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Burkina Faso

Executive Summary

Burkina Faso welcomes foreign investment and actively seeks to attract foreign partners to aid in its development.  It has partially put in place the legal and regulatory framework necessary to ensure that foreign investors are treated fairly, including setting up a venue for commercial disputes and streamlining the issuance of permits and company registration requirements.  More progress is needed on diminishing the influence of state-owned firms in certain sectors and enforcing intellectual property protections.  Burkina Faso scored 56.7, a 2.7 points decrease for fiscal health, in the 2020 Heritage Foundation Economic Freedom Index and ranked 85 out of 180 countries in Transparency International’s 2019 Corruption Index.

The gold mining industry has boomed in the last seven years, and the bulk of foreign investment is in the mining sector, mostly from Canadian firms.  Moroccan, French and UAE companies control local subsidiaries in the telecommunications industry, while foreign investors are also active in the agriculture and transport sectors.  In June 2015, a new mining code was approved with the intent to standardize contract terms and better regulate the sector, but the new code is not yet fully operational.  In 2018, the parliament adopted a new investment code that offers many advantages to foreign investors. This code offers a range of tax breaks and incentives to lure foreign investors, including exemptions from value-added tax on certain equipment.  Effective tax rates as a result are lower than the regional average, though the tax system is complex, and compliance can be burdensome.  Opportunities for U.S. firms exist in the energy sector, where the government has an ambitious plan for the installation of new power capacity in both traditional and renewable sources.

Burkina Faso is a landlocked country and the world’s seventh poorest country according to the 2019 UN Development Program (UNDP) Human Development Index, ranked at 182 out of 189 countries.  With a population of 20.28 million inhabitants in June 2019, an estimated 44 percent live under the poverty line.  Some 80 percent of the country’s population is engaged in agriculture—mostly subsistence—with only a small fraction directly involved in agribusiness. There is a significant foreign investment interest in the growing security sector, and since Burkina Faso broke off relations with Taiwan in May 2018, a growing number of Chinese development projects. The government remains committed to a market-based economy without the establishment of any barriers to trade.  Between 2006 and 2015, the national power utility’s (Société Nationale de l’Eléctricité du Burkina) customer base and consumption doubled; however, supply can only meet the demand in non-peak periods.  The GoBF has set an ambitious goal of increasing the access rate to 40 percent by 2020.  The Millennium Challenge Corporation (MCC) Board of Directors, on June 17, approved the second compact for Burkina Faso to focus on addressing the primary constraint to economic growth: the high cost, poor quality, and low access to electricity.  The compact aims to improve energy infrastructure, generation capacity, and source diversification—it will also support Burkina Faso’s increased participation in regional power markets and development of a potential MCC regional investment.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 85 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 151 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 117 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 NA https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $670 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

3. Legal Regime

Transparency of the Regulatory System

The government of Burkina Faso aims for transparency in law and policy to foster competition.  By law, prices of goods and services must be established according to fair and sound competition.  The government believes that cartels, the abuse of dominant position, restrictive practices, refusal to sell to consumers, discriminatory practices, unauthorized sales, and selling at a loss are practices that distort free competition.

At the same time, the price of some staple goods and services are still regulated by the government, including fuel, essential generic drugs, tobacco, cotton, school supplies, water, electricity, and telecommunications.

There are regulatory authorities for government procurement, for electronic communication and posts, for electricity, and for quality standards.

Provinces and municipalities have the power to regulate in their jurisdiction, but that regulation has a minimal effect on business entities.  There are several regulatory bodies at the national level and they usually internalize regulations enacted by international organizations.  Regulations exist at the supra-national level mostly through WAEMU and ECOWAS.

Burkina Faso’s legal, regulatory, and accounting systems are transparent and consistent with international norms.  Since January 2018, Burkina Faso as an Organization for the Harmonization of Corporate Law in Africa (OHCLA) member state adopted the revised version of the OHCLA accounting system.  It is composed of the Uniform Act on Accounting and Financial Law (AUDCIF); the OHADA General Accounting Plan (PCGO); the SYSCOHADA application guide, and the International Financial Reporting Standards (IFRS) application guide. The OHCLA accounting system complies with the IFRS norms.

