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Burundi

Executive Summary

Burundi is a landlocked country in Central Africa and is one of the six member states of the East African Community (EAC). A socio-political and economic crisis associated with the 2015 national elections, followed by a severe economic downturn, exacerbated the poor fundamentals of an already difficult investment climate. Although a modest recovery is underway, economic growth remains insufficient to create employment for Burundi’s rapidly growing population. For almost two-thirds of the population living below the poverty line (2017 estimates), Burundi remains one of the world’s most impoverished countries, with approximately 90 percent of the population reliant on subsistence farming and a youth unemployment rate particularly high (about 65 percent).

  • Burundi’s landlocked location and infrastructure constraints limit transportation of goods and services. Electricity demand significantly exceeds capacity and the transmission system is poorly maintained, leading to rolling blackouts. Although activity has increased in the mining sector, the scale of the commercially exploitable resources remains unclear. Scarcity of skilled labor and low labor productivity limit growth in all sectors.
  • The Government of Burundi (GoB) seeks to attract more foreign investment. Various initiatives are underway to modernize and diversify agricultural production, build power plants (Jiji and Mulembwe hydro plant power already implemented), improve access to the country (rehabilitation of the Port of Bujumbura is underway ), increase regional trade by strengthening the transport network and improving the quality of human resources. However, poor governance and poor infrastructure, corruption, financial restrictions and capital controls that limit the expatriation of foreign currency, a low-skilled workforce and limited/unreliable economic statistics often limit foreign direct investment (FDI).
  • Since 2008, members of the executive branch have granted large discretionary exemptions to private foreign companies by presidential decree or ministerial ordinance in order to attract FDI. These direct government-to-company agreements undermine the Burundian tax law and the investment code. In addition to reducing revenues for the state, these exemptions disadvantage private companies already operating in Burundi by granting advantages to select competitors. The corporate tax rate is 30 percent, with reductions for companies that employ certain numbers of Burundian nationals.
Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 165 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 166 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 128 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 280 USD http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of Burundi (GoB) is generally favorable to FDI and seeks investment as a means to promote economic growth. Uneven implementation of laws and regulations, however, limits the predictability of the environment for Burundian and foreign investors alike. The GoB has not implemented laws, regulations, or economic or industrial strategies that limit market access or discriminate against foreign investors. There is a minimum foreign initial investment of USD 50,000, which does not apply to domestic investors. An overview of the legal framework for foreign investment can be found at http://www.eatradehub.org/burundi_investment_policy_assessment_2018_presentation 

Based on the Burundi Investment Code enacted in 2008, the government established the Burundi Investment Promotion Agency (API) in 2009. API’s main objective is to boost local investment and attract foreign investment, especially for projects serving long-term development goals and improving competitiveness. API provides investors with information on investment and export promotion, assists them with legal formalities, including obtaining the required documents, and intervenes when laws and regulations are not properly applied. API also designs reforms required for the improvement and the ease of doing business environment and ensures that the impact of investments on development is beneficial and sustainable.

The GoB conducts dialogue with national and foreign investors to promote investment. API is the initial and primary point of entry for investors, but government ministries meet regularly with private investors to discuss regulatory and legal issues. For example, at the beginning of 2020, the API brought together stakeholders in the horticultural sector with the aim of creating a platform of professionals responsible for supporting farmers in order to promote exports of horticultural products. The Burundian horticultural sector being confronted with several challenges related especially to non-compliance with the requirements of the export market, the API allowed the stakeholders to brainstorm ideas on the basis of which a plan support and supervision measures for producers will be developed and submitted to the authority to support this sector.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic companies have the same rights to establish and own businesses in the country and engage in all forms of activities. However, there are restrictions on foreign investments in weaponry, ammunition, and any sort of military or para-military enterprises. There is no other restriction nor are there any sectors in which foreign investors are denied the same treatment as domestic firms. There are no general limits on foreign ownership or control.

Article 63 of the 2013 mining code stipulates that the GoB must own at least 10 percent of shares in any foreign company with an industrial mining license and state participation cannot be diluted in the event of an increase in the share capital.

Burundi does not maintain an investment screening mechanism for inbound foreign investment.

Other Investment Policy Reviews

No investment policy review from a multilateral organization has taken place in the last three years. The most recent review was performed in 2010 by UNCTAD.

Business Facilitation

In addition to fiscal advantages provided in the investment code, Burundi has implemented reforms, including reinforcing its single window for starting a business, simplifying tax procedures for small and medium enterprises, launching an electronic single window for business transactions, and harmonizing commercial laws with those of the East African Community.

The Investment Promotion Agency (API) is a government authority in charge of promoting investment, improving the business climate and facilitating market entry for investors in Burundi. API offers a range of services to potential investors, including assistance in acquiring the licenses, certificates, approvals, authorizations, and permits required by law to set up and operate a business enterprise in Burundi. API has set up a one-stop shop to facilitate and simplify business registration in Burundi. For now, investors must be physically present in country to register with API.

The business registration takes approximately four hours and costs 40,000 Burundian frances (around USD 21). For more details and information on registration procedures, time and costs, investors may visit API’s website on https://www.investburundi.bi/ .

There is no specific mechanism for ensuring equitable treatment of women and underrepresented minorities.

Outward Investment

The host government does not have mechanisms for promoting or incentivizing outward investment. The host government does not restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

Although parts of the government are working to create more transparent policies for fostering competition, Burundi lacks clear rules of the game. Many policies for foreign investment are not transparent, and laws or regulations on the books are often ineffective or unenforced. Burundi’s regulatory and accounting systems are generally transparent and consistent with international norms on paper, but a lack of capacity or training for the staff and political constraints sometimes limit the regularity and transparency of their implementation.

Rule-making and regulatory authority is exercised exclusively at the national level. Relevant ministries and the Council of Ministers exercise regulatory and rule-making authority, based on laws passed by the Senate and National Assembly. In practice, government officials sometimes exercise influence over the application and interpretation of rules and regulations outside of formal structures. The government sometimes discusses proposed legislation and rule-making with private sector interlocutors and civil society, but does not have a formal public comment process. There are no informal regulatory processes managed by non-governmental organizations (NGOs) or private sector associations.

Accounting, legal, and regulatory procedures are generally transparent or consistent with international norms on paper but are unevenly implemented in practice.

Draft bills or regulations are not subject to a public consultation process. There are no conferences that involve citizens in a consultation process to give them an opportunity to make their comments or contributions, especially at the time of project development, and, even if this were the case, the public does not have access to the detailed information needed to participate in this process.

Burundi does not have a centralized online location where key regulatory actions are published; however, regulatory actions are sometimes posted on the websites of GoB institutions (typically that of the Office of the President or ministries).

Burundi has sectoral regulatory agencies covering taxes and revenues, mining and energy, water, and agriculture. Regulatory actions are reviewable by courts. There have been no recent reforms to the regulatory enforcement system.

The government generally issues terms of reference and recruits private consultants who prepare a study on the draft legislation for review and comment by the private sector. The government analyzes these comments and takes them into consideration when drafting new regulations. New regulations can be issued by a presidential decree or Parliament can make them into a law. This mechanism applies to laws and regulations on investment.

Information on public finances and debt obligations (including explicit and contingent liabilities) is published in the Burundi Central Bank’s Reports and on its website: https://www.brb.bi/ ; however, some publications are not up to date.

International Regulatory Considerations

Burundi is a part of the East African Community (EAC), a regional economic bloc composed by six member states, the republics of Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda. The EAC Integration process is anchored on four pillars: Customs Union, Common Market, Monetary Union, and Political Federation. Each member state must harmonize its national regulatory system with that of the EAC. At the moment, several milestones have been realized under the EAC Pillars; some countries are ahead of others, but the process of harmonization of regulatory systems (national and regional) continues to progress, as does regional integration (progress of the East African Customs Union, the creation of the Common Market and the implementation of the Monetary Union Protocol, etc.).

Burundian law and regulations reference a number of standards, including the East African Standards, Codex Alimentarius Standards, the International Organization for Standardization (ISO), and its own standards. ISO remains the main reference.

The country joined the WTO on July 23, 1995. According to the Ministry of Commerce, Industry, and Tourism, Burundi has not notified the WTO Committee on TBT of all draft technical regulations.

Legal System and Judicial Independence

The country’s legal system is civil (Roman), based on German and French civil codes. For local civil matters, customary law also applies. Burundi’s legal system contains standard provisions guaranteeing the right to private property and the enforcement of contracts. The country has a written commercial law and a commercial court. The investment code offers plaintiffs recourse in the national court system and to international arbitration.

The judicial system is not effectively independent of the executive branch. A lack of capacity hinders judicial effectiveness, and judicial procedures are not rigorously observed.

The investment code offers plaintiffs recourse in the national court system and to international arbitration when necessary.

Laws and Regulations on Foreign Direct Investment

There were no major laws, regulations, or judicial decisions pertaining to foreign investment in the past year. In 2009, the GoB created an Investment Promotion Authority (API) in charge of promoting investment and facilitating market entry for investors in Burundi. API offers a range of services to potential investors, including assistance in acquiring the licenses, certificates, approvals, authorizations, and permits required by law to set up and operate a business enterprise in Burundi. In 2014, API created a follow-up mechanism to make sure that investors are implementing projects for which they received tax exemptions and other advantages provided in the investment code.

In 2018, the Council of Ministers reviewed draft legislation updating the investment code and then referred it to a technical committee for review and improvement; it remains a work in progress. Among other changes, the draft contains new measures to ensure the protection of the property of foreign investors and penalties for malfeasance by foreign investors.

Competition and Anti-Trust Laws

There is no Burundian agency in charge of reviewing transactions for competition-related concerns.

Expropriation and Compensation

Burundian law allows the GoB to expropriate property for exceptional and state-approved reasons, but the GoB is then committed to provide a legal prior fair compensation allowance based on the fair market value.

There are no recent cases involving expropriation of foreign investments nor do any foreign firms have active pending complaints regarding compensation in Burundian courts.

Dispute Settlement

ICSID Convention and New York Convention

Burundi is a full member of ICSID Convention since 1969 and became the 150th country to sign the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Burundi’s commercial law allows enforcement of judgments in foreign courts by local courts.

Investor-State Dispute Settlement

Burundi is a signatory of International Centre for Settlement of Investment Disputes (ICSID) and Multilateral Investment Guarantee Agency (MIGA) in which international arbitration of investment disputes is recognized. Burundi has no bilateral investment treaty with the United States.

There have been limited instances of foreign investors seeking restitution from the GoB over allegations of breach of contract and corruption.

In cases involving international elements, the GoB accepts international arbitration and recognizes and enforces foreign arbitral awards. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

In rare cases involving international elements, the GoB accepts international arbitration and recognizes and enforces foreign arbitral awards. In commercial disputes between private parties, international arbitration is accepted as a means of settlement provided one of the parties is an extra-national. In 2007, the GoB created a Center for Arbitration and Mediation (CEBAC) to handle such disputes, but it is not very active.

There is no operational commercial arbitration body in the country besides CEBAC. Foreign arbitral awards are recognized, but local courts are not legally equipped to enforce them. No Burundian private entity has been involved in a foreign arbitration. In the past, one registered case involved the GoB and a private gold refining company. The ICSID ruling was enforced by GoB, which lost the case.

Although there are complaints about the discriminatory and opaque nature of Burundian court processes in general, there are no known cases involving State-Owned Enterprises (SOEs) in investment disputes.

Bankruptcy Regulations

Burundi has two laws governing or pertaining to bankruptcy: Law N°1/07 of March 15, 2006, on bankruptcy and Law N°1/08 of March 15, 2006, on legal settlement of insolvent companies. Under Burundian law, creditors have the right to file for liquidation and the right to request personal or financial information about the debtors from the legal bankruptcy agent. The bankruptcy framework does not require that creditors approve the selection of the bankruptcy agent and does not provide creditors the right to object to decisions accepting or rejecting creditors’ claims.

4. Industrial Policies

Investment Incentives

The current Investment Code grants various potential fiscal and customs benefits to investors including: three or more years of tax-free operation; exemption of charges on property transfer; exemptions from duties on raw materials, capital goods, and specialized vehicles; tax exemptions for goods used to establish new businesses; exemptions from customs duties if investment goods are made within the EAC or COMESA; a corporate tax rate of 30 percent with a reduction to 28 percent if 50-200 Burundians are employed and to 25 percent if more than 200 are employed; and free transfer of foreign assets and income after payment of taxes due.

The GoB does not issue guarantees, but does co-finance foreign direct investment projects, albeit typically on an in-kind basis, such as by granting land for facilities.

Foreign Trade Zones/Free Ports/Trade Facilitation

Burundi already belongs to the trading blocs of the EAC (East African Community), the CEPGL (Economic Community of the Great Lakes Countries), COMESA (Common Market of Eastern and Southern Africa), the Economic Community of the States of Central Africa (CEEAC). The GoB recently adopted new laws on the free trade area to accelerate its integration into other trading blocs such as the African Continental Free Trade Area (AfCFTA), the Tripartite Free Trade Area (TFTA) between COMESA, EAC and SADC (Southern Africa Development Community). GoB also embarked on the path of harmonizing its policies and legal framework within regional regulations in order to consolidate its regional integration, improve its competitiveness and take better advantage of external economic potentials. However, as the enabling regulations do not yet exist, Burundi does not have trade zones/free ports/trade facilitation that are operational until now.

One of the objectives on Burundi’s agenda is urgent integration into AfCTA, one of the largest free trade areas in the world since the formation of the World Trade Organization with a total of 55 member states since July 2019. The AfCFTA aims to stimulate intra-African trade (BIAT) and Burundi wants to share in these gains. Burundi and Tanzania are the only countries within the East African Community that have not yet ratified the agreement. The GoB has already set up an ad hoc committee to accelerate the process of integration within AfCTA, and negotiations are underway with a view to ratifying the instruments of this agreement in the very near future. Burundi expects tangible benefits from this large continental market (1.2 billion people with a GDP of over USD 2.5 trillion and a purchasing power of more than USD 4 trillion) due to its strategic location and resource endowment.

In addition, GoB has established its first Special Economic Zone (ZESB) in order to enhance growth and development after the breakdown of cooperation with several European countries. ZESB is still under implementation on the Warubondo site (a strategic location of 5.43 square km straddling between Burundi and neighboring DRC with easy access to Bujumbura city, Bujumbura International Airport, Bujumbura Port and Lake Tanganyika). ZESB is a result of a business partnership between GoB and private foreign investors and its main objective is to revive the industrial sector and to promote exports. The economic model behind is that this zone must be a window for foreign investors where all the products produced within the zone will bear the label “Made in Burundi”.

Performance and Data Localization Requirements

The current government policy for both domestic and foreign companies is mandatory employment of local workers unless it is not possible to find a local candidate with the required skills or expertise. The number of expatriate employees is limited to 20 percent of the total workforce. There is no policy mandating foreign companies to appoint local personnel to senior management or boards of directors.

Burundian visa requirements are not excessively onerous and do not generally inhibit the mobility of foreign investors and their employees. Since 2015, Burundi has removed the possibility for visitors to apply for a visa upon arrival at the airport unless authorized by the PAFE (immigration authority). Travelers to Burundi must apply for visas in one of the Burundian missions abroad. A foreigner holding a residency visa is permitted to work in Burundi. A two-year residence visa (renewable) costs USD 500 and it can only be issued after making a refundable deposit of USD 1,500 in a local bank (BANCOBU). There are no government/authority-imposed conditions on permission to invest except for a minimum investment requirement of USD 50,000 applicable to foreign investors.

There are no requirements that investors purchase from local sources. However, the mining law requires a commitment from the investor to recruit staff or subcontractors of Burundian nationality as a precondition for granting a mining license, with mandatory quotas in place at this time. The GoB imposes no performance requirements on investors as a condition for establishing, maintaining, or expanding their investments or for access to tax and investment incentives.

There are no laws requiring foreign IT providers to turn over source code and/or provide access to encryption except for a law requiring that companies share user information with law enforcement authorities during terrorism investigations; this law applies equally to Burundian and foreign companies. There are no laws that prevent companies from transmitting data outside the country.

5. Protection of Property Rights

Real Property

Secured interests in both real and movable property are nominally recognized under Burundian law (2011 land code). The Burundi land code, adopted in 2011, recognizes the right to property and protection for Burundians and for foreigners. Foreigners enjoy the same rights and protection as nationals, subject to the principle of reciprocity (which means that the foreign country must in return recognize the same rights for Burundians). The state can give property to foreigners for industrial, commercial, cultural use, can rent them out, but full ownership is reserved for Burundians. The legal system and the investment code are designed to protect and facilitate the acquisition and disposition of all property rights.

The Land Titles Service registers real estate and security instruments, such as mortgages. Property titles are accepted as a guarantee (mortgages) by commercial banks, but documents for properties located outside the capital city of Bujumbura are less easily accepted because of multiple conflicts and crimes related to the land in rural areas (more than 80 percent of the litigations in the courts and tribunals are conflicts over land).

Land titling in Burundi has historically been a lengthy, opaque and centralized process although the Burundian Land Code appears simple, transparent and inexpensive. As a result, some applicants (those with limited financial resources or contacts) fail to title their land while others (wealthy ones or those with good contacts) bribe land titling agents to speed up the procedure. To address these issues, in December 2019, GoB implemented several initiatives aimed at: (1) informing the population on the procedure for registering land and obtaining title deeds; (2) establishing in all provinces of the country one-stop windows where persons interested in titling land have access to all necessary government offices to carry out the titling; (3) combating, in accordance with the law, all forms of corruption related to the properties registration process. The GoB has been slow to decentralize land titling for financial reasons and it is likely that the government will still need financial resources to make its initiatives a reality.

The legal system and the investment code do not differentiate local and foreign investors regarding land acquisition or lease. However, land acquisition is based on reciprocity between Burundi and the investor’s home country, obliging a foreign country to recognize the same rights for Burundians in the foreign country as the foreigners of their country enjoy in Burundi.

Properties in urban and rural areas must be registered. However, according to estimates, more than 90 percent of houses and land in rural areas are not registered and around 80 percent of the litigations in the Burundian courts and tribunals are conflicts over land. When a property has been legally purchased, it cannot be legally confiscated by the state except when it is the subject of an expropriation procedure in accordance with legal and regulatory procedures.

Intellectual Property Rights

Burundi has adopted the 1995 World Trade Organization (WTO) Agreement on Trade-Related Aspects of International Property Rights (TRIPS), which introduced global minimum standards for the protection and enforcement of virtually all intellectual property rights (IPR). The legal system and the investment code aim to protect and facilitate the acquisition and disposition of all property rights, including intellectual property rights IPR. The law also guarantees protection for patents, copyrights, and trademarks. However, there is no record of enforcement action on intellectual property IPR infringement violations. No IPR-related law has been enacted during the past year and no bills are pending.

Agents of Burundian institutions in charge of the fight against piracy and counterfeiting (Burundian Revenue Office and the Ministries of Trade and Public Health) have already benefited from various sources of support in terms of capacity building on industrial property rights and the fight against piracy and counterfeiting on the part of multilateral partners, but these institutions lack the tools needed for detecting counterfeits. Although these institutions have already committed themselves to operate reforms in this sector (a multisectoral committee responsible for promoting procedures to combat counterfeiting and piracy and monitoring has been set up), they still need to set up a database of recognized trademarks, in which all the information on trademarks registered at customs is compiled and to require this procedure for all companies or representatives of multinationals to be effective.For now, the Burundi Bureau of Standardization (BBN) is the state authority responsible the monitoring of the quality of consumer products on the market; however, this Bureau lacks the necessary expertise and resources to be effective.  Counterfeiters who are apprehended are fined and their products are seized. There are no statistics available on seizures of counterfeit goods. Burundi is not listed in the United States Trade Representative (USTR) Special 301 Report or the Notorious Market List.

6. Financial Sector

Capital Markets and Portfolio Investment

Although there are no regulatory restrictions on foreign portfolio investment, Burundi does not have capital markets that would enable it. Capital allocation within Burundi is entirely dependent on commercial banks.

The country does not have its own stock market. There is no regulatory system to encourage and facilitate portfolio investment. There is insufficient liquidity in the markets to enter and exit sizeable positions. Existing policies do not actively facilitate nor impede the free flow of financial resources into product and factor markets.

There is no regulation restricting international transactions. In practice, however, the government restricts payments and transfers for international transactions due to a shortage of foreign currency.

In theory, foreign investors have access to all existing credit instruments and on market terms. In practice, available credit is extremely limited.

Money and Banking System

Burundi has very limited banking services penetration according to the most recent national survey on financial inclusion conducted by the central bank. In this 2016 survey, the Bank of the Republic of Burundi (BRB) found a penetration level of approximately 22 percent.  Several local commercial banks have branches in urban centers. Micro-finance institutions mostly serve rural areas. The Burundian government is a minority shareholder in three banks.The banking sector’s soundness has improved with capitalization and liquidity ratios above regulatory standards and profitability indicators on the rise. However, bank portfolio quality remains a concern, with the level of non-performing loans (NPLs) reaching nine percent when five percent is the benchmark rate among East African Community states. The sector also suffered from shortages of foreign currency following the Central Bank’s establishment of de facto capital controls in 2019.

The financial sector includes 12 credit institutions, 37 microfinance institutions, 15 insurance companies, three social security institutions and three payment institutions. In April 2020, a new youth investment bank began operations. Two other banks under creation are an agricultural bank and a bank for women. All three aim at reducing unemployment by creating job opportunities. The banking sector remains predominant with 82.5 percent of total assets, while microfinance institutions and insurance companies represent 11.2 percent and 6.4 percent respectively. Financial intermediation continues to increase, the total assets of the financial sector as a percentage of GDP being 52.1 percent in 2018 compared to 49.3 percent in 2017. The banking market is dominated by the three largest and systemically important banks: Credit Bank of Bujumbura (BCB), Burundi Commercial Bank (BANCOBU), and Interbank Burundi (IBB).Foreign banks are allowed to establish operations in the country.  Foreign banks operating in the country include ECOBANK (Panafrican Bank-West Africa), CRDB (Tanzanian Bank), DTB and KCB (both Kenyan Banks).  The central bank directs banking regulatory policy, including prudential measures for the banking system.  The country has kept all its foreign corresponding banks during the last three years. Foreigners and locals are subject to the same conditions when opening a bank account; the only requirement is the presentation of identification.

Foreign Exchange and Remittances

Foreign Exchange

According to the law, after paying taxes, there are no restrictions on expatriating funds associated with investment. In practice, foreign investors have encountered difficulties in converting funds associated with investments into foreign currency due to de facto capital controls implemented by the BRB in 2019.

According to the GoB, funds associated with an investment can be converted into a freely usable currency at a legal market rate, pending their availability. Due to a shortage of foreign currency, the central bank prioritizes companies in specific strategic industries for access to foreign exchange accommodation. In practice, the Burundian franc is not freely convertible at the official government rate.

The BRB publishes the daily exchange rate on its website each morning. In practice, the national currency (BIF) fluctuates, and the government has imposed de facto capital controls to prevent abrupt exchange rate movements; there is a gap between the official rate and a floating parallel market rate.

Remittance Policies

The government has not passed any new laws regarding a change to investment remittances policies. The average delay for remitting investment returns (once all taxes have been paid) is three months due to general inefficiency in the banking sector and the rarity of such transactions in an environment with very little foreign direct investment.

Sovereign Wealth Funds

Burundi does not have a sovereign wealth fund.

7. State-Owned Enterprises

There are five SOEs in Burundi with 100 percent government ownership: REGIDESO (public utility company), ONATEL (telecom), SOSUMO (sugar), OTB (tea), and COGERCO (cotton). No statistics on assets are available for these companies as their reports are not available to the public. Board members for SOEs are appointed by the GoB and report to its ministries. The GoB has a minority (40 percent) share in Brarudi, a branch of the Heineken Group, and in three banking companies.

