There are also allegations that Algerian partners sometimes refuse to invest the required funds in the company’s business, require non-contract funds to win contracts, and send unqualified workers to job sites.  Manufacturers are also concerned about intellectual property rights (IPR), as foreign companies do not want to surrender control of their designs and patents.  Several U.S. companies have reported they have policies that preclude them from investing overseas without maintaining a majority share, out of concerns for both IPR and financial control of the local venture, which thus prevent them from establishing businesses in Algeria.

Algerian government officials defended the 51/49 requirement as necessary to prevent capital flight, protect Algerian businesses, and provide foreign businesses with local expertise.  For sectors where the requirement will remain, officials contend a range of tailored measures can mitigate the effect of the 51/49 rule and allow the minority foreign shareholder to exercise other means of control.  Some foreign investors use multiple local partners in the same venture, effectively reducing ownership of each individual local partner to enable the foreign partner to own the largest share.

The Algerian government does not officially screen FDI, though Algerian state enterprises have a “right of first refusal” on transfers of foreign holdings to foreign shareholders in identified strategic industries.  Companies must notify the Council for State Participation (CPE) of these transfers.  In addition, initial foreign investments remain subject to approvals from a host of ministries that cover the proposed project, most often the Ministries of Commerce, Health, Energy, Telecommunications and Post, and Industry and Mines.  U.S. companies have reported that certain high-profile industrial proposals, such as for automotive assembly, are subject to informal approval by the Prime Minister.  In 2017, the government instituted an Investments Review Council chaired by the Prime Minister for the purpose of “following up” on investments; in practice, the establishment of the council means FDI proposals are subject to additional government scrutiny.  According to the 2016 Investment Law, projects registered through the ANDI deemed to have special interest for the national economy or high employment generating potential may be eligible for extensive investment advantages.  For any project over 5 billion dinars (approximately USD 44 million) to benefit from these advantages, it must be approved by the Prime Minister-chaired National Investments Council (CNI).  The CNI meets regularly, though it is not clear how the agenda of projects considered at each meeting is determined.  Critics allege the CNI is non-transparent mechanism which could be subject to capture by vested interests.

Other Investment Policy Reviews

Algeria has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD) or the World Trade Organization (WTO).  The last investment policy review by a third party was conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2003 and published in 2004.

Business Facilitation

Algeria’s online information portal dedicated to business creation www.jecreemonentreprise.dz and the business registration website www.cnrc.org.dz are under maintenance and have been so for more than a year.  The websites provide information about several business registration steps applicable for registering certain kinds of businesses.  Entrepreneurs report that additional information about requirements or regulation updates for business registration are available only in person at the various offices involved in the creation and registration process.

In the World Bank’s 2020 Doing Business report, Algeria’s ranking for starting a business was unchanged at 157 out of 190 countries (http://www.doingbusiness.org/en/data/exploreeconomies/algeria).  This year’s improvements were modest and concerned only a third of the ten indicator categories.  The World Bank report lists 12 procedures that cumulatively take an average of 18 days to complete to register a new business.  New business owners seeking to establish their enterprises have sometimes reported the process takes longer, noting that the most updated version of regulations and required forms are only available in person at multiple offices, therefore requiring multiple visits.

Outward Investment

Algeria does not restrict domestic investors from investing overseas, provided they can access foreign currency for such investments.  The exchange of Algerian dinars outside of Algerian territory is illegal, as is the carrying abroad of more than 3,000 dinars in cash at a time (approximately USD 26; see section 7 for more details on currency exchange restrictions).

Algeria’s National Agency to Promote External Trade (ALGEX), housed in the Ministry of Commerce, is the agency responsible for supporting Algerian businesses outside the hydrocarbons sector that want to export abroad.  ALGEX controls a special promotion fund to promote exports but the funds can only be accessed for limited purposes.  For example, funds might be provided to pay for construction of a booth at a trade fair, but travel costs associated with getting to the fair – which can be expensive for overseas shows – would not be covered.  The Algerian Company of Insurance and Guarantees to Exporters (CAGEX), also housed under the Ministry of Commerce, provides insurance to exporters.  In 2003, Algeria established a National Consultative Council for Promotion of Exports (CCNCPE) that is supposed to meet annually.  Algerian exporters claim difficulties working with ALGEX including long delays in obtaining support funds, and the lack of ALGEX offices overseas despite a 2003 law for their creation.  The Bank of Algeria’s 2002 Money and Credit law allows Algerians to request the conversion of dinars to foreign currency in order to finance their export activities, but exporters must repatriate an equivalent amount to any funds spent abroad, for example money spent on marketing or other business costs incurred.

2. Bilateral Investment Agreements and Taxation Treaties

Algeria has signed bilateral investment treaties with Argentina, Austria, Bahrain, BLEU (Belgium-Luxembourg Economic Union), Bulgaria, China, Cuba, Denmark, Egypt, Ethiopia, Finland, France, Germany, Greece, Indonesia, Iran, Italy, Jordan, Kuwait, Libya, Malaysia, Mali, Mauritania, Mozambique, Netherlands, Niger, Nigeria, Oman, Portugal, Qatar, Romania, Russian Federation, Serbia, South Africa, South Korea, Spain, Sudan, Sweden, Switzerland, Syria, Tajikistan, Tunisia, Turkey, Ukraine, United Arab Emirates, Vietnam, and Yemen.

In 2001, Algeria and the U.S. signed a Trade and Investment Framework Agreement (TIFA), and its council met most recently in Washington, D.C. in October 2018.

Algeria has trade agreements with the European Union, the Arab League, and is a signatory party to the African Free Trade Area agreement, although none has been fully implemented.  Recently instituted import barriers violate the terms of both the EU and Arab League agreements.  The Algerian government concluded two years of “renegotiation” talks with the European Union in March 2017.  None of the trade terms of the 2005 EU-Algeria Association Agreement were modified, but the European Union committed to approximately USD 43 million of technical assistance for various Algerian ministries.  In February 2020, the Algerian government announced a commission would assess the trade agreements in force and recommend to the government whether Algeria will continue to adhere.

Algeria does not have a bilateral taxation treaty with the United States.  Algeria has bilateral taxation treaties with the Arab Maghreb Union (Libya, Mauritania, Morocco, and Tunisia), Austria, Bahrain, Belgium, Bosnia and Herzegovina, Bulgaria, Canada, China, Egypt, France, Germany, Indonesia, Iran, Italy, Lebanon, Portugal, Qatar, Romania, South Africa, South Korea, Spain, Switzerland, Turkey, and United Arab Emirates.

3. Legal Regime

Transparency of the Regulatory System

The national government manages all regulatory processes.  Legal and regulatory procedures, as written, are considered consistent with international norms, although the decision-making process is at times opaque.

Algeria implemented the Financial Accounting System (FAS) in 2010.  Though legislation does not make explicit references, FAS appears to be based on International Accounting Standards Board and International Financial Reporting Standards (IFRS).  Operators generally find accounting standards follow international norms, though they note that some particularly complex processes in IFRS have detailed explanations and instructions but are explained relatively briefly in FAS.

There is no mechanism for public comment on draft laws, regulations or regulatory procedures.  Copies of draft laws are not made publicly accessible before enactment.  Government officials often give testimony to Parliament on draft legislation, and that testimony typically receives press coverage.  Occasionally, copies of bills are leaked to the media.   All laws and some regulations are published in the Official Gazette (www.joradp.dz ) in Arabic and French, but the database has only limited online search features and no summaries are published.  Secondary legislation and/or administrative acts (known as ‘circulaires’ or ‘directives’) often provide important details on how to implement laws and procedures.  Administrative acts are generally written at the ministry level and not made public, though may be available if requested in person at a particular agency or ministry.  Public tenders are often accompanied by a book of specifications only provided upon payment.

In some cases, authority over a matter may rest among multiple ministries, which may impose additional bureaucratic steps and the likelihood of either inaction or the issuance of conflicting regulations.  The development of regulations occurs largely away from public view; internal discussions at or between ministries are not usually made public.  In some instances, the only public interaction on regulations development is a press release from the official state press service at the conclusion of the process; in other cases, a press release is issued earlier.  Regulatory enforcement mechanisms and agencies exist at some ministries, but they are usually understaffed and enforcement remains weak.

The National Economic and Social Council (CNES) studies the effects of Algerian government policies and regulations in economic and social spheres.  The CNES provides feedback on proposed legislation, but neither the feedback nor legislation are necessarily made public.

Information on external debt obligations up to fiscal year 2018 was publicly available via the Central Bank’s quarterly statistical bulletin online .  The statistical bulletin describes external debt and not public debt, but the Ministry of Finance’s budget execution summaries reflect amalgamated debt totals.  The Ministry of Finance is planning to create an electronic, consolidated database of internal and external debt information, and in 2019 published additional public debt information on its website.  A 2017 amendment to the 2003 law on currency and credit covering non-conventional financing authorizes the Central Bank to purchase bonds directly from the Treasury for a period of up to five years.   The Ministry of Finance indicated this would include purchasing debt from state enterprises, allowing the Central Bank to transfer money to the treasury, which would then provide the cash to, for example, state owned enterprises in exchange for their debt.  In September 2019, the Prime Minister announced Algeria would no longer use non-conventional financing, although the Ministry of Finance stressed the program remains available until 2022.

International Regulatory Considerations

Algeria is not a member of any regional economic bloc or of the WTO.  The structure of Algerian regulations largely follows European – specifically French – standards.

Legal System and Judicial Independence

Algeria’s legal system is based on the French civil law tradition.  The commercial law was established in 1975 and most recently updated in 2007 (www.joradp.dz/TRV/FCom.pdf ).  The judiciary is nominally independent from the executive branch, but U.S. companies have reported allegations of political pressure exerted on the courts by the executive.  Organizations representing lawyers and judges have protested during the past year against alleged executive branch interference in judicial independence.  Regulation enforcement actions are adjudicated in the national courts system and are appealable.  Algeria has a system of administrative tribunals for adjudicating disputes with the government, distinct from the courts that handle civil disputes and criminal cases.  Decisions made under treaties or conventions to which Algeria is a signatory are binding and enforceable under Algerian law.

Laws and Regulations on Foreign Direct Investment

The 51/49 investment rule requires a majority Algerian ownership for all investments, though pending guidance from the Algerian government will limit the rule to “strategic sectors” as prescribed in the 2020 Finance Law (see section 2).  There are few other laws restricting foreign investment.  In practice, the many regulatory and bureaucratic requirements for business operations provide officials avenues to advance informally political or protectionist policies.  The investments law enacted in 2016 charged ANDI with creating four new branches to assist with business establishment and the management of investment incentives.  ANDI’s website (www.andi.dz/index.php/en/investir-en-algerie ) lists the relevant laws, rules, procedures, and reporting requirements for investors.  Much of the information lacks detail – particularly for the new incentives elaborated in the 2016 investments law – and refers prospective investors to ANDI’s physical “one-stop shops” located throughout the country.

There is an ongoing effort by the customs service, under the Ministry of Finance, to establish a new digital platform featuring one-stop shops for importers and exports to streamline bureaucratic processes.

Competition and Anti-Trust Laws

The National Competition Council (www.conseil-concurrence.dz/ ) is responsible for reviewing both domestic and foreign competition-related concerns.  Established in late 2013, it is housed under the Ministry of Commerce.  Once the economic concentration of an enterprise exceeds 40 percent of a market’s sales or purchases, the Competition Council is authorized to investigate, though a 2008 directive from the Ministry of Commerce exempted economic operators working for national economic progress from this review.

Expropriation and Compensation

The Algerian state can expropriate property under limited circumstances, with the state required to pay “just and equitable” compensation to the property owners.  Expropriation of property is extremely rare, with no cases within the last 10 years.  In late 2018, however, a government measure required farmers to comply with a new regulation altering the concession contracts of their land in a way that would cede more control to the government.  Those who refused to switch contract type by December 31, 2018 lost their right to their land.

Dispute Settlement

ICSID Convention and New York Convention

Algeria is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) and the Convention on the International Center for the Settlement of Investment Disputes (ICSID Convention).  The Algerian code of civil procedure allows both private and public sector companies full recourse to international arbitration.  Algeria permits the inclusion of international arbitration clauses in contracts.

Investor-State Dispute Settlement

Investment disputes sometimes occur, especially on major projects.  Investment disputes can be settled informally through negotiations between the parties or via the domestic court system.  For disputes with foreign investors, cases can be decided through international arbitration.  The most common disputes in the last several years have involved state-owned oil and gas company Sonatrach and its foreign partners concerning the retroactive application since 2006 of a windfall profits tax on hydrocarbons production.  Sonatrach won a case in October 2016 against a Spanish oil company and two Korean firms.  An international firm won one of their cases against Sonatrach in 2016.  In 2018, Sonatrach announced it had settled all outstanding international disputes.

The most recent investment dispute involving a U.S. company dates to 2012.  The company, which had encountered bureaucratic barriers to the expatriation of dividends from a 2005 investment, did not resort to arbitration.  The dispute was resolved in 2017, with the government permitting the company to expatriate the dividends.

There is no U.S.-Algeria Bilateral Investment Treaty or Free Trade Agreement.

International Commercial Arbitration and Foreign Courts

The Algerian Chamber of Commerce and Industry (CACI), the nationwide, state-supported chamber of commerce, has the authority to arbitrate investment disputes as an agent of the court.  The bureaucratic nature of Algeria’s economic and legal system, as well as its opaque decision-making process, means that disputes can drag on for years before a resolution is reached.  Businesses have reported cases in the court system are subject to political influence and generally tend to favor the government’s position.

Local courts recognize and have the authority to enforce foreign arbitral awards.  Nearly all contracts between foreign and Algerian partners include clauses for international arbitration.  The Ministry of Justice is in charge of enforcing arbitral awards against SOEs.

Alternative dispute resolution mechanisms are not widely used.

Bankruptcy Regulations

Algeria’s bankruptcy system is underdeveloped.  While bankruptcy per se is not criminalized, management decisions (such as company spending, investment decisions, and even procedural mistakes) are subject to criminal penalties including fines and incarceration, so decisions that lead to bankruptcy could be punishable under Algerian criminal law.  However, bankruptcy cases rarely proceed to a full dissolution of assets.  The Algerian government generally props up public companies on the verge of bankruptcy via cash infusions from the public banking system.  According to the World Bank’s Doing Business report, debtors and creditors may file for both liquidation and reorganization.

In the past year, the court gave the government authority to put several companies in receivership and appointed temporary heads to direct them following the arrests of their CEOs as part of a broad anti-corruption drive.  The status and viability of several of those companies is unclear.

4. Industrial Policies

Investment Incentives

While the government previously required 51 percent Algerian ownership of all investments, the 2020 budget law restricted this requirement to  the hydrocarbons, mining, defense, and pharmaceuticals manufacturing sectors.

Any incentive offered by the Algerian government is generally available to any company, though there are multiple tiers of “common, additional, and exceptional” incentives under the 2016 investments law (www.joradp.dz/FTP/jo-francais/2016/F2016046.pdf ).  “Common” incentives available to all investors include exemption from customs duties for all imported production inputs, exemption from value-added tax (VAT) for all imported goods and services that enter directly into the implementation of the investment project, a 90 percent reduction of tenancy fees during construction, and a 10-year exemption on real estate taxes.  Investors also benefit from a three-year exemption on corporate and professional activity taxes and a 50 percent reduction for three years on tenancy fees after construction is completed.  Additional incentives are available for investments made outside of Algeria’s coastal regions, to include the reduction of tenancy fees to a symbolic one dinar (USD.01) per square meter of land for 10 years in the High Plateau region and 15 years in the south of Algeria, plus a 50 percent reduction thereafter.  The law also charges the state to cover, in part or in full, the necessary infrastructure works for the realization of the investment.  “Exceptional” incentives apply for investments “of special interest to the national economy,” including the extension of the common tax incentives to 10 years.  The sectors of “special interest” have not yet been publicly specified.  An investment must receive the approval of the National Investments Council in order to qualify for the exceptional incentives.

Regulations passed in a March 2017 executive decree exclude approximately 150 economic activities from eligibility for the incentives (www.joradp.dz/FTP/jo-francais/2017/F2017016.pdf ).  The list of excluded investments is concentrated on the services sector but also includes manufacturing for some products.  All investments in sales, whether retail or wholesale, and imports business are ineligible.

The 2016 investments law also provided state guarantees for the transfer of incoming investment capital and outgoing profits.  Pre-existing incentives established by other laws and regulations also include favorable loan rates well below inflation from public banks for qualified investments.

The government does not issue guarantees for private investments, or jointly financed foreign direct investment projects.  In practice, however, the government is disinclined to let companies that employ significant numbers of Algerians – whether private or public – to fail, and may take on fiscal responsibilities to ensure continued employment for workers.  President Tebboune’s administration also indicated more flexibility in considering alternative financing methods for future projects, which might include joint financing.

Foreign Trade Zones/Free Ports/Trade Facilitation

Algeria does not have any foreign trade zones or free ports.

Performance and Data Localization Requirements

The Algerian government does not officially mandate local employment, but companies usually must provide extensive justification to various levels of the government as to why an expatriate worker is needed.  Any person or legal entity employing a foreign citizen is required to notify the Ministry of Labor.  Some businesses have reported instances of the government pressuring foreign companies operating in Algeria, particularly in the hydrocarbons sector, to limit the number of expatriate middle and senior managers so that Algerians can be hired for these positions.  Contacts at multinational companies have alleged this pressure is applied via visa applications for expatriate workers.  U.S. companies in the hydrocarbons industry have reported that, when granted, expatriate work permits are usually valid for no longer than six months and are delivered up to three months late, requiring firms to apply perpetually for renewals.

In 2017, the Algerian government began instituting forced localization in the auto sector.  Regulations issued in December 2017 require companies producing or assembling cars in the country to achieve a local integration rate of at least 15 percent within three years of operation.  The threshold rises to between 40 and 60 percent after a company’s fifth year of operation.  In 2020, the Algerian government announced its intention to increase the baseline local integration for automotive assembly from 15 percent to 35 percent.  Since 2014, the government has required car dealers to invest in industrial or “semi-industrial” activities as a condition for doing business in Algeria.  Dealers seeking to import new vehicles must obtain an import license from the Ministry of Commerce.  Since January 2017, the Ministry has not issued any licenses.  As the Algerian government further restricts imports, localization requirements are expected to broaden to other manufacturing industries over the next several years.  For example, a tender launched in 2018 for 150 megawatts of photovoltaic solar energy power plants mandated that bidders be Algerian legal entities.

Information technology providers are not required to turn over source codes or encryption keys, but all hardware and software imported to Algeria must be approved by the Agency for Regulation of Post and Electronic Communications (ARPCE), under the Ministry of Post and Telecommunications.  In practice, the Algerian government requires public sector entities to store data on servers within the country.

5. Protection of Property Rights

Real Property

Secured interests in property are generally recognized and enforceable, but court proceedings can be lengthy and results unpredictable.  All property not clearly titled to private owners remains under government ownership.  As a result, the government controls most real property in Algeria, and instances of unclear titling have resulted in conflicting claims of ownership, which has made purchasing and financing real estate difficult.  Several business contacts have reported significant difficulty in obtaining land from the government to develop new industrial activities; the state prefers to lease land for 33-year terms, renewable twice, rather than sell outright.  The procedures and criteria for awarding land contracts are opaque.

Property sales are subject to registration at the tax inspection and publication office at the Mortgage Register Center and are part of the public record of that agency.  All property contracts must go through a notary.

According to the World Bank Doing Business report, Algeria ranks 165 out of 190 countries for ease of registering property.

Intellectual Property Rights

Patent and trademark protection in Algeria remains covered by a series of ordinances dating from 2003 and 2005, and representatives of U.S. companies operating in Algeria reported that these laws were satisfactory in terms of both the scope of what they cover and the penalties they mandate for violations.  A 2015 government decree increased coordination between the National Office of Copyrights and Related Rights (ONDA), the National Institute for Industrial Property (INAPI), and law enforcement to pursue patent and trademark infringements.

ONDA, under the Ministry of Culture, and INAPI, under the Ministry of Industry and Mines, are the two entities within the Algerian government that protect IPR.  ONDA covers literary and artistic copyrights as well as digital software rights, while INAPI oversees the registration and protection of industrial trademarks and patents.  Despite strengthened efforts at ONDA, INAPI, and the General Directorate for Customs (under the Ministry of Finance), which have seen local production of pirated or counterfeit goods nearly disappear since 2011, imported counterfeit goods are prevalent and easily obtained.  Algerian law enforcement agencies annually confiscate several hundred items, including clothing, cosmetics, sports items, foodstuffs, automotive spare parts, and home appliances.  ONDA destroyed more than 100,000 copies of pirated media to commemorate World Intellectual Property Day in 2017, but software firms estimate that more than 85 percent of the software used in Algeria, and a similar percentage of titles used by government institutions and state-owned companies, is not licensed.

Algeria has remained on the Priority Watch List of USTR’s Special 301 Report (https://ustr.gov/issue-areas/intellectual-property/Special-301) since 2009.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at www.wipo.int/directory/en/.

6. Financial Sector

Capital Markets and Portfolio Investment

The Algiers Stock Exchange has five stocks listed – each at no more than 35 percent equity.  There is a small and medium enterprise exchange with one listed company.  The exchange has a total market capitalization representing less than 0.1 percent of Algeria’s GDP.  Daily trading volume on the exchange averages around USD 2,000.  Despite its small size, the market functions well and is adequately regulated by an independent oversight commission that enforces compliance requirements on listed companies and traders.

Government officials aim to reach a capitalization of USD 7.8 billion in the next five years and enlist up to 50 new companies.  Attempts to list additional companies have been stymied by a lack both of public awareness and appetite for portfolio investment, as well as by private and public companies’ unpreparedness to satisfy due diligence requirements that would attract investors.  Proposed privatizations of state-owned companies have also been opposed by the public.  Algerian society generally prefers material investment vehicles for savings, namely cash.  Public banks, which dominate the banking sector (see below), are required to purchase government securities when offered, meaning they have little leftover liquidity to make other investments.  Foreign portfolio investment is prohibited – the purchase of any investment product in Algeria, whether a government or corporate bond or equity stock, is limited to Algerian residents only.

Money and Banking System

The banking sector is roughly 85 percent public and 15 percent private as measured by value of assets held, and is regulated by an independent central bank.  Publicly available data from private institutions and U.S. Federal Reserve Economic Data show estimated total assets in the commercial banking sector in 2017 were roughly 13.9 trillion dinars (USD 116.7 billion) against 9.2 trillion dinars (USD 77.2 billion) in liabilities.  The central bank had mandated a 12 percent reserve requirement until mid-2016, when in response to a drop in liquidity the bank lowered the threshold to eight percent.  In August 2017, the ratio was further reduced to 4% in an effort to inject further liquidity into the banking system.  The decrease in liquidity was a result of all public banks buying government bonds in the first public bond issuance in more than 10 years; buying at least five percent of the offered bonds is required for banks to participate as primary dealers in the government securities market.  The bond issuance essentially returned funds to the state that it had deposited at local banks during years of high hydrocarbons profits.  In January 2018, the bank increased the retention ratio from 4 percent to 8 percent, followed by a further increase in February 2019 to a 12 percent ratio  in anticipation of a rise in bank liquidity due to the government’s non-conventional financing policy, which allows the Treasury to borrow directly from the central bank to pay state debts.  In response to liquidity concerns caused by the oil price decline in March 2020, the bank decreased the reserve requirement to 8 percent.

The IMF and Bank of Algeria have noted moderate growth in non-performing assets, currently estimated between 10-12 percent of total assets.  The quality of service in public banks is generally considered low as generations of public banking executives and workers trained to operate in a statist economy lack familiarity with modern banking practices.  Most transactions are materialized (non-electronic).  Many areas of the country suffer from a dearth of branches, leaving large amounts of the population without access to banking services.  ATMs are not widespread, especially outside the major cities, and few accept foreign bankcards.  Outside of major hotels with international clientele, hardly any retail establishments accept credit cards.  Algerian banks do issue debit cards, but the system is distinct from any international payment system.  In addition, approximately 4.6 trillion dinars ( USD 40 billion), or one-third, of the money supply is estimated to circulate in the informal economy.

Foreigners can open foreign currency accounts without restriction, but proof of a work permit or residency is required to open an account in Algerian dinars.  Foreign banks are permitted to establish operations in the country, but they must be legally distinct entities from their overseas home offices.

In 2015, the Financial Action Task Force (FATF) removed Algeria from its Public Statement, and in 2016 it removed Algeria from the “gray list.”  The FATF recognized Algeria’s significant progress and the improvement in its anti-money laundering/counter terrorist financing (AML/CFT) regime.  The FATF also indicated Algeria has substantially addressed its action plan since strategic deficiencies were identified in 2011.

Foreign Exchange and Remittances

Foreign Exchange

There are few statutory restrictions on foreign investors converting, transferring, or repatriating funds, according to banking executives.  Monies cannot be expatriated to pay royalties or to pay for services provided by resident foreign companies.  The difficultly with conversions and transfers results mostly from the procedures of the transfers rather than the statutory limitations: the process is bureaucratic and requires almost 30 different steps from start to finish.  Missteps at any stage can slow down or completely halt the process.  Transfers should take roughly one month to complete, but often take three to six months.  Also, the Algerian government has been known to delay the process as leverage in commercial and financial disputes with foreign companies.

Expatriated funds can be converted to any world currency.  The IMF classifies the exchange rate regime as an “other managed arrangement,” with the central bank pegging the value of the Algerian dinar (DZD) to a “basket” composed of 64 percent of the value of the U.S. dollar and 36 percent of the value of the euro.  The currency’s value is not controlled by any market mechanism and is set solely by the central bank.  As the Central Bank controls the official exchange rate of the dinar, any change in its value could be considered currency manipulation.  When dollar-denominated hydrocarbons profits fell starting in mid-2014, the central bank allowed a slow depreciation of the dinar against the dollar over 24 months, culminating in about a 30 percent fall in its value before stabilizing around 110 dinars to the U.S. dollar in late 2016.  However, the dinar lost only about 10 percent of its value against the euro in the same time frame.  The 2020 Finance Law forecast a 10 percent depreciation of the dinar against the dollar over three years.  Between March 8 and March 30 2020, the government allowed the dinar to depreciate five percent against the dollar.  Imbalances in foreign exchange supply and demand caused by the COVID-19 outbreak in March 2020 led to a steep decline in the value of the euro and dollar on the foreign exchange black market.

Remittance Policies

There have been no recent changes to remittance policies.  Algerian exchange control law remains strict and complex. There are no specific time limitations, although the bureaucracy involved in remittances can often slow the process to as long as six months.  Personal transfers of foreign currency into the country must be justified and declared as not for business purpose.  There is no legal parallel market through which investors can remit; however, there is a substantial black market for foreign currency, where the dollar and euro trade at a significant premium above official rates, although economic disruptions related to the outbreak of COVID-19 in March 2020 led to interruptions in the functioning of the black market.  With the more favorable informal rates, local sources report that most remittances occur via foreign currency hand-carried into the country.  Under central bank regulations revised in September 2016, travelers to Algeria are permitted to enter the country with up to 1,000 euros or equivalent without declaring the funds to customs.  However, any non-resident can only exchange dinars back to a foreign currency with proof of initial conversion from the foreign currency.  The same regulations prohibit the transfer of more than 3,000 dinars (USD 26) outside Algeria.

Private citizens may convert up to 15,000 dinars (USD 127) per year for travel abroad.  To do the conversion, they must demonstrate proof of their intention to travel abroad through plane tickets or other official documents.

In April 2019, the Finance Ministry announced the creation of a vigilance committee to monitor and control financial transactions to foreign countries.  It divided operations into three categories relating to 1) imports, 2) investments abroad, and 3) transfer abroad of profits.

Sovereign Wealth Funds

Algeria’s sovereign wealth fund (SWF) is the “Fonds de Regulation des Recettes (FRR).”  The Finance Ministry’s website shows the fund decreased from 4408.2 billion dinars (USD 37.36 billion) in 2014 to 784.5 billion dinars (USD 6.65 billion) in 2016.  Algerian media reported the FRR was spent down to zero as of February 2017.  Algeria is not known to have participated in the IMF-hosted International Working Group on SWF’s.

7. State-Owned Enterprises

State-owned enterprises (SOEs) comprise more than half of the formal Algerian economy.  SOEs are amalgamated into a single line of the state budget and are listed in the official business registry.  To be defined as an SOE, a company must be at least 51 percent owned by the state.

Algerian SOEs are bureaucratic and may be subject to political influence.  There are competing lines of authority at the mid-levels, and contacts report mid- and upper-level managers are reluctant to make decisions because internal accusations of favoritism or corruption are often used to settle political and personal scores.  Senior management teams at SOEs report to their relevant ministry; CEOs of the larger companies such as national hydrocarbons company Sonatrach, national electric utility Sonelgaz, and airline Air Algerie report directly to ministers.  Boards of directors are appointed by the state, and the allocation of these seats is considered political.  SOEs are not known to adhere to the OECD Guidelines on Corporate Governance.

Legally, public and private companies compete under the same terms with respect to market share, products and services, and incentives.  In reality, private enterprises assert that public companies sometimes receive more favorable treatment.  Private enterprises have the same access to financing as SOEs, but they work with private banks and they are less bureaucratic than their public counterparts.  Public companies refrained from doing business with private banks and a 2008 government directive ordered public companies to work only with public banks.  The directive was later officially rescinded, but public companies continued the practice.  However, the heads of Algeria’s two largest state enterprises, Sonatrach and Sonelgaz, both indicated in 2020 that given current budget pressures they are investigating recourse to foreign financing, including from private banks.  SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors, but business contacts report that the government favors SOEs over private sector companies in terms of access to land.

SOEs are subject to budget constraints.  Audits of public companies can be conducted by the Court of Auditors, a financially autonomous institution.  The constitution explicitly charges it with “ex post inspection of the finances of the state, collectivities, public services, and commercial capital of the state,” as well as preparing and submitting an annual report to the President, heads of both chambers of Parliament, and Prime Minister.  The Court makes its audits public on its website, for free, but with a time delay, which does not conform to international norms.

The Court conducts audits simultaneously but independently from the Ministry of Finance’s year-end reports.  The Court makes its reports available online once finalized and delivered to the Parliament, whereas the Ministry withholds publishing year-end reports until after the Parliament and President have approved them.  The Court’s audit reports cover the entire implemented national budget by fiscal year and examine each annual planning budget that is passed by Parliament.

The General Inspectorate of Finance (IGF), the public auditing body under the supervision of the Ministry of Finance, can conduct “no-notice” audits of public companies.  The results of these audits are sent directly to the Minister of Finance, and the offices of the President and Prime Minister.  They are not made available publicly.  The Court of Auditors and IGF previously had joint responsibility for auditing certain accounts, but they are in the process of eliminating this redundancy.  Further legislation clarifying whether the delineation of responsibility for particular accounts which could rest with the Court of Auditors or the Ministry of Finance’s General Inspection of Finance (IGF) unit has yet to be issued.

Privatization Program

There has been limited privatization of certain projects previously managed by SOEs, and so far restricted to the water sector and possibly a few other sectors.  However, the privatization of SOEs remains publicly sensitive and has been largely halted.

8. Responsible Business Conduct

Multinational, and particularly U.S., firms operating in Algeria are spreading the concept of responsible business conduct (RBC), which has traditionally been less common among domestic firms.  Companies such as Anadarko, Cisco, Microsoft, Boeing, Dow, and Berlitz have supported programs aimed at youth employment, education, and entrepreneurship.  RBC activities are gaining acceptance as a way for companies to contribute to local communities while often addressing business needs, such as a better-educated workforce.  The national oil and gas company, Sonatrach, funds some social services for its employees and supports desert communities near production sites.  Still, many Algerian companies view social programs as the government’s responsibility.  While state entities welcome foreign companies’ RBC activities, the government does not factor them into procurement decisions, nor does it require companies to disclose their RBC activities.  Algerian laws for consumer and environmental protections exist but are weakly enforced.

Algeria does not adhere to the OECD or UN Guiding Principles and does not participate in the Extractive Industries Transparency Initiative.  Algeria ranks 73 out of 89 countries for resource governance and does not comply with rules set for disclosing environmental impact assessments and mitigation management plans, according to the most recent report by National Resource Governance Index.

9. Corruption

The current anti-corruption law dates to 2006.  In 2013, the Algerian government created the Central Office for the Suppression of Corruption (OCRC) to investigate and prosecute any form of bribery in Algeria.  The number of cases currently being investigated by the OCRC is not available.  In 2010, the government created the National Organization for the Prevention and Fight Against Corruption (ONPLC) as stipulated in the 2006 anti-corruption law.  The Chairman and members of this commission are appointed by a presidential decree.  The commission studies financial holdings of public officials, though not their relatives, and carries out studies.  Since 2013, the Financial Intelligence Unit has been strengthened by new regulations that have given the unit more authority to address illegal monetary transactions and terrorism funding.  In 2016, the government updated its anti-money laundering and counter-terrorist finance legislation to bolster the authority of the financial intelligence unit to monitor suspicious financial transactions and refer violations of the law to prosecutorial magistrates.  Algeria signed the UN Convention Against Corruption in 2003.

The Algerian government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials.  The use of internal controls against bribery of government officials varies by company, with some upholding those standards and others rumored to offer bribes.  Algeria is not a participant in regional or international anti-corruption initiatives.  Algeria does not provide protections to NGOs involved in investigating corruption.  While whistleblower protections for Algerian citizens who report corruption exist, members of Algeria’s anti-corruption bodies believe they need to be strengthened to be effective.

International and Algerian economic operators have identified corruption as a challenge for FDI.  They indicate that foreign companies with strict compliance standards cannot effectively compete against companies which can offer special incentives to those making decisions about contract awards.  Economic operators have also indicated that complex bureaucratic procedures are sometimes manipulated by political actors to ensure economic benefits accrue to favored individuals in a non-transparent way.  Anti-corruption efforts have so far focused more on prosecuting previous acts of corruption rather than on institutional reforms to reduce the incentives and opportunities for corruption.  In October 2019, the government adopted legislation which allowed police to launch anti-corruption investigations without first receiving a formal complaint against the entity in question.  Proponents argued the measure is necessary given Algeria’s weak whistle blower protections.

Currently the government is working with international partners to update legal mechanisms to deal with corruption issues.  The government also created a new institution to target and deter the practice of overbilling on invoices, which has been used to unlawfully transfer foreign currency out of the country.

The government imprisoned numerous prominent economic and political figures in 2019 and 2020 as part of an anti-corruption campaign.  Some operators report that fear of being accused of corruption has made some officials less willing to make decisions, delaying some investment approvals.  Corruption cases that have reached trial deal largely with state investment in the automotive and public works sectors, though other cases are reportedly under investigation.

Resources to Report Corruption

Official government agencies:

Central Office for the Suppression of Corruption (OCRC)
Mokhtar Lakhdari, General Director
Placette el Qods, Hydra, Algiers
+213 21 68 63 12
www.facebook.com/263685900503591/ 
no email address publicly available

National Organization for the Prevention and Fight Against Corruption (ONPLC)
Tarek Kour, President
14 Rue Souidani Boudjemaa, El Mouradia, Algiers
+213 21 23 94 76
www.onplc.org.dz/index.php/ 
contact@onplc.org.dz

Watchdog organization:

Djilali Hadjadj
President
Algerian Association Against Corruption (AACC)
www.facebook.com/215181501888412/ 
+213 07 71 43 97 08
aaccalgerie@yahoo.fr

10. Political and Security Environment

Following nearly two months of massive protests, known as the hirak, former President Abdelaziz Bouteflika resigned on April 2, 2019, after 20 years in power.  His resignation launched an eight-month transition, resulting in the election of Abdelmadjid Tebboune as president in December 2019.  Voter turnout was approximately 40% and the new administration has focused on restoring government authority and legitimacy.

Prior to the hirak, demonstrations in Algeria tended to concern housing and other social programs and were generally smaller than a few hundred participants.  While most protests were peaceful, there were occasional outbreaks of violence that resulted in injuries, sometimes resulting from efforts of security forces to disperse the protests.

Government reactions to public unrest typically include tighter security control on movement between and within cities to prevent further clashes and promises of either greater public expenditures on local infrastructure or increased local hiring for state-owned companies.  During the first few months of 2015, there were a series of protests in several cities in southern Algeria against the government’s program to drill test wells for shale gas.  These protests were largely peaceful but sometimes resulted in clashes, injury, and rarely, property damage.  Government pronouncements in 2017 that shale gas exploration would recommence did not generate protests.

On April 27, 2020, an Algerian court sentenced an expatriate manager and an Algerian employee of a large hotel to six months in prison on charges of “undermining the integrity of the national territory” for allegedly sharing publicly available security information with corporate headquarters outside of Algeria.

The Algerian government requires all foreign employees of foreign companies or organizations based in Algeria to contact the Foreigners Office of the Ministry of the Interior before traveling in the country’s interior so that the government can evaluate security conditions.  The Algerian government also requires U.S. Embassy employees to request permission and a police escort to visit the Casbah in Algiers and to coordinate travel with the government on any trip outside of the Algiers wilaya (province).  In response to the COVID-19 outbreak, the Algerian government imposed lockdowns or curfews throughout the country, cancelled events and gatherings, suspended public transportation and domestic and international flights, and required 50 percent of all non-essential employees to stay at home.  These restrictions may impact where and when certain U.S. consular services can be provided.

The government’s efforts to reduce terrorism have focused on proactive security services and social reconciliation and reintegration.  Isolated terrorist incidents still occasionally occur.  There have been two major attacks on oil and gas installations in the last 10 years.  In March 2016, terrorists launched a homemade rocket attack on a gas facility in central Algeria that caused limited damage but no casualties.  In January 2013, there was a major attack at a remote oil and gas facility near the town of In Amenas in southeast Algeria (approximately 1,500 kilometers from Algiers) in which nearly 40 people – mostly western energy sector workers, including three Americans – were killed.

Terrorist attacks usually target Algerian government interests and security forces and generally occur outside of major cities, particularly in mountainous or remote southern areas.  On November 18, 2019, Algerian forces killed two alleged ISIS members during an operation along the southern border with Mali.  In February 2020, ISIS claimed responsibility for a suicide bomber who attacked a military barracks in southern Algeria, killing a soldier.  Other terrorist attacks claimed by ISIS include an August 2017 suicide attack in Tiaret that killed two police officers, and a February 2017 attack that injured two police officers in Constantine.

Each of these attacks prompted a swift counterterrorism response by Algerian security services against the militants responsible for the attacks, and the military continues regular counterterrorism operations.

U.S. citizens living or traveling in Algeria are encouraged to enroll in the Smart Traveler Enrollment Program (STEP) via the State Department’s travel registration website, https://step.state.gov/step, to receive security messages and make it easier to be located in an emergency.

11. Labor Policies and Practices

There is a shortage of skilled labor in Algeria in all sectors.  Business contacts report difficulty in finding sufficiently skilled plumbers, electricians, carpenters, and other construction/vocational related areas.  Oil companies report they have difficultly retaining trained Algerian engineers and field workers because these workers often leave Algeria for higher wages in the Gulf.  Some white-collar employers also report a lack of skilled project managers, supply chain engineers, and sufficient numbers of office workers with requisite computer and soft skills.

Official unemployment figures are measured by the number of persons seeking work through the National Employment Agency (ANEM).  Unemployment in 2019 dropped slightly to 11.4 percent.  Unemployment is significantly higher among certain demographics, including 29 percent  of young people (ages 16-24).  The rate of unemployed young men decreased in 2019, from 9.9 to 9.1 percent.  The percentage of unemployed young women increased from 2018 from 19.4 percent to 20.4 percent.  Roughly 70 percent of the population is under 30.

An important factor in the increased unemployment rate in 2019 is the government’s continued austerity policy since 2015, which has resulted in the cancellation of several investment projects, the freezing of recruitment in the public sector, and the decision not to replace government positions lost to normal attrition.  Additionally, the subsidy allotted to finance vocational integration (le dispositif d’insertion professionnelle) decreased from 135 billion dinars in 2013 to 44.1 billion in 2019.  In general, finding a job is regulated by the government and bureaucratically complex.  Prospective employees must register with the labor office, submit paper resumes door to door, attend career fairs, and comb online job offerings.  According to the Office of National Statistics, 81 percent of university graduates say that they favor “family relationships” or “the family network” as the best way to look for a job.

The private sector accounts for 62.2 percent of total employment with 7.014 million people, with 37.8 percent in the public sector, employing 4.267 million people.  Additionally, the International Labor Organization (ILO) estimates that more than one-third of all employment in Algeria takes place in the informal economy.  The Ministry of Vocational Training sponsors programs that offer training to at least 300,000 Algerians annually, including those who did not complete high school, in various professional programs.

Companies must submit extensive justification to hire foreign employees, and report pressure to hire more locals (even if jobs could be replaced through mechanization) under the implied risk that the government will not approve visas for expatriate staff.  There are no special economic zones or foreign trade zones in Algeria.

The constitution provides workers with the right to join and form unions of their choice provided they are Algerian citizens.  The country has ratified the ILO’s conventions on freedom of association and collective bargaining, but failed to enact legislation needed to implement these principles fully.  The General Union of Algerian Workers (UGTA) is the largest union in Algeria and represents a broad spectrum of employees in the public sectors.  The UGTA, an affiliate of the International Trade Union Conference, is an official member of the Algerian “tripartite,” a council of labor, government, and business officials that meets annually to collaborate on economic and labor policy.  The Algerian government liaises almost exclusively with the UGTA, however unions in the education, health, and administration sectors do meet and negotiate with government counterparts, especially when there is a possibility of a strike.  Collective bargaining is legally permitted but is not mandatory.

Algerian law provides mechanisms for monitoring labor abuses and health and safety standards, and international labor rights are recognized under domestic law, but are only effectively regulated in the formal economy.  The government has shown an increasing interest in understanding and monitoring the informal economy, evidenced by its 2018 partnerships with the ILO and current cooperation with the World Bank on several projects aimed at better quantifying the informal sector.

Sector-specific strikes occur often in Algeria, though general strikes are less common.  The law provides for the right to strike, and workers exercise this right, subject to conditions.  Striking requires a secret ballot of the whole workforce, and the decision to strike must be approved by a majority vote of the workers at a general meeting.  The government may restrict strikes on a number of grounds, including economic crisis, obstruction of public services, or the possibility of subversive actions.  Furthermore, all public demonstrations, including protests and strikes, must receive prior government authorization.  By law, workers may strike only after 14 days of mandatory conciliation or mediation.  The government occasionally offers to mediate disputes.  The law states that decisions agreed to in mediation are binding on both parties.  If mediation does not lead to an accord, workers may strike legally after they vote by secret ballot.  The law requires that a minimum level of essential public services must be maintained, and the government has broad legal authority to requisition public employees.  The list of essential services includes banking, radio, and television.  Penalties for unlawful work stoppages range from eight days to two months imprisonment.

In 2019, there were strikes at the end of the year, largely in the public health and public education sectors.  Medical residents went on strike demanding higher pay, better working conditions, and male residents sought an exemption from mandatory military service requirements.  After weeks of strikes, the Ministry of Health made some concessions in terms of additional benefits for doctors, and the residents resumed work.  Teachers also went on strike for higher pay and complained of perceived inequalities in the pay scale.  After weeks of strikes and a closed-door meeting, the Ministry of Education and unions came to an agreement, but to date no changes have been implemented and periodic teacher strikes continue.

Stringent labor-market regulations likely inhibit an increase in full-time, open-ended work.  Regulations do not allow for flexibility in hiring and firing in times of economic downturn.  For example, employers are generally required to pay severance when laying off or firing workers.  Unemployment insurance eligibility requirements may discourage job seekers from collecting benefits due to them, and the level of support claimants receive is minimal.  Employers must have contributed up to 80 percent of the final year salary into the unemployment insurance scheme in order for the employees to qualify for unemployment benefits.

The law contains occupational health and safety standards but enforcement of these standards is uneven.  There were no known reports of workers dismissed for removing themselves from hazardous working conditions.  If workers face hazardous conditions, they may file a complaint with the Ministry of Labor, which is required to send out labor inspectors to investigate the claim.  Nevertheless, the high demand for unemployment in Algeria gives an advantage to employers seeking to exploit employees.

Because Algerian law does not provide for temporary legal status for migrants, labor standards do not protect economic migrants from sub-Saharan Africa and elsewhere working in the country without legal immigration status.  However, migrant children are protected by law from working.

The Ministry of Labor enforces labor standards, including compliance with the minimum wage regulation and safety standards.  Companies that employ migrant workers or violate child labor laws are subject to fines and potentially prosecution.

The law prohibits participation by minors in dangerous, unhealthy, or harmful work or in work considered inappropriate because of social and religious considerations.  The minimum legal age for employment is 16, but younger children may work as apprentices with permission from their parents or legal guardian.  The law prohibits workers under age 19 from working at night.  While there is currently no list of hazardous occupations prohibited to minors, the government reports it is drafting a list which will be issued by presidential decree.  Although specific data was unavailable, children reportedly worked mostly in the informal sector, largely in sales, often in family businesses.  They are also involved in begging and agricultural work.  There were isolated reports that children were subjected to commercial sexual exploitation.

The Ministry of Labor is responsible for enforcing child labor laws.  There is no single office charged with this task, but all labor inspectors are responsible for enforcing laws regarding child labor.  In 2018, the Ministry of Labor focused one month specifically on investigating child labor violations, and in some cases prosecuted individuals for employing minors or breaking other child-related labor laws.  While the government claims to monitor both the formal and informal sectors, contacts note that their efforts largely focus on the formal economy.

The National Authority of the Protection and Promotion of Children (ONPPE) is an inter-agency organization, created in 2016, which coordinates the protection and promotion of children’s rights.  As a part of its efforts, in 2018 ONPPE held educational sessions for officials from relevant ministries, civil society organizations, and journalists on issues related to children, including child labor and human trafficking.

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

An Overseas Private Investment Corporation (OPIC) agreement between the U.S and Algeria was signed in June 1990.  In 2005, the Algerian Energy Company entered a deal with Ionics Inc. of Watertown, Massachusetts, in which Ionics agreed to build a water desalination plant and the state water authority took a minority stake in the plant and agreed to purchase the bulk of the clean water produced.  OPIC provided a USD 200 million loan to Ionics, a desalination equipment manufacturer that was later acquired by General Electric.  In 2017, GE sold its stake in the Algiers water desalination plant, OPIC’s first and only project in Algeria to date.

An investment fund which used OPIC financing is in the process of selling assets in Algeria.

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) 2019 $157.9 billion 2019 $170 billion World Bank:
https://data.worldbank.org/indicator/
NY.GDP.MKTP.CD
 
Algerian Office of National Statistics:
http://www.ons.dz/Au-deuxieme-
trimestre-2018-les.html
 
http://www.ons.dz/IMG/pdf/
comptesn4t2019.pdf
 
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 2019 $2.74 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 Algeria not listed BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2019  18.3% of GDP Algerian Source: National Agency for Investment Development.

UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
 

* Source for Host Country Data: Algerian Office of National Statistics.

Data on inbound stock of FDI from UNCTAD is cumulative for 2005-2018, while the local Algerian source provides data only for 2018, hence the large discrepancy in size.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data 2018
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 26,693 100% Total Outward 2,302 100%
United States #1 6,962 26.08% Italy #1 1,010 43.87%
Italy #2 3,208 12.02% Peru #2 243 10.56%
France #3 2,939 11.01% Switzerland #3 234 10.17%
Spain #4 2,102 7.87% Spain #4 180 7.82%
United Kingdom#5 1,770 6.63% Libya #5 131 5.69%
“0” reflects amounts rounded to +/- USD 500,000.

The latest data available for Algeria is from 2018.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

U.S Embassy Algiers
Political and Economic Section
5 Chemin Cheikh Bachir El-Ibrahimi, El Biar Algiers, Algeria
(+213) 0770 082 153
Algiers_polecon@state.gov

Angola

Executive Summary

Angola is a lower middle-income country located in southern Africa with a USD 100 billion gross domestic product (GDP), a 31.9 million population and a per capita income of USD 3,360 according to 2019 International Monetary Fund (IMF) estimates. The third largest economy in sub-Saharan Africa, Angola is a member of the Organization of the Petroleum Exporting Countries (OPEC) and produces an average of 1.390 million barrels per day, the second highest volume in the sub-Saharan region behind Nigeria. Angola also holds significant proven gas reserves as well as extensive mineral resources. Oil still accounts for 90 percent of exports and 37 percent of GDP. The Government of Angola (GRA)’s commitment to improve oil sector transparency led to the creation of the National Oil and Gas Agency (ANPG), an independent regulator to manage oil and gas concessions, which also ensures that the state-owned oil monopoly Sonangol will relinquish substantial control in the sector and on its core upstream business. In addition to reforms in the oil sector, the administration of President Joao Lourenco has implemented numerous other structural reforms to improve macroeconomic stability and the climate for economic growth. In early 2018, the government scrapped the Angolan currency’s fixed peg to the U.S. dollar over concerns of dwindling foreign exchange reserves, and to institute a more transparent market-based foreign exchange regime. A new private investment law and an antitrust law in 2018 have been key administration initiatives to encourage foreign direct investment (FDI), private-sector competitiveness, and growth. The loosening of the exchange rate has since led to a 178 percent drop in the kwanza. Public debt has shot up to above100 percent of GDP. To curb the depletion of foreign currency reserves, the Central Bank (BNA) has allowed commercial banks to purchase foreign currency directly from oil and gas companies. The BNA has also adopted a restrictive monetary policy, increased the minimum share and start-up requirements for commercial banks, and revoked the licenses of two non-complaint commercial banks.

The Lourenco administration has prioritized the fight against corruption and the culture of impunity. His government has indicted prominent Angolan figures accused of corruption-related charges and has improved the legal framework to better control illicit financial flows. The National Strategic Plan to Fight Against Corruption, a five-year strategy launched in 2018, aims to tackle corruption, money laundering, and other economic and financial crimes. The strategy focuses on three main pillars – prevention, prosecution, and institutional capacity building, and includes short and long-term initiatives for a-whole-of society approach to help reduce the impact of corruption. In late 2018, the government approved the law on Compulsory Repatriation and Excess Loss of Assets, providing measures for the repatriation of illicit financial flows. However, a lack of institutional, human, and material capacity risks undercutting the government’s anti-corruption objectives.

The business environment remains challenging, spurred by a tedious bureaucracy with limited bottom-up leadership. Angola ranked 177 out of 190 in the 2020 World Bank’s Doing Business ranking. Inadequate supply chain infrastructure, slow and inefficient institutions, limited access to credit, and corruption continue to constrain the private sector’s contribution to growth. Progress in economic diversification and advancement in social and human-capital indicators remain slow and limited.

Angola remains heavily dependent on oil, which accounts for 90% of the nation’s total merchandise exports. The recent decline in international oil prices has further aggravated the vulnerability of the country to external shocks. Overdependence on a single export item (oil) has also discouraged the country from incorporating into global value chains and participating more fully in the export of manufactured goods and value-added services.

Rolling back dependency on oil will require significant investment in other economic sectors to stimulate growth. Opportunities lie in the precious minerals, tourism, agriculture, fisheries, and hydropower sectors. Continued infrastructure development opportunities are most obvious in the areas of public transportation, tourism, port rehabilitation, energy and power, telecoms, mining, natural gas, and in creating national oil refining capacity. Key sectors that have attracted significant regional and international investment in the country include energy, construction, and oil and gas. Non-oil economic sectors such as agriculture, energy, fisheries, and extractives will open up new areas to foreign and national investment. As the country continues to seek to diversify its economy, an emerging sector is agriculture, in which the country lacks technical knowhow and the necessary startup capital resources to develop. Agriculture represents only 11 percent of GDP. Angola has decided to open up its telecoms market in a bid to attract foreign capital.

Key Issues to watch:

  • Angola continues to suffer from a relatively poor investment climate due in large part to the lack of openness to competition in the private sector and the dominance of the state on state-owned enterprises and in the economy. However, the government has prioritized the privatization of 74 state-owned enterprises by 2020.
  • Angola benefits from a relatively stable and predictable political environment, especially when compared to its neighbors in the region. While Angola is scheduled to hold its first municipal elections in 2020, which may lead to some decentralization of decision-making authority, disbursement, and management of public resources, it is unlikely the elections will occur due to the ongoing COVID-19 pandemic.
  • There is an abundant supply of unskilled labor, particularly in the capital, Luanda. Skilled professionals are available, but often require additional training.
  • Portuguese is commonly spoken, while English competency levels are relatively low.
  • The new private investment law of 2018 provides greater tax incentives to companies investing in the domestic economy and does away with the local partnership requirements for foreign investment and ends minimum levels for investment.
  • The Government remains committed to improving the investment environment, strengthening governance, and fighting corruption, and in 2019 passed amended anti-money laundering and countering the financing of terrorism (AML/CFT) legislation to better control illicit financial flows and fight against corruption.
  • Real estate and living expenses remain expensive but have recently moderated due to the ongoing economic crisis, and the local currency weakening against the U.S. dollar. In 2019, Luanda ranked 26th as the most expensive city for expatriates globally, down from sixth in 2018.
  • Infrastructure is limited, roads are often in poor condition, power outages are common, and water availability can be unreliable. Although the government is attempting to ensure more transparency and has improved in its corruption ratings, the investment climate remains hampered by corruption, and a complex, opaque regulatory environment, as outlined in Table 1.
  • Despite price gains in crude oil benchmarks in 2019, weak global oil demand affected the Angolan economy, creating drastic losses in export revenue and a severe limitation in foreign exchange, forcing substantial cuts in government spending. Angola’s high external imbalances and forex shortages continue to hurt private sector growth, and its declining foreign currency reserves.

Repatriation of capital, dividends, and transfers of remittances abroad remain challenging.

Portfolio investment in Angola is embryonic.

Women empowerment:

Although only 23 percent of Angola’s entrepreneurs are women, Angola boasts one of the highest growth rates of female entrepreneurs in Africa. However, the government has not instituted any significant reforms to increase the percentage of female entrepreneurs and limited access to credit remains a significant impediment to entrepreneurship in general.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 146 of 180 https://www.transparency.org/cpi2019
World Bank’s Doing Business Report 2019 177 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 Not listed of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 267 Million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 USD 3360 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Angola’s business environment remains one of the most difficult in the world. Investors must factor in pervasive corruption, an underdeveloped financial system, loss of U.S. corresponding banking relationships, abundant but unskilled labor, and extremely high operating costs. Surface transportation inside the country is slow and expensive, while bureaucracy and port inefficiencies complicate trade and raise costs.

The government continued to make concerted efforts to improve and diversify sources of foreign direct investment (FDI) which have been low, volatile and concentrated in the extractive sector. The New Private Investment Law (NPIL) approved by Presidential Decree 10/18, of June 26, 2018 eliminates preferential treatment to local investors and offers equal treatment to foreign investors. There are no laws or practices that discriminate against foreign investors, including U.S. investors. FDI is concentrated in the oil industry with negligible investments in the diamond, power generation, infrastructure, agriculture and health sectors. However, Angola has placed emphasis on investment in the agriculture sector to promote local production and help reduce its import bill. The NPIL also eliminated local content provisions for foreign investors, with local content provisions now only applicable to investments specific to the oil & gas, mining, banking and financial services, aviation, and shipping sectors.

Implementation of the New Private Investment Law (NPIL) remains slow and is not standardized. In November 2019, in collaboration with the American Chamber of Commerce in Angola (AmCham-Angola), the government launched the “Angola is Now” investment guide intended as a research tool to grant investors access to information on the business environment and investment opportunities in Angola. The guide contains information on Angola’s natural potential, private investment legislation, as well as the sectors of greatest interest, such as diamonds, other precious stones, iron ore, oil, agriculture, tourism, transportation, real estate and industry. Available in Portuguese and English, the guide also provides a wide range of information on the physical, geographical, environmental, economic and demographic characteristics of Angola’s 18 provinces and can also be accessed at: http://amchamangola.org/guide/ .

Limits on Foreign Control and Right to Private Ownership and Establishment

With the NPIL, the Angolan government eliminated the 35 percent local content requirement in foreign investments, and offered incentives to companies investing in the domestic economy, while maintaining minimal FDI screening processes, bringing it more in line with those of its sub-Saharan African neighbors. Foreign ownership remains limited to 49 percent in the oil and gas sectors, 50 percent in insurance, and 10 percent in the banking sectors. There are several objectives that the GRA seeks to accomplish through its FDI screening process: 1) create jobs for Angolans or transfer expertise to Angolan companies as part of an “Angolanization” plan; 2) protect sensitive industries such as defense and finance; 3) prevent capital flight or any other behavior that could threaten the stability of the Angolan economy; and, 4) diversify the economy.

Other Investment Policy Reviews

Angola has been a member of the World Trade Organization (WTO) since 1996. The WTO performed a policy review of Angola in September 2015.

At the government’s request, on September 30, 2019, the United Nations Conference on Trade and Development (UNCTAD) completed the Investment Policy Review (IPR) of Angola’s business and economic environments. The IPR was part of an EU funded wider technical assistance project aimed to assist Angola in attracting and benefitting from FDI beyond the extractives industry and support the GRA’s objective of increasing economic diversification and sustainable development. The full report and policy recommendations are accessible at: https://unctad.org/en/PublicationsLibrary/diaepcb2019d4_en.pdf 

Business Facilitation

The World Bank Doing Business 2020 report ranked Angola 177 out of 190 countries and recorded an improvement in Angola’s monitoring and regulation of power outages, and in facilitating trade through the implementation of an automated customs data management system, ASYCUDA (Automated System for Customs Data) World, and by upgrading its port community system to allow for electronic information exchange between different parties involved in the import/export process. Launching a business typically requires 36 days, compared with a regional average of 27 days, with Angola ranked 146 out of the 190 economies evaluated.

The government has maintained the approximately twenty “Balcoes Unicos do Empreendedor” (“One Stop Shop” for Entrepreneurs) since 2012. In addition to the Balcoes Unicos process, new business owners must also complete processes at the Ministry of Commerce, the General Tax Administration (AGT) and the provincial court in the location where the business has its headquarters. The Angolan Private Investment and Export Promotion Agency (AIPEX) that replaced the Angolan Investment and Export Promotion Agency (APIEX) now serves as a one-stop shop to promote local and foreign investments, exports and the international competitiveness of Angolan companies. The new state-run private investment agency website is http://www.aipex.gov.ao/PortalAIPEX/#!/ . Contact Information: Departamento de Promoção e Captação do Investimento; Agencia de Investimento Privado e Promoção de Investimentos e Exportações de Angola (AIPEX). Rua Kwamme Nkrumah No.8, Maianga, Luanda, Angola Tel: (+244) 995 28 95 92| 222 33 12 52 Fax: (+244) 222 39 33 81

To encourage the flow of investors and to boost tourism, Presidential Decree 56/18, of February 20, 2018, exempts several neighboring countries from visa entry requirements, and as of March 30, visas upon arrival are available to 61 countries/regions, including the United States and the EU, upon presentation of proof of accommodation and financial support. The 2018 NPIL eliminates the 35 percent local partner stake in the capital structure of foreign investment in the electricity and water, tourism, transport and logistics, construction, media, telecommunications, and information technology (IT) sectors.