There is no online Regulatory Disclosure. However, the regulations of the parliament allow the various commissions to hear civil society organizations wishing to share information to inform parliamentarians when they are examining bills.

International Regulatory Considerations

Burkina Faso is a member of the West African Economic Monetary Union (WAEMU) and the Economic Community of West African States.  There is a supranational relationship between these organizations and their state members.  Burkina Faso is also a member of the Organization for the Harmonization of Corporate Law in Africa (OHCLA).  As such, Uniform Laws adopted by the OHCLA are automatically part of the national legal system.

The Government of Burkina Faso regularly notifies all the draft technical barriers to the relevant WTO Committee.  In the October 2017 Trade Policy Review, the WTO congratulated WAEMU countries for their continued efforts to improve their international trading environment, especially through the implementation of the Trade Facilitation Agreement (TFA).  Burkina Faso has begun the ratification process of the TFA, but it has not yet completed it.  However, WAEMU and ECOWAS members already implement many of the TFA provisions.

Legal System and Judicial Independence

The legal system of Burkina Faso is the civil law. Contracts must always be performed in good faith. Burkina Faso has commercial courts that judge commercial cases. Commercial law is constituted by the uniform acts of the OHADA. The Commercial Code governs all matters that are not covered by the OHADA law.

The Burkinabe judiciary is independent despite press reports of cases of corruption of judges.  The Disciplinary Commission of the Judiciary has sanctioned corrupt judges. There are three degrees of jurisdiction in Burkina Faso allowing the loser to appeal a decision rendered in first instance.  In the event of a dispute over the execution of a contract, the plaintiff must first abstain a judgment from a court first and if the loser does not execute, the winner can retain a bailiff.

Laws and Regulations on Foreign Direct Investment

The investment code adopted by law 038-2018 demonstrates the government’s interest in attracting FDI to create industries that produce export goods and provide training and jobs for its domestic workforce.  The code provides standardized guarantees to all legally established firms operating in Burkina Faso, whether foreign or domestic.  It contains four investment and operations preference schemes, which are equally applicable to all investments, mergers, and acquisitions.

Burkina Faso’s regulations governing the establishment of businesses include most forms of companies admissible under French business law, including public corporations, limited liability companies, limited share partnerships, sole proprietorships, subsidiaries, and affiliates of foreign enterprises.  With each scheme, there is a corresponding set of related preferences, duty exceptions, corporate tax exemptions, and operation-related taxes.

Under the investment code, all personal and legal entities lawfully established in Burkina Faso, both local and foreign, are entitled to the following rights: fixed property, forest and industrial rights, concessions, administrative authorizations, access to permits, and participation in state contracts.

Competition and Anti-Trust Laws

The National Commission for Competition and Consumption (Commission Nationale pour la Concurrence et la Consommation) reviews competition matters.  Some competition matters are under the aegis of the West African Economic and Monetary Union (WAEMU).  Law No. 016-2017/AN of 27 April 2017 on organizing competition in Burkina Faso governs the competition sector.  This law is intended to create a free and transparent market, a guarantee of the development of a market economy driven by competitive and wealth-creating businesses.

Expropriation and Compensation

The Burkinabe constitution guarantees basic property rights.  These rights cannot be infringed upon except in the case of public necessity, as defined by the government.  This has rarely occurred.  Until 2007, all land belonged to the government but could be leased to interested parties.  The government reserves the right to expropriate land at any time for public use.  In instances where property is expropriated, the government must compensate the property holder in advance, except in the event of an emergency.

In 2007, Burkina Faso drafted a national land reform policy that recognizes and protects the rights of all rural and urban stakeholders to land and natural resources.  It also clarifies the institutional framework for conflict resolution at a local level, establishes a viable institutional framework for land management, and strengthens the general capacities of the government, local communities and civil society on land issues.

A 2009 rural land management law provides for equitable access to rural lands in order to promote agricultural productivity, manage natural resources, encourage investment, and reduce poverty.  It enables legal recognition of rights legitimated by traditional rules and practices.  In rural areas, traditional land tenure rules have long governed land transactions and allocations.  The 2009 law reinforces the decentralization and devolution of authority over land matters and provides for formalization of individual and collective use rights and the possibility of transforming these rights into private titles.