There is no published list of SOEs.

SOEs have no market-based advantages and compete with other investors under the same terms and conditions; however, Burundi does not adhere to the OECD guidelines on corporate governance for SOEs.

Privatization Program

In 2002, Burundi entered an active phase of political stabilization, national reconciliation and economic reform. In 2004, it received an emergency post-conflict program from the IMF and the World Bank, paving the way for the development of the Strategic Framework for Growth and Poverty Alleviation (PRSP). After the 2005 elections, the GoB made the decision to convert several state-owned enterprises different sectors of the economy to private investment, including foreign investment. The Burundian government, considering coffee a strategic sector of its economy, decided to opt for the privatization of the coffee sector first in an effort to modernize it. However, following the crisis of 2015, the GoB decided to suspend immediately the privatization program. At that time, it had not yet privatized other sectors such as tea or sugar. In late 2019, the GoB retook control of the coffee sector, citing as its rationale perceived mismanagement on the part of the privatized company during the 2015-2019. It is unclear if or when the privatization program will continue.

The privatization program was open to all potential buyers, including foreigners, and there was no explicit discrimination against foreign investors at any stage of the investment process. Public bidding was mandatory. The process is transparent and non-discriminatory. When the government intends to sell a business or shares in a business, offers are published in local newspapers.

8. Responsible Business Conduct

According to the investment code, any new enterprise is required to take into account environmental issues and employee rights in its investment and business plan. The government has taken no comprehensive measures to implement policies or international standards regarding responsible business practices. The government routinely engages investors about including public and community benefits in investment projects, but has no clearly defined standards.

There have not been any high-profile or controversial instances of private sector impact on human rights in the recent past. No reliable information is available on the maintenance and enforcement of domestic laws with respect to labor and employment rights, consumer protections, and environmental protections. In January 2019, the BRB issued a regulation relating to the protection of consumers of financial products and services in view of the complexity and growing diversity of the range of the services and products offered in Burundi.

There are no corporate governance, accounting, or executive compensation standards in place to protect the interests of shareholders. There are no organizations focused specifically on RBC in the country.

As a member of the International Conference on the Great Lakes Region (ICGLR), the government has acceded to the OECD due diligence mechanism and the regional system for certification and traceability of certain minerals extracted from national mines (tin, tantalum and tungsten), as well as against conflict minerals that can be smuggled from the neighboring Democratic Republic of Congo (DRC). In May 2014, Burundi became the third country in the Great Lakes region of Africa to implement an internationally accepted system of due diligence and mineral traceability system. However, some civil society organizations report a noticeable lack of transparency in the Burundian mining sector (involvement of some senior GoB officials in the trafficking of gold from the DRC).

The government does not participate in the EITI yet. There are no domestic transparency measures/policies that require the disclosure of payments made to the government.

9. Corruption

The government has an anti-corruption law and an enforcement organization, the Anti-Corruption Brigade, responsible for enforcing this legislation. Cabinet members, parliamentarians, and officials appointed by presidential decree have immunity from prosecution on corruption charges, insulating them from accountability. Laws designed to combat corruption do not extend to family members of officials or to political parties.

Article 60 of the April 2016 law “Bearing Measures for the Prevention and Punishment of Corruption and Related Offenses” regulates conflicts of interest, including in awarding government procurement. Burundian legislation criminalizes bribery of public officials, but there is no specific requirement for private companies to establish internal codes of conduct.

Burundi is a signatory to the UN Anti-Corruption Convention and the OECD Convention on Combating Bribery. Burundi has also been a member of the East African Anti-Corruption Authority since joining the EAC in 2007. The country does not provide protections to NGOs involved in investigating corruption.

A number of U.S. firms have specifically noted corruption as an obstacle to direct investment in Burundi. Corruption is most pervasive in the award of licenses and concessions, which takes place in a non-transparent environment with frequent allegations of bribery and cronyism. Customs officials are also reportedly corrupt, regularly extorting bribes from exporters and importers.

Resources to Report Corruption

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

Name: Roger Ndikumana
Title: Commissaire Général
Organization: Anti-Corruption Brigade
Address: PO Box 890 Bujumbura
Telephone Number: (+257) 22 25 62 37
Email Address: brigadeanticorruption@yahoo.fr

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

Name: Gabriel Rufyiri
Title: President
Organization: OLUCOME
Address: 47, Chaussée Prince Louis Rwagasore, n°47, 1st Floor
Telephone Number: (+257) 22 25 20 20 /22 25 89 00
Email Address: rufyirig@gmail.com / olucome2003@gmail.com

10. Political and Security Environment

Burundi has experienced cycles of ethnic and political violence since its independence in 1962. Periods before and after national elections have often been marked by political violence and civil disturbance. During the reporting period, the political turmoil associated with the 2015 elections and failed coup has ceased, but tensions and uncertainties related to the upcoming 2020 elections remain.

11. Labor Policies and Practices

Unskilled local labor is widely available, while there are shortages for skilled workers in some sectors; no statistics are available on the shortage of specialized labor skills. According to government policy, the hiring of nationals should be prioritized except in cases in which no local expertise is available. Formal sector employment is limited, and official figures for unemployment are unreliable. Observers believe that there is widespread youth unemployment on the order of 65 percent.

According to the investment code, any new enterprise is required to take into account environmental issues and employee rights in its investment and business plan. The government has taken no comprehensive measures to implement policies or international standards regarding responsible business practices. The government routinely engages investors about including public and community benefits in investment projects, but has no clearly defined standards.

There have not been any high-profile or controversial instances of private sector impact on human rights in the recent past. No reliable information is available on the maintenance and enforcement of domestic laws with respect to labor and employment rights, consumer protections, and environmental protections. There are no known examples of labor laws being waived in order to attract or retain investment.

The labor code allows for employers to respond to fluctuating market conditions with layoffs of workers. Labor laws do not differentiate between layoffs and firing for severance. The government has a social insurance program that provides limited coverage to workers laid off for economic reasons.

Burundi is a member of the International Labor Organization (ILO) and its domestic labor law is in compliance with international labor standards. Workers’ unions are legally authorized, and there are laws and regulations that prohibit child and forced labor and any kind of discrimination. In practice, child labor occurs, and some union activity is restricted. Burundi has ratified all of the ILO fundamental conventions protecting workers’ rights; however, protection of core labor rights continues to be inadequate. Although the Labor Code prohibits acts of anti-union discrimination, it does not prescribe adequate penalties sufficient to deter such acts. In the private sector, labor-management relations are usually conducted according to international standards that allow for collective bargaining. Burundi’s Labor Inspectorate has the authority to settle disputes between workers and employers, which can also be managed through civil judicial procedures. No strikes that posed an investment risk occurred during the past year. No new labor laws were enacted or drafted during the reporting period; however, the Labor Inspectorate is currently working on revising the Labor Code.

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) ($M USD) 2018 3,248* 2018 3,037 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A N/A 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 N/A 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 2018 6.8* 2018 7.1 UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* BRB (Bank of the Republic of Burundi), 2017 Annual Report (at official exchange rate).

Table 3: Sources and Destination of FDI
No detailed information is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) website and no information is available on outward direct investment from Burundi.
Table 4: Sources of Portfolio Investment
No detailed information is available on the IMF’s Coordinated Portfolio Investment Survey (CPIS) website and no information is available on outward direct investment from Burundi.

14. Contact for More Information

NAME: Tresor Ntandikiye
TITLE: Economic Specialist
ADDRESS OF MISSION/AIT: Embassy of the United States of America in Bujumbura
TELEPHONE NUMBER: (+257) 22 20 74 26
EMAIL ADDRESS: BujumburaEcon@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

Rwanda

Executive Summary

The data in this report reflects the economic situation in Rwanda before the COVID-19 pandemic.  Rwanda’s main economic drivers are tourism, hospitality, and exports of tea and coffee.  All of these sectors have either been completely shut down due to the pandemic or severely reduced.  The International Monetary Fund has forecasted that COVID-19 will result in the Rwandan economy having the lowest rate of growth, 2 percent, since the 1994 Genocide with a return to 6-7 percent growth by 2022. It is notable that the underlying regulatory environment and pro-growth government has not changed, leaving open the possibility that Rwanda could be back to its February 2020 level of economic performance by 2022.

The Government of Rwanda

Rwanda has a history of strong economic growth, high rankings in the World Bank’s Ease of Doing Business Index, and a reputation for low corruption.  The Government of Rwanda (GOR) has taken a series of policy reforms intended to improve Rwanda’s investment climate and increase foreign direct investment (FDI).  In 2018, the GOR implemented additional reforms to decrease bureaucracy in: construction permitting; establishing electrical service; and customs processing times for exporters.  The GOR also introduced online processes for certificates of origin and phytosanitary approvals.  The country presents a number of FDI opportunities, including:  manufacturing; infrastructure; energy distribution and transmission; off-grid energy; agriculture and agro-processing; low cost housing; tourism; services; and information and communications technology (ICT).  The Investment Code provides equal treatment between foreigners and nationals for certain operations, free transfer of funds, and compensation against expropriation; the 2008 U.S.-Rwanda Bilateral Investment Treaty (BIT) reinforced this treatment.

According to the National Institute of Statistics for Rwanda (NISR), Rwanda attracted USD 462 million in FDI inflows in 2018, representing five percent of GDP.  Rwanda had a total USD 3.2 billion of FDI stock in 2018, the latest year data is available.  In 2019, the Rwanda Development Board (RDB) reported registering USD 2.46 billion in new investment commitments (a 22.6 percent increase from 2018), mainly in energy, manufacturing, construction, agriculture, services and mining.  FDI accounted for 37 percent of registered projects.

In February 2020, Standard and Poors upgraded Rwanda’s rating from B to B+, citing strong and continued growth prospects. The COVID pandemic has obviously changed this outlook.  Government debt has rapidly increased over the past few years to more than 50 percent of GDP, but most of these loans are on highly concessionary terms.  The GOR is expected to add to this debt as part of their COVID response.  Development Institutions such as the World Bank, African Development Bank , International Monetary Fund and others, have lessened or completely suspended debt repayment terms for less developed countries such as Rwanda as a result of COVID-19.  Many companies report that although it is easy to start a business in Rwanda, it can be difficult to operate a profitable or sustainable business due to a variety of hurdles and constraints.  These include the country’s landlocked geography and resulting high freight transport costs, a small domestic market, limited access to affordable financing, payment delays with government contracts, and inconsistent enforcement of laws and regulations.  Government interventions designed to support overall economic growth can significantly impact investors, with some expressing frustration that they were not consulted prior to the abrupt implementation of government policies and regulations that affected their business.  A number of investors have stated that tax incentives included in deals signed by RDB are not honored by the lead tax agency, the Rwanda Revenue Authority (RRA).  Similarly, some investors stated that Rwanda’s immigration authority does not always honor the employment and immigration commitments of investment certificates and deals.  Some investors reported difficulties in registering patents and having rules against infringement of their property rights enforced in a timely manner.    While electricity and water supply have improved, businesses may continue to experience intermittent outages, especially during peak times, due to distribution challenges.  Generating power is not an issue with the GOR as they are planning to develop more than100 percent of their power generation needs through various power projects.  Some investors report difficulties in obtaining foreign exchange from time-to-time, which could be attributed to Rwanda running a persistent trade deficit.

Table 1: Key Metrics and Rankings 
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 51 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 38 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 94 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 780 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

Note:  According to NISR, stock of U.S. FDI in the country stood at USD 182.67 million in 2018 (most recent data available)

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Over the past decade, the GOR has undertaken a series of policy reforms intended to improve the investment climate, wean Rwanda’s economy off foreign assistance, and increase FDI levels.   Rwanda enjoyed strong economic growth up until March 2020, averaging over seven percent  annually over the last decade, high rankings in the World Bank’s Doing Business report (38 out of 190 economies in 2020, and second best in African, compared to 29 in 2019 and 41 in 2018), and a reputation for low corruption.  GDP growth in 2020 is expected to be negative due to the dampening economic effects of COVID-19.  The RDB was established in 2006 to fast track investment projects by integrating all government agencies responsible for the entire investor experience under one roof.  This includes key agencies responsible for business registration, investment promotion, environmental compliance clearances, export promotion and other necessary approvals.  New investors can register online at the RDB’s website and receive a certificate in as fast as six hours, and the agency’s “one-stop shop” helps investors secure required approvals, certificates, and work permits.  RDB states its investment priorities are: innovation and technology, particularly ICT and green innovation; tourism and real estate; agriculture and food security; energy and infrastructure; and mining.

In 2020, The World Bank Ease of Doing Business report indicated that Rwanda made doing business easier by exempting newly formed small and medium businesses from paying for a trading license during their first two years of operation.  In addition, the GOR reduced the time to obtain water and sewage connections in order to facilitate construction permits and improved building controls by requiring construction professionals to obtain liability insurance.  The country also upgraded its power grid infrastructure and improved its regulations on weekly rest, working hours, severance pay and reemployment priority rules.

A number of investors have said a top concern affecting their operations in Rwanda is that tax incentives included in deals negotiated or signed by the RDB are not fully honored by the RRA.   Investors further cite the inconsistent application of tax incentives and import duties as a significant challenge to doing business in Rwanda.  For example, a few investors have said that local customs officials have attempted to charge them duties based on their perception of the value of an import, regardless of the actual purchase price.

Under Rwandan law, foreign firms should receive equal treatment with regard to taxes, as well as access to licenses, approvals, and procurement.  Foreign firms should receive VAT tax rebates within 15 days of receipt by the RRA, but firms complain that the process for reimbursement can take months, and occasionally years.  Refunds can be further held up pending the results of RRA audits.  A number of investors cited punitive retroactive fines following audits that were concluded after many years.  RRA aggressively enforces tax requirements and imposes penalties for errors – deliberate or not – in tax payments.  Investors cited lack of coordination among ministries, agencies and local government (districts) leading to inconsistencies in implementation of promised incentives and other facilitation.  Others pointed to lack of clarity on who the regulator is on certain matters.  The U.S. Treasury Department’s Office of Technical Assistance (OTA) has provided tax consultants to RRA to review auditing practices in Rwanda.  The OTA program concluded in 2020 and produced a standardized tax audit handbook for RRA’s auditors to use.

Limits on Foreign Control and Right to Private Ownership and Establishment

Rwanda has neither statutory limits on foreign ownership or control nor any official economic or industrial strategy that discriminates against foreign investors.  Local and foreign investors have the right to own and establish business enterprises in all forms of remunerative activity.

Foreign nationals may hold shares in locally incorporated companies.  The GOR has continued to privatize state holdings, although the government, ruling party, and military continue to play a dominant role in Rwanda’s private sector.  Foreign investors can acquire real estate but with a general limit on land ownership.  While local investors can acquire land through leasehold agreements that extend to a maximum of 99 years, foreign investors can be restricted to leases up to 49 years with the possibility of renewal.  The government published a new Investment Code in 2015 aimed at providing tax breaks and other incentives to boost FDI.  The Investment Code includes equal treatment for foreigners and nationals with regard to certain operations, free transfer of funds, and compensation against expropriation.  In April 2018, Rwanda introduced new laws to curb capital flight.  Management, loyalty and technical fees a local subsidiary can remit to its related non-residential companies (parent company) are capped at two percent of turnover.  Companies resolving to go beyond the cap are subject to a 30 percent corporate tax on turnover, in addition to 15 percent withholding tax and 18 percent reserve charge.

Other Investment Policy Reviews

In February 2019, The World Trade Organization (WTO) published a Trade Policy Review for the East African Community (EAC) covering Burundi, Kenya, Rwanda, Tanzania and Uganda.  The report is available at: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?Query=(@Symbol=%20wt/tpr/s/*)%20and%20((%20@Title=%20rwanda%20)%20or%20(@CountryConcerned=%20rwanda))&Language=ENGLISH&Context=FomerScriptedSearch&languageUIChanged=true# 

The Rwanda annex to the report is available at:   https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?Id=251521&filename=q/WT/TPR/S384-04.pdf 

https://docs.wto.org/dol2fe/Pages/FE_Search/ExportFile.aspx?Id=251521&filename=q/WT/TPR/S384-04.pdf 

Business Facilitation

RDB offers one of the fastest business registration processes in Africa.  New investors can register online at RDB’s website (http://org.rdb.rw/busregonline ) or register in person at RDB offices in Kigali.  Once a certificate of registration is generated, company tax identification and employer social security contribution numbers are automatically generated.  The RDB “One Stop Center” assists firms in acquiring visas and work permits, connections to electricity and water, and support in conducting required environmental impact assessments.

RDB is prioritizing additional reforms to improve the investment climate.  By 2020, it hopes to amend the land policy to merge issuance of freehold titles and occupancy permits; introduce online notarization of property transfers; implement small claims procedure to allow self-representation in court and reduce attorney costs; launch electronic auctioning to reduce time to enforce judgments, reducing court fees and allowing payments electronically; and establish a commercial division at the Court of Appeal to fast-track commercial dispute resolution.

Rwanda promotes gender equality and has pioneered a number of projects to promote women entrepreneurs, including the creation of the Chamber of Women Entrepreneurs within the Rwanda Private Sector Federation (PSF).  Both men and women have equal access to investment facilitation and protections.

Outward Investment

The government does not have a formal program to provide incentives for domestic firms seeking to invest abroad, but there are no restrictions in place limiting such investment.

3. Legal Regime

Transparency of the Regulatory System

The GOR generally employs transparent policies and effective laws largely consistent with international norms.  Rwanda is a member of the U.N. Conference on Trade and Development’s international network of transparent investment procedures.  The Rwanda eRegulations system is an online database designed to bring transparency to investment procedures in Rwanda.  Investors can find further information on administrative procedures at:  https://businessprocedures.rdb.rw/.

Rwandan laws and regulations are published in the Government Gazette and online at http://primature.gov.rw/index.php?id=97 .  Government institutions generally have clear rules and procedures, but implementation can sometimes be uneven.  Investors have cited breach of contracts and incentive promises, and the short time given to comply with changes in government policies, as hurdles to comply with regulations.  For example, in 2019 the GOR submitted a draft law that was passed by Parliament the same year, banning single use plastic containers.  Investors in the beverage and agro-processing sectors expressed concern that the law would have a serious impact on their operations, that alternative packaging was not available in some cases, and that the GOR did not consult effectively with stakeholders before submitting it.  The law built on a ban on the manufacture and use of polyethylene bags introduced in 2008.

There is no formal mechanism to publish draft laws for public comment, although civil society sometimes has the opportunity to review them.  There is no informal regulatory process managed by nongovernmental organizations.  Regulations are usually developed rapidly in an effort to achieve policy goals and sometimes lack a basis in scientific or data-driven assessments.  Scientific studies, or quantitative analysis (if any) conducted on the impact of regulations, are not generally made publicly available for comment.  Regulators do not publicize comments they receive.  Public finances and debt obligations are generally made available to the public before budget enactment.  Finances for State Owned Enterprises (SOE) are not publicly available but may be requested by civil society organizations with a legitimate reason.

There is no government effort to restrict foreign participation in industry standards-setting consortia or organizations.  Legal, regulatory, and accounting systems are generally transparent and consistent with international norms but are not always enforced.  The Rwanda Utility Regulation Agency (RURA), the Office of the Auditor General (OAG), the Anticorruption Division of the RRA, the Rwanda Standards Board (RSB), the National Tender Board, and the Rwanda Environment Management Authority also enforce regulations.  Consumer protection associations exist but are largely ineffective.  The business community has been able to lobby the government and provide feedback on some draft government policies through the PSF, a business association with strong ties to the government.  In some cases, the PSF has welcomed foreign investors to positively influence government policies.  However, some investors have criticized the PSF for advocating to businesses about government policies rather than advocating business concerns to the government.

The American Chamber of Commerce launched in November 2019, and a European Chamber of Commerce launched in March 2020.  Both are coordinating policy advocacy efforts to improve the business environment for American, European and other foreign firms in Rwanda.  The Chinese also have a Chamber of Commerce registered in China and active in Rwanda.

International Regulatory Considerations

Rwanda is a member of the EAC Standards Technical Management Committee. Approved EAC measures are generally incorporated into the Rwandan regulatory system within six months and are published in the National Gazette like other domestic laws and regulations.  Rwanda is also a member of the standards technical committees for the International Standardization Organization, the African Organization for Standardization, and the International Electrotechnical Commission. Rwanda is a member of the International Organization for Legal Metrology and the International Metrology Confederation. The Rwanda Standards Board represents Rwanda at the African Electrotechnical Commission. Rwanda has been a member of the WTO since 22 May 1996 and notifies the WTO Committee on Technical Barriers to Trade on draft technical regulations.

Legal System and Judicial Independence

The Rwandan legal system was originally based on the Belgian civil law system. However, since the renovation of the legal framework in 2002, the introduction of a new constitution in 2003, and the country’s entrance to the Commonwealth in 2009, there is now a mixture of civil law and common law (hybrid system). Rwanda’s courts address commercial disputes and facilitate enforcement of property and contract rights. Rwanda’s judicial system suffers from a lack of resources and capacity but continues to improve. Investors occasionally state that the government takes a casual approach to contract sanctity and sometimes fails to enforce court judgments in a timely fashion. The government generally respects judicial independence, though domestic and international observers have noted that outcomes in high-profile politically sensitive cases appeared predetermined.

In August 2018, the GOR created a Court of Appeal in an attempt to reduce backlogs and expedite the appeal process without going to the Supreme Court. The new Court of Appeal arbitrates cases handled by the High Court, Commercial High Court, and Military High Court. The Supreme Court continues to decide on cases of injustice filed from the Ombudsman Office and on constitutional interpretation. Based on Article 15 of Law 76/2013 of 11/09/2013, the Office of the Ombudsman has the authority to request that the Supreme Court reconsider and review judgments rendered at the last instance by ordinary, commercial, and military courts, if there is any persistence of injustice.  More information on the review process can be found at https://ombudsman.gov.rw/en/?Court-Judgement-Review-Unit-1375 . A Tax Court is yet to be established in Rwanda. In 2019, the RDB announced the government’s intent to create a commercial division at the Court of Appeal to fast-track resolution on commercial disputes.

Laws and Regulations on Foreign Direct Investment

National laws governing commercial establishments, investments, privatization and public investments, land, and environmental protection are the primary directives governing investments in Rwanda.  Since 2011, the government reformed tax payment processes and enacted additional laws on insolvency and arbitration.  The 2015 Investment Code establishes policies on FDI, including dispute resolution (Article 9).  The RDB keeps investment-related regulations and procedures at:  http://businessprocedures.rdb.rw .

According to a WTO policy review report dated January 2019, Rwanda is not a party to any countertrade and offsetting arrangements, or agreements limiting exports to Rwanda.

A new property tax law was passed in August 2018.  The new law removes the provision that taxpayers must have freehold land titles to pay property taxes.  Small and medium enterprises (SMEs) will receive a two-year tax trading license exemption upon establishment.

In April 2018, the GOR passed a new law to streamline income tax administration and to clarify the law.  The new law can be accessed here: http://www.primature.gov.rw/media-publication/publication/latest-offical-gazettes.html?no_cache=1&tx_drblob_pi1%5BdownloadUid%5D=464 .

Competition and Anti-Trust Laws

Since 2010, a Competition and Consumer Protection Unit was created at the Ministry of Trade and Industry (MINICOM) to address competition and consumer protection issues.  The government is setting up the Rwanda Inspectorate, Competition and Consumer Protection Authority (RICA), a new independent body with the mandate to promote fair competition among producers.  The body will reportedly aim to ensure consumer protection and enforcement of standards.  To read more on competition laws in Rwanda, please visit:  http://www.minicom.gov.rw/index.php?id=136.