Angolan law provides equal access for women entrepreneurs and underrepresented minorities in the economy. However, in practice, the investment facilitation mechanisms do not provide added advantages to these groups. Programs to benefit female entrepreneurs and underrepresented groups such as startup projects, business capacity building and development, and financial assistance including micro credit, are mainly implemented by non-governmental organizations and international financial institutions such as the African Development Bank (AfDB), the World Bank (WB), and private sector companies.

Outward Investment

The Angolan Government does not promote or incentivize outward investment nor does it restrict Angolans from investing abroad. Investors are free to invest in any foreign jurisdiction. According to data from the BNA, in 2018, the government did not invest abroad but received returns on previous investments abroad.

Domestic investors invest preferably in Portuguese speaking countries with few investing in neighboring countries in Sub Saharan Africa. The bulk of investment is in fashion, fashion accessories and domestic goods. Due to foreign exchange constraints, there has been very little or no investment abroad by domestic investors.

3. Legal Regime

Transparency of the Regulatory System

Angola’s regulatory system is complex, vague, and inconsistently enforced. In many sectors, no effective regulatory system exists due to a lack of institutional and human capacity. The banking system is slowly adhering to International Financial Reporting Standards (IFRS). Public sector companies (SOEs) are still far from practicing IFRS. The public does not participate in draft bills or regulations formulation, nor does a public online location exist where the public can access this information for comment or hold government representatives accountable for their actions. The Angolan Communications Institute (INACOM) sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have permitted some purchase power agreements (PPA) participation.

Overall, Angola’s national regulatory system does not correlate to other international regulatory systems. However, Angola is a member of the WB, ADB AfDB, OPEC (January 2007), the United Nations (UN) and most of its specialized agencies – International Conference on Reconstruction and Development (IBRD), UNCTAD, the IMF, the World Health Organization (WHO), the WTO, and has a partnership agreement with the EU. At the regional level, the GRA is part of the Common Market for Eastern and Southern Africa (COMESA), the Community of Portuguese Speaking Countries (CPLP), and the SADC, among other organizations. Angola has yet to join the SADC Free Trade Zone of Africa as a full member. On March 21, 2018 together with 44 African countries, Angola joined the African Continental Free Trade Area (AfCFTA), an agreement aimed at paving the way for a liberalized market for goods and services across Africa. Angola is also a member of the Port Management Association of Eastern and Southern Africa (PMAESA), which seeks to maintain relations with other port authorities or associations, regional and international organizations and governments of the region to hold discussions on matters of common interest.

Angola became a member of the WTO on November 23,1996. However, it is not party to the Plurilateral Agreements on Government Procurement, the Trade in Civil Aircraft Agreement and has not yet notified the WTO of its state-trading enterprises within the meaning of Article XVII of the GATT. A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. TBT regimes are not coordinated. There have been no investment policy reviews for Angola from either the OECD or UNCTAD in the last four years. Angola conducts several bilateral negotiations with Portuguese Speaking countries (PALOPS), Cuba and Russia and extends trade preferences to China due to credit facilitation terms, while attempting to encourage and protect local content.

Regulation reviews are based on scientific or data driven assessments or baseline surveys. Evaluation is based on data. However, evaluation is not made available for public comment.

The National Assembly is Angola’s main legislative body with the power to approve laws on all matters (except those reserved by the constitution to the government) by simple majority (except if otherwise provided in the constitution). Each legislature comprises four legislative sessions of twelve months starting on October 15 annually. National Assembly members, parliamentary groups, and the government hold the power to put forward all draft-legislation. However, no single entity can present draft laws that involve an increase in the expenditure or decrease in the State revenue established in the annual budget.

The president promulgates laws approved by the assembly and signs government decrees for enforcement. The state reserves the right to have the final say in all regulatory matters and relies on sectorial regulatory bodies for supervision of institutional regulatory matters concerning investment. The Economic Commission of the Council of Ministers oversees investment regulations that affect the country’s economy including the ministries in charge. Other major regulatory bodies responsible for getting deals through include:

  • The National Gas and Biofuels Agency (ANPG): The government regulatory and oversight body responsible for regulating oil exploration and production activities. On February 6, 2019, the parastatal oil company Sonangol launched the National Gas and Biofuels Agency (ANPG) through the Presidential decree 49/19 of February 6. The ANPG is the new national concessionaire of hydrocarbons in Angola, authorized to conduct, execute and ensure oil, gas and biofuel operations run smoothly, a role previously held by Sonangol. The ANPG must also ensure adherence to international standards and establish relationships with other international agencies and sector relevant organizations.
  • The Regulatory Institute of Electricity and Water Services (IRSEA): The regulatory authority for renewable energies and enforcing powers of the electricity regulatory authority.
  • The Angolan Communications Institute (INACOM): The institute sets prices for telecommunications services and is the regulatory authority for the telecommunications sector. Revised energy-sector licensing regulations have improved legal protection for investors to attract more private investment in electrical infrastructure, such as dams and hydro distribution stations.
  • As of October 1, 2019, a 14 percent VAT regime came into force, replacing the existing 10 percent Consumption Tax. The General Tax Administration (AGT) is the office that oversees tax operations and ensures taxpayer compliance. The new VAT tax regime aims to boost domestic production and consumption, and reduce the incidence of compound tax created for businesses unable to recover consumption tax incurred. VAT may be reclaimed on purchases and imports made by taxpayers, making it neutral for business.

Angola acceded to the New York Arbitration Convention on August 24, 2016 paving the way for effective recognition and enforcement in Angola of awards rendered outside of Angola and subject to reciprocity. Angola participates in the New Partnership for Africa’s Development (NEPAD), which includes a peer review mechanism on good governance and transparency. Enforcement and protection of investors is under development in terms of regulatory, supervisory, and sanctioning powers. Investor protector mechanisms are weak or almost non-existent.

There are no informal regulatory processes managed by nongovernmental organizations or private sector associations, and the government does not allow the public to engage in the formulation of legislation or to comment on draft bills. Procurement laws and regulations are unclear, little publicized, and not consistently enforced. Oversight mechanisms are weak, and no audits are required or performed to ensure internal controls are in place or administrative procedures are followed. Inefficient bureaucracy and possible corruption frequently lead to payment delays for goods delivered, resulting in an increase in the price the government must pay.

No regulatory reform enforcement mechanisms have been implemented since the last ICS report, in particular those relevant to foreign investors. The Diário da República (the Federal Register equivalent), is a legal document where key regulatory actions are officially published.

International Regulatory Considerations

Angola’s overall national regulatory system does not correlate to other international regulatory systems and is overseen by its constitution. Angola is not a full member of the International Standards Organization (ISO), but has been a corresponding member since 2002. The Angolan Institute for Standardization and Quality (IANORQ) within the Ministry of Industry & Commerce coordinates the country’s establishment and implementation of standards. Angola is an affiliate country of the International Electro-technical Commission that publishes consensus-based International Standards and manages conformity assessment systems for electric and electronic products, systems and services.

A government procurement management framework introduced in late 2010 stipulates a preference for goods produced in Angola and/or services provided by Angolan or Angola-based suppliers. Technical Barriers to Trade (TBT) regimes are not coordinated. Angola acceded to the Kyoto Convention on February 23, 2017.

Legal System and Judicial Independence

Angola’s formal legal system is primarily based on the Portuguese legal system and can be considered civil law based, with legislation as the primary source of law. Courts base their judgments on legislation and there is no binding precedent as understood in common law systems. The constitution proclaims the constitution as the supreme law of Angola (article 6(1) and all laws and conduct are valid only if they conform to the constitution (article 6(3).

The Angolan justice system is slow, arduous, and often partial. Legal fees are high, and most businesses avoid taking commercial disputes to court in the country. The World Bank’s Doing Business 2020 survey ranks Angola 186 out of 190 countries on contract enforcement, and estimates that commercial contract enforcement, measured by time elapsed between filing a complaint and receiving restitution, takes an average of 1,296 days, at an average cost of 44.4 percent of the claim.

Angola has commercial legislation that governs all commercial activities but no specialized court. In 2008, the Angolan attorney general ruled that Angola’s specialized tax courts were unconstitutional. The ruling effectively left businesses with no legal recourse to dispute taxes levied by the Ministry of Finance, as the general courts consistently rule that they have no authority to hear tax dispute cases, and refer all cases back to the Ministry of Finance for resolution. Angola’s Law 22/14, of December 5, 2014, which approved the Tax Procedure Code (TPC), sets forth in its Article 5 that the courts with tax and customs jurisdiction are the Tax and Customs Sections of the Provincial Courts and the Civil, Administrative, Tax and Customs Chamber of the Supreme Court. Article 5.3 of the law specifically states that tax cases pending with other courts must be sent to the Tax and Customs Section of the relevant court, except if the discovery phase (i.e., the production of proof) has already begun.

The judicial system is administered by the Ministry of Justice at trial level for provincial and municipal courts and the supreme court nominates provincial court judges. In 1991, the constitution was amended to guarantee judicial independence. However, as per the 2010 constitution, the president appoints supreme court judges for life upon recommendation of an association of magistrates and appoints the attorney general. Confirmation by the General Assembly is not required. The system lacks resources and independence to play an effective role and the legal framework is obsolete, with much of the criminal and commercial code reflecting colonial era codes with some Marxist era modifications. Courts remain wholly dependent on political power.

There is a general right of appeal to the court of first instance against decisions from the primary courts. To enforce judgments/orders, a party must commence further proceedings called executive proceedings with the civil court. The main methods of enforcing judgments are:

  • Execution orders (to pay a sum of money by selling the debtor’s assets);
  • Delivery up of assets; and,
  • Provision of information on the whereabouts of assets.

The Civil Procedure Code also provides ordinary and extraordinary appeals. Ordinary appeals consist of first appeals, review appeals, interlocutory appeals, and full court appeals, while extraordinary appeals consist of further appeals and third-party interventions. Generally, an appeal does not operate as a stay of the decision of the lower court unless expressly provided for as much in the Civil Procedure Code.

Laws and Regulations on Foreign Direct Investment

AIPEX is the investment and export promotion center tasked with promoting Angola’s export potential, legal framework, environment, and investment opportunities in the country and abroad. Housed within the Ministry of Industry & Commerce, AIPEX is also responsible for ensuring the application of the 2018 NPIL on foreign direct investments, entered into force on June 26, 2018.

Competition and Anti-Trust Laws

On May 17, 2018 Angola’s National Assembly approved the nation’s first anti-trust law. The law set up the creation of the Competition Regulatory Authority, which prevents and cracks down on actions of economic agents that fail to comply with the rules and principles of competition. The Competition Regulatory Authority of Angola (Autoridade Reguladora da Concorrência – ARC) was created by Presidential Decree no. 313/18, of December 21, 2018, and it succeeds the now defunct Instituto da Concorrência e Preços. It has administrative, financial, patrimonial and regulatory autonomy, and is endowed with broad supervisory and sanctioning powers, including the power to summon and question persons, request documents, carry out searches and seizures, and seal business premises.

The ARC is responsible, in particular, for the enforcement of the new Competition Act of Angola, approved by Law no. 5/18, of May 10, 2018 and subsequently implemented by Presidential Decree no. 240/18, of October 12. The Act has a wide scope of application, pertaining to both private and state-owned undertakings, and covers all economic activities with a nexus to Angola. The Competition Act prohibits agreements and anti-competitive practices, both between competitors (“horizontal” practices, the most serious example of which are cartels), as well as between companies and its suppliers or customers, within the context of “vertical” relations.

Equally prohibited is abusive conduct practiced by companies in a dominant position, such as the refusal to provide access to essential infrastructures, the unjustified rupture of commercial relations and the practice of predatory prices, as well as the abusive exploitation, by one or more companies, of economically-dependent suppliers or clients. Prohibited practices are punishable by heavy fines that range from one-ten percent of the annual turnover of the companies involved. Offending companies that collaborate with the ARC, by revealing conduct until then unknown or producing evidence on a voluntary basis, may benefit from significant fine reductions, under a leniency program yet to be developed and implemented by the ARC. Considering the ample powers and potentially heavy sanctions at the disposal of the ARC, companies present in (or planning to enter) Angola are well advised to consider carefully the impact of the new law on their activities, in order to mitigate any risk that its market conduct may be found contrary to the Competition Act.

Expropriation and Compensation

Under the Land Tenure Act of November 9, 2004 and the General Regulation on the Concession of Land (Decree no 58/07 of July 13, 2007), all land belongs to the state and the state reserves the right to expropriate land from any settlers. The state is only allowed to transfer ownership of urban real estate to Angolan nationals, and may not grant ownership over rural land to any private entity (regardless of nationality), corporate entities or foreign entities. The state may allow for land usage through a 60-year lease to either Angolan or foreign persons (individuals or corporate), after which the state reserves legal right to take over ownership.

Expropriation without compensation remains a common practice. Land tenure became a more significant issue following independence from Portugal when over 50 percent of the population moved to urban centers during the civil war. The state offered some areas for development within a specific timeframe. After this timeframe, areas that remained underdeveloped reverted to the state with no compensation to any claimants. In most cases, claimants allege unfair treatment and little or no compensation.

Dispute Settlement

ICSID Convention and New York Convention

Angola is not a member state to the International Centre for Settlement of Investment Disputes (ICSID Convention), but has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Its ratification was endorsed domestically via resolution No. 38/2016, published in the Official Gazette of Angola on August 12, 2016.

Investor-State Dispute Settlement

The Angolan Arbitration Law (Law 16/2003 of July 25) (Voluntary Arbitration Law — VAL) provides for domestic and international arbitration. Substantially inspired by Portuguese 1986 arbitration law, it cannot be said to strictly follow the UN Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. In contrast, the VAL contains no provisions on definitions, rules on interpretation, adopts the disposable rights criterion in regards to arbitration, does not address preliminary decisions, nor distinguish between different types of awards, and permits appeal on the merits in domestic arbitrations, unless the parties have otherwise agreed.

Angola is also a member of the Multilateral Investment Guarantee Agency (MIGA), which can provide dispute settlement assistance as part of its political risk insurance products and eligibility for preferential trade benefits under the African Growth Opportunity Act. The United States and Angola have signed a TIFA, which seeks to promote greater trade and investment between the two nations. The U.S. Embassy is aware of one ongoing formal investment dispute involving an American company.

International Commercial Arbitration and Foreign Courts

Although not widely implemented, the Government of Angola and public sector companies recognize the use of arbitration to settle disputes with foreign arbitration awards issued in foreign courts. In 2016, Angola took a major step in international arbitration by signing the New York Convention on recognition of foreign arbitration awards. On March 6, 2017, the Government of Angola deposited its instrument of accession to the Convention with the UN Secretary General. The Convention entered into force on June 4, 2017.

Bankruptcy Regulations

Angola is ranks 168 out of 190 on the World Bank’s Doing Business 2020 report on resolving insolvency. Banks are bound to comply with prudential rules aimed at ensuring that they maintain a minimum amount of funds not less than the minimal stock capital at all times to ensure adequate levels of liquidity and solvability. Insolvency is regulated by the Law on Financial Institutions No. 12/2015 of June 17, 2015. Based on this law, the BNA increased the social capital requirement for banks operating in the country by 200 percent (BNA notice 2/2015) to guard against possible damages to clients and the financial system. All monetary deposits up to 12.5 million Kwanzas (USD 27,000 equivalent) are also to be deposited into the BNA’s Deposit Guarantee Funds account (Presidential Decree 195/18 of 2018) so that clients (both local and foreign) are guaranteed a refund in case of bankruptcy by their respective bank. Article 69 of the law expressly states that it is the responsibility of the president of the Republic to create the fund, but it is silent on the rules governing its operation or the amounts guaranteed by the fund.

In 2018, based on Notice 2/2018 on the “Adequacy of Minimum Capital Stock and Regulatory Own Funds of Financial Banking Institutions,” commercial banks were required to increase their operating capital from 2.5 billion to 7.5 billion kwanzas (USD 35 million) by the end of the year. In late 2019, following results from an Asset Quality Review, the government announced plan to recapitalize the largest state-owned bank, Banco de Poupanco e Credito (BPC). The injection of capital will constitute the third capital injection into BPC by the state since 2015, which has previously received close to USD2 billion of state funds to help restructure the bank.  In early 2019, the BNA revoked the operating licenses of two private banks, Banco Mais and Banco Postal, due to their inability to recapitalize to meet new mandatory operating capital requirements. A third bank, Banco Angolano e Comércio de Negócios (BANC), was also put under administration due to its poor governance and a failure to also raise the mandatory operating capital to meet new minimum requirements.

In 2015, following the 2014 collapse of Banco Espirito Santo Angola (BESA), the subsidiary of Portugal’s Banco Espírito Santo, the State intervened and restructured BESA which now operates as Banco Economico. In August 2019, the BNA ordered Banco Economico’s shareholders to increase the bank’s capital to comply with the new BNA-imposed capital requirements no later than June 2020. While Angola’s arbitration law (Arbitration Law No. 16/03) for insolvency adopted in 2013 introduced the concept of domestic and international arbitration, the practice of arbitration law is still not widely implemented.

The law criminalizes bankruptcy under the following classification: condemnation in Angola or abroad for crimes of fraudulent bankruptcy, i.e. involvement of shareholders or managers in fraudulent activities that result in the bankruptcy, negligence bankruptcy, forgery, robbery, or involvement in other crimes of an economic nature. The Ministry of Finance, the BNA and the Capital Markets Commission (CMC) oversee credit monitoring and regulation.

4. Industrial Policies

Investment Incentives

The NPIL seeks to award incentives to attract and retain investment. Investment incentives in the NPIL include:

  • Eliminates the minimum investment value and the value required to qualify for incentives in foreign and local investments, previously set at USD 1,000,000 and USD 500,000 respectively. There is no more limit to invest and qualify for incentives;
  • Eliminates the obligation for foreign investors to establish a partnership with an Angolan entity with at least a 35 percent stake in the capital structure of investments in the electricity and water, tourism, transport and logistics, construction, media, telecommunications and IT sectors. Under the new law, investors will decide on their capital structure and origin.
  • Grants foreign investors “the right and guarantee to transfer abroad” dividends or distributed profits, the proceeds of the liquidation of its investments, capital gains, the proceeds of indemnities and royalties, or other income from remuneration of indirect investments related to technology transfer after proof of implementation of the project and payment of all tax dues.

Investment incentives are granted by the AIPEX, the State’s investment agency, as opposed to by the president, as mandated in the 2015 investment law. Companies need to apply for such incentives when submitting an investment application to the newly created AIPEX and the relevant ministry. The NPIL restructures the country into three economic development zones (zones A through C) determined by political and socio-economic factors, up from two as per the 2015 investment law. For Zone A, investors have a 3-year moratorium on taxes reduced between 25- 50 percent of the tax levied on the distribution of profits and dividends. For Zone B, it is between three to six years with a 50 to 60 percent tax reduction, and for Zone C between six to eight years with a tax reduction between 60-70 percent of the tax levied on distribution of profits and dividends.

  1. The State guarantees “non-public interference in the management of private companies” and “non-cancellation of licenses without administrative or judicial processes.”
  2. The State provides a new and simplified procedure for the approval of investment projects, along with the adoption of measures aimed at accelerating the contractual process. It also provides special rights projects (undefined), including easier access to visas for investors and priority in the repatriation of dividends, and capital.

Note: Angola is a signatory to the Agreement on Trade-Related Investment Measures (TRIMs) applicable to foreign investment.

Foreign Trade Zones/Free Ports/Trade Facilitation

Angola is a signatory to SADC but not a member of the SADC Free Trade Zone. Angola is analyzing and revising its tariff schedule to accommodate beneficial adjustments in regional trade under the SADC Free Trade Area (SFTA).

Under the NPIL, Angola is divided into three economic zones, zone A through C. Zone A offers a three-year tax exemption for capital tax and a reduction in the tax burden by 25-50 percent; Zone B a three to six-year tax exemption for capital tax with a reduction in the tax burden by 50-60 percent; and, for Zone C, an eight year tax exemption for capital tax with a with a 60-70 percent reduction in the tax burden.

Porto Caio is under construction in the province of Cabinda. The port is designated as a Free Trade Zone (FTZ) and is slated to provide numerous opportunities for warehousing, distribution, storage, lay down area and development of oil and gas related activity. The Port will also serve as a new major gateway to international markets from the west coast of Angola, and the development will facilitate exports and render them more cost-effective for companies.

Although the government has not yet established regional or international free trade zones, on March 21, 2018 the government signed an agreement to join the AfCFTA. The AfCFTA is the result of the African Free Trade Agreement among all 55 members of the African Union, and will be the largest FTZ in the world since the emergence of the WTO. The agreement’s implementation could create a market of 1.2 billion consumers. The UN Economic Commission for Africa (UNECA) has estimated a 52 percent increase in intra-African trade by 2022. Currently, intra-African trade is only 16 percent, with intra-Latin American at 19 percent, intra-Asian at 51 percent, and intra-European at 70 percent.

Performance and Data Localization Requirements

Angola widely observes a policy to restrict the number of foreign workers and the duration of their employment. The policy aims to promote local workforce recruitment and progression. Decree 6/01, of 2001 establishes that expatriate workers can only be recruited if the Labor Inspectorate gets confirmation from the employer that no Angolan personnel duly qualified to perform the job required is available in the local market. The same decree limits foreign employment to 36 months and temporary employment less than 90 days on the explicit authorization of the Labor Inspectorate. Employers must register an employment contract entered into with a foreign national within 30 days at the employment center. The registration includes submission of a copy of the job description approved by the Labor Inspectorate during registration of the employment contract and the payment of a registration fee of 5 percent of the gross salary plus all the benefits.

Companies must deregister upon termination of the contract. Deregistration equally applies to administration personnel and to the board of directors. Foreign employees require work permits, and no employment is authorized on tourist visas. The visa application procedure, though improved, remains complex, slow and inconsistent. Processes and requirements vary according to the labor market situation at the time of application, the type of work permit being applied for, the nationality of the applicant, the country of application, and personal circumstances of the assignee and any family dependents.

Through the NPIL Angola created the investor visa, granted by the immigration authority to foreign investors, representatives, or attorneys of an investing company, to carry out an approved investment proposal. It allows for multiple entries, and a stay of two years renewable for the same period. The NPIL liberalizes foreign investment, few instances translate to “forced localization,” and enforcement procedures for performance requirements are strictly observed in the labor, immigration, and petroleum sectors only. International oil companies are working with the government on a new local-content initiative that will establish more explicit sourcing requirements for the petroleum sector in staffing and material. Specific to the oil sector, because of the significance it represents to the Angolan economy, the Petroleum Activities Law requires Sonangol and its associates to acquire materials, equipment, machinery, and consumer goods produced in Angola.

Currently, local content regulations offer only guidelines that are loosely enforced, and companies lack clarity as to how much is enough to satisfy the Angolan government. While this situation may make it easier for foreign companies to comply with local content regulations, this lack of specificity challenges companies in their business planning. For example, it is difficult for companies to compare their competitive position against each other when competing for lucrative concessions and licenses from the government, as local content is sometimes considered during competition for government tenders. Legal guidance to get the guarantees for investors under the NPIL is strongly encouraged.

Data storage is not applicable; however, the Institute for Communications of Angola (INACOM) oversees and regulates data in liaison with the Ministry of Telecommunications. Regulations around data management including encryption are still at nascent stages.

5. Protection of Property Rights

Real Property

Transparency and land property rights are critical for Angolan economic development, given that two thirds of Angolans work in agriculture and are directly dependent on land property rights. However, the Land Act (Lei de Terras de Angola) has not been revised since its approval in December 2004. While the land act is a crucial step toward addressing issues of land tenure, normalization of land ownership in Angola persists with problems such as difficulties in completing land claims, land grabbing, lack of reliable government records, and unresolved status of traditional land tenure. Among other provisions, the law included a formal mechanism for transforming traditional land property rights into legal land property rights (clean titles). During the civil war, a transparent system of land property rights did not exist, so it was crucial to re-establish one shortly after the end of hostilities in 2002.

According to the “Land Act,” the State may transfer or constitute, for the benefit of Angolan natural or legal persons, a multiplicity of land rights on land forming part of its private domain. Although, it is possible to transfer ownership over some categories of land, the transfer of State land almost never implies the transfer of its ownership, but only the formation of minor land rights with leasehold being the most common form in Angola. The recipient of private property rights from the State can only transfer those rights with consent of the local authority and after a period of five years of effective use of the land (GRA 2004 law). Weak land tenure legislation and lack of secure legal guarantees (clean titles), are the reasons given by most commercial banks for their greater than 80 percent refusal rate for loans since land is used as collateral. Foreign real-estate developers therefore seek out public-private partnership (PPP) arrangements with State actors who can provide protection against land disputes and financial risks involved in projects that require significant cash outlays to get started.

Registering parcels of land over 10,000 hectares must be approved by the Council of Ministers. Registering property takes 190 days on average, ranking 167 out of 173 according to the World Bank’s Doing Business 2020 survey, with fees averaging three percent of property value. Owners must also wait five years after purchasing before reselling land. There are no written regulations setting out guidelines defining different forms of land occupation, including commercial use, traditional communal use, leasing, and private use. Over the years, the government has given out large parcels of land to individuals in order to support the development of commercial agriculture. However, this process has largely been unsystematic and does not follow any formal rule change on land tenure by the State.

Before obtaining proof of title nationwide, an Angolan citizen or an Angolan legal entity must also obtain the Real or Leasing Rights (“Usufruct”) of the Land from the Instituto de Planeamento e Gestão Urbana de Luanda, an often a time-consuming procedure that can take up to a year or more. However, in the case that a company already owns the land, it must secure a land property title deed from the Real Estate Registry in Luanda. An updated property certificate (“certidão predial”) is obtained from the relevant Real Estate Registry, with the complete description of the property including owner(s) information and any charges, liens, and/or encumbrances pending on the property. The complex administration of property laws and regulations that govern land ownership and transfer of real property as well as its tedious registration process may reduce investor appetite for real estate investments in Angola. Despacho no. 174/11 of March 11, 2011 mandates the total fees for the “certidão predial” include stamp duty (calculated according to the Law on Stamp Duty); justice fees (calculated according to the Law on Justice Fees); fees to justice officers (according to the set contributions for the Justice budget); and, notary and other fees. The total fee is also dependent on the current value of the fiscal unit (UCF).

Intellectual Property Rights

Angolan law recognizes the protection of intellectual property rights (IPR). Angola’s National Assembly adopted the Paris Convention for the Protection of Industrial Intellectual Property in August 2005, incorporating the 1979 text, and the Patent Cooperation Treaty concluded in 1970 and later amended in 1979 and 1984. The Ministry of Industry administers IPR for trademarks, patents, and designs under Industrial Property Law 3/92. The Ministry of Culture regulates authorship, literary, and artistic rights under Copyright Law 4/90. Angola is a member of the World Intellectual Property Organization (WIPO) and follows international patent classifications of patents, products, and services to identify and codify requests for patents and trademark registration.

IAPI (Instituto Angolano de Propriedade Intelectual) is the governmental body within the Ministry of Industry & Commerce charged with implementing patent and trademark law. The Ministry of Culture, Tourism & Environment oversees copyright law. IP infringement is widespread, most notably in the production and distribution of pirated CDs, DVDs, and other media, largely for personal consumption. Counterfeit pharmaceuticals are another major area of concern.

There are currently no statistics available regarding counterfeit goods seized by the Angolan government. INADEC (Instituto Nacional de Defesa dos Consumidores), under the umbrella of the Ministry of Industry & Commerce, tracks and monitors the Angolan government’s seizures of counterfeit goods. They do not currently have a website, nor do they regularly publish statistics. They publish information on seizures of counterfeit products on an ad-hoc basis, primarily in the government-owned daily, Jornal de Angola.

Angola is not included in the United States Trade Representative’s (USTR) Special 301 Report or the Notorious Markets List.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ . The U.S. Embassy point of contact for IPR related issues is Mballe Nkembe (NkembeMM@state.gov). For legal counsel, refer to Angola’s Country Commercial Guide Local Professional Services List (http://export.gov/ccg/angola090710.asp )

6. Financial Sector

Capital Markets and Portfolio Investment

Angola’s capital markets remain nascent. To respond to the need for increased sources of financing for the economy, in 2013, the Angolan government created the Capital Markets Commission (CMC). Angola’s banks are likely the most established businesses that could potentially list on an exchange. However, many Angolan banks have a high rate of non-performing loans, reported to be as high as 37 percent. Angola’s banks have struggled in recent years due to the country’s deteriorating economic environment and increasingly high rate of delinquent loans. The Governor of the BNA has stated that Angola’s banks must go through a consolidation phase and ordered an asset quality review of the banks in early 2019. So far, the BNA has revoked the licenses of three banks based on their failure to meet the mandatory new share-capital minimum requirement, will recapitalize the largest state-owned bank, and has ordered another bank’s shareholders to increase the bank’s operating capital or face potential revocation. The process may limit banks’ ability in the near-term to list on the country’s fledgling stock exchange.

The Angolan government raised USD 3 billion in its third Eurobond issue in international markets with investor demand reportedly reaching USD 8.44 billion, exceeding the government’s expectations. For its second Eurobond issue in May 2018, Angola sold a USD 1.75bn, ten year bond at a coupon interest rate of 8.25 percent and a 30 year bond worth USD 1.25bn with a yield of 9.375 percent. According to Angola’s finance ministry, the second Eurobond issuance received more than 500 investor submissions totaling USD 9 billion, three times the final sale value. In November 2015, Angola raised a USD 1.5 billion, 10-year Eurobond with a 9.5 percent yield. Plans to return to the internal bond market in 2020 have been put on hold due to the ongoing coronavirus pandemic and the ensuing downturn in global oil prices.

The BNA has developed a market for short-term bonds, called Titulos do Banco Central, and long-term bonds, called Obrigaçoes do Tesouro. Most of these bonds are bought and held by local Angolan banks. The Obrigaçoes have maturities ranging from one to 7.5 years, whereas the Titulos have maturities of 91 to 182 days. For information on current rates, see: http://www.bna.ao/ .

Foreign investors do not normally access credit locally. For Angolan investors, credit access is very limited, and if available, comes with a collateral requirement of 125 percent, so they either self-finance, or seek financing from non-Angolan banks and investment funds. The termination of the “Angola Invest” government-subsidized funding program for micro, small and medium private enterprises (SMEs) on September 25, 2018, has further reduced funding opportunities for many SMEs. Since its inception in 2012, Angola Invest financed approximately 515 projects worth USD 377 million.

The Angolan National Development Plan provides for the liquidation of unviable state-owned enterprises, the privatization of non-strategic state enterprises and the sale of shareholding by 2022. In January 2018, the president created a commission – the State Asset Management Institute (IGAPE), to prepare and implement the privatization program (PROPRIV), with assistance from the Stock Exchange BODIVA. By April 2020, the Government had reportedly sold an estimated seven entities under its privatization initiative.

Money and Banking System

The BNA, Angola’s central bank and currency regulator has remained under considerable pressure to stabilize Angola’s economy as a high rate, currently 37 percent, of non-performing loans has crippled the banks’ ability and willingness to foster private sector lending. The BNA implemented a contractionary monetary policy, reducing local currency in circulation over fears of escalating inflation and foreign currency arbitrage. To further address these concerns, in early 2018, the government also scrapped the Angolan currency’s fixed peg to the U.S. dollar in favor of greater rate flexibility, and began regular foreign exchange auctions to banks, preventing the allocation of dollars to preferred clients. From January 2018 to December 2019, the Angolan currency lost 178 percent of its purchasing capacity against the Dollar. The Net International Reserves, despite a loss of purchasing power of more than 100 percent taking into account the price of the currency, suffered a reduction of 40 percent from 2017 to June 2019. The 178 percent devaluation from 2018 has translated into an increase in Angola’s debt, now close to 111 percent of GDP.

Angola’s agreement with the IMF for USD 3.7 billion in financial support for which it has requested an additional USD 800 million, suggests the government’s intent to reassure investors, and to diversify Angola’s source of borrowing. As a key condition of the IMF loan, Angola cannot have any new oil collateralized debt. The government also resorted to international capital markets and raised USD 3 billion in its third Eurobond issue with investor demand reportedly reaching nearly USD 8.44 billion.

There are currently 27 banks in Angola. Five banks, Banco Angolano de Investimentos (BAI), Banco Economico, Banco de Fomento Angola (BFA), Banco BIC Angola (BIC), and Banco de Poupança e Credito S.A.R.L. (BPC), control over 80 percent of total banking assets, deposits, and loans. Angolan banks focus on profit generating activities including transactional banking, short-term trade financing, foreign exchange, and investments in high-interest government bonds. Banks had until the end of 2018 to comply with the newly BNA-set USD 50 million mandatory capital start-up requirement, up from the previous USD 25 million requirement. In early 2019, the BNA revoked the operating licenses of two banks, Banco Mais and Banco Postal, for failing to increase their capital to meet the new minimum requirements. Another bank, Banco Angolano de Negocios e Comercio, is currently under BNA administration.

Angola is scheduled for its next Financial Action Task Force (FATF) mutual evaluation review in 2020/2021 which may also be postponed due to the COVID-19 pandemic. In 2016, the FATF adjudged that Angola had made significant progress in improving its AML/CFT regime and established the requisite legal and regulatory framework to meet its commitments in its action plan regarding strategic deficiencies the identified by the FATF during reviews in 2010 and 2013. Angola has continued to work with the regional FATF body, the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG), to address its remaining strategic deficiencies in anticipation of the 2020/2021 review.

Angola has been affected by the broader global de-risking trends wherein banks decide to stop lending to businesses in markets deemed too risky from an anti-money laundering and terrorist financing compliance standpoint. In December 2016, Deutsche Bank, the last international bank providing dollar-clearing services, closed its dollar clearing services in Angola. A limited number of international banks still operate in Angola and provide limited trade finance such as Germany’s Commerzbank and South Africa’s Standard Bank. In 2018, there were no further correspondent bank losses. International banks previously refrained from entering the Angolan market because of the risk of fines and other penalties, but in 2018 there was more interest, with several banks conducting independent assessments of the business climate.

Foreign Exchange and Remittances

Foreign Exchange

Angola continues trading mostly in two currencies, the U.S. dollar and the Euro, with the Renminbi gaining greater prominence given the degree of trade with China. In a bid to deal with the foreign currency shortage and substantial foreign currency arbitrage in the parallel market, the government has opted for a managed float for its currency exchange rate. The Angolan Kwanza was pegged at a rate of 166.00 per U.S. dollar from April 2016 to January 2018 following a steep devaluation due to the slump in oil prices. On January 10, 2018, the BNA began conducting foreign currency auctions allowing the kwanza to fluctuate within an undisclosed but controlled band. Since dropping the peg to the U.S. dollar in January 2018, the Kwanza has depreciated by approximately 178 percent as at the end of December 2019 where a USD was equivalent to 462 Kwanzas.

As of November 29, 2019, the BNA’s Monetary Policy Committee (MPC) authorized direct sales of foreign currency between oil companies and commercial banks, and reduced banks’ foreign exchange position limit from 5.0 percent of its own funds to 2.5 percent. The controlling exchange rate is determined by the transaction rate applied on the sale. Occasionally, the BNA may also sell forex through auctions to commercial banks. Banks may charge a margin of up to 2 percent on the reference exchange rate published on the institutional website of the BNA, considered high for investors. Currently, the BNA also publishes daily for public consumption the rates at which each individual commercial bank is selling and purchasing forex.

The informal activity in the supply of foreign currency, products, and services is still winning the daily battle against the formal market, even when taking into account availability, quantity, speed, and stability. In 2019, the BNA took steps to eliminate remaining imbalances in the foreign exchange market. Commercial banks may assign foreign currency to their clients based on a schedule submitted and approved by the BNA. On the sale by banks to exchange offices and remittance companies, banks may only make foreign currency available in physical notes on a collateral basis, as they must, and at the time of sale debit the national currency account of those institutions against delivery of physical notes. Payment of remittances in any form and non-strategic imports face a lengthy wait between 90-180 days for foreign exchange. Priority is given to strategic importers of food, raw materials for construction, agriculture, medicine and the oil sector. According to the IMF, the government accumulated USD 51 million in new arrears between end-December 2018 and end-June 2019, due to constraints associated with correspondent banks transacting in U.S. dollars. The government further accumulated about USD 30 million in new arrears between end-June and end-September 2019 and was expected to accumulate an additional USD 30 million by year-end, due to the same correspondent banking constraints.

Investors cannot freely convert their earnings in kwanza to any foreign exchange rate due to limited available foreign exchange. Credit cards and other options for payment are extremely limited and money-servicing businesses (Western Union & MoneyGram) have ceased foreign outward transactions in foreign currency. From June 9, 2019, Letters of credit have been designated as the preferential payment instrument for imports.

The National Bank of Angola (BNA) Notice no. 15/19, published 30 December 2019, defines new procedures for foreign exchange operations carried out by non-residents.

According to the notice, the new procedures apply to foreign exchange transactions related to foreign direct investment – that is, foreign exchange non-resident operations carried out, alone or cumulatively, including divestment operations – in the following ways:

  • Transfer of personal funds from abroad;
  • Application of cash and cash equivalents in national and foreign currency, in bank accounts opened in financial institutions domiciled in Angola, held by foreign exchange residents, susceptible to repatriation;
  • Imports of machinery, equipment, accessories and other tangible fixed assets;
  • Incorporation of technologies and knowledge, provided that they represent an added value to the investment and are susceptible to financial evaluation;
  • Provision of supplementary capital payments or supplies to partners or shareholders;
  • Application, in the national territory, of funds in the scope of reinvestment;
  • Conversion of credits resulting from the execution of contracts for the supply of machinery, equipment and goods, as long as they are proven to be liable to payments abroad; and,
  • Foreign investment in securities or divestment of such assets, covering: i) shares; ii) obligations; iii) units of participation in collective investment undertakings and other documents representing homogeneous legal situations.

These procedures also apply to foreign exchange transactions related to foreign investment projects that have been registered with the BNA prior to 30 December 2019. However, they do not apply to investments made by non-foreign exchange residents in the oil sector, which will continue to be governed by proper legislation.

The following obligations are applicable to non-resident foreign exchange entities that intend to invest in Angola, within the scope of the new procedures:

  • They must be holders of foreign exchange non-resident accounts, opened with a banking financial institution domiciled in Angola,
  • For the purpose of receiving payments, including for the purchase of shares listed on the stock exchange, foreign currency must be sold to the investment banking intermediary financial institution, except in the case of purchase of securities denominated in foreign currency traded on a regulated market in Angola;
  • Transfer income related to a foreign direct investment is only allowed after the project has been completed and after payment of the taxes due.

The non-resident foreign exchange investor is allowed to maintain in national currency values relating to income, reimbursement of supplies or proceeds from the sale of investments to make new investments or convert to foreign currency at a future date.

Finally, the following obligations are now imposed on financial institutions that carry out transactions with non-resident foreign exchange entities:

  • Report to BNA the transfer of securities to and from abroad related to the import and export of capital and associated income, at the time of registration in the accounts of its clients who are not foreign exchange residents;
  • Require full identification and knowledge of its customers, as well as confirmation of their status as non-resident foreign exchange;
  • Transfer the financial resources designated for making investments to a specific sub-account created, that should be used only for that purpose;
  • Ensure that movements in bank accounts held by foreign exchange non-residents, in national and foreign currency, are supported by documents that allow a clear identification of the origin or destination of the funds;
  • For the purpose of assessing the legitimacy of transfers abroad of income from foreign direct investments not quoted on a stock exchange, make sure that the investment was made, through the copy of the Private Investment Registration Certificate (CRIP), among other requirements.
  • For the purpose of validating the export proceeds from the sale of securities and related income, validate the source of the credit in the bank accounts of non-resident customers.

Breach of the obligations summarized above is punishable by fines of up to AOA 150 million (USD 305,000) for individuals or up to AOA 500 million (USD 1.02 million) for legal persons.

Remittance Policies

In 2019, the Angolan government amended its anti-money laundering previously established in January 2014. The new law, Law no. 5/20, applies particularly to financial and non-financial entities, accountants, lawyers, law firm partners and auditors acting (including intermediation) in representation of clients in transactions that involve real estate’s acquisition/sale, incorporation of companies and bank accounts’ opening, management or movement, in attempts to better combat illicit remittance flows. Importantly, the new law expressly prohibits the incorporation of shell banks — banks with no physical presence in Angola nor connection to any financial group, requires reporting on capital movement in any commercial bank exceeding USD 1000, and requires enhanced scrutiny of local politically exposed persons. The subsequent drop in foreign exchange availability in Angola, beginning in 2015 due to declining petroleum revenues, has severely impeded personal and legitimate business remittances.

International and domestic companies operating in Angola face delays securing foreign exchange approval for remittances to cover key operational expenses, including imported goods and expatriate salaries. The government has improved profit and dividend remittances for most companies, including foreign airlines with withheld remittances for the sector currently valued by the International Air Transport Association (IATA) at USD 4 million, down from 137 million in early 2019.

The BNA has facilitated remittances of international supplies by introducing payment by letters of credit. Also, the 2018 NPIL grants foreign investors “the right and guarantee to transfer abroad” dividends or distributed profits, the proceeds of the liquidation of their investments, capital gains, the proceeds of indemnities and royalties, or other income from remuneration of indirect investments related to technology transfer after proof of implementation of the project and payment of all taxes due. The government continues to prioritize foreign exchange for essential goods and services including the food, health, defense, and petroleum industries.

Sovereign Wealth Funds

In October 2012, former President Eduardo dos Santos established a petroleum-funded USD 5 billion sovereign wealth fund called the Fundo Soberano de Angola (FSDEA). The FSDEA was established in accordance with international governance standards and best practices as outlined in the Santiago Principles. In February 2015, the FSDEA was recognized as transparent by the Sovereign Wealth Fund Institute (SWFI), receiving a score of 8 out of 10. The FSDEA has the express purpose of profit maximization with a special emphasis on investing in domestic projects that have a social component (http://www.fundosoberano.ao/investments/ ). Jose Filomeno dos Santos (Zenu), son of former President Jose Eduardo dos Santos, was appointed chairman of FSDEA in June 2013, but was removed by President Lourenco, based reportedly on poor results at the FSDEA and conspiracy with the Fund’s wealth manager, Quantum Global (QG), to embezzle FSDEA funds. Former Minister Carlos Alberto Lopes was named new head of the FSDEA. Zenu remains under investigation for money laundering, embezzlement, and fraud related to his management of the FSDEA, and is currently on trial for fraud in connection with the transfer of USD 500 million from the Angolan Central Bank to a bank in the UK. On March 22, 2019, the government freed Jean-Claude Bastos de Morais, QG’s CEO, in preventive detention since September 2018, based on the insufficiency of evidence to support the collection of malfeasance charges, while it continues to build its case against him.

Half of the initial endowment of FSDEA was invested in agriculture, mining, infrastructure, and real estate in Angola and other African markets, and the other half was supposedly allocated to cash and fixed-income instruments, global and emerging-market equities, and other alternative investments. The FSDEA is in possession of approximately USD 3.35 billion of its private equity assets previously under the control of QG, and announced that the government will use USD 1.5 billion of the fund’s assets to support social programs on condition of future repayment through increased tax on the BNA’s rolling debts.

7. State-Owned Enterprises

In Angola, certain state-owned enterprises (SOEs) exercise delegated governmental powers, especially in the mining sector where the government is the sole concessionaire. Foreign investors may sometimes find demands made by SOEs excessive, and under such conditions, SOEs have easier access to credit and government contracts. There is no law mandating preferential treatment to SOEs, but in practice they have access to inside information and credit. Currently, SOEs are not subject to budgetary constraints and quite often exceed their capital limits.

SOEs, often benefitting from a government mandate, operate mostly in the extractive, transportation, commerce, banking, and construction sectors. All SOEs in Angola are required to have boards of directors, and most board members are affiliated with the government. SOEs are not explicitly required to consult with government officials before making decisions. By law, SOEs must publish annual financial reports for the previous year in the national daily newspaper Jornal de Angola by April 1. Such reports are not always subject to publicly released external audits (though the audit of state oil firm Sonangol is publicly released). The standards used are often questioned. Not all SOEs fulfill their legal obligations, and few are sanctioned.

Angola’s supreme audit institution, Tribunal de Contas, is responsible for auditing SOEs. However, the Tribunal de Contas does not make its reports publicly available. Angola’s fiscal transparency would be improved by ensuring its supreme audit institution audits SOEs, as well as the government’s annual financial accounts, and makes public its findings within a reasonable period. Publicly available audit reports would also improve the transparency of contracts between private companies and SOEs.

In November 2016, the Angolan Government revised Law 1/14 “Regime Juridico de Emissão e Gestão da Divida Publica Directa e Indirecta,” which now differentiates between ‘direct’ and ‘indirect’ public debt. The GRA considers SOE debt as indirect public debt, and only accounts in its state budget for direct government debt, thus effectively not reflecting some substantial obligations in fact owed by the government. President Lourenço has launched various reforms to improve financial sector transparency, enhance efficiency in the country’s SOEs as part of the National Development plan 2018-2022 and Macroeconomic Stability Plan. The strategy included the prospective privatization of 74 SOEs that are deemed not profitable to the state. The privatization will possibly include the restructuring of the national air carrier TAAG, as well as Sonangol and its subsidiaries. The latter intends to sell off its non-core businesses as part of its restructuring strategy to make the parastatal more efficient.

Angola is not a party to the WTO’s Government Procurement Agreement (GPA). Angola does not adhere to the OECD guidelines on corporate governance for SOEs.

Privatization Program

The government has a plan to privatize 74 of 90 public companies by 2022 through the Angola Debt and Securities Exchange market (BODIVA) and under the supervision of the Institute of Management of Assets and State Participations (IGAPE). The privatization plan is in line with the provisions of the Government’s Interim Macroeconomic Stabilization Program (PEM), which aims to rid the government of unprofitable public institutions. The terms of reference for the privatization program are not yet public, except for seven factories located in the Special Economic Zone (ZEE). The seven industrial units with full terms of reference are:

UNIVITRO – glassworks industry; JUNTEX – plaster industry; CARTON – carton and packaging industry; ABSOR – absorbent products industry; INDUGIDET – sanitation and detergents industry; COBERLEN – blankets and linens industry; and, SACIANGO – cement bags industry. By April 2020, the Government had reportedly sold an estimated seven entities under its privatization initiative, mostly farms, and did not include the seven industrial units with full terms of reference.

The government plans to privatize part of state-owned Angola Telecommunications Company, companies in the oil and energy sector, as well as several textile industries. The government has stated that the privatization process will be open to interested foreign investors and has guaranteed a transparent bidding process. Proposals from investors for seven industrial units at the ZEE will be given special attention to those who decide to retain local workers in these units. The government created a privatization commission on February 27, 2018 and a website https://igape.minfin.gov.ao/PortalIGAPE/#!/sala-de-imprensa/noticias/5413/anuncio-de-concurso-tender-announcement  for submission of tenders. Full tender documents can be obtained by visiting the below link: http://www.ucm.minfin.gov.ao/cs/groups/public/documents/document/zmlu/mdu4/~edisp/minfin058842.zip 

Alternatively, contact igape@minfin.gov.ao. The tenders are open to local and foreign investors.

8. Responsible Business Conduct

The government has few initiatives to promote responsible business conduct. On March 26, 2019, the UNDP launched the National Network of Corporate Social Responsibility, called “RARSE,” to promote the creation of a platform to reconcile responsible business conduct with the needs of the population. The government, through the Ministry of Education, also held a campaign under the theme, “Countries that have a good education, that enforce laws, condemn corruption, privilege and practice citizenship, have as a consequence successful social and economic development.” The government has enacted laws to prevent labor by children under 14 and forced labor, although resource limitations hinder adequate enforcement. In June 2018, the government passed a National Action Plan (2018-2022) to eradicate the worst forms of child labor (the PANETI). With limitations, the laws protect the rights to form unions, collectively bargain, and strike. Government interference in some strikes has been reported. The Ministry of Public Administration, Employment, and Social Security, has a hotline for workers who believe their rights have been infringed. Angola’s Chamber of Commerce and Industry established the Principles of Ethical Business in Angola.

The GRA does not fully meet the minimum standards for the elimination of trafficking in persons but is making significant efforts to do so. A National Action Plan to Combat and Prevent Trafficking in Persons in 2019 includes measures to improve the capacities of coordination agencies, investigating more potential trafficking cases, convicting more traffickers, training front-line responders, conducting some awareness-raising activities, and improving data collection on trafficking crimes through use of the Southern African Development Community (SADC) regional data collection tool.

The government continues to strengthen its bilateral efforts on anti-corruption and improved governance. On July 1, 2019, the government signed a signed a Memorandum of Understanding (MOU) on Security and Public Order with the United States. The MOU will enable the two governments to cooperate in the fields of information exchange related to the prevention, investigation, and combatting of criminal activity, including the collection and processing of evidence. The MOU encourages the exchange of information on criminal investigation techniques, the implementation of professional training programs, and exchange of delegations.

In 2015, Angola organized an interagency technical working group to explore Angola’s possible membership in the Voluntary Principles on Security and Human Rights (VPs) and the Extractive Industries Transparency Initiative (EITI). Angola has been a member of the Kimberley Process (KP) since 2003, and chaired the KP in 2015, until handing over the rotating chair to the United Arab Emirates.

Angola is not a party to the WTO’s GPA, and does not adhere to the OECD guidelines on corporate for SOEs.

9. Corruption

Corruption remains a strong impediment to doing business in Angola and has had a corrosive impact on international market investment opportunities and on the broader business climate. Transparency International’s 2019 Corruption Perceptions Index ranks Angola 165 out of 175 countries in its corruption level survey, improving two places from the previous year’s ranking due to ongoing efforts to reduce corruption.

Since coming into office on an anti-corruption platform, President Lourenco has led a concerted effort to restore investor confidence by prioritizing anti-corruption and the fight against nepotism. In December, the government froze the assets and accounts of Isabel dos Santos, the former first daughter, and subsequently indicted her on fraud-related charges for mismanaging and embezzling funds during her 18-month stint as chair of the state’s oil firm, Sonangol. Several other government officials were also sacked from office, detained and tried on corruption charges. On September 19, the Supreme Court ordered that Norberto Garcia, the former spokesman of the ruling MPLA party and former director of the defunct Technical Unit for Private Investment, a state institution, charged with fraud, money laundering and document falsification, be placed under house arrest in Luanda. The case dates back to November 2017 when Garcia and six foreigners allegedly tried to set up a state project in a USD 50 billion scam.

In another high-profile anti-corruption case, the trial of the former head of Angola’s sovereign wealth fund, José “Zénu” Filomeno dos Santos and his co-conspirator, former Central Bank Governor Valter Felipe, began on December 9. The former stands accused of embezzling USD 1.5billion of public money during his tenure at the Sovereign wealth fund (2013-2017), and both stand accused of fraud and embezzlement related to the illegal transfer of USD 500 million from the BNA coffers to a Credit Suisse account in London. Meanwhile, in August, a court sentenced former Transport Minister Augusto da Silva Tomás to 14 years in prison on fraud charges, but later reduced his sentence to eight years.

Angola has a comprehensive anti-corruption legal framework but implementation remains a severe challenge. In January, the government issued a general conduct guide mostly for the National Public Procurement Service, the regulatory and supervisory body of public procurement in Angola, outlining whistleblowing responsibilities for corruption and related offences in public procurement. Following approval in October, a new law on anti-money laundering, combating the Financing of Terrorism, and the proliferation of weapons of mass destruction came into force in January 2020, superseding Law No. 34/11, of 12 December 2011. The new law incorporates several IMF and the Financial Action Task Force (FATF) recommendations. Importantly, it finally recognizes and includes politically exposed persons to be any national or foreign person that holds or has held a public office in Angola, or in any other country or jurisdiction, or in any international organization, and subjects them to greater scrutiny by the financial sector. Other significant improvements in the new law include:

  • The definition of “ultimate beneficial owner” was expanded to encompass, notably, all persons that hold, directly or indirectly, a controlling interest in a company, including the control of the share capital, voting rights or a significant influence in the company. There is no longer a minimum threshold to determine the existence of control;
  • Identification and diligence duties are now applicable to occasional transactions executed via wire transfers in an amount of more than USD 1,000, in national or foreign currency;
  • The scope of the duty to communicate suspicious transactions in cash or wire transfers has been amended and is now applicable to transactions between USD 5,000 and USD 15,000, depending on the underlying operation;
  • Payment-service providers that control the ordering and reception of a wire transfer must consider the information received from the sender and the beneficiary to determine whether there is a communication duty;
  • The Tax Authorities now have a duty to report suspicious cross-border payments.

The president approved a set of amendments to the Public Contracts Law on November 16, 2018, which imposed further requirements for the declaration of assets and income, interests, impartiality, confidentiality, and independence in the formation and execution of public contracts.  In December 2018, the Government of Angola rolled out of a national anti-corruption strategy (NACS) billed under the motto, “Corruption – A fight for All and By All.” The five-year strategy, developed in concert with the UNDP, is designed to improve government transparency, accountability, and responsiveness to citizen needs.  The NACS focuses on three pillars in the fight against corruption – prevention, prosecution, and institutional capacity building.

Crimes linked to corruption are enforced through the Public Probity Law of 2010. President Lourenco’s mandate for senior government officials requires all public officials to disclose their assets and income once every two years, and it prohibits public servants from receiving money or gifts from private business deals. The Penal Code makes it a criminal offense for private enterprises to engage in business transactions with public officials.

Angola has incorporated regional anti-corruption guidelines and into their domestic legislation, including: the SADC “Protocol Against Corruption,” the African Union’s “Convention on Preventing and Combating Corruption,” and the United Nation’s “Convention against Corruption.” Angola does not have an independent body to investigate and prosecute corruption cases, and generally, enforcement of existing laws is weak or non-existent. However, the Attorney General’s office has a department for Investigation of Corruption crimes and Recovery of Assets. Three institutions – the Audit Court, the Inspector General of Finance, and the Office of the Attorney General – perform many of the anti-corruption duties in Angola. http://www.business-anti-corruption.com/country-profiles/sub-saharan-africa/angola/initiatives/public-anti-corruption-initiatives.aspx 

The government also passed the Law on the Repatriation of Financial Resources in June 2018, which established the terms and conditions for the repatriation of financial resources held abroad by resident individuals and legal entities with registered offices in Angola. The law exempted individuals and legal entities, who voluntarily repatriated their financial resources within a period of 180 days following the date of entry into force of the Law, by transferring the funds to an Angolan bank account, from any obligation or liability of tax, foreign exchange and criminal nature. Upon expiry of the grace period for repatriation, the Law allowed for the possibility of coercive repatriation by the government. The government estimates that USD 30 billion of Angolan assets are sheltered overseas. In early 2019, the government established the National Asset Recovery Service (SNRA), an institution linked to the Attorney General’s Office (PGR), in charge of ensuring compliance with the repatriation law.

Private sector companies have individual internal controls for ethics, compliance and tracking fraudulent activities. However, they do not have a mechanism to detect and report irregularities related to dealings with public officials. It is important for U.S. companies, regardless of their size, to assess the business climate in the sector in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in Angola, should take the time to become familiar with the relevant anticorruption laws of both Angola and the United States in order to properly comply with them, and where appropriate, they should seek legal counsel.

Angola is not a member state to the UN Anticorruption Convention or the OECD Convention on Combatting Bribery. On March 26, 2018 it ratified and published in the national gazette the African Union Convention on the Prevention and Fight against Corruption and now takes legislative measures against illicit enrichment (Article 8), confiscation and seizure of proceeds and means of corruption (Article 16), and international cooperation in matters of corruption and money laundering (Article 20).

Resources to Report Corruption

Hélder Pitta Grós
Procurador Geral da Republica (Attorney General of the Republic)
Procurador Geral da Republica (Attorney General’s Office)
Travessa Antonio Marques Monteiro 22, Maianga
Telephone: 244-222-333172

10. Political and Security Environment

Angola maintains a politically stable environment under the motto “Together, we are stronger” politically motivated violence is not a high risk, and incidents are rare. President Joao Lourenco’s government seeks reform of the state and national cohesion. Local elections – “Autarquias” are scheduled to take place in 2020 with objectives to reduce asymmetries, dissemination of governance powers and equitable distribution of financial resources essential for economic and social development. However, the elections may be postponed due to the COVID-10 pandemic.

The last significant incident of political violence happened in 2010 during an attack against the Togolese national soccer team by FLEC-PM (Front for the Liberation of the Enclave of Cabinda—Military Position) in the northern province of Cabinda. FLEC threatened Chinese workers in Cabinda in 2015 and claimed in 2016 that they would return to active armed struggle against the Angolan government forces. No attacks have since ensued and the FLEC has remained relatively inactive. President Lourenco has pledged to govern for all Angolans, and combat two of the country’s major problems: corruption and mismanagement of public funds.

Russia remains Angola’s premier security cooperation partner. However, a May 2017 U.S.–Angola Defense Cooperation MOU has enabled more open mil-to-mil coordination. Our security cooperation aims to build the U.S.-Angolan military relationship, address Angolan defense priorities, and develop sustainable proficiency in areas of common interest, such as maritime safety and security, civil-military operations, humanitarian assistance, medical readiness, and English language programs.

In September 2019 UN Secretary-General António Guterres held a meeting with Lourenço during the Forum on China-Africa Cooperation (FOCAC) in Beijing. During the meeting, Guterres highlighted the role of Angola in the effort to maintain peace and stability in Southern Africa and the Great Lakes region.

In October 2019, UN High Commissioner for Human Rights Michelle Bachelet condemned the mass deportation of Congolese nationals, who were illegally working and residing in Angola. Angola deported thousands of Congolese nationals for allegedly exploiting diamonds and other forms of illegal trade in the northern and southern Lundas provinces.

Activist groups continuously face repression by police for online and offline activities and for using online spaces to criticize and organize protests. Social media has been a mobilizing tool for demonstrations and there are no instances of damage to property or vandalism by protestors who decry continued economic hardships, high unemployment and poverty, highlighting President Joao Lourenco’s election pledge to create jobs.

Angola engages multilaterally, through the AU, SADC, and the International Conference on the Great Lakes Region, to address its security and economic equities with the DRC. Angola continues to struggle with its legacy of land mines and is far from reaching its goal of becoming mine impact free by 2025. Since 1995, the United States (Angola’s largest demining donor) has invested more than USD 134 million in Angola to clear and dispose of landmines and unexploded ordnance. The United States donated USD 3.1 million in demining assistance in 2019. The Angolan government also pledged in 2019 an unprecedented USD 60 million of its own money for humanitarian demining over the next five years, largely focused on a potential corridor for tourism and sustainable development in the southeast, linked to the Okavango Delta.

11. Labor Policies and Practices

The Angolan labor force has limited technical skills, English language capabilities, and managerial ability. Many employers find it necessary to invest heavily in educating and training their Angolan staff. Angola’s labor force was estimated to be 13.1 million in 2019. The literacy rate is estimated to be 70 percent (82 percent male, 60.7 percent female). According to the National Statistics Institute, in 2019, the unemployment rate in the population aged 15 and above was around 31 percent, although more than 60 percent of all jobs are in the informal sector. Eighty six percent of primary school age children attend school. The law mandates that children must attend school for six years beginning at age six. 29 percent of boys and 17 percent of girls attend high school.

There are gaps in compliance with international labor standards which may pose a reputational risk to investors. Children are sometimes employed in agriculture, construction, fishing, and coal industries. Forced labor is sometimes used in agricultural, fishing, construction, domestic services, and artisanal diamond mining sectors. Additional information is available in the 2019 Trafficking in Persons Report, (https://www.state.gov/wp-content/uploads/2019/06/2019-Trafficking-in-Persons-Report.pdf [16 MB] ), 2019 Country Report on Human Rights Practices (https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/), and 2018 Findings on the Worst Forms of Child Labor, (https://www.dol.gov/agencies/ilab/resources/reports/child-labor/angola ).