In 2012, the government revised the 2009 law, marking the end of exclusive authority of the state over all land.  It includes provisions to recognize local land use practices.  The new law provides conciliation committees to resolve conflicts between parties prior to any legal action.  There are several property rights recognition and protection acts, such as land charters, individual or collective land ownership certificates, and loan agreements that govern the nature, duration and counterparties for transfer rights between a landowner and a third party.

The first (2010-2014) Millennium Challenge Corporation (MCC) compact supported the establishment of local authorities and the issuance of titles as part of the land tenure reform process.

Dispute Settlement

ICSID Convention and New York Convention

The ICSID Convention entered into force for Burkina Faso on October 14, 1966.  In the event that an amicable settlement of a dispute between the government and an investor cannot be reached, the investment code requires that arbitration procedures be submitted to international arbitration under the rules outlined by the 1965 Convention of the International Center for Settlement of Investment Disputes (ICSID), of which Burkina Faso is a member.  When the ownership of a company does not meet the nationality requirements laid out by Article 25 of the Convention, the code specifies that the dispute be resolved in accordance with the dispositions of the supplementary mechanisms approved by ICSID in September 1978.

Burkina Faso has been a member of the New York Convention since March 23, 1987.

Investor-State Dispute Settlement

Burkina Faso is a party to the Washington Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards and outlines arbitration procedures in its investment code as a means of solving investment disputes.  BITs signed by Burkina Faso provide for international arbitration.  Burkinabe courts accept international arbitration as a means for settling investment disputes between private parties.  Longstanding disputes that remain unresolved after administrative jurisdictional hearings may be submitted to arbitration.  Burkinabe courts recognize and enforce foreign arbitral awards. The United States has not signed a BIT with Burkina Faso.

International Commercial Arbitration and Foreign Courts

Mediation and conciliation are available and encouraged in Burkina Faso.  In 2006, Burkina Faso introduced specialized commercial chambers in the general courts and in 2007 opened the Arbitration, Mediation and Resolution Center (Centre d’Arbitrage, de Mediation et de Conciliation de Ouagadougou (CAMCO)) under the auspices of the Chamber of Commerce and Industry.  (http://www.camco.bf/ ).  If a dispute is not settled by the CAMCO, the case can be referred to international bodies such as the International Chamber of Commerce of Paris.

The parliament adopted the Law number 047-2017 laying down modalities for intervention by the state jurisdictions on arbitration in Burkina Faso.  Burkina Faso is not a member of the Apostille Convention.  Consequently, any arbitral award rendered abroad should receive an exequatur before enforcement.

In 2016, a foreign mining company addressed an arbitration request to the International Chamber of Commerce’s International Court of Arbitration. The complaint stems from a dispute over the Tambao deposit in the northeastern corner of Burkina Faso. Prior to requesting arbitration in the Paris-based international court, the disputing parties seized the CAMCO.

Bankruptcy Regulations

Since Burkina Faso is a member of the OHADA, the Uniform Act on Bankruptcy is applicable.

There is no credit bureau in Burkina Faso.  The World Bank’s 2019 “Doing Business” report ranked Burkina Faso 107 out of 190 countries for Resolving Insolvency.

4. Industrial Policies

Investment Incentives

The 2018 investment code demonstrates the government’s interest in attracting FDI to create industries that produce export goods and provide training and jobs for its domestic workforce.  The code provides standardized guarantees to all legally established firms operating in Burkina Faso, whether foreign or domestic.  It contains five investment and operations preference schemes, which are equally applicable to all investments, mergers, and acquisitions.

Burkina Faso’s regulations governing the establishment of businesses include most forms of companies admissible under French business law, including: public corporations, limited liability companies, limited share partnerships, sole proprietorships, subsidiaries, and affiliates of foreign enterprises.  With each scheme, there is a corresponding set of related preferences, duty exceptions, corporate tax exemptions, and operation-related taxes.

Under the investment code, all personal and legal entities lawfully established in Burkina Faso, both local and foreign, are entitled to the following rights: fixed property, forest and industrial rights, concessions, administrative authorizations, access to permits, and participation in state contracts.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no foreign trade zones or free ports in Burkina Faso.  The Burkinabe investment code prohibits discrimination against foreigners.  American firms not registered in Burkina Faso can compete for contracts on projects financed by international sources such as the World Bank, U.N. organizations, or the African Development Bank.