Market forces determine most prices in Rwanda, but, in some cases, the GOR intervenes to fix prices for items considered sensitive in Rwanda.  RURA, in consultation with relevant ministries, sets prices for petroleum products, water, electricity, and public transport.  MINICOM and the Ministry of Agriculture have fixed farm gate prices, or the market value of a cultivated product minus the selling costs, for agricultural products like coffee, maize, and Irish potatoes from time to time.  On international tenders, a 10 percent price preference is available for local bidders, including those from regional economic integration bodies in which Rwanda is a member.

Some U.S. companies have expressed frustration that while authorities require them to operate as a formal enterprise that meets all Rwandan regulatory requirements, some local competitors are informal businesses that do not operate in full compliance with all regulatory requirements.  Other investors have claimed unfair treatment compared to SOEs, ruling party-aligned or politically connected business competitors in securing public incentives and contracts.

More information on specific types of agreements, decisions and practices considered to be anti-competitive, or abuse of dominant position, in Rwanda can be found here: https://rura.rw/fileadmin/Documents/docs/ml08.pdf 

Expropriation and Compensation

The 2015 Investment Code forbids the expropriation of investors’ property in the public interest unless the investor is fairly compensated.  A new expropriation law came into force in 2015, which included more explicit protections for property owners.

A 2017 study by Rwanda Civil Society Platform argues that the government conducts expropriations on short notice and does not provide sufficient time or support to help landowners fairly negotiate compensation.  The report includes a survey that found only 27 percent of respondents received information about planned expropriation well in advance of action.  While mechanisms exist to challenge the government’s offer, the report notes that landowners are required to pay all expenses for the second valuation, a prohibitive cost for rural farmers or the urban poor.  Media have reported that wealthier landowners have the ability to challenge valuations and have received higher amounts.  Political exiles and other embattled opposition figures have been involved in taxation lawsuits that resulted in their “abandoned properties” being sold at auction, allegedly at below market values.

Dispute Settlement

ICSID Convention and New York Convention

Rwanda is signatory to the International Center for Settlement of Investment Disputes (ICSID) and the African Trade Insurance Agency (ATI).  ICSID seeks to remove impediments to private investment posed by non-commercial risks, while ATI covers risk against restrictions on import and export activities, inconvertibility, expropriation, war, and civil disturbances.

Rwanda ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2008.

Investor-State Dispute Settlement

Rwanda is a member of the East African Court of Justice for the settlement of disputes arising from or pertaining to the EAC.  Rwanda has also acceded to the 1958 New York Arbitration Convention and the Multilateral Investment Guarantee Agency convention.  Under the U.S.-Rwanda BIT, U.S. investors have the right to bring investment disputes before neutral, international arbitration panels.  Disputes between U.S. investors and the GOR in recent years have been resolved through international arbitration, court judgments, or out of court settlements.  Judgments by foreign courts and contract clauses that abide by foreign law are accepted and enforced by local courts, though they lack capacity and experience to adjudicate cases governed by non-Rwandan law.  There have been a number of private investment disputes in Rwanda, though the government has yet to stand as complainant, respondent, or third party in a WTO dispute settlement.  Rwanda has been a party to two cases at ICSID since Rwanda became a member in 1963; one of these cases is an ongoing case brought by an American investor against Rwanda.  SOEs are also subject to domestic and international disputes.  SOEs and ruling party-owned companies party to suits have both won and lost judgments in the past.

International Commercial Arbitration and Foreign Courts

In 2012, the GOR launched the Kigali International Arbitration Center (KIAC).   KIAC case handling rules are modeled on the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules.  By July 2019, KIAC reviewed 115 cases worth USD 64 million in claims involving petitions from 19 different nationalities since 2012.  Some businesses report being pressured to use the Rwanda-based KIAC for the seat of arbitration in contracts signed with the GOR.  Because KIAC has a short track record and its domiciled in Rwanda, these companies would prefer arbitration take place in a third country, and some have reported difficulty in securing international financing due to KIAC provision in their contracts.

Bankruptcy Regulations

Rwanda ranks 38 out of 190 economies for resolving insolvency in the World Bank’s 2020 Doing Business Report and is number two in Africa.  It takes an average of two and a half years to conclude bankruptcy proceedings in Rwanda.  The recovery rate for creditors on insolvent firms was reported at 19.3 cents on the dollar, with judgments typically made in local currency.

In April 2018, the GOR instituted a new Insolvency and Bankruptcy Law.  One major change is the introduction of an article on “pooling of assets” allowing creditors to pursue parent companies and other members of the group, in case a subsidiary is in liquidation.  The new law can be accessed here:  http://org.rdb.rw/wp-content/uploads/2018/06/Insolvency-Law-OGNoSpecialbisdu29April2018.pdf 

4. Industrial Policies

Investment Incentives

The 2015 Investment Code offers a package of benefits and incentives to both domestic and foreign investors under certain conditions, including:

  • For an international company with its headquarters or regional office in Rwanda, a preferential corporate income tax rate of 0 percent;
  • For any investor, a preferential corporate income tax rate of 15 percent;
  • Corporate income tax holiday of up to seven years;
  • Exemption of customs tax for products used in Export Processing Zones (EPZ);
  • Exemption of capital gains tax;
  • VAT refund;
  • Accelerated depreciation; and
  • Immigration incentives.

Further details on benefits under the Investment Code can be accessed here:  http://businessprocedures.rdb.rw/media/Investiment_promotion_law.pdf .

Poorly coordinated efforts between the RDB, RRA, MINICOM, and the Directorate of Immigration and Emigration can lead to inconsistent application of incentives, according to investors.  Investors reported that tax incentives included in deals signed by the RDB are not honored by the RRA in all cases or sometimes not in a timely manner.  Additionally, investors continue to face challenges receiving payment for services rendered for GOR projects, VAT refund delays, and/or expatriation of profits.  In 2016, the GOR instituted a law governing public-private partnership (PPPs) as a step toward courting investments in key development projects.  The law provides a legal framework concerning establishment, implementation, and management of PPPs.  Detailed guidelines for the law can be accessed here:  http://rdb.rw/wp-content/uploads/2018/08/PPP-Guidelines.pdf 

Foreign Trade Zones/Free Ports/Trade Facilitation

Rwanda has established the Kigali Special Economic Zone (KSEZ), which was set up through the merger of former Kigali Free Trade Zone and the Kigali Industrial Park projects.  SEZs in Rwanda are regulated by the SEZ Authority of Rwanda (SEZAR), based at the RDB.  Land in KSEZ is acquired through Prime Economic Zone Secretariat, a private developer, under the regulations of SEZAR.  The price per square meter is USD 62, and the minimum size that can be acquired is one hectare.  Bonded warehouse facilities are now available both in and outside of Kigali for use by businesses importing duty-free materials.  The GOR has established a number of benefits for investors operating in the SEZs, including tax and land ownership advantages.  A company basing itself in the SEZ can also opt to be a part of the Economic Processing Zone.  A number of criteria must be satisfied in order to qualify, such as extensive records on equipment, materials and goods, suitable offices, security provisions, and a number of property constraints.

Holding an EPZ license will exempt a company from VAT, import duties, and corporate tax.  The company is then obliged to export a minimum of 80 percent of production.  Even after considering savings due to these government incentives, a few investors reported that land in the SEZs was significantly more expensive than land outside the zones.  The GOR has stated that there are no fiscal, immigration, or customs incentives beyond those provided in the 2015 Investment Code, though media has occasionally speculated that certain investors received additional incentives.  The negative list of goods prohibited under the EAC Customs Management Act applies in SEZs.  In November 2018, the GOR approved the Bugesera Special Economic Zone (BSEZ), located 45 minutes from Kigali.  Procedural information and cost involved in operating in SEZs can be accessed here: https://businessprocedures.rdb.rw/procedure/238/189?l=en .  The SEZ policy was revised in 2018.  Under the new policy, foreigners and locals may only lease land (formerly, foreign investors were able to purchase land outright in SEZ).  To read more on the new policy, please see: http://www.minicom.gov.rw/fileadmin/minicom_publications/documents/SEZ_Policy_-_January_2018_v2.pdf 

Rwanda created the Export Growth Facility (EGF) in 2015, with an initial capital of RWF 500 million, administered by the Development Bank of Rwanda (BRD).  German KfW Development Bank injected EUR 8.5 million in support of the fund.  The pilot program targets SMEs with export sales below USD 1 million.  Priority sectors include horticulture, agro-processing, and manufacturing.  The facility has three windows: an investment catalyst fund, a matching grant fund for market entry costs, and an export guarantee facility.  Investment catalyst funds support private sector investments in export-orientated production through a 6.5 percent subsidy on market interest rates (normally between 16-20 percent).  The matching grant fund provides grants (50 percent of the need) for expenditure on specific market entry costs (export strategy elaboration, export promotion, compliance with standards, etc.).  The export guarantee fund provides short-term guarantees to commercial banks financing exporters’ pre- and post-shipment operations.  The export guarantee component is not yet operational.  The facility supports both locally and foreign-owned companies in Rwanda; at least one American company has already received a loan.  Rwanda created the Business Development Fund (BDF) in 2011 to provide support to SMEs in credit guarantees, matching grants, asset leasing, and advisory services.  BDF works with banks to provide guarantees between 50-75 percent of required collaterals.  The maximum guarantee is RWF 500 million for agriculture projects and RWF 300 million for other sectors, for a maturity period of up to 10 years.

The GOR also manages the Rwanda Green Fund (FONERWA) to spur investment in green innovation.  The UK Aid Department for International Development, KFW, and other donors have invested in the fund.  FONERWA claims projects it supports have created more than 137,000 green jobs.

Performance and Data Localization Requirements

There is no legal obligation for nationals to own shares in foreign investments or requirement that shares of foreign equity be reduced over time.  However, the government strongly encourages local participation in foreign investments.   There is no requirement for private companies to store their proprietary data in Rwanda.  There is also no requirement for foreign IT providers to turn over source code and/or provide access to encryption technology.  IT companies dealing with government data cannot store it outside Rwanda or transfer it without GOR approval. Rwandans private data must be stored in Rwanda. There is no formal requirement that a certain number of senior officials or board members be citizens of Rwanda.  Under the 2015 Investment Code, the government allows registered those who invest a minimum of USD 250,000 to hire up to three expatriate employees, without the need to conduct a labor market test in Rwanda.  Investors who wish to hire more than three expatriate employees must conduct a labor market test, unless the available position is listed on Rwanda’s “Occupations in Demand” list.  The Directorate General of Immigration and Emigration does not always honor the employment and immigration commitments of investment certificates and deals, according to a number of investors.

While the government does not impose conditions on the transfer of technology, it does encourage foreign investors, without legal obligation, to transfer technology and expertise to local staff to help develop Rwanda’s human capital.  There is no legal requirement that investors must purchase from local sources or export a certain percentage of their output, though the government offers tax incentives for the latter.  Unless stipulated in a contract or memorandum of understanding characterizing the purchase of privatized enterprises, performance requirements are not imposed as a condition for establishing, maintaining, or expanding other investments.  Such requirements are imposed chiefly as a condition to tax and investment incentives.  The GOR is not involved in assessing the type and source of raw materials for performance, but the RSB determines quality standards for some product categories.

5. Protection of Property Rights

Real Property

The law protects and facilitates acquisition and disposition of all property rights.  Investors involved in commercial agriculture have leasehold titles and are able to secure property titles, if necessary.  The 2015 Investment Code states that investors shall have the right to own private property, whether individually or in association with others.  Foreign investors can acquire real estate, though there is a general limit on land ownership.  While local investors can acquire land through leasehold agreements that extend to 99 years, the lease period for foreigners has been as limited to 49 years, in some cases.  Such leases are theoretically renewable, but the law is new enough that foreigners generally have not yet attempted to renew a lease.  Mortgages are a nascent but growing financial product in Rwanda, increasing from 770 properties in 2008 to 13,394 in 2017, according to the RDB.

Intellectual Property Rights

The 2015 Investment Code guarantees protection of investors’ intellectual property rights (IPR), and legitimate rights related to technology transfer.  IPR legislation covering patents, trademarks, and copyrights was approved in 2009.  A Registration Service Agency, which is part of the RDB, was established in 2008 and has improved IPR t protection by registering all commercial entities and facilitating business identification and branding.  The RDB and the RSB are the main regulatory bodies for Rwanda’s intellectual property rights law.  The RDB registers intellectual property rights, providing a certificate and ownership title.  Every registered IPR title is published in the Official Gazette.  The fees payable for substance examination and registration of IPR apply equally to domestic and foreign applicants.  Since 2016, any power of attorney that a non-resident grants to a Rwandan-based industrial property agent must be notarized. (Previously, a signature would have been sufficient.)

Registration of patents and trademarks is on a first time, first right basis, so companies should consider applying for trademark and patent protection in a timely manner.  It is the responsibility of the copyright holders to register, protect, and enforce their rights where relevant, including retaining their own counsel and advisors.  Through the RSB and the RRA, Rwanda has worked to increase IPR protection, but many goods that violate patents, especially pharmaceutical products, make it to market nonetheless.  As many products available in Rwanda are re-exports from other EAC countries, it may be difficult to prevent counterfeit goods without regional cooperation.  Also, investors reported difficulties in registering patents and having rules against infringement of their property rights enforced in a timely manner.

Rwanda conducts anti-counterfeit goods campaigns on a regular basis, but statistics on IPR enforcement are not publicly available.  A few companies have expressed concern over inappropriate use of their intellectual property.  While the government has offered rhetorical support, enforcement has been mixed.  In some cases, infringement has stopped, but in other cases, companies have been frustrated with the slow pace of receiving judgment or of receiving compensation after successful legal cases.

As a COMESA member, Rwanda is automatically a member of African Regional Intellectual Property Organization.  Rwanda is also a member of the World Intellectual Property Organization (WIPO) and is working toward harmonizing its legislation with WTO Agreement on the Trade-Related Aspects of Intellectual Property (TRIPS).  Rwanda has yet to ratify WIPO Internet Treaties, though the government has taken steps to implement and enforce TRIPS Agreement. In addition to TRIPS, Rwanda is a party to the following treaties and conventions:  the Paris Convention; the Berne Convention; the Patent Cooperation Treaty; the Madrid Protocol; the Hague Agreement; and the Brussels Convention.   Rwanda is not a party to the following treaties and conventions: the Beijing Treaty; the Budapest Treaty; Locarno Agreement; the Marrakesh Treaty; the Nairobi Treaty; the Nice Agreement; the Phonograms Convention; the Singapore Treaty; the Strasbourg Agreement ; the Trademark Law Treaty; the Vienna Convention; the WIPO Copyright Treaty; and the WIPO Performance and Phonograms Treaty.

Rwanda is not included in 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

Rwanda’s capital markets are relatively immature and lack complexity.  Only eight companies have publicly listed and traded equities in Rwanda.  The Rwanda Capital Market Authority was established in 2017 to regulate the capital market, commodity exchange and related contracts, collective investment schemes, and warehouse receipts.  Most capital market transactions are domestic.  While offers can attract some international interests, they are rare.  Rwanda is one of a few sub-Saharan African countries to have issued sovereign bonds.  In 2019, the National Bank of Rwanda issued five new bonds including a 20-year bond, the longest tenor ever issued by the country.  During the same year, seven existing bonds were reopened. Rwandan government bonds and other debt securities are highly oversubscribed and bond yields average 12 percent.  BNR, the country’s Central Bank, has implemented reforms in recent years that are helping to create a secondary market for Rwandan treasury bonds.  Secondary market continue go growth from low base.  In 2019, BNR reported that deals and turn overs increased by 47.0 percent and 106.5 percent respectively following intense awareness campaigns and increased number of products (new issuances and re-openings).  In January 2020, the IMF completed its first review of Rwanda’s economic performance under the Policy Coordination Instrument and Monetary Policy Consultation, which can be found here:  https://www.imf.org/en/Publications/CR/Issues/2020/01/17/Rwanda-First-Review-Under-the-Policy-Coordination-Instrument-and-Monetary-Policy-48956  

https://www.imf.org/en/Publications/CR/Issues/2020/01/17/Rwanda-First-Review-Under-the-Policy-Coordination-Instrument-and-Monetary-Policy-48956  

Money and Banking System

Many U.S. investors express concern that local access to affordable credit is a serious challenge in Rwanda.  Interest rates are high for the region ranging from 15 percent to 20 percent, banks offer predominantly short-term loans, collateral requirements can be higher than 100 percent of the value of the loan, and Rwandan commercial banks rarely issue significant loan values.  The prime interest rate is 16-18 percent.  Large international transfers are subject to authorization.  Investors who seek to borrow more than USD 1 million must often engage in multi-party loan transactions, usually leveraging support from larger regional banks.  Credit terms generally reflect market rates, and foreign investors are able to negotiate credit facilities from local lending institutions if they have collateral and “bankable” projects.  In some cases, preferred financing options may be available through specialized funds including the Export Growth Fund, BRD, or FONERWA.

Rwanda’s financial sector remains highly concentrated.  The share of the three largest Banks’s assets increased from 46.5 percent in December 2018 to 48.4 percent in December 2019.  The largest, partially state-owned, Bank of Kigali (BoK), holds more than 30 percent of all assets.  The banking sector holds more than 65 percent of total financial sector assets in Rwanda.  Non-performing loans dropped from 6.4 percent in December 2018 to 4.9 percent in December 2019.  Foreign banks are permitted to establish operations in Rwanda, with several Kenyan-based banks in the country.  Atlas Mara Limited acquired a majority equity stake in Banque Populaire du Rwanda (BPR) in 2016.  BPR/Atlas Mara has the largest number of branch locations and is Rwanda’s second largest bank after BoK.  In total, Rwanda’s banks have assets of more than USD 3 billion, which increased 12.5 percent between  December 2018 and 2019, according to BNR.  The IMF gives BNR high marks for its effective monetary policy.  BNR introduced a new monetary policy framework in 2019, which shifts toward inflation-targeting monetary framework in place of a quantity-of-money framework.

In 2019, BNR reported that commercial banks liquidity ratio was 49 percent (compared to BNR’s required minimum of 20 percent), suggesting reluctance toward making loans.  The capital adequacy ratio grew to 24.1 percent from 21.4 percent over the year, well above the minimum of 15 percent, suggesting the Rwanda banking sector continues to be generally risk averse.  Local banks often generate significant revenue from holding government debt and from charging a variety of fees to banking customers.  Credit cards are becoming more common in major cities, especially at locations frequented by foreigners, but are not used in rural areas.  Rwandans primarily rely on cash or mobile money to conduct transactions.

During the COVID-19 pandemic local banks deferred loan payments from customers.  Despite this, the banking sector was confident that they had sufficient liquidity until July 2020 due to the favorable economic conditions prior to COVID-19.  In March 2020, the IMF disbursed USD 109 Million to Rwanda under the Rapid Credit Facility and the World Bank approved a USD 14.25 million immediate funding in the form of an International Development Association credit to support Rwanda’s response to the COVID-19 pandemic.  At the same time, the BNR arranged a 50 Billion Rwandan Franc (USD 53.4 Million) liquidity fund for local banks.  By December 2019, the number of debit cards in the country grew eight percent year over year to 945,000, and the number of mobile banking customers grew 22 percent to 1,266,000. The total number of bank and MFI accounts increased from 7.1 million to 7.7 million between 2018-2019. The number of retail point of sale (POS) machines grew from 2,801 to 3,477 while POS transactions grew by 53 percent in volume and 29 percent in value between 2019 and 2018 according to BNR.

Foreign Exchange and Remittances

Foreign Exchange

In 1995, the government abandoned a dollar peg and established a floating exchange rate regime, under which all lending and deposit interest rates were liberalized.  BNR publishes an official exchange rate on a daily basis, which is typically within a two percent range of rates seen in the local market.  Some investors report occasional difficulty in obtaining foreign exchange.  Rwanda generally runs a large trade deficit, estimated at more than 10 percent of GDP in 2019. Transacting locally in foreign currency is prohibited in Rwanda.  Regulations set a ceiling on the foreign currency that can leave the country per day.  In addition, regulations specify limits for sending money outside the country; BNR must approve any transaction that exceed these limits.

Most local loans are in local currency.  In December 2018, BNR issued a new directive on lending in foreign currency which requires the borrow to have a turnover of at least RWF 50 million or equivalent in foreign currency, have a known income stream in foreign currency not below 150 percent of the total installment repayments, and the repayments must be in foreign currency.  The collateral pledged by non-resident borrowers must be valued at 150 percent of the value of the loan.  In addition, BNR requires banks to report regularly on loans granted in foreign currency.

Remittance Policies

Investors can remit payments from Rwanda only through authorized commercial banks.  There is no limit on the inflow of funds, although local banks are required to notify BNR of all transfers over USD 10,000 to mitigate the risk of potential money laundering.  A withholding tax of 15 percent to repatriate profits is considered high by a number of investors given that a 30 percent tax is already charged on profits, making the realized tax burden 45 percent.  Additionally, there are some restrictions on the outflow of export earnings.  Companies generally must repatriate export earnings within three months after the goods cross the border.  Tea exporters must deposit sales proceeds shortly after auction in Mombasa, Kenya.  Repatriated export earnings deposited in commercial banks must match the exact declaration the exporter used crossing the border.

Rwandans working overseas can make remittances to their home country without impediment.  It usually takes up to three days to transfer money using SWIFT financial services.  The concentrated nature of the Rwandan banking sector limits choice, and some U.S. investors have expressed frustration with the high fees charged for exchanging Rwandan francs to dollars.

Sovereign Wealth Funds

In 2012, the Rwandan government launched the Agaciro Development Fund (ADF), a sovereign wealth fund that includes investments from Rwandan citizens and the international diaspora.  By September 30, 2019, the fund was worth 194.3 billion RWF in assets (around USD 204 million).  The ADF operates under the custodianship of BNR and reports quarterly and annually to the Ministry of Finance and Economic Planning, its supervisory authority.  ADF is a member of the International Forum of Sovereign Wealth Funds and is committed to the Santiago Principles.  ADF only operates in Rwanda.  In addition to returns on investments, citizens and private sector voluntary contributions, and other donations, ADF receives RWF 5 billion every year from tax revenues and 5 percent of proceeds from every public asset that is privatized.  The fund also receives 5 percent of royalties from minerals and other natural resources each year.  The government has transferred a number of its shares in private enterprises to the management of ADF including those in the BoK, Broadband Systems Corporation (BSC), Gasabo 3D Ltd, Africa Olleh Services (AoS), Korea Telecom Rwanda Networks (KTRN), and the One and Only Nyungwe Lodge.  ADF invests mainly in Rwanda.  While the fund can invest in foreign non-fixed income investments, such as publicly listed equity, private equity, and joint ventures, the AGDF Corporate Trust Ltd (the fund’s investment arm) held no financial assets and liabilities in foreign currency, according to the 2018 annual report.

7. State-Owned Enterprises

Rwandan law allows private enterprises to compete with public enterprises under the same terms and conditions with respect to access to markets, credit, and other business operations.  Since 2006, the GOR has made efforts to privatize SOEs; reduce the government’s non-controlling shares in private enterprises; and attract FDI, especially in the ICT, tourism, banking, and agriculture sectors, but progress has been slow.  Current SOEs include water and electricity utilities, as well as companies in construction, ICT, aviation, mining, insurance, agriculture, finance, and other investments.  Some investors complain about competition from state-owned and ruling party-aligned businesses.  SOEs and utilities appear in the national budget, but the financial performance of most SOEs is only detailed in an annex that is not publicly available.  The most recent state finances audit report of the OAG also covers SOEs and has sections criticizing the management of some of the organizations.   SOEs are governed by boards with most members having other government positions.