Angola’s General Labor Law (Law No. 2/00), updated in 2015, recognizes the right of workers, except members of the armed forces and police, to form and join independent unions, to collectively bargain, and to strike, but these rights are either limited or restricted. To establish a union, a minimum of 30 percent of workers from a sector at the provincial level must participate and prior authorization by authorities with accompanying bureaucratic approvals is required. Unlike workers in the private sector, civil service employees do not have the right to collective bargaining. While the law allows unions to conduct their activities without government interference, it also places some restrictions on engaging in a strike. Strict bureaucratic procedures must be followed for a strike to be considered legal. The government can deny the right to strike or obligate workers to return to work for members of the armed forces, police, prison staff, fire fighters, “essential services” public sector employees, and oil workers. The government may intervene in labor disputes that affect national security, particularly strikes in the oil sector. The definition of civil service workers providing “essential services” is broadly defined, encompassing the transport sector, communications, waste management and treatment, and fuel distribution.

Collective labor disputes are to be settled through compulsory arbitration by the Ministry of Labor, Public Administration and Social Security. The law does not prohibit employer retribution against strikers, but it does authorize the government to force workers back to work for “breaches of worker discipline” or participation in unauthorized strikes. The law prohibits anti-union discrimination and stipulates that worker complaints be adjudicated in the labor court. Under the law, employers are required to reinstate workers who have been dismissed for union activities.

The General Labor Law also spells out procedures for hiring workers. For work contracts of indefinite duration, the law provides for a basic probationary period of up to six months, during which the worker or employer can terminate the contract without notice or justification. After the probationary period ends, dismissed workers have the right to appeal to a labor court. Many employers prefer to reach a monetary settlement with workers when a dispute arises, rather than bring cases before the labor court. The World Bank’s Doing Business 2020 report found that fired workers with one to ten years of service received on average 13.6 weeks of salary compensation. The notice period before dismissing a worker is 4.3 weeks.

The government conducts annual surveys of the oil industry to implement a requirement that oil companies hire Angolan nationals when qualified applicants are available. If no qualified nationals apply for the position, then the companies may request the government’s permission to hire expatriates. Outside of the petroleum sector, policies to encourage “Angolanization” of the labor force, i.e. the hiring of locals, discourages bringing in expatriates. However, the associated visa processes for the oil industry are currently easier and faster due to a special process the Angolan Ministry of Petroleum offers companies in that sector. Additionally, working visas for other sectors have also become easier to obtain and the GRA has launched the investor’s visa in 2018.

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

On April 10, 2019, the Export-Import Bank of the United States (EXIM) entered into a memorandum of understanding (MOU) with the Ministry of Finance of the government of Angola to increase trade of goods and services between the United States and Angola. Under the MOU, EXIM and the Ministry of Finance agreed to exchange information on business opportunities to further the procurement of U.S. goods and services by both state-owned and private-sector small and medium-sized businesses in Angola. Sectors for business development include energy, oil and gas development, infrastructure, railway and road transportation, supply chain infrastructure, environmental projects, agriculture, health care, water and sanitation, and telecommunications. EXIM agreed to explore options for providing the bank’s medium- and long-term guarantees on loans of up to USD 4 billion to support U.S. exports to Angola. For projects that may be eligible for EXIM support, the cooperation between the Ministry of Finance and EXIM would be directed towards qualifying such projects for approval by both institutions.

Since 1994, the Overseas Private Investment Corporation (OPIC), now the U.S. International Development Finance Corporation (DFC), has provided investment insurance to projects in Angola. U.S. investors can apply for DFC insurance, including coverage under the “Quick Cover” program for projects valued at less than USD 50 million. DFCC’s portfolio in Angola currently totals USD 20.4 million. Since the agreement, DFC’s support has helped facilitate critical investments in the energy, services, health care, manufacturing, and financial services sectors.

Angola is a member of the Multilateral Investment Guarantee Agency (MIGA), which provides insurance to foreign investors against such risks as expropriation, non-convertibility, and war or civil disturbance. MIGA also provides investment dispute resolution on a case-by-case basis.

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) N/A N/A 2019 $100 billion www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $207 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $254.3 billion BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2017 9.9% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Dorcas Makaya, Economic Specialist
United States Embassy, Luanda
Rua Houari Boumedienne 32 Miramar, Angola
Telephone: +244 222 641 154
Email: MakayaDC@state.gov

Cameroon

Executive Summary

Cameroon continues to implement an Extended Credit Facility from the IMF but has fallen behind on most of the reforms outlined in the agreement.  In May, the IMF approved the disbursement of a $226 million Rapid Credit Facility to support the “urgent balance of payment needs” stemming from the COVID-19 crisis.  A resurgent Boko Haram and ISIS-West Africa in the country’s Far North Region, combined with separatist violence in the Anglophone Northwest and Southwest Regions, continue to undermine Cameroon’s security and distract the government from needed economic reforms and infrastructure improvement.  In January 2020, Cameroon lost its eligibility in the African Growth and Opportunities Act due to human rights concerns.  Collapsing oil prices in early 2020 and the economic slowdown related to COVID-19 will hamper public finances and growth prospects, which will limit the government’s ability to make much-needed investments in physical infrastructure, education, and health.

Foreign investment continues to focus on extractive industries and infrastructure, most notably minerals and energy.  The government regularly calls for expanded international investment in utilities and myriad state-owned enterprises but has little appetite for removing bureaucratic impediments and tackling corruption.

Cameroon has a unique mix of natural resources and geography that make it attractive to investment.  The country shares a 1,000-mile border with Africa’s largest economy, Nigeria, and is the economic engine of the Economic and Monetary Community of Central Africa (CEMAC).  Cameroon is a bilingual country, with significant swathes of the population speaking French and English.  Continued conflict in the two Anglophone regions and the incursion of Boko Haram and ISIS-WA in the Far North undermine the country’s security.  State-owned companies with monopolistic power often function as regulators in various sectors and distort the business climate.  Cameroon struggles with rampant corruption which pervades an inefficient and slow public administration.  The result is underinvestment in infrastructure, education, and health.

Sectors that have historically attracted significant investment are:

Extractive Industry (Oil/Gas, Mining, Timber)

Cameroon has been an oil exporter since 1977.  Oil production has stagnated as prices fluctuated, but the country can count on untapped gas reserves estimated at 3.5 billion cubic meters, according to the U.S. Energy Information Administration.  The government dominates the sector and generally operates a revenue-sharing business model with foreign investors.  Cameroon also has dozens of deposits of valuable minerals, including gold, cobalt, magnesium, nickel, iron, and bauxite.  Cameroon’s immense tropical rainforests contain valuable hardwoods and softwoods.

Agriculture

The Cameroonian government has invested heavily in agriculture over the past 30 years, with minimal results.  Cameroon is often described as the breadbasket of Central Africa because it supplies foodstuffs to Nigeria and CEMAC members.  Market opportunities exist in the transformation of raw crops into finished or semi-finished products.  Access to credit, poor infrastructure, securing land rights, and ongoing fighting between separatists and government security forces in the cocoa and coffee-growing regions are significant obstacles.

Information & Communication Technology

Information and communication technology is the fastest growing economic sector in Cameroon, though internet penetration is still one of the lowest in sub-Saharan Africa.  The mobile sector is still concentrated in the hands of four companies, including the state-owned Cameroon Telecommunication (CAMTEL), which also functions as the market regulator.  Despite CAMTEL’s monopoly on the communication backbone, including underwater fiber optic cables, faster internet broadband and 3G-4G offer lucrative investment opportunities.

Banking and Finance

The financial sector of Cameroon has 15 banks, 26 insurance companies, a state pension fund, and a state-owned mortgage bank.  In addition, the country has over 400 microfinance institutions, a state-owned postal bank, and a nascent stock market based in Douala.  According to the International Monetary Fund, total financial assets represent 40 percent of national GDP, two-thirds of which is held by banks.  Less than 15 percent of Cameroonians have access to financial services.  There are investment opportunities in subsectors of the financial industry, particularly in conventional banking, risk protection, or in the increasingly popular mobile money business.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 153 of 180 https://www.transparency.org/
country/CMR
World Bank’s Doing Business Report 2020 167of 190 https://www.doingbusiness.org/
content/dam/doingBusiness/country/
c/cameroon/CMR.pdf
Global Innovation Index 2019 115 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 14 https://apps.bea.gov/international/
factsheet/factsheet.cfm?Area=404&UUID
=c39e7aa0-5372-457c-95c7-c7c9e2699ca7
World Bank GNI per capita 2018 USD 1,468 https://data.worldbank.org/indicator/
NY.GNP.PCAP.KD?locations=CM

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The government of Cameroon has stated that it considers FDI an important pillar of its development strategy.  Many Cameroonian institutions have bodies that work to attract FDI, with mixed results.  Parliament, the Executive Branch, and donors have sought to improve framework laws and regulations to attract investors.  In presenting the 2020 budget at the National Assembly, the Prime Minister emphasized the government’s commitment to increasing FDI, though few reforms have been passed.

By law, the government does not prohibit or limit foreign investors, whether in the ability to establish an investment (market access) or to operate in the market.  Investors interested in Cameroon can enter any sector of the economy provided they comply with regulations.  Though not official policy, tax authorities tend to target foreign companies for increased scrutiny.

The Cameroon Investment Agency (IPA) was launched in 2010.  IPA implements government policies to promote and facilitate all forms of direct investment in Cameroon. It examines investment proposals, assists with visa applications for foreign investors, and helps in the accreditation of companies.  IPA can enable access to related public facilities, simplify administrative procedures, and guide investors through the legal compliance processes.  IPA also offers incentives and can reward investors with additional support if they meet certain employment and export requirements.

The state agency helps companies launch their business projects.  As of the first quarter of 2020, the IPA has signed 89 conventions with private enterprises.  Companies must commit to creating local jobs.

Business lobby groups such as GICAM and Enterprise Cameroon maintain a dialogue with the government through the Cameroon Business Forum, a platform supported by government and donors.  For the past three years, the American Chamber of Commerce has not been invited to participate in the Forum.  GICAM, which is comprised of mostly local businesses, was increasingly critical of the government in 2019.

Limits on Foreign Control and Right to Private Ownership and Establishment

Despite an active government presence in most sectors of the economy, private entities – both domestic and foreign – can create and own businesses that engage in all forms of legal remunerative activities.  They can also enter into joint ventures and public-private partnerships with the government.  There are no general economy-wide (statutory, de facto, or otherwise) limits on foreign ownership or control.

Cameroon has no laws or regulations that prescribe outright prohibition on investment, equity caps, mandatory domestic joint venture partners, licensing restrictions, or mandatory Intellectual Property/technology transfer requirements.  Cameroon has a screening process, which is applicable to all domestic and foreign investments.  This screening process ensures that investors meet the criteria, such as employment and export quantities, to qualify for private investment incentives.

Other Investment Policy Reviews

OECD and UNCTAD have not conducted an investment policy review for Cameroon.  The WTO performed an IPR in 2013 for the Economic and Monetary Community of Central Africa (CEMAC).  In the report, the WTO criticized CEMAC countries for not doing enough to encourage trade between each other, promoting state-owned monopolies, and relying on price controls.

In June 2017, Cameroon signed a three-year Extended Credit Facility agreement with the IMF.  The program included structural reforms to accelerate and consolidate growth and control spending.  Under the terms of the agreement, the IMF has conducted five policy reviews.  Copies of the reviews can be found on the IMF website:

The IMF expressed satisfaction on the progress of the implementation of reforms while urging the country to implement stronger measures on budget transparency and improvement of the business climate.  In the area of public expenditure, the World Bank published a review  in late 2018.  The review examines public expenditure data over a period of 10 years with the objective of assisting Cameroon in the restoration of fiscal stability.

Business Facilitation

According to the World Bank’s Investing Across Borders Report, it takes 14 procedures and 82 days to establish a foreign-owned limited liability company in Douala.  This process is lengthier and more complex than regional and global averages.  While only two additional steps are required of foreign companies compared to domestic ones, these steps add an additional 48 days to the overall establishment process.  A declaration of foreign investment to the Ministry of Finance is mandatory 30 days prior to the beginning of the establishment process.  In addition, if the company wants to engage in international trade, registration in the importers’ file is required to obtain an automated customs systems number (Système Douanier Automatisé, or “sydonia”).  This number facilitates the entry and exit of goods produced by the company.  The authentication of the parent company’s documentation abroad is required only to establish a subsidiary.  Foreign-owned resident companies that wish to maintain foreign currency bank accounts in Douala must obtain prior approval.  The Minister of Finance issues such authorization, which is subject to approval from the Bank of Central African States as per Section 24 of the exchange control regulations.  This approval takes on average 38 days to obtain.  There is a minimum paid-in capital requirement of CFA 1,000,000 (~USD 1,700) for establishing LLCs.

In April 2016, with the support of the United Nations Conference on Trade and Development and the European Union, Cameroon launched an online business registration website called mybusiness.cm .  The platform simplifies the business creation process and amplifies entrepreneurship promotion policies.  The site presents real time data on business creation.

Outward Investment

The Cameroonian government does not promote or incentivize outward investment nor does it  restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

Cameroon has good laws, most of which are consistent with international business and legal norms.  Weak implementation and investigating capacity, a lack of understanding of international business practices, and corruption in the judiciary limit the effectiveness of the rule of law.  In many circumstances, judicial loopholes persist, leading to arbitrary interpretations of the texts.

Some government ministries, though not all, consult with the general public and private sector organizations through targeted outreach to stakeholders, such as business associations or other groups.  There is no formal process for such consultations.  Ministries do not report the results of consultations, but it is not believed that such processes disadvantage U.S. or other foreign investors.

Cameroon’s National Assembly and Senate pass laws.  The President proposes bills and then executes laws.  Though there is technically a separation of powers, the Presidency is the supreme rule-making and regulatory authority.  Regions and municipalities have little additional regulatory authority beyond that of the central government.  Cameroon is a member of CEMAC and is thus subject to its regulations, though implementation is a weak point.  CEMAC’s central bank, BEAC, controls monetary policy and is the de facto finance regulator, in coordination with the Ministry of Finance.

Cameroon does not meet the minimum standards of fiscal transparency.  Many of the state-owned enterprises do not have public accounts.  There are only three publicly listed companies on the Douala Stock Exchange.  All three use the Organization for the Harmonization of Business Law in Africa (OHADA) accounting system, which does not conform with International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP) standards.

Draft bills and regulations are not made available for public comment.  The website for the Office of the Prime Minister (www.spm.gov.cm ) contains PDF versions of most new regulatory actions published in the Cameroon Tribune, the country’s newspaper of record.

Cameroon has administrative courts that specialize in the application and enforcement of public laws.  From a strictly legal perspective, the Supreme Court has oversight on enforcement mechanisms, but a lack of separation of powers prevents the judiciary from carrying out its responsibilities. There have been no new regulatory or enforcement reforms announced since the last Investment Climate Statement.

Ministries and regulatory agencies do not develop forward regulatory plans, i.e., a public list of anticipated regulatory changes or proposals intended to be adopted/implemented within a specified period.  Ministries do not have a legal obligation to publish the text of proposed regulations before their enactment.  There is no period of time set by law for the text of the proposed regulations to be publicly available.  There is no specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.

The National Institute of Statistics (INS) conducts surveys and produces statistics, which are meant to inform policy decisions.  Some of these statistics are cited in government documents when ministries are drafting legislative proposals or during parliamentary debates. Quantitative analysis conducted by the INS have often been used by multilateral lenders such as the IMF, the World Bank, and the African Development Bank.  However, scientific or data-driven assessments of new regulations are limited; public comments are not the main drivers of regulations.

Cameroon does not meet the minimum standards of fiscal transparency due in large part to the opacity of state-owned companies.  A public national budget is produced each year, but there is little adherence to the document.  Thanks to the IMF’s Extended Credit Facility conditionality, information on public debt is fairly reliable and available.

International Regulatory Considerations

Cameroon is a member of the Central African Economic and Monetary Community (CEMAC). In theory, CEMAC regulations supersede those of individual members, though recent reforms by CEMAC’s central bank, BEAC, have met stiff resistance from individual member states, including Cameroon.

The government requires use of the Organization for the Harmonization of Business Law in Africa (OHADA) accounting system.  No other norms or standards are referenced in the country’s regulatory system.

Cameroon joined the World Trade Organization (WTO) on December 13, 1995 and was previously a member of the General Agreement on Taxes and Tariffs.  On March 11, 2019, Cameroon was suspended from the WTO for failure to meet its designated 180 million Central African Franc (USD 308,000) contribution to the organization.  The government of Cameroon is expected to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

The Cameroonian legal system is a legacy of French, German (Codified Laws), and English (Common law) colonization.  There is also the traditional ethnological legal system, which varies for each ethnic group.  The government wants to harmonize these different legal traditions to equip Cameroon with laws that are applicable across the country and to reduce the need to navigate different legal systems.  This project, however, is being met with stiff resistance from English-speaking lawyers, who claim that the initiative will undermine their heritage.

In terms of standards, Cameroon’s commercial legal system follows the OHADA rules, which are supposed to be aligned with International Financial Reporting Standards (IFRS).  Enforcement is weak partly because of lack of capacity.  Cameroon does not train enough specialized judges in the commercial and economic fields.  Consequently, poor enforcement of laws and accounting standards tends to create confusion for foreign investors.  Despite efforts to align OHADA standards to international norms, government accounting regulations remain obsolete in the context of rapid developments in international finance and capital markets.

To circumvent the problem, U.S. enterprises and investors often maintain two sets of accounting records, one in accordance with U.S. GAAP or suitable international standards, and another set to address the OHADA standards and government reporting requirements.

The judicial system is not independent of the executive branch.  The executive regularly interferes in judiciary matters.  The current judicial process is not procedurally competent, fair, or reliable.  Endemic corruption, lack of funding, and political considerations makes the courts unable to function as independent arbiters of disputes.

Arbitration is becoming the solution of choice to solve business disputes in Cameroon.  Arbitration is in the OHADA corporate law.  Since OHADA is a supra national law, Cameroon is bound by its decisions.

Regulations and enforcement actions are appealable, and they are adjudicated in the national court system.  Due to the court’s lack of objectivity, few businesses attempt to appeal unfavorable rulings.

Laws and Regulations on Foreign Direct Investment

Foreign direct investments are governed by Law No. 2013/004 of 18 April 2013, which defines incentives for private investment in Cameroon, while proposing generic and special incentives and affirming the government’s responsibilities with regard to private investors.  The law remains valid for domestic and foreign investors.  Additional laws and regulations that refer to specific economic sectors are available on the website of the Ministry of Finance (http://www.minfi.gov.cm/index.php/en/documents ).

The 2020 finance law, passed in December 2019, is the main new legal instruments to have been published  in the past year.  It contains new taxes and two exonerations notably on the Value Added Taxes.  Full implementation is expected over 2020, and many of the results are not fully understood.  The text of the law can be found here .

The Cameroon Investment Promotion Agency is the primary or “one-stop-shop” website for investment that provides relevant laws, rules, procedures, and reporting requirements for investors (https://investincameroon.net/en/ ).

Competition and Anti-Trust Laws

The National Competition Commission handles anti-competition and anti-trust disputes.  In some cases, the regulator of a specific economic sector can play the anti-trust role.  State-owned companies are often granted monopoly or monopsony status in their markets.

Expropriation and Compensation

Decree N°.85-9 of 4 July 1985 and the subsequent implementation of Decree N°.87-1872 of December 16, 1987, lay down the procedure governing expropriation for public purposes and conditions for compensation.  Some of the provisions of these legal texts were repealed by Instruction n°005/I/Y.25/MINDAF/D220 of December 29, 2005.  Essentially, for the general public interest, the State may expropriate privately owned land.  The laws also lay down the formalities to be observed within the context of the procedure, both at the central and local levels.

In recent years, the government of Cameroon has expropriated property in the context of the construction of large infrastructure projects such as roads and hydroelectric dams.  The government has a compensation process in place to meet the losses of those affected by such decisions.

Despite weakness in the actual implementation and execution of laws on the ground, compensation after expropriation generally follows a due process.  There are no cases of indirect expropriation, confiscatory tax regimes, or regulatory actions that deprive investors of substantial economic benefits from their investments.  However, serious allegations of corruption have plagued compensation procedures over the last decade.  These incidents, often carried out by civil servants, have undermined trust in the process.

Dispute Settlement

ICSID Convention and New York Convention

Cameroon ratified the “International Centre for Settlement of Investment Disputes” (ICSID) Convention on January 3, 1967 and the New York Convention on February 19, 1988.  There is no specific domestic legislation providing for enforcement under the 1958 New York Convention and for the enforcement of awards under the ICSID Convention.

Investor-State Dispute Settlement

The OHADA-signatory nations adopted a uniform act on arbitration (the Uniform Act) on March 11, 1999.  The Uniform Act sets out the basic rules applicable to any arbitration, where the seat of arbitration is located in an OHADA member state.  The Uniform Act is based on the United Nations Commission on International Trade Law (UNCITRAL) model law.  It supersedes the national laws on arbitration of the OHADA states.  Cameroon’s arbitration law is contained in its code of civil and commercial procedure in the third volume, Articles 576 to 601.

Cameroon has a Bilateral Investment Treaty (BIT) with the United States.  There have been no claims against the BIT since it came into force in 1989.  While there have been disputes between Cameroonian partners and U.S. companies, few have risen to the level of requiring arbitration.  Misunderstandings between partners have led to conflicts, but such cases have been infrequent over the past 10 years.

Local courts may recognize foreign arbitral awards issued against the government, but they are not well equipped to enforce such decisions.  Post is aware of several such awards against state-owned companies that have not been enforced.  In general, foreign investors complain more about administrative harassment or bottlenecks, and less about extrajudicial actions.

International Commercial Arbitration and Foreign Courts

The OHADA system serves both as domestic and primary reference legislation for alternative dispute resolution but is rarely used.  GICAM, the country’s largest business lobby group, has an arbitration center based in Douala.  In principle, local courts have the power to recognize and enforce foreign arbitral awards issued against the government if found at fault.

As a treaty, the OHADA prevails over domestic laws.  An international arbitration award can prevail especially if operating through the OHADA framework.  The Common Court of Justice and Arbitration (CCJA) enforced under OHADA are both an arbitration institution and a judicial court, with a remit covering all the OHADA states.

Judicial processes are bureaucratic, expensive, time-intensive, and lengthy.  This is true even for domestic and state-owned companies, which like their foreign competitors, also suffer from the weaknesses of the legal system and are not guaranteed any better treatment in case of dispute.

In a prominent November 2019 case, the general manager of a state-owned hydrocarbon distribution company complained that debts owed by the state-owned electricity company, in combination with frequent power cuts, had caused millions of dollars in financial losses.  Instead of addressing the issue or seeking arbitration, the company fired the manager.

Bankruptcy Regulations

Cameroon has bankruptcy laws which recognize the right of creditors, the equity of shareholders and other types of liabilities.  Bankruptcy is not criminalized unless it can be proven that it is a deliberate collusion to avoid tax or mislead investors.  In 2020, Cameroon stands at 129 in the World Bank’s ranking of 190 economies on the ease of resolving insolvency.  According to data collected by Doing Business 2019, resolving insolvency takes 2.8 years on average and costs 33.5 percent of the debtor’s estate, with the most likely outcome being that the company will be sold piecemeal.  The average recovery rate is 15.8 cents on the dollar.

4. Industrial Policies

Investment Incentives

Cameroon’s 2013 investment law lists several types of investment incentives for investors and specifies the conditions that they have to meet, in order to benefit from those incentives.  This law specifies incentives available to Cameroonian or foreign legal entities, whether or not established in Cameroon, conducting business therein, or holding shares in Cameroonian companies, with a view to encouraging private investment and boosting national production.  For example, during the establishment phase (which cannot exceed five years), the new code provides for exemptions from VAT and duties on key services/assets (including an exemption from stamp duty on the lease of immovable property).  During the operation phase (which cannot exceed 10 years), further exemptions from, or reductions of, other taxes (including corporate tax), duties (such as stamp duty on loans), and other fees are granted.  Overall, the law seeks to facilitate, promote, and attract productive investment in order to develop activities geared towards strong, sustainable, and shared economic growth as well as job creation.  In a context where businesses have to navigate between national and regional incentives, U.S. companies and investors must seek local and regional expertise if they plan to operate in the CEMAC region.

Common incentives are granted to investors during the establishment and operation phases.  During the operation phase, which may not exceed 10 years, the investor may enjoy exemptions from or reductions of payment of several taxes, duties, and other fees including corporate tax, tax on profit and stamp duty on loans.  In addition, any investor may benefit from a tax credit provided he or she meets one of the following criteria:  (1) employs at least five graduates each year, (2) combats pollution, and (3) develops public interest activities in rural areas.

The investor shall enjoy the following benefits during establishment phase, which may not exceed five years, with effect from the date of issuance of the approval:

  • Exemption from stamp duty on establishment or capital increase;
  • Exemption from stamp duty if immovable property used exclusively for professional purposes and that is part of an integral part of the investment program;
  • Exemption from transfer taxes on the acquisition of immovable property, land and buildings essential for the implementation of the investment program;
  • Exemption from stamp duty on contracts for the supply of equipment and construction of buildings and installations, that is essential for the implementation of their investment program;
  • Full deduction of technical assistance fees in proportion to the amount of the investment made, calculated on the basis of the total amount of the investment;
  • Exemption from VAT on the provision of services related to the execution of the project and obtained from abroad,
  • Exemption from stamp duty on concession contracts;
  • Exemption from business license tax;
  • Exemption from taxes and duties on all equipment and materials related to the investment program;
  • Exemption from VAT on the importation of equipment and materials;
  • Immediate removal of equipment and material related investment program during clearance operations.
  • The right to open in Cameroon and abroad local and foreign currency accounts and to carry out transactions on such accounts;
  • The right to freely use and or keep abroad funds acquired or borrowed abroad, and to freely use such;
  • The right to freely keep abroad dividends and proceeds of any kind from capital invested, as well as proceeds from the liquidation or sale of their assets;
  • The right to directly pay abroad non-resident suppliers of goods and services essential for conduct of business; and,
  • Free transfer of dividends and proceeds from the sale of shares in case of disinvestment.

Also, with respect to foreign staff employed by the investor and resident in the Republic of  Cameroon, they shall enjoy free conversion and free transfer to their country of origin of all or part of amounts due them, subject to prior payment of various taxes and social security contributions to which they are liable in compliance with the regulations in force.  Finally, the government shall institute facilities necessary for  the establishment of a specific visa and a reception counter at all airports throughout the national territory for investors, subject to their presentation of a formal invitation from the body in charge of investment promotion of Small and Medium-sized Enterprises.

There are additional incentives in priority economic sectors.  In addition to the above-mentioned incentives, specific incentives may be provided to enterprises, which carry out investments that contribute to the attainment of the following priority objectives:

  • Development of agriculture, fisheries, livestock, and plant, animal or fishery product packaging activities;
  • Development of tourism and leisure facilities, social economy and handicraft;
  • Development of housing, including social housing;
  • Promotion of agroindustry, manufacturing industries, industry, construction materials, iron and steel industry, construction, maritime and navigation activities;
  • Development of energy and water supply; encouragement of regional development and decentralization;
  • The fight against pollution and environmental protection;
  • Promotion and transfer of innovative technologies and research and development;
  • Promotion of exports; and,
  • Promotion of employment and vocational training.

Foreign Trade Zones/Free Ports/Trade Facilitation

In Cameroon, Foreign Trade Zones (FTZ) are demarcated and fenced geographic areas, with controlled access, where some standard trade barriers, tariffs, quotas, or other bureaucratic requirements are lifted or lowered to attract investments.  Cameroon passed a special law instituting FTZ in 1990.  Applications for an authorization to establish an industrial free zone are submitted to the National Office for Industrial Free Zones.  The authorization to establish an Industrial Free Zone is granted by the Minister in Charge of Industrial Development.  Some of the benefits of the FTZ are built into commercial, fiscal, custom, and labor codes.  The status of FTZ has not changed since the last reporting period.

Performance and Data Localization Requirements

The government of Cameroon does not mandate local employment except as an incentive to entice foreign investment.  The government of Cameroon encourages investors to create jobs and employ local labor.

There are no compulsory or legal requirements on senior management and boards of directors either, although local managers can facilitate the understanding of the domestic business environment.

Prospective investors and their employees can travel to Cameroon on standard intentional visas. The fees may vary per country of application.  Once they settle in Cameroon, they can apply for long term residence permits.

The government of Cameroon applies the visa reciprocity rules to a limited extent, but companies have in the past complained about the difficulty of obtaining work permits or the fact that work visas expire after six months and frequently are single entry.  Longer term work permits are now said to be available, but they have not been issued to our interlocutors unless included as residency work permits, a different category with more complicated application procedures.  The government does not impose rules on the recruitment of senior management nor excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees

The government does not impose conditions on permission to invest in Cameroon.  The government gives incentives to investors to transform local raw materials, goods and services in their production or their projects.  There is no “forced localization” policy.

Enforcement procedures for performance requirements are not yet standardized, but the government generally develops terms of reference on a case by case basis for contract performance.  The government has not stated intentions to maintain, increase, or decrease performance requirements.

Investment incentives, described above, are available to both domestic and foreign investors.   Foreign information technology providers are not required to turn over source code and/or provide access to encryption, but they can be required to provide them in cases of cybercrime under the national cybercrime law. Post is unaware of any measures designed to prevent or impede companies from freely transmitting customer or other business-related data outside of Cameroon.

5. Protection of Property Rights

Real Property

Property rights are recognized by law, but Cameroon’s weak judiciary makes enforcement sporadic.  For mortgage transactions between two private parties, a proper contract is required for the agreement to be binding and enforceable in the courts.  Liens have to be recorded in the contract.  A registry of land title exists in Cameroon.  The land rights of indigenous peoples, tribes, and farmers are recognized in the Constitution.  Existing legislation does not discriminate against foreign landowners.

Records from the Ministry of State Property and Land Tenure (French acronym “MINDAF”) indicate that land registration rates have not significantly increased since colonial times.  Between 1884 and 2005, only 125,000 title deeds were issued.  On average, this represents approximately 1,000 titles per year, covering less than 2 percent of the land in Cameroon.  In 2009, a study by the African Development Bank (AfDB) identified other distinctive patterns in land ownership.  For example, formal land registration is more common in urban (60 percent) than in rural areas.

Land disputes are common between Cameroonian citizens.  The disputes are generally caused by non-respect of commercial sales contracts or by informal sales of land.  Illegal occupations of lands are also common.  Globally, Cameroon stands at 177 in the ranking of 190 economies on the ease of registering property in the World Bank’s Doing Business Report 2020.

Intellectual Property Rights

The legal structure for Intellectual Property Rights (IPR) and corresponding enforcement mechanisms are weak.  IPR infringement  is especially common in the media, pharmaceuticals, software, and print industries.  Theft is common. To secure a trademark registration right, a Cameroon attorney must prepare and file a trademark application  with the African Organization for Intellectual Property Rights (OAPI). The courts are responsible for enforcement.

There were no new IPR-related laws or regulations enacted during the previous year.  The government seizes and publicly burns counterfeit goods. These actions are not documented systematically, and no cumulative data exists on the seizures.  Cameroon is not listed in the United States Trade Representative (USTR)  Special 301 Report or the Notorious Markets List.  For additional information about national laws and points of contact at local IP offices, see WIPO’s country profiles at http://www.wipo.int/directory/en/.

6. Financial Sector

Capital Markets and Portfolio Investment

The Cameroonian government is open to portfolio investment. With the encouragement of the International Monetary Fund and the regional Central Bank, Cameroon and other members of the CEMAC region have designed policies that facilitate the free flow of financial resources into the product and factor markets.

The Financial Markets Commission (CMF) of Cameroon physically merged with the Libreville-based Central African Financial Market Supervisory Board (CONSUMAF) in February 2019. CEMAC heads of state mandated the regional Central Bank to conduct additional mergers (regulations and regulators, stock exchanges trading and listing, central depositories, settlement banks) by 30 June 2019.  The project has suffered delays but remain on course to turn the Douala Stock Exchange (DSX) into a regional stock exchange for six countries.  The DSX has struggled to win the support of private enterprises and currently has three stock and five bonds listed.  Private enterprises are wary of the oversized role that Cameroonian government, which generally suffers from many dysfunctions, are playing in the administration of the exchange.

Cameroon’s financial sector is underdeveloped, and government policies have limited bearing on the free flow of financial resources into the product and factor markets.  Foreign investors can get credit on the local market, and the private sector has access to a variety of credit instruments.  Cameroon is connected to the international banking payment system.

CEMAC’s central bank, known by its French acronym BEAC, works with the International Monetary Fund on monetary policies and fiscal reform. BEAC respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.   Despite generally respecting Article VIII, BEAC has instituted several restrictions on payments in an effort to boost foreign exchange reserves.  Throughout much of 2019, financial institutions and importers complained of a backlog of requests for foreign exchange.  BEAC is currently negotiating with several international oil companies about repatriation of revenues before external payments.  While the situation has improved over the last six months, investors should be aware that timely repatriation of profits may be a stumbling block.

Money and Banking System

Less than 15 percent of Cameroonians have access to formal banking services.  The Cameroonian government has often spoken of increasing access, but no coherent policy or action has been taken to alleviate the problem.  Mobile money, introduced by local and international telecom providers, is the closest tool to banking services that most Cameroonians can access.

The banking sector is generally healthy.  Large, international commercial banks do most of the lending.  One local bank, Afriland, operates in multiple other countries.  Most smaller banks deal in small loans of short duration.  Retail banking is not common.  According to the World Bank, non-performing loans were 10.31 percent of total bank loans in 2016.  The Cameroonian government does not keep statistics on non-performing assets.  Cameroon’s largest banks are:

1st Afriland First Bank (USD 3 billion)

2nd: Societe Generale Cameroon (USD 2.5 billion)

3rd -Banque Internationale Du Cameroun Pour L’epargne Et Le Credit (USD 2.1 billion)

4th EcoBank (USD 1.4 billion)

5th BGFI Bank Cameroon (USD 918 million)

6th Union Bank of Africa Cameroon (USD 811 million)

(Source: Jeune Afrique, December 2019)

Cameroon is part of the six-member Economic and Monetary Community of Central Africa (CEMAC), which maintains a central bank, known by its French acronym, BEAC.  The current governor of BEAC is Abbas Mahamat Tolli (from Chad).

Foreign banks are allowed to establish operations in Cameroon.  Most notably, Citi and Standard Chartered have operated in Cameroon for more than 20 years.  They are subject to the same regulations as locally developed banks.  Post is unaware of any lost correspondent banking relationships within the past three years.

There are no restrictions on foreigners establishing bank accounts, credit instruments, business financing or other such transactions.

Foreign Exchange and Remittances

Foreign Exchange

In 2019, BEAC tightened regulations on foreign exchange as reserves plummeted in the aftermath of the 2014 oil shock. The IMF estimates that the volume of foreign exchange assets illegally held outside the CEMAC zone by local firms and institutions at five trillion CFA (USD 8.3 billion). This is about the same amount of foreign reserves in CEMAC countries’ current account on June 30, 2019. While tightening the rules did not mean legal restrictions, each request for a foreign exchange transaction required a “dossier” that would include various documents.  The documents required vary based on the type of transaction to demonstrate the “legitimacy” of the planned purchase in foreign exchange that BEAC would approve.  The formal list of required documents from BEAC includes a significant number of required supporting documents.

The IMF has stated that forex transactions of less than one million U.S. dollars only require approval by local BEAC representatives in each country and should take place in a matter of days.  Forex transactions exceeding one million USD require approval from BEAC headquarters in Yaoundé and should occur in no more than 48 hours.  Banks and other financial institutions complain that requests are often rejected on minor technical grounds.  In practice, approved requests often take more than two weeks to process.

As of May 2020, BEAC is requiring international oil companies to repatriate all proceeds from the sale of oil and gas and then submit an application in order to receive dollars or euros.  Several Ministers of Finance and/or Energy in CEMAC countries have assured oil companies that they do not need to comply with the regulation, creating uncertainty for the operators.

In theory, funds associated with any form of investment can be freely converted into any world currency , but the current BEAC restrictions are causing currency conversion concerns at financial institutions and oil companies.

The Central African CFA Franc is the currency of six independent states in Central Africa: Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, and Gabon.  It is administered by the BEAC and is currently pegged at roughly 656 CFA to one Euro.

Remittance Policies

Apart from the tightening of foreign exchange rules in 2019, post is unaware of any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.

There are no time limitations on transactions beyond the classic banking transactions timeline.   BEAC regulates remittances policies and banking transactions.  Foreign investors can remit through convertible and negotiable instruments through legal channels recognized by BEAC, subject to the recent issues mentioned above.

Sovereign Wealth Funds

Cameroon does not have a sovereign wealth fund.

7. State-Owned Enterprises

Cameroon has at least 200 SOEs.  Roughly 70 percent of SOEs are profit-oriented, though most are a net negative on government finances.  Some provide public services.  Many SOEs are so dominant in their markets that they act as de facto regulators, specifically in telecommunications and media.  The Government of Cameroon has over 130 state-owned companies in which it has majority ownership, and which operate in key sectors of the economy including agribusiness, energy, and mining.  SOEs are also present in real estate, transportation, services, information & communication, finance, and travel.

In 2017, the National Assembly voted into law a new regulation to govern SOEs.  The stated objective is to improve the services offered and the competitiveness of public companies, in line with the development objectives of the country.  Some of the innovations of this law include the diversification of the investment universe of SOEs, modern control through reporting requirements, and compliance with modern governance principles.  As of 2020, it does not appear that any of these objectives have been completed.

SOEs competing in the domestic market receive non-market based advantages from the Cameroonian government.  They receive taxpayer subsidies, and in many markets, serve as de facto regulators.  They also have a history of accumulating unpaid tax arrears while at the same time benefitting from preferential access to land and to public funds through State interventions.

The Supreme Audit Chamber of Cameroon indicates in its yearly reports that SOEs are not financially transparent.  Only about 22 percent of these structures publish financial accounts.  Other reports have highlighted corruption cases involving managers of SOEs and unveiled inefficiencies, severe dysfunctions, and opacity of the management of SOEs.  These problems are exacerbated by the fact that over the past years, the government has not imposed any performance targets, productivity requirements, and quality of service standards nor any significant budget constraints on SOEs.  The governing boards and senior executive teams are political appointees and connected individuals.  The SOEs have means to avoid tax burdens levied on private enterprises, receive specialized consideration for subsidies, and enhanced operating budgets, and obtain generally preferential treatment from the government (including courts).

Privatization Program

Cameroon enacted major privatization policies in the 1990s and early 2000s with the encouragement of international donors such as the International Monetary Fund and the World Bank.  The process has been stalled for over a decade, but market pressures continue to mount for additional privatization efforts.  We estimate that 30 companies have undergone some form of privatization since 2004.  The government has openly discussed privatization of the national airline, telecommunications company, the oil sector, and agribusinesses, but little has occurred.

In general privatization appears to be on hold.  The government favors Public Private Partnerships or some variations of outsourcing of/contractual management, with the State retaining some ownership of assets or of the business, rather than outright privatization.  In some cases, the State also prefers to take participation in ventures, such as mining companies, rather than creating a state-owned company.  Yet, in at least one case, the government has appeared to be reversing privatization.  This is the case for the country’s water provider, CAMWATER.  Until 2019, the government had outsourced distribution to a private operator. In April 2019, the State regained control of infrastructure management, distribution and commercialization of potable water throughout the country, and there are no indications that this situation will change in 2020.

Foreign investors can and do participate in the privatization programs.  According to some analysts, of the 30 State-owned companies were privatized before 2004, foreign bidders won the majority (22).  For example, British private equity firm owns the controlling share in ENEO, the country’s electricity monopoly.

The public bidding on tender offers is transparent.  They are advertised in the media, but the actual process of awarding contracts may still be tainted by corruption, particularly on large projects.  The listing of public tenders in the Cameroon Tribune newspaper and publication of which firms received the contract do not guarantee a fully transparent process of awards.

8. Responsible Business Conduct

Cameroon does not have laws that regulate responsible business conduct.  However, the government of Cameroon has enacted laws that cover issues related to what is locally considered corporate social responsibility.  There are additional initiatives in the private sector to foster a corporate social responsibility culture.

All major infrastructure projects in Cameroon are compelled to conduct an Environmental and Social Impact Assessment (ESIA) to establish the impact of the projects on people and nature. Cameroon’s ESIA law strives to follow World Bank standards.  A Ministry of Environment and Forestry was created in April 1992 with a mandate to elaborate, implement and follow up the national policy of environment; a master law August 1996 related to environmental management prescribes environmental impact assessment for all projects that can cause environmental degradation.  The ESIA is fast becoming an important and unavoidable compliance step for foreign and domestic companies.

Post is unaware of a formal definition of RBC within the Cameroonian government.  It does not have a national ombudsman for stakeholders to get information or raise concerns about RBC. The government has not conducted a national action plan on RBC.  The government does not factor RBC into its procurement decisions.  Post is not aware of any recent high-profile instances of private sector impact on human rights.

The Cameroonian government struggles to effectively and fairly enforce laws, including in relation to human rights, labor rights, consumer protection, and environmental protection.  There is little corporate governance law in Cameroon, mostly due to the fact that very few companies are open to portfolio investment.  Few large Cameroonian companies are financed through equity, so the need to protect shareholders is small.  The Business Council for Good Governance, the American Chamber of Commerce, Rotary International and Transparency International promote RBC in Cameroon, thought their ability to monitor RBC is limited.

Post is unaware of any government efforts to adhere to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.  Cameroon participates in the Extractive Industries Transparency Initiative.  Domestic transparency measures requiring the disclosure of payments made to governments are lacking.

9. Corruption

Corruption is punishable under sections 134 and 134 (a) of the Pena1 Code of Cameroon.   Despite these rules, corruption remains endemic in the country.  In 2019, Cameroon ranked 153 (of 180 countries) in Transparency International’s Corruption Perception Index.  Arrests of high-ranking officials for corruption are widely viewed as political.

Anti-corruption laws are applicable to all citizens and institutions throughout the national territory. If Cameroon has laws or regulations to counter conflict-of-interest in awarding contracts or government procurement, Post is unaware of them.  U.S. firms indicate that corruption is most pervasive in government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs, and taxation.

The National Anti-corruption Commission (CONAC) recently began encouraging private companies to establish internal codes of conduct and ethics committees to review practices.  Post is unaware of how many companies have instituted either program.  Bribery of government officials remains common.  While some companies use internal controls to detect and prevent such bribery, Post is unaware of how widespread these internal controls are.

Cameroon is signatory to the United Nations and the African Union anti-corruption initiatives, but the international initiatives have practical limited effects on the enforcement of laws in the country.  Post is unaware of any NGO’s involvement in investigating corruption.  The government prefers the state-controlled anti-corruption commission, CONAC, to investigate potential cases. U.S. firms indicate that corruption is most pervasive in government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs, and taxation.

Resources to Report Corruption

NAME:  Rev. Dieudonné MASSI GAMS
TITLE:  Chairman
ORGANIZATION:  National Anti-Corruption Commission
ADDRESS:  B.P. 33200 Yaoundé Cameroon
TELEPHONE NUMBER:  (+237) 22 20 37 32
EMAIL ADDRESS: www.conac-cameroun.net
infos@conac-cameroun.net

NAME:  Barrister Charles NGUINI
TITLE:  Country Representative
ORGANIZATION:  Transparency International Cameroon
ADDRESS:  Nouvelle route Bastos, rue 1.839,  BP : 4562 Yaoundé
TELEPHONE NUMBER:  (+237) 33 15 63 78
EMAIL ADDRESS: transparency@ti-cameroon.org

10. Political and Security Environment

Cameroon faces several security challenges.  An armed secessionist uprising is entering its fourth year in the English speaking Southwest and Northwest Regions.  Boko Haram and ISIS-West Africa are resurgent in the Far North Region.  In the Adamoua and East Regions, a wave of kidnappings and the presence of refugees from the Central African Republic has led to increased military presence.  Terrorists and secessionist alike have targeted economic assets in order to affect political change.  The country is growing increasingly more politicized and insecure.

In the Anglophone regions, secessionists leaders have claimed responsibility on social media, for the arsons that destroyed hospitals, schools, bridges and roads. Secessionists have also posted videos of executions and beheading on the internet while also claiming several kidnappings for ransom. Human rights organizations have accused soldiers for burning down houses in many villages. In the Far North of Cameroon, Boko Haram fighters have looted villages and cattle and also kidnapped and abused women.  Consequently, several infrastructures projects have grounded to a halt.

Cameroon is growing increasingly insecure.  While the government has made platitudes toward resolving the Anglophone crisis, little of note has actually been done.  Security forces are stretched thin, allowing Boko Haram and ISIS-West Africa to maintain a footprint in the country’s Far North Region.  Political dissent is immediately stamped out.

11. Labor Policies and Practices

In Cameroon, over 50 percent of the population is under 25.  The official unemployment is around 4 percent, although youth unemployment may be as much as 75 percent.  Empirical research puts the rate of unemployment at 11.5 percent. The majority of youth who are qualified are under-employed in the informal sector.  Unskilled labor is prevalent in the agricultural and service sector, and under-employment is prevalent in manufacturing, commerce, technician or technical trades, and mid-management jobs.  Officially, unemployment rate hovers around 4 percent based on International Labor Organization (ILO) standards, but the reality is that it this rate is much higher.  Under-employment is even higher and remains a real challenge for Cameroon, with rates of 12.3 percent and 63.7 percent, respectively, for visible and invisible under-employment according to academic research.

There are shortages of technical trade skills, for example, for maintenance and repair of industrial machinery, in every sector of the economy.  Truck and automotive maintenance is widely practiced in the informal sector.  Rudimentary or artisanal agriculture, fishing, and textile manufacture economic sectors are still in need of significant development, and a lack of skilled workers tends to be the norm across the country.

The government of Cameroon does not require foreign companies to hire nationals.  However, foreign nationals are required to obtain work permits prior to formal employment.  While foreign nationals are automatically issued work permits for companies of the industrial free zones regime, their number may not exceed 20 percent of the total work force of a company after the fifth year of operation in Cameroon if benefiting from the Industrial Free Zone (IFZ) regime.

Although union and contract agreements vary widely from sector to sector, in general, Cameroon functions as an “employment at will” economy, and labor laws differentiate between layoffs and firing.  Layoffs are not caused by the fault of the employees.  Layoffs are often considered as alternative solutions to dismissing workers based on performance fault or economic grounds. There is no special treatment of labor in special economic zones, foreign trade zones, or free ports.

While the Labor Code applies to Enterprises of the Industrial Free Zone (IFZ) regime, some matters are governed by special provisions under the 1990 law establishing IFZ.  These include the employer’s right to determine salaries according to productivity, free negotiation of work contracts, and automatic issuance of work permits for foreign workers.  The Ministry of Labor monitors labor abuses, health and safety standards, and other related issues, but enforcement is poor.  Labor laws are waived through the regime of Industrial Free Zones to attract or retain investment.  As indicated earlier, the waivers include the employer’s right to determine salaries according to productivity, free negotiation of work contracts, and automatic issuance of work permits for foreign nationals.

There are independent labor unions and others that are affiliated with the government under existing laws and regulations.  Over 100 trade unions and 12 union confederations operate in the country.  However, the labor union movement is highly fractured and somewhat ineffective in promoting workers’ rights.  Some union leaders accuse the government and company managers of promoting division within trade unions to weaken them, as well as protecting non-representative trade union leaders with whom they can negotiate more easily.

Cameroon’s labor dispute resolution mechanisms are outlined in the labor code.  The procedure differs depending on whether the dispute is individual or collective.  Individual disputes fall under the jurisdiction of the civil court dealing with labor matters in the place of employment or residence of the worker.  The legal procedure is initiated after the labor inspector fails to settle the dispute amicably out of the court system.  Settlement of collective labor disputes is subject to conciliation and arbitration, and any strike or lock-out started after the procedures have been exhausted and have failed is deemed legitimate.  While the conciliation procedure is conducted by the labor inspector, arbitration of any collective dispute that has not been settled by conciliation is handled by an arbitration board, chaired by the competent judicial officer of the competent court of appeal.  Workers who ignore procedures to conduct a legal strike can be dismissed or fined.  For more information from the ILO, see here .

Strikes occur regularly, and are generally repressed by the police, though they are often due to lack of payment by the employer and are resolved quickly.  No strike occurred that posed an investment risk.

Cameroon labor code lays down principles of labor laws regarding employment, dismissal, remedies for wrongful dismissal, compensation for industrial injuries, and trade unions.  But most jobs do not have binding contracts and employers generally seem to have the upper hand in labor disputes.  There is informality even in the formal sector, which is against the law.  Because of this landscape, it is important for U.S. companies to ensure compliance with the local labor laws and to abide by international best practices.  There were no new labor related laws or regulation enacted during the last year.  Post is unaware of any pending draft bills.

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

The Cameroonian government has expressed strong interest in working with the U.S. International Development Finance Corporation.  The government has experience working with OPIC and U.S. EXIM Bank and has rudimentary understanding of the requirements.

The Government of the Republic of Cameroon and OPIC signed an Investment Guarantee in 1967.  DFCC has one operational program in Cameroon.  In January 2018, a delegation of executives from OPIC visited Cameroon to evaluate an ophthalmology hospital, funded by OPIC, which treats 18,000 cataract cases every year.  An OPIC team visited a local cocoa and coffee producer in Nkongsamba in late 2018.  In 2019, the Cameroon Ministry of Economy and Regional Planning wrote to the Mission to request a meeting with the economic affairs officer to discuss a workshop on DFC programs. In 2020, the Ministry of Economy had plans to visit the United States and meet with DFC to discuss investment opportunities in Cameroon.

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) 2019 $37,700 2018 $38,675 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2018 $14 https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions)  N/A N/A N/A N/A
Total inbound stock of FDI as % host GDP N/A N/A 2018 18.8% https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
 

* Source for Host Country Data: 2019 Cameroon Finance Bill, page 13 (converted at $1=600 Central African Francs)

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

NAME: Mamouda Mbemap
TITLE: Economic Specialist
ADDRESS OF MISSION: Avenue Rosa Parks, Yaounde, Cameroon
TELEPHONE NUMBER:  (237) 22220-1500
EMAIL ADDRESS: mbemapm@state.gov

Chad

Executive Summary

Chad is Africa’s fifth largest country by geographic/surface area, encompassing three agro-climatic zones. Chad is landlocked, bordering Libya to the north, Sudan to the east, Central African Republic (CAR) to the south, and Cameroon, Nigeria, and Niger to the west (with which it shares Lake Chad). The nearest port – Douala, Cameroon – is 1,700 km from the capital, N’Djamena. Chad is one of six countries that constitute the Central African Economic and Monetary Community (CEMAC), a common market. Chad’s human development is one of the lowest in the world according to the UN Human Development Index (HDI), and poverty afflicts a large proportion of the population.

The GOC is favorably disposed to foreign investment, especially from North American companies. There are opportunities for foreign investment in Agribusiness; Agricultural, Construction, Building & Heavy Equipment; Automotive & Ground Transportation; Education; Energy & Mining; Environmental Technologies; Food Processing & Packaging; Health Technologies; Information Technology; Industrial Equipment & Supplies; Information & Communication; and Services.

Since oil production began in 2003, the petroleum sector has dominated economic activity and has been the largest target of foreign investment, including from U.S. companies. Agriculture and livestock breeding are also important economic activities, employing the majority of the population. The Government of Chad (GOC) has prioritized agriculture, livestock breeding, meat processing, energy production, and information technology in recent years in an effort to diversify the economy and lessen fiscal dependence on volatile global energy markets.

Chad’s business and investment climate remains challenging. Private sector development is hindered by poor transport infrastructure, lack of skilled labor, minimal and unreliable electricity supply, weak contract enforcement, corruption, and high tax burdens on private enterprises. Frequent border closures with neighboring countries, exacerbated by COVID-19 restrictions, complicate international trade. The COVID-19 pandemic halted Chad’s modest 2019 economic recovery following several years of recession caused by low global oil prices and large debt payments to Glencore. Existing IMF and World Bank programs aim to improve governance, increase transparency, and reduce internal arrears. Private sector financing is limited, and low GDP growth constrains government investment and private sector spending. Frequent rotations of key ministers and overzealous customs inspectors present further roadblocks.

Despite these challenges, the success of several foreign investments into Chad illustrates the business opportunities for experienced, dedicated, and patient investors. Successful investors often operate with trusted local partners to navigate the challenges of operating in Chad. The oil sector will mark 20 years of operations in 2023 and features several prominent American international oil companies. Olam International entered Chad’s cotton market in 2018 and dramatically increased national cotton production. Mindful of the imperative to enact reforms, the GOC launched a Presidential Council to Improve the Business Climate in late 2019. With rich natural resources, minimally developed agriculture and meat processing sectors, ample sunshine, increasing telecommunications coverage, and a rapidly growing population, Chad presents an opportunity for targeted investment in key sectors.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 162 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 182 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 N/A https://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 USD 670 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The GOC’s policies towards foreign direct investment (FDI) are generally positive. Chad’s laws and regulations encourage FDI, and there are few formal restrictions on foreign trade and investment. Under Chadian law, foreign and domestic entities may establish and own business enterprises.

The National Investment Charter of 2008 permits full foreign ownership of companies in Chad. The only limit on foreign control is on ownership of companies deemed related to national security. The National Investment Charter guarantees both foreign companies and individuals equal standing with Chadian companies and individuals in the privatization process. In principle, tenders for foreign investment in state-owned enterprises (SOEs) and for government contracts are conducted through open international bid procedures. The National Investment Charter also offers incentives to certain foreign companies establishing significant operations in Chad, including up to five years of tax-exempt status.

Chad’s National Agency for Investment and Exports (ANIE, Agence Nationale des Investissements et des Exports), an agency of the Ministry of Industrial and Commercial Development & Private Sector Promotion, facilitates foreign investment. ANIE’s mandate is to contribute to the creation of a business environment that meets international standing, promote investment and exports, support the development of SMEs, and inform GOC decision makers about economic policy. ANIE acts as a one-stop shop for new investors.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no limits on foreign ownership or control. There are no sector-specific restrictions that discriminate against market access for U.S. or other foreign investors, and no de facto anti-foreign discriminatory practices.

Other Investment Policy Reviews

UNCTAD published a French-language Investment Policy Review https://investmentpolicy.unctad.org/publications/1212/investment-policy-review-of-chad  on Chad in July 2019.

The World Trade Organization (WTO) published a joint trade policy review (https://www.wto.org/english/tratop_e/tpr_e/tp385_e.htm  ) for Chad, Cameroon, Republic of Congo, Gabon, and Central African Republic in 2013, and a standalone trade policy review (https://www.wto.org/english/tratop_e/tpr_e/tp275_e.htm  ) for Chad in 2007.

The OECD has not published any investment policy reviews of Chad.

Business Facilitation

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the most important legal requirement for investment. ANIE’s website (www.anie-tchad.com ) provides additional information. Online business registration is not yet available via the Global Enterprise Registration web site (www.GER.co ) or the Business Facilitation Program (www.businessfacilitation.org ).

In 2019, the World Bank ranked Chad 182 out of 190 countries for ease of starting a business, which included factors beyond registration such as permitting and access to office space, energy, and capital. Article 31 of the 2020 Finance Law requires companies to provide a reimbursable deposit of up to 0.5 percent of expected annual revenue to the GOC to complete registration.

Contracts are tailored to each investment and often include additional incentives and concessions, such as permissions to import labor or agreements to work with specific local suppliers. Some contracts are confidential. Occasionally, government ministries attempt to change the terms of contracts or apply new laws broadly, even to companies that have pre-existing agreements that exempt them. Chad’s judicial system is weak, and rulings, including those relating to contract disputes, are susceptible to government interference. There is limited capacity within the judiciary to address commercial issues, including contract disputes. Parties usually settle disputes directly or through arbitration provided by the Chamber of Commerce, Industry, Agriculture, Mining, and Crafts (CCIAMA) or through an outside entity, such as the International Chamber of Commerce (ICC) in Paris.

Outward Investment

The GOC does not offer any programs or incentives encouraging outward investment. The GOC does not restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

Chad implements laws to foster competition and establish clear rules based on Uniform Acts produced by the Organization for the Harmonization of Business Law in Africa (OHADA, Organisation pour l’Harmonisation en Afrique du Droit des Affaires, www.ohada.com ). However, certain Chadian and foreign companies may encounter difficulties from well-established companies with a corner on the market that discourages competition.

Regulations and financial policies generally do not impede competition in the financial sector. Legal, regulatory, and accounting systems pertaining to banking are transparent and consistent with international norms. Chad began using OHADA’s accounting system in 2002, bringing its national standards into harmony with accounting systems throughout the region. Several international accounting firms have offices in Chad. However, while accounting, legal, and regulatory procedures are consistent with international norms, some local firms do not use generally accepted standards and procedures in their business practices.

Chad develops forward regulatory plans to encourage foreign investment and budget support. Government ministries draft regulations, subject to approval by the Secretary General of the Government, Council of Ministers, National Assembly, and President. National regulations are most relevant to foreign investors. There are no informal regulatory processes managed by nongovernmental organizations or private sector associations. The GOC occasionally provides opportunities for local associations, such as the National Council of Employers (CNPT, Conseil National du Patronat Tchadien) or the CCIAMA to comment on proposed laws and regulations pertaining to investment. All contracts and practices are subject to legal review, which can be weak.

The Government publishes all budget information, including on the Ministry of Finance and Budget website. Other proposed laws and regulations are not published in draft form for public comment. The Observatory on Public Finance is an online framework for the dissemination of public finance data and the operationalization of the Code of Transparency and Good Governance. This code is an implementation of one of the six CEMAC Directives on the new harmonized framework for public financial management.

The Presidential Council to Improve the Business Climate was announced in 2018 and inaugurated in late 2019. This effort to reform Chad’s investment climate and improve Chad’s performance in World Bank assessments is still in its embryonic stage. The global spread of COVID-19 in early 2020 drew the GOC’s attention to pandemic response.

Chad is not listed on www.businessfacilitation.org .

International Regulatory Considerations

Chad has been a member of the WTO since October 19, 1996 and a member of GATT since July 12, 1963. Chad is a member of OHADA and the Central African Economic and Monetary Community (CEMAC, Communaute Economique et Financiere de l’Afrique Centrale, www.cemac.int ). Since 2017, Chad is gradually implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts. Chad’s banking sector is regulated by COBAC (Commission Bancaire de l’Afrique Centrale), a regional agency.

Legal System and Judicial Independence

Chad’s legal system and commercial law are based on the French Civil Code. The constitution recognizes customary and traditional law if it does not interfere with public order or constitutional rights. Chad’s judicial system rules on commercial disputes in a limited technical capacity. The Chadian President appoints judges without National Assembly confirmation, and thus the judiciary may be subject to executive influence. Courts normally award monetary judgments in local currency, although it may designate awards in foreign currencies based on the circumstances of the disputed transaction.