The African Continental Free Trade Area (AfCFTA) refers to a continental geographic zone where goods and services move among member states of the AU with no restrictions. The AfCFTA aims to boost intra-African trade by providing a comprehensive and mutually beneficial trade agreement among the member states, covering trade in goods and services, investment, intellectual property rights and competition policy. To date, 30 countries have both signed and approved ratification of the AfCFTA Agreement. Of the 55 AU member states, only Eritrea has yet to sign. The operational phase of the AfCFTA was subsequently launched during the 12th Extraordinary Session of the Assembly of the African Union in Niamey, Niger on July 7, 2019. The AfCFTA will be governed by five operational instruments:  the Rules of Origin; the online negotiating forum; the monitoring and elimination of non-tariff barriers; a digital payments system and the African Trade Observatory.  A digital payments system was supposed to start on July 1, 2020, but as a result of the COVID-19 global pandemic, this start date has been  postponed (a new date is yet to be confirmed by the African Union Commission).

Performance and Data Localization Requirements

The GoBF does not mandate local employment, but in recent years has encouraged investors to promote local employment and support local economies.  The GoBF does not require investors to purchase materials from local sources or to export a certain percentage of output.  However, regarding the mining sector, according to the article 101 of the mining code, “Holders of mining title or authorization and their subcontractors give preference to Burkinabe enterprises for any contract of provision of services or supplies of goods in equivalence of price, quality and time.” The GoBF does not impose “offset” requirements, which dictate that major procurements be approved only if the foreign supplier invests in Burkinabe manufacturing, research and development, or service facilities in areas related to the items being procured.  Burkina Faso does not have “forced localization” policies.

5. Protection of Property Rights

Real Property

Since the 2009 land tenure reform law, the government of Burkina Faso has been engaged in an effort to issue titles recognizing land ownership rights.  The first Millennium Challenge Corporation (MCC) compact focused on beginning this process in 47 communes, with plans for the government to expand the effort throughout the country.

Only about 5,000 land titles have been granted countrywide since 1960, according to the National Land Observatory, and the majority of those were issued pursuant to the first Millennium Challenge compact.  Obtaining a title is the last step in the process of land acquisition and is preceded by obtaining a use permit or an urban dwelling permit, developing the land, and paying applicable fees.  The title-holder becomes the owner of the surface and the subsoil.

Mortgages exist in Burkina Faso both for land and for structures.  Rules governing mortgages are set at the regional level by the West African Economic and Monetary Union, specifically under the Organization for the Synchronization of Business Rights in Africa (Organisation pour l’Harmonisation en Afrique des Droits des Affaires (OHADA).  Liens are not widely used.

Intellectual Property Rights

Burkina Faso’s legal system offiers protection for intellectual property rights (IPR), including  patents, copyrights, trademarks, trade secrets, and semiconductor chip design.  In practice, however, government enforcement of IPR law is lax.  Burkina Faso is a destination point for counterfeit medicines, which can  be purchased readily on the street in Ouagadougou and Bobo-Dioulasso.

Burkina Faso is a member of the World Intellectual Property Organization (WIPO) and the African Intellectual Property Organization (AIPO).  The national investment code guarantees foreign investors the same rights and protection as Burkinabe enterprises for trademarks, patent rights, labels, copyrights, and licenses.  In 1999, the government ratified both the WIPO Copyrights Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).  In 2002, Burkina Faso was one of 30 countries that put the WCT and WPPT treaties into force.  The government has also issued several decrees and rules to implement the two treaties.

The implementation of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is under the purview of two ministries.  The first is the Office of Copyrights (le Bureau Burkinabe des Droits d’Auteurs, or BBDA) under the Ministry of Art, Culture and Tourism, which has the lead for copyright and related rights.  The National Directorate of Industrial Property under the Ministry of Commerce, Industry, and Handicrafts has the lead for industrial property issues.  These two authorities have the technical competence to identify needs.  Arrangements are underway to assess the needs for the implementation of the TRIPS Agreement in Burkina Faso.

Statistics on the seizure of counterfeit goods are available upon request from the relevant agency.  For example, the BDDA tracks seizures  pertaining to artistic material, and the  the National Directorate of Industrial Property tracks seizures pertaining to pharmaceuticals..