State-owned non-financial corporations include Ngali Holdings, Horizon Group Ltd, REG, Water and Sanitation Corporation, RwandAir, National Post Office, Rwanda Printery Company Ltd, King Faisal Hospital, Muhabura Multichoice Ltd, Prime Holdings, Rwanda Grain and Cereals Corporation, Kinazi Cassava Plant, and the Rwanda Inter-Link Transport Company.  State-owned financial corporations include the NBR, Development Bank of Rwanda, Special Guarantee Fund, Rwanda National Investment Trust Ltd, ADF, BDF and the Rwanda Social Security Board.  The GOR has interests in the BoK, Rwanda Convention Bureau, BSC, CIMERWA, Gasabo 3D Ltd, AoS, KTRN, Dubai World Nyungwe Lodge, and Akagera Management Company, among others.

Privatization Program

Rwanda continues to carry out a privatization program that has attracted foreign investors in strategic areas ranging from telecommunications and banking to tea production and tourism.  As of 2017 (latest data available), 56 companies have been fully privatized, seven were liquidated, and 20 more were in the process of privatization.  RDB’s Strategic Investment Department is responsible for implementing and monitoring the privatization program. Some observers have questioned the transparency of certain transactions, as a number of transactions were undertaken through mutual agreements directly between the government and the private investor, some of whom have personal relationships with senior government officials, rather than public offerings.

8. Responsible Business Conduct

There is a growing awareness of corporate social responsibility (CSR) within Rwanda, and several foreign-owned companies operating locally implement CSR programs.  Rwanda implements the OECD’s Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.  Rwanda also implements the International Tin Supply Chain Initiative tracing scheme.  In 2016, the Better Sourcing Program (currently RCS Global Group) began an alternative mineral tracing scheme in Rwanda.  Rwanda also has guidelines on corporate governance by publicly listed companies.  In recognition of the firm’s strong commitment to CSR, the U.S. Department of State awarded Sorwathe, a U.S.-owned tea producer in Kinihira, Rwanda, the Secretary of State’s 2012 Award for Corporate Excellence for Small and Medium Enterprises.  In 2015, the U.S. firm Gigawatt Global was also a finalist for the Secretary of State’s Award for Corporate Excellence in the environmental sustainability category.  Rwanda is not a member of the Extractive Industries Transparency Initiative (EITI).

9. Corruption

Rwanda is ranked among the least corrupt countries in Africa, with Transparency International’s 2019 Corruption Perception Index putting the country among Africa’s four least corrupt nations and 51st in the world.  The government maintains a high-profile anti-corruption effort, and senior leaders articulate a consistent message emphasizing that combating corruption is a key national goal.  The government investigates corruption allegations and generally punishes those found guilty.  High-ranking officials accused of corruption often resign during the investigation period, and many have been prosecuted.  Rwanda has ratified the UN Anticorruption Convention.  It is a signatory to the OECD Convention on Combating Bribery.  It is also a signatory to the African Union Anticorruption Convention.  U.S. firms have identified the perceived lack of government corruption in Rwanda as a key incentive for investing in the country.  There are no local industry or non-profit groups offering services for vetting potential local investment partners, but the Ministry of Justice keeps judgments online, making it a source of information on companies and individuals in Rwanda at www.judiciary.gov.rw/home/ .  The Rwanda National Public Prosecution Authority issues criminal records on demand to applicants at www.nppa.gov.rw .

Resources to Report Corruption

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

Mr. Anastase Murekezi, Chief Ombudsman , Ombudsman (Umuvunyi)
P.O Box 6269, Kigali, Rwanda
Telephone: +250 252587308
omb1@ombudsman.gov.rw / sec.permanent@ombudsman.gov.rw

Mr. Felicien Mwumvaneza, Commissioner for Quality Assurance Department (Anti-Corruption Unit) Rwanda Revenue Authority
Avenue du Lac Muhazi, P.O. Box 3987, Kigali, Rwanda
Telephone: +250 252595504 or +250 788309563
felicien.mwumvaneza@rra.gov.rw / commissioner.quality@rra.gov.rw

Mr. Obadiah Biraro, Auditor General, Office of the Auditor General
Avenue du Lac Muhazi, P.O. Box 1020, Kigali, Rwanda
Telephone: +250 78818980 , oag@oag.gov.rw

Contact at “watchdog” organization

Mr. Apollinaire Mupiganyi , Executive Director , Transparency International Rwanda
P.O: Box 6252 Kigali, Rwanda
Telephone: +250 788309563,
amupiganyi@transparencyrwanda.org / mupiganyi@yahoo.fr

10. Political and Security Environment

Rwanda is a stable country with relatively little violence.  According to a 2017 report by the World Economic Forum, Rwanda is the ninth safest country in the world.   Gallup’s Global Law and Order Index report of 2018 ranked Rwanda 2nd safest place in Africa.  Investors have cited the stable political and security environment as an important driver of investments.  A strong police and military provide a security umbrella that minimizes potential criminal activity.

The U.S. Department of State recommends that U.S. citizens exercise caution when traveling near the Rwanda-Democratic Republic of the Congo (DRC) border, given the possibility of fighting and cross-border attacks involving the Democratic Forces for the Liberation of Rwanda (FDLR) and other groups opposed to the GOR.  Relations between Burundi and Rwanda are tense, and there is a risk of cross-border incursions and armed clashes.  Since 2018, there have been a few incidents of sporadic fighting in districts bordering Burundi and in Nyungwe National Park.

Grenade attacks aimed at the local populace occurred on a recurring basis between 2008 and 2014 in Rwanda.  There have been several cross-border attacks in Western Rwanda on Rwandan police and military posts reportedly since 2016.  Despite occasional violence along Rwanda’s borders with the DRC and Burundi, there have been no incidents involving politically motivated damage to investment projects or installations since the late 1990s.  Relations with Uganda are also tense, but leaders continue to emphasize they are seeking a political solution.  Rwanda has not allowed commercial traffic to cross the Rwandan-Ugandan border since February 2019 forcing most, if not all, commercial traffic to the Rwandan-Tanzanian border.  In May 2020, the Rwandan-Tanzania border crossings were negatively impacted due to the influx of Tanzanian truck drivers infected with COVID-19.

Please see the following link for State Department Country Specific Information:   https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Rwanda.html 

11. Labor Policies and Practices

General labor is available, but Rwanda suffers from a shortage of skilled labor, including accountants, lawyers, engineers, tradespeople, and technicians.  Higher institutes of technology, private universities, and vocational institutes are improving and producing more and highly-trained graduates each year.  The Rwanda Workforce Development Authority sponsors programs to support both short and long-term professional trainings targeting key industries in Rwanda.  Carnegie Mellon University opened a campus in Kigali in 2012–its first in sub-Saharan Africa–and currently offers a Master of Science in Electrical and Computer Engineering and Master of Science in Information Technology.  In 2013, the nonprofit university program, Kepler, was established for students to work toward a U.S.-accredited degree through online learning and in-person seminars through a relationship with Southern New Hampshire University.  Oklahoma Christian University offers an online Master of Business Administration program with on-site support in Kigali.  The African Institute of Mathematics, University of Global Health Equity and African Leadership University campuses in Rwanda offer college level and advanced degrees in many fields.    Investors are strongly encouraged to hire Rwandan nationals whenever possible.  According to the Investment Code, a registered investor who invests an equivalent of at least USD 250,000 may recruit three foreign employees.  However, a number of foreign investors reported difficulties importing qualified staff in accordance with the Investment Code due to Rwandan immigration rules and practices.  In some cases, these problems occurred even though investors had signed agreements with the government regarding the number of foreign employees.

Investors are strongly encouraged to hire Rwandan nationals whenever possible.  According to the Investment Code, a registered investor who invests an equivalent of at least USD 250,000 may recruit three foreign employees.  However, a number of foreign investors reported difficulties importing qualified staff in accordance with the Investment Code due to Rwandan immigration rules and practices.  In some cases, these problems occurred even though investors had signed agreements with the government regarding the number of foreign employees.

Rwanda has ratified all of the International Labor Organization’s eight core conventions.  Policies to protect workers in special labor conditions exist, but enforcement remains inconsistent.  The government encourages, but does not require, on-the-job training and technology transfer to local employees.  The law restricts voluntary collective bargaining by requiring prior authorization or approval by authorities and requiring binding arbitration in cases of non-conciliation.  The law provides some workers the right to conduct strikes, subject to numerous restrictions, but strikes are very rare. There is no unemployment insurance or other social safety net programs for workers laid off for economic reasons.  The minimum wage remains at 100 Rwandan Franc per day  (less than USD 0.10 per day) and has not been changed since the 1974.   The legal framework for employment rights for disabled persons is not as strong as in the United States, but the government and some employers are making efforts to offer reasonable accommodations. In 2000, the government revised the national labor code to eliminate gender discrimination, restrictions on the mobility of labor, and wage controls.   Private firms are responsible for their local employees’ income tax payments and Rwanda Social Security Board pension contributions.  For full-time workers, these payments amount to more than 30 percent of take-home pay, which can be a disadvantage if competing firms are in the informal economy and not compliant with these requirements.  Labor laws are not waived in order to attract or retain investment.  There are no labor law provisions in SEZs or industrial parks, which differ from national labor laws.  Collective bargaining is not common in Rwanda.  Few professional associations fix minimum salaries for their members and some investors have expressed concern that labor law enforcement is uneven or opaque.  The minimum wage has not changed since 1974 and is 100 Rwandan francs (USD 0.10) per day.

The legal framework for employment rights for disabled persons is not as strong as in the United States, but the government and some employers are making efforts to offer reasonable accommodations. In 2000, the government revised the national labor code to eliminate gender discrimination, restrictions on the mobility of labor, and wage controls.   Private firms are responsible for their local employees’ income tax payments and Rwanda Social Security Board pension contributions.  For full-time workers, these payments amount to more than 30 percent of take-home pay, which can be a disadvantage if competing firms are in the informal economy and not compliant with these requirements.  Labor laws are not waived in order to attract or retain investment.  There are no labor law provisions in SEZs or industrial parks, which differ from national labor laws.  Collective bargaining is not common in Rwanda.  Few professional associations fix minimum salaries for their members and some investors have expressed concern that labor law enforcement is uneven or opaque.  The minimum wage has not changed since 1974 and is 100 Rwandan francs (USD 0.10) per day.

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

DFC (Former Overseas Private Investment Corporation) has provided financing and political risk insurance to more than a dozen U.S. projects in Rwanda since 1975.  DFC officials have expressed interest in expanding the corporation’s portfolio in Rwanda and are currently evaluating potential projects.  The Export-Import Bank continues its program to ensure short-term export credit transactions involving various payment terms, including open accounts that cover the exports of consumer goods, services, commodities, and certain capital goods.  The 1965 U.S.-Rwanda Investment Incentive Agreement remains in force; Rwanda and the United States are discussing potential updates to this agreement.

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 $9.507billion http://www.statistics.gov.rw/
publication/gdp-national-accounts-2018
 

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 $182.7 2018 $11 BEA data available
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 N/A N/A BEA data available at
http://bea.gov/international/
direct_investment_multinational_
companies_comprehensive_data.htm
 
Total Inbound Stock of FDI as % host GDP N/A N/A N/A N/A

*Host country source: https://www.statistics.gov.rw/file/8442/download?token=pcrJ3_Fj 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/Top Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
Mauritius 779.5 24.4% N/A
Kenya 239.2 7.5%
Netherlands 211.5 6.6%
United States 182.7 5.7%
South Africa 183.8 5.7%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data on Rwanda equity security holdings by nationality is not available.  According to a 2018 BNR report, portfolio investment remains the lowest component of foreign investment in Rwanda mainly due to the low level of financial market development.  Portfolio investment stock amounted to $109.3 million in 2018, a 5 percent increase from 2017 levels.  In 2018, Rwanda recorded foreign portfolio inflows of $5.4 million compared to $2.5 million in 2017.

14. Contact for More Information

Jonathan Scott
Economic and Commercial Officer
United States Embassy
2657 Avenue de la Gendarmerie, P.O. Box 28 Kigali, Rwanda
+250-252-596-538
KigaliEcon@state.gov

South Sudan

Executive Summary

Trade and investment conditions in South Sudan have slightly improved in the past year, but many challenges remain. The peace process has moved into the transition phase with the constitution of a new presidency structure and cabinet as components of a new Revitalized Transitional Government of National Unity in February and March. The expanded cabinet included new ministries of investment and East African Community affairs. In accordance with tenets of the peace deal, the new government included representatives from the incumbent government and opposition parties (signatories to the peace agreement). While these steps are positive, implementation of the terms of the peace deal has been significantly behind schedule and remains incomplete. The country continues to be plagued by large-scale displacement, widespread food insecurity, severe human-rights abuses, restricted humanitarian access, and harassment of aid workers and journalists.

South Sudan is one of the most oil-dependent economies in the world and the sector is fraught with corruption. In March 2018, the United States Department of Commerce added the Ministry of Petroleum, the Ministry of Mining, and state-owned oil company Nilepet to the Entity List, barring export of certain U.S. goods or technologies to them due to their contribution to the conflict. Removal of these entities will require the implementation of transparency and accountability measures, consistent with aspects of Chapter IV of the peace deal.

Humanitarian and development aid is a major source of employment in South Sudan. Difficulties of changing regulations, multiple layers of taxation, and labor harassment faced in this sector may provide insight to difficulties private investors would face. Bureaucratic impediments faced by NGOs include recruitment interference, airport obstructions, and duplicate registration and permit issues by different levels of authority.

The government has made efforts to simplify and centralize taxation, with the creation of the National Revenue Authority. The Bank of South Sudan has launched a website where it posts key financial data. However, the legal system is ineffective, underfunded, overburdened, and subject to executive interference and corruption. High-level government and military officials are immune from prosecution and parties in contract disputes are sometimes arrested and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.

The then-South Sudan Investment Authority (SSIA) in 2018 and 2019 conducted investment roadshows, promoting South Sudan as an ideal location for investment. The SSIA compared its laws that govern investment practices in South Sudan with those in the region and determined themselves to be more favorable for investment than their neighbors; however, laws in South Sudan are not routinely enforced.

Other factors inhibiting investment in South Sudan include limited physical infrastructure and a lack of both skilled and unskilled labor. The World Bank’s 2020 Doing Business report ranked South Sudan 185 out of 190 economies on overall ease of doing business. The legal framework governing investment and private enterprises remained underdeveloped as of April 2020.

The U.S. Department of State maintains a Travel Advisory warning against travel to South Sudan due to critically high risks from crime, kidnapping, and armed conflict.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 179 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 185 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 N/A of 126 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2019 N/A https://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2019 N/A http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

As of April 2020, the government was actively seeking foreign direct investment, but had not undertaken meaningful steps to facilitate it. Reported unfair practices have included effective expropriation of assets, inconsistent taxation policies, harassment by security services, extortion attempts, and a general perception that foreigners are not afforded fair results in court proceedings or labor disputes.

The country makes few investment facilitation efforts. In March South Sudan upgraded the South Sudan Investment Authority (SSIA) to the Ministry of Investment, as recommended in Chapter I of the peace agreement. In theory the Ministry of Investment has a One Stop Shop Investment Center. However, both organizations are poorly resourced and neither maintains an active website, though the Ministry of Investment plans to launch one this year. There is no business registration website. The ministries that handle company registration include the Ministry of Trade and Industry, Ministry of Investment, Ministry of Finance, and Ministry of Justice. There is no single window registration process, and an investor must visit all the above-mentioned agencies to complete the registration of a company. It is estimated that the registration process could take several months.

In January 2018, South Sudan joined the African Trade and Insurance Agency (ATI), which provides export insurance and other assistance to foreign investors and traders. Several local lawyers are willing to advise investors and guide them through the registration process, for a fee. There is a private-sector Chamber of Commerce, but it is a government run organization. There is no ombudsman.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity, as well as freely establish, acquire and dispose of interests in business enterprises. Under the investment law, the government of South Sudan leases land to foreign investors for limited periods of time, generally not to exceed 30-60 years, with the possibility of renewal. In the case of leases for mining or quarrying, the lease shall not exceed the life of the mine or quarry. Under the 2009 Land Act, non-citizens are not allowed to own land in South Sudan. Years of conflict and internal displacement have left a complex land rights picture with many properties having been usurped by squatters or soldiers. There is no title insurance to speak of and no formal way to determine ownership outside of current possession. Particularly lucrative extractive or land-based ventures should assume claims on ownership, and therefore claims to royalties or rents, will abound.

For investors who wish to start a business in South Sudan, there is a local shareholder requirement, but the foreign investor can usually retain majority control. For foreign-based companies who wish to establish a subsidiary in South Sudan, the local shareholder requirement does not apply. South Sudanese businesses are given priority in several areas, including micro-enterprises, postal services, car hire and taxi operations, public relations, retail, security services, and the cooperative services. Exact details, and the extent of enforcement of these requirements, are sometimes unclear.

Subject to the Private Security Companies Rules and Regulations of 2013, registering and setting up a protection services security company in South Sudan requires a South Sudanese citizen to hold at least 51 percent of the company. Companies in the extractives sector must also have a South Sudanese national as part owner, but the exact percentage of ownership required is not always clear.

According to the Investment Act, foreign investors must apply for an investment certificate from the Ministry of Investment to ensure that the investment will be beneficial to the economy or of general benefit to South Sudan.

Other Investment Policy Reviews

In the past three years, the government has not undergone any third-party investment policy reviews.

Outward Investment

The government does not have a policy for promoting or incentivizing outward investment. The government does not have a policy restricting domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

Bureaucratic procedures for opening a business are long and cumbersome, particularly for foreigners trying to navigate the system without the assistance of a well-connected national.

The private sector is governed by a mix of laws from Sudan, the pre-independence semi-autonomous Government of Southern Sudan, and since 2011, the Government of South Sudan. The Transitional National Legislative Assembly (TNLA) passed laws to improve the transparency of the regulatory system, including the 2012 Companies Act and the 2012 Banking Act, however enforcement regulations are still lacking and there is little transparency. The government does not consult with the public about proposed regulations and information about regulations is not widely published. Several key pieces of legislation governing customs, imports and exports, leasing and mortgaging, procurement, and labor have not been approved by the government and are needed to improve the business environment in South Sudan.

The oil sector is the major industry that attracts FDI, but transparency in the oil sector is absent, despite it being mandated by law. The Ministry of Petroleum does not share data at an institutional level with the Bank of South Sudan and does not release it to the public. The Ministry of Petroleum does not publish oil production data. The contract process for oil companies that are planning to bid and invest in South Sudan is controlled by the Ministry of Petroleum, but the law appears to grant this authority exclusively to the National Petroleum and Gas Commission. Bidding and tender information is not publicly available.

There are no known informal regulatory processes managed by NGOs or private sector associations that would affect U.S. investors. National and state bodies are the main source of regulation, but county and sub-county level officials also impose regulations. In 2018 and 2019, international non-governmental organizations regularly reported that local officials demanded taxes and fees that differed with those set out in national policy. An opaque Presidential Decree issued in late 2018, for example, resulted in weeks of customs clearance disruptions at the country’s main land border in Nimule. COVID regulations also created delays in the spring of 2020. NGOs report regular discrepancies between tax and labor rules issued by the national government and those enforced by local authorities. At some state levels, private contractors moving goods earmarked for humanitarian relief have been prevented entry at state borders. Failure by the transitional government to establish leadership for states and administrative areas as of April 2020 has further complicated the tax regime nationally.

There are no publicly listed companies. Government accounting is non-transparent. In 2019, the legislative assembly held public budget hearings, but in general, most bills and regulations are passed without public comment and are poorly disseminated. There is no centralized online location where key regulatory actions are published. There is no ombudsman. Parliament has not been able to provide effective oversight of government ministers. There were no significant corruption cases prosecuted in 2019.

No enforcement reforms have been announced or implemented. The establishment of the National Revenue Authority was expected to provide a stronger foundation for development and implementation of accounting and regulatory standards. South Sudan is working to develop sources of non-oil revenue, including more centralized and effective enforcement of personal income tax. If transparently collected and managed, these funds could assist in development of the country’s infrastructure. The summary removal of the former National Revenue Authority Commissioner General in 2019 casts doubt on whether there is enough political will to achieve such goals.

South Sudan’s parliament is responsible for developing laws, but bodies such as the National Revenue Authority have also been influential in developing tax procedures, for example. There is no indication that regulations are informed by quantitative analysis and public comments received by regulators are not made public.

Laws and regulations are randomly enforced and are not well-publicized, creating uncertainty among domestic and foreign investors. The Ministry of Labor, for example, rarely if ever conducts inspections, but NGOs and foreign investors have reported that employees have colluded with labor inspectors to extort fines from business managers.

South Sudan’s public finances are extremely opaque. The government released some debt obligation information during budget hearings in 2018 regarding certain infrastructure loans, but to date has not disclosed the amount of forward-sold oil (the country’s main source of revenue). As of March 2019, the IMF evaluated short-term oil advances at USD 338 million or 7.3 percent of GDP but noted that this estimate might not capture all outstanding advances as authorities were unable to provide a full list of contracted oil advances and their repayment terms, complicating fiscal projections. The FY 2019/2020 budget infrastructure expenditure line increased to USD 611 million. At 47 percent of total expenditures, this was a large increase by percentage, up from three percent of total expenditures in FY 2018/2019. Per documents from the third reading of the budget, roughly USD 602 million of this increase will go to the Road Infrastructure Fund. It is widely understood these monies will be used to pay for the USD 711 million oil-collateralized road construction contract with Chinese-firm Shandong Hi-Speed Group for the Juba-Rumbek road. The government also plans to build two additional roads (Nadapal-Torit-Juba-Bor and Kaya-Yei-Raja) though no further details have been released.

In the energy sector an Egyptian company called Elswedy Electric Company in December 2019 signed a contract with the government of South Sudan, represented by South Sudan’s Ministry of Energy and Dams to build a USD 45 million hybrid photovoltaic project with a battery storage system. The contract includes engineering, procurement, and installation of the project by Elswedy Electric, and the project is scheduled to be operational in 2020. The project was not reviewed by parliament as required by law.

International Regulatory Considerations

South Sudan became a member of the African Union in 2012 and the East African Community (EAC) in April 2016. It is making progress in adapting its national regulatory system to regional standards. South Sudan has joined the customs union of the EAC but is behind in implementing regulations. With the establishment of the National Revenue Authority, South Sudan had begun to implement EAC customs regulations and procedures. In March 2020, the President established the Ministry of East African Community Affairs in accordance with the peace agreement, which is tasked with overseeing integration into the EAC. South Sudan currently has nine members in EAC parliament and one South Sudanese judge in the EAC Court of Justice. While the government claimed it paid its arrears to the EAC in the fall of 2019, this has not been independently confirmed. South Sudan is not a member of the WTO.

Legal System and Judicial Independence

South’s Sudan’s legal system is a combination of statutory and customary laws. There are no dedicated commercial courts and no effective arbitration act for handling business disputes. The only official means of settling disputes between private parties in South Sudan is civil court, but enforcement of court decisions is weak or nonexistent. The lack of official channels for businesses to resolve land or other contractual disagreements has led businesses to seek informal mediation, including through private lawyers, tribal elders, law enforcement officials, and business organizations. As a part of its membership in the EAC, South Sudan is subject to the jurisdiction of the East African Court of Justice (EACJ). The EAC treaty gives the EACJ broad jurisdiction including trade disputes and human rights violations, but the court only reviews 40 cases annually and results for South Sudanese legal community have been inconclusive.

The executive regularly interferes in judiciary matters. Parties to business disputes have been arrested by state security forces and held at length without charges. High-level government and military officials are often immune from prosecution in practice, and frequently interfere with court decisions. Parties in contract disputes are sometimes arrested by authorities and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.