Chad’s commercial laws are based on standards promulgated by CEMAC, OHADA, and the Economic Community of Central African States (CEEAC, Communaute Economique des Etats de l’Afrique Centrale, http://www.ceeac-eccas.org ). The Government and National Assembly are in the process of adopting legislation to comply fully with all these provisions.

Specialized commercial tribunal courts were authorized in 1998 and operationalized in 2004. These tribunals exist in five major cities but lack adequate technical capacity to perform their duties. Firms not satisfied with judgments in these tribunals may appeal to OHADA’s regional court in Abidjan, Ivory Coast, that ensures uniformity and consistent legal interpretations across its member countries. Several Chadian companies have done so. OHADA also allows foreign companies to utilize tribunals outside of Chad, generally in Paris, France, to adjudicate business disputes. Finally, CEMAC established a regional court in N’Djamena in 2001 to hear business disputes, but this body is not widely used.

Contracts and investment agreements can stipulate arbitration procedures and jurisdictions for settlement of disputes. If both parties agree and settlements do not violate Chadian law, Chadian courts will respect the decisions of courts in the nations where particular agreements were signed, including the United States. This principle also applies to disputes between foreign companies and the Chadian Government. Such disputes can be arbitrated by the International Chamber of Commerce (ICC). Foreign companies frequently choose to include clauses in their contract to mandate ICC arbitration.

Bilateral judicial cooperation is in effect between Chad and certain nations. Chad signed the Antananarivo Convention in 1970, covering the discharge of judicial decisions and serving of legal documents, with eleven other former French colonies (Benin, Burkina Faso, Cameroon, CAR, Congo-Brazzaville, Gabon, Cote d’Ivoire, Madagascar, Mauritania, Niger, and Senegal). Chad has similar arrangements in place with France, Nigeria, and Sudan.

Laws and Regulations on Foreign Direct Investment

The National Investment Charter encourages foreign direct investment. Chad is a member of the Central African Economic and Monetary Community (CEMAC, Communaute Economique et Financiere de l’Afrique Centrale, www.cemac.int ) and the Organization for the Harmonization of Business Law in Africa (OHADA, Organisation pour l’Harmonisation en Afrique du Droit des Affaires, www.ohada.com ). Since 2017, Chad is gradually implementing business and economic laws and regulations based on CEMAC standards and OHADA Uniform Acts.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access the OHADA’s court located in Abidjan, Côte d’Ivoire.

Foreign businesses interested in investing in or establishing an office in Chad should contact ANIE, which offers a one-stop shop for filing the legal forms needed to start a business. The process officially takes 72 hours and is the most important legal requirement for investment. ANIE’s website (www.anie-tchad.com ) provides additional information.

Competition and Anti-Trust Laws

Regulation of competition is covered by the OHADA Uniform Acts that form the basis for Chadian business and economic laws and regulations. The Office of Competition in Chad’s Ministry of Industrial and Commercial Development & Private Sector Promotion reviews transactions for competition-related concerns.

Expropriation and Compensation

Chadian law protects businesses from nationalization and expropriation, except in cases where expropriation is in the public interest. There were no government expropriations of foreign-owned property in 2019. There are no indications that the GOC intends to expropriate foreign property in the near future.

Chad’s Fourth Republic Constitution adopted in May 2018 prohibits seizure of private property except in cases of urgent public need, of which there are no known cases. A 1967 Land Law prohibits deprivation of ownership without due process, stipulating that the state may not take possession of expropriated properties until 15 days after the payment of compensation. The government continues to work on reform of the 1967 law.

Dispute Settlement

ICSID Convention and New York Convention

Chad has been a signatory and contracting state of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”) since 1966.

Chad is not a contracting state of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Arbitration Convention”).

Investor-State Dispute Settlement

Chad is signatory to an investment agreement among the member states of CEMAC, CEAC, and OHADA. The OHADA Investment Arrangement, with provisions for securities, arbitration, dispute settlement, bankruptcy, recovery, and other aspects of commercial regulation, has defined the commercial rights of several economic stakeholders, e.g., the Chadian Treasury, and provides for the enforcement of foreign arbitral awards. Chad has no Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.

There is no formal record of the government’s handling of investment disputes. Some U.S. and other foreign investors have been involved in disputes with the GOC, particularly over issues regarding taxes and duties, though there are no official statistics. Investment disputes involving foreign investors are frequently arbitrated by an independent body.

International Commercial Arbitration and Foreign Courts

In addition to independent courts, such as the ICC, Chad’s constitution recognizes customary and traditional law as long as it does not interfere with public order or constitutional rights. As most businesses operate in the informal sector, customary and traditional law function as alternative dispute resolution (ADR) mechanisms when parties are from the same tribe or clan and express their desire to settle outside of the formal court.

Specialized commercial tribunal courts were authorized in 1998 and became operational in 2004. These tribunals exist in five major cities but lack adequate capacity to perform their duties. The N’Djamena Commercial Tribunal has heard disputes involving foreign companies.

Foreign investors using the court system are not generally subject to executive interference. In addition, the OHADA Treaty allows foreign companies to utilize tribunals outside of Chad, e.g., the ICC in Paris, France, to adjudicate any disputes. Companies may also access OHADA’s court located in Abidjan, Côte d’Ivoire.

Bankruptcy Regulations

Chad’s bankruptcy laws are based on OHADA Uniform Acts. According to Section 3, Articles 234 – 239 of OHADA’s Uniform Insolvency Act, creditors and equity shareholders may designate trustees to lodge complaints or claims to the commercial court collectively or individually. These laws criminalize bankruptcy and the OHADA provisions grant Chad the discretion to apply its own sentences.

The World Bank’s 2020 Doing Business Report ranks Chad’s ease of resolving insolvency  at 155 of 190. This is a decrease of five positions from 2018. https://www.doingbusiness.org/en/data/exploreeconomies/chad/#resolving-insolvency

4. Industrial Policies

Investment Incentives

The Chadian tax code (CGI, Code General des Impôts) offers incentives to new business start-ups, new activities, or substantial extensions of existing activities. Eligible economic activities are limited to the industrial, mining, agricultural, forestry, and real estate sectors, and may not compete with existing enterprises already operating in a satisfactory manner (Articles 16 and 118 of the National Investment Charter). For 2020, the GOC authorized tax credits for agriculture, animal husbandry, information technology, and renewable energy investments, including solar power projects. Article 14 granted new companies numerous discounts and exemptions.

Foreign investors may ask the GOC for other incentives through investment-specific negotiations. Large companies usually sign separate agreements with the government, which contain negotiated incentives and obligations. The possibility of special tax exemptions exists for some public procurement contracts, and a preferential tax regime applies to contractors and sub-contractors for major oil projects. The government occasionally offers lower license fees in addition to ad hoc tax exemptions. Incentives tend to increase with the size of a given investment, its potential for job creation, and the location of the investment, with rural development being a GOC priority. Investors may address inquiries about possible incentives directly to the Ministry of Industrial and Commercial Development & Private Sector Promotion.

The GOC does not issue guarantees but jointly finances some foreign direct investments.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are currently no foreign trade zones in Chad. The Chadian Agency for Investment and Exportation (ANIE) is examining the possibility of creating a duty-free zone.

Performance and Data Localization Requirements

Chad does not follow forced localization, the policy in which foreign investors must use domestic content in goods or technology.

Foreign companies are legally required to employ Chadian nationals for 98 percent of their staff. Firms can formally apply for permission from the Labor Promotion Office (ONAPE) to employ more than two percent expatriates if they can demonstrate that skilled local workers are not available. Most foreign firms operating in Chad have obtained these permissions. Foreign workers require work permits in Chad, renewable annually. Companies must present personnel files of local candidates not hired to the GOC for comparison against the profiles of foreign workers. Multinational companies and international non-governmental organizations routinely protest these measures.

There are no requirements for foreign IT providers to turn over source code and/or provide access to surveillance (backdoors into hardware and software or turn over keys for encryption). There are no rules on maintaining a certain amount of data storage within Chad. The GOC has enacted four laws covering cybersecurity and cyber-criminality.

5. Protection of Property Rights

Real Property

The Chadian Civil Code protects property rights. Since 2013, landowners may register land titles with the One-Stop Land Titling Office (Guichet Unique pour les Affaires Foncieres). However, enforcement of these rights is difficult because a majority of landowners do not have a title or a deed for their property.

The office of Domain and Registration (Direction de Domaine et Enregistrement) in the Ministry of Finance and Budget is responsible for recording property deeds and mortgages. In practice, this office asserts authority only in urban areas; rural property titles are managed by traditional leaders who apply customary law. Chadian courts frequently deal with cases of multiple or conflicting titles to the same property. In cases of multiple titles, the earliest title issued usually has precedence. Fraud is common in property transactions. By law, all land for which no title exists is owned by the government and can only be given to a separate entity by Presidential decree. There have been incidents in which the government has reclaimed land for which individuals held titles, which government officials granted to other individuals without the backing of Presidential decrees.

The GOC does not provide clear definitions and protections of traditional use rights of indigenous peoples, tribes, or farmers.

The World Bank’s 2020 Doing Business Report ranks Chad 131 of 190 in ease of registering property. The report cites the high cost of property valuation plus other associated costs for registering property as the major impediment. Time required and number of procedures are on par with the rest of Sub-Saharan Africa.

Intellectual Property Rights

Chad is a member of the African Intellectual Property Organization (OAPI) and the World Intellectual Property Organization (WIPO). Chad ratified the revised Bangui Agreement (1999) in 2000 and the Berne Convention in 1971. The GOC adheres to OAPI rules within the constraints of its administrative capacity.

Within the Ministry responsible for trade, the Department of Industrial Property and Technology addresses intellectual property rights (IPR) issues. This department is the National Liaison Unit (SNL) within the OAPI and is the designated point of contact under Article 69 of the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Counterfeit pharmaceuticals and artistic works, including music and videos, are common in Chad. Counterfeit watches, sports clothing, footwear, jeans, cosmetics, perfumes, and other goods are also readily available on the Chadian market. These products are not produced locally and are generally imported through informal channels. Despite limited resources, Chadian customs officials make occasional efforts to enforce copyright laws, normally by seizing and burning counterfeit medicines, CDs, and mobile phones.

Chad does not regularly track and report on seizures of counterfeit goods. Chadian authorities will occasionally announce such a seizure in the local press. Customs officers have the authority to seize and destroy counterfeit goods ex officio. The Government pays for storage and destruction of such goods.

Chad is not listed on the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

Chad’s financial system is underdeveloped. There are no capital markets or money markets in Chad. A limited number of financial instruments are available to the private sector, including letters of credit, short- and medium-term loans, foreign exchange services, and long-term savings instruments.

Commercial banks offer credit on market terms, often at rates of 12 to 25 percent for short-term loans. Access to credit is available but is prohibitively expensive for most Chadians in the private sector. Medium-term loans are difficult to obtain, as lending criteria are rigid. Most large businesses maintain accounts with foreign banks and borrow money outside of Chad. There are ATMs in some major hotels, N’Djamena airport, and in most neighborhoods of N’Djamena, and in major cities.

Chad does not have a stock market and has no effective regulatory system to encourage or facilitate portfolio investments. A small regional stock exchange, known as the Central African Stock Exchange, in Libreville, Gabon, was established by CEMAC countries in 2006. Cameroon, a CEMAC member, launched its own market in 2005. Both exchanges are poorly capitalized.

Money and Banking System

Chad’s banking sector is small and continues to streamline lending practices and reduce the volume of bad debt. The Chadian banking rate is even lower than the average rate in the CEMAC sub-region estimated at 12 percent, due to the lack of means to afford a bank account and the lack of culture aimed at popularizing the banking system. Chad’s four largest banks have been privatized. The former Banque Internationale pour l’Afrique au Tchad (BIAT) became a part of Togo-based Ecobank; the former Banque Tchadienne de Credit et de Depôt was re-organized as the Societe Generale Tchad; the former Financial Bank became part of Togo-based Orabank; and the former Banque de Developpement du Tchad (BDT) was reorganized as Commercial Bank Tchad (CBT), in partnership with Cameroon-based Commercial Bank of Cameroon. There are two Libyan banks in Chad, BCC (formerly Banque Libyenne) and Banque Sahelo-Saharienne pour l’Investissement et le Commerce (BSCIC), along with one Nigerian bank (UBA, United Bank for Africa). In 2018, the GOC funded a new bank Banque de l’Habitat du Tchad (BHT) with the GOC as majority shareholder with 50 percent of the shares and two public companies, the National Social Insurance Fund (CNPS) and the Chadian Petroleum Company (SHT), each holding 25 percent.

Chad, as a CEMAC member, shares a central bank with Cameroon, Central African Republic, Republic of Congo, Equatorial Guinea, and Gabon – the Central African Economic Bank (BEAC, Banque des Etats de l’Afrique Centrale), headquartered in Yaounde, Cameroon.

Foreigners must establish legal residency in order to establish a bank account.

Foreign Exchange and Remittances

Foreign Exchange

The government does not restrict converting funds associated with an investment (including remittances of investment capital, earnings, loan repayments, lease payments, royalties) into a freely usable currency at legal market-clearing rates. There are currently no restrictions on repatriating these funds, although there are some limits associated with transferring funds. BEAC proposals for currency export restrictions to improve current account balances and reduce corruption opportunities remain under discussion, with foreign investors requiring large capital expenditures requesting exemptions from new regulations. Individuals transferring funds exceeding 1,000 USD must document the source and purpose of the transfer with the local sending bank. Transactions of 10,000 USD or more for individuals and 50,000 USD or more for companies are automatically notified to the COBAC. Companies and individuals transferring more than 800,000 USD out of Chad need BEAC authorization to do so. Authorization may take up to three working days. To request authorization for a transfer, companies and individuals must submit contact information for the sender and recipient, a delivery timetable, and proof of the sender’s identity. Approvals are routine, although the Central Bank has occasionally temporarily restricted capital outflows. There were no reports of other capital outflow restrictions in 2019. Businesses can obtain advance approval for regular money transfers.

Chad is a member of the African Financial Community (CFA) and uses the Central African CFA Franc (FCFA) as its currency. The FCFA is pegged to the Euro at a fixed rate of one Euro to 655.957 FCFA exactly (100 FCFA = 0.152449 Euro). In 2019, the CFA/USD exchange rate fluctuated between 571 and 602 FCFA as a function of the performance of the USD against the Euro. There are no restrictions on obtaining foreign exchange.

Remittance Policies

There are no recent changes to or plans to change investment remittance policies. There are no time limitations on remittances, dividends, returns on investment, interest, and principal on private foreign debt, lease payments, royalties, or management fees.

Chad does not engage in currency manipulation.

Chad is a member state of the Action Group against Money Laundering in Central Africa (GABAC), which is in the process of becoming a Financial Action Task Force (FATF)-style regional body. On the national level, the National Financial Investigation Agency (ANIF) has implemented GABAC recommendations to prevent money laundering and terrorist financing.

Sovereign Wealth Funds

The GOC does not currently maintain a Sovereign Wealth Fund.

7. State-Owned Enterprises

All Chadian SOEs operate under the umbrella of government ministries. SOE senior management reports to the minister responsible for the relevant sector, as well as a board of directors and an executive board. The President of the Republic appoints SOE boards of directors, executive boards, and CEOs. The boards of directors give general directives over the year, while the executive boards manage general guidelines set by the boards of directors. Some executive directors consult with their respective ministries before making business decisions.

The GOC operates SOEs in a number of sectors, including Energy and Mining; Agriculture, Construction, Building and Heavy Equipment, Information and Communication, in water supply and cement production. The percentage SOEs allocate to research and development (R&D) is unknown.

There were no reports of discriminatory action taken by SOEs against the interests of foreign investors in 2019, and some foreign companies operated in direct competition with SOEs. Chad’s Public Tender Code (PTC) provides preferential treatment for domestic competitors, including SOEs.

SOEs are not subject to the same tax burden and tax rebate policies as their private sector competitors and are often afforded material advantages such as preferential access to land and raw materials. SOEs receive government subsidies under the national budget; however, in practice they do not respect the budget. State and company funds are often commingled.

Chad is not a party to the Agreement on Government Procurement within the framework of the WTO. Chadian practices are not consistent with the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

Foreign investors are permitted and encouraged to participate in the privatization process. There is a public, non-discriminatory bidding process. Having a local contact in Chad to assist with the bidding process is important. To combat corruption, the GOC has recently hired private international companies to oversee the bidding process for government tenders. Despite the GOC’s willingness to privatize loss-making SOEs, there remain several obstacles to privatization.

The Chamber of Commerce submitted a ‘white paper’ (livre blanc) in 2018 with recommendations for the GOC to facilitate and simplify private sector operations, including establishing a Business Observatory and a Presidential Council, which would implement the over 70 recommendations to improve the investment climate in Chad. The Presidential Council was inaugurated in late 2019.

Chad is considering privatization in the following sectors:

  • Information & Communication (SOTEL Tchad)
  • Food Processing & Packaging (the Société Tchadienne de Jus de Fruit (STJF), which produces fruit juice in Doba; and the Société Moderne de Abattoires (SMA), a slaughterhouse and meat packaging company in Farcha)

8. Responsible Business Conduct

There is a general awareness of Responsible Business Conduct (RBC) among firms in Chad. Most Western firms operating in Chad engage in RBC, particularly those in the petroleum and telecommunications sectors. For example, Esso Exploration and Production Chad, Inc. (EEPCI), the main oil producer, has implemented Environmental Management Plans (EMP), a rigorous program that espouses, inter alia, prioritizing hiring local residents and local purchase of goods and services, establishing international safety standards, and protecting biodiversity. A critical part of EMP has been the Land Use Management Action Plan (LUMAP) that compensates individuals and communities for land used by the project. To date, LUMAP has distributed approximately USD1.7 million in cash, in-kind goods, and training. EMP’s efforts are complemented by the ExxonMobil Foundation, which supports projects to improve girls’ education and fight malaria.

Many foreign firms commit to extensive local staff training efforts, purchase local goods, and donate excess equipment to charities or local governments. Internet companies Airtel and Tigo, as well as some banks, continue to engage in RBC focused on public awareness campaigns countering violent extremism and promoting social cohesion.

While work safety and environmental protection regulations exist, the government does not always enforce them, and companies do not always adhere to them. There are a number of local NGOs, particularly in the southern oil-producing regions, which monitor safety and environmental protection in the oil sector, and which have held government and private companies publicly accountable. EEPCI adheres to U.S. Occupational Safety and Health Administration (OSHA) guidelines for recording accidents and injuries and implements a rigorous program of safety procedures and protocols.

9. Corruption

Foreign investors should also be aware that corruption remains common in Chad. Corruption in Chad remains a significant deterrent to U.S. investment. Corruption is most pervasive in government procurement, award of licenses or concessions, dispute settlement, regulation enforcement, customs, and taxation.

Chad is not a signatory country of the UN Convention Against Corruption (UNCAC). Chad is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“the OECD Anti-Bribery Convention”).

There is an independent Court of Auditors (Cour des Comptes), equivalent to a supreme audit institution (SAI), to enhance independent oversight of government decisions, although its members are nominated by presidential decree. Concurrently, the GOC created a General Inspectorate for State Control within the Presidency to oversee government accountability. No reports have been published, however. In addition to these bodies, the National Assembly’s Finance Committee carries out verifications of the GOC’s annual financial statement. No audits have been made publicly available during the reporting period.

A February 2000 anti-corruption law stipulates penalties for corrupt practices. The law does not single out family members and political parties. As in other developing countries, low salaries for most civil servants, judicial employees and law enforcement officials, coupled with a weak state system and a culture of rent seeking, have contributed to corruption.

The Ministry of Finance and Budget set up a toll-free number (700) to fight corruption and embezzlement. According to the Minister of Finance and Budget, the toll-free number 700 allows each economic operator or any other individual to alert the Inspectorate General of Finance to denounce any unscrupulous agent who seeks to be corrupted in the context of the issue of administrative paper or the payment of a tax. There are no specific laws to counter conflict of interest. The GOC does not require private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials.

A prominent local NGO, the Center for Studies and Research on Governance, Extractive Industries and Sustainable Development (CERGIED), formerly GRAMP-TC (Groupe Alternatif de Recherche et de Monitoring de Petrole – Tchad), tracks government expenditures of oil revenue. There are no indications that anti-corruption laws are enforced differently on foreign investors than on Chadian citizens. There is no specific protection for NGOs involved in investigating corruption.

Corruption is an obstacle to FDI. It is most pervasive in government procurement, award of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system and customs or taxation.

Resources to Report Corruption

Government agency contact responsible for combating corruption:

Inspection Generale d’Etat
Ministry of Finance and Budget toll free number 700 (inside Chad)
Presidence de la Republique
Ndjamena, Chad
+235 22 51 51 39 / 22 51 44 37

Contact at watchdog organizations:

Gilbert Maoundonodji
Coordinator
CERGIED (formerly GRAMP –TC)
BP 4021, N’Djamena, Chad
+235 6058 2016 / 9317 7678
infos@cergied.org / secretariat@cergied.org / https://cergied.org/ 

10. Political and Security Environment

Chad has enjoyed political stability since 2008. There have been no reported incidents in recent years involving politically motivated damage to projects and/or installations, including during the 2008 disturbances. President Deby is completing his fifth elected presidential term and is eligible to participate in the next presidential elections, scheduled for April 2021. Socio-economic conditions occasionally spark demonstrations and protests against the Government. In many cases, the Government either denied permits for demonstrations or suppressed them using tear gas, arresting participants and organizers. Extended periods of reduced oil revenues add to socioeconomic stress. The spread of the COVID-19 pandemic strains Chad’s limited medical infrastructure and disrupts trade routes with neighboring countries and international air travel.

Regional violent extremist organizations threaten Chadian and Western interests. Boko Haram’s violence has choked off vital trade routes with Nigeria and the road between N’Djamena and Douala, Cameroon, the principal port serving Chad. This has increased costs for imports and decreased exports due to border closures. Violent extremist organizations may threaten foreign investments along the Lake Chad Basin.

For up-to-date information on political and security conditions in Chad, please refer to the Consular Affairs Bureau’s Travel Warning and Country Specific Information at http://www.travel.state.gov. The Embassy encourages all U.S. Citizens visiting Chad to register with the Embassy upon arrival or online via the STEP program.

U.S. businesses and organizations in Chad are welcome to inquire at the Embassy about joining the Overseas Security Advisory Committee (OSAC).

11. Labor Policies and Practices

Chad has a shortage of skilled labor in most sectors. Although there is an increasing pool of university graduates able to fill entry-level management and administrative positions, skilled workers still represent a very small percentage of the total labor pool. Eighty percent of the Chadian labor force is estimated to work in the informal sector, with many engaged in subsistence activities including farming, herding, and fishing. Unskilled and day laborers are readily available. Few Chadians speak English. Acceptable translators and interpreters are available. Some government ministries and SOEs provide job-related training to their employees.

Chad’s population demonstrates a significant youth bulge, leading to widespread youth unemployment. Laborers are motivated but frequently undereducated. According to UNESCO, Chad’s literacy rate is 22 percent.

Chad has ratified all eight Fundamental Conventions of the International Labor Organization. International labor rights such as freedom of association, the elimination of forced labor, child labor, employment discrimination, minimum wage, occupational safety and health, and weekly work hours are recognized within the labor code. However, gaps remain in law and practice. Chadian labor law derives from French law and tends to provide strong protection for Chadian workers; priority is given to Chadian nationals. Labor unions operate independently from the government and, in fact, often challenge the government. The two main labor federations, the Confederation Libre des Travailleurs du Tchad (CLTT) and the Union des Syndicats Tchadiens (UST), to which most individual unions belong, are the most influential.

The labor court is the labor dispute mechanism in Chad. In case of a dispute, the aggrieved party contacts a labor inspector directly or through the labor union to settle the dispute or lodge a complaint with the labor court.

Labor unions practice collective bargaining, and the labor code monitors labor abuses, health, and safety standards in low-wage assembly operations. The enforcement of the code is not effectively conducted; most disputes are based on contract termination. Child labor remains a problem. Children were involved in the following sectors: street begging in urban centers, street work as hawkers and porters, carpentry, vehicle garages, gold mining in the north of the country, service industries such as waiters/waitresses, and as domestic workers. Child labor is common in the agriculture sector. Children are also involved in cattle-herding and charcoal production. In some regions, children are involved in catching, smoking, and selling fish. Chadian cattle are included on the U.S. Government’s List of Goods Produced by Child Labor or Forced Labor.

The GOC may provide incentives for foreign businesses but does not waive laws to attract or retain investment, as the Chadian labor law strongly supports workers.

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

Chad is eligible for DFC programs and services. There is one active DFC project in Chad – Finlux ELLEN Sarl – for the distribution and maintenance of solar home kits and appliances for off-grid electrification. This project received USD 10,000,000 in financing. The U.S. Overseas Private Investment Corporation (OPIC) has also provided political risk investment insurance to U.S. companies in Chad.

Chad is a member of the Multilateral Investment Guarantee Agency (MIGA). The French investment guarantee agency Compagnie Française d’Assurance pour le Commerce Exterieur (COFACE) has also guaranteed a number of investments in Chad.

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) N/A N/A 2018 $11.273 World Bank data available at
https://data.worldbank.org/
country/chad
 
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 N/A N/A BEA data available at
https://www.bea.gov/international/
di1usdbal
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2018 $1 BEA data available at
https://www.bea.gov/international/
di1fdibal
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 55.9% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Economic and Commercial Officer
U.S. Embassy N’Djamena,
Rondpoint Chagoua BP 413
N’Djamena Chad. +235 2251-5017 Ext 24408
+235 2251-5017 Ext 24408
NDjamena-Commercial@state.gov

Egypt

Executive Summary

The Egyptian government continues to make progress on economic reforms, and while many challenges remain, Egypt’s investment climate is improving.  The country has undertaken a number of structural reforms since the flotation of the Egyptian Pound (EGP) in November 2016, and after a strong track record of successfully completing a three-year, $12 billion International Monetary Fund (IMF)-backed economic reform program, Egypt was one of the fastest growing emerging markets prior to the COVID-19 outbreak.  Increased investor confidence and the reactivation of Egypt’s interbank foreign exchange (FX) market have attracted foreign portfolio investment and grown foreign reserves.  The Government of Egypt (GoE) also understands that attracting foreign direct investment (FDI) is key to addressing many of its economic challenges and has stated its intention to create a more conducive environment for FDI.  FDI inflows grew 11 percent between 2018 and 2019, from $8.1 to $9 billion, according to data from the Central Bank of Egypt.  The United Nations Commission on Trade and Development (UNCTAD) has ranked Egypt as the top FDI destination in Africa between 2015 and 2019.

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

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

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

Several challenges persist for investors.  Dispute resolution is slow, with the time to adjudicate a case to completion averaging three to five years.  Other obstacles to investment include excessive bureaucracy, regulatory complexity, a mismatch between job skills and labor market demand, slow and cumbersome customs procedures, and various non-tariff trade barriers.  Inadequate protection of intellectual property rights (IPR) remains a significant hurdle in certain sectors and Egypt remains on the U.S. Trade Representative’s Special 301 Watch List. Nevertheless, Egypt’s reform story is noteworthy, and if the steady pace of implementation for structural reforms continues, and excessive bureaucracy reduces over time, then the investment climate should continue to look more favorable to U.S. investors.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 106 of 198 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 114 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 96 of 131 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 11,000 http://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2019 USD 2,690 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Egypt’s completion of the most recent three-year, $13 billion IMF Extended Fund Facility and its associated reform package helped stabilize Egypt’s macroeconomy, introduced important subsidy and social spending reforms, and helped restore investor confidence in the Egyptian economy.  The flotation of the Egyptian Pound (EGP) in November 2016 and the restart of Egypt’s interbank foreign exchange (FX) market as part of this program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and should lead to increased FDI over the long term.  Other important reforms have included a new investment law and an industrial licensing law in 2017, a new bankruptcy law in 2018, and other reforms aimed at reducing regulatory overhang and improving the ease of doing business. Egypt’s government has announced plans to further improve its business climate through investment promotion, facilitation, more efficient business services, and the implementation of investor-friendly policies.

With a few exceptions, Egypt does not legally discriminate between Egyptian nationals and foreigners in the formation and operation of private companies. The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital.

The Tenders Law (Law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.

The Capital Markets Law (Law 95 of 1992) and its amendments, including the most recent in February 2018, and regulations govern Egypt’s capital markets.  Foreign investors are able to buy shares on the Egyptian Stock Exchange on the same basis as local investors.

The General Authority for Investment and Free Zones (GAFI, http://gafi.gov.eg) is the principal government body that regulates and facilitates foreign investment in Egypt, and reports directly to the Prime Minister.  Prior to December 2019, GAFI had been a component of the Ministry of Investment and International Cooperation.

”The Investor Service Center (ISC)” is an administrative unit established within GAFI that provides ”one-stop-shop” services, easing the way for global investors looking for opportunities presented by Egypt’s domestic economy and the nation’s competitive advantages as an export hub for Europe, the Arab world and Africa. This is in addition to promoting Egypt’s investment opportunities in various sectors.

ISC provides a full start-to-end service to the investor, including assistance related to company incorporation, establishment of company branches, approval of minutes of Board of Directors and General Assemblies, increase of capital, change of activity, liquidation procedures, and other corporate-related matters. The Center also aims to issue licenses, approvals, and permits required for investment activities, within 60 days from the date of request submissions. Other services GAFI provides include:

Advice and support to help in the evaluation of Egypt as a potential investment location;

Identification of suitable locations and site selection options within Egypt;

Assistance in identifying suitable Egyptian partners;

Aftercare and dispute settlement services.​

ISC Branches are expected to be established in all Egypt’s Governorates.  Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), and one-on-one investment meetings.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Egyptian Companies Law does not set any limitation on the number of foreigners, neither as shareholders nor as managers/board members, except for Limited Liability Companies where the only restriction is that one of the managers should be an Egyptian national. In addition, companies are required to obtain a commercial and tax license, and pass a security clearance process.  Companies are able to operate while undergoing the often lengthy security screening process.  However, if the firm is rejected, it must cease operations and undergo a lengthy appeals process.  Businesses have cited instances where Egyptian clients were hesitant to conclude long term business contracts with foreign businesses that have yet to receive a security clearance. They have also expressed concern about seemingly arbitrary refusals, a lack of explanation when a security clearance is not issued, and the lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at GAFI, inconsistent treatment by banks and other government officials has in some cases led to registration delays.

Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians. In 2016, the Ministry of Trade prepared an amendment to the law allowing the registration of importing companies owned by foreign shareholders, but the law has not yet been submitted to Parliament. Nevertheless, the new Investment Law does allow wholly foreign companies which are invested in Egypt to import goods and materials.

Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporation ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases). The ownership of land by foreigners is governed by three laws: Law No. 15 of 1963, Law No. 143 of 1981, and Law No. 230 of 1996. Law No. 15 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land.  Law No. 143 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, cooperatives, partnerships and corporations. Partnerships are permitted to own 10,000 feddans. Joint stock companies are permitted to own 50,000 feddans.

Under Law No. 230 non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:

  • Ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family (spouses and minors) in addition to the right to own real estate needed for activities licensed by the Egyptian Government.
  • The area of each real estate property does not exceed 4,000 m².
  • The real estate is not considered a historical site.

Exemption from the first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers. Non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians cannot sell their real estate for five years after registration of ownership, unless the consent of the Prime Minister for an exemption is obtained.

Other Investment Policy Reviews

The Organization for Economic Cooperation and Development (OECD) signed a declaration with Egypt on International Investment and Multinational Enterprises on July 11, 2007, at which time Egypt became the first Arab and African country to sign the OECD Declaration, marking a new stage in Egypt’s drive to attract more foreign direct investment (FDI).  On July 8, 2020, the OECD released an Investment Policy Review for Egypt which highlighted the government’s progress implementing a proactive reform agenda to improve the business climate, attract more foreign and domestic investment, and reap the benefits of openness to FDI and participation in global value chains.

https://www.oecd.org/countries/egypt/egypt-continues-to-strengthen-its-institutional-and-legal-framework-for-investment.htm 

In January 2018 the World Trade Organization (WTO) published a comprehensive review of the Egyptian Government’s trade policies, including details of the 2017 Investment Law’s main provisions.

https://www.wto.org/english/tratop_e/tpr_e/s367_e.pdf 

The United Nations Conference on Trade Development (UNCTAD) published an Information and Communications Technology (ICT) Policy Review for Egypt in 2017, in which it highlighted the potential for investments in the ICT sector to help drive economic growth and recommended specific reforms aimed at strengthening Egypt’s performance in key ICT policy areas.  https://unctad.org/en/PublicationsLibrary/dtlstict2017d3_en.pdf   UNCTAD published its last comprehensive Investment Policy Review for Egypt in 1999, and an implementation report in 2006.

Business Facilitation

GAFI’s new ISC (https://gafi.gov.eg/English/Howcanwehelp/OneStopShop/Pages/default.aspx ) was launched in February 2018 and provides a full start-to-end service to the investor as described above.  The new Investment Law also introduces ”Ratification Offices” to facilitate obtaining necessary approvals, permits, and licenses within 10 days of issuing a Ratification Certificate.

Investors may fulfill the technical requirements of obtaining the required licenses through these Ratification Offices, directly through the concerned authority, or through its representatives at the Investment Window at GAFI.  The Investor Service Center is required to issue licenses within 60 days from submission. Companies can also register online.  GAFI has also launched e-establishment, e-signature, and e-payment services to facilitate establishing companies.

Outward Investment

Egypt promotes and incentivizes outward investment. According to the Egyptian government’s FDI Markets database for the period from January 2003 to May 2020, outward investment featured the following:

  • Egyptian companies implemented 270 Egyptian FDI projects. Estimated total value of the projects, which employed about 50,000 workers, was $25.6 billion.
  • The following countries respectively received the largest amount of Egyptian outward investment in terms of total project value: UAE, Saudi Arabia, Algeria, Kenya, Jordan, Ethiopia, Germany, Libya, Morocco and Sudan. The UAE, Saudi Arabia and Algeria accounted for about 28 percent of the total amount.

Elsewedy Electric was the largest Egyptian company investing abroad, implementing 20 projects with a total investment estimated to be $2.1 billion.

Egypt does not restrict domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Egypt has signed 115 Bilateral Investment Treaties (BITs), out of which 74 BITs have entered into force. The full list can be found at http://investmentpolicyhub.unctad.org/IIA .

The U.S.-Egypt Bilateral Investment Treaty provides for fair, equitable, and nondiscriminatory treatment for investors of both nations. The treaty includes provisions for international legal standards on expropriation and compensation; free financial transfers; and procedures for the settlement of investment disputes, including international arbitration.

In addition to BITs, Egypt is also a signatory to a wide variety of other agreements covering trade issues. Egypt joined the Common Market for Eastern and Southern Africa (COMESA) in June 1998, and in 2019 deposited its instrument of ratification for the 2018 African Continental Free Trade Agreement (AfCFTA).  In July 1999, Egypt and the United States signed a Trade and Investment Framework Agreement (TIFA). In June 2001, Egypt signed an Association Agreement with the European Union (EU), which entered into force on June 1, 2004. The agreement provided immediate duty free access of Egyptian products into EU markets, while duty free access for EU products into the Egyptian market was phased in over a 12-year period ending in 2016.  In 2010, Egypt and the EU completed an agricultural annex to their agreement, liberalizing trade in over 90 percent of agricultural goods.

Egypt is also a member of the Greater Arab Free Trade Agreement (GAFTA), and a member of the Agadir Agreement with Jordan, Morocco, and Tunisia, which relaxes rules of origin requirements on products jointly manufactured by the countries for export to Europe. Egypt also has an FTA with Turkey, in force since March 2007, and an FTA with the Mercosur bloc of Latin American nations.

In 2004, Egypt and Israel signed an agreement to take advantage of the U.S. Government’s Qualifying Industrial Zone (QIZ) program. The purpose of the QIZ program is to promote stronger ties between the region’s peace partners, as well as to generate employment and higher incomes, by granting duty-free access to goods produced in QIZs in Egypt using a specified percentage of Israeli and local input. Under Egypt’s QIZ agreement, Egypt’s exports to the United States produced in certain industrial areas are eligible for duty-free treatment if they contain a minimum 10.5 percent Israeli content.

The industrial areas currently included in the QIZ program are Alexandria, areas in Greater Cairo such as Sixth of October, Tenth of Ramadan, Fifteenth of May, South of Giza, Shobra El-Khema, Nasr City, and Obour, areas in the Delta governorates such as Dakahleya, Damietta, Monofeya and Gharbeya, and areas in the Suez Canal such as Suez, Ismailia, Port Said, and other specified areas in Upper Egypt. Egyptian exports to the United States through the QIZ program have mostly been ready-made garments and processed foods. The value of the Egyptian QIZ exports to the United States was approximately $752 million in 2017.

Egypt has a bilateral tax treaty with the United States. Egypt also has tax agreements with 59 other countries, including UAE, Kuwait, Saudi Arabia, Mauritius, Bahrain, and Morocco.

The Egyptian Parliament passed and the government implemented a value added tax (VAT) in late 2016, which took the place of the General Sales Tax, as part of the IMF loan and economic reform program.  However, the government decided to postpone the “Stock Market Capital Gains Tax” for three years as of early 2017. In 2016, there were a number of tax disputes between foreign investors and the government, but most of them were resolved through the Tax Department and the Economic Court.

3. Legal Regime

Transparency of the Regulatory System

The Egyptian government has made efforts to improve the transparency of government policy and to support a fair, competitive marketplace.  Nevertheless, improving government transparency and consistency has proven difficult and reformers have faced strong resistance from entrenched bureaucratic and private interests.  Significant obstacles continue to hinder private investment, including the reportedly arbitrary imposition of bureaucratic impediments and the length of time needed to resolve them.  Nevertheless, the impetus for positive change driven by the government reform agenda augurs well for improvement in policy implementation and transparency.

Enactment of laws is the purview of the Parliament, while executive regulations are the domain of line ministries.  Under the Constitution, draft legislation can be presented by the president, the cabinet, and any member of parliament.  After submission, parliamentary committees review and approve, including any amendments.  Upon parliamentary approval, a judicial body reviews the constitutionality of any legislation before referring it to the president for his approval.  Although notice and full drafts of legislation are typically printed in the Official Gazette (similar to the Federal Register in the United States), in practice consultation with the public is limited.  In recent years, the Ministry of Trade and other government bodies have circulated draft legislation among concerned parties, including business associations and labor unions. This has been a welcome change from previous practice, but is not yet institutionalized across the government.

While Egyptian parliaments have historically held “social dialogue” sessions with concerned parties and private or civic organizations to discuss proposed legislation, it is unclear to what degree the current Parliament will adopt a more inclusive approach to social dialogue.  Many aspects of the 2016 IMF program and related economic reforms stimulated parliament to engage more broadly with the public, marking some progress in this respect.

Accounting, legal, and regulatory procedures are transparent and consistent with international norms.  The Financial Regulatory Authority (FRA) supervises and regulates all non-banking financial markets and instruments, including capital markets, futures exchanges, insurance activities, mortgage finance, financial leasing, factoring, securitization, and microfinance.  It issues rules that facilitate market efficiency and transparency. FRA has issued legislation and regulatory decisions on non-banking financial laws which govern FRA’s work and the entities under its supervision. (http://www.fra.gov.eg/jtags/efsa_en/index_en.jsp )

The criteria for awarding government contracts and licenses are made available when bid rounds are announced.  The process actually used to award contracts is broadly consistent with the procedural requirements set forth by law.  Further, set-aside requirements for small- and medium-sized enterprise (SME) participation in GoE procurement are increasingly highlighted. FRA maintains a centralized website where key regulations and laws are published: http://www.fra.gov.eg/content/efsa_en/efsa_pages_en/laws_efsa_en.htm 

The Parliament and the independent “Administrative Control Authority” both ensure the government’s commitment to follow administrative processes at all levels of government.  Egypt does not have an online equivalent of the U.S. Federal Register and there is no centralized online location for key regulatory actions or their summaries.

The cabinet develops and submits proposed regulations to the president following discussion and consultation with the relevant ministry and informal consultation with other interest groups. Based on the recommendations provided in the proposal, including recommendations by the presidential advisors, the president issues “Presidential Decrees” that function as implementing regulations.  Presidential decrees are published in the “Official Gazette” for enforcement.

The specific government agency or entity responsible for enforcing the regulation works with other departments for implementation across the government.  Not all issued regulations are announced online. Theoretically, the enforcement process is legally reviewable.

Before a government regulation is implemented, there is an attempt to properly analyze and thoroughly debate proposed legislation and rules using appropriate available data.  But there are no laws requiring scientific studies or quantitative analysis of impacts of regulations. Not all public comments received by regulators are made public.

The government made its budget documents widely and easily accessible to the general public, including online.  Budget documents did not include allocations to military state-owned enterprises, nor allocations to and earnings from state-owned enterprises.  Information on government debt obligations was publicly available online, but up-to-date and clear information on state-owned enterprise debt guaranteed by the government was not available.  According to information the Central Bank has provided to the World Bank, the lack of information available about publicly guaranteed private sector debt meant that this debt was generally recorded as private sector non-guaranteed debt thus potentially obscuring some contingent debt liabilities.

International Regulatory Considerations

In general, international standards are the main reference for Egyptian standards.  According to the Egyptian Organization for Standardization and Quality Control, approximately 7,000 national standards are aligned with international standards in various sectors.  In the absence of international standards, Egypt uses other references which are referred to in Ministerial decrees No. 180//1996 and No. 291//2003, which stipulate that in the absence of Egyptian standards, the producers and importers may use the following:

European standards (EN)
U.S. standards (ANSI)
Japanese standards (JIS)

Egypt is a member of the WTO, participates actively in various committees, and notifies technical regulations to the WTO Committee on Technical Barriers to Trade.  Egypt ratified the Trade Facilitation Agreement (TFA) on June 22, 2017 by a vote of Parliament and issuance of presidential decree No. 149/2017, and deposited its formal notification to the WTO on June 24, 2019.  Egypt notified indicative and definitive dates for implementing Category B and C commitments on June 20, 2019, but to date has not notified dates for implementing Category A commitments.  In August 2020 the Egyptian Parliament passed a new Customs Law that includes provisions for key TFA reforms, including advance rulings, separation of release, a Single Window system, expedited customs procedures for authorized economic operators, post-clearance audits, and e-payments.

Legal System and Judicial Independence

Egypt’s legal system is a civil codified law system based on the French model.  If contractual disputes arise, claimants can sue for remedies through the court system or seek resolution through arbitration.  Egypt has written commercial and contractual laws. The country has a system of economic courts, specializing in private sector disputes, which have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes.  The judiciary is set up as an independent branch of the government.

Regulations and enforcement actions can be appealed through Egypt’s courts, though appellants often complain about the very lengthy judicial process, which can often take years.  To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur (a legal document issued by governments allowing judgements to be enforced).  To apply for an exequatur, the normal procedures for initiating a lawsuit in Egypt must be satisfied. Moreover, several other conditions must be satisfied, including ensuring reciprocity between the Egyptian and foreign country’s courts, and verifying the competence of the court rendering the judgment.

Judges in Egypt are said to enjoy a high degree of public trust and are the designated monitors for general elections.  The Judiciary is proud of its independence and can point to a number of cases where a judge has made surprising decisions that run counter to the desires of the regime.  The judge’s ability to loosely interpret the law can sometimes lead to an uneven application of justice.  The system’s slowness and dependence on paper processes hurts its overall competence and reliability.  The executive branch claims to have no influence over the judiciary, but in practice political pressures seem to influence the courts on a case by case basis.  In the experience of the Embassy, judicial decisions are highly appealable at the national level and this appeal process is regularly used by litigants.

Laws and Regulations on Foreign Direct Investment

No specialized court exists for foreign investments.

The 2017 Investment Law, as well as other FDI-related laws and regulations, are published on GAFI’s website, https://gafi.gov.eg/English/StartaBusiness/Laws-and-Regulations/Pages/default.aspx .

In 2017 the Parliament also passed the Industrial Permits Act, which reduced the time it takes to license a new factory by mandating that the Industrial Development Authority (IDA) respond to a request for a license within 30 days of the request being filed.  As of February 2020, new regulations allow IDA regional branch directors or their designees to grant conditional licenses to industrial investors until other registration requirements are complete.

In 2016, the Import-Export Law was revised to allow companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians; formerly the law required 100 percent Egyptian ownership and management.  In November 2016, the inter-ministerial Supreme Investment Council also announced seventeen presidential decrees designed to spur investment or resolve longstanding issues. These include:

  • Forming a “National Payments Council” that will work to restrict the handling of FX outside the banking sector;
  • A decision to postpone for three years the capital gains taxon stock market transactions;
  • Producers of agricultural crops that Egypt imports or exports will get tax exemptions;
  • Five-year tax exemptions for manufacturers of “strategic” goodsthat Egypt imports or exports;
  • Five-year tax exemptionsfor agriculture and industrial investments in Upper Egypt;
  • Begin tendering land with utilities for industry in Upper Egypt for free as outlined by the Industrial Development Authority.

Competition and Anti-Trust Laws

The Investment Incentives Law provides guarantees against nationalization or confiscation of investment projects under the law’s domain. The law also provides guarantees against seizure, requisition, blocking, and placing of assets under custody or sequestration.  It offers guarantees against full or partial expropriation of real estate and investment project property. The U.S.-Egypt Bilateral Investment Treaty also provides protection against expropriation. Private firms are able to take cases of alleged expropriation to court, but the judicial system can take several years to resolve a case.

Expropriation and Compensation

Egypt’s Investment Incentives Law provides guarantees against nationalization or confiscation of investment projects under the law’s domain.  The law also provides guarantees against seizure, requisition, blocking, and placing of assets under custody or sequestration.  It offers guarantees against full or partial expropriation of real estate and investment project property.  The U.S.-Egypt Bilateral Investment Treaty also provides protection against expropriation.  Private firms are able to take cases of alleged expropriation to court, but the judicial system can take several years to resolve a case.

Dispute Settlement

ICSID Convention and New York Convention

Egypt acceded to the International Convention for the Settlement of Investment Disputes (ICSID) in 1971 and is a member of the International Center for the Settlement of Investment Disputes, which provides a framework for the arbitration of investment disputes between the government and foreign investors from another member state, provided the parties agree to such arbitration. Without prejudice to Egyptian courts, the Investment Incentives Law recognizes the right of investors to settle disputes within the framework of bilateral agreements, the ICSID or through arbitration before the Regional Center for International Commercial Arbitration in Cairo, which applies the rules of the United Nations Commissions on International Trade Law.

Egypt adheres to the 1958 New York Convention on the Enforcement of Arbitral Awards; the 1965 Washington Convention on the Settlement of Investment Disputes between States and the Nationals of Other States; and the 1974 Convention on the Settlement of Investment Disputes between the Arab States and Nationals of Other States.  An award issued pursuant to arbitration that took place outside Egypt may be enforced in Egypt if it is either covered by one of the international conventions to which Egypt is party or it satisfies the conditions set out in Egypt’s Dispute Settlement Law 27 of 1994, which provides for the arbitration of domestic and international commercial disputes and limited challenges of arbitration awards in the Egyptian judicial system.  The Dispute Settlement Law was amended in 1997 to include disputes between public enterprises and the private sector.

To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur.  To apply for an exequatur, the normal procedures for initiating a lawsuit in Egypt, and several other conditions must be satisfied, including ensuring reciprocity between the Egyptian and foreign country’s courts and verifying the competence of the court rendering the judgment.

Egypt has a system of economic courts specializing in private sector disputes that have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. Despite these provisions, business and investors in Egypt’s renewable energy projects have reported significant problems resolving disputes with the Government of Egypt.

Investor-State Dispute Settlement

The U.S.-Egypt Bilateral Investment Treaty allows an investor to take a dispute directly to binding third-party arbitration. The Egyptian courts generally endorse international arbitration clauses in commercial contracts. For example, the Court of Cassation has, on a number of occasions, confirmed the validity of arbitration clauses included in contracts between Egyptian and foreign parties.

A new mechanism for simplified settlement of investment disputes aimed at avoiding the court system altogether has been established. In particular, the law established a Ministerial Committee on Investment Contract Disputes, responsible for the settlement of disputes arising from investment contracts to which the State, or a public or private body affiliated therewith, is a party. This is in addition to establishing a Complaint Committee to consider challenges connected to the implementation of Egypt’s Investment Law. Finally, the decree established a Committee for Resolution of Investment Disputes, which will review complaints or disputes between investors and the government related to the implementation of the Investment Law.  In practice, Egypt’s dispute resolution mechanisms are time-consuming but broadly effective.  Businesses have, however, reported difficulty collecting payment from the government when awarded a monetary settlement.

Over the past 10 years, there have been several investment disputes involving both U.S. persons and foreign investors.  Most of the cases have been settled, though no definitive number is available. Local courts in Egypt recognize and enforce foreign arbitral awards issued against the government.  There are no known extrajudicial actions against foreign investors in Egypt during the period of this report.

International Commercial Arbitration and Foreign Courts

Egypt allows mediation as a mechanism for alternative dispute resolution (ADR), a structured negotiation process in which an independent person known as a mediator assists the parties to identify and assess options, and negotiate an agreement to resolve their dispute.  GAFI has an Investment Disputes Settlement Center, which uses mediation as an ADR.

The Economic Court recognizes and enforces arbitral awards.  Judgments of foreign courts may be recognized and enforceable under local courts under limited conditions.

In most cases, domestic courts have found in favor of state-owned enterprises (SOEs) involved in investment disputes.  In such disputes, non-government parties have often complained about the delays and discrimination in court processes.

It is recommended that U.S. companies employ contractual clauses that specify binding international (not local) arbitration of disputes in their commercial agreements.

Bankruptcy Regulations

Egypt passed a new bankruptcy law in January 2018, which should speed up the restructuring and settlement of troubled companies.  It also replaces the threat of imprisonment with fines in cases of bankruptcy.  As of July, 2020, the Egyptian government was considering but had not yet implemented amendments to the 2018 law that would allow debtors to file for bankruptcy protection, and would give creditors the ability to determine whether debtors could continue operating, be placed under administrative control, or forced to liquidate their assets.

In practice, the paperwork involved in liquidating a business remains convoluted and extremely protracted; starting a business is much easier than shutting one down.  Bankruptcy is frowned upon in Egyptian culture and many businesspeople still believe they may be found criminally liable if they declare bankruptcy.

4. Industrial Policies

Investment Incentives

The Investment Law 72/2017 gives multiple incentives to investors as described below.  In August 2019, President Sisi ratified amendments to the Investment Law that allow its incentives programs to apply to expansions of existing investment projects in addition to new investments.

General Incentives:

  • All investment projects subject to the provisions of the new law enjoy the general incentives provided by it.
  • Investors are exempted from the stamp tax, fees of the notarization, registration of the Memorandum of Incorporation of the companies, credit facilities, and mortgage contracts associated with their business for five years from the date of registration in the Commercial Registry, in addition to the registration contracts of the lands required for a company’s establishment.
  • If the establishment is under the provisions of the new investment law, it will benefit from a two percent unified custom tax over all imported machinery, equipment, and devices required for the set-up of such a company.

Special Incentive Programs:

  • Investment projects established within three years of the date of the issuance of the Investment Law will enjoy a deduction from their net profit, subject to the income tax:
    • 50 percent of the investment costs for geographical region (A) (the regions the most in need of development as well as designated projects in Suez Canal Special Economic Zone and the “Golden Triangle” along the Red Sea between the cities of Safaga, Qena and El Quseer);
    • 30 percent of the investment costs to geographical region (B) (which represents the rest of the republic).
  • Provided that such deduction shall not exceed 80 percent of the paid-up capital of the company, the incentive could be utilized over a maximum of seven years.

Additional Incentive Program:

The Cabinet of Ministers may decide to grant additional incentives for investment projects in accordance with specific rules and regulations as follows:

  • The establishment of special customs ports for exports and imports of the investment projects.
  • The state may incur part of the costs of the technical training for workers.
  • Free allocation of land for a few strategic activities may apply.
  • The government may bear in full or in part the costs incurred by the investor to invest in utility connections for the investment project.
  • The government may refund half the price of the land allocated to industrial projects in the event of starting production within two years from receiving the land.

Other Incentives related to Free Zones according to Investment Law 72/2017:

  • Exemption from all taxes and customs duties.
  • Exemption from all import/export regulations.
  • The option to sell a certain percentage of production domestically if customs duties are paid.
  • Limited exemptions from labor provisions.
  • All equipment, machinery, and essential means of transport (excluding sedan cars) necessary for business operations are exempted from all customs, import duties, and sales taxes.
  • All licensing procedures are handled by GAFI. To remain eligible for benefits, investors operating inside the free zones must export more than 50 percent of their total production.
  • Manufacturing or assembly projects pay an annual charge of one percent of the total value of their products
  • Excluding all raw materials. Storage facilities are to pay one percent of the value of goods entering the free zones while service projects pay one percent of total annual revenue.
  • Goods in transit to specific destinations are exempt from any charges.

Other Incentives related to the Suez Canal Economic Zone (SCZone):

  • 100 percent foreign ownership of companies.
  • 100 percent foreign control of import/​export activities.
  • Imports are exempted from customs duties and sales tax.
  • Customs duties on exports to Egypt imposed on imported components only, not the final product.
  • Fast-track visa services.
  • A full service one-stop shop for registration and licensing.
  • Allowing enterprises access to the domestic market; duties on sales to domestic market will be assessed on the value of imported inputs only.

The Tenders Law (Law 89/1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.

The Ministry of Industry & Foreign Trade and the Ministry of Finance’s Decree No. 719/2007 provides incentives for industrial projects in the governorates of Upper Egypt (Upper Egypt refers to governorates in southern Egypt). The decree provides an incentive of LE 15,000 (approx. $850) for each job opportunity created by the project, on the condition that the investment costs of the project exceed LE 15 million (approx. $850,000). The decree can be implemented on both new and ongoing projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Public and private free trade zones are authorized under GAFI’s Investment Incentive Law. Free zones are located within the national territory, but are considered to be outside Egypt’s customs boundaries, granting firms doing business within them more freedom on transactions and exchanges. Companies producing largely for export (normally 80 percent or more of total production) may be established in free trade zones and operate using foreign currency. Free trade zones are open to investment by foreign or domestic investors. Companies operating in free trade zones are exempted from sales taxes or taxes and fees on capital assets and intermediate goods. The Legislative Package for the Stimulation of Investment, issued in 2015, stipulated a one percent duty paid on the value of commodities upon entry for storage projects and a one percent duty upon exit for manufacturing and assembly projects.

There are currently 9 public free trade zones in operation in the following locations: Alexandria, Damietta Ismailia, Qeft, Media Production City, Nasr City, Port Said, Shebin el Kom, and Suez. Private free trade zones may also be established with a decree by GAFI but are usually limited to a single project. Export-oriented industrial projects are given priority.  There is no restriction on foreign ownership of capital in private free zones.

The Special Economic Zones (SEZ) Law 83/2002 allows establishment of special zones for industrial, agricultural, or service activities designed specifically with the export market in mind.  The law allows firms operating in these zones to import capital equipment, raw materials, and intermediate goods duty free. Companies established in the SEZs are also exempt from sales and indirect taxes and can operate under more flexible labor regulations. The first SEZ was established in the northwest Gulf of Suez.

Law 19/2007 authorized creation of investment zones, which require Prime Ministerial approval for establishment. The government regulates these zones through a board of directors, but the zones are established, built, and operated by the private sector. The government does not provide any infrastructure or utilities in these zones. Investment zones enjoy the same benefits as free zones in terms of facilitation of license-issuance, ease of dealing with other agencies, etc., but are not granted the incentives and tax/custom exemptions enjoyed in free zones. Projects in investment zones pay the same tax/customs duties applied throughout Egypt. The aim of the law is to assist the private sector in diversifying its economic activities.

The Suez Canal Economic Zone, a major industrial and logistics services hub announced in 2014, includes upgrades and renovations to ports located along the Suez Canal corridor, including West and East Port Said, Ismailia, Suez, Adabiya, and Ain Sokhna. The Egyptian government has invited foreign investors to take part in the projects, which are expected to be built in several stages, the first of which was scheduled to be completed by mid-2020. Reported areas for investment include maritime services like ship repair services, bunkering, vessel scrapping and recycling; industrial projects, including pharmaceuticals, food processing, automotive production, consumer electronics, textiles, and petrochemicals; IT services such as research and development and software development; renewable energy; and mixed use, residential, logistics, and commercial developments. Website for the Suez Canal Development Project: http://www.sczone.com.eg/English/Pages/default.aspx 

Performance and Data Localization Requirements

Egypt has rules on national percentages of employment and difficult visa and work permit procedures.  The application of these provisions that restrict access to foreign worker visas has been inconsistent.  The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period.  Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. The application of these regulations is inconsistent. The Labor Law allows Ministers to set the maximum percentage of foreign workers that may work in companies in a given sector.  There are no such sector-wide maximums for the oil and gas industry, but individual concession agreements may contain language establishing limits or procedures regarding the proportion of foreign and local employees.

No performance requirements are specified in the Investment Incentives Law, and the ability to fulfill local content requirements is not a prerequisite for approval to set up assembly projects.  In many cases, however, assembly industries still must meet a minimum local content requirement in order to benefit from customs tariff reductions on imported industrial inputs.

Decree 184/2013 allows for the reduction of customs tariffs on intermediate goods if the final product has a certain percentage of input from local manufacturers, beginning at 30 percent local content.  As the percentage of local content rises, so does the tariff reduction, reaching up to 90 percent if the amount of local input is 60 percent or above. In certain cases, a minister can grant tariff reductions of up to 40 percent in advance to certain companies without waiting to reach a corresponding percentage of local content.  In 2010, Egypt revised its export rebate system to provide exporters with additional subsidies if they used a greater portion of local raw materials.

Manufacturers wishing to export under trade agreements between Egypt and other countries must complete certificates of origin and local content requirements contained therein.  Oil and gas exploration concessions, which do not fall under the Investment Incentives Law, do have performance standards, which are specified in each individual agreement and which generally include the drilling of a specific number of wells in each phase of the exploration period stipulated in the agreement.

Egypt does not impose localization barriers on ICT firms.  Egypt’s Data Protection Act, signed into law in July, 2020, will require licenses for cross-border data transfers but does not impose any data localization requirements.  Similarly, Egypt does not make local production a requirement for market access, does not have local content requirements, and does not impose forced technology or intellectual property transfers as a condition of market access.  But there are exceptions where the government has attempted to impose controls by requesting access to a company’s servers located offshore, or request servers to be located in Egypt and thus under the government’s control.

5. Protection of Property Rights

Real Property

The Egyptian legal system provides protection for real and personal property.  Laws on real estate ownership are complex and titles to real property may be difficult to establish and trace.  According to the World Bank’s 2020 Doing Business Report, Egypt ranks 130 of 190 for ease of registering property.

The National Title Registration Program introduced by the Ministry of State for Administrative Development has been implemented in nine areas within Cairo.  This program is intended to simplify property registration and facilitate easier mortgage financing. Real estate registration fees, long considered a major impediment to development of the real estate sector, are capped at no more than EGP 2000 (USD 110), irrespective of the property value.  In November 2012, the government postponed implementation of an enacted overhaul to the real estate tax and as of April 2017 no action has been taken.

Foreigners are limited to ownership of two residences in Egypt and specific procedures are required for purchasing real estate in certain geographical areas.

The mortgage market is still undeveloped in Egypt, and in practice most purchases are still conducted in cash.  Real Estate Finance Law 148//2001 authorized both banks and non-bank mortgage companies to issue mortgages. The law provides procedures for foreclosure on property of defaulting debtors, and amendments passed in 2004 allow for the issuance of mortgage-backed securities.  According to the regulations, banks can offer financing in foreign currency of up to 80 percent of the value of a property.

Presidential Decree 17//2015 permitted the government to provide land free of charge, in certain regions only, to investors meeting certain technical and financial requirements.  This provision expires on April 1, 2020 and the company must provide cash collateral for five years following commencement of either production (for industrial projects) or operation (for all other projects).

The ownership of land by foreigners is governed by three laws: Law 15//1963, Law 143//1981, and Law 230//1996.  Law 15//1963 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land.  Law 143//1981 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, cooperatives, partnerships and corporations.  Partnerships are permitted to own up to 10,000 feddans. Joint stock companies are permitted to own up to 50,000 feddans.

Partnerships and joint stock companies may own desert land within these limits, even if foreign partners or shareholders are involved, provided that at least 51 percent of the capital is owned by Egyptians.  Upon liquidation of the company, however, the land must revert to Egyptian ownership. Law 143 defines desert land as the land lying two kilometers outside city borders. Furthermore, non-Egyptians owning non-improved real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public.  Non-Egyptians may only sell their real estate five years after registration of ownership, unless the consent of the Prime Minister for an exemption is obtained.

Intellectual Property Rights

Egypt remains on the Special 301 Watch List in 2020.  Egypt’s IPR legislation generally meets international standards, and the government has made progress enforcing those laws, reducing patent application backlogs, and in 2019 shut down a number of online illegal streaming websites.  It has also made progress establishing protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products.  Stakeholders note continued challenges with widespread counterfeiting and piracy, biotechnology patentability criteria, patent and trademark examination criteria, and pharmaceutical-related IP issues.

Multinational pharmaceutical companies complain that local generic drug-producing companies infringe on their patents.  Delays and inefficiencies in processing patent applications by the Egyptian Patent Office compound the difficulties pharmaceutical companies face in introducing new drugs to the local market.  The government views patent linkage as “a legal violation” against the concept of separation of authorities between institutions such as the Egyptian Drug Authority, the Ministry of Health, and the Egyptian Patent Office. As a result, permits for the sale of pharmaceuticals are generally issued without first cross-checking patent filings.

Decree 251/2020, issued in January, 2020, established a ministerial committee to address compulsory patent licensing.  According to Egypt’s 2002 IPR Law, which allows for compulsory patent licenses in some cases, the committee will have the power to issue compulsory patent licenses according to a number of criteria set forth in the law; to determine financial renumeration for the original patent owners; and to approve the expropriation of the patents.

Book, music, and entertainment software piracy is prevalent in Egypt, and a significant portion of the piracy takes place online.  American film studios represented by the Motion Pictures Association of America are concerned about the illegal distribution of American movies on regional satellite channels.

Eight GoE ministries have the responsibility to oversee IPR concerns: Supply and Internal Trade for trademarks, Higher Education and Research for patents, Culture for copyrights, Agriculture for plants, Communications and Information Technology for copyright of computer programs, Interior for combatting IPR violations, Customs for border enforcement, and Trade and Industry for standards and technical regulations.  Article 69 of Egypt’s 2014 Constitution mandates the establishment of a “specialized agency to uphold [IPR] rights and their legal protection.” A National Committee on IPR was established to address IPR matters until a permanent body is established. All IPR stakeholders are represented in the committee, and members meet every two months to discuss issues. The National Committee on IPR is chaired by the Ministry of Foreign Affairs and reports directly to the Prime Minister.

The Egyptian Customs Authority (ECA) handles IPR enforcement at the national border and the Ministry of Interior’s Department of Investigation handles domestic cases of illegal production. The ECA cannot act unless the trademark owner files a complaint.  Moreover, Egypt’s Economic Courts often take years to reach a decision on IPR infringement cases.

ECA’s customs enforcement also tends to focus on protecting Egyptian goods and trademarks. The ECA is taking steps to adopt the World Customs Organization’s (WCO) Interface Public-Members platform, which allows customs officers to detect counterfeit goods by scanning a product’s barcode and checking the WCO trademark database system.

For additional information about treaty obligations and points of contact at local offices, please see WIPO’s country profiles at http://wipo.int/directory/en/ 

IPR Contact at Embassy Cairo:
Christopher Leslie
Trade & Investment Officer
20-2-2797-2735
LeslieCG@state.gov

6. Financial Sector

Capital Markets and Portfolio Investment

To date, high returns on Egyptian government debt have crowded out Egyptian investment in productive capacity.  Consistently positive and relatively high real interest rates have attracted large foreign capital inflows since 2017, most of which has been volatile portfolio capital.  Returns on Egyptian government debt have begun to come down, which could presage investment by Egyptian capital in the real economy.

The Egyptian Stock Exchange (EGX) is Egypt’s registered securities exchange.  About 246 companies were listed on the EGX, including Nilex, as of April 2020.  There were more than 500,000 investors registered to trade on the exchange in 2019 as the Egyptian market attracted 32,000 new investors.  Stock ownership is open to foreign and domestic individuals and entities.  The Government of Egypt issues dollar-denominated and Egyptian pound-denominated debt instruments.  Ownership is open to foreign and domestic individuals and entities.  The government has developed a positive outlook toward foreign portfolio investment, recognizing the need to attract foreign capital to help develop the Egyptian economy.  During 2019 foreign investors’ percentage of total transactions on the EGX reached 33 percent versus Egyptian investors’ percentage of 67 percent.

The Capital Market Law 95/1992, along with the Banking Law 88/2003, constitutes the primary regulatory frameworks for the financial sector. The law grants foreigners full access to capital markets, and authorizes establishment of Egyptian and foreign companies to provide underwriting of subscriptions, brokerage services, securities and mutual funds management, clearance and settlement of security transactions, and venture capital activities. The law specifies mechanisms for arbitration and legal dispute resolution and prohibits unfair market practices.  Law 10//2009 created the Egyptian Financial Supervisory Authority (EFSA) and brought the regulation of all non-banking financial services under its authority.  In 2017, EFSA became the Financial Regulatory Authority (FRA).

Settlement of transactions takes one day for treasury bonds and two days for stocks. Although Egyptian law and regulations allow companies to adopt bylaws limiting or prohibiting foreign ownership of shares, virtually no listed stocks have such restrictions. A significant number of the companies listed on the exchange are family-owned or dominated conglomerates, and free trading of shares in many of these ventures, while increasing, remains limited.  Companies are de-listed from the exchange if not traded for six months.

The Higher Investment Council extended the suspension of capital gains tax for three years, until 2020 as part of efforts to draw investors back. In March 2017, the government announced plans to impose a stamp duty on all stock transactions with a duty of 0.125 percent on all buyers and sellers starting in May 2017, followed by an increase to 0.150 percent in the second year and 0.175 percent thereafter. Egypt’s provisional stamp duty on stock exchange transactions includes for the first time a 0.3 percent levy for investors acquiring more than a third of a company’s stocks. I n May 2019 the government decided to keep the stamp duty at 0.15% without further increase, then in March 2020 the government decided to reduce the stamp tax to 0.125% for non-residents and to 0.05% for non-residents and to push back the introduction of the capital gain tax till January 2022.  Foreign investors will be exempted from the tax.

Foreign investors can access Egypt’s banking system by opening accounts with local banks and buying and selling all marketable securities with brokerages. The government has repeatedly emphasized its commitment to maintaining the profit repatriation system to encourage foreign investment in Egypt, especially since the pound floatation and implementation of the IMF loan program in November 2016. The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock exchange transactions. The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit repatriation transactions using the bank’s posted daily exchange rates. The system is designed to allow for settlement of transactions in fewer than two days, though in practice some firms have reported significant delays in repatriating profits due to problems with availability.  Foreign firms and individuals continue to report delays in repatriating funds and problems accessing hard currency for the purpose of repatriating profits.

The Egyptian credit market, open to foreigners, is vibrant and active. Repatriation of investment profits has become much easier, as there is enough available hard currency to execute FX trades. Since the floatation of the Pound in November 2016 FX trading is considered straightforward, given the re-establishment of the interbank foreign currency trading system.

Money and Banking System

Benefitting from the nation’s increasing economic stability over the past two years, Egypt’s banks have enjoyed both ratings upgrades and continued profitability.  Thanks to economic reforms, a new floating exchange system, and a new Investment Law passed in 2017, the project finance pipeline is increasing after a period of lower activity.  Banking competition is improving to serve a largely untapped retail segment and the nation’s challenging, but potentially rewarding, small and medium-sized enterprise (SME) segment.  The Central Bank of Egypt (CBE) has mandated that 20 percent of bank loans go to SMEs within the next three years (four years from 2016).  In December 2019, the Central Bank launched a 100 billion initiative to spur domestic manufacturing through subsidized loans.  Also, with only about a quarter of Egypt’s adult population owning or sharing an account at a formal financial institution (according press and comments from contacts), the banking sector has potential for growth and higher inclusion, which the government and banks discuss frequently.  A low median income plays a part in modest banking penetration.   But the CBE has taken steps to work with banks and technology companies to expand financial inclusion.  The employees of the government, one of the largest employers, must now have bank accounts because salary payment is through direct deposit.

Egypt’s banking sector is generally regarded as healthy and well-capitalized, due in part to its deposit-based funding structure and ample liquidity, especially since the floatation and restoration of the interbank market.  The CBE declared that 4.1 percent of the banking sector’s loans were non-performing in June 2020.  However, since 2011, a high level of exposure to government debt, accounting for over 40 percent of banking system assets, at the expense of private sector lending, has reduced the diversity of bank balance sheets and crowded out domestic investment.  Given the floatation of the Egyptian Pound and restart of the interbank trading system, Moody’s and S&P have upgraded the outlook of Egypt’s banking system to stable from negative to reflect improving macroeconomic conditions and ongoing commitment to reform.  In April 2019 Moody’s upgraded Egypt’s government issuer rating to B2 with stable outlook from B3 positive and affirmed this rating in April 2020 while also changing Egypt’s Macro Profile to “weak-” from “very weak”.

Thirty-eight banks operate in Egypt, including several foreign banks. The CBE has not issued a new commercial banking license since 1979.  The only way for a new commercial bank, whether foreign or domestic, to enter the market (except as a representative office) is to purchase an existing bank.  To this end, in 2013, QNB Group acquired National Société Générale Bank Egypt (NSGB).  That same year, Emirates NBD, Dubai’s largest bank, bought the Egypt unit of BNP Paribas.  In 2015, Citibank sold its retail banking division to CIB Bank.  In 2017, Barclays Bank PLC transferred its entire shareholding to Attijariwafa Bank Group.  In 2016 and 2017, Egypt indicated a desire to partially (less than 35 percent) privatize at least one state-owned banks and a total of 23 firms through either expanded or new listings on the Egypt Stock Exchange.  As of April 2020 the only steps towards implementing this privatization program were offering 4.5 percent of the shares of state-owned Eastern Tobacco Company on the stock market.  The state owned Banque De Caire was planning to IPO some of its shares on the EGX in April but postponed due to the novel coronavirus.

According to the CBE, banks operating in Egypt held nearly EGP 6 trillion ($379 billion) in total assets as of February 2020, with the five largest banks holding EGP 3.9 trillion ($247 billion) at the end of 2019.  Egypt’s three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt) control nearly 40 percent of banking sector assets.

The chairman of the EGX recently stated that Egypt is allowing exploration of the use of blockchain technologies across the banking community.  The FRA will review the development and most likely regulate how the banking system adopts the fast-developing blockchain systems into banks’ back-end and customer-facing processing and transactions. Seminars and discussions are beginning around Cairo, including visitors from Silicon Valley, in which leaders and experts are still forming a path forward.  While not outright banning cryptocurrencies, which is distinguished from blockchain technologies, authorities caution against speculation in unknown asset classes.

Alternative financial services in Egypt are extensive, given the large informal economy, estimated to be from 30 to 50 percent of the GDP.  Informal lending is prevalent, but the total capitalization, number of loans, and types of terms in private finance is less well known.

Foreign Exchange and Remittances

Foreign Exchange

There had been significant progress in accessing hard currency since the floatation of the Pound and re-establishment of the interbank currency trading system in November 2016.  While the immediate aftermath saw some lingering difficulty of accessing currency, as of 2017 most businesses operating in Egypt reported having little difficulty obtaining hard currency for business purposes, such as importing inputs and repatriating profits.   In 2016 the Central Bank lifted dollar deposit limits on households and firms importing priority goods which had been in place since early 2015.  Into 2016, businesses, including foreign-owned firms, which were not operating in priority sectors, encountered difficulty accessing currency, including importers.  But 2017 has seen an elimination of the backlog for demand for foreign currency.  With net foreign reserves of $37 billion as of April 2020, Egypt’s foreign reserves appeared to be well capitalized.

Funds associated with investment can be freely converted into any world currency, depending on the availability of that currency in the local market.  Some firms and individuals report the process taking some time.  But the interbank trading system works in general and currency is available as the foreign exchange markets continue to react positively to the government’s commitment to macro and structural reform.

The stabilized exchange rate operates on the principle of market supply and demand: the exchange rate is dictated by availability of currency and demand by firms and individuals.  While there is some reported informal Central Bank window guidance, the rate generally fluctuates depending on market conditions, without direct market intervention by authorities.  In general, the EGP has stabilized within an acceptable exchange rate range, which has increased the foreign exchange market’s liquidity.  Since the early days following the floatation, there has been very low exchange rate volatility.

Remittance Policies

The 1992 U.S.-Egypt Bilateral Investment Treaty provides for free transfer of dividends, royalties, compensation for expropriation, payments arising out of an investment dispute, contract payments, and proceeds from sales.  Prior to reform implementation throughout 2016 and 2017, large corporations had been unable to repatriate local earnings for months at a time, but given the current record net foreign reserves, repatriation is no longer an issue that companies complain about.

The Investment Incentives Law stipulates that non-Egyptian employees hired by projects established under the law are entitled to transfer their earnings abroad.  Conversion and transfer of royalty payments are permitted when a patent, trademark, or other licensing agreement has been approved under the Investment Incentives Law.

Banking Law 88//2003 regulates the repatriation of profits and capital.  The current system for profit repatriation by foreign firms requires sub-custodian banks to open foreign and local currency accounts for foreign investors (global custodians), which are exclusively maintained for stock exchange transactions.  The two accounts serve as a channel through which foreign investors process their sales, purchases, dividend collections, and profit repatriation transactions using the bank’s posted daily exchange rates.  The system is designed to allow for settlement of transactions in fewer than two days, though in practice some firms have reported short delays in repatriating profits, no longer due to availability but more due to processing steps.

Sovereign Wealth Funds

Egypt’s sovereign wealth fund (SWF), approved by the Cabinet and launched in late 2018, holds 200 billion EGP ($12.7 billion) in authorized capital.  The SWF aims to invest state funds locally and abroad across asset classes and manage underutilized government assets.  The SWF focuses on sectors considered vital to the Egyptian economy, particularly industry, energy, and tourism. The SWF participates in the International Forum of Sovereign Wealth Funds.  The government is currently in talks with regional and European institutions to take part in forming the fund’s sector-specific units.

7. State-Owned Enterprises

State and military-owned companies compete directly with private companies in many sectors of the Egyptian economy. According to Public Sector Law 203/1991, state-owned enterprises should not receive preferential treatment from the government, nor should they be accorded any exemption from legal requirements applicable to private companies.  In addition to the state-owned enterprises groups above, 40 percent of the banking sector’s assets are controlled by three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt).   The 226 SOEs in Egypt subject to Law 203/1991 are affiliated with 10 ministries and employ 450,000 workers. The Ministry of Public Sector Enterprises controls 118 companies operating under eight holding companies that employ 209,000 workers.  The most profitable sectors include tourism, real estate, and transportation.  The ministry publishes a list of its SOEs on its website, http://www.mpbs.gov.eg/Arabic/Affiliates/HoldingCompanies/Pages/default.aspx  and http://www.mpbs.gov.eg/Arabic/Affiliates/AffiliateCompanies/Pages/default.aspx .

In an attempt to encourage growth of the private sector, privatization of state-owned enterprises and state-owned banks accelerated under an economic reform program that took place from 1991 to 2008.  Following the 2011 revolution, third parties have brought cases in court to reverse privatization deals, and in a number of these cases, Egyptian courts have ruled to reverse the privatization of several former public companies. Most of these cases are still under appeal.

The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance, and international telecommunication sectors in 2005.  Nevertheless, Telecom Egypt held a de facto monopoly until late 2016 because the National Telecommunications Regulatory Authority (NTRA) had not issued additional licenses to compete in these sectors.  In October 2016, NTRA, however, implemented a unified license regime that allows companies to offer both fixed line and mobile networks.  The agreement allows Telecom Egypt to enter the mobile market and the three existing mobile companies to enter the fixed line market.  The introduction of Telecom Egypt as a new mobile operator in the Egyptian market will increase competition among operators, which will benefit users by raising the bar on quality of services as well as improving prices.  Egypt is not a party to the World Trade Organization’s Government Procurement Agreement.

OECD Guidelines on Corporate Governance of SOEs 

SOEs in Egypt are structured as individual companies controlled by boards of directors and grouped under government holding companies that are arranged by industry, including Petroleum Products & Gas, Spinning & Weaving; Metallurgical Industries; Chemical Industries; Pharmaceuticals; Food Industries; Building & Construction; Tourism, Hotels & Cinema; Maritime & Inland Transport; Aviation; and Insurance.  The holding companies are headed by boards of directors appointed by the Prime Minister with input from the relevant Minister.

Privatization Program

The Egyptian government’s most recent plans to privatize stakes in SOEs began in March 2018 with the successful public offering of a minority stake in the Eastern Tobacco Company.  Since then plans for privatizing stakes in 22 other SOEs, including up to 30 percent of the shares of Banque du Caire, have been delayed due to adverse market conditions and increased global volatility.  Egypt’s privatization program is based on Public Enterprise Law 203//1991, which permits the sale of SOEs to foreign entities.  In 1991, Egypt began a privatization program for the sale of several hundred wholly or partially SOEs and all public shares of at least 660 joint venture companies (joint venture is defined as mixed state and private ownership, whether foreign or domestic).  Bidding criteria for privatizations were generally clear and transparent.

In 2014, President Sisi signed a law limiting appeal rights on state-concluded contracts to reduce third-party challenges to prior government privatization deals.  The law was intended to reassure investors concerned by legal challenges brought against privatization deals and land sales dating back to the pre-2008 period.  Ongoing court cases had put many of these now-private firms, many of which are foreign-owned, in legal limbo over concerns that they may be returned to state ownership.  In early 2018, the Egyptian government announced that it would begin selling off stakes in some of its state-owned enterprises over the next few years through Egypt’s stock exchange.

8. Responsible Business Conduct

Responsible Business Conduct (RBC) programs have grown in popularity in Egypt over the last ten years.   Most programs are limited to multinational and larger domestic companies as well as the banking sector and take the form of funding and sponsorship for initiatives supporting entrepreneurship and education and other social activities.  Environmental and technology programs are also garnering greater participation.  The Ministry of Trade has engaged constructively with corporations promoting RBC programs, supporting corporate social responsibility conferences and providing Cabinet-level representation as a sign of support to businesses promoting RBC programming.

A number of organizations and corporations work to foster the development of RBC in Egypt.  The American Chamber of Commerce has an active corporate social responsibility committee.  Several U.S. pharmaceutical companies are actively engaged in RBC programs related to Egypt’s hepatitis-C epidemic.  The Egyptian Corporate Responsibility Center, which is the UN Global Compact local network focal point in Egypt, aims to empower businesses to develop sustainable business models as well as improve the national capacity to design, apply, and monitor sustainable responsible business conduct policies.  In March 2010, Egypt launched an environmental, social, and governance (ESG) index, the second of its kind in the world after India’s, with training and technical assistance from Standard and Poor’s.  Egypt does not participate in the Extractive Industries Transparency Initiative.  Public information about Egypt’s extractive industry remains limited to the government’s annual budget.

9. Corruption

Egypt has a set of laws to combat corruption by public officials, including an Anti-Bribery Law (which is contained within the Penal Code), an Illicit Gains Law, and a Governmental Accounting Law, among others. Countering corruption remains a long-term focus.  There have been cases involving public figures and entities, including the arrests of Alexandria’s deputy governor and the secretary general of Suez on several corruption charges and the investigation into five members of parliament alleged to have sold Hajj visas.  However, corruption laws have not been consistently enforced.  Transparency International’s Corruption Perceptions Index ranked Egypt 117 out of 180 in its 2017 survey, a drop of 9 places from its rank of 108 in 2016.  Transparency International also found that approximately 50 percent of Egyptians reported paying a bribe in order to obtain a public service.

Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.  There is no government requirement for private companies to establish internal codes of conduct to prohibit bribery.

Egypt ratified the United Nations Convention against Corruption in February 2005.  It has not acceded to the OECD Convention on Combating Bribery or any other regional anti-corruption conventions.

While NGOs are active in encouraging anti-corruption activities, dialogue between the government and civil society on this issue is almost non-existent, the OECD found in 2009 and a trend that continues today.  While government officials publicly asserted they shared civil society organizations’ goals, they rarely cooperated with NGOs, and applied relevant laws in a highly restrictive manner against NGOs critical of government practices.  Media was also limited in its ability to report on corruption, with Article 188 of the Penal Code mandating heavy fines and penalties for unsubstantiated corruption allegations.

U.S. firms have identified corruption as an obstacle to FDI in Egypt.  Companies might encounter corruption in the public sector in the form of requests for bribes, using bribes to facilitate required government approvals or licenses, embezzlement, and tampering with official documents.  Corruption and bribery are reported in dealing with public services, customs (import license and import duties), public utilities (water and electrical connection), construction permits, and procurement, as well as in the private sector.  Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.

Resources to Report Corruption

Several agencies within the Egyptian government share responsibility for addressing corruption.   Egypt’s primary anticorruption body is the Administrative Control Authority (ACA), which has jurisdiction over state administrative bodies, state-owned enterprises, public associations and institutions, private companies undertaking public work, and organizations to which the state contributes in any form.  In October 2017, Parliament approved and passed amendments to the ACA law, which grants the organization full technical, financial, and administrative authority to investigate corruption within the public sector (with the exception of military personnel/entities).  The law is viewed as strengthening an institution which was established in 1964.  The ACA appears well funded and well trained when compared with other Egyptian law enforcement organizations.  Strong funding and the current ACA leadership’s close relationship with President Sisi reflect the importance of this organization and its mission.  It is too small for its mission (roughly 300 agents) and is routinely over-tasked with work that would not normally be conducted by a law enforcement agency.

The ACA periodically engages with civil society.  For example, it has met with the American Chamber of Commerce and other organizations to encourage them to seek it out when corruption issues arise.

In addition to the ACA, the Central Auditing Authority (CAA) acts as an anti-corruption body, stationing monitors at state-owned companies to report corrupt practices.  The Ministry of Justice’s Illicit Gains Authority is charged with referring cases in which public officials have used their office for private gain.  The Public Prosecution Office’s Public Funds Prosecution Department and the Ministry of Interior’s Public Funds Investigations Office likewise share responsibility for addressing corruption in public expenditures.

Resources to Report Corruption

Minister of Interior
General Directorate of Investigation of Public Funds
Telephone: 02-2792-1395 / 02-2792 1396
Fax: 02-2792-2389

10. Political and Security Environment

Stability and economic development remain Egypt’s priorities.  The Egyptian government has taken measures to eliminate politically motivated violence while also limiting peaceful protests and political expression.  Political protests are rare, with the last known demonstrations occurring on September 20, 2019.  Egypt’s presidential elections in March 2018 and senatorial elections in August 2020 proceeded without incident.  A number of small-scale terrorist attacks against security and civilian targets in Cairo and elsewhere in the Nile Valley occurred in 2019.  An attack against a tourist bus in May 2019 injured over a dozen people, and a car bombing outside the National Cancer Institute in Cairo in August 2019 killed 22 people.  Militant groups also committed attacks in the Western Desert and Sinai.  The government has been conducting a comprehensive counterterrorism offensive in the Sinai since early 2018 in response to terrorist attacks against military installations and personnel by ISIS-affiliated militant groups.  In February 2020, ISIS-affiliated militants claimed responsibility for an attack against a domestic gas pipeline in the northern Sinai.  Although the group claimed that the attack targeted the recently-opened natural gas pipeline connecting Egypt and Israel, the pipeline itself was undamaged and the flow of natural gas was not interrupted.

11. Labor Policies and Practices

Official statistics put Egypt’s labor force at approximately 29 million, with an official unemployment rate of 9.6 percent as of July 2020.  Prior to the onset of the novel coronavirus pandemic, Egypt’s official unemployment rate had been steadily decreasing, reaching a low of 7.5 percent in July 2019.  Women accounted for 25 percent of those unemployed as of May 2020, according to statistics from Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS).  Accurate figures are difficult to determine and verify given Egypt’s large informal economy in which some 62 percent of the non-agricultural workforce is engaged, according to ILO estimates.

The government bureaucracy and public sector enterprises are substantially over-staffed compared to the private sector and other international norms.  According to the World Bank, Egypt has the highest number of government workers per capita in the world.  Businesses highlight a mismatch between labor skills and market demand, despite high numbers of university graduates in a variety of fields.  Foreign companies frequently pay internationally competitive salaries to attract workers with valuable skills.

The Unified Labor Law 12//2003 provides comprehensive guidelines on labor relations, including hiring, working hours, termination of employees, training, health, and safety.  The law grants a qualified right for employees to strike, as well as rules and guidelines governing mediation, arbitration, and collective bargaining between employees and employers.   Non-discrimination clauses are included, and the law complies with labor-related International Labor Organization (ILO) conventions regulating the employment and training of women and eligible children. Egypt ratified ILO Convention 182 on combating the Worst Forms of Child Labor in April 2002. On July 2018, Egypt launched the first National Action Plan on combating the Worst Forms of Child Labor. The law also created a national committee to formulate general labor policies and the National Council of Wages, whose mandate is to discuss wage-related issues and national minimum-wage policy, but it has rarely convened and a minimum wage has rarely been enforced in the private sector. .

Parliament adopted a new Trade Unions Law in late 2017, replacing a 1976 law, which experts said was out of compliance with Egypt’s commitments to ILO conventions.  After a March 2016 Ministry of Manpower and Migration (MOMM) directive not to recognize documentation from any trade union without a stamp from the government-affiliated Egyptian Trade Union Federation (ETUF), the new law established procedures for registering independent trade unions, but some of the unions noted that the directorates of the Ministry of Manpower didn’t implement the law and placed restrictions on freedoms of association and organizing for trade union elections.  Executive regulations for trade union elections stipulate a very tight deadline of three months for trade union organizations to legalize their status, and one month to hold elections, which, critics said, restricted the ability of unions to legalize their status or to campaign.  On April 3, 2018, the government registered its first independent trade union in more than two years.

In July 2019 the Egyptian Parliament passed a series of amendments to the Trade Unions Law that reduced the minimum membership required to form a trade union and abolished prison sentences for violations of the law.  The amendments reduced the minimum number of workers required to form a trade union committee from 150 to 50, the number of trade union committees to form a general union from 15 to 10 committees, and the number of workers in a general union from 20,000 to 15,000.  The amendments also decreased the number of unions necessary to establish a trade union federation from 10 to 7 and the number of workers in a trade union from 200,000 to 150,000.  Under the new law, a trade union or workers’ committee may be formed if 150 employees in an entity express a desire to organize.

Based on the new amendments to the Trade Unions Law and a request from the Egyptian government for assistance implementing them and meeting international labor standards, the International Labor Organization’s and International Finance Corporation’s joint Better Work Program launched in Egypt in March 2020.

The Trade Unions law explicitly bans compulsory membership or the collection of union dues without written consent of the worker and allows members to quit unions.  Each union, general union, or federation is registered as an independent legal entity, thereby enabling any such entity to exit any higher-level entity.

The 2014 Constitution stipulated in Article 76 that “establishing unions and federations is a right that is guaranteed by the law.”  Only courts are allowed to dissolve unions.  The 2014 Constitution maintained past practice in stipulating that “one syndicate is allowed per profession.”   The Egyptian constitutional legislation differentiates between white-collar syndicates (e.g. doctors, lawyers, journalists) and blue-collar workers (e.g. transportation, food, mining workers).  Workers in Egypt have the right to strike peacefully, but strikers are legally obliged to notify the employer and concerned administrative officials of the reasons and time frame of the strike 10 days in advance.  In addition, strike actions are not permitted to take place outside the property of businesses.  The law prohibits strikes in strategic or vital establishments in which the interruption of work could result in disturbing national security or basic services provided to citizens.  In practice, however, workers strike in all sectors, without following these procedures, but at risk of prosecution by the government.

Collective negotiation is allowed between trade union organizations and private sector employers or their organizations.  Agreements reached through negotiations are recorded in collective agreements regulated by the Unified Labor law and usually registered at MOMM.  Collective bargaining is technically not permitted in the public sector, though it exists in practice.  The government often intervenes to limit or manage collective bargaining negotiations in all sectors.

MOMM sets worker health and safety standards, which also apply in public and private free zones and the Special Economic Zones (see below).  Enforcement and inspection, however, are uneven.  The Unified Labor Law prohibits employers from maintaining hazardous working conditions, and workers have the right to remove themselves from hazardous conditions without risking loss of employment.

Egyptian labor laws allow employers to close or downsize operations for economic reasons.  The government, however, has taken steps to halt downsizing in specific cases.  The Unemployment Insurance Law, also known as the Emergency Subsidy Fund Law 156//2002, sets a fund to compensate employees whose wages are suspended due to partial or complete closure of their firm or due to its downsizing.  The Fund allocates financial resources that will come from a 1 percent deduction from the base salaries of public and private sector employees.  According to foreign investors, certain aspects of Egypt’s labor laws and policies are significant business impediments, particularly the difficulty of dismissing employees.  To overcome these difficulties, companies often hire workers on temporary contracts; some employees remain on a series of one-year contracts for more than 10 years.  Employers sometimes also require applicants to sign a “Form 6,” an undated voluntary resignation form which the employer can use at any time, as a condition of their employment. Negotiations on drafting a new Labor Law, which has been under consideration in the Parliament for two years, have included discussion of requiring employers to offer permanent employee status after a certain number of years with the company and declaring Form 6 or any letter of resignation null and void if signed prior to the date of termination.

Egypt has a dispute resolution mechanism for workers.  If a dispute concerning work conditions, terms, or employment provisions arises, both the employer and the worker have the right to ask the competent administrative authorities to initiate informal negotiations to settle the dispute. This right can be exercised only within seven days of the beginning of the dispute. If a solution is not found within 10 days from the time administrative authorities were requested, both the employer and the worker can resort to a judicial committee within 45 days of the dispute.  This committee is comprised of two judges, a representative of MOMM and representatives from the trade union, and one of the employers’ associations.  The decision of this committee is provided within 60 days. If the decision of the judicial committee concerns discharging a permanent employee, the sentence is delivered within 15 days.  When the committee decides against an employer’s decision to fire, the employer must reintegrate the latter in his/her job and pay all due salaries.  If the employer does not respect the sentence, the employee is entitled to receive compensation for unlawful dismissal.

Labor Law 12//2003 sought to make it easier to terminate an employment contract in the event of “difficult economic conditions.”  The Law allows an employer to close his establishment totally or partially or to reduce its size of activity for economic reasons, following approval from a committee designated by the Prime Minister.  In addition, the employer must pay former employees a sum equal to one month of the employee’s total salary for each of his first five years of service and one and a half months of salary for each year of service over and above the first five years.  Workers who have been dismissed have the right to appeal.  Workers in the public sector enjoy lifelong job security as contracts cannot be terminated in this fashion; however, government salaries have eroded as inflation has outpaced increases.

Egypt has regulations restricting access for foreigners to Egyptian worker visas, though application of these provisions has been inconsistent.  The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period.  Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. Application of these regulations is inconsistent.

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

The U.S. International Development Finance Corporation (DFC) is operating in Egypt to provide the capital and risk mitigation tools that investors need to overcome the barriers faced in this region. In 2012, DFC’s predecessor, the Overseas Private Investment Corporation (OPIC), launched the USD 250 million Egypt Loan Guaranty Facility (ELGF), in partnership with USAID, to support bank lending and stimulate job creation.  The ELGF’s main objective is to help SMEs access finance for growth and development, by providing creditors the needed guarantees to help them mitigate loan risks.  This objective goes hand-in-hand with the Central Bank of Egypt’s initiative to support SMEs.  The ELGF expands lending to SMEs by supporting local partner banks as they lend to the target segment and increase access to credit for SMEs.  The result is the promotion of jobs and private sector development in Egypt.  The ELGF and partner banks sign a Guarantee Facility Agreement (GFA) to outline main terms and conditions of credit guarantee.  The two bank partners are Commercial International Bank (CIB) and the National Bank of Kuwait (NBK).  USAID has collaborated with OPIC/ELGF and the CIB to provide training to SME owners and managers on the basics of accounting and finance, banking and loan processes, business registration, and other topics that will help SMEs access financing for business growth.

As of March, 2020, the DFC’s financing tools provide $1.25 billion in financial and insurance support to 12 renewable energy, oil and gas, water supply, and health sector projects in Egypt in addition to the ELGF.  Apache Corporation, the largest U.S. investor in Egypt, has supported its natural gas investment with OPIC and DFC risk insurance since 2004.  In December 2018, the OPIC Board approved a project to provide $430 million in political risk insurance to Noble Energy, Inc. to support the restoration, operation, and maintenance of a natural gas pipeline in Egypt and the supply of natural gas through a pipeline from Israel.  In June 2019, OPIC’s Board approved an $87 million loan guarantee for the development, construction, and operation of the 252 megawatt Lekela Egypt Wind Power project.

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) 2019 $335,780 2019 $303,175 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $2,244 2019 $11,000 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 $1 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2019 41.9% UNCTAD data available at
https://unctad.org/en/Pages/
DIAE/World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
 

* Sources for Host Country Data: Central Bank of Egypt; CAPMAS; GAFI

Table 3: Sources and Destination of FDI
Data not available.

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, US Dollars, 2019)
Total Equity Securities Total Debt Securities
All Countries 985 100% All Countries 377 100% All Countries 608 100%
United States 242 25% International Organizations 216 57% United States 233 38%
International Organizations 216 22% Saudi Arabia 27 7% Saudi Arabia 92 15%
Saudi Arabia 120 12% Italy 23 6% United Arab Emirates 56 9%
United Arab Emirates 59 6% Switzerland 17 5% United Kingdom 46 8%
United Kingdom 50 5% Singapore 16 4% China 40 7%

14. Contact for More Information

Chris Leslie, Economic Officer, U.S. Embassy Cairo
02-2797-2735
LeslieCG@state.gov

Ethiopia

Executive Summary

Ethiopia’s economy is in transition. Coming off a decade of double-digit growth, fueled primarily by public infrastructure projects funded through debt, the Government of Ethiopia (GOE) has tightened its belt, reducing inefficient government expenditures and attempting to get its accounts in order at bloated state-owned enterprises (SOEs). Just in the last year, the GOE has also introduced a new and more liberal investment code, started the privatization process for the telecommunications monopoly, and eliminated numerous burdensome regulations. The IMF put the growth of the Ethiopian economy at 9 percent for FY2018/19, driven by manufacturing and services. While recent growth estimates have been revised downward due to the COVID-19 pandemic, growth prospects for Ethiopia remain better than those for most Sub-Saharan African nations. Ethiopia is the second most populous country in Africa after Nigeria, with a population of over 110 million, approximately two-thirds of whom are under age 30. Low-cost labor, a national airline with well over 100 passenger connections, and growing consumer markets are key elements attracting foreign investment.

The Government of Ethiopia (GOE) in September of 2019 unveiled its “Homegrown Economic Reform Plan” as a codified roadmap to implement sweeping macro, structural, and sectoral reform, with a focus on enhancing the role of the private sector in the economy and attracting more foreign direct investment. The ambitious three-year plan prioritizes growth in five sectors, namely mining, ICT, agriculture, tourism, and manufacturing. In December of 2019, the IMF approved a three-year, 2.9 billion U.S. dollar program to support the reform agenda. The program seeks to reduce public sector borrowing, rein in inflation, and reform the exchange rate regime.

The challenges remain vast. Ethiopia’s imports in the last three years have experienced a slight decline in large part due to a reduction in public investment programs and a dire foreign exchange shortage. Export performance remains weak, declining due to falling primary commodity prices and an overvalued exchange rate. The acute foreign exchange shortage (the Ethiopian birr is not a freely convertible currency) and the absence of capital markets are choking private sector growth. Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, high land-transportation costs, and bureaucratic delays. Ethiopia is not a signatory of major intellectual property rights treaties.

All land in Ethiopia is administered by the government and private ownership does not exist. “Land-use rights” have been registered in most populated areas. The GOE retains the right to expropriate land for the “common good,” which it defines to include expropriation for commercial farms, industrial zones, and infrastructure development. Successful investors in Ethiopia conduct thorough due diligence on land titles at both the regional and federal levels and undertake consultations with local communities regarding the proposed use of the land.

The largest volume of foreign direct investment (FDI) in Ethiopia comes from China, followed by Saudi Arabia and Turkey. Political instability associated with various ethnic conflicts could negatively impact the investment climate and lower future FDI inflow.

Table 1
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 96 of 180 https://www.transparency.org/
country/ETH
World Bank’s Doing Business Report “Ease of Doing Business” 2020 159 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2019 111 of 129 https://www.globalinnovationindex.org/
gii-2018-report#
U.S. FDI in partner country (M USD, stock positions) 2018 $676 http://www.investethiopia.gov.et/
World Bank GNI per capita 2018 $790 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

Ethiopia needs significant inflows of FDI to meet its ambitious growth goals. Over the past year, to attract more foreign investment, the government has passed a new investment law, ratified the New York Convention on Arbitration, and streamlined commercial registration and business licensing laws. The government has also started implementing the Public Private Partnership (PPP) proclamation (law), to allow for private investment in the power generation and road construction sectors.

The Ethiopian Investment Commission (EIC) has the mandate to promote and facilitate foreign investments in Ethiopia. To accomplish this task, the EIC is charged with 1) promoting the country’s investment opportunities to attract and retain investment; 2) issuing investment permits, business licenses, and construction permits; 3) issuing commercial registration certificates and renewals; 4) negotiating and signing bilateral investment agreements; 5) issuing work permits; and 6) registering technology transfer agreements. In addition, the EIC has the mandate to advise the government on policies to improve the investment climate and hold regular and structured public-private dialogue with investors and their associations. At the local level, regional investment agencies facilitate regional investment. Though Ethiopia has shown relative progress in two doing business indicators, specifically the ease of obtaining construction permits and registering property, its overall rank on the 2020 World Bank Ease of Doing Business Index was 159 out of 190 countries, which is the exact same ranking from 2018 and 2019. In order to improve the investment climate, attract more FDI, and tackle unemployment challenges, the Prime Minister’s Office formed a committee to systematically examine each indicator on the Doing Business Index and identify factors that inhibit businesses.

The American Chamber of Commerce (AmCham) works on voicing the concerns of U.S. businesses in Ethiopia. AmCham provides a mechanism for coordination among American companies and also facilitates regular meetings with government officials to discuss issues that hinder operations in Ethiopia. The Addis Ababa Chamber of Commerce also organizes a monthly business forum that enables the business community to discuss issues related to the investment climate with government officials by sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish, acquire, own, and dispose of most forms of business enterprises. A new Investment Proclamation, approved in early 2020, outlines the areas of investment reserved for government and local investors. There is no private ownership of land in Ethiopia. All land is owned by the state, but can be leased for up to 99 years. Small-scale rural landholders have indefinite use rights, but cannot lease out holdings for extended periods, except in the Amhara Region. The 2011 Urban Land Lease Proclamation allows the government to determine the value of land in transfers of leasehold rights, in an attempt to curb speculation by investors.

A foreign investor intending to buy an existing private enterprise or shares in an existing enterprise needs to obtain prior approval from the EIC. While foreign investors have complained about inconsistent interpretation of the regulations governing investment registration (particularly relating to accounting for in-kind investments), they generally do not face undue screening of FDI, unfavorable tax treatment, denial of licenses, discriminatory import or export policies, or inequitable tariff and non-tariff barriers.

Other Investment Policy Reviews

Over the past three years, the government has not undertaken any third party investment policy review by a multilateral or non-governmental organization. The government has worked closely with some international stakeholders, however, such as the International Finance Corporation, in its recent attempts to modernize and streamline its investment regulations.

Business Facilitation

The EIC has attempted to establish itself as a “one-stop shop” for foreign investors by acting as a centralized location where investors can obtain the visas, permits, and paperwork they need, thereby reducing the time and cost of investing and acquiring business licenses. The EIC has worked with international consultants to modernize its operations, and as part of its work plan has adopted a customer manager system to build lasting relationships and provide post-investment assistance to investors. Despite progress, the EIC readily admits that many bureaucratic barriers to investment remain. In particular, U.S. investors report that the EIC, as a federal organization, has little influence at regional and local levels. According to the 2020 World Bank’s Ease of Doing Business Report, on average, it takes 32 days to start a business in Ethiopia.

Currently, more than 95 percent of Ethiopia’s trade passes through the Port of Djibouti, with residual trade passing through the Somaliland Port of Berbera or Port Sudan. Ethiopia concluded an agreement in March of 2018 with the Somaliland Ports Authority and DP World to acquire a 19 percent stake in the joint venture developing the Port of Berbera. The agreement will help Ethiopia secure an additional logistical gateway for its increasing import and export trade. Following the July 2018 rapprochement with Eritrea, the Ethiopian government has investigated the opportunity of accessing an alternative port at either Massawa or Assab.

The Government of Ethiopia is working to improve business facilitation services by making the licensing and registration of businesses easier and faster, though online registration is not yet available. An amended commercial registration and licensing law eliminates the requirement to publicize business registrations in local newspapers, allows business registration without a physical address, and reduces some other paperwork burdens associated with business registration. U.S. companies can obtain detailed information for the registration of their business in Ethiopia from an online investment guide to Ethiopia: (https://www.theiguides.org/public-docs/guides/ethiopia ). Though the government is taking positive steps to socially empower women (approximately half of cabinet members are women), there is no special treatment provided to women who wish to engage in business.

The full Doing Business Report is available here: http://www.doingbusiness.org/data/exploreeconomies/ethiopia 

http://www.doingbusiness.org/data/exploreeconomies/ethiopia  http://www.doingbusiness.org/en/data/exploreeconomies/ethiopia#DB_sb 

http://www.doingbusiness.org/en/data/exploreeconomies/ethiopia#DB_sb 

Outward Investment

There is no officially recorded outward investment by domestic investors from Ethiopia as citizens/local investors are not allowed to hold foreign accounts.

2. Bilateral Investment Agreements and Taxation Treaties

Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA) and it has bilateral investment and protection agreements with Algeria, Austria, China, Denmark, Egypt, Germany, Finland, France, Iran, Israel, Italy, Kuwait, Libya, Malaysia, the Netherlands, Sudan, Sweden, Switzerland, Tunisia, Turkey and Yemen. Other bilateral investment agreements have been signed but are not in force with Belgium/Luxemburg, Brazil, Equatorial Guinea, India, Morocco, Nigeria, South Africa, Spain, the United Kingdom, and the United Arab Emirates. Ethiopia signed a protection of investment and property acquisition agreement with Djibouti. A Treaty of Amity and Economic Relations, which entered into force in 1953, governs economic and consular relations with the United States.

There is no double taxation treaty between the United States and Ethiopia. Ethiopia has such taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan, and the United Kingdom.

3. Legal Regime

Transparency of the Regulatory System

Ethiopia’s regulatory system is generally considered fair, though there are instances in which burdensome regulatory or licensing requirements have prevented the local sale of U.S. exports, particularly health-related products. Investment decisions can involve multiple government ministries, lengthening the registration and investment process.

The Constitution is the highest law of the country. The Parliament enacts proclamations, which are followed by regulations that are passed by the Council of Ministers, and implementing directives that are passed by ministries or agencies. The government increasingly engages the public for feedback before passage of draft legislation through public meetings, and regulatory agencies request comments on proposed regulations from stakeholders. Ministries or regulatory agencies do neither impact assessments for proposed regulations nor ex-post reviews. Parties that are affected by an adopted regulation can request reconsideration or appeal to the relevant administrative agency or court. There is no requirement to periodically review regulations to determine whether they are still relevant or should be revised.

All proclamations and regulations in Ethiopia are published in official gazettes and most of them are available online: http://www.hopr.gov.et/web/guest/122  and https://chilot.me/federal-laws/2/ 

Legal matters related to the federal government are entertained by Federal Courts, while state matters go to state courts. To ensure consistency of legal interpretation and to promote predictability of the courts, the Federal Supreme Court Cassation Division is empowered to give binding legal interpretation on all federal and state matters. Though there are no publicly listed companies in Ethiopia, all banks and insurance companies are obliged to adhere to International Financial Reporting Standards (IFRS).

Regulations related to human health and environmental pollution are often enforced. In January 2019, the Oromia Region Environment, Forest and Climate Change Commission shut down three tanneries in Oromia Region for what was said to be repeated environmental pollution offenses. The government also suspended the business license of MIDROC Gold Mine in May 2018 following weeks of protests by local communities who accused the company of causing health and environmental hazards in the Oromia Region. The Ethiopian Parliament in February of 2019 passed a bill entitled ‘Food and Medicine Administration Proclamation,’ which bans smoking in all indoor workplaces, public spaces, and means of public transport and prohibits alcohol promotion on broadcasting media.

Ethiopia published on April 7 the Administrative Procedure Proclamation (APP) in the federal gazette, the final step for a law to come into force. The APP’s main aim is to allow ordinary citizens who seek administrative redress to file suits in federal courts against government institutions. Potential redress includes financial restitution. The APP’s passage will require government institutions to set up offices that will handle such complaints. Complainants are required to follow an administrative appeal process, and only after exhausting administrative remedies will a person be allowed to file a suit in federal court. Four government institutions are exempt from the APP: the Federal Attorney General’s Office; the Ethiopian Federal Police; the Ethiopian Defense Forces and the intelligence agencies. The enactment of the APP is widely viewed as a positive step in increasing confidence in the public sector and addressing the need for governmental institutions to adhere to the rule of law.

Ethiopia is a member of UNCTAD’s international network of transparent investment procedures . Foreign and national investors can find detailed information from the investment commission website http://www.investethiopia.gov.et/investment-process  and https://www.theiguides.org/public-docs/guides/ethiopia  on administrative procedures applicable to investment and income generating operations. These details include the number of steps; name and contact details of the entities and persons in charge of procedures; required documents and conditions; costs; processing times; and legal bases justifying the procedures.

The government released its five-year public finance administration strategic plan (2018-2022) in March 2018, mapping out reforms in government revenue and expenditure forecasting, government accounts management, internal auditing, public procurement administration, public debt management, and public financial transparency and accountability. In support of this initiative, the Ministry of Finance (MOF) issued a directive on Public Financial Transparency and Accountability in October 2018. The directive mandates that all public institutions report their budgetary performance and financial accounts in platforms that are accessible to the wider public in a timely manner. It also makes the MOF responsible for disseminating a regular and detailed physical and financial performance evaluation of large publicly-funded projects. The directive further outlines a clear timeline for the publication of each major piece of budgetary information, such as the pre-budget macroeconomic and fiscal framework, the enacted budget, quarterly execution reports, annual execution reports, and the annual audit report.

International Regulatory Considerations

Ethiopia ratified the AfCFTA on March 21, 2019. The AfCFTA aims to create a single, continental market for goods and services, with free movement of business persons and investments. Ethiopia is also a member of Common Market for Eastern and Southern Africa (COMESA), a regional economic block, which has 21 member countries and has introduced a 10 percent tariff reduction on goods imported from member states. Ethiopia has not yet joined the COMESA free trade area, however. Ethiopia resumed its World Trade Organization (WTO) accession process in 2018, which it originally began in 2003, but which later stagnated.

Ethiopian standards have a national scope and applicability and some of them, particularly those related to human health and environmental protection, are mandatory. The Ethiopian Standards Agency is the national standards body of Ethiopia.

Legal System and Judicial Independence

Ethiopia has codified criminal and civil laws, including commercial and contractual law. According to the contractual law, a contract agreement is binding between contracting parties. Disputes between the parties can be taken to court. There are, however, no specialized courts for commercial law cases, although there are specialized benches at both the federal and state courts.

While there have been allegations of executive branch interference in judiciary cases with political implications, there is no evidence of widespread interference in purely commercial disputes. The country has a procedural code for civil and criminal court, but the practice is minimal. Enforcement actions are appealable and there are at least three appeal processes from the lower courts to the Supreme Court. The Criminal Procedure Code follows the inquisitorial system of adjudication.

Companies that operate businesses in Ethiopia assert that courts lack adequate experience and staffing, particularly with respect to commercial disputes. While property and contractual rights are recognized, judges often lack understanding of commercial matters, including bankruptcy and contractual disputes. In addition, cases often face extended scheduling delays. Contract enforcement remains weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate tenders.

Ethiopia is in the process of reforming its Commercial Code to bring it in line with international best practices. The draft legislation appears to address many concerns raised by the business community, including the creation of a commercial court under the regular court system to improve the expertise of judges as well as to increase the speed with which commercial disputes are resolved. The new Commercial Code should also include regulations covering e-commerce and digital businesses.

Laws and Regulations on Foreign Direct Investment

The Investment Proclamation 1180/2020 is Ethiopia’s main legal regime related to Foreign Direct Investment (FDI). This law instituted the opening of new economic sectors to foreign investment, enumerated the requirements for FDI registration, and outlined the incentives that are available to investors.

The 2020 investment law allows foreign investors to invest in any investment area except those that are clearly reserved for domestic investors. A few specified investment areas are possible for foreign investors only as part of a joint venture with domestic investors or the government. The Investment Proclamation has introduced an Investment Council, chaired by the Prime Minister, to accelerate implementation of the new law and to address coordination challenges investors face at the federal and regional levels. Further, the new law expanded the mandate of the EIC by allowing it to provide approvals to foreign investors proposing to buy existing enterprises. The EIC now also delivers “one stop shop” services by consolidating investor services provided by other ministries and agencies. Still, the EIC delegates licensing of investments in some areas: air transport services (the Ethiopian Civil Aviation Authority), energy generation and transmission (the Ethiopian Energy Authority), and telecommunication services (the Ethiopian Communications Authority).

The EIC’s website  (http://www.investethiopia.gov.et/ ) provides information on the government’s policy and priorities, registration processes, and regulatory details. In addition, the Ethiopian Investment Guide website (https://www.theiguides.org/public-docs/guides/ethiopia ) provides relevant laws, rules, procedures, and reporting requirements for investors.

Competition and Anti-Trust Laws

Ethiopia’s Trade Practice and Consumers Protection Authority (TPCPA), operating under the Ministry of Trade and Industry, is tasked with promoting a competitive business environment by regulating anti-competitive, unethical, and unfair trade practices to enhance economic efficiency and social welfare. It has an administrative tribunal with a jurisdiction on matters pertaining to market competition and consumer protection. The authority also annually entertains many cases associated with consumer protection and unfair trade practices.

The EIC reviews investment transactions for compliance with FDI requirements and restrictions as outlined by the Investment Proclamation. Nonetheless, companies have complained that SOEs receive favorable treatment in the government tender process. The public sector’s heavy involvement in economic development means that SOEs often obtain a sizeable portion of open tenders.

Expropriation and Compensation

Per the 2020 Investment Proclamation, no investment by a domestic or foreign investor or enterprise can be expropriated or nationalized, wholly or partially, except when required by public interest in compliance with the law and provided adequate compensatory payment.

The former Derg military regime nationalized many properties in the 1970s. The current government’s position is that property seized lawfully by the Derg (by court order or government proclamation published in the official gazette) remains the property of the state. In most cases, property seized by oral order or other informal means is gradually being returned to the rightful owners or their heirs through a lengthy bureaucratic process. Claimants are required to pay for improvements made by the government during the time it controlled the property. The Public Enterprises, Assets, and Administration Agency stopped accepting requests from owners for return of expropriated properties in July of 2008.

According to local and foreign businesses operating in the Oromia Region, there have been a number of isolated incidents threatening investors in that region. Various pretexts have been used to close legitimate operations. False charges have been filed with regional courts, property has been confiscated, and bank accounts have been frozen, all in the name of “returning the land” to the “rightful owners” or “creating job opportunities” for the youth. Regional officials, however, deny any systematic attack on investors and have repeatedly provided assurance that all legitimate investors will be protected. Meanwhile, other investors who have invested heavily in government and community relations and actively engaged local and regional officials have prospered. The experience of investors is overall uneven and clear trends are not evident.

Dispute Settlement

  • ICSID Convention and New York Convention

Since 1965, Ethiopia has been a non-signatory member state to the International Centre for Settlement of Disputes (ICSID) Convention. In 2020 the Parliament ratified the Convention on The Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention).

  • Investor-State Dispute Settlement

The constitution and the investment law both guarantee the right of any investor to lodge complaints related to his/her investment with the appropriate investment agency. If he/she has a grievance against a legal or regulatory decision, he/she can appeal to the investment board or to the respective regional agency, as appropriate. According to the new investment law, the investment dispute between the state and foreign investor can be resolved either through the courts or via arbitration, with the precondition of government agreement for resolution via the latter. Additionally, a dispute that arises between a foreign investor and the state may be settled based on the relevant bilateral investment treaty.

Due to an overloaded court system, dispute resolution can last for years. According to the 2020 World Bank’s Ease of Doing Business report, it takes on average 530 days to enforce contracts through the courts.

  • International Commercial Arbitration and Foreign Courts

Arbitration has become a widely used means of dispute settlement among the business community as the Ethiopian civil code recognizes Alternative Dispute Resolution (ADR) mechanisms as a means of dispute resolution. The Addis Ababa Chamber of Commerce has an Arbitration Center to assist with arbitration. Subsequent to Ethiopia’s ratification of the New York Convention, local courts now must automatically recognize and enforce foreign arbitral awards from a New York Convention member state country. There are no publicly available statistics that indicate a bias in the courts towards state-owned enterprises (SOEs) as pertains to investment/commercial disputes.

Bankruptcy Regulations

The Ethiopian Commercial Code (Book V) outlines bankruptcy provisions and proceedings and establishes a court system that has jurisdiction over bankruptcy proceedings. The primary purpose of the law is to protect creditors, equity shareholders, and other contractors. Bankruptcy is not criminalized. In practice, there is limited application of bankruptcy procedures due to lack of knowledge on the part of the private sector.

According to the 2020 World Bank Doing Business Report, Ethiopia stands at 149 in the ranking of 190 economies with respect to resolving insolvency. Ethiopia’s score on the strength of insolvency framework index is 5.0. (Note: The index ranges from zero to 16, with higher values indicating insolvency legislation that is better designed for rehabilitating viable firms and liquidating nonviable ones.)

4. Industrial Policies

Investment Incentives

Ethiopia is currently drafting updated investment regulations that are expected to outline detailed incentives for investors. According to the Investment Regulation 270/2012 and the 2014 amendment, however, new investors in manufacturing, agro-processing, and selected agricultural products are entitled to income tax exemptions ranging from two to five years, depending on the location of the investment. Any investor who produces for export or supplies to an exporter, or who exports at least 60 percent of his products or services, is entitled to an additional two years of income tax exemption.

An investor who establishes a new enterprise in less prosperous areas shall be entitled to an income tax deduction of 30 percent for three consecutive years after the expiry of the regular income tax exemption period. These areas include Gambella Region; Benishangul/Gumuz Region; Afar Region (except in areas within 15 kilometers from each bank of the Awash River); Somali Region; Guji and Borena Zones of Oromia; South Omo Zone, Segen Zone, Bench Maji Zone, Sheka Zone, Dawro Zone, Kaffa Zone, Basketo Woreda, and Konta Special Woreda, all of the Southern Nations, Nationalities and Peoples Region.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Industrial Park Proclamation 886/2015 mandates that the Ethiopian Industrial Parks Corporation develop and administer industrial parks under the auspices of government ownership. The law designates industrial parks as duty-free zones, and domestic as well as foreign operators in the parks are exempt from income tax for up to 10 years. Investors operating in parks are also exempt from duties and other taxes on the import of capital goods, construction materials, and raw materials for production of export commodities and vehicles.

An investor who operates in a designated Industrial Development Zone in or near Addis Ababa is entitled to two years of income tax exemptions, and four more years of income tax exemption if the investment is made in an industrial park in other areas, provided 80 percent or more of production is for export or constitutes input for an exporter.

Industrial Parks can be developed by either government or private developers. In practice, the majority have been developed by the Ethiopian government with Chinese financing. The government has announced plans to construct a total of 17 industrial parks in various locations around the country. As of April, operational industrial parks include Hawassa Industrial Park, Bole Lemi Indusrtial Park, Eastern Industrial Zone, George Shoe Ethiopia, Mekele Industrial Park, Kombolcha Industrial Park, Adama Industrial Park, and Debre Berhan Industrial Park. The government also has plans for four agro-industrial processing parks to be located at strategic sites across the country, though none have yet been completed.

Performance and Data Localization Requirements

Ethiopia does not formally impose performance requirements on foreign investors, though investors in Ethiopia routinely encounter business visa delays and onerous paperwork requirements. In addition, investors are required to allocate a minimum of 200,000 U.S. dollars per investment project, with the requirement being lowered to 100,000 U.S. dollars for architectural or engineering projects. For most joint investments with a domestic partner, the investment requirement is lowered to 150,000 U.S. dollars.

The minimum capital requirement is waived if the foreign investor reinvests profits or dividends generated from an existing enterprise in any investment area open for foreign investors; and if a foreign investor purchases a portion or the entirety of an existing enterprise owned by another foreign investor. There are no forced localization or data storage requirements for private investors. Local content in terms of hiring, products, and services is strongly encouraged but not required. The EIC, in collaboration with the Immigration, Nationality and Vital Events Agency, facilitates visas and work permits for investors and expatriate workers. The government typically issues three to five year multiple entry visas for foreign investors, senior management, and board members.

In the absence of qualified local personnel, an investor can employ foreigners in positions of higher management (chief executive officer, chief operation officer, and chief financial officer), supervisor, trainers, and other technical professionals. While the investor is in theory supposed to replace expatriates with Ethiopian employees within a limited period of time, in practice many qualified expatriates have worked in Ethiopia for years. Although not a legal requirement, in joint ventures with state-owned enterprises investors report informal requirements of up to 30 percent domestic content in goods and/or technology.

EthioTelecom is the sole telecommunications service provider in Ethiopia. The government in 2018 announced plans to liberalize the telecommunications sector and open the market to foreign service providers and foreign telecom infrastructure companies. Ethiopia approved a bill in August of 2019 which established a regulatory agency for communication services that will regulate the telecommunications sector and develop rules and guidelines for foreign investment. The communications regulator has also released three of 12 planned telecommunications directives, which provide detailed regulatory guidance for the liberalization. Proclamation No. 808/2013 mandates that the Information Network Security Agency (INSA) control the import and export of information technology, build an information technology testing and evaluation laboratory center, and regulate cryptographic products and their transactions.