The lack of a unified, formal system encourages ‘forum shopping’ by businesses that are motivated to find the venue in which they can achieve an outcome most favorable to their interests. Many disputes are resolved informally. U.S. companies seeking to invest in South Sudan face a complex commercial environment with extraordinarily weak enforcement of the law. While major U.S. and multinational companies may have enough leverage to extricate themselves from business disputes, medium-sized enterprises that are more natural counterparts to South Sudan’s fledgling business community will find themselves held to local rules.

Laws and Regulations on Foreign Direct Investment

Despite some improvements to the taxation system, the opacity and lack of capacity in the country’s legal system poses high risk to foreign investors. South Sudan’s National Revenue Authority had centralized and standardized collection of Personal Income Tax and customs duties but many of these gains appear to have been lost since the removal of the Commissioner General in August 2019. A One-Stop Shop Investment Centre (OSSIC) was established in 2012 but there is no website or advertised physical office. In practice, someone who wishes to register a business must rely on a local lawyer to register the business with the registrar at the Ministry of Justice and with other relevant authorities such as tax authorities.

Competition and Anti-Trust Laws

South Sudan does not review transactions for competition-related concerns. There were no significant developments in 2019.

Expropriation and Compensation

The Investment Promotion Act of 2009 prohibits nationalization of private enterprises unless the expropriation is in the national interest for a public purpose. However, the current law does not define the terms “national interest” or “public purpose.” According to the law, expropriation must be in accordance with due process and provide for fair and adequate compensation, which is ultimately determined by the local domestic courts.

Government officials have pressured development partners to hand over assets at the end of programs. While some donor agreements call for the government to receive goods at the close-out of a project, assets have been seized by local government officials even in instances where they were not included in a formal agreement.

Although officially denied, credible reports from humanitarian aid agencies indicate that money is routinely extorted at checkpoints manned by both government and opposition forces to allow the delivery of humanitarian aid throughout the country.

In practice, the government has not offered compensation for expropriated property. For example, in October 2018 the government expropriated the assets of Kerbino Wol Agok, a high-profile prisoner of the National Security Service, with no apparent judicial process. The government seized his companies and their bank accounts, and all employees fired. In 2019, a court sentenced Kerbino to ten years in prison for acts committed after his arrest; he was released in January 2020 under presidential pardon.

Due to the insufficiencies in the legal system, investors should not expect to receive due process or have the terms of their contracts honored. Investors face a complex commercial environment with relatively weak enforcement of the law.

Dispute Settlement

ICSID Convention and New York Convention

South Sudan signed and ratified the ISCID Convention on April 18, 2012 and it entered into force on May 18, 2012. Currently South Sudan is not a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

There is no specific domestic legislation that enforces awards under the ICSID convention.

Investor-State Dispute Settlement

South Sudan does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with the United States.

Numerous private companies, including at least one U.S. company, claim the government has reneged on or delayed payment for work under contract in recent years. For example, in November 2017, South Sudan stopped issuing and renewing passports and other travel documents after its production system was shut down for two weeks by the country’s German supplier, due to the government’s failure to pay an annual software license fee of around USD 500,000. The government again failed to pay its annual fees in November 2019 and the service provider stopped issuing passports for South Sudan for two weeks – the last week of December 2019 and the first week of January 2020.

In March 2018, the government suddenly suspended a Lebanese-owned cell phone service provider, which had previously been South Sudan’s largest telecommunications company with a 51 percent market share and equipment installed throughout the country, due to an alleged failure to pay taxes.

There is a history of extrajudicial action against foreign investors. Parties in contract disputes are sometimes arrested and imprisoned until the party agrees to pay a sum of money, often without going to court and sometimes without formal charges.

International Commercial Arbitration and Foreign Courts

There are no official arbitration bodies in South Sudan. South Sudan lacks any dedicated legal framework for rendering enforceable court judgments from foreign courts.

As a part of its membership in the EAC South Sudan is subject to the jurisdiction of the East African Court of Justice (EACJ). The EAC treaty gives the EACJ broad jurisdiction beyond trade disputes, including human rights violations. Though results have proved inconclusive, members of South Sudan’s legal community have taken cases to the EACJ in the past. The capacity of the EACJ is limited, however, as it only hears about 40 cases per year. Moreover, cases must be filed in Arusha, Tanzania. Plans for opening an office in Juba are ongoing.

Bankruptcy Regulations

The 2011 Insolvency Act provides for both personal and corporate bankruptcies. Given the lack of commercial courts, there is little information available about the rights of creditors in practice. South Sudan is tied for last place in the World Bank’s 2020 Doing Business Report ranking for “resolving insolvency.”

4. Industrial Policies

Investment Incentives

The Investment Promotion Act provides for various tax incentives, including capital allowances ranging from 20 to 100 percent of eligible expenditures, deductible annual allowances ranging from 20 to 40 percent, and depreciation allowances ranging from 8 to 10 percent. A foreign tax credit is granted to any resident company paying foreign taxes on income from business activities outside South Sudan. In practice, the exact incentive structure is somewhat unclear.

Applications for fiscal incentives are made to the Ministry of Finance, Commerce, Investment and Economic Planning through the One Stop Shop Investment Centre (OSSIC). Tax exemptions and concessions on machinery, equipment, capital and net profits were approved for stated periods by the Ministry of Finance, at its discretion. In May 2019, the National Revenue Authority became the institution that approved tax exemptions. Fiscal incentives also include capital allowances, deductible annual allowances, and annual depreciation allowances.

The government has been known to guarantee foreign direct investment projects with oil deliveries. However, due to a lack of transparency in government procurement and finance, it is unclear to what extent the country’s oil production has been leveraged and thus it is impossible to ascertain the likelihood that the country will honor such commitments.

Foreign Trade Zones/Free Ports/Trade Facilitation

South Sudan has not established any free trade zones. On June 22, 2013, the government of South Sudan announced the construction of the Juba Specialized Economic Zone (SEZ), near the capital. In addition, the government proposed a SEZ in Terekeka, Central Equatoria State and Renk, Upper Nile State. The government of South Sudan left the development of the SEZs to private investors, but development of the areas has not progressed.

Performance and Data Localization Requirements

South Sudan’s 2017 Labor Act dictates that 80 percent of staff at all levels of management must be South Sudanese nationals. Additionally, authorities in some areas of the country have demanded that NGOs employ people local to a specific area, or from a specific ethnic group, although there is no basis for this practice in South Sudanese law. The law makes no specific mention of senior management and boards of directors. The government requires work permit fees for foreign nationals. These are typically several thousand dollars per employee, but the exact amounts change regularly. Foreigners are also subject to a variety of registration requirements, which also change regularly and unpredictably.

In consideration of entitlement to an investment certificate, the Investment Act encourages, but does not require, technology transfer, increases to foreign exchange through exports or import substitution, use of local raw materials and supplies, and contributions to the local community. For entitlement to an investment certificate, the Investment Authority is required by law to assess if the investment will create employment for South Sudanese, allow for South Sudanese to acquire new technological skills, and contribute to tax revenues. The use of domestic content in goods or technology is encouraged, but not required.

The Investment Authority may revoke an investment certificate due to breach of performance requirements, with 30 days’ notice. There are no provisions regarding maintenance or adjustments to performance requirements. The Investment Act applies these requirements equally to domestic and foreign investors.

There are no known requirements for foreign IT providers to turn over source code or provide access to encryption. No measures are known to exist to prevent companies from transferring customer or other business data outside the country. There are no known rules on maintaining data storage within the country.

5. Protection of Property Rights

Real Property

The World Bank-funded South Sudan Country Report Findings of the Land Governance Assessment Framework assessed South Sudan’s underdeveloped legal and institutional framework reflects the difficulties that the country has faced in establishing effective governance and rule of law institutions after decades of conflict. Although significant legislative reforms have been made since the end of the war in 2005—including the passing of the 2009 Land Act and the 2009 Local Government Act—the laws remain largely unimplemented. Most land governance institutions operate according to procedures developed in the colonial era, and there is a wide divergence between law and practice. Bridging this gap has been one of the most difficult challenges of the postwar period. Institutional arrangements are also undermined by poor coordination among formal institutions at each level of government (horizontal overlap), between the three levels of government (vertical overlap) and between the formal and customary systems. While dated, this report is presumed to largely remain accurate and given the fighting since, perhaps understates the complexity of problem. (See the full report here: http://documents.worldbank.org/curated/en/756521504872888898/text/119635-WP-P095390-PUBLIC-7-9-2017-10-34-1-SouthSudanCountryReport.txt ).

Ownership of land is often unclear, with communities and government often claiming the same property. In some cases, multiple individuals hold registration certificates demonstrating sole ownership of the same piece of land. There was no progress in 2019 towards comprehensive land reform. Laws on mortgages, valuation, and the registration of titles have not been drafted. While the 2009 Land Act and the 2009 Investment Promotion Act both state that non-citizens can lease land for investment purposes; foreign ownership is prohibited and clear regulations governing how a business could access land for investment use were not available.

Currently, some businesses lease land from the government, while others lease land directly from local communities and/or individuals. Under the Land Act, investment in land acquired from local communities must contribute economically and socially to the development of the local community. Businesses will often sign a memorandum of understanding with the local communities in which they agree to employ locals or invest in social services in exchange for use of the land. Land negotiations with communities often require several months or longer to complete. South Sudan ranked 177 out of 185 countries for ease of registering property in the World Bank’s 2020 Doing Business Report.

As of March 2020, 3.91 million South Sudanese were internally or internationally (refugees) displaced from their homes due to conflict. During the five-year civil war, many of their houses were illegally occupied and likely remain so. Property owners or public authorities may file for an order to evict unauthorized occupants under the Land Act. While the rightful owners may hold clear land titles, it is unclear if the legal system is equipped to handle their claims and it is likely that land ownership will be regularly disputed throughout large parts of the country in the foreseeable future.

Intellectual Property Rights

The legal structure for intellectual property rights (IPR) is weak, and enforcement is lax. Recorded instances of intellectual property theft are rare. While the Investment Act of 2009 includes an article on the protection of IPR, implementing legislation on trademarks, copyrights, and patents has not yet been passed. To date, the only intellectual property law which has been put forward to the legislature is the Trademarks Bill of 2013. No new IP-related laws or regulations were enacted in 2019.

South Sudan does not track or seize counterfeit goods. There has been no known prosecution of IPR violations, and there are no estimates available for traffic of counterfeit goods. There was one report of an unauthorized public screening of a U.S. film in 2018.

South Sudan is not a member of the World Intellectual Property Organization (WIPO). Sudan is not included 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 Investment Act mentions portfolio investment, but South Sudan does not have a functioning market for financial assets. South Sudan does not have a stock market or related regulatory system. There are no known policies for promotion of investment into product and factor markets.

South Sudan’s formal financial system offers few financial products. It is difficult for foreign investors to get credit on the local market due to the shortage of hard currency, the lack of accurate means of obtaining reliable figures or audited accounts, the absence of a credit reference bureau, and South Sudan’s failure to document land ownership properly. According to the World Bank, 50 percent of all South Sudanese firms cite access to finance as a constraint.

Banks are often unwilling to lend due to the lack of adequate laws to protect lenders and difficulties related to personal identification. After the Bank of South Sudan confiscated commercial banks’ reserves on deposit at the central bank in 2015, diverting them to the use of the government, companies and individuals had difficulty accessing their funds. This made depositors reluctant to trust their funds to the banking system.

The Bank of South Sudan launched treasury bills on August 18, 2016 for purchase by members of the public, companies, and commercial banks. This lasted until April 2017, when people stopped investing in the bills due to high inflation and a lack of a secondary market for them. The bank had previously issued treasury bills in 2012 without success.

Money and Banking System

The public and private financial sectors are in distress. The banking sector is facing significant challenges because of the civil conflict, high inflation, and strong currency depreciation. The economy of South Sudan is cash-based with limited use of demand deposits. The IMF has categorized South Sudan’s financial sector as small and undeveloped. There are nine foreign-owned banks. There are no known restrictions on a foreigner’s ability to establish a bank account. In September 2019, South Sudan introduced mobile money via two private sector companies to boost digital transactions in the country. Remittances to Uganda and Kenya across one of the platforms began in April 2020.

Many international banks operating in South Sudan had to restructure and recapitalize following government defaults in 2015. As a result, most international banks operate as foreign exchange traders or deposit holders. The limited lending banks do conduct are to businesses with well documented contracts with international organizations and government employees. Anecdotal reports indicate, however, that even this limited lending contracted in 2019. This behavior would seem to be confirmed by the IMF’s April 2019 report where it indicated that non-performing loans for foreign and domestic banks were on the rise. Many domestic banks are heavily undercapitalized.

The Bank of South Sudan, the central bank, has limited assets and functions more as a commercial bank servicing the governments transactions than as a monetary policy institution. Since mid-2017, when the Bank of South Sudan introduced the “Special Accounts” scheme, commercial banks have been required to immediately sell all the foreign exchange (FX) purchased from the special account holders to the central bank (both transactions should be at the official (indicative) rate), and are subsequently allowed purchase up to 25 percent back from the central bank. These special regulations induce foreign currency flight from local financial markets.

Foreign Exchange and Remittances

Foreign Exchange

Foreign investors cannot remit funds through the parallel market. They are required by law to remit through banks or foreign exchange bureaus at an exchange rate that is far below the market rate.

The 2009 Investment Promotion Act guarantees unconditional transferability in and out of South Sudan “in freely convertible currency of capital for investment; payments in respect of loan servicing where foreign loans have been obtained; and the remittance of proceeds, net of all taxes and other statutory obligations, in the event of sale or liquidation of the enterprise.” In reality, the ability to exchange local currency for foreign currency is severely restricted. Some international and U.S. businesses have complained that the inability to repatriate proceeds has hurt their businesses.

South Sudan maintained a fixed exchange rate for the South Sudanese Pound until December 2015 when it moved to a managed floating exchange rate regime. Since then, the local currency has depreciated significantly due to deficit spending by the government, printing of money, and a lack of hard currency. The current official exchange rate can be found from the Bank of South Sudan or from commercial banks in Juba. There is a large spread between the official rate and the unofficial parallel market rate.

Remittance Policies

The World Bank estimated remittances to South Sudan at roughly USD 600 million in 2018, roughly 14 percent of GDP. As markets contract globally and earners are impacted by lockdowns, trade disruptions, layoffs, and illness, the amount of remittance inflows is likely to drop. During the 2008 financial crisis and the 2017 oil slump, remittance inflows dropped by 4 percent and 11 percent, respectively. Given the global scale and economic impact of COVID-19, decreases in remittances are likely to be larger than in the two previous crises. Interconnectivity of mobile money platforms between Kenya, Uganda and South Sudan, might counter this by boosting transactions.

There have been no recent changes to investment remittance policies, and no known waiting periods on remittances.

Sovereign Wealth Funds

The Petroleum Revenue Management Act of 2013 created a sovereign wealth fund (SWF) to set aside surplus profits from oil sales. The law established the Oil Revenue Stabilization Account to act as a buffer against volatility in oil prices and the Future Generations Fund to set aside some funds for future generations. The SWF is supposed to distribute 10 percent of oil profits into the Oil Revenue Stabilization Account and 15 percent to the Future Generations Fund. To date, however, neither has received any financing. The Comprehensive Peace Agreement (CPA) that ended the civil war with Sudan set a 2 percent share of oil revenue that is supposed to be given to the oil producing states along with 3 percent revenue allocation to the local communities. However, in August 2017, the government announced that it would stop giving the 3 percent and 2 percent share to states. The September 2018 peace agreement calls for full implementation of Petroleum Revenue Management Act revenue sharing provisions. In February 2020, local officials from former Northern Liech State confirmed that former Northern Liech State and former Ruweng State received a payment from the Ministry of Finance and Planning as the two percent share from net oil revenues as stipulated in the Petroleum Revenue Management Act 2013. The officials did not specify the amount received, so it is not clear if this was based on earnings of a month or included years’ worth of arrears. The SWF does not follow any good practices and being unfunded, does not invest domestically (although that is the intent).

7. State-Owned Enterprises

The national oil company – Nile Petroleum Corporation, or Nilepet – remains the primary fully State-owned enterprise (SOE) in South Sudan. The government owns stakes in construction and trade companies and in several banks. Limited data is available on number, total income, and employment figures of SOEs. There is no published list of SOEs.

Nilepet is the technical and operational branch of the Ministry of Petroleum. Nilepet took over Sudan’s national oil company’s shares in six exploration and petroleum sharing agreements in South Sudan at the time of the country’s independence in 2011. Nilepet also distributes petroleum products in South Sudan. The government, through Nilepet, holds minority stakes in other oil companies operating in South Sudan.

The Petroleum Revenue Management Bill, which governs how Nilepet’s profits are invested, was enacted into law in 2013; however, the company has yet to release any information on its activities, even though the law states that comprehensive, audited reports on the company’s finances must be made publicly available.

The government is not transparent about how it exercises ownership or control of Nilepet. Its director reports to the Minister of Petroleum. Nilepet’s revenues and expenditures are not disclosed in the central government budget. No audited accounts of Nilepet are publicly available. After the January 2012 oil production shutdown, oil production recovered to more than 235,000 barrels per day at end of 2013, only to fall to about 160,000 barrels per day in early 2014 as a result of the conflict that started in December 2013. As of April 2020, production was approximately 178,000 barrels per day.

In March 2018, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce amended the Export Administration Regulations (EAR) to add Nilepet and several related companies to the Entity List, along with the Ministry of Petroleum and the Ministry of Mining, due to their role in worsening the conflict in South Sudan. The Entity List identifies entities, including corporations, private or government organizations, and natural persons, and other persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.

The U.S. Government assesses the 15 entities BIS added to the Entity List as contributing to the ongoing crisis in South Sudan because they are a source of substantial revenue that, through public corruption, is used to fund the purchase of weapons and other material that undermine the peace, security, and stability of South Sudan rather than support the welfare of the South Sudanese people. Adding these entities to the Entity List is intended to ensure that items subject to the EAR are not used to generate revenue to finance the continuing violence in South Sudan.

The following 15 entities are the first South Sudanese entities added to the Entity List: Ascom Sudd Operating Company; Dar Petroleum Operating Company; DietsmannNile; Greater Pioneer Operating Co. Ltd; Juba Petrotech Technical Services Ltd; Nile Delta Petroleum Company; Nile Drilling and Services Company; Nile Petroleum Corporation; Nyakek and Sons; Oranto Petroleum; Safinat Group; SIPET Engineering and Consultancy Services; South Sudan Ministry of Mining; South Sudan Ministry of Petroleum; and Sudd Petroleum Operating Co.

These 15 entities are subject to a license requirement for all exports and reexports destined for any of the entities and transfers (in-country) to them of all items subject to the EAR with a licensing review policy of a presumption of denial. This license requirement also applies to any transaction involving any of these entities in which such entities act as a purchaser, intermediate consignee, ultimate consignee or end-user. Additionally, no license exceptions are available to these entities.

If any person participates in a transaction described above involving any of these 15 entities without first obtaining the required license from BIS, that person would be in violation of the EAR and could be subject to civil or criminal enforcement proceedings. Civil enforcement could result in the imposition of monetary penalties or the denial of the person’s export privileges. Additionally, a person’s supplying or procuring items subject to the EAR or engaging in other activity involving an entity on the Entity List could result in a determination to add that person to the Entity List consistent with the procedures set forth in the EAR.

The regulation can be viewed on the Federal Register at https://www.gpo.gov/fdsys/pkg/FR-2018-03-22/pdf/2018-05789.pdf .

The country does not adhere to the OECD Guidelines on Corporate Governance for SOEs.

Privatization Program

South Sudan does not have a privatization program. So far, the government has no plans for privatization, and there are few government-owned entities that provide services to individuals.

8. Responsible Business Conduct

The idea of responsible business conduct is new in South Sudan, and there is little awareness of standards in this area. The few large international firms operating in South Sudan sometimes offer some basic benefits to local communities but on an irregular basis. The 2009 Land Act requires investment activities carried out on land acquired from local communities to “reflect an important interest for the community or people living in the locality,” and to contribute economically and socially. There are complaints in the media about the number of foreign-owned companies and the lack of hiring of South Sudanese employees. International observers have argued that many of the oil producing companies do not practice responsible behavior in regard to environmental damage in the oil fields.

The recently signed peace agreement and some national laws (such as the Petroleum Act) contain responsible business conduct provisions but they are unenforced. The environmental and human rights impact of oil pollution has been severe, but the government has not responded to widespread damage to the environment and displacement of people. The government has demonstrated little capacity or will to enforce laws on human rights, labor rights, consumer protection, environmental protections, and other laws/regulations intended to protect individuals from adverse business impact. The government has not put in place corporate governance, accounting, and executive compensation standards to protect shareholders. NGOs have promoted responsible business conduct, particularly in the environmental domain, but activists and reporters in this field have reported that they are subject to government harassment.

The government does not encourage adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and there are no functioning domestic measures related to such due diligence. South Sudan is a source of minerals originating from conflict-affected areas and there is little oversight of the extractive industries such as gold.

The government does not participate in the Extractive Industries Transparency Initiative (EITI) and while the law requires the disclosure of payments made to the government in regard to oil sales, in reality disclosure is nonexistent.

9. Corruption

South Sudan has laws, regulations, and penalties to combat corruption, but there is a near total lack of enforcement and considerable gaps exist in legislation. As a result, corruption is pervasive.

Companies are reportedly asked to pay extralegal taxes and fees. Security officials have been reported to impose business conditions including payment of fees, salaries, and logistical support to their operations. In practice, politically connected people are immune to prosecution. There are no laws that prevent conflict of interest in government procurement.

The government does not encourage or require private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. There is no indication that private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

The South Sudan Anti-Corruption Commission (SSACC) was established in accordance with the 2005 Constitution and the 2009 SSACC Act. The five commission members and chairperson are appointed by the President with approval by a simple majority in the parliament. The commission is tasked with protecting public property, investigating corruption, and submitting evidence to the Ministry of Justice for necessary action. In addition, the commission is tasked with combatting administrative malpractice in public institutions, such as nepotism, favoritism, tribalism, sectionalism, gender discrimination, bribery, embezzlement, and sexual harassment.

In reality, the SSACC lacks the resources or political support to investigate corruption. It has no capacity to address state corruption as it can only relay its findings to the Ministry of Justice for prosecution. There were no significant anti-corruption cases investigated or prosecuted in 2019.

South Sudan acceded to the United Nations Convention against Corruption on January 23, 2015 but has not yet ratified it. The country is not a party to the OECD Anti-Bribery Convention and is not reported to be a participant in regional anti-corruption initiatives.

The country provides no protection to NGOs or journalists involved in investigating corruption. NGOs and journalists of all types are routinely subject to government harassment.

All major sectors including the extractive sector, hotels, airlines, banking, and security sectors are subject to interference from the security sector including recruitment and demand for payments of fees and salaries.

Corruption appears to be pervasive at all levels of government and society. The regulatory system is poor or non-existent, and dispute settlement is weak and subject to influence.