5. Protection of Property Rights

Real Property

The constitution recognizes and protects ownership of private property, however all land in Ethiopia belongs to “the people” and is administered by the government. Private ownership does not exist, but land-use rights have been registered in most populated areas. As land is public property, it cannot be mortgaged. Confusion with respect to the registration of urban land-use rights, particularly in Addis Ababa, is common. Allegations of corruption in the allocation of urban land to private investors by government agencies are a major source of popular discontent. The government retains the right to expropriate land for the common good, which it defines as including expropriation for commercial farms, industrial zones, and infrastructure development. While the government claims to allocate only sparsely settled or empty land to investors, some people have been resettled. In particular, traditional grazing land has often been defined as empty and expropriated, leading to resentment, protests and, in some cases, conflict. In addition, leasehold regulations vary in form and practice by region. Successful investors in Ethiopia conduct thorough due diligence on land titles at both regional and federal levels, and conduct consultations with local communities regarding the proposed use of the land before investing.

We encourage potential investors to ensure their needs are communicated clearly to the host government. It is important for investors to understand who had land-use rights preceding them, and to research the attitude of local communities to an investor’s use of that land, particularly in the region of Oromia, where conflict between international investors and local communities has occurred.

The 2020 World Bank Doing Business Report has ranked Ethiopia 142 out of 190 economies in registering property, as it takes on average 52 days to register property.

Intellectual Property Rights

The Ethiopian Intellectual Property Office (EIPO) oversees intellectual property rights (IPR) issues. Ethiopia is has not completed its WTO accession and consequently is not party to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Ethiopia is not yet a signatory to a number of major IPR treaties, such as the Paris Convention for the Protection of Industrial Property, the World Intellectual Property Organization (WIPO) Copyright Treaty, the Berne Convention for Literary and Artistic Works, the Madrid System for the International Registration of Marks, or the Patent Cooperation Treaty. Ethiopia recently ratified the Marrakesh Treaty to facilitate access to published works for persons who are blind, visually impaired, or otherwise print disabled. The government has expressed its intention to accede to the Berne Convention, the Paris Convention, and the Madrid Protocol. EIPO is primarily tasked with protecting Ethiopian patents and copyrights and fighting software piracy. Historically, however, the EIPO has struggled with a lack of qualified staff and small budgets; further, the institution does not have law enforcement authority. Abuse of U.S. trademarks is rampant, particularly in the hospitality and retail sectors. The government does not publicly track counterfeit goods seizures, and no estimates are available. Ethiopia is not included in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.

EIPO contact and office information is available at http://www.eipo.gov.et/ 

For additional information about treaty obligations and points of contact at IP offices, please see WIPO’s country profiles  from this page: http://www.wipo.int/directory/en/details.jsp?country_code=ET 

http://www.wipo.int/directory/en/details.jsp?country_code=ET 

Embassy POC: Economic Officer, USEmbassyPolEconExternal@state.gov

6. Financial Sector

Capital Markets and Portfolio Investment

Ethiopia has a limited and undeveloped financial sector, and investment is largely closed off to foreign firms. Liquidity at many banks is limited, and commercial banks often require 100 percent collateral, making access to credit one of the greatest hindrances to growth in the country. Ethiopia has the largest economy in Africa without a securities market, and sales/purchases of debt are heavily regulated.

The IMF, as part of its Extended Credit Facility and Extended Fund Facility, in December of 2019 approved a three-year, 2.9 billion U.S. dollar program to support Ethiopia’s economic reform agenda. The program seeks to reduce public sector borrowing, rein in inflation, and reform the exchange rate regime. In preparation for the program, Ethiopia rescheduled much of its external debt with significant bilateral lenders.

The Ethiopian government has announced, as part of its overall economic reform effort, its intention to liberalize the financial sector. The government has already made good progress by allowing non-financial Ethiopian firms to participate in mobile money activities, introducing Treasury-bill auctions with market pricing, and reducing forced lending to the government on the part of the commercial banks. Still, the creation of a stock market and the fuller participation of foreign financial firms in the sector likely remain years away.

The NBE began offering, in December of 2019, a limited number of 28-day and 91-day Treasury bills at market-determined interest rates. The move was part of an effort to expand the NBE’s monetary policy tools and finance the government in a more sustainable way. Previously, the NBE had only sold Treasury bills at below-market interest rates, and the only buyers were public sector enterprises, primarily the Public Social Security Agency and the Development Bank of Ethiopia.

Ethiopia issued its first Eurobond in December of 2014, raising 1 billion U.S. dollars at a rate of 6.625 percent. The 10-year bond was oversubscribed, indicating continued market interest in high-growth sub-Saharan African markets. According to the Ministry of Finance, the bond proceeds are being used to finance industrial parks, the sugar industry, and power transmission infrastructure. Due to its increasing external debt load and the terms of its IMF program, the Ethiopian government has committed to refrain from non-concessional financing for new projects and to shift ongoing projects to concessional financing when possible.

The Ethiopian Commodity Exchange (ECX), launched in 2008, trades commodities such as coffee, sesame seeds, maize, wheat, mung beans, chickpeas, soybeans, and green beans. The government launched ECX to increase transparency in commodity pricing, alleviate food shortages, and encourage the commercialization of agriculture. Critics allege that ECX policies and pricing structures are inefficient compared to direct sales at prevailing market rates, triggering an amendment to the ECX law in July 2017 that eliminated a number of criticized regulations, and permitted the trading of financial instruments at a future date.

Money and Banking System

Ethiopia has 18 commercial banks, two of which are state-owned banks, and 16 of which are privately owned banks. The Development Bank of Ethiopia, a state-owned bank, provides loans to investors in priority sectors, notably agriculture and manufacturing. By regional standards, the 16 private commercial banks are not large (either by total assets or total lending), and their service offerings are not sophisticated. Mobile money and digital finance, for instance, remain limited in Ethiopia. Foreign banks are not permitted to provide financial services in Ethiopia, however, since April 2007, Ethiopia has allowed some foreign banks to open liaison offices in Addis Ababa to facilitate credit to companies from their countries of origins. Chinese, German, Kenyan, Turkish, and South African banks have opened liaison offices in Ethiopia, but the market remains completely closed to foreign retail banks. Foreigners of Ethiopian origin are now allowed to hold shares in financial institutions.

Based on recently made available data, the state-owned Commercial Bank of Ethiopia mobilizes more than 60 percent of total bank deposits, bank loans, and foreign exchange. The NBE controls the bank’s minimum deposit rate, which now stands at 7 percent, while loan interest rates are allowed to float. Real deposit interest rates have been negative in recent years, mainly due to inflation. The government of Ethiopia in November of 2019 rescinded the so-called “27 percent Rule,” which mandated forced, below inflation rate lending by the commercial banks to the NBE.

Foreign Exchange and Remittances

Foreign Exchange

All foreign currency transactions must be approved by the NBE. Ethiopia’s national currency (the Ethiopian birr) is not freely convertible. The GOE removed in September 2018 the limit on holding foreign currency accounts faced by non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin.

Foreign exchange reserves started to become depleted in 2012 and have remained at critically low levels since then. At present, gross reserves stand at about 4 billion U.S. dollars, covering approximately 2 months of imports. According to the IMF, heavy government infrastructure investment, along with debt servicing and a large trade imbalance, have all fueled the intense demand for foreign exchange. In addition, the decrease in foreign exchange reserves has been exacerbated by weaker-than-expected earnings from coffee exports and low international commodity prices for other important exports such as oil seeds. Businesses encounter delays of six months to two years in obtaining foreign exchange, and they must deposit the full equivalent in Ethiopian birr in their accounts to begin the process to obtain foreign exchange. Slowdowns in manufacturing due to foreign exchange shortages are common, and high-profile local businesses have closed their doors altogether due to the inability to import required goods in a timely fashion.

Due to the foreign exchange shortage, companies have experienced delays of up to two years in the repatriation of larger volumes of profits. Local sourcing of inputs and partnering with export-oriented partners are strategies employed by the private sector to address the foreign exchange shortage, but access to foreign exchange remains a problem that limits growth, interferes with maintenance and spare parts replacement, and inhibits imports of adequate raw materials.

The foreign exchange shortage distorts the economy in a number of other ways: it fuels the contraband trade through Somaliland because the Ethiopian birr is an unofficial currency there and can be used for the purchase of products from around the world. Exporters, who have priority access to foreign exchange, sell their allocations to importers at inflated rates, creating a black-market for dollars that is roughly 30 to 40 percent over the official rate. Other exporters use their foreign exchange earnings to import consumer goods with high margins, rather than re-investing profits in their core businesses. Meanwhile, the lack of access to foreign exchange impacts the ability of American citizens living in Ethiopia to pay their taxes, or for students to pay school fees abroad.

The Ethiopian birr has depreciated significantly against the U.S. dollar over the past ten years, primarily through a series of controlled steps, including a 20 percent devaluation in September 2010 and a 15 percent devaluation in October 2017. The NBE increased the devaluation rate of the Ethiopian birr starting in November of 2019, and it has continued to be devalued at a more rapid rate since that time, as per the terms of the IMF program. The official exchange rate was approximately 33.60 Ethiopian birr per dollar as of May 2020. The illegal parallel market exchange rate for the same time was approximately 42 Ethiopian birr per dollar.

Following the 15 percent devaluation of the Ethiopian birr, the NBE increased the minimum saving interest rate from four percent to seven percent, and limited the outstanding loan growth rate in commercial banks to 16.5 percent, which limits their loan provision for businesses other than those in the export and manufacturing sectors. Moreover, banks were instructed to transfer 30 percent of their foreign exchange earnings to the account of NBE so the regulator can use the foreign exchange to meet the strategic needs of the country, including payments to procure petroleum, wheat, and sugar, as well as to cover transportation costs of imported items.

Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding 200,000 Ethiopian birr (roughly equivalent to U.S. reporting requirements for currency transfers exceeding 10,000 U.S. dollars). Ethiopia citizens are not allowed to hold or open an account in foreign exchange. Ethiopian residents entering the country from abroad should declare their foreign currency in excess of 1,000 U.S. dollars and non-residents in excess of 3,000 U.S. dollars. Residents are not allowed to hold foreign currency for more than 30 days after acquisition. A maximum of 1000 Ethiopian birr in cash can be carried out of the country.

Remittance Policies

Ethiopia’s Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, to remit profits and dividends, principal and interest on foreign loans, and fees related to technology transfer. Foreign investors may remit proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of an enterprise, and funds required for debt servicing or other international payments. The right of expatriate employees to remit their salaries is granted by NBE foreign exchange regulations. In practice, however, foreign companies and individuals have experienced difficulties obtaining foreign currency to remit dividends, profits, or salaries.

Sovereign Wealth Funds

Ethiopia has no sovereign wealth funds.

7. State-Owned Enterprises

State-owned enterprises (SOEs) dominate major sectors of the economy. There is a state monopoly or state dominance in telecommunications, power, banking, insurance, air transport, shipping, railway, industrial parks, and petroleum importing. State-owned enterprises have considerable advantages over private firms, including priority access to credit and customs clearances. While there are no conclusive reports of credit preference for these entities, there are indications that they receive incentives, such as priority foreign exchange allocation, preferences in government tenders, and marketing assistance. Ethiopia does not publish financial data for most state-owned enterprises, but Ethiopian Airlines and the Commercial Bank of Ethiopia have transparent accounts.

Ethiopia is not a member to the Organisation for Economic Co-operation and Development (OECD) and does not adhere to the guidelines on corporate governance of SOEs. Corporate governance of SOEs is structured and monitored by a board of directors composed of senior government officials and politically-affiliated individuals, but there is a lack of transparency in the structure of SOEs.

Privatization Program

The government in July of 2018 announced its intention to privatize a minority share of Ethiopian Airlines, EthioTelecom, Ethiopian Shipping and Logistics Service Enterprise, and power generation projects, and to fully privatize sugar projects, railways, and industrial parks. The privatization program will be implemented through public tenders and will be open to local and foreign investors. The government has prioritized privatizations in the telecommunications and sugar sectors, and in those sectors has begun asset valuations of the enterprises, standardization of the financial reports, and establishment of modernized legal and regulatory frameworks. The GOE has also reached out to potential investors and has begun creating tender and bidding documents that will guide the privatizations. To broaden the role and participation of the private sector in the economy, and to implement the privatization program in an open and transparent manner, in December 2019, the Council of Ministers approved a new privatization law, which is awaiting approval by the parliament.

The government has sold more than 370 public enterprises since 1995, mainly small companies in the trade and service sectors, most of which were nationalized by the Derg military regime in the 1970s. Currently, twenty-two SOEs are under the Public Enterprise, Assets, and Administration Agency.

8. Responsible Business Conduct

Some larger international companies in Ethiopia have introduced corporate social responsibility (CSR) programs. Most Ethiopian companies, however, do not officially practice CSR, though individual entrepreneurs engage in charity, sometimes on a large scale. There are efforts to develop CSR programs by the Ministry of Industry in collaboration with the World Bank, U.S. Agency for International Development, and other institutions.

The government encourages CSR programs for both local and foreign direct investors but does not maintain specific guidelines for these programs, which are inconsistently applied and not controlled or monitored. In early 2015, the Ethiopian Chamber of Commerce & Sectorial Associations published a ‘Model Code of Ethics for Ethiopian Businesses’ that was endorsed by former Ethiopian President Mulatu Teshome as a model for the business community.

Ethiopia was admitted as a candidate-member to the Extractive Industry Transparency Initiative (EITI) in 2014. According to Ethiopia’s 2019 EITI work plan, to become a fully compliant member the country needs to revamp legal frameworks, improve revenue collection in the sector, and improve stakeholder oversight. Per the Commercial Code, extractive industries and other businesses are expected to conduct statuary audits of their financial statements at the end of each financial year, though the financial statements are not available to the public, only to financial institutions and share companies.

9. Corruption

The Federal Ethics and Anti-Corruption Commission (FEACC) is charged with preventing corruption and is accountable to the Office of the Prime Minister. The Commission provides ethics training and education to prevent corruption. The Federal Police Commission is responsible for investigating corruption crimes and the Federal Attorney General handles corruption prosecutions.

The Attorney General’s Office opened in February a new and consolidated Anti-Corruption Directorate to recover stolen assets and fight corruption. The Directorate is empowered to enter into mutual legal assistance treaties (MLAT’s) and otherwise coordinate with foreign nations to fight corruption.

The Federal Police is mandated with investigating corruption crimes committed by public officials as well as “Public Organizations.” The latter are defined as any organ in the private sector that administers money, property, or any other resources for public purposes. Examples of such organizations include share companies, real estate agencies, banks, insurance companies, cooperatives, labor unions, professional associations, and others.

Transparency International’s 2019 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 37 (the score indicates the perceived level of public sector corruption on a scale of zero to 100, with the former indicating highly corrupt and the latter indicating very clean). Its comparative rank in 2019 was 96 out of 180 countries, an improvement from its rank of 114 out of 180 countries in 2018. The American Chamber of Commerce in Ethiopia recently polled its members and asked what the leading business climate challenges were; transparency and governance ranked as the 4th leading business climate challenge, ahead of licensing and registration and public procurement.

Ethiopian and foreign businesses routinely encounter corruption in tax collection, customs clearance, and land administration. Many past procurement deals for major government contracts, especially in the power generation, telecommunications, and construction sectors were widely viewed as corrupt.

PM Abiy Ahmed has launched a corruption clean-up that has resulted in several hundred arrests. In connection with the embezzlement schemes involving hundreds of millions of U.S. dollars, particularly with government procurement irregularities, the government arrested and charged in September 2018 over 40 mid- and senior-level Metal Engineering Technology Corporation (METEC) officials. In addition, the PM transferred the management of large government projects from METEC (which is widely viewed by the public as corrupt) to other government organizations. Similarly, the government arrested 59 officials and business people suspected of corruption in April of 2019. The officials are primarily from the following government institutions: Public Procurement & Property Disposal Service, Food & Drug Administration Agency, Pharmaceuticals Fund & Supply Agency, and the Ethiopian Water Works Construction Enterprise. A former Communications Minister was charged with corruption and mismanagement of public companies in May; he was sentenced to six years in jail.

Ethiopia is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Ethiopia is a signatory to the African Union Convention on Preventing and Combating Corruption. Ethiopia is also member of the East African Association of Anti-Corruption Authorities. Ethiopia signed the UN Anticorruption Convention in 2003, which was eventually ratified in November 2007. It is a criminal offense to give or receive bribes, and bribes are not tax deductible.

Resources to Report Corruption

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

Federal Police Commission
Addis Ababa +251 11 861-9595
+251 11 861-9595

Contact at “watchdog” organization:

Transparency Ethiopia
Addis Ababa +251 11 827-9746
+251 11 827-9746
Email: TiratEthiopia@gmail.com

10. Political and Security Environment

Ethnic conflict — often sparked by historical grievances or resource competition, including land disputes — has resulted in varying levels of violence across Ethiopia. According to surveys and research conducted by the International Organization for Migration, the number of internally displaced persons has dropped from its peak last year of 3.2 million, but remains at 1.8 million people nationwide. 1.17 million of those are displaced due to conflict, with the remainder being displaced due to climactic reasons. Insecurity, often driven by ethnic tensions, persists in many areas, notably Gedeo, West Guji, and other areas of southern and western Oromia and eastern SNNP, and in the Hararges on the border of the Somali Region. In the four Wellega Zones in Western Oromia, the Oromo Liberation Army and other illegal armed groups continue to execute attacks on the public and local government officials, violence which occasionally spills over into other parts of Oromia. Regional security forces and the Ethiopian National Defense Forces (ENDF) have been engaged in combatting these groups. In Amhara Region, there have been incidents of violence along a main road between Gondar and Bahir Dar. In early April, the government deployed the ENDF to the area around Gondar in Amhara Region to control the activities of what the Gondar City Administration identified as an illegal armed group in the area. Disputed territory in the north between the Amhara and Tigray regions is a continuing flash point.

Under PM Abiy’s administration, political space in Ethiopia has opened dramatically. Constitutional rights, including freedoms of assembly and expression, are now widely supported at the level of the federal government, though the protection of these rights remains uneven at regional and local levels. Most political prisoners have been released, though there have been some concerning reports of short-term detentions. Opposition parties usually operate freely, although regional and local authorities have occasionally employed politically-motivated procedural roadblocks to hinder opposition parties’ efforts to hold meetings or other party activities. The media has become significantly more free following reforms instituted by PM Abiy Ahmed. Still, journalism in the country remains undeveloped, social media is often rife with unfounded rumors, and government officials occasionally react with heavy-handedness, especially to news they feel might spur social unrest. The Parliament is currently considering potential dates in 2021 for the national and regional parliamentary elections, originally scheduled for May of 2020, which were delayed due to technical challenges and the COVID-19 pandemic. The electoral and pre-electoral period may represent a potential catalyst for unrest.

PM Abiy has also initiated a process of modernization, de-politicization, professionalization, and civilian accountability in the security services. Still, there are certain geographic areas where the security situation remains fraught due to clashes between illegal armed groups and security forces. Though foreigners are rarely targeted, spillover ethnic violence has occasionally resulted in the death of foreigners.

The new administration has also increased regional autonomy. Successful American investors tell us that understanding the different business climates across the regions — there are different regional taxation regimes, unique ethnic conflicts, varying levels of reception towards profit-making companies, and contrasting approaches to policing and security issues — is key to successfully investing in Ethiopia.

The Ethiopian Parliament on April 10 approved a five-month long State of Emergency (SOE) focused on COVID-19 mitigation. Actions mandated under the SOE include discontinuation of meetings involving more than four people; closure of entertainment and sports centers; requirements that restaurants distance tables and seating; and limitations on the number of passengers in public transport vehicles.  Social distancing is required, facemasks are mandatory in public, and handshakes are prohibited.  Other restrictions included limitations on prison visits (except to deliver food) and land border closures, with the exception of cargo transportation.

11. Labor Policies and Practices

More than 80 percent of Ethiopians work in agriculture. The second-most important employer is the government. If the population continues to grow at the current rate of 2.5 percent, Ethiopia will have more than 138 million people by 2030, only 27 percent of whom will live in urban areas. Ethiopia’s youth, between the ages of 15 and 29, account for 30 percent of the population; 70 million Ethiopians are under the age of 30. The youth unemployment rate in urban settings is over 25 percent (CSA, 2018). The gender gap in employment is high; the unemployment rate among young women in urban areas is over 30 percent, compared with 19 percent for young men. Young women are three times more likely to be neither in employment, education, or training (NEET). According to International Labor Organization (ILO) statistics, Ethiopia’s youth NEET accounts for 10.5 percent of the youth population (5.7 percent for men, 15.1 percent for women).

Although labor remains readily available and inexpensive in Ethiopia, skilled manpower is scarce. Approximately 50 percent of Ethiopians over the age of 15 are illiterate, according to UNESCO’s definition. The primary school enrollment rate (age 7 to 14), on the other hand, has now reached 94 percent. To increase the skilled labor force, the GOE has undertaken a rapid expansion of the university system in the last 20 years, increasing the number of higher public education institutions from three to 49. It has adopted an education policy that requires 70 percent of public university students to study science, engineering, or technology subjects, but many students are not well prepared by secondary school to study in those fields.

Ethiopia has ratified all eight core International Labor Organization (ILO) conventions. The Ethiopian Criminal Code and the 2019 Labor Proclamation both outlaw work specified as hazardous by ILO conventions. There is no national minimum wage, and public sector employees – the largest group of wage earners – earned a monthly minimum wage of 420 Ethiopian birr (approximately 19 U.S. dollars).

Labor unions and confederations are separate entities from the government, and are subject to a great deal of regulation and direct pressure/involvement from the government. The Confederation of Ethiopian Trade Unions (CETU) comprises well over two hundred thousand members in enterprise-based unions in a variety of sectors, but there is no formal requirement for unions to join the CETU. Much of the labor force remains in small-scale agriculture/industry and thus is not covered by enterprise unions. The Ministry of Labor and Social Affairs’ Directorate of Harmonious Industrial Relations provides labor dispute resolution services, but the caseload and the directorate’s capacity are low.

Employers offering contracted employment are required to provide severance pay. The vast majority of employees that work in small-scale agriculture and in many micro and small enterprises, however, do so without a contract. Large labor surpluses and lax labor law enforcement allow employers to retain employees without contracts that ensure strong worker protections.

Although the government actively engages with the international community to combat child labor and human trafficking, which includes forced/coerced labor, both remain widespread in Ethiopia. The Ethiopian Parliament ratified ILO Convention 182 on the Worst Forms of Child Labor in May 2003. While not a pressing issue in the formal economy, child labor is common in the informal sector, including construction, agriculture, textiles, manufacturing, mining, and domestic work. Child labor is present in both urban and rural areas. According to the ILO International Program for the Elimination of Child Labor, more than 50 percent of Ethiopia’s child laborers work in the agriculture sector. Ethiopian traditional woven textiles are included on the U.S. government’s Executive Order 13126 list of goods that have been known to be produced by forced or indentured child labor. Both NGO and Ethiopian government sources concluded that goods produced (in the agricultural sector and traditional weaving industry in particular) via child labor are largely intended for domestic consumption, and not slated for export. Employers are prohibited from hiring children under the age of 15, and the minimum age is 18 for certain types of hazardous work. Ethiopia has a National Action Plan (NAP) for the Elimination of the Worst Forms of Child Labor, which it is currently updating. The Ministry of Labor and Social Affairs conducts tens of thousands of targeted inspections on occupational safety and standards, although they are not legally empowered to assess fines for infractions and they do not make this data publicly available. Due to the shortage of labor inspectors and other enforcement resources, and the fact that inspectors do not inspect informal work sites, most child labor goes unreported.

In April 2020, the Ethiopian Parliament approved and published in the federal gazette the new Anti-Human Trafficking and Smuggling Criminal Proclamation 909/2019. The new legislation breaks down silos between stakeholder agencies, provides clear guidelines regarding how anti-trafficking efforts are funded, and provides clear, commensurate penalties for those involved in trafficking.

The Overseas Labor Proclamation legalizes and regulates the employment of Ethiopians in foreign countries. The law does not disallow Ethiopians from migrating to other countries to seek work, but it imposes requirements that are lengthy and expensive, making irregular migration more attractive for many. The main driver for irregular migration is economic incentives. Although trafficking remains problematic, experts report that the GOE has increasingly shown the political will to address this issue.

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) 2018/19 $93.3 B 2018 $84.36B www.worldbank.org/en/country 
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) 2019 $676 2018 N/A http://www.investethiopia.gov.et/ 
Host country’s FDI in the United States (M USD, stock positions) N/A N/A N/A N/A http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_
data.htm
 
Total inbound stock of FDI as % host GDP 2018/19 11.3% 2018 26.4% www.worldbank.org/en/country 

*National Bank of Ethiopia and Ethiopian Investment Commission

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 $10,496 100% Total Outward*** N/A N/A
China $3,266 31% N/A N/A N/A
Saudi Arabia $1,443 14% N/A N/A N/A
Turkey $849 8% N/A N/A N/A
United States $676 7% N/A N/A N/A
India $589 6% N/A N/A N/A
“0” reflects amounts rounded to +/- USD 500,000.

Data regarding inward direct investment are not available for Ethiopia via IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS) , the above data is from the Ethiopian Investment Commission. *The yearly average exchange rate is used for each year from 1992-2018 to convert the amount of FDI from domestic currency into U.S. dollars.

*The yearly average exchange rate is used for each year from 1992-2018 to convert the amount of FDI from domestic currency into U.S. dollars. *** Total Outward investment data are not available.

*** Total Outward investment data are not available.

Table 4: Sources of Portfolio Investment
Data regarding the equity/debt breakdown of portfolio investment assets are not available for Ethiopia via the IMF’s Coordinated Portfolio Investment Survey (CPIS) and are not available for external publication from the Government of Ethiopia.

14. Contact for More Information

U.S. Embassy main number is +251 011 130 6000.

Economic Officer, USEmbassyPolEconExternal@state.gov

Kenya

Executive Summary

Kenya has a positive investment climate that has made it attractive to international firms seeking a location for regional or pan-African operations. The novel coronavirus pandemic has affected the short-term economic outlook, but the country remains resilient in addressing the health and economic challenges. In July 2020 the U.S. and Kenya launched negotiations for a Free Trade Agreement, the first in sub-Saharan Africa. In the World Bank’s 2020 Doing Business report Kenya improved 7 places, ranking 56 of 190 economies reviewed. In the last three years, it has moved up 54 places on this index. Year-on-year, Kenya continues to improve its regulatory framework and its attractiveness as a destination for foreign direct investment. Despite this progress in the ease of doing business rankings, U.S. businesses operating in Kenya still face aggressive tax collection attempts and significant bureaucratic processes and delays in issuing necessary business licenses. Corruption remains endemic and Transparency International’s (TI) 2019 Global Corruption Perception Index ranked Kenya 137 out of 198 countries, worsening by seven spots compared to 2018.

Kenya has strong telecommunications infrastructure, a robust financial sector, a developed logistics hub, and extensive aviation connections throughout Africa, Europe, and Asia. In 2018, Kenya Airways initiated direct flights to New York City in the United States. Mombasa Port is the gateway for most of the East African trade. Kenya’s membership in the East African Community (EAC), the Africa Continental Free Trade Area (AfCFTA), and other regional trade blocs provides growing access to larger regional markets.

In 2017 and 2018 Kenya instituted broad reforms to improve its business environment, including passage of the Tax Laws (amended) Bill (2018) and the Finance Act (2018), establishing new procedures and provisions relating to taxes, simplifying registration procedures for small businesses, reducing the cost of construction permits, easing the payment of taxes through the iTax platform, and establishing a single window system to speed movement of goods across borders. But the Finance Act 2019 introduced taxes to non-resident ship owners, and the Finance Act 2020 enacted a 1.5 percent Digital Service Tax (DST), which will be implemented in January 2021. The oscillation between business reforms and conflicting taxation policies has raised uncertainty over the Government of Kenya’s (GOK) long term plans for improving the investment climate.

Kenya’s macroeconomic fundamentals remain among the strongest in Africa, with five to six percent GDP growth over the past five years, six to eight percent inflation, improving infrastructure, and strong consumer demand from a growing middle class. However, GDP growth is projected to slow to 1.5-2.0 percent in 2020 due to COVID-19. The GOK has responded by loosening fiscal policies like corporate income tax and other measures to cushion companies and individuals. There is relative political stability due to the Building Bridges Initiative (BBI) and President Kenyatta has remained focused on his second term “Big Four” development agenda, seeking to provide universal healthcare coverage; establish national food security; build 500,000 affordable new homes; and increase employment by doubling the manufacturing sector’s share of the economy.

The World Bank’s annual Kenya Economic Update, released in April 2020, cites some short term economic risks to Kenya’s continued growth such as the locust invasion, COVID-19 pandemic, and flooding, but also noted positive developments including measures taken by the GOK and the Central Bank of Kenya to reduce the impacts of these risks. American companies continue to show strong interest to establish or expand their business presence and engagement in Kenya, especially following President Kenyatta’s August 2018 and February 2020 meetings with President Trump in Washington, D.C. Sectors offering the most opportunities for investors include: agro-processing, financial services, energy, extractives, transportation, infrastructure, retail, restaurants, technology, health care, and mobile banking.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 137 of 198 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 56 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 77 of 126 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 $353 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $1,750 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Kenya has enjoyed a steadily improving environment for foreign direct investment (FDI). Foreign investors seeking to establish a presence in Kenya generally receive the same treatment as local investors, and multinational companies make up a large percentage of Kenya’s industrial sector. The government’s export promotion programs do not distinguish between goods produced by local or foreign-owned firms. The major regulations governing FDI are found in the Investment Promotion Act (2004). Other important documents that provide the legal framework for FDI include the 2010 Constitution of Kenya, the Companies Ordinance, the Private Public Partnership Act (2013), the Foreign Investment Protection Act (1990), and the Companies Act (2015). GOK membership in the World Bank’s Multilateral Investment Guarantee Agency (MIGA) provides an opportunity to insure FDI against non-commercial risk. In November 2019, KenInvest launched the Kenya Investment Policy (KIP) and the County Investment Handbook (CIH) (http://www.invest.go.ke/publications/) which aim to increase foreign direct investment in the country. The investment policy intends to guide laws being drafted to promote and facilitate investments in Kenya.

The Central Bank has successfully maintained macroeconomic stability with relatively low inflation and stable exchange rates. The National Treasury is increasingly focused on efforts to ensure prudent debt management. Kenya puts significant effort into assuring the health and growth of its tourism industry. To strengthen Kenya’s manufacturing capacity, the government offers incentives to produce goods for export.

Investment Promotion Agency

Kenya Investment Authority (KenInvest), the country’s official investment promotion agency, is viewed favorably by international investors (http://www.invest.go.ke/). KenInvest’s mandate is to promote and facilitate investment by assisting investors in obtaining the licenses necessary to invest and by providing other assistance and incentives to facilitate smoother operations. To help investors navigate local regulations, KenInvest has developed an online database known as eRegulations, designed to provide investors and entrepreneurs with full transparency on Kenya’s investment-related regulations and procedures (https://eregulations.invest.go.ke/?l=en ).

KenInvest is part of the National Business and Economic Response of the GOK and has been instrumental in assessing and relaying information about the private sector effects of Covid-19 to inform policy measures during the pandemic. The agency is also tracking post-Covid-19 investment sectors.

The GOK prioritizes investment retention and maintains an ongoing dialogue with investors. All proposed legislation must pass through a period of public consultation in which investors have an opportunity to offer feedback. Private sector representatives can serve as board members on Kenya’s state-owned enterprises. Since 2013, the Kenya Private Sector Alliance (KEPSA), the apex private sector business association, has had bi-annual round table meetings with President Kenyatta and his cabinet. Investors’ concerns are considered by a Cabinet committee on the ease of doing business, chaired by President Kenyatta. The American Chamber of Commerce has also taken an increasingly active role in engaging the GOK on Kenya’s business environment, often providing a forum for dialogue.

Limits on Foreign Control and Right to Private Ownership and Establishment

The government provides the right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. In an effort to encourage foreign investment, the GOK in 2015 repealed regulations that imposed a 75 percent foreign ownership limitation for firms listed on the Nairobi Securities Exchange, allowing such firms to be 100 percent foreign-owned. Also in 2015, the government established regulations requiring Kenyans own at least 15 percent of the share capital of derivatives exchanges, through which derivatives such as options and futures can be traded.

Kenya considered imposing “local content” requirements on foreign investments under the Companies Act (2015), which initially contained language requiring all foreign companies to demonstrate at least 30 percent of shareholding by Kenyan citizens by birth. United States business associations, however, raised concerns over the bill, pointing to its lack of clarity and the possibility such measures could run afoul of Kenya’s commitments under the WTO. After the U.S. government also raised the issue with the Kenyan government, the clause was repealed.

Kenya’s National Information and Communications Technology (ICT) policy guidelines, published in August 2020, increase the requirement for Kenyan ownership in foreign companies providing ICT services from 20% to 30%, and broadens its applicability within the telecommunications, postal, courier, and broadcasting industries. The foreign entities will have 3 years to comply with the increased local equity participation rule. The Mining Act (2016) restricts foreign participation in the mining sector and reserves the acquisition of mineral rights to Kenyan companies, requiring 60 percent Kenyan ownership of mineral dealerships and artisanal mining companies. The Private Security Regulations Act (2016) restricts foreign participation in the private security sector by requiring that at least 25 percent of shares in private security firms be held by Kenyans. The National Construction Authority Act (2011) imposes local content restrictions on “foreign contractors,” defined as companies incorporated outside Kenya or with more than 50 percent ownership by non-Kenyan citizens. The act requires foreign contractors to enter into subcontracts or joint ventures assuring that at least 30 percent of the contract work is done by local firms. Regulations implementing these requirements remain in process. The Kenya Insurance Act (2010) restricts foreign capital investment to two-thirds, with no single person controlling more than 25 percent of an insurers’ capital.

Other Investment Policy Reviews

In 2019, the World Trade Organization conducted a trade policy review for the East Africa Community (EAC), of which Kenya is a member (https://www.wto.org/english/tratop_e/tpr_e/tp484_e.htm).

Business Facilitation

In 2011, the GOK established a state agency called KenTrade to address trading partners’ concerns regarding the complexity of trading regulations and procedures. KenTrade is mandated to facilitate cross-border trade and to implement the National Electronic Single Window System. In 2017, KenTrade launched InfoTrade Kenya, located at infotrade.gov.ke, which provides a host of investment products and services to prospective investors in Kenya. The site documents the process of exporting and importing by product, by steps, by paperwork, and by individuals, including contact information for officials’ responsible relevant permits or approvals.

In February 2019, Kenya implemented a new Integrated Customs Management System (iCMS) which includes automated valuation benchmarking, automated release of green-channel cargo, importer validation and declaration, and linkage with iTax. The iCMS features enable Customs to efficiently manage revenue and security related risks for imports, exports and goods on transit and transshipment.

The Movable Property Security Rights Bill (2017) enhanced the ability of individuals to secure financing through movable assets, including using intellectual property rights as collateral. The Nairobi International Financial Centre Act (2017) seeks to provide a legal framework to facilitate and support the development of an efficient and competitive financial services sector in Kenya. The act created the Nairobi Financial Centre Authority to establish and maintain an efficient operating framework to attract and retain firms. The Kenya Trade Remedies Act (2017) provides the legal and institutional framework for Kenya’s application of trade remedies consistent with World Trade Organization (WTO) law, which requires a domestic institution to both receive complaints and undertake investigations in line with the WTO Agreements. To date, however, Kenya has implemented only 7.5 percent of its commitments under the WTO Trade Facilitation Agreement, which it ratified in 2015. In 2020, Kenya launched the Kenya Trade Remedies Agency for the investigation and imposition of anti-dumping, countervailing duty, and trade safeguards, to protect domestic industries from unfair trade practices.

The Companies Amendment Act (2017) amended the prior Companies Act clarifying ambiguities in the act and conforms to global trends and best practices. The act amends provisions on the extent of directors’ liabilities, on the extent of directors’ disclosures, and on shareholder remedies to better protect investors, including minority investors. The amended act eliminates the requirement for small enterprises to have lawyers register their firms, the requirement for company secretaries for small businesses, and the need for small businesses to hold annual general meetings, saving regulatory compliance and operational costs.

The Business Registration Services (BRS) Act (2015) established a state corporation known as the Business Registration Service to ensure effective administration of the laws relating to the incorporation, registration, operation and management of companies, partnerships, and firms. The BRS also devolves to the counties business registration services such as registration of business names and promoting local business ideas/legal entities, thus reducing costs of registration. The Companies Act (2015) covers the registration and management of both public and private corporations.

In 2014, the GOK established a Business Environment Delivery Unit to address challenges facing investors in the country. The unit focuses on reducing the bureaucratic steps related to setting up and doing business in the country. Separately, the Business Regulatory Reform Unit operates a website (http://www.businesslicense.or.ke/ ) offering online business registration and providing information on how to access detailed information on additional relevant business licenses and permits, including requirements, costs, application forms, and contact details for the relevant regulatory agency. In 2013, the GOK initiated the Access to Government Procurement Opportunities program, requiring all public procurement entities to set aside a minimum of 30 percent of their annual procurement spending facilitate the participation of youth, women, and persons with disabilities (https://agpo.go.ke/ ).

An investment guide to Kenya, also referred to as iGuide Kenya, can be found at http://www.theiguides.org/public-docs/guides/kenya/about# . iGuides designed by UNCTAD and the International Chamber of Commerce provide investors with up-to-date information on business costs, licensing requirements, opportunities, and conditions in developing countries. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Outward Investment

The GOK does not promote or incentivize outward investment. Despite this, Kenya is evolving into an outward investor in tourism, manufacturing, retail, finance, education, and media. Outward investment has been focused in the East Africa Community and select central African countries, taking advantage of the EAC preferential access between the EAC member countries. The EAC advocates for free movement of capital across the six member states – Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda.

3. Legal Regime

Transparency of the Regulatory System

Kenya’s regulatory system is relatively transparent and continues to improve. Proposed laws and regulations pertaining to business and investment are published in draft form for public input and stakeholder deliberation before their passage into law (http://www.kenyalaw.org/  and http://www.parliament.go.ke/the-national-assembly/house-business/bills-tracker ). Kenya’s business registration and licensing systems are fully digitized and transparent while computerization of other government processes to increase transparency and close avenues for corrupt behavior is ongoing.

The 2010 Kenyan Constitution requires government to incorporate public participation before officials and agencies make certain decisions. The draft Public Participation Bill (2016) would provide the general framework for such public participation. The Ministry of Devolution has produced a guide for counties on how to carry out public participation; many counties have enacted their own laws on public participation. The Environmental Management and Coordination Act (1999) incorporates the principles of sustainable development, including public participation in environmental management. The Public Finance Management Act mandates public participation in the budget cycle. The Land Act, Water Act, and Fair Administrative Action Act (2015) also include provisions providing for public participation in agency actions.

Kenya has regulations to promote inclusion and fair competition when applying for tenders. Executive Order No. 2 of 2018 emphasizes publication of all procurement information including tender notices, contracts awarded, name of suppliers and their directors. The information is published on the Public Procurement Information Portal enhances transparency and accountability (https://www.tenders.go.ke/website). However, the directive is yet to be fully implemented.

Many GOK laws grant significant discretionary and approval powers to government agency administrators, which can create uncertainty among investors. While some government agencies have amended laws or published clear guidelines for decision-making criteria, others have lagged in making their transactions transparent. Work permit processing remains a problem, with overlapping and sometimes contradictory regulations. American companies have complained about delays and non-issuance of permits that appear compliant with known regulations.

International Regulatory Considerations

Kenya is a member state of the East African Community (EAC), and generally applies EAC policies to trade and investment. Kenya operates under the EAC Custom Union Act (2004) and decisions on the tariffs to levy on imports from countries outside the EAC zone are made at the EAC Secretariat level. The U.S. government engages with Kenya on trade and investment issues bilaterally and through the U.S.-EAC Trade and Investment Partnership. Kenya also is a member of COMESA and the Inter-Governmental Authority on Development (IGAD).

According to the Africa Regional Integration Index Report 2019, Kenya is the second best integrated country in Africa and a leader in regional integration policies within the EAC and COMESA regional blocs, with strong performance on regional infrastructure, productive integration, free movement of people, and financial and macro-economic integration. The GOK maintains a Department of East African Community Integration within the Ministry of East Africa and Regional Development. Kenya generally adheres to international regulatory standards. The country is a member of the WTO and provides notification of draft technical regulations to the Committee on Technical Barriers to Trade (TBT). Kenya maintains a TBT National Enquiry Point at http://notifyke.kebs.org . Additional information on Kenya’s WTO participation can be found at https://www.wto.org/english/thewto_e/countries_e/kenya_e.htm .

Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Publicly listed companies adhere to International Financial Reporting Standards (IFRS) that have been developed and issued in the public interest by the International Accounting Standards Board. The board is an independent, private sector, not-for-profit organization that is the standard-setting body of the IFRS Foundation. Kenya is a member of UNCTAD’s international network of transparent investment procedures.

Legal System and Judicial Independence

The legal system is based on English Common Law, and the 2010 constitution establishes an independent judiciary with a Supreme Court, Court of Appeal, Constitutional Court, and High Court. Subordinate courts include: Magistrates, Khadis (Muslim succession and inheritance), Courts Martial, the Employment and Labor Relations Court (formerly the Industrial Court), and the Milimani Commercial Courts – the latter two of which both have jurisdiction over economic and commercial matters. In 2016, Kenya’s judiciary instituted specialized courts focused on corruption and economic crimes. There is no systematic executive or other interference in the court system that affects foreign investors, however, the courts face allegations of corruption, as well as political manipulation in the form of unjustified budget cuts which significantly impact the ability of the judiciary to deliver on its mandate and delayed confirmation of nominated Judges by the President resulting in an understaffed judiciary and long delays in rendering judgments.

Laws and Regulations on Foreign Direct Investment

The Foreign Judgments (Reciprocal Enforcement) Act (2012) provides for the enforcement of judgments given in other countries that accord reciprocal treatment to judgments given in Kenya. Kenya has entered into reciprocal enforcement agreements with Australia, the United Kingdom, Malawi, Tanzania, Uganda, Zambia, and Seychelles. Outside of such an agreement, a foreign judgment is not enforceable in the Kenyan courts except by filing a suit on the judgment. Foreign advocates may practice as an advocate in Kenya for the purposes of a specified suit or matter if appointed to do so by the Attorney General. However, foreign advocates are not entitled to practice in Kenya unless they have paid to the Registrar of the High Court of Kenya the prescribed admission fee. Additionally, they are not entitled to practice unless a Kenyan advocate instructs and accompanies them to court. The regulations or enforcement actions are appealable and are adjudicated in the national court system.

Competition and Anti-Trust Laws

Kenya does not have a competition or Anti-Trust policy, however the Competition Act (2010) created the Competition Authority of Kenya (CAK) which covers restrictive trade practices, mergers and takeovers, unwarranted concentrations, and price control. All mergers and acquisitions require the CAK’s authorization before they are finalized, and the CAK regulates abuse of dominant position and other competition and consumer-welfare related issues in Kenya. In 2014, CAK imposed a filing fee for mergers and acquisitions set at one million Kenyan shillings (KSH) (approximately USD 10,000) for mergers involving turnover of between one and KSH 50 billion (up to approximately USD 500 million). KSH two million (approximately USD 20,000) will be charged for larger mergers. Company takeovers are possible if the share buy-out is more than 90 percent, although such takeovers are rarely seen in practice.

Expropriation and Compensation

The 2010 constitution guarantees protection from expropriation, except in cases of eminent domain or security concerns, and all cases are subject to the payment of prompt and fair compensation. The Land Acquisition Act (2010) governs due process and compensation in land acquisition, although land rights remain contentious and can cause significant project delays. However, there are cases where government measures could be deemed indirect expropriation that may impact foreign investment. Companies report an emerging trend in land lease renewal where foreign investors face uncertainty in lease renewals by county governments in instances where the county wants to confiscate some or all of the foreign investor’s project property.

Dispute Settlement

ICSID Convention and New York Convention

Kenya is a member of the International Centre for Settlement of Investment Disputes, also known as the ICSID Convention or the Washington Convention, and the 1958 New York Convention on the Enforcement of Foreign Arbitral Awards. International companies may opt to seek international well-established dispute resolution at the ICSID. Regarding the arbitration of property issues, the Foreign Investments Protection Act (2014) cites Article 75 of the Kenyan Constitution, which provides that “[e]very person having an interest or right in or over property which is compulsorily taken possession of or whose interest in or right over any property is compulsorily acquired shall have a right of direct access to the High Court.” Kenya in 2020 prevailed in an ICSID international arbitration case against WalAm Energy Inc, a U.S./Canadian geothermal company in a geothermal exploration license revocation dispute.

Investor-State Dispute Settlement

There have been very few investment disputes involving U.S. and international companies. Commercial disputes, including those involving government tenders, are more common. There are different bodies established to settle investment disputes. The National Land Commission (NLC) settles land related disputes; the Public Procurement Administrative Review Board settles procurement and tender related disputes, and the Tax Appeals Tribunal settles tax disputes. However, the private sector cites weak institutional capacity, inadequate transparency, and inordinate delays in dispute resolution in lower courts. The resources and time involved in settling a dispute through the Kenyan courts often render them ineffective as a form of dispute resolution.

International Commercial Arbitration and Foreign Courts

The government does accept binding international arbitration of investment disputes with foreign investors. The Kenyan Arbitration Act (1995) as amended in 2010 is anchored entirely on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Legislation introduced in 2013 established the Nairobi Centre for International Arbitration (NCIA), which seeks to serve as an independent, not-for-profit international organization for commercial arbitration, and may offer a quicker alternative to the court system. In 2014, the Kenya Revenue Authority launched an Alternative Dispute Resolution (ADR) mechanism aiming to provide taxpayers with an alternative, fast-track avenue for resolving tax disputes.

Transcription of Court Proceedings in the Commercial and Tax Division

The Kenyan Judiciary reported in its 2018-2019 State of the Judiciary and Administration Report that it had commenced its court recording and transcription project with the installation of recording equipment in six courtrooms in the Commercial and Tax Division in Nairobi. The project will significantly speed up the hearing of cases as judges will no longer be required to record proceedings by hand.

Court Annexed Mediation and Small Claims Courts

The National Council on the Administration of Justice spearheaded legislative reforms to accommodate mediation in the formal court process as well as introduce small claims courts to expedite resolution of commercial cases. The Judiciary reported in its State of the Judiciary Address (2018-2019), that the Mediation Accreditation Committee accredited 645 mediators that were handling a total of 411 commercial matters during the reporting period. Additionally, the Judiciary reported that disputes with a total value of over three billion Kenyan shillings (KSH) (approximately USD 30,000,000) had been resolved through Court Annexed Mediation during the reporting period. Court Annexed Mediation serves as an effective case resolution mechanism that will significantly reduce pressure on the justice system and eventually result in expeditious determination of commercial cases.

Bankruptcy Regulations

The Insolvency Act (2015) modernized the legal framework for bankruptcies. Its provisions generally correspond to those of the United Nations’ Model Law on Cross Border Insolvency. The act promotes fair and efficient administration of cross-border insolvencies to protect the interests of all creditors and other interested persons, including the debtor. The act repeals the Bankruptcy Act (2012) and updates the legal structure relating to insolvency of natural persons and incorporated and unincorporated bodies. Section 720 of the Insolvency Act (2015) grants the force of law to the UNCITRAL Model Law.

Creditors’ rights are comparable to those in other common law countries, and monetary judgments typically are made in Kenyan shillings. The Insolvency Act (2015) increased the rights of borrowers and prioritizes the revival of distressed firms. The law states that a debtor will automatically be discharged from debt after three years. Bankruptcy is not criminalized in Kenya. Kenya moved up 6 ranks in the World Bank Group’s Doing Business 2020 report, moving to 50 of 190 countries in the “resolving insolvency” category.

4. Industrial Policies

Investment Incentives

Kenya provides both fiscal and non-fiscal incentives to foreign investors (http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives/ ). The minimum foreign investment to qualify for GOK investment incentives is USD 100,000, a potential deterrent to foreign small and medium enterprise investment, especially in the services sector. Investment Certificate benefits, including entry permits for expatriates, are outlined in the Investment Promotion Act (2004).

The government allows all locally-financed materials and equipment for use in construction or refurbishment of tourist hotels to be zero-rated for purposes of VAT calculation – excluding motor vehicles and goods for regular repair and maintenance. The National Treasury principal secretary, however, must approve such purchases. In a measure to boost the tourism industry, one-week employee vacations paid by employers are a tax-deductible expense. The 2015 amendments to Kenya’s VAT rules clarified some items that are VAT exempt. In 2018, the Kenya Revenue Authority (KRA) exempted from VAT certain facilities and machinery used in the manufacturing of goods under Section 84 of the East African Community Common External Tariff Handbook. VAT refund claims must be submitted within 12 months of purchase.

The government’s Manufacturing Under Bond (MUB) program encourages manufacturing for export. The program provides a 100 percent tax deduction on plant machinery and equipment and raw materials imported for production of goods for export. The program is also open to Kenyan companies producing goods that can be imported duty-free or goods for supply to the armed forces or to an approved aid-funded project. Investors in metal manufacturing and products and the hospitality services sectors are able to deduct from their taxes a large portion of the cost of buildings and capital machinery.

The Finance Act (2014) amended the Income Tax Act (1974) to reintroduce capital gains tax on transfer of property located in Kenya. Under this provision, gains derived on the sale or transfer of property by an individual or company are subject to tax at rates of at least five percent. Sales and transfer of property related to the oil and gas industry are taxed up to 37.5 percent. The Finance Act (2014) also reintroduced the withholding VAT system by government ministries, departments, and agencies. The system excludes the Railway Development Levy (RDL) imports for persons, goods, and projects; the implementation of an official aid-funded project; diplomatic missions and institutions or organizations gazetted under the Privileges and Immunities Act (2014); and the United Nations or its agencies.

Foreign Trade Zones/Free Ports/Trade Facilitation

Kenya’s Export Processing Zones (EPZ) and Special Economic Zones (SEZ) offer special incentives for firms operating within their boundaries. By the end of 2019, Kenya had 74 designated EPZs, with 137 companies and 60,383 workers contributing KSH 77.1 billion (about USD 713 million) to the Kenyan economy. Companies operating within an EPZ benefit from the following tax benefits: a 10-year corporate-tax holiday and a 25 percent tax thereafter; a 10-year withholding tax holiday; stamp duty exemption; 100 percent tax deduction on initial investment applied over 20 years; and VAT exemption on industrial inputs.

About 54 percent of EPZ products are exported to the United States under AGOA. The majority of the exports are textiles – Kenya’s third largest export behind tea and horticulture – and more recently handicrafts. Eighty percent of Kenya’s textiles and apparel originate from EPZ-based firms. Approximately 50 percent of all firms in the zones are fully-owned by foreigners – mainly from India – while the rest are locally owned or joint ventures with foreigners.

While EPZs are focused on encouraging production for export, SEZs are designed to boost local economies by offering benefits for goods that are consumed both internally and externally. SEZs will allow for a wider range of commercial ventures, including primary activities such as farming, fishing, and forestry. The 2016 Special Economic Zones Regulations state that the Special Economic Zone Authority (SEZA) must maintain an open investment environment to facilitate and encourage business by the establishment of simple, flexible, and transparent procedures for investor registration. In 2019 Kenya developed the revised draft SEZ regulations with simplified and improved incentives structure. The 2019 draft regulations include customs duty exemptions to goods and services in the SEZ and no trade related restrictions including quantitative ones in import of goods and services into the SEZ. The rules also empower county governments to set aside public land for establishment of industrial zones.

Companies operating in the SEZs will receive the following benefits: all SEZ supplies of goods and services to companies and developers will be exempted from VAT; the corporate tax rate for enterprises, developers, and operators will be reduced from 30 percent to 10 percent for the first 10 years and 15 percent for the next 10 years; exemption from taxes and duties payable under the Customs and Excise Act (2014), the Income Tax Act (1974), the EAC Customs Management Act (2004), and stamp duty; and exemption from county-level advertisement and license fees. There are currently SEZs in Mombasa (2,000 sq. km), Lamu (700 sq. km), and Kisumu (700 sq. km), Naivasha, Machakos (100 acres) and private developments designated as SEZ include Tatu City in Kiambu. The Third Medium Term Plan of Kenya’s Vision 2030 economic development agenda calls for a study for an SEZ at Dongo Kundu, and an SEZ was also under consideration at a location near the Olkaria geothermal power plant.

Performance and Data Localization Requirements

The GOK mandates local employment in the category of unskilled labor. The Kenyan government regularly issues permits for key senior managers and personnel with special skills not available locally. For other skilled labor, any enterprise whether local or foreign may recruit from outside if the skills are not available in Kenya. Firms seeking to hire expatriates must demonstrate that the requisite skills are not available locally through an exhaustive search. The Ministry of EAC and Regional Development, however, has noted plans to replace this requirement with an official inventory of skills that are not available in Kenya. A work permit can cost up to KSH 400,000 (approximately USD 4,000).

The Public Procurement and Asset Disposal Act (2015) offers preferences to firms owned by Kenyan citizens and to products manufactured or mined in Kenya in a GOK strategy called “Buy Kenya Build Kenya” which mandates 40 percent of GOK procurement be locally produced goods and services. Tenders funded entirely by the government with a value of less than KSH 50 million (approximately USD 500,000), are reserved for Kenyan firms and goods. If the procuring entity seeks to contract with non-Kenyan firms or procure foreign goods, the act requires a report detailing evidence of an inability to procure locally. The act also calls for at least 30 percent of government procurement contracts to go to firms owned by women, youth, and persons with disabilities. The act further reserves 20 percent of county procurement tenders to residents of that county.

The Finance Act (2017) amends the Public Procurement and Asset Disposal Act (2015) to introduce Specially Permitted Procurement as an alternative method of acquiring public goods and services. The new method permits state agencies to bypass existing public procurement laws under certain circumstances. Procuring entities will be allowed to use this method where market conditions or behavior do not allow effective application of the 10 methods outlined in the Public Procurement and Disposal Act. The act gives the National Treasury Cabinet Secretary the authority to prescribe the procedure for carrying out specially permitted procurement.

Kenya passed the Data Protection Act (2019) which imposes restrictions on the transfer of data in and out of Kenya without consent of the Data Protection Commissioner and the subject, functionally requiring data localization. The Act is similar to the European General Data Protection Regulation requirements on data processing.

5. Protection of Property Rights

Real Property

The 2010 Constitution prohibits foreigners or foreign owned firms from owning freehold interest in land in Kenya. However, unless classified as agricultural, there are no restrictions on foreign-owned companies leasing land or real estate. The cumbersome and opaque process to acquire land raises concerns about security of title, particularly given past abuses relating to the distribution and redistribution of public land. The Land (Extension and Renewal of Leases) Rules (2017) stopped the automatic renewal of leases and tied renewals to the economic output of the land that must be beneficial to the economy. If property legally purchased remains unoccupied, the property ownership can revert to other occupiers, including squatters. Privately-owned land comprised six percent of the total land area in 1990; government land was about 20 percent of the total and included national parks, forest land and alienated and un-alienated land. Trust land is the most extensive type of tenure, comprising 64 percent of the total land area in 1990.

The 2010 Constitution and subsequent land legislation created the National Land Commission, an independent government body mandated to review historical land injustices and provide oversight of government land policy and management. This had the unintended side effect of introducing coordination and jurisdictional confusion between the commission and the Ministry of Lands mainly fueled by land interests by the political class. In 2015, President Kenyatta commissioned the new National Titling Center with a promise to increase the 5.6 million title deeds issued since independence to 9 million. From 2013 to 2018, an additional 4.5 million title deeds have been issued, however 70 percent of land in Kenya remained untitled. Land grabbing resulting from double registration of titles remains prevalent. Property legally purchased but unoccupied can revert ownership to other parties.

Mortgages and liens exist in Kenya, but the recording system is not reliable – Kenya has only some 24,000 recorded mortgages in a country of 47.6 million people – and there are often complaints of property rights and interests not being enforced. The legal infrastructure around land ownership and registration has changed in recent years, and land issues have delayed several major infrastructure projects. Kenya’s 2010 Constitution required all land leases to convert from 999 years to 99 years, giving the state the power to review leasehold land at the expiry of the 99 years, deny lease renewal, and confiscate the land if it determines the land has not been used productively. The constitution also converted foreign-owned freehold interests into 99-year leases at a nominal “peppercorn rate” sufficient to satisfy the requirements for the creation of a legal contract. The GOK has not yet effectively implemented this provision. In July 2020, the Ministry of Lands and Physical planning released draft electronic land registration regulations (2020) to guide the e-transaction of land. The Ministry together with the National Land Commission agreed to commence the e-transaction on land matters pending resolution of outstanding issues.

Intellectual Property Rights

The major intellectual property enforcement issues in Kenya related to counterfeit products are corruption, lack of penalty enforcement, failure to impound imports of counterfeit goods at the ports of entry, and reluctance of brand owners to file a complaint with the Anti-Counterfeit Agency (ACA). The prevalence of “gray market” products – genuine products that enter the country illegally without paying import duties – also presents a challenge, especially in the mobile phone and computer sectors. Copyright piracy and the use of unlicensed software are also emerging challenges.

The Presidential Task Force on Parastatal Reforms (2013) proposed that the three intellectual property agencies, namely: the Kenya Industrial Property Institute (KIPI), the Kenya Copyright Board (KECOBO) and the Anti-Counterfeit Authority (ACA) be merged into one Government Owned Entity (GOE). A task force on the merger comprising staff from KIPI, ACA, KECOBO, the Ministry of Industrialization, Trade and Enterprise Development is drafting the instruments of the merger which has led to a draft GOE named Intellectual Property Office of Kenya (IPOK) and has also drafted Intellectual Property Office Bill, 2020 for establishing IPOK. In an attempt to combat the import of counterfeits, the Ministry of Industrialization and the Kenya Bureau of Standards (KEBS) decreed in 2009 that all locally-manufactured goods must have a KEBS standardization mark. Several categories of imported goods, specifically food products, electronics, and medicines, must have an import standardization mark (ISM). Under this program, U.S. consumer-ready products may enter the Kenyan market without altering the U.S. label but must also carry an ISM. Once the product qualifies for a Confirmation of Conformity, KEBS will issue the ISM free of charge. From time to time KEBS and the Anti-Counterfeit Agency conduct random seizures of counterfeit imports but there is no clear database of seizures kept.

Kenya is not included on the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List.

For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

Kenya developed the draft Financial Markets Conduct bill (2018) to consolidate and harmonize the financial sector in the country. Among the proposals in the draft bill is the establishment of the financial markets conduct authority to be the sole body to regulate providers of financial products and services to retail financial customers and to curb irresponsible financial market practices, a move that will create a conflict with the current financial markets regulators. Though relatively small by Western standards, Kenya’s capital markets are the deepest and most sophisticated in East Africa. The Nairobi Securities Exchange (NSE) is the best ranked exchange in sub-Saharan Africa in terms of performance in the last decade. NSE operates under the jurisdiction of the Capital Markets Authority of Kenya. It is a full member of the World Federation of Exchange, a founder member of the African Securities Exchanges Association (ASEA) and the East African Securities Exchanges Association (EASEA). The NSE is a member of the Association of Futures Market and is a partner exchange in the United Nations-led SSE initiative. Foreign investor participation has always been high and a key determinant of the market performance in the NSE. The NSE in July 2019 launched the derivatives market that will facilitate trading in future contracts on the Kenyan market and will be regulated by the Capital Market Authority of Kenya. The bond market is underdeveloped and dominated by trading in government debt securities. The government domestic debt market, however, is deep and liquid. Long-term corporate bond issuances are uncommon, leading to a lack of long-term investment capital.