Resources to Report Corruption

National Audit Chamber
P.O. Box 210
Juba, South Sudan
Tel: +211(0)955481021
info@auditchamber-ss.org

Honorable Ngor Kulong Ngor
Chairperson
South Sudan Anti-Corruption Commission
P.O Box 312
Juba, South Sudan
anticorruptioncommission@yahoo.co.uk; sssaccchair@gmail.com
+211(0) 927117414; +211(0)0929201028

Akuei Deng
Executive Secretary
South Sudan Anti-Corruption Commission
P.O Box 312
Juba, South Sudan
anticorruptioncommission@yahoo.co.uk
+211912979575

Contact at “watchdog” organizations:

UN Panel of Experts on South Sudan
Mr. David Biggs (Senior Committee Secretary)
Tel: +1(212)9635598
sc-2206-committee@un.org

Transparency International
Alt-Moabit 96
10559 Berlin
Germany
Telephone: +49 30 3438 200
Fax: +49 30 3470 3912
ti@transparency.org

The Sentry c/o The Enough Project
c/o The Enough Project
1420 K Street, NW, Suite 200
Washington, DC 20005
info@thesentry.org

10. Political and Security Environment

There is a long history of politically motivated violence in South Sudan. The warring parties concluded a peace agreement in September 2018 to stop the civil war that has wrought the country since 2013. Limited fighting continues in some parts of the country as of April 2020, but in general, the ceasefire has held. After much debate, the incumbent government established ten states plus three administrative areas, facilitating the implementation of the September 2018 peace deal and paving the way for the formation of the transitional government. On February 22, President Kiir dissolved the former government and appointed five vice presidents and cabinet ministers as part of the implementation of the peace agreement. In March, President Kiir established the ministries of investment and East African Community affairs and appointed ministers, in accordance with tenants of the peace deal this included representatives from the incumbent government and opposition parties (signatories to the peace agreement). While these steps are positive, implementation of the terms of the peace deal has been significantly behind schedule and remains incomplete; the country continues to be plagued by large-scale displacement, widespread food insecurity, severe human-rights abuses, restricted humanitarian access, and harassment of aid workers and journalists. The effects of the war on the economy and investment will be evident for some time.

Previous violence during conflict with Sudan resulted in damage to installations in one of the major oil producing areas in the country, shutting down production in that region. Repairs to these facilities began in 2018, allowing for an increase in oil production.

The environment remains insecure but hopes of peace have been rekindled with signing of a new peace agreement in September 2018. The parties, however, remain behind in implementation as of April 2020.

As of March 2020, the United Nations Office for the Coordination of Humanitarian Affairs in Juba reported 1.67 million Internally Displaced Persons (IDPs) in South Sudan, and an additional 2.24 million South Sudanese refugees in neighboring countries. The government has not yet developed the conditions that would allow IDPs and refugees to safely return home. Political opposition leaders faced illegal detention and travel restrictions in 2018. The government has temporarily shut down several newspapers and detained journalists it accused of printing articles opposing policies or actions undertaken by the government.

The conflict severely disrupted trade, markets, agricultural activities, claimed hundreds of thousands of lives, and spurred one of the world’s most serious humanitarian crises. The conflict was marked by grave human rights abuses, especially pervasive gender-based violence. The Integrated Food Security Phase Classification organization projected that in the February to April 2020 time frame 6.01 million South Sudanese out of a population 11.69 million will likely face Crisis (IPC Phase 3) or worse acute food insecurity. During 2018 and 2019 the bulk of U.S. and the international community’s support efforts were directed at the immediate needs of the ongoing humanitarian crisis brought on by the civil conflict. Other development assistance has been significantly reduced.

NGOs complain of harassment, and aid convoys came under attack in 2018 and 2019. South Sudan was named the most dangerous country in the world for aid workers in 2018. Armed cattle raids claimed hundreds of lives in 2018, 2019, 2020, and several ambushes and kidnappings have taken place on the country’s main highway, the Juba-Nimule road. The Department of State currently warns against travel to South Sudan due to the critically high risk of crime, kidnapping, and armed conflict.

11. Labor Policies and Practices

South Sudan has a shortage of both skilled and unskilled workers across most areas in the formal sector. According to the 2008 census, 84 percent of those employed are in non-wage work. Unskilled labor in the service and construction sectors is often performed by immigrants from neighboring countries. This is in large part due to a lack of basic skills training. South Sudan has one of the worst adult literacy rates in the world: about 27 percent.

The five-year civil war has resulted in large swaths of people displaced from their homes (3.91 million are displaced internally or are refugees as of March 2020) and has devastated the economy.

Government enforcement of existing labor laws has been absent. Most small South Sudanese businesses operate in the informal economy, where labor laws and regulations are widely ignored.

The Labor Act of 2017 requires that 80 percent of staff hired by foreign employers at all levels of management be nationals of South Sudan. Government security offices have been reported to interfere with hiring in some cases. The Ministry of Labor thoroughly reviews all work permit applications to determine whether a position could be filled by a South Sudanese national. Some foreign-owned companies reported long delays in receiving work permits for expatriate staff, and many expatriates are issued work permits for just one to three months, rather than the standard one year. State and local authorities have also been reported to charge additional fees and attempt to restrict employment to people from a certain place or of a certain ethnic group.

The Labor Act establishes an “employment exchange” scheme for unemployed people that reserves vending, hawking, driving, office support staffing and other manual labor for nationals only. In April 2020, the World Bank approved USD 40 million for social safety net program that will be conducted in South Sudan for the first time; no such programs exist at the national or sub-national levels. The Labor Act allows for Termination for Redundancy “due to changes in the operational requirements of the employer” with certain conditions, and requires severance pay. The law differentiates between this and several other forms of termination.

There are no special labor provisions to attract or retain investment. No formal functioning collective bargaining systems exist. Disputes are handled by the Ministry of Labor, courts, or through informal mediation. Foreign employers have reported being at a significant disadvantage in such disputes.

In July 2018, a mob of hundreds described as local youths attacked NGO facilities causing millions of dollars in damages in Maban. The government was slow to respond or investigate, and ultimately released the attack’s ringleaders shortly after arresting them. In 2018, some international organizations reported labor strikes from day wage-earners. Some international organizations reported strikes or blockages where locals protested the employment of South Sudanese from different ethnic groups perceived to be receiving favored treatment.

Child labor is rampant, and the government does not enforce child labor laws through inspections or fines.

The most recent change to labor law was the Labor Act signed by the South Sudanese President in December 2017.

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

There is potential for successful DFC operations in South Sudan, but projects will need to be informed by best practices for operations in conflict-affected and fragile states. The DFC, and predecessor Overseas Private Investment Corporation (OPIC), has been open to business in South Sudan since 2012. South Sudan ratified its Investment Incentive Agreement (IIA) with OPIC in 2013. South Sudan is a member country of the Multilateral Investment Guarantee Agency.

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 $4,700 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A N/A 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 N/A 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 N/A N/A N/A N/A UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: N/A

Table 3: Sources and Destination of FDI
No data available.

Table 4: Sources of Portfolio Investment
No data available.

14. Contact for More Information

Economic/Commercial Officer
U.S. Embassy, Kololo Road, Juba, South Sudan
(U.S.) +1 (202) 216-6279, ext 215
jubacommercial@state.gov

Tanzania

Executive Summary

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

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

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

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

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The United Republic of Tanzania, according to Government officials, welcomes foreign direct investment (FDI) as it pursues its industrialization and development agenda. However, in practice, government policies and actions do not effectively keep and attract investment. The 2019 World Investment Report indicates that FDI flows to Tanzania increased from USD 938 million in 2017 to USD 1.1 billion in 2018, although they have not recovered to pre-2015 levels. (The Bank of Tanzania reports 2018 FDI as USD 2.82 billion, down from USD 5.07 billion in 2017.). Investors and potential investors note the biggest challenges to investment include difficulty in hiring foreign workers, reduced profits due to unfriendly and opaque tax policies, increased local content requirements, regulatory/policy instability, lack of trust between the GoT and the private sector, and mandatory initial public offerings (IPOs) in key industries.

The United Republic of Tanzania has framework agreements on investment, and offers various incentives and the services of investment promotion agencies. Investment is mainly a non-Union matter, thus there are different laws, policies, and practices for the Mainland and Zanzibar. Zanzibar updated its investment policy in 2019, while the Mainland/Union policy dates from 1996. Efforts to update the Mainland Investment Policy and Investment Act were underway, but incomplete as of the date of this publication.. International agreements on investment are covered as Union matters and therefore apply to both regions.

The Tanzania Investment Center (TIC) is intended to be a one-stop center for investors, providing services such as permits, licenses, visas, and land. The Zanzibar Investment Promotion Authority (ZIPA) provides the same function in Zanzibar.

The Government of Tanzania has an ongoing dialogue with the private sector via the Tanzania National Business Council (TNBC). TNBC meetings are chaired by the President of the United Republic of Tanzania and co-chaired by the head of the Tanzania Private Sector Foundation (TPSF). Unfortunately, the TNBC has only met twice in the past five years. There is also a Zanzibar Business Council (ZBC), as well as Regional Business Councils (RBCs), and District Business Councils (DBCs).

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign investors generally receive treatment equivalent to domestic investors but limits still persist in a number of sectors. Tanzania conforms to best practice in several cases. There are no geographical restrictions on private establishments with foreign participation or ownership, no limitations on number of foreign entities that can operate in a given sector, and no sectors in which approval is required for foreign investment greenfield FDI but not for domestic investment.

However, Tanzania discourages foreign investment in several sectors through limitations on foreign equity ownership or other activities, including aerospace, agribusiness (fishing), construction and heavy equipment, travel and tourism, energy and environmental industries, information and communication, and publishing, media, and entertainment.

Specific examples include the following: The Tourism Act of 2008 bars foreign companies from engaging in mountain guiding activities, and states that only Tanzanian citizens can operate travel agencies, car rental services, or engage in tour guide activities (with limited exceptions). Per the Merchant Shipping Act of 2003, only citizen-owned ships are authorized to engage in local trade, a requirement that can be waived at the Minister’s discretion. Furthermore, the Tanzania Shipping Agencies Act of November 2017 gives exclusive monopoly power to the Tanzania Shipping Agency Corporation (TASAC) to conduct business as shipping agents, shipping regulator, and licensor of other private shipping agencies. The Act also gives TASAC an exclusive mandate to provide clearing and forwarding functions relating to imports and exports of minerals, mineral concentrates, machinery and equipment for the mining and petroleum sector, products and/or extracts related to minerals and petroleum arms and ammunition, live animals, government trophies and any other goods that the Minister responsible for maritime transport may specify.

  • The Tourism Act of 2008 bars foreign companies from engaging in mountain guiding activities, and states that only Tanzanian citizens can operate travel agencies, car rental services, or engage in tour guide activities (with limited exceptions). Per the Merchant Shipping Act of 2003, only citizen-owned ships are authorized to engage in local trade, a requirement that can be waived at the Minister’s discretion. Furthermore, the Tanzania Shipping Agencies Act of November 2017 gives exclusive monopoly power to the Tanzania Shipping Agency Corporation (TASAC) to conduct business as shipping agents, shipping regulator, and licensor of other private shipping agencies. The Act also gives TASAC an exclusive mandate to provide clearing and forwarding functions relating to imports and exports of minerals, mineral concentrates, machinery and equipment for the mining and petroleum sector, products and/or extracts related to minerals and petroleum arms and ammunition, live animals, government trophies and any other goods that the Minister responsible for maritime transport may specify.
  • A 2009 amendment to the Fisheries Regulations imposes onerous conditions for foreign citizens to engage in commercial fishing and the export of fishery products, sets separate licensing costs for foreign citizens and Tanzanians, and limits the types of fishery products that foreign citizens may work with.
  • Foreign construction contractors can only obtain temporary licenses, per the Contractors Registration Act of 1997, and contractors must commit in writing to leave Tanzania upon completion of the set project. 2004 amendments to the Contractors Registration By-Laws limit foreign contractor participation to specified, more complex classes of work.
  • Foreign capital participation in the telecommunications sector is limited to a maximum of 75 percent.
  • All insurers require one-third controlling interest by Tanzania citizens, per the Insurance Act.
  • The Electronic and Postal Communications (Licensing) Regulations 2011 limits foreign ownership of Tanzanian TV stations to 49 percent and prohibits foreign capital participation in national newspapers.
  • Mining projects must be at least partially owned by the GoT and “indigenous” companies, and hire, or at least favor, local suppliers, service providers, and employees. (See Chapter 4: Laws and Regulations on FDI for details.). Gemstone mining is limited to Tanzanian citizens with waivers of the limitation at ministerial discretion. In February 2019, responding to low growth and investment in the sector, the government revised the 2018 Mining Regulations to reduce local ownership requirements from 51 percent to 20 percent.

Currently, foreigners can invest in stock traded on the Dar es Salaam Stock Exchange (DSE), but only East African residents can invest in government bonds. East Africans, excluding Tanzanian residents, however, are not allowed to sell government bonds bought in the primary market for at least one year following purchase.

Other Investment Policy Reviews

There have not been any third-party investment policy reviews (IPRs) on Tanzania in the past three years, the most recent OECD report is for 2013. The World Trade Organization (WTO) published a Trade Policy Review in 2019 on all the East African Community states, including Tanzania.

WTO – Trade Policy Review: East African Community (2019)https://www.wto.org/english/tratop_e/tpr_e/tp484_e.htm 

OECD – Tanzania Investment Policy Review (2013)http://www.oecd.org/daf/inv/investment-policy/tanzania-investment-policy-review.htm 

WTO – Secretariat Report of Tanzaniahttps://www.wto.org/english/tratop_e/tpr_e/s384-04_e.pdf 

UNCTAD – Trade and Gender Implications (2018)https://unctad.org/en/PublicationsLibrary/ditc2017d2_en.pdf 

Business Facilitation

The World Bank’s Doing Business 2020 Indicators rank Tanzania 141 out of 190 overall for ease of doing business, and 162nd for ease of starting a business. There are 10 procedures to open a business, higher than the sub-Saharan Africa average of 7.4. The Business Registration and Licensing Agency (BRELA) issues certificates of compliance for foreign companies, certificates of incorporation for private and public companies, and business name registration for sole proprietor and corporate bodies. After registering with BRELA, the company must: obtain a taxpayer identification number (TIN) certificate, apply for a business license, apply for a VAT certificate, register for workmen’s compensation insurance, register with the Occupational Safety and Health Authority (OSHA), receive inspection from the Occupational Safety and Health Authority (OSHA), and obtain a Social Security registration number.

The TIC provides simultaneous registration with BRELA, TRA, and social security (http://tiw.tic.co.tz/ ) for enterprises whose minimum capital investment is not less than USD 500,000 if foreign owned or USD 100,000 if locally owned.

In May 2018, the government adopted the Blueprint for Regulatory Reforms to improve the business environment and attract more investors. The reforms, which were developed as a collaborative effort between the Ministry of Industry, Trade and Investment and the private sector, seek to improve the country’s ease of doing business through regulatory reforms and to increase efficiency in dealing with the government and its regulatory authorities. The official implementation of the Business Environment Improvement Blueprint started on July 1, 2019, though there have been little tangible changes or advancements. A new Business Facilitation Act aimed at implementing key actions from the Blueprint is pending adoption by Parliament.

Outward Investment

Tanzania does not promote or incentivize outward investment. There are restrictions on Tanzanian residents’ participation in foreign capital markets and ability to purchase foreign securities. Under the Foreign Exchange (Amendment) Regulations 2014 (FEAR), however, there are circumstances where Tanzanian residents may trade securities within the East African Community (EAC). In addition, FEAR provides some opportunities for residents to engage in foreign direct investment and acquire real assets outside of the EAC.

3. Legal Regime

Transparency of the Regulatory System

According to the World Bank’s Global Indicators of Regulatory Governance (http://rulemaking.worldbank.org/ ), Tanzania scores low in regulatory governance with 1.5 out of 5 total in transparency of regulatory governance (neighboring Kenya and Uganda, by contrast, both score 3.25)

Tanzania has formal processes for drafting and implementing rules and regulations. Generally, after an Act is passed by Parliament, the creation of regulations is delegated to a designated ministry. In theory, stakeholders are legally entitled to comment on regulations before they are implemented. However, ministries and regulatory agencies frequently fail to provide adequate opportunity for meaningful input as there is no minimum period of time for public comment set forth in law. Stakeholders often report that they are either not consulted or given too little time to provide meaningful input. Ministries or regulatory agencies do not have the legal obligation to publish the text of proposed regulations before their enactment. Sometimes, it is difficult to obtain the final, adopted version of a bill in a timely manner nor is it always public information if and when the President signed the bill. Moreover, the government has increasingly used presidential decree powers to bypass regulatory and legal structures.

In 2016, the President signed the Access to Information Act into law. In theory, the Act gives citizens more rights to information; however, some claim that the Act gives too much discretion to the GoT to withhold disclosure. Although information, including rules and regulations, is available on the GoT’s “Government Portal” (https://www.tanzania.go.tz/documents ), the website is generally not current and incomplete. Alternatively, rules and regulations can be obtained on the relevant ministry’s website, but many offer insufficient information.

Nominally, independent regulators are mandated with impartially following the regulations. The process, however, has sometimes been criticized as being subject to political influence, depriving the regulator of the independence it is granted under the law.

Tanzania does not meet the minimum standards for transparency of public finances and debt obligations.

International Regulatory Considerations

Tanzania is also part of both the EAC and the Southern African Development Community (SADC) and subject to their respective regulations. However, according to the 2016 East African Market Scorecard (most recent), Tanzania is not compliant with several EAC regulations.

Tanzania is a member of the International Organization for Standardization (ISO). The national standards body, the Tanzania Bureau of Standards, was established in 1975. It has been most active in promoting standards and quality in process technology, including agro-processing, chemicals and textiles, and engineering, including mining and construction.

Tanzania is a member of the World Trade Organization (WTO) and its National Enquiry Point (NEP) is the Tanzania Bureau of Standards (TBS). As the WTO NEP, TBS handles information on adopted or proposed technical regulations, as well as on standards and conformity assessment procedures. Tanzania does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Tanzania’s legal system is based on the English Common Law system. The first source of law is the 1977 Constitution, followed by statutes or acts of Parliament; and case law, which are reported or unreported cases from the High Courts and Courts of Appeal and are used as precedents to guide lower courts. The Court of Appeal, which handles appeals from Mainland Tanzania and Zanzibar, is the highest court, followed by the High Court, which handles civil, criminal and commercial cases. There are four specialized divisions within the High Courts: Labor, Land, Commercial, and Corruption and Economic Crimes. The Labor, Land, and Corruption and Economic Crimes divisions have exclusive jurisdiction over their respective matters, while the Commercial division does not claim exclusive jurisdiction. The High Court and the District and Resident Magistrate Courts also have original jurisdiction in commercial cases subject to specified financial limitations.

Apart from the formal court system, there are quasi-judicial bodies, including the Tax Revenue Appeals Tribunal and the Fair Competition Tribunal, as well as alternate dispute resolution procedures in the form of arbitration proceedings. Judgments originating from countries whose courts are recognized under the Reciprocal Enforcement of Foreign Judgments Act (REFJA) are enforceable in Tanzania. To enforce such judgments, the judgment holder must make an application to the High Court of Tanzania to have the judgment registered. Countries currently listed in the REFJA include Botswana, Lesotho, Mauritius, Zambia, Seychelles, Somalia, Zimbabwe, Swaziland, the United Kingdom, and Sri Lanka.

The Tanzanian constitution guarantees judicial independence. However, the degree of judicial independence has varied significantly in the past few years, and many perceive that political interference in justice has increased over the past five years.

Regulations and enforcement actions are appealable and they are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

In 2017, new laws and regulations were enacted that may impact the risk-return profile on foreign investments, especially those in the extractives and natural resources industries. The laws/regulations include the Natural Wealth and Resources (Permanent Sovereignty) Act 2017, Natural Wealth and Resources Contracts (Review and Renegotiation of Unconscionable Terms) Act 2017, Written Laws (Miscellaneous Act) 2017, and Mining (Local Content) Regulations 2018. The three new acts were introduced by the executive branch under a certificate of urgency, meaning that standard advance publication requirements were waived to expedite passage. As a result, there was minimal stakeholder engagement.

Investors, especially those in natural resources and mining, have expressed concern about the effects of these new laws. Two of the new laws apply to “natural wealth and resources,” which are broadly defined and not only include oil and gas, but in theory, could include wind, sun, and air space. Investors are encouraged to seek legal counsel to determine the effect these laws may have on existing or potential investments. For natural resource contracts, the laws remove rights to international arbitration and subject contracts, past and present, to Parliamentary review. More specifically, the law states “Where [Parliament] considers that certain terms …or the entire arrangement… are prejudicial to the interests of the People and the United Republic by reason of unconscionable terms it may, by resolution, direct the Government to initiate renegotiation with a view to rectifying the terms.”  Further, if the GoT’s proposed renegotiation is not accepted, the offending terms are automatically expunged. “Unconscionable” is defined broadly, including catch-all definitions for clauses that are, for example, “inequitable or onerous to the state.” Under the law, the judicial branch does not play a role in determining whether a clause is “unconscionable.”

The Mining (Local Content) Regulations 2018 require that indigenous Tanzanian companies are given first preference for mining licenses. An ‘indigenous Tanzanian company’ is one incorporated under the Companies Act with at least 51 percent of its equity owned by and 100 percent of its non-managerial positions held by Tanzanians. Furthermore, foreign mining companies must have at least 5 percent equity participation from an indigenous Tanzanian company and must grant the GoT a 16 percent carried interest. Lastly, foreign companies that supply goods or services to the mining industry must incorporate a joint venture company in which an indigenous Tanzanian company must hold equity participation of at least 20 percent.

The Mining (Local Content) Regulations 2018 also set the timeframe for local content percentages to be raised over the next 10 years which vary by type of good or service provided. There are immediate requirements to use 100 percent local content for financial, insurance, legal, catering, cleaning, laundry, and security services. All contractors must submit a local content plan to the GoT, which includes provisions to favor local content and meets required local content percentages. The plan must include five sub-plans on employment and training; research and development; technology transfer; legal services; and financial services. The regulations also require contractors to implement bidding procedures to acquire goods and services and to award contracts to indigenous Tanzanian companies if they do not exceed the lowest bidder by more than 10 percent. There are also regular contractor reporting requirements. Violating these regulations can lead to a fine of up to TZS 500 million or five years imprisonment.

The Tanzania Investment Center contains many relevant laws, rules, procedures, and reporting requirements for investors on its portal at http://tanzania.eregulations.org , but it is not comprehensive.

Competition and Anti-Trust Laws

The Fair Competition Commission (FCC) is an independent government body mandated to intervene, as necessary, to prevent significant market dominance, price fixing, extortion of monopoly rent to the detriment of the consumer, and market instability. The FCC has the authority to restrict mergers and acquisitions if the outcome is likely to create market dominance or lead to uncompetitive behavior.

Expropriation and Compensation

The constitution and investment acts require government to refrain from nationalization. However, the GoT may expropriate property after due process for the purpose of national interest. The Tanzanian Investment Act guarantees payment of fair, adequate, and prompt compensation; access to the court or arbitration for the determination of adequate compensation; and prompt repatriation in convertible currency where applicable. For protection under the Tanzania Investment Act, foreign investors require USD 500,000 minimum capital and Tanzanian investors require USD 100,000.

GoT authorities do not discriminate against U.S. investments, companies, or representatives in expropriation. There have been cases of government revocation of hunting concessions that grant land rights to foreign investors, including a U.S.-based company with strategic investor status in 2016. In late 2018, the GoT expropriated several dormant cashew-processing factories. In early 2019, the GoT reportedly repossessed 16 previously-privatized factories that were not in operation. At the same time, the government issued a notice to more than 30 businesses, including hotels and other factories, warning them that if they did not present a plan for revitalizing their businesses, the GoT would repossess them. The ownership structures of these businesses are unconfirmed; however, there are reports that some have foreign ownership. At least one factory with substantial U.S. investment reports that the GoT has blocked the sale of its assets.

There are numerous examples of indirect expropriation, such as confiscatory tax regimes or regulatory actions that deprive investors of substantial economic benefits from their investments.