In November 2019, Kenya repealed the interest rate capping law passed in 2016 which had had the unintended consequence of slowing private sector credit growth. There are no restrictions for foreign investors to seek credit in the domestic financial market although it still struggles to fund big ticket projects. Legal, regulatory, and accounting systems are generally aligned with international norms. The Kenyan National Treasury has launched its mobile money platform government bond to retail investors locally dubbed M-Akiba purchased at USD 30 on their mobile phones. M-Akiba has generated over 500,000 accounts for the Central Depository and Settlement Corporation and The National Treasury has made initial pay-outs to bond holders. The GOK expects to issue USD 10 million over this platform in 2019 in an effort to deepen financial inclusion and financial literacy.

According to the African Private Equity and Venture Capital Association (AVCA) 2014-2019 report on venture capital performance in Africa, Kenya is assessed as having a well-developed venture capitalist ecosystem ranking second in sub-Saharan Africa and accounted for 18 percent of the deals between 2014-2019 in Africa. The report further states that over 20 percent of the deals in the period were for companies that were headquartered outside Africa which sought expansion into the region’s markets.

The Central Bank of Kenya (CBK) is working with regulators in EAC member states through the Capital Market Development Committee (CMDC) and East African Securities Regulatory Authorities (EASRA) on a regional integration initiative and has successfully introduced cross-listing of equity shares. The combined use of both the Central Depository and Settlement Corporation (CDSC) and an automated trading system has moved the Kenyan securities market to globally accepted standards. Kenya is a full (ordinary) member of the International Organization of Securities Commissions Money and Banking System.

Money and Banking System

The Kenyan banking sector in 2020 included 40 operating commercial banks, one mortgage finance company, 13 microfinance banks, nine representative offices of foreign banks, 70 foreign exchange bureaus, 15 money remittance providers, and three credit reference bureaus which are licensed and regulated by the Central Bank of Kenya. Kenya also has 12 deposit-taking microfinance institutions. There has been increased foreign interest in Kenya’s banking sector with foreign owned banks making up 15 of the 40 operating banks. Major international banks operating in Kenya include Citibank, Absa bank (formerly Barclays bank Africa), Bank of India, Standard Bank (South Africa), and Standard Chartered. Kenya’s banking sector has been affected by the COVID-19 pandemic. According to the CBK, 32 out of 39 commercial banks restructured their loans to accommodate those affected. Non-performing loans (NPLs) rose to 13.1 percent in April 2020 fueled by the pandemic, however previous NPLs have averaged above 10 percent. The Banking sector has 12 listed banks in the Nairobi Securities Exchange which owned 89 percent of the banking assets in 2019.

In March 2017, CBK lifted its moratorium on licensing new banks, issued in November 2015 following the collapse of Imperial Bank and Dubai Bank. The CBK’s decision to restart licensing signaled a return of stability in the Kenyan banking sector. In 2018, Societé Generale (France) also set up a representative office in Nairobi. Foreign banks can apply for license to set up operations in Kenya and are guided by the CBK’s prudential guidelines 2013.

In November 2019, the Government of Kenya (GOK) enacted the Banking Amendment Act 2019, which effectively repealed the section within the Banking (Amendment) Act (2016) that capped the maximum interest rate banks can charge on commercial loans at four percent above Central Bank of Kenya’s (CBK) benchmark lending rate. This repeal effectively provides financial institutions flexibility with regards to pricing the risk of lending.

In the ongoing land registry digitization process, the Kenyan Government is working on a database, known as the single source of truth (SSOT), to eliminate fake title deeds in the Ministry of Lands. The SSOT database development plan is premised on blockchain technology – distributed ledger technology – as the primary reference for all land transactions. The SSOT database would help the land transaction process to be efficient, open, and transparent. The blockchain taskforce presented its 2019 report to the Ministry of Information, Communication Technology, Innovations and Youth Affairs on the viability and opportunities of the blockchain technology which is yet to be implemented.

The percentage of Kenya’s total population with access to financial services through conventional or mobile banking platforms is approximately 80 percent. According to the World Bank, M-Pesa, Kenya’s largest mobile banking platform, processes more transactions within Kenya each year than Western Union does globally. Data from the Communication Authority of Kenya shows that in the 3 months to December 2019, 30 million Kenyans had active mobile money subscriptions. The 2017 National ICT Masterplan envisages the sector contributing at least 10 percent of GDP, up from 4.7 percent in 2015. Several mobile money platforms have achieved international interoperability, allowing the Kenyan diaspora to conduct financial transactions in Kenya from abroad.

Foreign Exchange and Remittances

Foreign Exchange Policies

Kenya has no restrictions on converting or transferring funds associated with investment. Kenyan law requires the declaration to customs of amounts greater than KSH 1,000,000 (approximately USD 10,000) or the equivalent in foreign currencies for non-residents as a formal check against money laundering. Kenya is an open economy with a liberalized capital account and a floating exchange rate. The CBK engages in volatility controls aimed exclusively at smoothing temporary market fluctuations. Between June 2015 and June 2016, the Kenyan shilling declined 3.5 percent after a sharp decline of 15 percent during the same period in 2014/2015. In 2018, foreign exchange reserves remained relatively steady. The average inflation rate was 5.2 percent in 2019 and the average rate on 91-day treasury bills had fallen to 7.2 percent in 2019. According to CBK figures, the average exchange rate was KSH 101.99to USD 1.00 in 2019.

Remittance Policies

Kenya’s Foreign Investment Protection Act (FIPA) guarantees capital repatriation and remittance of dividends and interest to foreign investors, who are free to convert and repatriate profits including un-capitalized retained profits (proceeds of an investment after payment of the relevant taxes and the principal and interest associated with any loan).

Foreign currency is readily available from commercial banks and foreign exchange bureaus and can be freely bought and sold by local and foreign investors. The Central Bank of Kenya Act (2014), however, states that all foreign exchange dealers are required to obtain and retain appropriate documents for all transactions above the equivalent of KSH 1,000,000 (approximately USD 10,000). Kenya has 15 money remittance providers as at 2020 following the operationalization of money remittance regulations in April 2013.

Kenya is listed as a country of primary concern for money laundering and financial crime by the State Department’s Bureau of International Narcotics and Law Enforcement. Kenya was removed from the inter-governmental Financial Action Task Force (FATF) Watchlist in 2014 following progress in creating the legal and institutional framework to combat money laundering and terrorism financing.

Sovereign Wealth Funds

In 2019, the National Treasury published the Kenya Sovereign Wealth Fund policy (2019) and the Kenya Sovereign Wealth Fund Bill (2019) for stakeholders’ comments as a constitutional procedure. The fund would receive income from any future privatization proceeds, dividends from state corporations, oil and gas, and minerals revenues due to the national government, revenue from other natural resources, and funds from any other source. The Kenya Information and Communications Act (2009) provides for the establishment of a Universal Service Fund (USF). The purpose of the USF is to fund national projects that have significant impact on the availability and accessibility of ICT services in rural, remote, and poor urban areas. During the COVID-19 pandemic, the USF committee has partnered with the Kenya Institute of Curriculum Development to digitize the education curriculum for online learning.

7. State-Owned Enterprises

In 2013, the Presidential Task Force on Parastatal Reforms (PTFPR) published a list of all state-owned enterprises (SOEs) and recommended proposals to reduce the number of State Corporations from 262 to 187 to eliminate redundant functions between parastatals; close or dispose of non-performing organizations; consolidate functions wherever possible; and reduce the workforce — however, progress is slow. The taskforce’s report can be found at (https://drive.google.com/file/d/0BytnSZLruS3GQmxHc1VtZkhVVW8/edit ) SOEs’ boards are independently appointed and published in the Kenya Gazette notices by respective Cabinet Secretary. The State Corporations Advisory Committee is mandated by the State Corporations Act 2015 to advise on matters of SOEs. Financial operations of most SOEs are not readily available due to their opaque operating procedures despite being public entities, only those that are listed in the Nairobi Securities Exchange publish their financial positions as guided by the Capital Markets Authority guidelines. Corporate governance in SOEs is guided by the 2010 Constitution chapter 6 on integrity, Leadership and Integrity Act 2012 and the Public Officer Ethics Act 2003 which provide integrity and ethical requirements governing the conduct of State and public officers.

In general, competitive equality is the standard applied to private enterprises in competition with public enterprises. Certain parastatals, however, have enjoyed preferential access to markets. Examples include Kenya Reinsurance, which enjoys a guaranteed market share; Kenya Seed Company, which has fewer marketing barriers than its foreign competitors; and the National Oil Corporation of Kenya (NOCK), which benefits from retail market outlets developed with government funds. Some state corporations have also benefited from easier access to government guarantees, subsidies, or credit at favorable interest rates. In addition, “partial listings” on the Nairobi Securities Exchange offer parastatals the benefit of financing through equity and GOK loans (or guarantees) without being completely privatized.

In August 2020, the executive reorganized the management of SOEs in the cargo transportation sector and mandated the Industrial and Commercial Development Corporation (ICDC) to oversee rail, pipeline and port operations through a holding company called Kenya Transport and Logistics Network (KTLN). ICDC assumes a coordinating role over the Kenya Ports Authority (KPA), Kenya Railways Corporation (KRC) and Kenya Pipeline Company (KPC). KTLN is aimed at lowering the cost of doing business in the country, which will be achieved through the provision of port, rail, and pipeline infrastructure in a cost effective and efficient manner.

SOE procurement from the private sector is guided by the Public Procurement and Asset Disposal Act 2015 and the published Public Procurement and Asset Disposal Regulations 2020 which introduced exemptions from the Act for procurement on bilateral/multilateral basis commonly referred to government to government procurement; introduced E-procurement procedures; and preferences and reservations which gives preferences to the “Buy Kenya Build Kenya” strategy (http://kenyalaw.org/kl/fileadmin/pdfdownloads/LegalNotices/2020/LN69_2020.pdf ). The amendment reserves 30 percent government supply contracts for youth, women, and small and medium enterprises. Kenya is neither party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO) nor an Observer Government.

Privatization Program

The Privatization Act 2003 establishes the Privatization Commission (PC) which is mandated to formulate, manage, and implement Kenya’s Privatization Program. GOK has been committed to implementing a comprehensive public enterprises reform program to increase private sector participation in the economy. The privatization commission ( https://www.pc.go.ke/  ) is fully constituted with a board which is responsible for the privatization program. The PC has 26 approved privatization programs (https://www.pc.go.ke/sites/default/files/2019-06/APPROVED%20PRIVATIZATION%20PROGRAMME.pdf  ). In 2020, GOK is implementing a sugar taskforce report that proposed privatization of some state-owned sugar firms to increase their efficiency and productivity. The process of privatization involves open bids by interested investors including foreign investors.

8. Responsible Business Conduct

The Environmental Management and Coordination Act (1999) establishes a legal and institutional framework for the management of the environment while the Factories Act (1951) safeguards labor rights in industries. The Mining Act 2016 provides for holders of mineral rights to develop a comprehensive community development agreement that secures socially responsible investment and provides for employment preference for those living in communities around mining operations. The legal system, however, has remained slow to prosecute corporate malfeasance in both areas.

The GOK is not an adherent to the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, and it is not yet an Extractive Industry Transparency Initiative (EITI) implementing country or a Voluntary Principles Initiative signatory. Nonetheless, good examples of CSR abound as major foreign enterprises drive CSR efforts by applying international standards relating to human rights, business ethics, environmental policies, community development, and corporate governance.

9. Corruption

Many businesses deem corruption to be pervasive and entrenched in Kenya. Transparency International’s (TI) 2019 Global Corruption Perception Index ranks Kenya 137 out of 198 countries, six places lower than in 2018 and Kenya’s score of 28 remains below the sub-Saharan Africa average of 32. Historical lack of political will, limited progress in prosecuting past corruption cases, and the slow pace of reform in key sectors were reasons cited for Kenya’s chronic low ranking. Corruption has been reported to be an impediment to FDI, with local media reporting allegations of high-level corruption related to health, energy, ICT, and infrastructure contracts. There are many reports that corruption often influences the outcomes of government tenders, and U.S. firms have had limited success bidding on public procurements. In 2018, President Kenyatta began a public campaign against corruption. The Anti-Corruption agencies mandated to fight corruption have been inconsistent in coordinating activities, especially in bringing cases against senior officials. However, there were cabinet level arrests in 2019 that signaled a commitment by the GOK to fight corruption. Despite these efforts, much still remains to be done in convicting high profile suspects.

In 2020, a high-level conviction was secured for a Member of Parliament setting a precedent for top officials’ convictions. Relevant legislation and regulations include the Anti-Corruption and Economic Crimes Act (2003), the Public Officers Ethics Act (2003), the Code of Ethics Act for Public Servants (2004), the Public Procurement and Disposal Act (2010), the Leadership and Integrity Act (2012), and the Bribery Act (2016). The Access to Information Act (2016) also provides mechanisms through which private citizens can obtain information on government activities; implementation of this act is ongoing. The Ethics and Anti-Corruption Commission (EACC) monitors and enforces compliance with the above legislation.

The Leadership and Integrity Act (2012) requires public officers to register potential conflicts of interest with the relevant commissions. The law identifies interests that public officials must register, including directorships in public or private companies, remunerated employment, securities holdings, and contracts for supply of goods or services, among others. The law requires candidates seeking appointment to non-elective public offices to declare their wealth, political affiliations, and relationships with other senior public officers. This requirement is in addition to background screening on education, tax compliance, leadership, and integrity.

The law requires that all public officers declare their income, assets, and liabilities every two years. Public officers must also include the income, assets, and liabilities of their spouses and dependent children under the age of 18. Information contained in these declarations is not publicly available, and requests to obtain and publish this information must be approved by the relevant commission. Any person who publishes or makes public information contained in public officer declarations without permission may be subject to fine or imprisonment.

On August 31, 2016, the president signed into law the Access to Information Act (2016) although the government has not yet issued regulations required to fully operationalize the act. The law allows citizens to request government information and requires government entities and private entities doing business with the government proactively to disclose certain information, such as government contracts. The act also provides a mechanism to request a review of the government’s failure to disclose requested information, along with penalties for failures to disclose. The act exempts certain information from disclosure on grounds of national security.

The private sector-supported Bribery Act (2016) stiffened penalties for corruption in public tendering and requires private firms participating in such tenders to sign a code of ethics and develop measures to prevent bribery. Both the Bill of Rights of the 2010 Constitution and the Access to Information Act (2016) provide protections to NGOs, investigative journalism, and individuals involved in investigating corruption. The Witness Protection Act (2006) calls for the protection of witnesses in criminal cases and created an independent Witness Protection Agency. A draft Whistleblowers Protection Bill (2016) is currently stalled in Parliament.

Kenya is a signatory to the UN Convention Against Corruption (UNCAC) and in 2016 published the results of a peer review process on UNCAC compliance: (https://www.unodc.org/documents/treaties/UNCAC/CountryVisitFinalReports/2015_09_28_Kenya_Final_Country_Report.pdf ). Kenya is also a signatory to the UN Anticorruption Convention and the OECD Convention on Combatting Bribery, and a member of the Open Government Partnership. Kenya is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Kenya is also a signatory to the East African Community’s Protocol on Preventing and Combating Corruption.

Resources to Report Corruption

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

Rev. Eliud Wabukala (Ret.)
Chairperson and Commissioner
Ethics and Anti-Corruption Commission
P.O. Box 61130 00200 Nairobi, Kenya
Phones: +254 (0)20-271-7318, (0)20-310-722, (0)729-888-881/2/3
Report corruption online: https://eacc.go.ke/default/report-corruption/ 

Contact at “watchdog” organization:

Sheila Masinde
Executive Director
Transparency International Kenya
Phone: +254 (0)722-296-589
Report corruption online: https://www.tikenya.org/ 

10. Political and Security Environment

Political tensions over the protracted and contentious 2017 election cycle spilled well into 2018. In March 2018, however, President Kenyatta and opposition National Super Alliance (NASA) leader Raila Odinga publicly shook hands and pledged to work together to heal the political, social, and economic divides revealed by the election. The 2017 electoral period had been marred by violence that claimed the lives of nearly 100 Kenyans, a contentious political atmosphere pitting the ruling Jubilee Party against NASA, and political interference and attacks by both sides on key institutions. In November 2017, the Kenyan Supreme Court unanimously upheld the October 2017 repeat presidential election results and President Uhuru Kenyatta’s win in an election boycotted by NASA leader Raila Odinga. The court’s ruling brought a close to Kenya’s protracted 2017 election cycle, a period that included the Supreme Court’s historic September 2017 annulment of the August 2017 presidential election and the unprecedented repeat election. In November 2019, the Building Bridges Initiative Advisory Taskforce, established by President Kenyatta in May 2018 as part of his pledge to work with Odinga, issued a report recommending reforms to address nine areas: lack of a national ethos, responsibilities and rights of citizenship; ethnic antagonism and competition; divisive elections; inclusivity; shared prosperity; corruption; devolution; and safety and security.

The United States’ Travel Advisory for Kenya advises U.S. citizens to exercise increased caution due to the threat of crime and terrorism, and not to travel to counties bordering Somalia and to certain coastal areas due to terrorism. Instability in Somalia has heightened security concerns and led to increased security measures aimed at businesses and public institutions around the country. Tensions flare occasionally within and between ethnic communities. Regional conflict, most notably in Ethiopia, Somalia, and South Sudan, sometimes have spill-over effects in Kenya. There could be an increase in refugees escaping drought and instability in neighboring countries, adding to the large refugee population already in Kenya from several countries. Security expenditures represent a substantial operating expense for businesses in Kenya.

Kenya and its neighbors are working together to mitigate the threats of terrorism and insecurity through African-led initiatives such as the African Union Mission in Somalia (AMISOM) and the nascent Eastern African Standby Force (EASF). Despite attacks against Kenyan forces in Somalia, the GOK has maintained its commitment to promoting peace and stability in Somalia.

11. Labor Policies and Practices

Kenya has one of the highest literacy rates in the region at 90 percent. Investors have access to a large pool of highly qualified professionals in diverse sectors from a working population of over 47.5 percent out of a population of 47.6 million people. Expatriates are allowed to work in Kenya provided they have a work (entry) permit issued under the Kenya Citizenship and Immigration Act 2011. In December 2018, the Cabinet Secretary for Interior and Coordination of National Government issued a directive that requires foreign nationals to apply for their work permits while in their country of origin and will have to prove that the skills they have are not available in the Kenya labor market. Work permits are usually granted to foreign enterprises approved to operate in Kenya as long as the applicants are key personnel. In 2015, the Directorate of Immigration Services made additions to the list of requirements for work permits and special pass applications. Issuance of a work permit now requires an assured income of at least USD 24,000 annually. Exemptions are available, however, for firms in agriculture, mining, manufacturing, or consulting sectors with a special permit. International companies have complained that the visa and work permit approval process is slow, and bribes are sometimes solicited to speed the process. A tightening of work permit issuances and enforcement begun in 2018 is now one of the largest complaints of multinational companies doing business in Kenya.

A company holding an investment certificate granted by registering with KenInvest and passing health, safety, and environmental inspections becomes automatically eligible for three class D work (entry) permits for management or technical staff and three class G, I, or J work permits for owners, shareholders, or partners. More information on permit classes can be found at https://kenya.eregulations.org/menu/61?l=en .

According to the Kenya National Bureau of Statistics (KNBS), in 2019 non-agricultural employment in the formal sector was at 18.1 million, with nominal average earnings of Ksh778,248 (USD 7,200) per person per annum. Kenya has the highest rate of youth joblessness in East Africa. According to the 2019 census data, 5,341,182 or 38.9 percent of the 13,777,600 youths eligible to work are jobless. Employment in Kenya’s formal sector was 2.9 million in 2019 up from 2.8million in 2018. The government is the largest employer in the formal sector, with an estimated 865,200 government workers in 2019. In the private sector, agriculture, forestry, and fishing employed 296,700 workers while manufacturing employed 329,000 workers. However, Kenya’s large informal sector – consisting of approximately 80 percent of the labor force – makes accurate labor reporting difficult.

The GOK has instituted different programs to link and create employment opportunities for the youth, which include a website (http://www.mygov.go.ke/category/jobs/ ). Other measures include the establishment of the National Employment Authority which hosts the National Employment Authority Integrated Management System website that provides public employment service by listing vacancies ( https://neaims.go.ke/  ). The Kenya Labour Market Information System (KLMIS) portal (https://www.labourmarket.go.ke/ ), run by the Ministry of Labour and Social Protection in collaboration with the labor stakeholders, is a one-stop shop for labor information in the country. The site seeks to help address the challenge of inadequate supply of crucial employment statistics in Kenya by providing an interactive platform for prospective employers and job seekers. Both local and foreign employers are required to register with National Industrial Training Authority (NITA) within 30 days of operating. There are no known material compliance gaps in either law or practice with international labor standards that would be expected to pose a reputational risk to investors. The International Labor Organization has not identified any material gaps in Kenya’s labor law or practice with international labor standards. Kenya’s labor laws comply, for the most part, with internationally recognized standards and conventions, and the Ministry of Labor and Social Protection is currently reviewing and ensuring that Kenya’s labor laws are consistent with the 2010 constitution. The Labor Relations Act (2007) provides that workers, including those in export processing zones, are free to form and join unions of their choice.

Collective bargaining is common in the formal sector but there is no data on the percentage of the economy covered by collective bargaining agreements (CBA). However, in 2019 263 CBAs were registered in the labor relations court with Wholesale and Retail trade sector recording the highest at 88. The law permits workers in collective bargaining disputes to strike but requires the exhaustion of formal conciliation procedures and seven days’ notice to both the government and the employer. Anti-union discrimination is prohibited, and the government does not have a history of retaliating against striking workers. The law provides for equal pay for equal work. Regulation of wages is part of the Labor Institutions Act (2014), and the government has established basic minimum wages by occupation and location.

The GOK has a growing trade relationship with the United States under the AGOA framework which requires labor standards to be upheld. The Ministry of Labor and Social Protection is reviewing its labor laws to align with international standards as labor is also a chapter in the Free Trade Agreement negotiations with the U.S. In 2019, the government continued efforts with dozens of partner agencies to implement a range of programs for the elimination of child and forced labor. However, low salaries, insufficient resources, and attrition from retirement of labor inspectors are significant challenges to effective enforcement. Employers in all sectors routinely bribe labor inspectors to prevent them from reporting infractions, especially in the area of child labor.

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

In 2016, the U.S. International Development Finance Corporation (formerly OPIC) established a regional office in Nairobi, but the office is not currently staffed. The agency is engaged in funding programs in Kenya with an active in-country portfolio of approximately USD 700 million, including projects in power generation, internet infrastructure, light manufacturing, and education infrastructure. 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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) ($B USD) 2019 $90.19bn 2019 $95.5bn https://data.worldbank.org/
indicator/NY.GDP.MKTP.CD?locations=KE
 
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 2017 $353Mn BEA data available at
http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $6Mn BEA data available at
http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
 
Total inbound stock of FDI as % host GDP 2019 $1.07bn 2019 1.3bn https://unctad.org/ sections/dite_dir/
docs/wir2018/wir18_fs_ke_en.pdf
 
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 $3,885 100% Total Outward $803 100%
U.K. $1,086 28% Uganda $395 49%
Mauritius $675 17% Mauritius $293 37%
Netherlands $652 17% South Africa $52 6%
France $315 8% Mozambique $37 5%
South Africa $309 8% Italy $12 2%
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey (CDIS). Figures are from 2012 (latest available). IMF no longer publishes Kenya data as part of its CDIS.

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $3,885 100% All Countries $2,817 100% All Countries $833 100%
U.K. $1,086 27% U.K. $974 35% Netherlands $353 42%
Mauritius $675 17% Mauritius $618 22% France $174 21%
Netherlands $652 17% Netherlands $299 11% U.K. $112 13%
France $315 8% South Africa $290 10% Mauritius $57 7%
South Africa $309 8% Germany $181 6% Switzerland $55 7%

Source: IMF Coordinated Portfolio Investment Survey (CPIS). Figures are from 2012 (latest available). IMF no longer publishes Kenya data as part of its CPIS. 14. Contact for More Information

14. Contact for More Information

U.S. Embassy Economic Section
U.N. Avenue, Nairobi, Kenya
+254 (0)20 363 6050

Madagascar

Executive Summary

Released in 2019, President Andry Rajoelina’s Plan d’Emergence (PEM) is the Government of Madagascar’s blueprint for the country’s economic revival.  The Rajoelina administration has made investment into infrastructure, rooting out corruption, improving the investment climate, and growing exports the centerpiece of its growth strategy.  Fifteen months into his tenure, in accordance with the President’s results-oriented approach to governing, the Government of Madagascar (GOM) has moved to implement these PEM promises.  Nevertheless, concerns remain over the uneven nature of the anti-corruption initiatives and a lack of transparency in awarding contracts and signing agreements.

COVID-19 has thrown all economic estimates into disarray.  After four years of steady growth, economic growth is expected to flat-line or decline into negative territory in 2020.  Sharp declines in exports, layoffs, factory closures, and order cancelations for Malagasy products are causing major economic disruptions in the short to medium term.  Experts expect economic activity will pick up closer to the last quarter of 2020.  But this turmoil also presents opportunities for those who are looking to invest. As the GOM targets new foreign direct investment (FDI) with renewed enthusiasm, opportunities for investments and partnerships in infrastructure, textiles, energy, tourism, agri-business, mining, health and other sectors are opening up.

The GOM’s actions on new investment legislation and enforcement bear watching.  A new investment law is already in the works (slated for late 2020) and the amendments to the mining code are still pending.  Since improvements in transportation infrastructure and reliable supply of water and electricity are key to Madagascar’s future growth prospects, the GOM’s ability to keep these various sector projects moving forward will also be a good indicator of the state of play.  With rising public expenditure and shrinking revenue, Madagascar will need extended donor support and private sector participation in order to ride out the COVID-19 storm.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 158 of 190 (score 24/100) http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 161 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 121 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 N/A https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 USD 510 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Rajoelina government’s PEM strategy stresses the importance of attracting foreign direct investment (FDI) to achieve its ambitious economic growth goals.  Since the Rajoelina administration took office in January 2019, the GOM has gone to great lengths to promote Madagascar as an attractive investment destination.  High-level delegations have fanned out across Africa, Europe, and Asia to make the case while also organizing well-known trade shows in Madagascar.

In accordance with the President’s result-oriented approach to governing, the administration moved swiftly on their signature promises – infrastructure investment and improvements particularly in the transportation and energy sectors and fighting corruption.  Nevertheless, the business community is hesitant about the uneven nature of the anti-corruption initiatives and the lack of transparency in awarding contracts and signing agreements.  The GOM’s review and subsequent renegotiation of existing energy contracts supplying electricity to the national water and electricity utility (JIRAMA) unsettled investors in the sector, but with costs at double the levels from the rest of Africa, some industry experts understood it was essential get JIRAMA’s balance sheet under control.  The World Bank has urged the GOM to renegotiate its existing energy contracts as part of its support program.  The GOM drafted amendments to the mining code in late 2019 which included several provisions on ownership and taxes that infuriated investors and interest groups and forced a return to the drafting table.  The GOM is still in discussions about these amendments with mine operators.

While the GOM is actively seeking FDI and increased participation from the Malagasy private sector, the business community points to poor transportation infrastructure, expensive but unreliable supply of electricity and water, endemic corruption, and weak enforcement of rules and regulations as impediments to investment, foreign or domestic.

The existing investment law allows foreign ownership of businesses and does not discriminate against foreign-owned enterprises.  There is no legal requirement that citizens own shares of foreign investment, nor any restriction on the mobility of foreign investors. The regime for visas, residence, and work permits is neither discriminatory nor excessively onerous.  A new version of the law is being drafted and is expected to clarify access to land and address issues of corporate social responsibility and sustainability.

The Economic Development Board of Madagascar (EDBM), an investment promotion agency, has several objectives – to strengthen the competitiveness of the Malagasy private sector, to increase FDI, to develop and recommend business incentives for private investments in Madagascar, and to provide a one-stop shop to help investors set up or expand their business  through  tailored services by specialized advisors.

Madagascar accommodates investment retention and maintains an ongoing dialogue with investors through various vehicles including roadshows to targeted countries, formal sectoral business roundtables and platforms, participation in well-known worldwide trade and economic shows, and ombudsman services.

Limits on Foreign Control and Right to Private Ownership and Establishment

Broadly speaking, there are no general, economy-wide limits on foreign ownership or control.  Any individual or legal entity, domestic or foreign, is free to invest and operate, in accordance with the laws and regulations.

Foreign and domestic private entities are free to establish and own their business enterprises and engage in all forms of remunerative activities.  Except for the telecommunication sector, where foreign ownership is restricted to 66 percent, foreign investors can retain full ownership of their company and repatriate their earnings without restriction.  Certain strategic sectors such as banking, insurance, mining, oil and gas, medical, and pharmaceuticals have extra regulatory provisions which apply to all investors, foreign and domestic.

There is no official discrimination against foreign investors, who are treated on par with local investors, although foreign investors have reported delays in getting permits and problems finding their way through Madagascar’s convoluted bureaucracy.

Madagascar has no formalized investment screening mechanism for inbound foreign investment. Economic Development Board of Madagascar (EDBM) does conduct a review which is submitted to the licensing authority and final ratification of foreign investment has to be completed by the President’s Office.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews (IPRs) through a multilateral organization such as the OECD, WTO, or UNCTAD.

Business Facilitation

In 2006, Madagascar set up the Economic Development Board of Madagascar (EDBM), a one-stop shop for receiving, processing, and delivering the required administrative documents to speed up the approval of all investment projects.  Its primary recommendation is for a foreign company seeking to start a business in Madagascar to consider collaborating with a local business.  The retention of competent local counsel is recommneded.  It is almost impossible to register a business in Madagascar without permanent residence or resolve difficulties without local contacts.  Many foreign companies seek local partners in order to ease their introduction to the market and make new contacts.

Madagascar ranks 80 out of 190 for ease of starting a business in the World Bank’s 2019 Doing Business rankings.  EDBM handles business registrations, which takes on average one to two weeks after receipt of complete documentation and is amongst the shortest in Sub-Saharan Africa.  They assist both local and foreign investors in registering and operating their businesses.  At the EDBM one-stop shop, companies can obtain their statistical (business identification) cards, tax registration confirmations, commercial registration numbers, and apply for visas, work permits or professional cards.  They must also register for social security and health insurance.  Companies in Madagascar are free to open and maintain bank accounts in foreign currency.  EDBM is currently building an online registration service which should shorten the registration timeline further and provide more clarity on the rules for investment.  The website for registration is: www.edbm.mg 

Outward Investment

The GOM does not offer incentives to promote outward investment.  However, many wealthy entrepreneurs have diversified their investment base by investing in Europe, the United States, Mauritius, and the Middle East in particular.

There are no restrictions on capital outflows from Madagascar to the rest of the world but companies and individuals must fill out a form showing the reasons for the transfers.  Domestic investors who invest abroad must comply with the foreign currency control mechanism enforced at the state and commercial bank level with close monitoring by the Finance Ministry.

2. Bilateral Investment Agreements and Taxation Treaties

Madagascar does not have a separate free trade agreement or a bilateral investment treaty (BIT) with the United States but benefits tremendously from customs duty exemptions under the Generalized System of Preferences (GSP) and AGOA, to the point that the United States is now its biggest export market.  The Malagasy government has expressed interest in negotiating a bilateral investment treaty with the United States.  Initial BIT discussions began in late 2008, but stalled due to 2009 coup, which also cost Madagascar its AGOA eligibility for a five-year period, which ended in 2014.

Madagascar is a member of the Common Market for Eastern and Southern Africa (COMESA), with which the United States has an agreement to develop trade and investment relations.  In 2017, Madagascar signed the Tripartite Free Trade Agreement (TFFA) associating the East African Community (EAC), COMESA, and Southern African Development Community (SADC).  Madagascar is one of the signatories to the African Continental Free Trade Area (AfCFTA), which will come into force once all 55 African countries ratify the free trade area.

According to the U.N. Conference on Trade and Development (UNCTAD), Madagascar has concluded nine BITs (Belgium-Luxemburg-Economic Union, China, France, Germany, Mauritius, Norway, South Africa, Sweden, and Switzerland), and five treaties with investment provisions (COMESA EU EPA, COMESA Investment Agreement, COMESA US TIFA, Cotonou Agreement, COMESA Treaty).

Madagascar does not have a bilateral taxation treaty with the United States but has concluded agreements/treaties with France, Mauritius, Canada (2017), and Morocco (2016).  As a member of the African, Caribbean, and Pacific group (ACP), Madagascar signed the APEi (interim Economic Partnership Agreement) with the EU in January 2013 to have easy access to the EU market and obtain progressive tariff reductions.  The United Nations Conference on Trade and Development (UNCTAD) cites four known treaty-based Investor-State Dispute Settlement (ISDS) cases concerning Madagascar.

3. Legal Regime

Transparency of the Regulatory System

Bureaucratic delays and inefficiencies plague Madagascar’s legal and regulatory system.  Non-transparent regulatory decisions have affected global investors who alleged unfair competition or lack of transparency.  High-level corruption and alleged collusion between business and political elites have been a recurring issue in Madagascar for decades.  Its auditing and financial information reporting systems are transparent and consistent with international norms, International Standards on Auditing (IAS) and International Financial Reporting Standards (IFRS), respectively.  Although the regulations strive to establish clear rules, a lack of enforcement combined with shortage of resources and capacity hinder their efficacy.  In addition, certain investment policies are not harmonized and, in some areas, can be contradictory.  A policy harmonization process for Special Economic Zones is underway.

Madagascar has municipal, regional, national and international laws; the most relevant for foreign businesses would be national and international laws.

Depending on the circumstances, regulations can be suggested, drafted, or amended by various actors such as government or its institutions, business associations, academics, civil society organizations, and/or individual experts.  Non-governmental organizations, industry associations and private organizations such as the American Chamber of Commerce, can also be influential voices in raising concerns about new legislation or regulations.  For instance, the Chamber of Mines has had an important role in pushing back against the Rajoelina government’s proposed amendments to the mining code which would have discouraged further investment in the sector.

If the GOM decides to move ahead with a bill, it is transmitted to the National Assembly and then the Senate for study and voting.  It may go forth and back between them.  Once the bill passes in both Chambers, it goes to the High Constitutional Court (HCC) for constitutional verification.  Finally, the President has the ultimate right to proclaim or deny a proposed law.  The President also has the right to enact a proposed law by decree if Parliament does not pass the legislation, though it is still subject to constitutionality checks by the HCC.  Laws are published by their insertion in the Official Gazette of the Republic or its broadcast on national radio or TV in case of emergency.

Scientific, data-driven assessments, and quantitative analysis are not yet common practice.  Regulatory reviews usually take place when a non-governmental organization or interest group protests against a new or amended regulation.  Though public comments are welcomed and recorded in a registry before consideration and processing, there is no set mechanism which makes them available to the public.  There is also no formal mechanism in place to make draft bills or regulations available for public comment or public consultation prior to their adoption.  This applies to investment law and regulations as well.  Informally, draft legislation and regulations do circulate and institutional pushback can lead to further changes as was the case with the revision of the mining code, where the circulation of draft bills led to protests from interest groups.  As a result, the government withdrew the drafts for further consultation and review.

There is no centralized location for publication of draft regulatory actions.  Once enacted, the full text of key regulatory actions is published on the Justice Ministry’s website through the link to the National Center of Legal and Legislative Information and Documentation (CNLEGIS). http://www.cnlegis.gov.mg/ page_find_direct_mots/. 

The regulatory enforcement mechanisms are usually defined along with the enactment decree of each regulation.  The enforcement process may be legally reviewed.  Anyone can lodge a complaint with the administrative courts, which are responsible for judging failure to comply with administrative regulations.  The Council of State is at the apex of the administrative order and is responsible for ensuring the legality of the GOM’s actions and oversight of lower courts.  It also handles appeals for annulment of actions by local and regional authorities.  The HCC verifies the conformity of laws with the Constitution of the Republic of Madagascar.

Since the last ICS report, while several regulatory changes including enforcement reforms have been announced, there have been no reforms relating to foreign investors.  One of the changes is the appointment of the Integrity Safeguarding Committee (CSI), which has been tasked with the development of the national integrity system (NIS) to ensure the coordination, monitoring, and evaluation of the anti-corruption system; and elaborating and implementing the national good governance policy.  In general, the reforms carried out improve the economy, governance, land tenure, and the rule of law, although sometimes they make the administration more cumbersome and complex.

Accounting regulations appear transparent. The country has no stock market, and therefore, no publicly listed companies.

Budget proposals, enacted budgets, and audited end-of-year reports are publicly available.  The timing of their release often hampers public debate; for instance, budget proposals are usually published just two weeks before they are voted on.  The enacted budget is often not available until many weeks into the start of the fiscal year.

Income and expenditure are not truly representative of the governments revenues and expenses.  Income calculations exclude fees and royalties from the mining sector, while expenditure does not break out the transfers and subsidies to state-owned enterprises.  The interim audit for the 2018-19 budget noted issues with fiscal transparency where the government changed beneficiaries and/or amounts allocated by the initial appropriation without further parliamentary approval.  Government contracts are not fully transparent as to their funding arrangements.  The 2019-20 budget also had a set-aside under Sovereign Funds, amounting to 1.9 percent of the budget earmarked for discretionary use under special presidential projects.

Debt obligations are not fully transparent.  For example, the rate of return and the subscribers of non-market treasury bills (called “special TB”) are not readily available to the public.

International Regulatory Considerations

Madagascar is a member country of the following economic blocks: Indian Ocean Commission (IOC), Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), and the Continental African Free Trade Area (ZLECA).  The regional regulatory systems prevail over the national system in case of trade disputes amongst members.

As a former French colony, most of the norms and standards in force are French, although other international norms are increasingly in use as the country’s trade relationships become more diversified.

Madagascar is a member of WTO and the GOM has committed to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

French civil law largely inspires Madagascar’s legal code, which contains protections of private property and rights.

The civil court system has its own independent jurisdiction, where civil and commercial cases are heard.  The country’s written commercial law consists mainly of the code of commerce and annexed laws.  Recent reforms of commercial regulations and procedures have halved processing times for commercial cases at the Trade Court.  Major cities and regions do have their own competent courts, although some trials fall under the jurisdiction of the central courts.

Madagascar’s constitution provides for an independent judiciary.  However, there is often flagrant interference by the executive branch in judicial matters, particularly through the appointment of compliant judges.  Bribery and corruption are also factors affecting the fairness of the judicial process.

Regulations or enforcement actions are appealable within the prescribed time and are adjudicated in the national court system established in the capital city Antananarivo.

Laws and Regulations on Foreign Direct Investment

The country’s investment law was promulgated in January 2008 and governs foreign direct investment as well.  In addition to the freedom of investment and equality of treatment for foreign and national investors, Madagascar’s investment law includes articles on the protection of patent rights and protections against expropriation, freedom to transfer funds abroad without prior authorization, and a stability clause guaranteeing investor privileges from future legal or regulatory measures.

Major laws, regulations, and judicial decisions which have come out in the past year are:

  • Law n˚2018-043 dated February 13, 2019 against money laundering and financing of terrorism acts
  • Law n˚2018-042 dated January 17, 2019 authorizing the ratification of the loan agreement to finance the “integrated poles of growth and project (PIC 2.2)” between the government and the International Development Association (IDA)
  • Law n˚2018-039 dated January 7, 2019 authorizing the ratification of the statutes of the “Eastern and Western Africa Bank for Commerce and Development or Trade and Development Bank (TDB)”

EDBM is Madagascar’s one-stop-shop for investment and its website www.edbm.mg  provides summaries of relevant laws, rules, procedures, and reporting requirements for investors as well as links to the relevant laws.  Comprehensive details are found on the Ministry of Justice website at cnlegis.gov.mg

EDBM has links to relevant laws and reporting requirements for investors.

  • Law n˚2007-036 on investment
  • Law n˚2007-037 on export processing zone
  • Laws n˚2001-031 and n˚2005-022 on large mining investment
  • Law n˚1996-108 on petroleum, code
  • Law n˚2003-036 on commercial company

The following laws enacted in the last five years, also relate to foreign investment.

  • Law n˚2015-039 on Public and Private Partnership (PPP)
  • Law n˚2017-047 on Madagascar’s Industrial Development which is reflecting the Industrial Policy (LDI)
  • Law n˚2017-023 on Madagascar’s Special Economic Zone (SEZ)
  • Law n˚2017-020 on Madagascar’s Electricity Law
  • The e-commerce and digital activity law has been adopted but is still awaiting its enforcement decree

Competition and Anti-Trust Laws

The Ministry of Commerce and Industry has the overall responsibility to ensure fair competition between businesses.  The 2018 law on competition and anti-trust issues attempts to give teeth to the independent Competition Council (CC) which rules on unfair competition cases; the CC has the power to assess proportionate penalties for abuses of dominant market position.  However, the CC is largely unfunded.

Expropriation and Compensation

The investment law provides protection to foreign and local investors against nationalization, expropriation, and requisition, with the exception of public interest cases as established by regulations.  For infrastructure projects which require expropriation of private property, the GOM must issue an official proclamation that defines the public interest of the project and the owner of the private property must be paid the fair market value of the concerned property prior to its expropriation.  The government may also legally expropriate property when a judicial ruling permits it in cases where there is proven money laundering, profiting from trafficking, acts of terrorism, or a failure to make tax or debt payments.

Recent expropriations have taken place as described above.  For instance, a well-known businesswoman recently had her new four-star hotel located near Antananarivo international airport expropriated after a court ruling against her for tax evasion.  Court procedures included evidence presented by the Directorate General of Taxes and the Directorate General of Customs.

There were cases where asset owners alleged a lack of due process.  In the case noted above, the businesswoman claimed she was victimized due to political bias.

Dispute Settlement

ICSID Convention and New York Convention

Madagascar is a member state to the International Centre for the Settlement of Investment Disputes (ICSID) and under the Investment Law, disputes between foreign investors and the administration can be resolved through arbitration proceedings administered by the ICSID.

In case a foreign investor initiates the proceeding, he/she can decide to file the dispute at the Madagascar Trade Court, which is the country’s competent jurisdiction in such matters.  However, no specific domestic legislation provides for enforcement of awards under the New York Convention and/or under the ICSID Convention.

Investor-State Dispute Settlement

As a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention), Madagascar also accepts international arbitration as means of resolving investment disputes.  Based on the obligation of the New York convention, domestic courts should recognize and be willing to enforce foreign arbitral awards.  International arbitration is accepted as a way of settling commercial disputes between private parties.  Madagascar has also been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.

Investment disputes involving foreign investors over the last 10 years include:

1) A Cypriot holding company affiliated with a U.S. energy company is the claimant in a business dispute with its partners, including a Malagasy business.  The claimant has filed for arbitration in New York.  The partnership sells electricity to state-owned energy company JIRAMA and in 2019 was in discussions with the GOM about the terms of its Power Purchase Agreement.  Following the election of President Rajoelina in December 2018, the Energy Ministry has sought to renegotiate all contracts signed by previous governments.  The claimant raised objections to the reopening of its contract, which had been signed by a previous government for a term of 20 years.  JIRAMA also owed the claimant overdue payments, but was reportedly making them in a piecemeal fashion as of early 2020.  Embassy Antananarivo continues to follow developments in this case.

2) In 2019, the Paris Commercial Court ordered Madagascar’s state-owned airline company Air Madagascar to pay $20 million to Air France in connection with the leasing of two A340s in 2011.

3) In 2016, an international power producer (IPP) supplying electricity to Antananarivo, complained of non-payment by the national utility JIRAMA, a state-owned enterprise.  After weeks of negotiations combined with threats to withdraw by the IPP, the government agreed to pay the IPP using a different payment mechanism.

4) In 2012, the government shut down the telecommunication operator “Life,” a Mauritius controlled company, without providing evidence of substantial wrong doing.  The company sought compensation and sued the Malagasy government at ICSID in August 2017 but there has been no resolution.

Madagascar does not have a history of extrajudicial action against foreign investors since the 1970s.  However, enforcement by local courts of foreign arbitral awards against the government is uncommon.  In the case of Air France, the GOM has not yet paid the fines ordered by the Paris Commercial Court.  As far as Post is aware, none of Madagascar’s commercial courts have taken up this verdict.

International Commercial Arbitration and Foreign Courts

Two types of alternative dispute resolution (ADR) mechanisms are available in Madagascar, namely “arbitration” and “mediation.”  Arbitration is a contractual jurisdictional mode of settlement of commercial disputes.  The procedure involves submitting a dispute between two or more parties to the jurisdiction of an arbitral tribunal consisting of a sole arbitrator or three arbitrators.

Mediation is a structured process in which two or more parties to a dispute voluntarily attempt to reach an agreement on the resolution of their dispute with the assistance of a mediator, who is a neutral, impartial, and independent third party.

Both procedures are recognized by law.  Arbitration results in an enforceable title in the form of an arbitral award, whereas mediation results in an agreement between the parties that does not constitute an enforceable title.

A privately managed entity named Center for Arbitration and Mediation of Madagascar (CAMM), created in 2001and then restructured in 2012, promotes and oversees ADR mechanisms to resolve international and domestic commercial disputes and lessen reliance on an overburdened court system.  The CAMM helps companies manage their conflicts, determine the best way to settle them quickly and durably, and helps ensure the security of their investments and the maintenance of business continuity.  As a result, many private contracts now include arbitration provisions that allow the CAMM to mediate eventual disputes.

Since the 8th Economic Forum of the Indian Ocean Islands in 2012, CAMM has initiated a process with its counterparts in Reunion, Mauritius, and Comoros for the setting up of a cross-border dispute resolution platform in which co-mediation will play an important role.  CAMM recognizes and enforces arbitral awards in that sub-region.  However, only the commercial judgements of these foreign courts are recognized and enforceable under the CAMM.

CAMM only applies in disputes amongst private parties and so has no jurisdiction in disputes involving SOEs.  In the latter case, it is tried in civil court.  While the SOE does not always win, the judgement is not always enforced.

Bankruptcy Regulations

In 2019, Madagascar ranked 161 among 190 in the World Bank’s Ease of Doing Business survey and it ranks 135 for the “resolving insolvency” criteria.  The bankruptcy law, which was last updated in 2014, lays out collective debt settlement procedures, which treat all parties equally in bankruptcy proceedings.  Creditors have the right to initiate insolvency proceedings only when seeking liquidation of the debtor, but not when seeking reorganization.  Bankruptcy is no longer a criminal offense, but is punishable by fines and imprisonment depending on whether it is deemed simple, negligent, or fraudulent bankruptcy.  The court system has reduced the associated prison sentences from those stipulated in the previous insolvency framework.

There are three procedures that apply when assessing the fate of a company in difficulty.  The first – preventive settlement – is a reconciliation procedure designed to avoid the suspension of payments or the cessation of activity of a firm in difficulty which has not yet defaulted on payments.  This procedure, which is non-contentious, requires the agreement of all parties and aims to reach an agreement on the settlement of debts and avoid individual lawsuits.

The two other procedures – receivership and liquidation of assets – are intended to remedy payment defaults and correspond to the current judicial settlement and bankruptcy procedures.  Some of the provisions include the appointment of a receiver, who is a representative of the creditors, by the Commercial Court to supervise the debtor who continues to manage the business.  While a compensation agreement is being negotiated, all claims are frozen; the compensation to creditors may be on unequal terms and sale of the business is subject to a transfer plan.

4. Industrial Policies

Investment Incentives

Madagascar extends certain incentives for investment, outlined in domestic legislation, particularly in the Export Processing Zones (EPZ), in large mining investment (LGIM), and recently in the law on Special Economic Zones (SEZ), and the law on Industrial Investment Zones (ZII).

Madagascar’s investment law, which encourages private investment, is based on the principle of freedom – freedom of investment for all nationalities and all sectors; freedom to transfer profits, dividends, salaries and savings; and freedom to recruit and dismiss foreign employees.  Foreign investors may freely hold up to 100 percent of the shares (except for telecommunications where foreign shares are limited to 66 percent) in the company.  Free zones and companies exporting at least 95 percent of production are exempt from customs duties and VAT for a 2 to 15-year period depending on the sector and then pay a 10 percent rate on inputs.  An amendment to the investment law is expected to address questions about access to land for foreigners, environmental protections, sustainability, and corporate social responsibility, while strengthening sanctions against those who break the rules.

Other regulations provide more indirect incentives for FDI, such as the one governing self-generation of electricity.  All companies which carry out self-generation of electricity, and use at least 70 percent of the electricity produced for their own purposes, can sell the remainder subject to conditions determined by the regulator.  The General Tax Code (CGI) provides exemptions from taxes for the import and sale of inputs for exclusively agricultural use, agricultural materials and equipment and materials and equipment for the production of renewable energy.  The law on Large Mining Investments (LGIM) governs investments exceeding USD 25 million and complements the mining code.

As part of the PEM, the Rajoelina government is committed to infrastructure projects, with the aid of public-private partnerships (PPPs).  It includes several ambitious infrastructure projects in the telecommunications sector, with the installation of more than 12,000 km of fiber optic network and more than 14,000 km of Hertzian networks.  In the energy sector, the PEM includes four projects for the construction of hydroelectric power plants, which would generate more than 700 MW in total over the next five years.  The PEM also envisions the creation of special economic zones, including a zone specializing in the textile industry (an integrated industrial zone of + 1600 acres); other multi-sector industrial and service zones; and exclusive agricultural promotion zones.  The special economic zones provide a secure mechanism for access to land.

The GOM does not normally issue guarantees or jointly finance foreign direct investment projects.  Usually, for infrastructure projects, the government generally offers incentives in the form of provision of land, establishment of leases, tax incentives, transfer of benefits and revenues, and social integration of the project.

Foreign Trade Zones/Free Ports/Trade Facilitation

The 2008 Law on Free Zone Companies established an Export Processing Zone regime to incentivize investment in three categories: (1) investment in export-oriented manufacturing industries; (2) development or management of industrial free zones; and (3) provision of services to EPZ companies.  The EPZ regime provides certain tax advantages and incentives to EPZ companies, to include: temporary tax exemptions of two to fifteen years (depending on the category of enterprise); no VAT or customs duties on imports of raw materials; no registration taxes; no customs tax on exported goods; income tax on repatriation not exceeding 30 percent of the taxable basis; and free access to foreign currency deposited in the company’s foreign currency bank account.  Free zone companies are exempted from income tax in the first five years of operation.  From the sixth year of operation, the income tax rate is 10 percent.  These incentives are conditioned upon a performance guarantee and require 95 percent of an EPZ company’s output be exported.  More than 225 companies currently benefit from this incentive regime, 46 percent of which are in the textile sector.

Madagascar ratified the trade facilitation agreement (TFA) in June 2016.  It has established its trade facilitation roadmap, a short but comprehensive document laying down a strategic vision for implementing trade facilitation reforms within a defined period (3 to 5 years).  Donors have funded several capacity building and technical assistance workshops for Malagasy government officials to enable the effective implementation and enforcement of the TFA.  Implementation is in its early stages at this point.

Performance and Data Localization Requirements

The government encourages local employment and capacity building but does not mandate it.  EDBM has enhanced the mobility of foreign investors and their employees by streamlining processes for business visas, residency, and work permits.

Some regulations, including the LGIM, prioritize the hiring of local staff over foreigners at the senior management level so long as they have equivalent skills.

Obtaining an official approval (“agrément”) is mandatory for any FDI.  EDBM assists the investor with the application process and Madagascar’s Council of Ministers decides on the grant of “agrément” based on EDBM’s written guidance.  The Council’s assent must then be signed off by the President.

Madagascar has no “forced localization” policy which would force foreign investors to use domestic content or technology.  However, the government recommends transfer of technology and continuous capacity building to enhance business competitiveness.  There are no measures in place that prevent or unduly impede companies from freely transmitting customer or business-related data outside Madagascar’s territory. There is no requirement for foreign IT providers to turn over source code and/or provide access to encryption.  Post is not aware of any mechanism to enforce rules on local data storage within the country.

Madagascar does not enforce performance requirements but there are investment incentives (described earlier) that apply uniformly and systematically to both domestic and foreign investors.

5. Protection of Property Rights

Real Property

Madagascar ranked 164 on the World Bank’s 2019 Doing Business survey in registering property.  Property rights and interests are poorly respected because of alleged widespread corruption in the Domain and Topography Department and a lack of material and technological resources.  Mortgages and liens are used in commerce and business to guarantee commercial loans.  However, the registration system is cumbersome, complicated and unreliable.

Upon independence, Madagascar continued the land tenure policies of the French colonial administration with the presumption of state ownership of all land and the central government being the sole provider of legitimate land titles.  However, due to the length and cost of the procedures for registering land, together with the remoteness of the authorities, customary practices for recognition of property rights prevailed at the local level.  Recognition of property rights at this local level entailed the use of non-uniform, handwritten titles.  The Land Title Office in Antananarivo is the only place to obtain an official title whenever a locally registered business wants to acquire a large parcel of government land.  Registering a land title or transfer remains difficult, costly, and time-consuming for those outside the capital.

When the Land Ownership Act was amended in 2005, more than 90 percent of the occupants did not have a land title.  The situation has not improved significantly despite several efforts financed by traditional donors.  In 2005, with the support of a Millennium Challenge Corporation Compact, the government embarked on a land reform project to simplify the registration process and to reconcile the existing formal and informal land titles.  The reform reversed the presumption of state ownership of land and introduced private ownership, while at the same time decentralizing land registration and recognizing/formalizing the existing local customs for social recognition of property rights.  The 2009 political crisis disrupted this reform process, leaving the country with approximately 10 percent of its existing land plots formally titled.

The majority of land ownership disputes are resolved at the local level without recourse to judicial proceedings.  The small percentage of disputes that go through the court system remain bogged down due to the complexity of the cases and the lack of clear evidence of ownership, and even when determinations are made, they are often not adequately enforced.

The investment law authorizes foreign investors to possess real estate through renewable 99-year leases, so long as the concerned property is used exclusively and continuously to carry out commercial activity.  The regulation specifically prohibits the acquisition of land by investors for resale in its original state, or for sale after its development.  The amendment to the investment law slated for later in 2020 is expected to further clarify access to land for foreigners.

In principle, if a property is legally purchased but unoccupied, property ownership stays with the legal owner even if squatters take over the land.  In practice, due to corruption and lack of oversight, there have reportedly been instances of fraudulent transfer of property rights.  The national land policy (PNF) that the GOM developed in 2016 has done little to correct the situation due to slow enforcement.[i]

Intellectual Property Rights

The “Office Malgache des Propriétés Industrielles (OMAPI),” Madagascar’s intellectual property rights authority was created in December 1992.  OMAPI publishes the titles it grants in the Official Gazette of Industrial Property (GOPI) and provides the public with industrial property documentation such as patent documents, industrial property legislation in various countries, and multilateral treaties on industrial property rights (IPR).  The “Office Malgache des Droits d’Auteurs (OMDA),” is Madagascar’s agency to protect authors’ rights and copyrights.  OMDA’s mission is to ensure the exclusive protection, defense and management of the economic interests of Malagasy and foreign authors, performers, and their successors concerning the use of scientific, literary and artistic works.

Officially, these authorities protect against IPR infringement, but in reality, enforcement capacity is quite limited due to resource constraints including poor digitalization, weakness of the judicial system, and lack of awareness of intellectual property rights among businesses and consumers.  Due to these constraints, international investors have faced difficulties defending their interests.  Madagascar neither tracks nor reports seizures of counterfeit goods, which are easily available in local markets as are unauthorized copies of famous brands, songs, and videos.

New IPR laws have stalled for years due to inaction by Parliament and the Office of the Prime Minister.  The proposed legislation incorporates The Hague (international registration of industrial designs) and Lisbon (protection of origin appellation and international registration) agreements, and other international treaty classifications.  The adoption of these bills would substantially improve  IPR  in Madagascar, provided OMAPI has sufficient funding for enforcement.

Madagascar was not listed included in the United States Trade Representative (USTR) ecial 301 Report or the  Notorious Markets List.

[i] https://slideplayer.fr/slide/1169362/ 

6. Financial Sector

Capital Markets and Portfolio Investment

Madagascar has neither a stock market nor a competitive and transparent bond market, so portfolio investment opportunities are extremely limited.  Foreign investment in government debt is limited to Malagasy nationals and legal residents.

There are no restrictions on payments and transfers for international currency transactions per IMF Article VIII.  The Central Bank and the Ministry of Finance require documents prior to any transfer of currency to foreign countries.  There is no ceiling imposed on international transactions but justification remains mandatory.

The private sector has access to a variety of credit instruments.  Credit is allocated on market terms and can be offered either in local or foreign currency.  Credit obtained in local currency is often more expensive than foreign currency due to inflation and lack of competition.

The Central Bank does not impose direct caps on loans but instead uses indirect tools to limit credit, such as imposing reserve requirement ratios (13 percent of deposits).  Foreign investors are able to get credit on the local market if they have an officially registered company/subsidiary located in the country.

Money and Banking System

Madagascar’s banking penetration rate is very low.  Only 12 percent of the population has a bank account, which includes accounts with microfinance institutions.  Less than three percent of the population has access to commercial bank loans, and there are just 97.3 deposit accounts per 1000 adults.

There are only eleven commercial banks in Madagascar.  As rates are high and competition low, banking activities are very profitable.  Loans and credit to the private sector represent 57 percent of bank assets whereas loans (including TB) to the government represent 17 percent.  Non-performing loans accounted for 7 percent of overall loans and credit in 2018.

Overall assets of all commercial banks were USD 2.9 billion or 20.7 percent of GDP as of December 2018.

Madagascar has a central bank system.  Its main objectives are to ensure the stability of the local currency internally (acceptable inflation rate) and externally (acceptable fluctuation of the exchange rate).  The Central Bank has no clear mandate to promote economic growth.  There is no inter-bank lending system in place.

Only one of eleven operating commercial banks is local.  The other ten are subsidiaries of French, Moroccan, Gabonese, and Mauritian banks and are subject to prudential measures imposed by the CSBF or Banking and Financial Supervision Committee.  Madagascar has not lost any correspondent banking relationships in the past three years nor are any currently in jeopardy.

Foreigners having legal residency status in the country can establish a bank account in either local or major foreign currencies (USD and Euro).

Foreign Exchange and Remittances

Foreign Exchange

Foreign investors do not face restrictions or limitations in converting, transferring, or repatriating funds associated with an investment.  However, the monetary authorities and the Ministry of Economy and Finance require traceability of capital inflows and outflows.  Funds can be freely converted into major foreign currencies.

Madagascar adopted a managed floating exchange rate system in 1994.  The exchange rate fluctuates but the Central Bank intervenes to prevent abrupt depreciation or appreciation of the Ariary.  In general, the Central Bank of Madagascar keeps the value of the Ariary fluctuating in a two percent range.  The COVID-19 pandemic and resulting decline in Malagasy exports has resulted in over 5 percent depreciation in the value of the Ariary during the first four months of 2020.

Remittance Policies

There are no recent changes or plans to change investment remittance policies.  There are no restrictions on converting or transferring funds associated with foreign investment, including remittances of investment capital, earnings, loan repayments, and lease payments.  There are also no time limitations on remittances.

Sovereign Wealth Funds

Madagascar does not have a Sovereign Wealth Fund that manages national savings for investment purposes.

7. State-Owned Enterprises

The government has shares in 53 companies, with a majority stake in 27 enterprises; in 11 cases, the government owns over 95 percent of the entity.  Detailed information about state-owned companies (SOEs) is not easy to come by but they operate in many key sectors such as aviation, public utility (running water and electricity), ports, hotels, insurance, finance, woodworking, mining, maintenance and construction of ships, and real estate.  The government has minority shares in three major banks, the beverage industry, oil distribution, and mining activities.  The two most well-known SOEs are JIRAMA (100 percent state-owned), the water and electricity utility, and Air Madagascar whose equity tie-up with France’s Air Austral is in the process of unraveling.  The GOM has spent substantial amounts subsidizing the operations of both of these entities.  Improvement in the governance and a return to profitability of SOEs is a long-standing condition for future assistance by multilateral donor institutions such as the World Bank and the IMF.

In theory, private enterprises are, on the whole, allowed to compete with SOEs under the same terms and conditions for market access, credit, and other business operations.  The reality is somewhat different.  State-owned enterprises dominate the sectors they operate in and stifle competition.  For instance, in the airline industry, Air Madagascar offers unreliable service and charges high fares but faces little competition domestically or regionally since the GOM has restricted access to flight routes for other airlines.  Any investor seeking to compete with an SOE in Madagascar should consider not only market-entry difficulties but also its ability to compete for scarce resources and permits.

Privatization Program

The 2004 law on privatization prohibits the Government from owning more than 50 percent of a privatized company.  The fledgling privatization program initiated before 2009 has given way to more government control as reflected by the GOM’s recent moves to increase what it calls “the production share of the government” in the mining sector.

In the past, foreign investors participated actively in these privatization programs. Almost all state-owned banks were purchased by foreign investors including foreign state-owned banks.

Currently, the GOM does not have a privatization program on its agenda.

8. Responsible Business Conduct

Overall, Responsible Business Conduct (RBC) has not been a priority for the business community or for the GOM.  The GOM does not have a dedicated policy on RBC at present, but this is changing as the new investment law currently being drafted is expected to incorporate RBC standards.   Large corporations including multinationals in the mining sector, local conglomerates, commercial banks, and sizable international service firms proactively comply with universal RBC standards in reference to governance, environmental concerns, and corporate social responsibility.  The National Environment Office (ONE) does require environmental impact assessments to be conducted.

The government enforces labor, employment rights, and consumer and environmental protections in part through periodic inspections, though a lack of resources and capacity, as well as continued corruption at lower levels, impedes the effectiveness of this enforcement.  The government does not waive these requirements in order to attract foreign investment, except for some particular exemptions to its labor code provided to EPZ companies.  Many companies with foreign investors, particularly from western countries, are moving gradually to international standards through their participation in voluntary certification schemes, such as the Worldwide Responsible Accredited Production (WRAP) principles in the apparel sector.  There is also a vibrant NGO and civil society community, particularly regarding environmental issues, but they also suffer from lack of resources and capacity.

The U.S. Department of Labor report on the worst forms of child labor includes the exploitation of child labor in Madagascar’s production of vanilla, sapphires, and precious stones.  In November 2019, an international NGO also exposed the use of child labor in mica mining in the southern part of the country.  The government has made moderate advancement in efforts to eliminate the worst forms of child labor, with assistance from international donors.

In 2018, after accusations by an international NGO, the Rio Tinto subsidiary QIT Minerals Madagascar (QMM) confirmed they had breached a buffer zone between their ilmenite mining operation in the south of Madagascar and a sensitive wetland.  The breach, which took place in late 2014, is in violation of Malagasy law and conservationists fear risks of uranium-enriched tailings entering a lake that local people use for drinking water.  The Office of Environmental Compliance (ONE) inspected the breach in 2018 and declined to take action.  In August 2019, following further complaints by NGOs on the lack of transparency in ONE’s actions, the Minister of Environment promised to investigate further.

Poor and slow enforcement of domestic laws relating to human rights, labor rights, consumer protection, environmental protections, and other laws/regulations fail to protect individuals from adverse business impacts.  NGOs, unions, business associations and other entities have been very active in raising awareness of RBC particularly in relation to environmental protection, child labor, and human rights, but are not always effective and achievements are uneven.  There have been some notable advances in the campaign against sexual harassment and discrimination based on gender and religion.  Child labor is an ongoing issue in several sectors.  Harassment of activists, particularly on the environment side, has dropped off in the last year.

The GOM encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals, but has no similar domestic measures requiring supply chain due diligence.

Madagascar is a member of the Extractive Industries Transparency Initiative (EITI), under the Mining Ministry.  In 2019, EITI’s international office suspended Madagascar for the second time in 10 years following significant delays in the publication of the 2017 and 2018 reports.  They mandated the GOM implement 15 corrective measures and undergo a double validation process before readmission.  Disagreements on policy direction and funding led to the resignation of the Executive Secretary of EITI Madagascar in 2019, following which the GOM published the two long delayed reports.  EITI International announced in December 2019 that Madagascar had provided documentation of implementation of the fifteen corrective measures required by EITI and its impact.

There are no laws or domestic transparency measures mandating the disclosure of payments for projects related to the commercial development of mines and hydrocarbon resources.

9. Corruption

While giving or accepting a bribe is a criminal act and is subject to trial by court, corruption is an ongoing issue at all levels in Madagascar.  No sector is immune, but it is most pervasive when dealing with the judiciary, police, tax, customs, land, and the mining industry.

Madagascar’s anti-corruption legislation, updated in 2016, mandated the establishment of the Independent Anticorruption Office (BIANCO) and the Committee for Safeguarding Integrity (CSI).  BIANCO enforces the anti-corruption law while CSI monitors the implementation of the national anticorruption strategy.  The anti-corruption courts (PAC) were established in 2018 to hear all corruption-related cases – including economic and financial crimes – after an investigation by BIANCO or the gendarmerie.  There are supposed to be PACs throughout the country, but the only one fully operational is in the capital.  Madagascar also has a Financial Intelligence Unit (SAMIFIN) to carry out research and financial analysis related to money laundering.  Transparency International Initiative Madagascar (TI-IM) has an office in the country working here since 2002.  TI-IM, BIANCO, SAMIFIN, Police and Gendarmerie collaborate closely to bring cases to the courts.

The Rajoelina administration has prioritized the fight against corruption and has begun to prosecute major corruption cases.  Between January and September 2019, 1,111 individuals were investigated, 421 arrested, and 78 were sent to prison for pre-trial detention.

During an investigation, bank accounts of family members (spouse, parents, children) can be investigated, but there is no provision or sanctions for family members of officials convicted of corruption.

There is no requirement for companies to establish internal codes of conduct that prohibit bribery of public officials.  Both the anti-corruption law and the penal code prohibit any individual/enterprise from giving money, presents, or other gifts to public officials to obtain advantages they are not entitled to.  The law also provides that any private enterprise that commits corrupt practices to obtain a permit, license or authorization is excluded from government procurement.  Furthermore, according to the law, any license, authorization, or permit issued illegally through corruption is void.

Both Article 31 of the 2016 anti-corruption law and Article 182 of the penal code require that any conflicts of interest concerning a public official should be declared to the supervising authority.  Failure to do so can lead to between six months to two years of imprisonment, a fine varying from Ar 1,000,000 to Ar 50,000,000 or both.  There is limited information on companies using internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.  However, some foreign companies have begun to orient their internal control, ethics, and compliance programs to prevent bribery, and the Foreign Corrupt Practices Act prohibits U.S. firms from engaging in such behavior.

Madagascar ratified the United Nations Convention against Corruption, as well as the African Union Convention on Preventing and Combating Corruption, in 2004.  Madagascar also joined the Southern African Development Community (SADC) Protocol against corruption in 2007, but has not yet signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transaction.

NGOs and associations are involved in governance and anti-corruption projects.   The law does not have any explicit provisions protecting NGOs and associations.  A Transparency International Initiative report states that although many associations and NGOs exist on paper, their actions are limited in terms of impact, especially in terms of playing a watchdog or advocacy role concerning government institutions.  Environmental activists have been harassed and threatened by various means.  The government, however, does not target them directly.

In general, the private sector identifies corruption as an obstacle to investment.  The IMF country report on Madagascar published in 2017 indicates that corruption affects the business climate in Madagascar.  Forty percent of those surveyed expected to give gifts “to get things done,” or to get an operating license, or to secure a government contract.  Moreover, 30 percent of the surveyed firms expected to give gifts in meeting tax officials and were required to make an informal payment or experienced a bribe payment request.  Similarly, more than 75 percent of Malagasy stated that corruption had increased in Madagascar over the past year, according to the 2019 Afrobarometer Survey, with 44 percent of Malagasy believing that police and gendarmes are involved in corruption and 39 percent believing the same of judges and magistrates.  BIANCO fared better with respect to the public’s trust, with 87 percent believing it is somewhat or very probable that BIANCO would take action if they report an act of corruption.  Nevertheless, of these respondents, 70 percent believe that regular citizens are at risk of retaliation if they report this.  For exporters, many products require documentation linked to regulatory controls and this process can require a significant amount of time, costs, and possibly bribes.  Aside from the routine demands for a quid pro quo, close ties between business and political elites also present barriers to entry for newcomers to the field.

Resources to Report Corruption

Bureau Indépendant Anti-Corruption (BIANCO)

  • Laza Eric Donat ANDRIANIRINA
  • General Manager
  • Independent Bureau Anti-Corruption (BIANCO)
  • Villa “La Piscine”, Ambohibao, Antananarivo, Madagascar, PO Box 399
  • +261 20 22 489 79 / +261 20 22 489 93 / +261 33 02 002 99
  • DG@MOOV.MG; CONTACT@BIANCO-MG.MG; WWW.BIANCO-MG.ORG 

TRANSPARENCY INTERNATIONAL-INITIATIVE MADAGASCAR (TI-IM)

SEHATRA FANARAHA-MASO NY FIAINAM-PIRENENA (SEFAFI) – Observatory of public life

  • Mme Sahondra RABENARIVO
  • Chairperson
  • Sehatra Fanaraha-maso ny Fiainam-pirenena (SEFAFI)
  • Lot IIIM33K, Andrefan’Ambohijanahary, Antananarivo, Madagascar
  • +261 32 59 761 52
  • sefafi@gmail.com

AFROBAROMETER

10. Political and Security Environment

Madagascar’s political history is characterized by cyclical political unrest since its independence.  The two most important events during the past two decades happened in 2002 and 2009.  In 2002, the disputed presidential elections between Didier Ratsiraka and Marc Ravalomanana led to six months of social, political, and economic conflict before Ravalomanana took over as President of the Republic.  In 2009, following violent public protests against widespread poverty and bad governance, Ravalomanana handed over power to a military directorate which installed Andry Rajoelina as President on March 17, 2009.  Both times, the political crises drove Madagascar into an extended period of economic decline, further exacerbating poverty, malnutrition, and socio-economic problems.

In April 2018, the parliament adopted a new electoral law with provisions aimed at preventing both former Presidents Ravalomanana and Rajoelina from participating in the presidential elections.  After weeks of protests by their supporters, the HCC ruled the disputed provisions unconstitutional.  Two rounds of peaceful presidential elections took place in November and December 2018, following which Andry Rajoelina took office as President in January 2019.  The elections of Rajaonarimampianina in 2013 and of Rajoelina in 2018 were the first two consecutive democratic transfers of power in Madagascar’s history.

The 2009 coup was preceded by violent protests which damaged many factories and warehouses, and destroyed radio and TV stations.  Looting and arson destroyed many businesses in downtown Antananarivo and other urban centers.  The political turmoil had a secondary and more lasting impact on Madagascar’s infrastructure.  With foreign aid at a standstill, public investment also diminished leading to significant deterioration of Madagascar’s transportation and energy infrastructure, erosion of environmental diversity, and contributed to an increase in food insecurity and levels of poverty.  Total private investment dropped from 40.96 percent of GDP in 2008 to 23.42 percent of GDP in 2010.

After the peaceful presidential transition in 2018, Madagascar held legislative elections in 2019 which also took place without incident.  Though the opposition alleged fraud in the municipal elections in November 2019, there were no significant protests or acts of violence.  So far, the government has been able to move its legislative agenda without significant opposition.  The economic impact of COVID-19 pandemic bears watching as it is likely to cause significant unemployment, business closures, and strain the government’s budget.

According to a 2019 report published by the commercial bank Société Générale, political instability, institutional weakness, and bad governance constitute obstacles to Madagascar’s economic growth.  Corruption and social instability remain a challenge for the Malagasy economy.  The report points to rising insecurity in the south and risk of political violence in the country.

11. Labor Policies and Practices

Over 75 percent of the labor pool works in the informal sector, primarily agriculture.  There are few reliable statistics available on unemployment, underemployment, and the split between skilled and unskilled labor.  Madagascar has a significant pool of available labor, much of it young given the demographics of this country of 25 million people.  One recent report puts the underemployment rate for the 15 to 29 age group at over 75 percent.

The quality of Madagascar’s labor is high and is frequently cited by private investors as a key attraction for the country; this is particularly so in the textile sector where Madagascar has a growing reputation in the production of high-end apparel at costs comparable or lower to major exporters in Asia.  The World Bank notes high skill levels in technology and call center services offer areas for growth.  Another factor to note is the brain drain of educated Malagasy seeking better economic opportunities in Mauritius, other parts of Africa, and in Europe.

The National Office for Employment and Vocational Training, within the Ministry of Labor, is tasked with increasing the availability of skilled labor.  Officially launched in March 2019, the Malagasy Vocational Training Fund (FMFP) finances training for company employees as well as youth and adults from the informal sector in Madagascar.  The FMFP’s mission is to finance continuing vocational, pre-employment and soft skills training for workers.  With the assistance of its technical and financial partners, the FMFP launched tailored training sessions for several sectors including building and construction; public works and infrastructure; rural development; information and communication technology; textiles – clothing and accessories; hotel-restaurant-travel; and equity (start-up, associations, cooperatives, and NGO).

In general, labor laws do not include requirements for investors to hire nationals.  The mining sector is the exception where the LGIM gives preference to nationals, so long as they have the required skills and experience.

The labor code includes specific provisions protecting workers against abrupt dismissals, but it also allows the employer to lay off workers for economic reasons.  In such a situation, the employer has the right to furlough employees for a maximum period of six-month period during which all salary and allowances are suspended.  After the six months, if the activities do not resume, the employer is required to pay severance, including the unpaid salary.  There is no unemployment insurance or other safety net for those who are laid-off or fired.

Madagascar does not have a history of waiving labor laws to attract or retain investment.  The labor code covers private sector workers while civil servants and maritime workers have separate labor codes, and a specific law ruling EPZ companies includes provisions related to their workers’ rights.  EPZ labor contracts may differ in duration, restrictions on the employment of women during night shifts and the amount of overtime permitted.

The law provides that public and private sector workers may establish and join labor unions of their choice without prior authorization or excessive requirements.  Essential workers, including seafarers, police, military, and firefighters, may not form unions.  Unions generally operate independently from government and political parties.  According to union representatives, about 20 percent of the formal sector has collective bargaining agreements, and collective bargaining rights are more readily exercised and respected in larger international firms, such as those in the telecommunications, mining and banking sectors.  In EPZs and smaller local companies, employees tend to be more reluctant to make demands for fear of reprisals.

The labor law establishes labor dispute mechanisms, which proceed progressively from internal negotiation to outside mediation from the Ministry of Labor to arbitration or legal settlement through the competent courts.  The labor inspectorate under the leadership of the Ministry of Labor is in charge of resolving disputes by negotiation between workers and employers.

In November 2019, the GOM suspended the activities of an Australian mining company named Base Toliara, exploiting ilmenite in southern Madagascar.  The GOM took action on the basis of protests initiated by a group of local inhabitants who had opposed the project since 2014 on environmental, health, and livelihood impact on the local population.

In the Country Program for Decent Work for 2015 to 2019 (a joint ILO-GOM project), ILO notes weak respect for fundamental labor rights.  These include infringement of social and labor-related laws, informal recruiting practices, and poor hygiene, security, and health standards.  Due to extreme poverty and lack of opportunity, workers tend to accept poor working conditions.  The use of child labor in the vanilla and mica industries is an ongoing issue that international organizations and NGOs are working with the GOM to address.

In 2019, Madagascar ratified six ILO conventions.  The local office of ILO supported the government in identifying the necessary amendments to align the local legislation with the newly ratified conventions.  A finalized summary of the suggested amendments was submitted to the National Labor Council.

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

Given Madagascar’s status as one of the poorest countries in the world, it is a perfect candidate for DFC programs and assistance.  With the GOM prioritizing infrastructure investments and private sector-led economic growth, DFC’s ability to offer reasonable rates on loans and/or political risk insurance will be invaluable.  Madagascar’s biodiversity is well-known and celebrated, but it is also under threat from illegal logging, smugglers, wildlife traffickers, and slash and burn agriculture.  Projects that target sustainability and environmental protection will be even more important with COVID-19 displacement already creating numerous instances of increased incursions into protected areas and destruction of habitat.

On March 31, 1998, the Overseas Private Investment Cooperation (OPIC) and Madagascar signed a bilateral Investment Incentive Agreement, which updated the previous agreement signed in 1963.  Additionally, OPIC and Madagascar concluded two memoranda of understanding in 2004 pledging cooperation in attracting U.S. investment in several sectors, including telecommunications and information technology, agribusiness, mining, energy, and tourism. However, there are currently no active OPIC projects in Madagascar.  Madagascar has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1989.

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) 2017 $13,176 2018 $13,853 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2015 450 2019 N/A BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 N/A BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 
Total inbound stock of FDI as % host GDP 2015 67% 2019 54.7% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

*Source for Host Country Data: Central Bank and Institut National de la Statistique de Madagascar

Madagascar is not listed in the IMF data on CDIS. So the table below shows data from Central Bank and Institut National de la Statistique de Madagascar (FY2015).

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 100% Total Outward Amount 100%
Mauritius 289 51.4% N/A
France 111 19.7%
United States 68 12.0%
Swiss 23 4.0%
Luxemburg 15 2.6%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Madagascar does not have a database on equity and debt securities. There is no stock market and corporates rarely offer their equity shares to the public.  In addition, only companies and individuals with legal and permanent resident status can purchase Treasury bonds. Therefore, a breakdown per country on issued bonds is unavailable.

14. Contact for More Information

Sheela Krishnan
Economic Officer
U.S. Embassy Antananarivo
+261 20 23 480 00
krishnanse@state.gov

Malawi

Executive Summary

The Government of Malawi is eager to attract foreign direct investment.  Opportunities are plentiful for investors comfortable operating in frontier markets. The Malawi Investment and Trade Center’s One Stop Center helps navigate relevant regulations and procedures, a process that can be challenging without local knowledge. Malawi Government also hosts Investment Forums to attract investors into the country. In general, there are adequate legal instruments to protect investors and foreign investors generally receive national treatment.

Political risk in Malawi is manageable given that the country has been largely free of political violence since gaining independence in 1964.  Although divisions exist, Malawi has no significant tribal, religious, regional, ethnic, or racial tensions that could lead to violent confrontation.  Political conflict (including protests and court appeals) has been on the rise since the contested 2019 presidential election, although political actors have contested within constitutional norms throughout the period.  A rerun election is scheduled for 2020.  Private investment has subsided given the uncertainty.

Agriculture accounts for one third of GDP and 80 percent of Malawi’s exports but growth in the sector lags. Cyclone Idai and floods which hit the country in 2019 worsened the infrastructure situation. Nonetheless, many opportunities exist for investment in the sector, particularly in agribusiness and agro processing.  In 2019, the U.S. International Development Finance Corporation (DFC) finalized financing for a multi-million USD Solar Power Generation deal in Nkhotakota. The solar power agreement followed the completion of MCC’s USD 350 million energy compact in 2018.

Although the Government of Malawi (GOM) has made some efforts to combat corruption, it remains a major obstacle to investment in Malawi.  Scarcity of skilled and semi-skilled labor is another serious impediment to doing business in Malawi. Shortages are most acute in occupations such as financial management, economics, engineering, law, IT, and medicine/health.  Infrastructure investment also lags in Malawi and, as a land-locked country, it depends on its neighbors for port access. Formal and informal trade boundaries restrict both imports and exports, yet the economy is heavily reliant on imports.  While power infrastructure has improved, power outages remain a significant impediment to investment.

There is an established mediation process to work with parties to overcome disputes and preempt court proceedings.  Both foreign and domestic investors have access to Malawi’s legal system, which functions well and in an unbiased manner but is notoriously slow.

All investors have the right to establish, acquire, and dispose of interests in business enterprises.  Foreigners require a business residency permit to carry out any business activity in Malawi.  All new land acquisitions are under leases.  Lease terms for foreigners may be limited to a renewable 50 years, compared to 99 years for Malawians.

The Government seeks to ensure the availability of foreign exchange for business transactions and remittances in order to attract investors and spur economic growth.  There are no restrictions on remittance of foreign investment funds if the capital and loans initially came from foreign sources and were registered with the Reserve Bank of Malawi.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 123 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 109 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 118 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 52.0  https://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 USD 360 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Malawi is open for foreign and domestic investment and grants national treatment to foreign investors. The country has hosted Malawi Investment Forums in 2015, 2016 and 2018, and is also planning to host another forum in 2020 (https://mif.mw/ ) as one way of marketing the country and bringing in FDI. Investors, both foreign and domestic, may invest in any sector of the economy, with no restrictions on ownership and investment incentives are open to both foreign and local investors.

There are no restrictions on the size of investment, the source of funds, the investment sector, or on whether products are destined for export or for the domestic market. Furthermore, an investor can disinvest 100 percent, make international payments and not be forced into local partnerships. However, the Malawi Stock Exchange limits an individual foreign investor to 10 percent of any company’s Initial Public Offering (IPO) and the stake of all foreign investors in an IPO is limited to 49 percent of total shares of the company.

The Malawi Investment and Trade Centre (MITC) was established to promote Malawi as a destination for trade and investment.  It maintains three websites (www.mitc.mw , http://www.theiguides.org/public-docs/guides/malawi, and trade.mitc.mw ) that provide information on potential sectors for investment and relevant regulations.  The MITC also operates One Stop Service Centre at its Head Office in Lilongwe. The One Stop Centre has officials from business related government service providers all housed in one room. In practice MITC effectiveness is mixed.

The GOM prioritizes investment retention and maintains an ongoing dialogue with investors through the MITC, Ministry of Industry and Trade, Public Private Partnership Commission and other government agencies. The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) is one of the most successful groupings representing all sectors of the economy and it lobbies the GOM on issues affecting the private sector.  (https://www.mccci.org/ ).

Limits on Foreign Control and Right to Private Ownership and Establishment

The GOM does not impose restrictions on the ownership or location of investments. It permits FDI in all sectors of the economy except for those sectors or activities that may pose a danger to health, the environment or national security. Restrictions are not imposed on fund source, destination or final product. There is, however, a requirement to appoint at least two Malawian residents as directors of companies registered in Malawi.

There are some limitations on foreign ownership of land.  Under the Land Act of 2016, neither Malawians nor foreigners can acquire freehold land; foreigners can secure lease-hold land for terms up to 50 years.  In addition, foreigners can only secure private land when no citizen has made an equal offer for the same land.

During the privatization of government assets, Malawian nationals are offered preferential treatment, including discounted share prices and subsidized credit. A 2017 amendment to the Public Procurement and Disposal of Assets (PPDA) Bill includes an indigenization clause that calls for “the prioritization of all bids submitted to give preference to sixty percent indigenous black Malawians.” From July 1, 2019 the GOM started implementation of the guidelines of the PPDA Act of 2017 (https://times.mw/black-empowerment-rule-comes-into-effect/ )

There is no government policy to screen foreign direct investment but minimum investment capital for foreign investors is USD 50,000.  Such investors must register with MITC (www.mitc.mw ) and RBM (www.rbm.mw ). Registration of borrowed invested funds allows investors to externalize profits to pay back loans contracted abroad and repatriate funds when disinvesting. MITC has revised the threshold for capital requirements but is waiting for gazetting to make the threshold official. The new thresholds will depend on the sector and will be revised upwards (https://mwnation.com/local-businesses-decry-investor-capital-ceiling/ ).

Other Investment Policy Reviews

WTO last preformed a periodic Trade Policy Review of Malawi in April 2016. The full report can be accessed at https://www.wto.org/english/tratop_e/tpr_e/tp435_e.htm . OECD and UNCTAD have not conducted reviews for Malawi.

Business Facilitation

To facilitate the process of starting a business, the Malawi Investment and Trade Center (MITC) operates a One Stop Center.  It assists foreign and domestic investors of all sizes to navigate relevant regulations and procedures.  It hosts representatives of the Registrar General, the Malawi Revenue Authority, the Department of Immigration, and the Ministry of Lands, Housing, and Urban Development.  MITC’s main website (www.mitc.mw ), the iGuides (http://www.theiguides.org/public-docs/guides/malawi ), and trade portal (www.trade.mitc.mw ) (http://www.malawitradeportal.gov.mw/ ) provide further information.

In addition to MITC’s One Stop Center, businesses can register online at http://www.registrargeneral.gov.mw/  though the website is often inaccessible. To operate in Malawi, a business must register with the Registrar General, the Malawi Revenue Authority and often the Ministry or regulatory body overseeing their sector of activity.  For example, construction companies need to register with the National Construction Industry Council (http://ncic.mw/membership/ ).  Businesses are also supposed to obtain business licenses from the city assembly, register the workplace with Ministry of Labor and Ministry and allow health officials to carry out an inspection of the company premises (https://mitc.mw/trade/index.php/business-registration ).

Outward Investment

The mandate of MITC is to promote outward as well as inward investment.  However, MITC rarely facilitates outward-bound investment.  Domestic investors are not restricted to invest abroad except in the case of the Pension Act of 2010 and accompanying regulations which do not allow for the investment of pension funds or umbrella funds abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Malawi has signed bilateral investment treaties with Egypt (in force), Italy (in force), the Netherlands (in force), Zimbabwe (not in force), Malaysia (not in force) and Brazil (not in force).  Malawi is also a member of the Common Market for Eastern and Southern Africa (COMESA) Customs Union and the Southern African Development Community (SADC) Free Trade Area, governed by the SADC Protocol on Trade and has signed but is yet to ratify the African Continental Free Trade Area. Malawi does not have a trade agreement with the U.S. nor does it have a bilateral tax treaty with the United States.

In the past year, the GOM made the following amendments to the taxation law under the Taxation (Amendment) Act of 2019:

  1. Introduction of carbon tax based on engine size (min MK 4,000 or USD 5.3 and max MK 15,500 or USD 20.83 – Using exchange rate of MK744/USD. Average TT rate for March 2020 as reported by the Central Bank) per year for local vehicles and per entry at the border for foreign motor vehicles except government owned vehicles.
  2. Introduction of tax incentive to employers for employing persons with disability. Employers will claim 50 percent of the basic salary as an allowable deduction.
  3. Increase of zero rate PAYE thresholds from MK 35,000 (USD 47.04) to MK 45,000 (USD 60.48) and increase of the top rate bracket (for income exceeding MK 3,000,000 (USD 4,032.25) per month) for individual taxpayers-sole proprietors and partners from 30 percent to 35 percent.
  4. Zero rating VAT on poultry/chicken feed, liquefied petroleum gas, gas cylinders, wood cook stove, laundry soap, solar products and energy efficient bulbs.

3. Legal Regime

Transparency of the Regulatory System

The GOM continues to undertake various reforms to ensure that tax, labor, environment, health, or safety laws do not distort or impede investment.  The legal, regulatory, and accounting systems are partially transparent and consistent with international norms.  However, significant procedural delays impede the business and investment environment.  Certain professional associations have sectoral rule-making power that amounts to regulatory power.  These professional bodies include the National Construction Industry Council, Malawi Law Society, Malawi Accountants Board, and the Employers Consultative Association of Malawi.  Some of these associations require the use of local labor, local contractors, or other means to achieve localization or skills transfer to Malawians.  The rule-making process is not always transparent to firms that are new to the Malawi market.

The GOM uses a mix of fiscal, financial, and regulatory instruments to administer its investment policy, and thus management and responsibility spreads across multiple ministries and agencies.  Taxation policy is the jurisdiction of the Treasury Department in the Ministry of Finance.  The Malawi Revenue Authority (MRA) is the main implementing agency for tax policy.  The Reserve Bank of Malawi (RBM) administers the exchange rate of the Malawi Kwacha, as well as liberal exchange controls to allow free flow of capital and earnings — repatriation of dividends, profits, and royalties.  The Ministry of Home Affairs’ immigration department administers the Employment of Expatriates Policy, Temporary Employment Permits (TEPs), and business residence permit.  The Ministry of Lands, Housing and Urban Development is responsible for land policy administration while the Malawi Bureau of Standard is responsible for metrology, standardization and quality assurance. The Malawi Communications Regulatory Authority (MACRA) administers the communications act. Relevant government Ministries, Departments, and Agencies (MDAs) develop technical regulations and forward them to the Ministry of Justice for review and gazetting.  All regulations are set at the national level.

All companies that have public accountability use full IFRS standards. In 2001, the Institute of Chartered Accountants in Malawi (ICAM) adopted the IFRS as a common global language so that company accounts are understandable and comparable across international boundaries.  Almost all proposed laws, regulations, and policies (including investment laws) are subject to public consultation before submission to the Cabinet, the Parliament, or the Ministry of Justice.  However, sometimes the public notice of such consultations comes late, with the effect that only insiders engage.  Parliamentary procedures call for debate on drafts in relevant committees before presenting the bill to the floor for a vote.  Rules allow fast-tracking bills as well.

Interested parties can generally purchase copies of recent laws from the government printing office or access them at the National Library and in the High Court libraries. An increasing number of laws are also available online at www.malawili.org . The GOM has no central repository for technical regulations. Relevant government Ministries, Departments, and Agencies (MDAs)  manage regulations. The Ministries then publish the regulations in the Malawi Government Gazette after which they form part of the schedules to relevant acts.  MDA websites do not usually post these laws and regulations but do provide them upon request.

Regulations and enforcement actions are legally reviewable in the national court system.  However, periodic review of regulations is not a requirement.  The Ministry of Justice and Constitutional Affairs provides oversight or enforcement mechanisms to ensure MDAs follow administrative processes for developing and implementing regulations.  If they feel procedures were not followed, private individuals and entities can bring a case against the government in court or seek redress through the Office of the Ombudsman.

The GOM also implemented reforms aimed at improvements in workplace registration and the implementation of the warehouse receipt systems act of 2018, the commodity exchange guidelines, and the cannabis bill of 2020.  Immigration rolled out an electronic permit system. These reforms and regulations may improve the business environment. Relevant government Ministries, Departments, and Agencies (MDAs) develop technical regulations and forward them to the Ministry of Justice for final review. The MDAs then present the regulations to Cabinet for final approval and gazetting. Thereafter, relevant government Ministries, Departments, and Agencies enforce regulations under their purview.  There are no specific regulatory guidelines for reviewing regulations or conducting impact assessments, including scientific or data-driven assessments.  What’s more, there are no specific criteria for determining which proposed regulations are subject to an impact assessment nor is there a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.

Transparency of public finances and debt obligations is mixed. Publicly available budget documents provide a full picture of Malawi’s proposed/estimated revenue, including natural resources revenues and off-budget donor support, and expenditures. However, the approved budget provides expenditure data at the level of ministry/budget vote, and not below, where the details necessary to gauge investment potential in given sectors should be visible. End of year financial statements detailing actual revenues and expenditures are presented alongside the budget proposal for the following financial year. The government also makes public general information about debt obligations in its financial statement and annual debt report. The documents are available at: https://www.finance.gov.mw/index.php/blog/documents/ .The RBM also publishes public debt information in its quarterly economic reviews, published at: https://www.rbm.mw/Publications/EconomicReviews/#Quaterly . In contrast to the visibility into government finances, contingent liabilities are generally unknown to the public, as the books of State-Owned Enterprises are not presented to the public in a transparent manner. The government shares additional debt information with the World Bank for debt sustainability analysis and with the IMF for evaluation of compliance with its Extended Credit Facility (ECF) and these analyses are made public through the IMF’s release of its ECF reviews.

International Regulatory Considerations

Malawi is a member of the COMESA Customs Union and the SADC Free Trade Area, governed by the SADC Protocol on Trade.  The government develops all new regulations roughly in line with the regulatory policy provisions set out by COMESA and SADC, but national regulations rule if there is a conflict.  As a member of both SADC and COMESA, Malawi is bound by their respective norms and standards.  One can find details on the organizations’ respective websites:

COMESA: http://www.comesacompetition.org/ 

Since 1995, there is no record of Malawi providing notification on draft technical regulations to the WTO Committee on Technical Barriers to Trade.  The last time Malawi submitted a statement on implementation and administration of the WTO Agreement on Technical Barriers to Trade was in 2007.  Malawi signed the WTO Trade Facilitation Agreement (TFA) on July 12, 2017.  Malawi has made progress on implementing the TFA provisions through the launch of a trade information portal which one can access at https://www.malawitradeportal.gov.mw/ .

Legal System and Judicial Independence

Malawi’s legal system is based on English Common Law. The judiciary consists of local courts and a local appeals court in every district. The higher tiers consist of the Supreme Court of Appeal, the High Court, and the magistrates’ courts.  Judges of the High Court are appointed by the President and posted to the five divisions of the high court: civil division; commercial division; criminal division; family and probate division; and revenue division. The High Court has judicial authority over all civil and criminal cases.  Magistrates’ courts are located throughout the country. The High Court hears appeals from the magistrates’ courts and the Supreme Court of Appeal in Blantyre hears appeals arising from the High Court.  As of the end 2019, there were 26 High Court judges and 9 Supreme Court judges. The Commercial Division of the High Court, presided over by a single judge, deals exclusively with disputes of a commercial or business nature while the Revenue Division deals with any revenue and tax related matter under written laws set out under the Malawi Revenue Authority Act. The Industrial Relations Court handles labor disputes and issues relating to employment. The Child Justice Court handles matters of justice affecting children but falls under the High Court. One can access more information on the judicial system in Malawi at https://www.judiciary.mw/ .

Malawi does not have written commercial laws or contractual laws but has legislation that governs commercial transactions, which include the Sale of Goods Act, Companies Act, Employment Act, Hire Purchase Act, Insolvency Act, Control of Goods Act, Copyright Act, Patents Act, among others. Malawi also has Commercial and Revenue Courts and there is a mediation process to promote agreements prior to court proceedings.  Enforcement of judgments can be slow.  Both foreign and domestic investors have access to Malawi’s legal system, which functions fairly well and is generally unbiased.  Heavy caseloads, staffing limitations, and inadequate funding, however, slow legal remedies.  Critics have called out the judicial system for the ease with which court injunctions can contribute to backlogs and delays.  The judicial system is independent of the executive branch and interference is not apparent.  Regulations and enforcement actions are appealable and adjudicated in the national court system.  In the financial sector, regulations and enforcement actions are appealable through the Financial Services Appeals Committee. If the decisions by the Appeals Committee are not accepted investors are free to seek judicial review through the High Court of Malawi’s Commercial Division.

Laws and Regulations on Foreign Direct Investment

The legal system supports both local and foreign investment without bias.  Key regulations that came out recently include The Trademarks Act of 2018, The Corrupt Practice (Amendment) Act of 2019, The Reserve Bank Act of 2018, The Tobacco Industry Act of 2018, The Mines and Minerals Act of 2018 and the Cannabis Regulation Bill of 2020.  The Malawi Investment and Trade Center (MITC) operates a One Stop Center and assists foreign investors to navigate relevant regulations and procedures. MITCs website is at https://www.mitc.mw/index.php .

Competition and Anti-Trust Laws

The GOM established The Competition and Fair-Trading Commission (CFTC, www.cftc.mw ) in 2005.  Since 2013, the institution has overseen over 26 applications for merger and acquisition and dismantled five cartels. The CFTC’s safeguards competition, by regulating and monitoring monopolies, by protecting consumer welfare, and by ensuring fair market conditions. CFTC decisions may be appealed, first to the Board and subsequently to the Commercial (High) Court.

Expropriation and Compensation

Malawi’s constitution prohibits deprivation of an individual’s property without due compensation. Section 44 of the constitution permits expropriation of property only when done for public utility and with adequate notification and appropriate compensation. Even in such cases, there is always a right to appeal to a court of law. There are laws that protect both local and foreign investment.  However, measures that carry expropriation effects are occasionally imposed, including export bans (and implicit bans due to the government’s authority to require export licenses for any good at any time) for key commodities.  These restrictions apply equally to foreign and domestic investors.

The government can employ land acquisition procedures set forth in the Land Acquisition Act of 2016.  Accordingly, the government must justify its acquisition is in the public interest and pay fair market value for the land.  If the private landowner objects to the level of compensation, it may obtain an independent assessment of the land value.  According to the Act, however, such cases may not be challenged in court; the Ministry of Lands, Housing, and Urban Development remains the final judge.   In most cases, land is expropriated to give way to development projects, most commonly, the construction of roads.  Some have refused to relocate due to disagreements; however, these cases are usually settled amicably and where necessary compensations are made.  In such expropriations, claimants are well informed and fully engaged in negotiations over compensation with the GOM.

Dispute Settlement

ICSID Convention and New York Convention

Malawi has not ratified the New York Convention but has ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).  As a member of the ICSID, Malawi accepts binding international arbitration of investment disputes between foreign investors and the GOM.  The Investment Disputes (Enforcement of Awards) Act of 1966 makes provision for the enforcement in Malawi of awards of the Tribunal of the ICSID.

Investor-State Dispute Settlement

The government is not a signatory to a treaty or agreement recognizing binding international arbitration of investment disputes such as the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).  Malawi does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter within the United States.  Since 1996, there have been no known major investment disputes involving U.S. companies.

The court system in Malawi accepts and enforces foreign court judgments registered in accordance with established legal procedure.  There are reciprocal agreements among Commonwealth countries to enforce judgments without this registration obligation.  There is no such agreement between Malawi and the United States, but judgments involving the two countries can still be enforced if the judgment is registered appropriately in Malawi.  There have been no known extrajudicial actions taken against foreign investors in the recent past.

International Commercial Arbitration and Foreign Courts

With respect to litigation, cases commenced in the High Court of Malawi or a subordinate court must, where the defendant indicates an intention to defend, first go to mediation.  The Assistant Registrar of the High Court maintains a list of mediators and experts.  A mediator chosen by agreement of the parties conducts the mandatory mediation.  If the matter is not settled during mediation, the action will proceed in the court in which it was commenced.  Malawi does not have an arbitration body.  There is no statutory requirement for parties who have contractually agreed to arbitration to go through mediation.  Parties will only be required to go through mediation before proceeding to arbitration if their agreement stipulates it.  As in the case of Investor-State Dispute Settlements, the court system in Malawi accepts and enforces foreign court judgments that are registered locally. Statistics and information on investment disputes involving SOEs are not readily available.

Bankruptcy Regulations

The commercial courts govern all bankruptcies under the provision of the consolidated Insolvency Act of 2016. The Act encourages alternatives to bankruptcy such as receivership and reorganization and gives secured creditors priority over other creditors.  Monetary judgments are usually made in the investor’s currency.  Cross-border provisions of the Insolvency Act are modeled after UN Commission on International Trade Law models. Malawi moved from 141/190 in 2019 to 134/190 in 2020 on the latest WB Doing Business’s ease of “resolving insolvency”.

4. Industrial Policies

Investment Incentives

The GOM offers a wide range of tax and non-tax incentives which apply equally to domestic and foreign investors.  These incentives apply to several sectors including manufacturing, agriculture, mining, and business more generally.  Specific incentives tend to vary from year to year.  A detailed list of investment incentives can be found at the MITC website: www.mitc.mw  and Malawi Revenue Authority website: https://www.mra.mw/business/incentives .  Generally speaking, the incentives offered to investors are applied consistently, but many companies complain about long delays in accessing the accrued benefits.  Additionally, firms must negotiate their eligibility for these incentives with the responsible government entities.  The GOM occasionally issues guarantees and joint financing on foreign direct investment projects especially on projects that are of national importance.

Foreign Trade Zones/Free Ports/Trade Facilitation

Legislation for the establishment of export processing zones (EPZs) came into force in 1995.  Companies engaged exclusively in manufacture for export may apply for EPZ status.  As of March 2020, 14 companies (down from 30 in 2000) were operating under the EPZ scheme.  Almost all of these are foreign owned companies, though the law does not discriminate on ownership.  To resuscitate the EPZs, the GOM has revised EPZ regulations to allow export processing firms to sell 20 percent of their product on the local market.  The government is also in the process of establishing Special Economic Zones, which will have broader coverage than EPZs, allowing a mix of commercial activities including services. The GOM is holding consultations on a draft Special Economic Zones bill and regulations.

Performance and Data Localization Requirements

Malawi employment and immigration laws and regulations require that local or foreign investors prioritize the hiring of nationals except in cases where skills are not locally available.  The appointment of at least two Malawian residents as directors is also required.  These laws and regulations are to a large extent enforced by the Department of Immigration when issuing TEPs to foreign nationals.  The process to obtain employment permits can sometimes discourage investors.  Expatriate employees who reside and work in Malawi must obtain a TEP.  The government desires to make TEPs readily available, and mandates that processing times for TEP applications shall not exceed 40 working days.  In practice, TEPs take significantly longer and face bureaucratic delays (anecdotal reports of several months to a year are common).

There are a few legal restrictions on foreign investment based on environmental, health, biosafety, and national security concerns.  Affected sectors are firearms and ammunition; chemical and biological weapons; explosives; and manufacturing involving hazardous waste treatment/disposal or radioactive material.  Since industrial licensing in Malawi applies to both domestic and foreign investment and is only restricted to a short list of products, it does not limit competition, protect domestic interests, or discriminate against foreign investors at any stage of investment.  Additionally, retail operations in rural areas are limited to only Malawian citizens, although enforcement is weak.

Malawi does not place requirements on source of financing or geographic location nor does it set performance requirements for establishing, maintaining, or expanding an investment.  While not discriminatory to foreign investors, investments in Malawi require multiple bureaucratic processes, which may include obtaining a business license, a tax registration number, and a land use permit.  These procedures can be time consuming, particularly when it comes to land permits, and may constitute an impediment to investment.  Investors may also face bureaucratic hurdles in obtaining TEP and business residency permits.  Furthermore, there have not been reports of requirements for foreign IT providers to turn over source code or provide access to encryption, to prevent free transmission of customer or other business-related data outside the country’s territory, or to enforce local data storage within the country. Malawi Communications Regulatory Authority (MACRA) and the Ministry of Information and Communication Technology are the government agencies responsible for IT issues.

5. Protection of Property Rights

Real Property

Malawi has laws that govern the acquisition, disposition, recording, and protection of all property rights (land, buildings, etc.) as well as intellectual property rights (copyrights, patents, trademarks, etc.).  Currently record keeping for registering land ownership is centralized and inefficient.  Efforts are underway to computerize and decentralize recordkeeping.  Malawi has a limited housing finance sector.  As mortgage availability does not yet meet demand, most households still finance housing through savings or non-mortgage credit.  The lowest interest rate on a mortgage in Malawi as of 2019 was 21.5 percent, with 10 percent down, the balance payable over 10-20 years.  The average mortgage size in Malawi is USD 17,632.

In 2016, Parliament passed a revised Land Act, which converted customary land tenure to leasehold title so that those currently using that land enjoy legal rights to it.  The new law prohibits freehold title and all newly acquired land will be on a leasehold basis.  Lease terms can be for up to 99 years, but the law generally restricts foreigners to 50 years.  The new Land Act prohibits granting of freehold to a person but allows those that are already holding such land titles to continue. The Office of Commissioner of Lands administers and manages land issues such as making grants, leases and other dispositions.  There is no reliable data on the proportion of land without clear titles but it is likely much higher than 10 percent and an area in need of reform.

The Land Act of 2016 gives provision to repossess private land under freehold title if the land sits idle for more than two years since registration.  However, the government has not repossessed land from a developer in recent memory. In 2019 GOM warned all investors that it will begin repossessing all land that is not being developed as required by law. Malawi ranks 90 on “registering property” under the 2020 World Bank’s ranking of ease of doing business down from 83 in the 2019 WB report.

Intellectual Property Rights

Malawi recognizes the importance of intellectual property protection and enforcement but lacks enforcement capacity.  The Registrar General administers the Patent and Trademarks Act, which protects industrial intellectual property rights in Malawi.  The Registrar General maintains a public registry of patents and patent licenses.  Patents must be registered.  Trademarks are registered publicly following advertisement and a period of no objection. Enforcement of intellectual property rights is inadequate.  However, general awareness of the importance of protecting intellectual property in all forms (copyrights, trademarks, patents, trade secrets, and others)  has improved  The Copyright Society of Malawi (COSOMA) administers the Copyright Act of 2016, which protects copyrights and “neighboring” rights in Malawi.

The GOM approved Copyright (Levy on Storage Devices) Regulations in February 2018. Following the approval, COSOMA and the Malawi Revenue Authority began enforcement of a 5 percent levy on media storage devices to ultimately compensate rights holders.  Malawi also has a new Trademarks Act of 2018, which is a repeal of the Trademarks Act of 1957, and came into force on October 1, 2018. Malawi launched the National Intellectual Property Policy in May 2019.  It acknowledges challenges with intellectual property in the country and provides a framework to foster the generation, protection and exploitation of intellectual property. (https://www.registrargeneral.gov.mw/acts_regulations/National_IP_Policy_.pdf .

While enforcement officials routinely seize counterfeit goods, Malawi does not have a systematic approach to track and report on such seizures, so statistics are not available. Malawi is a member of the World Intellectual Property Organization (WIPO). Malawi is not listed in the United States Trade Representative (USTR)  Special 301 Report or the Notorious Markets List..  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Capital Markets and Portfolio Investment

The Malawi government recognizes the importance of foreign portfolio investment and has made efforts to provide a platform for such investment through the establishment of a Malawi Stock Exchange (MSE, www.mse.co.mw ). The MSE hosts 15 listed companies with a total market capitalization of USD 2,062.89 million as of end February 2020 up from USD 1,772.50 million in February 2019.  Most of these companies are local. The demand and supply of shares for existing listed companies is limited. The RBM regulates the MSE, which is governed by the Companies Act, Capital Market Development Act (1990), Capital Market Development Regulations (1992) as amended in 2013, and the Securities Act (2010).

Foreign investors can buy and sell shares at the stock market without any restrictions.  Trading in shares can either be direct or through any one of four established brokers.  There is a secondary market in government securities, and both local and foreign investors have equal access to purchase these securities. Malawi respects obligations under IMF article VIII and, therefore, refrains from imposing restrictions on making payments and transfers for current international transactions or from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval.  Liquidity for stock market participation is not a major problem with a variety of credit instruments on hand.  Credit is generally allocated on market terms.  The cost of credit is high given high rates of inflation but if recent downward adjustments in the policy rate, falling inflation rates and stable exchange rate are sustained, the cost of credit may fall in the medium term. Foreign investors may utilize domestic credit but proceeds from investments made using local resources are not remittable.

Money and Banking System

According to the Institute of Bankers in Malawi, only 25 percent of the adult population in Malawi use banking services.  Access to credit remains one of the biggest challenges for businesses and particularly SMEs, mostly due to the cost of credit (the base-lending rate in March 2020 was 13.3 percent).  The potential for using mobile banking technology to increase financial access in Malawi is emerging.

Malawi has a generally sound banking sector, overseen and regulated by the RBM — the central bank. In 2019, there were nine full-service commercial banks with over 150 branches across the country.  In March 2020, MyBucks bank completed an acquisition of Nedbank bringing the number of full-service commercial banks to eight. The banking sector remained profitable and stable with adequate liquidity and capital positions throughout 2019.  Prudential regulations have limited net foreign exchange exposure and non-performing loan rates continue to fall, though spreads continue to be high.  The sector, however, is highly concentrated and heavily invested in domestic government debt, which is a possible systemic risk.  So far, the banking sector continues to perform though in 2019 some banks underwent rationalization processes where voluntary retirement and other initiatives reduced operational expenses. https://mwnation.com/commercial-banks-mixed-fortunes-in-2019/ .  Total bank assets (nine banks) as of December 2019 were estimated at MK1,890.15 billion (USD 2.540 billion), roughly 46 percent of which fell under two banks; National Bank and Standard Bank.

The Reserve Bank of Malawi (RBM) is Malawi’s central bank and it plays a critical role in ensuring efficiency, reliability, and integrity of the payment system in Malawi.  It is also a supervisory authority over commercial banks and other financial institutions including insurance companies.  There are no restrictions on foreign banks in Malawi.  The Banking Act provides the regulations applicable to commercial banks and other financial institutions and provides a supervisory mandate to the Reserve Bank.  As of December 2019, four of nine banks were foreign owned.  The RBM maintains correspondent banking relationships with almost all central banks across the world and 14 major banks in Asia, Europe, Africa, and the United States. Major commercial banks in Malawi also maintain correspondent banking relationships with banks from Africa, Europe, Asia and US.  For local business Malawian banks require that a foreigner possess a TEP or business residency permit before opening a bank account.

Foreign Exchange and Remittances

Foreign Exchange

Government policy seeks to ensure the availability of foreign exchange for business transactions and remittances in order to attract investors and spur economic growth.  Commercial banks may operate as forex dealers.  Investors have access to forex with no legal limitation, both to pay for imports and to transfer financial payments abroad.  Specifically, there are no licensing requirements to import forex and full repatriation of profits, dividends, investment capital, and interest and principal payments for international loans is permitted, once the loan and/or investment is registered with the RBM.  Malawian investors seeking foreign financing must seek permission from the RBM before acquiring an international loan.

The Malawi Kwacha (MWK) is convertible into major world currencies such as the U.S. Dollar, British Pound, Euro, Japanese Yen, Chinese Yuan, and South African Rand, as well as key regional and trading partners’ currencies.  Since May 7, 2012, the value of the local currency, the MWK, has floated freely against major world currencies.  Float aside, the MWK/USD rate has remained remarkably stable since 2016 with minor depreciation in May-July 2019 due to tripartite elections.  Foreign exchange is available throughout the year and Malawi’s official foreign exchange reserves, as of December 2019, are sufficient to cover four months of imports.

Remittance Policies

Investment remittance policies in Malawi have not changed in the past year.  There are no restrictions on remittance of foreign investment funds (including capital, profits, loan repayments, and lease repayments) as long as the capital and loans were obtained from foreign sources and registered with the RBM (www.rbm.mw ).  The terms and conditions of international loans, management contracts, licensing and royalty arrangements, and similar transfers require initial RBM approval.  The RBM grants approval according to prevailing international standards; subsequent remittances do not require further approval.  All commercial banks are authorized by the RBM to approve remittances, and approvals are automatic if the applicant’s accounts have been audited and sufficient forex is available.  There are no time limitations on remittances.

Sovereign Wealth Funds

Malawi does not have a Sovereign Wealth Fund or similar entity.

7. State-Owned Enterprises

Malawi has 67 fully government owned SOEs scattered across many industries/sectors including agriculture and agribusiness, education, construction, energy, finance, health, information and communication, media, public utilities, aviation, and services.  The GOM has been known to bail out commercially run SOEs when they have incurred heavy losses.  Despite the significant role SOEs play in the Malawi economy, finances are opaque and overall statistics are not readily available.  A list of these SOEs is available on request from the Office of the President and Cabinet (OPC), but the GOM does not publish the list in the media or online.

Private and public enterprises generally compete on the same terms and conditions for access to markets, credit, and other business opportunities, although in practice personal relationships can influence decisions heavily.  There are exceptions for some public works assignments where public enterprises tend to be given special preference by government.  SOEs in the agriculture, education, and health sectors spend more on research and development than local private sector players and they are seen as doing so for the public good rather than for profit.  Because local firms tend to be capital-constrained and highly skilled labor is scarce, there is not a strong tradition of private sector-led research and development in Malawi.

Malawi’s SOEs are not required to adhere to the OECD Guidelines on Corporate Governance of SOEs.  Corporate governance for most SOEs follows the terms of the relevant Malawi law that established the entity.  All SOEs report to a line ministry and to the Department of Statutory Corporations in the OPC, but also have a Chairperson and Board of Directors.  The boards are composed of politicians and professionals typically appointed by the president to be directors.  Boards usually also have senior government officials as ex-officio/non-voting members.  The participation of members of the government as ex-officio/non-voting members on these boards, and of politicians as directors, creates a perceived and/or real conflict of interest.

Privatization Program

Malawi has about 67 remaining SOEs of which 29 are commercial SOEs.  The rest are subvented SOEs in the public utilities sector, agriculture, housing, finance, education, construction, energy, media, services, and aviation.  The government does not have any immediate plans for privatization.  In such cases all investors, irrespective of ethnic group or source of capital (foreign or local) may participate in privatization bids, however, the government may offer domestic investors a discount on shares. Privatization efforts currently focus on public-private partnerships and attracting strategic investors rather than outright privatization.  These are handled by the Public Private Partnership Commission (www.pppc.mw ).

8. Responsible Business Conduct

There is a well-developed sense of Corporate Social Responsibility (CSR) or responsible business conduct (RBC) in Malawi and most corporate entities make a point to publicize such activities in the local media.  There are no established laws or regulations governing RBC, nor does the government formally direct RBC to particular sectors.  However, as part of its candidacy for the Extractives Industry Transparency Initiative, the GOM promotes RBC in the mining sector.  There are laws governing protection of the environment and waste disposal for producers and consumers.  Government expects all enterprises to follow all laws of Malawi regarding employment and compensation.  Malawi has a number of labor laws governing employment, work environment, industrial safety, age limits, hours of work, and minimum wages.  However, the GOM lacks the resources to meaningfully enforce environmental, consumer, and labor laws and regulations.  There is no history of provisions of environmental, social, or labor laws being waived to attract investment but at the same time there is no history of the government factoring responsible business conduct policies or practices into its procurement decisions.  There have been no verified reports of high profile, controversial instances of private sector impact on human rights or resolutions in the recent past.   Government lacks resources to meaningfully enforce human rights, labor rights, consumer protection, environment protections and other laws/regulations intended to protect individuals. As such, the GOM does not effectively and fairly enforce domestic laws.

The GOM has enacted accounting standards applicable to the private sector that conform to international standards.  Executive compensations are not defined.  The law requires all MSE-listed companies to publish their annual audited accounts in the local newspapers.  Listed companies are also required to publicly declare their profits, dividends to be paid out, planned takeovers (or major portfolio investments in or out of the company), and all relevant information that shareholders need to make informed decisions.  They are also required to announce their annual shareholders meetings in the newspapers.

Several civil society organizations monitor and advocate freely for corporate social responsibility and responsible business conduct in Malawi, including the Institute for Policy Interaction (IPI), the Catholic Commission for Justice and Peace (CCJP), the Centre for Environmental Policy and Advocacy, Institute for Sustainable Development, Malawi Economic Justice Network (MEJN), and Natural Resources Justice Network.  In regards to mining, Malawi does not adhere to OECD Guidelines for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas or any domestic measures requiring supply chain due diligence for companies that source minerals that may originate from conflict-affected areas.  The Extractive Industries Transparency Initiative (EITI) Board approved Malawi as a candidate country in 2015.  Following the conclusion of Malawi’s Validation in 2018, the EITI Board concluded that Malawi has made meaningful progress overall in implementing the EITI Standard. The Board also determined that Malawi has 18 months (until 27 August 2020) to carry out corrective actions regarding the findings of the initial assessment.  Failure to achieve meaningful progress with considerable improvements across several individual requirements in the second validation will result in suspension in accordance with the EITI Standard. In accordance with the EITI Standard, Malawi may request an extension of this timeframe, or request validation earlier than scheduled.

9. Corruption

Corruption is a significant concern in Malawi.  Giving or receiving a bribe — whether to or from a Malawian or foreign official — is a crime under Malawi’s penal code.  However, enforcement is insufficient, slow, and selective.  Public sector corruption, including bribery of public officials and conflicts of interest are a major challenge for firms operating in Malawi.  There are regular reports of government corruption at all levels of government. The law provides criminal penalties for conviction of corruption by officials, but implementation lags.

The Corrupt Practices Act established the independent Anti-Corruption Bureau (ACB) with a mandate to prevent corruption in Malawi.  The December 2018 Amendment to the Act now requires the Minister of Justice and Constitutional Affairs to advertise the position of ACB Director and convene a panel of seven drawn from the public and private sectors, civil society, and faith organizations that will forward a shortlist of two to three candidates to the President for selection.  The President appoints the ACB Deputy Director.  The Corrupt Practices Act widened the definition of corruption to include, among other things, offences for abuse of office and possession of unexplained wealth.  The Act provides for the investigation of cases not only for corruption but also for other offences uncovered during the course of investigating corruption.  The Act also provides protection for “whistleblowers.”  Malawi’s ACB cooperates with other anti-corruption bureaus in the region and beyond.  However, the ACB is consistently and significantly under-staffed and under-resourced.

The Public Officers (Declaration of Assets, Liabilities and Business Interests) Act of 2013 requires 48 categories of public officers – including all levels of officials from the president and members of parliament, down to specific categories of civil servants, including traffic police and immigration officers – to declare their assets and business interests.  The paper declarations are accessible to the public upon request.  The law does not extend to family members or to political parties. However, where evidence implicates family members or members of a political party in corruption, the Anticorruption Bureau has the power to build a case against the accomplices and bring them to court.  The Public Procurement and Disposal of Public Assets Act of 2016 requires all public officials to disclose any conflict of interest and not take part in any deliberation or decision-making process in relation to a given matter.  However, there is no clear definition of what constitutes conflict of interest and the law is not regularly enforced.

Companies are encouraged to participate in the fight against corruption.  The ACB encourages institutions to develop and implement Corruption Prevention Policies as a way of mainstreaming anti-corruption initiatives into their operations.  At times, the business sector joins forces to collectively engage in the fight against corruption, but no formal mechanism exists.  Internal controls by companies exist but have failed to produce evidence in any high-profile cases.

Malawi is party to the United Nations Convention Against Corruption, which it ratified in December 2004 and African Union Convention on Preventing and Combating Corruption which it ratified in November 2007.  According to Malawian law, citizens have a right to form NGOs focused on anti-corruption or good governance and these NGOs are free to accept funding from any domestic or foreign sources.  Malawi’s civil society plays an important and visible role in fighting corruption.  The media also plays a central role in investigating and uncovering many cases of corruption.  Although progress has been made in addressing the issue, corruption continues to be viewed as a major obstacle to doing business in Malawi.  Specific firms with U.S. affiliations have noted irregularities in tender processes and mining licensing but have nonetheless continued to pursue business opportunities in Malawi.

Resources to Report Corruption

Mr. Reyneck Matemba
Director General
Anti-Corruption Bureau (ACB)
Mulanje House, P.O Box 2437, Lilongwe, Malawi
Tel: +(265) 1 772 107
E-mail: rmatemba@acbmw.com; reportcentre-ll@acbmw.org
Website: http://www.acbmw.com 

Mr. Jeff Kabondo
National Coordinator
National Integrity Platform
C/O African Institute of Corporate Citizenship (AICC)
Bwanje Street, Area 47, Private Bag 382, Lilongwe, Malawi
Telephone: +(265) 1 775 787 / 691
Email: jeff@aiccafrica.org

10. Political and Security Environment