Dispute Settlement

ICSID Convention and New York Convention

Tanzania is a member of both the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA). Tanzania is a signatory to the New York Convention on the Recognition and Enforcement of Arbitration Awards.

A new Arbitration Act adopted in February 2020 replaces the 1931 Arbitration Act and is generally a replica of the English Arbitration Act, 1996. The act slightly amends the Public Private Partnership (PPP) (Amendment) Act, No. 9 of 2018 (the PPP Amendment Act) which stated that PPP agreements are subject to local arbitration under the arbitration laws of Tanzania and must take place on Tanzanian soil. With the change, however, the arbitrator body may be international. There was a similar semantic change to the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 and the Natural Wealth and Resources (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 (collectively the Natural Wealth Laws) to again allow for international arbitration as long as they are governed by Tanzanian law and the venue is in Tanzania. However, it is important to note that interpretations of this act vary among legal practitioners and thus far, there has been no foreign arbitral body to travel to Tanzania

Investor-State Dispute Settlement

Investment-related disputes in Tanzania can be protracted. The Commercial Court of Tanzania operates two sub-registries located in the cities of Arusha and Mwanza. The sub-registries, however, do not have resident judges. A judge from Dar es Salaam conducts a monthly one-week session at each of the sub-registries. The government said it intends to establish more branches in other regions including Mbeya, Tanga, and Dodoma, though progress has stalled. Court-annexed mediation is also a common feature of the country’s commercial dispute resolution system.

Despite legal mechanisms in place, foreign investors have claimed that the GoT sometimes does not honor its agreements. Additionally, investors continue to face challenges receiving payment for services rendered for GoT projects. One high profile example of such a dispute is that of a U.S.-based energy company, which in 2017 filed an application for ICSID arbitration seeking USD 561 million for alleged breach of contract of a purchase power agreement. The dispute is ongoing.

Bankruptcy Regulations

Tanzania has a bankruptcy law which allows for companies to declare insolvency. The insolvency process includes the appointment of receiver managers, administrative receivers, or liquidators. In practice the process is very long and expensive. Preferential debts such as government taxes and rents, outstanding wages and salaries, and other employee compensation take priority over other claims, including those from creditors. Insolvent or illiquid companies may also seek the protection of the courts by seeking a compromise or arrangement as proposed between a company and its creditors, a certain class of creditors, or its shareholders.

According to the 2020 World Bank’s Ease of Doing Business report, it takes an average of three years to conclude bankruptcy proceedings in Tanzania. The recovery rate for creditors on insolvent firms was reported at 20.4 U.S. cents on the dollar, with judgments typically made in local currency.

4. Industrial Policies

Investment Incentives

The Tanzania Investment Center (TIC) offers a package of investment benefits and incentives to both domestic and foreign investors without performance requirements. A minimum capital investment of USD 500,000 if foreign owned or USD 100,000 if locally owned is required.

These incentives include the following:

  • Discounts on customs duties, corporate taxes, and VAT paid on capital goods for investments in mining, infrastructure, road construction, bridges, railways, airports, electricity generation, agribusiness, telecommunications, and water services.
  • 100 percent capital allowance deduction in the years of income for the above-mentioned types of investments – though there is ambiguity as to how this is accomplished.
  • No remittance restrictions. The GoT does not restrict the right of foreign investors to repatriate returns from an investment.
  • Guarantees against nationalization and expropriation. Any dispute arising between the GoT and investors may be settled through negotiations or submitted for arbitration.
  • Allowing interest deduction on capital loans and removal of the five-year limit for carrying forward losses of investors.

Investors may apply for “Strategic Status” or “Special Strategic Status” to receive further incentives. The criteria used to determine whether an investor may receive these designations are available on TIC’s website (www.tic.co.tz/strategicInvestor ).

The government habitually introduces waivers through the Public Finance Act with the aim of attracting investment in certain targeted sectors. In Financial Year 2019/2020, the government introduced a VAT exemption for the following items in order to encourage investment: import of grain drying equipment; supply of aircraft lubricants to a local operator of air transportation; and imports refrigerated by a person in horticulture for exclusive use in Tanzania Mainland.  The GoT also introduced a reduction of corporate income tax for new investors involved in the production of sanitary pads from 30% to 25% for two years, subject to the investor signing a performance agreement with the government.

The Export Processing Zones Authority (EPZA) oversees Tanzania’s Export Processing Zones (EPZs) and Special Economic Zones (SEZs). EPZA’s core objective is to build and promote export-led economic development by offering investment incentives and facilitation services. Minimum capital requirements for EPZ and SEZ investors are USD 500,000 for foreign investors and USD 100,000 for local investors. Investment incentives offered for EPZs include the following.

  • An exemption from corporate taxes for ten years.
  • An exemption from duties and taxes on capital goods and raw materials.
  • An exemption on VAT for utility services and on construction materials.
  • An exemption from withholding taxes on rent, dividends, and interests.
  • Exemption from pre-shipment or destination inspection requirements.
  • SEZs offer similar incentives, excluding the ten-year exemption from corporate taxes.

The Zanzibar Investment Promotion Agency (ZIPA) and the Zanzibar Free Economic Zones Authority (ZAFREZA) offer following incentives:

CATEGORY “A” FREE ECONOMIC ZONE DEVELOPERS: DEVELOPMENT OF INFRASTRUCTURE

  1. The developer of a Free Economic Zone shall benefit to the following incentives:
  • exemption from payment of taxes and duties for machinery, equipment, heavy duty vehicles, building and construction materials, and any other goods of capital nature to be used for purposes of development of the Free Economic Zone infrastructure;
  • exemption from payment of corporate tax for an initial period of ten years and thereafter a corporate tax, shall be charged at the rate specified in the Income Tax Act;
  • exemption from payment of withholding tax on rent, dividends ‘and interest for the first ten years;
  • exemption from payment of property tax for the first ten years;
  • remission of customs duty, value added tax and any other tax payable in respect of importation of one administrative vehicle, ambulances, firefighting equipment and firefighting vehicles and up to two buses for employees’ transportation to and from the Free Economic Zone;
  • exemption from payment of stamp duty on any instrument executed in or outside the Free Economic Zone relating to transfer, lease or hypothecation of any movable or immovable property situated within the Free Economic Zone or any document, certificate, instrument, report or record relating to any activity, action, operation, project, undertaking or venture in the Free Economic Zone;
  • treatment of goods destined into Free Economic Zones as transit goods; and
  • on site customs inspection of goods within Free Economic Zones.

CATEGORY “B” FREE ECONOMIC ZONES OPERATORS: APPROVED INVESTORS PRODUCING FOR SALE INTO THE CUSTOMS TERRITORY

  1. Approved Investors whose primary markets are within the customs territory shall be entitled to the:
  • remission of customs duty, value added tax and any other tax charged on raw materials and goods of capital nature related to the production in the Free Economic Zones;
  • exemption from payment of withholding tax on interest on foreign sourced loan;
  • remission of customs duty, value added tax and any other tax payable in respect of importation of one administrative vehicle, one ambulances, firefighting equipment and firefighting vehicles and up to two buses for employees’ transportation into and from the Free Economic Zones;
  • exemption from pre-shipment or destination inspection requirements;
  • on site customs inspection of goods within Free Economic Zones;
  • access to competitive, modern and reliable services available within the Free Economic Zones; and
  • subject to compliance with applicable conditions and procedures for foreign exchange and payment of tax whenever appropriate, unconditional transfer through any authorized dealer bank in freely convertible currency of;

(i) net profits or dividends attributable to the investment;       (ii) payments in respect of loan servicing where a foreign loan has been obtained;

(ii) payments in respect of loan servicing where a foreign loan has been obtained;       (iii) royalties, fees and charges for any technology transfer agreement;

(iii) royalties, fees and charges for any technology transfer agreement;       (iv) the remittance of proceeds in the event of sale or liquidation of the licensed business or any interest attributable to the licensed business; and

(iv) the remittance of proceeds in the event of sale or liquidation of the licensed business or any interest attributable to the licensed business; and       (v) payments of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the licensed business.

(v) payments of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the licensed business.

CATEGORY “C” FREE ECONOMIC ZONE OPERATORS: APPROVED INVESTORS PRODUCING FOR EXPORT MARKETS

  1. Approved Investors producing for export markets m non-manufacturing or processing sectors shall be entitled to the:
  • subject to compliance with applicable conditions and procedures, accessing the export credit guarantee scheme;
  • remission of customs duty, value added and any other tax charged on raw materials and goods of capital nature related to the production in the Free Economic Zones;
  • exemption from payment of corporate tax for an initial period of ten years and thereafter, a corporate tax shall be charged at the rate specified in the Income Tax Act;
  • exemption from payment of withholding tax on rent, dividends and interests for the first ten years;
  • exemption from payment of all taxes and levies imposed by the Local Government Authorities for products produced in the Free Economic Zones for a period of ten years;
  • exemption from pre-shipment or destination inspection requirements;
  • on site customs inspection of goods in the Free Economic Zones;
  • remission of customs duty, value added tax and any other tax payable in respect of importation of one administrative vehicle, ambulances, firefighting equipment and vehicles and up to two buses for employees’ transportation to and from the Free Economic Zones;
  • treatment of goods destined into Free Economic Zones as transit goods;
  • access to competitive, modern and reliable services available within the Free Economic Zones; and
  • subject to compliance with applicable conditions and procedures for foreign exchange and payment of tax whenever appropriate unconditional transfer through any authorized dealer bank in freely convertible currency of:

(i) net profits or dividends attributable to the investment;

(ii) payments in respect of loan servicing where a foreign loan has been obtained;

(iii) royalties, fees and charges ifor any technology transfer agreement;

(iv) the remittance of proceeds in the event of sale or liquidation of the business enterprises or any interest attributable to the investment;

(v) payments of emoluments and other benefits to foreign personnel employed in Tanzania in connection with the business enterprise; twenty percent of total turnover is allowed to be sold to the local market and is subject to the payment of all taxes;

  • twenty percent of total turnover is allowed to be sold to the local market and is subject to the payment of all taxes;
  • hundred percent foreign ownership is allowed ; and
  • no limit to the duration that goods may be stored in the Freeport Zones.

2. For purposes of this section investors licensed primarily for export markets are investors whose exports are more than eighty percent of total annual production.

Incentives and allowances outside Free Economic Zones

1. Approved investor investing outside Free Economic Zones, may be granted the:

  • exemption from payment of import duty, excise duty Value Added Tax and other similar taxes on machinery, equipment, spare parts, vehicles and other input necessary and exclusively required by that enterprise during construction period indicated in the Investment Certificate;
  • exemption from payment of business license fee for the first three months of trial operation;
  • corporate tax exemption for up to five years;
  • hundred percent foreign ownership;
  • hundred percent retention of all profits after tax;
  • hundred percent allowance Research and Development; and
  • hundred percent allowance for free repatriation of profit after tax.

2. Without prejudice to the provisions of paragraph 1 of this Part, approved investor investing in manufacturing sector may further be granted the:

  • exemption from payment of any tax on all goods produced for exports;
  • exemption from payment of trade levy for raw materials and industrial inputs procured from Tanzania Mainland;
  • exemption from payment of import duty, Value Added Tax and other similar taxes on raw and packaging materials during project operations;
  • exemption of Income Tax on interest on registered borrowed capital; and
  • hundred percent allowance investment deduction on capital expenditure within five years;

3. Without prejudice to the provisions of paragraph 1 of this Part, Approved Investor investing in real estate business may also be granted the:

  • exemption of income tax on interest on borrowed capital;
  • stamp duty exemption;
  • hundred percent allowance investment deduction on capital expenditure within five years; and
  • capital gains tax on properties sold or purchased.

Foreign Trade Zones/Free Ports/Trade Facilitation

Tanzania’s export processing zones (EPZs) and special economic zones (SEZs) are assigned geographical areas or industries designated to undertake specific economic activities with special regulations and infrastructure requirements. EPZ status can also be extended to stand-alone factories at any geographical location. EPZ status requires the export of 80 percent or more of the goods produced. SEZ status has no export requirement, allowing manufacturers to sell their goods locally. As of March 2018, there were 14 designated EPZ/SEZ industrial parks, 10 of which are in development, and 75 stand-alone EPZ factories.

Performance and Data Localization Requirements

The Non-Citizens (Employment Regulation) Act (see Section 12 Labor Policies and Practices below) requires employers to attempt to fill positions with Tanzanian citizens before seeking work permits for foreign employees, and to develop plans to transition all positions held by foreign employees to local employees over time.

Because the local content (LC) initiative cuts across all economic sectors, the government decided that oversight of LC development should take a multi-sector approach, rather than being confined to a single ministry or sector. In 2015, the government directed the National Economic Empowerment Council (NEEC) to oversee implementation of local empowerment initiatives. The objective of the local content policy is to put local products and services – delivered by businesses owned and operated by Tanzanians – in an advantageous position to exploit opportunities emanating from inbound foreign direct investments. In 2015, the GoT enacted The Petroleum Act and, subsequently, issued The Petroleum (Local Content) Regulations 2017. Similarly, in 2017, the GoT amended mining laws, issuing The Mining (Local Content) Regulations 2018. (See Chapter 4: Laws and Regulations on Foreign Direct Investment for more on recent local content laws.)

As of November 2019, Bank of Tanzania (BoT) regulations require banks to physically house their primary data centers in Tanzania or face steep penalties. The Tanzanian Bankers Association is appealing the requirement as it is cumbersome, expensive, and contrary to industry best practices.

In 2016, the GoT launched a USD 94 million national data center (NDC), which is operated by the GoT’s Telecommunications Corporation (TTC). Under the Tanzania Telecommunications Corporation (TTC) Act 2017, the TTC plans, builds, operates and maintains the “strategic telecommunications infrastructure,” which is defined as transport core infrastructure, data center and other infrastructure that the GoT proclaims “strategic” via official public notice.

5. Protection of Property Rights

Real Property

All land is owned by the government and procedures for obtaining a lease or certificate of occupancy may be complex and lengthy. Less than 15 percent of land has been surveyed, and registration of title deeds is handled manually, mainly at the local level. Foreign investors may occupy land for investment purposes through a government-granted right of occupancy (“derivative rights” facilitated by TIC), or through sub-leases from a granted right of occupancy. Foreign investors may also partner with Tanzanian leaseholders to gain land access.

Land may be leased for up to 99 years, but the law does not allow individual Tanzanians to sell land to foreigners. There are opportunities for foreigners to lease land, including through TIC, which has designated specific plots of land (a land bank) to be made available to foreign investors. Foreign investors may also enter into joint ventures with Tanzanians, in which case the Tanzanian provides the use of the land (but retains ownership, i.e., the leasehold).

Secured interests in property are recognized and enforced. Though TIC maintains a land bank, restrictions on foreign ownership may significantly delay investments. Land not in the land bank must go through a lengthy approval process by local-level authorities, the Ministry of Lands, Housing, Human Settlements Development (MoLHHSD), and the President’s Office to be designated as “general land,” which may be titled for investment and sale.

The MoLHHSD handles registration of mortgages and rights of occupancies and the Office of the Registrar of Titles issues titles and registers mortgage deeds. Title deeds are recognized as collateral for securing loans from banks. In January 2018, the GoT amended the land law, requiring that loan proceeds secured by mortgaging underdeveloped land be used solely to develop the specific piece of land used as collateral. The changes apply to general land managed by the MoLHHSD’s Commissioner for Lands, who must receive a report from the lender showing how loan proceeds will be used to develop the land. The law does not apply to village land allocated by village councils, which cannot be mortgaged to a financial institution.

Tanzania’s Registering Property rank in the World Bank’s 2020 Ease of Doing Business report deteriorated from 142 in 2018 to 146 in 2019 and 2020. According to the report, it takes eight procedures and 67 days to register property compared the Sub-Saharan Africa average of 51.6 days.

Intellectual Property Rights

The GoT’s Copyright Society of Tanzania (COSOTA) is responsible for registration and enforcement of copyrighted materials, while the Business Registrations and Licensing Agency (BRELA) within the Ministry of Trade administers trademark and patent registration. o It is the responsibility of the rights holders to enforce their rights where relevant, retaining their own counsel and advisors. The Fair Competition Commission (FCC) promotes competition, protects consumers against unfair market conduct, and has quasi-judicial powers to determine trademark and patent infringement cases. The FCC is also tasked with combating the sale of counterfeit merchandise. However, the Tanzania Medicines and Medical Devices Authority (TMDA) handles counterfeit human medicines, cosmetics, and packaged food materials. and its mandate is stipulated in the Tanzania Food, Drugs, and Cosmetics Act (TFDCA) as per the amendment of 2019. Despite its efforts, limited resources make it difficult for the GoT to adequately combat counterfeiting.

Tanzania is not included 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

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

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

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

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

Money and Banking System

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

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

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

Remittance Policies

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

Sovereign Wealth Funds

Tanzania does not have a sovereign wealth fund.

7. State-Owned Enterprises

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

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

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

Privatization Program

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

8. Responsible Business Conduct

Responsible business conduct (RBC) includes respecting human rights, environmental protection, labor relations and financial accountability, and it is practiced by a number of large foreign firms. Tanzania has laws covering labor and environmental issues. The Employment and Labor Relations Act (ELRA) establishes labor standards, rights and duties, while the Labor Institutions Act (LIA) specifies the government entities charged with administering labor laws.

The GoT’s National Environment Management Council (NEMC) undertakes enforcement, compliance, review and monitoring of environmental impact assessments; performs research; facilitates public participation in environmental decision-making; raises environmental awareness; and collects and disseminates environmental information. Stakeholders, however, have expressed concerns over whether the NEMC has sufficient funding and capacity to handle its broad mandate.

There are no legal requirements for public disclosure of RBC, and the GoT has not yet addressed executive compensation standards. Dar es Salaam Stock Exchange (DSE) listed companies, however, must release legally required information to shareholders and the general public. In addition, the DSE signed a voluntary commitment with the United Nations Sustainable Stock Exchanges Initiative in June 2016, to promote long-term sustainable investments and improve environmental, social and corporate governance. Tanzania has accounting standards compatible with international accounting bodies.

The Tanzanian government does not usually factor RBC into procurement decisions. The GoT is responsible for enforcing local laws, however, the media regularly reports on corruption cases where offenders allegedly avoid sanctions. There have also been reports of corporate entities collaborating with local governments to carry out controversial undertakings that may not be in the best interest of the local population.

Some foreign companies have engaged NGOs that monitor and promote RBC to avoid adversarial confrontations. In addition, some of the multinational companies who are signatories to the Voluntary Principles on Security and Human Rights (VPs) have taken the lead and appointed NGOs to conduct programs to mitigate conflicts between the mining companies, surrounding communities, local government officials and the police.

Tanzania is a member of the Extractive Industries Transparency Initiative (EITI) and in 2015 Tanzania enacted the Extractive Industries Transparency and Accountability Act, which demands that all new concessions, contracts and licenses are made available to the public. The government produces EITI reports that disclose revenues from the extraction of its natural resources.

9. Corruption

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

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

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

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

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

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

Resources to Report Corruption

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

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

10. Political and Security Environment

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

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

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

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

11. Labor Policies and Practices

The GoT’s Five Year Development Plan 2016-2021 (FYDP II), which is in its fourth year of implementation, acknowledges Tanzania’s shortage of skilled labor and the importance of professional training to support industrialization. The Integrated Labor Force Survey Analytical Report of 2014 (most recent) found that only 3.6 percent of Tanzania’s 20-million-person labor force is highly skilled. On the regional front, Tanzania, Uganda, Rwanda and Kenya have committed to the EAC’s 2012 Mutual Recognition Agreement of engineers, making for a more regionally competitive engineering market.

In Tanzania, labor and immigration regulations permit foreign investors to recruit up to five expatriates with the possibility of additional work permits granted under specific conditions.

The Non-Citizens (Employment Regulation) Act 2015 introduced stricter rules for hiring foreign workers. Under the Act, the Labor Commissioner must determine if “all possible efforts have been explored to obtain a local expert” before approving a non-citizen work permit. In addition, employers must submit “succession plans” for foreign employees, detailing how knowledge and skills will be transferred to local employees.

Non-citizens may be granted two-year work permits, renewable up to five years, while foreign investors may be granted ten-year work permits which may be extended if the investor is deemed to be contributing to the economy and well-being of Tanzanians. Some stakeholders fear that this provision creates an opening for corruption and arbitrarily prejudicial decisions against foreign investors. Since the passage of the Act, GoT officials have been conducting aggressive “special permit inspections” to verify the validity of work permits. The process for obtaining work permits remains immensely bureaucratic, opaque at times, and slow.

Mainland Tanzania’s minimum wage, which has not changed since July 2013, is set by categories covering 12 employment sectors. The minimum wage ranges from TZS 100,000 (USD 45) per month for agricultural laborers to TZS 400,000 (USD 180) per month for laborers employed in the mining sector. Zanzibar’s minimum wage is TZS 300,000 (USD 135), after being increased from TZS 150,000 (USD 68) in April 2017.

Mainland Tanzania and Zanzibar governments maintain separate labor laws. Workers on the Mainland have the right to join trade unions. Any company with a recognized trade union possessing bargaining rights can negotiate in a Collective Bargaining Agreement. In the public sector, the government sets wages administratively, including for employees of state-owned enterprises.

Mainland workers have the legal right to strike and employers have the right to a lockout. The law restricts the right to strike when doing so may endanger the health of the population. Workers in certain sectors are restricted from striking or subject to limitations. In 2017, the GoT issued regulations that strengthened child labor laws, created minimum one-year terms for certain contracts, expanded the scope of what is considered discrimination, and changed contract requirements for outsourcing agreements. In 2019, the government adopted a new National Strategy Against Child Labor, though it has not officially been implemented.

The labor law in Zanzibar applies to both public and private sector workers. Zanzibar government workers have the right to strike as long as they follow procedures outlined in the Employment Act of 2005, but they are not allowed to join Mainland-based labor unions. Zanzibar requires a union with 50 or more members to be registered and sets literacy standards for trade union officers. An estimated 40 percent of Zanzibar’s workforce is unionized. (See Chapter 4: Laws and Regulations on Foreign Direct Investment for more on recent local content laws.)

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

In 1996, the U.S. Overseas Private Investment Corporation (OPIC), the predecessor agency to U.S. International Development Finance Corporation (DFC), signed an incentive agreement with the GoT. The Ministry of Foreign Affairs has in principle agreed that the existing OPIC agreement will allow for the International Development Finance Corporation (DFC) to operate in Tanzania. The current portfolio includes projects in agriculture, energy, micro-finance, and logistics. In addition, the DFC inherits USAID’s Development Credit Authority (DCA)’s active portfolio including guarantees to several banks to encourage lending to small and medium sized enterprises.

Tanzania is also a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA), which offers political risk insurance and technical assistance to attract FDI.

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 $58 Billion 2018 $58 Billion www.worldbank.org/en/country/Tanzania 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or internationalSource of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2018 $1,444 BEA
https://apps.bea.gov/
international/factsheet/
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2018 $1 million BEA
https://www.bea.gov/
international/direct-investment-and-multinational-enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 5.5% UNCTAD
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data:
National Bureau of Statistics (NBS): 2018 GDP: TZS 129.4 trillion (www.nbs.go.tz)
Bank of Tanzania (BoT): 2018 Investment Report (www.bot.go.tz )

Table 3: Sources and Destination of FDI
The IMF’s The Bank of Tanzania reports the top source countries for inward direct investment to Mainland Tanzania and Zanzibar separately. Data on outward direct investment is not available.

According to the Bank of Tanzania, the top sources for inward foreign investment into Mainland Tanzania in 2017 were: United Kingdom, South Africa, Norway, Netherlands, Nigeria, Mauritius, and Kenya.

According to the Bank of Tanzania, the top sources for inward foreign investment into Zanzibar in 2017 were: United Kingdom, Italy, Kenya, Luxembourg, South Africa, Spain, and the United States.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Economic Officer
U.S.  Embassy Dar es Salaam
686 Old Bagamoyo Road
Msasani, Dar es Salaam
Tel: 255-22-229-4000
drseconomic@state.gov

Uganda

Executive Summary

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

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

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

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

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

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Ugandan government and authorities vocally welcome FDI, and the country’s free market economy, liberal financial system, and more than 40 million-person consumer market attract investors. However, rampant corruption, weak rule of law, and an increasingly aggressive Uganda Revenue Authority create a challenging business environment.

The 2019 Investment Code Act (ICA) established both benefits and challenges to FDI. It abolished restrictions on technology transfer and repatriation of funds by foreign investors, and established new incentives (e.g., tax waivers) for investment. However, the ICA also set a minimum value of USD 250,000 for FDI and a yet-to-be-specified minimum value for portfolio investment. Additionally, the ICA authorized the Government of Uganda (GOU) to alter these thresholds at any time, thereby creating potential uncertainty for investors. Under the ICA, investment licenses carry specific performance conditions varying by sector, such as requiring investors to permit the Uganda Investment Authority (UIA) to monitor operations, or to employ or train Ugandan citizens, or use Ugandan goods and services to the greatest extent possible. Further, the ICA empowers the GOU to revoke investment licenses of entities that “tarnish the good repute of Uganda as an attractive base for investment.” The government has yet to revoke any investor license on this ground.

In October 2019, the GOU passed the Communications Licensing Framework (CLF) which requires telecommunication (telecom) companies to list 20 percent of their equity on the Uganda Securities Exchange (USE), with the aim of increasing local ownership and reducing the repatriation of profits. Additionally, the CLF requires communication infrastructure companies to sell 20 percent of their equity to citizens of Uganda. However, no company has yet implemented these requirements, and in the first “test case,” the GOU exempted a telecom infrastructure company from the required equity sale.

The Uganda Investment Authority (UIA) facilitates investment by granting licenses to foreign investors, as well as promoting, facilitating, and supervising investments. It provides a “one-stop” shop online where investors can apply for a license, pay fees, register businesses, apply for land titles, and apply for tax identification numbers. In practice, investors may also need to liaise with other authorities to complete legal requirements. The UIA also triages complaints from foreign investors. The UIA’s website (www.ugandainvest.go.ug ) and the Business in Development Network Guide to Uganda (www.bidnetwork.org ) provide information on the laws and reporting requirements for foreign investors. In practice, investors often ultimately end up bypassing the UIA after experiencing bureaucratic delays and corruption. For larger investments, companies have reported that political support from a high-ranking Ugandan official is a prerequisite.

President Museveni hosts an annual investors’ roundtable to consult a select group of foreign and local investors on increasing investment, occasionally including U.S. investors. Every Ugandan embassy has a trade and investment desk charged with advertising investment opportunities in the country.

Limits on Foreign Control and Right to Private Ownership and Establishment

Except for land, foreigners have the right to own property, establish businesses, and make investments. Ugandan law permits foreign investors to acquire domestic enterprises and to establish green field investments. The Companies Act of 2010 permits the registration of companies incorporated outside of Uganda.

Foreigners seeking to invest in the oil and gas sector must register with the Petroleum Authority of Uganda (PAU) to be added to its National Supplier Database. More information on this process is available on the Embassy’s website (select – Registering a U.S. Firm on the National Supplier Database): https://ug.usembassy.gov/business/commercial-opportunities/

The Petroleum Exploration and Development Act and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act require companies in the oil sector to prioritize using local goods and labor when possible, and give the Minister of Energy and Mineral Development (MEMD) the authority to determine the extent of local content requirements in the sector.

All investors must obtain an investment license from the UIA. The UIA evaluates investment proposals based on a number of criteria, including potential for generation of new earnings; savings of foreign exchange; the utilization of local materials, supplies, and services; the creation of employment opportunities in Uganda; the introduction of advanced technology or upgrading of indigenous technology; and the contribution to locally or regionally balanced socioeconomic development.

Other Investment Policy Reviews

The United Nations Commission on Trade and Development (UNCTAD) issued its World Investment Report, 2019, available at: https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/World_Investment_Report.aspx 

The International Monetary Fund issued an Article IV Consultation and Review in 2020, and its concluding statement is available at: https://www.imf.org/en/News/Articles/2020/02/03/pr2031-uganda-imf-staff-concludes-visit 

The World Trade Organization (WTO) issued it Trade Policy Review in 2019; the report is available at: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=254764,251521,117054,95202,80262,80232,82036,106989&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True 

Business Facilitation

The UIA one-stop shop website assists in registering businesses and investments. In practice, investors and businesses may need to liaise with multiple authorities to set up shop, and the UIA lacks the capacity to play a robust business facilitation role. According to the 2020 World Bank Doing Business report, business registration takes an average of 25 days.

Prospective investors can also register online and apply for an investment license at https://www.ebiz.go.ug/ . The UIA also assists with the establishment of local subsidiaries of foreign firms by assisting in registration with the Uganda Registration Services Bureau (URSB) (http://ursb.go.ug/ ). New businesses are required to obtain a Tax Identification Number from the Uganda Revenue Authority (URA), which they can do online (https://www.ura.go.ug/myTin.do ) or through the UIA. Businesses must also secure a trade license from the municipality or local government in the area in which they intend to operate. Investors in specialized sectors such as finance, telecoms, and petroleum often need an additional permit from the relevant ministry in coordination with the UIA.

Under the Uganda Free Zones Act of 2014, the government continues to establish free trade zones for foreign investors seeking to produce goods for export and domestic use. Such investors receive a range of benefits including tax rebates on imported inputs and exported products. An investor seeking a free zone license may lodge an application with the Uganda Free Zones Authority (https://freezones.go.ug/ ).

Outward Investment

The GOU does not promote or incentivize outward investment, nor restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

On paper, Uganda’s legal and regulatory systems are generally transparent and non-discriminatory, and comply with international norms. In practice, bureaucratic hurdles and corruption significantly impact all investors, but with disproportionate effect on foreigners learning to navigate a parallel informal system. While Ugandan law requires open and transparent competition on government project tenders, U.S. investors have alleged that endemic corruption means that competitors not subject to the Foreign Corrupt Practices Act, or similar legislation, often pay bribes to win awards.

Ugandan law allows the banking, insurance, and media sectors to establish self-regulatory processes through private associations. The government continues to regulate these sectors, however, and the self-regulatory practices generally do not discriminate against foreign investors.

Potential investors must be aware of local, national, and supra-national regulatory requirements in Uganda. For example, EAC rules on free movement of goods and services would affect an investor planning to export to the regional market. Similarly, regulations issued by local governments regarding operational hours or the location of factories would only affect an investor’s decision at the local level. Foreign investors should liaise with relevant ministries to understand regulations in the proposed sector for investment.

Uganda’s accounting procedures are broadly transparent and consistent with international norms, though full implementation remains a challenge. Publicly listed companies must comply with accounting procedures consistent with the International Auditing and Assurance Standards Board.

Governmental agencies making regulations typically engage in only limited public consultation. Draft bills similarly are subject to limited public consultation and review. Local media typically cover public comment only on more controversial bills. Although the government publishes laws and regulations in full in the Uganda Gazette, the gazette is not available online and can only be accessed through purchase of hard copies at the Uganda Printing and Publishing Corporation offices. The Uganda Legal Information Institute also publishes all enacted laws on its website (https://ulii.org/ ).

Uganda’s court system and Inspector General of Government are responsible for ensuring the government adheres to its administrative processes, however, anecdotal reports suggest that corruption significantly undermines the judiciary’s oversight role.

In June 2019, Members of Parliament passed the Landlord and Tenants Bill that seeks to regulate the relationship between landlords and tenants. For foreign investors, the bill imposes a restriction against charging tenants rental fees in foreign currency, caps increment on rental charges to no more than 10 percent annually, and provides tenants with significantly more rights. President Museveni has yet to sign the bill into law. If signed into law, this bill could undermine investment in the real estate sector by giving disproportionate rights to tenants (commercial and residential) over property owners. The GOU has struggled to fully implement regulatory reforms announced in prior years.

Generally, there is legal redress to review regulatory mechanisms through the courts, and the process is made public.

Uganda’s legislative process includes public consultations, and, as needed, subject matter expert presentations before parliament; however, not all comments received by regulators are made publicly available and parliament’s decisions tend to be primarily politically driven. Formal scientific analyses of the potential impact of a pending regulation are seldom conducted.

Public finances are generally transparent and budget documents are available online. The government annually publishes the Annual Debt Statistical Bulletin, which contains the country’s debt obligations including status of public debt, cost of debt servicing, and liabilities. However, the government’s significant use of supplementary and classified budget accounts undermines parliamentary and public oversight of public finances.

International Regulatory Considerations

Per treaty, Uganda’s regulatory systems must conform to the below supranational regulatory systems. In practice, domestication of supranational legislation remains imperfect: -African, Caribbean, and Pacific Group of States (ACP)

  • African, Caribbean, and Pacific Group of States (ACP)
  • African Union (AU)
  • Common Market for Eastern and Southern Africa (COMESA)
  • Commonwealth of Nations
  • East African Community (EAC)

Uganda, through the Uganda National Bureau of Standards (UNBS) is a member of ISO, Codex Alimentarius and International Organization of Legal Metrology (OIML), and Afrinet. Uganda applies European Union directives and standards, but with modifications.

Uganda is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of all draft technical regulations through the Ugandan Ministry of Trade’s National TBT Coordination Committee.

Legal System and Judicial Independence

Uganda’s legal system is based on English Common Law. The courts are responsible for enforcing contracts. Litigants must first submit commercial disputes for mediation either within the court system or to the government-run Center of Arbitration for Dispute Resolution (CADER). Uganda does not have a singular commercial law; multiple statutes touch on commercial and contractual law. A specialized commercial court decides commercial disputes. Approximately 80 percent of commercial disputes are resolved through mediation. Litigants may appeal commercial court decisions and regulatory and enforcement actions through the regular national court system.

While in theory independent, in practice there are credible reports that the executive may attempt to influence the courts in high-profile cases. More importantly for most investors, endemic corruption and significant backlogs hamper the judiciary’s impartiality and efficacy.

Laws and Regulations on Foreign Direct Investment

The Constitution and ICA regulate FDI. The UIA provides an online “one-stop shop” for investors (www.ugandainvest.go.ug ).

Competition and Anti-Trust Laws

Uganda does not have any specialized laws or institutions dedicated to competition-related concerns, although commercial courts occasionally handle disputes with competition elements. There was no significant competition related dispute handled by the courts in 2019.

Expropriation and Compensation

The constitution guarantees the right to property for all persons, domestic and foreign. It also prohibits the expropriation of property, except when in the “national interest” as eminent domain and preceded by compensation to the owner at fair market value. The GOU’s new policy requiring telecommunication companies to list or sell 20 percent of their equity is what some are calling a form of indirect expropriation. Particularly considering that the few Ugandans who could afford to purchase this equity are likely to be closely associated with the government.

In 1972, then President Idi Amin expropriated assets owned by ethnic Asians (Indians). The expropriation was extrajudicial and was ordered by presidential decree. The government did not allow judicial challenge to the expropriations, nor offer any compensation to the owners. The GOU has since returned the vast majority of the properties to the original owners or their representatives. There have not been any expropriations since, and government projects are often significantly delayed by judicial disputes over compensation for property the GOU seeks to expropriate under eminent domain.

Dispute Settlement

ICSID Convention and New York Convention

Uganda is a party to both the ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The 2000 Domestic Arbitration and Conciliation Act incorporates the 1958 New York Convention.

Investor-State Dispute Settlement

Pursuant to the Arbitration and Conciliation Act, the courts and government in theory accept binding arbitration with foreign investors and between private parties. In practice, the overall challenges of the judiciary are likely to impede full enforcement. Uganda has not been involved in any official investment disputes with a U.S person in the last ten years; however, U.S. firms do complain about serious corruption in the award of government tenders.

Ugandan courts recognize and enforce foreign arbitral awards, including those issued against the government. The country is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Additionally, the Arbitration and Conciliation Act creates a framework for the recognition and enforcement of foreign arbitral awards, including those against the government.

Uganda has not had any experience of extrajudicial action against foreign investors. However, in 1972, the government of then President Idi Amin extra judicially expropriated property owned by ethnic Asians.

International Commercial Arbitration and Foreign Courts

Ugandan law provides for arbitration and mediation of civil disputes. The legal framework on arbitration includes the Arbitration and Conciliation Act and Commercial Court Division Mediation Rules. Litigants must first submit all civil disputes to mediation before a court-appointed mediator. CADER is a statutory institution that facilitates the mediation and operates based on the UNCITRAL Arbitration rules. However, unrecorded private arbitration is the most effective investment dispute resolution mechanism in Uganda.

The Foreign Judgments Reciprocal Enforcement Act enables the recognition and enforcement of judgments and awards made by foreign courts.

There is no evidence that Ugandan courts favor state owned enterprises when arbitrating or settling disputes. However, court decisions are often influenced by corruption or high-level government officials.

Bankruptcy Regulations

The Bankruptcy Act of 1931, the Insolvency Act of 2011, as well as the Insolvency Regulations of 2013 generally align Uganda’s legal framework on insolvency with international standards. The 2020 World Bank Doing Business Report ranked Uganda 99 out of 190 countries for resolving insolvency. On average, Uganda recovers USD 0.39 per dollar, well above the sub-Saharan average of USD 0.20. Bankruptcy is not criminalized.

4. Industrial Policies

Investment Incentives

The Public Private Partnership Act of 2015 creates a legal framework for the government to partner with private investors, both local and foreign, to finance investments in key sectors. The government has undertaken joint ventures with foreign investors in the oil and gas sector and for infrastructure projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Uganda Free Zones Authority (UFZA) (https://freezones.go.ug/ ) regulates free trade zones, which offer a range of tax advantages. The government’s process in awarding free trade zone status is generally transparent. However, there have been reports that corrupt individuals in government are allocating free trade zones in return for bribes. By the end of 2019, UFZA issued three new Free Zone Licenses, increasing the number of Free Zones in the country to 16. UFZA states that the actual investment of the three new free zones was USD 21.74 million.

Performance and Data Localization Requirements

The ICA does not impose any direct requirements regarding local employment or specify mandatory numbers for local employment in management positions. The broadness of its provisions, however, arguably leaves the door open for enforcement of local employment requirements. The Petroleum Exploration, Development, and Production Act and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act require investors in the oil sector to contribute to the creation of a local skilled Ugandan workforce. The National Local Content Bill, which is currently undergoing parliamentary review, would require companies to petition the GOU for permission to hire a non-Ugandan, in conjunction with the claim that no qualified Ugandan is available. Additionally, the bill requires companies to have a Ugandan deputy for every non-Ugandan senior manager and submit a clear plan to localize these positions to the governing authority.

While the UIA has significantly improved its processing of work permits and investment licenses for foreigners, bureaucratic hurdles, inconsistent enforcement, and corruption can still make obtaining visas and work permits onerous and expensive. All foreign investors must acquire an investment license from the UIA.

In as much as there is no specific localization law in Uganda, some sector specific laws impose localization requirements. The petroleum laws require foreign oil companies to prioritize the use of local goods and labor when available, and the MEMD has the authority to determine the extent of local content requirements in the sector. The Public Procurement and Disposal of Public Assets Act, which regulates government procurements, also imposes thresholds on the contracts for which a foreign company can apply. In the petroleum laws, MEMD has the responsibility to monitor companies in the oil sector to ensure they are meeting the local content requirements. Additionally, the Office of the Auditor General carries out audits to ensure adherence to local content requirements. These performance reviews can form grounds for granting incentives or enforcement of the restrictions. Since the 2013 oil laws were passed, no company has been punished for breaching local content rules. Investment incentives in Uganda are quite controversial because they apply on a case by case basis, even though the ICA lists seven grounds for granting investment incentives.

While there are no general requirements for foreign information technology (IT) providers to give the government any source code or information related to encryption, the National Information Technology Authority Act allows the Minister for Information, Communication, and Technology to order an IT provider to submit any information to the National Information Technology Authority (NITA). Similarly, the Computer Misuse Act allows the government to “compel a service provider…to co-operate and assist the competent authorities in the collection or recording of traffic data in real time, associated with specified communication transmitted by means of a computer system.” These regulatory requirements apply to all IT providers, both foreign and local. There are no measures to prevent or unduly impede companies from freely transmitting customer or other business-related data outside of Uganda. In 2017, however, the Bank of Uganda interpreted Uganda’s cyber security legislation as providing it with the mandate to require financial institutions to relocate their data centers to Uganda to provide the government with access to customers’ digital financial information. Citing customer privacy concerns, financial firms remain in negotiations with the Bank of Uganda over this policy.

5. Protection of Property Rights

Real Property

Land rights are complicated in Uganda and present a significant barrier to investment. Uganda enforces property rights through the courts; however, corruption often influences final judgments. The Mortgage Act and associated regulations make provisions for mortgages, sub-mortgages, trusts, and other forms of lien. However, due to widespread corruption and an inefficient bureaucracy, investors frequently struggle with the integrity of land transactions and recording systems.

Foreigners cannot own land directly and may only acquire leases. Such leases cannot exceed 99 years. However, foreign investors can create a Ugandan-based firm to purchase and own real estate.

The Land Act provides for four forms of land tenure: freehold, customary, “Mailo” (a form of freehold), and leasehold. Freehold, leasehold, and Mailo tenure owners hold registered titles, while customary or indigenous communal landowners – who account for up to 80 percent of all landowners – do not. Ugandan law provides for the acquisition of prescriptive rights by individuals who settle onto land (squatters) and whose settlement on such land is unchallenged by the owner for at least twelve years.

Intellectual Property Rights

Ugandan law provides for the protection of intellectual property rights (IPR), but enforcement mechanisms are weak. The country lacks the capacity to prevent piracy and counterfeit distribution. As a result, theft and infringement of IPR is common and widespread. Uganda did not enact any IP related laws and regulations in the past year.

Uganda does not track seizures of counterfeit goods or prosecutions of IPR violations. Agriculture experts estimate some 20 percent of agriculture products under copyright in Uganda are counterfeit. Uganda is not included 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 (http://www.wipo.int/directory/en/ ).

Uganda is not included 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 (http://www.wipo.int/directory/en/ ).

6. Financial Sector

Capital Markets and Portfolio Investment

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

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

Money and Banking System

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

Foreign Exchange and Remittances

Foreign Exchange

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

Remittance Policies

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

Sovereign Wealth Funds

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

7. State-Owned Enterprises

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

Privatization Program

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

8. Responsible Business Conduct

Awareness of responsible business conduct varies greatly among corporate actors in Uganda. No organizations formally monitor compliance with Corporate Social Responsibility (CSR) standards. CSR is not a requirement for an investor to obtain an investment license and CSR programs are voluntary. While government officials make statements encouraging CSR, there is no formal government program to monitor, require, or encourage CSR. In practice, endemic corruption often enables companies to engage in harmful or illegal practices with impunity. Regulations on human and labor rights, and consumer and environmental protection, are seldom and inconsistently enforced. Several non-governmental organizations attempt to hold companies accountable for poor behavior through “name-and-shame” campaigns, usually with limited success.

Uganda’s capacity and political will to regulate the mineral trade across its borders remain weak. Credible organizations allege that Uganda’s gold refining sector, led by the African Gold Refinery (AGR), relies on conflict minerals illicitly imported from neighboring countries, especially from the eastern Democratic Republic of the Congo. While Uganda has no significant gold reserves, in FY 2018/2019, gold became the country’s largest export, totaling USD 1.06 billion.

Due to Uganda’s rampant corruption and culture of unaccountability, the GOU does not adequately enforce domestic laws related to human rights, labor rights, consumer protection, environmental protections, or other laws intended to protect individuals from adverse business impacts. According to UN Panel of Experts reports, AGR, Uganda’s largest refinery, does not adhere to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and there is no indication the GOU is urging it to do so. Uganda announced in January 2019 that it would join the Extractive Industry Transparency Initiative, however, is still in the process of fulfilling the requirements to become a member. Uganda has also not formally adopted the Voluntary Principles on Security and Human Rights.

9. Corruption

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

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

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

Resources to Report Corruption

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

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

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

10. Political and Security Environment

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

11. Labor Policies and Practices

Over 70 percent of Ugandans are engaged in the agriculture sector, and only 20 percent work in the formal sector. Statistics on the number of foreign/migrant workers are not publicly available; however, given the abundance of cheap domestic labor, there is minimal import of unskilled labor. Conversely, there is an acute shortage of skilled and specialized laborers.

While there are no explicit provisions requiring the hiring of nationals, there are broad standards requiring investors to contribute to the creation of local employment. The Petroleum Exploration, Development, and Production Act of 2013 and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act of 2013 require investors to contribute to workforce development by providing skills training for workers.

Ugandan labor laws specify procedures for termination of employment and for termination payments. Depending on the employee’s duration of employment, employers are required to notify an employee two weeks to three months prior to the termination date. Employees terminated without notice are entitled to severance wages. Ugandan law only differentiates between termination with notice (or payment in lieu of notice) and summary dismissal (termination without notice). Summary dismissal applies when the employee fundamentally violates his/her terms of employment. Uganda does not provide unemployment insurance or any other social safety net programs for terminated workers. Current law requires employers to contribute 10 percent of an employee’s gross salary to the National Social Security Fund (NSSF). The Uganda Retirement Benefits Regulatory Authority Act of 2011 provides a framework for the establishment and management of retirement benefits schemes for the public and private sectors and created an enabling environment for liberalization of the pension sector.

The Employment Act of 2006 does not allow waivers of labor laws for foreign investors.

Ugandan law allows workers, except members of the armed forces, to form and join independent unions, bargain collectively, and conduct legal strikes. The National Organization of Trade Unions (NOTU) has 20 member unions. Its rival, the Central Organization of Free Trade Unions (COFTU), also has 20 union members. Union officials estimate that nearly half of employees in the formal sector belong to unions. In 2014, the Government of Uganda created the Industrial Court (IC) to arbitrate labor disputes. Public sector strikes are not uncommon in Uganda; however, there were no strikes during the past year.

Uganda ratified all eight International Labor Organization fundamental conventions enshrining labor and other economic rights, and partially incorporated these conventions into the 1995 Constitution, which stipulates and protects a wide range of economic rights. Despite these legal protections, many Ugandans work in unsafe environments due to poor enforcement and the limited scope of the labor laws. Labor laws do not protect domestic, agricultural, and informal sector workers.

In August 2019, President Museveni rejected the Minimum Wage Bill, which would have increased the monthly minimum wage from USD 1.60 to USD 36, and returned it to parliament for review. Museveni continues to argue that increasing Uganda’s minimum wage would undermine FDI and international competitiveness.

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

The DFC is currently funding several projects in Uganda and maintains a bilateral agreement with the government of Uganda. Active projects in Uganda can be found here: https://www3.opic.gov/ActiveProjectsMap/Default.aspx# 

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 $35,000 2018 N/A https://www.imf.org/external/datamapper/
NGDPD@WEO/UGA
 
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 $41,000 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 N/A 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 N/A N/A 2018 47.4% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Uganda Bureau of Statistics Statistical Abstract 2019

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 $9,294 100% No Data Available
The Netherlands $3,668 40%
Australia $1,519 16.3%
United Kingdom $840 9%
Kenya $778 8%
Mauritius $654 7%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Seth Miller
Economic and Commercial Officer
U.S. Embassy Kampala, Ggaba Road, Kampala
+256 (0) 414-306-240 (office)
MillerSA@state.gov