Burkina Faso is not cited in the United States Trade Representative  (USTR) Special 301 Reports or the Notorious Markets List.

6. Financial Sector

Capital Markets and Portfolio Investment

The government of Burkina Faso is more focused on attracting FDI and concessionary lending for development than it is on developing its capital markets.  Net portfolio inflows were estimated at around 1.67 percent of GDP in 2018.  While the government does issue some sovereign bonds to raise capital in the WAEMU regional bond market, in general the availability of different kinds of investment instruments is extremely limited.

Money and Banking System

The banking system is sound, relatively profitable and well capitalized, but credit is highly concentrated to a small number of clients and a few sectors of the economy, according to the IMF’s March 2018 Country Report.  Only 15 percent of the population has a checking account.  Like all member states of WAEMU, Burkina Faso is a member of the Central Bank of West African States.  Many foreign banks have branches in the country.  The traditional banking sector is composed of twelve commercial banks and five specialized credit institutions called “établissements financiers.”  The use of mobile money is becoming more prevalent.

Foreign Exchange and Remittances

Foreign Exchange

Burkina Faso is a member of the West African Economic and Monetary Union (WAEMU, or UEMOA when referred to by its French acronym), whose currency is the CFA franc (XOF), or FCFA.  The FCFA is freely convertible into euros at a fixed rate of 655.957 FCFA to 1 euro.  Investors should consider the advantages offered by the WAEMU, which allows the FCFA to be used in all eight member countries: Senegal, Togo, Cote d’Ivoire, Mali, Benin, Guinea Bissau, Niger, and Burkina Faso.

Burkina Faso’s investment code guarantees foreign investors the right to the overseas transfer of any funds associated with an investment, including dividends, receipts from liquidation, assets, and salaries.  Such transfers are authorized in the original currency of the investment.  Once the interested party presents the request for transfer, accompanied by all relevant bank documents, Burkinabe banks transfer the funds directly to the recipient banking institution.  Foreign exchange is readily available at all banks and most hotels in Ouagadougou and Bobo-Dioulasso.

Remittance Policies

The GoBF is not expected in the near future to change its current remittance policy concerning purchasing foreign currency in order to repatriate profits or other earnings.

As a member of a regional currency union (WAEMU), Burkina Faso does not engage in currency manipulation.

Burkina Faso is a member of the Intergovernmental Action Group against Money Laundering in West Africa (GIABA), a FATF-style regional body.

Sovereign Wealth Funds

Burkina Faso does not have a sovereign wealth fund.

7. State-Owned Enterprises

Privatization Program

GoBF announcements for privatization bids are widely distributed, targeting both local and foreign investors.  Bids are published in local papers, international magazines, mailed to different diplomatic missions, e-mailed to interested foreign investors, and published on the Internet on sites such as http://www.dgmarket.com .

9. Corruption

Transparency International’s 2019 Corruption Perceptions Index indicates that Burkina Faso ranks 85 out of 180 countries.  The State Supreme Audit Authority (ASCE-LC) is the leading government anti-corruption body that publishes an annual report documenting financial irregularities, embezzlement, and improper use of public funds in various ministries, government agencies, and state-run companies.  In 2018, the ASCE-LC opened at least two high profile corruption investigations against the Ministers of Defense and Infrastructure, still under review. The Burkinabe government continues to grant access within its own ministries to the non-governmental watchdog National Network to Fight against Corruption (REN-LAC) that examines the management of private and public-sector entities and publishes annual reports on corruption levels within the country.

Legislation requires government officials, including the president, lawmakers, ministers, ambassadors, members of the military leadership, judges, and anyone charged with managing state funds, to declare their assets as well as any gifts or donations received while in office.  Infractions are punishable by a maximum jail term of 20 years and fines of up to USD 41,670. In May 2020, former Minister of Defense, Jean-Claude Bouda, was arrested on “money laundering” and “illicit enrichment” charges following a complaint by the National Anti-Corruption Network.  On June 18, State Prosecutor Harouna Yoda announced that the Deputy Director General of Customs, William Alassane Kaboré, was placed under “judicial control,” for acts of illicit enrichment and money laundering amounting to 1.3 billion CFA (USD 2.2 million).  Additionally, investigations are underway on the mayor of Ouagadougou and some magistrates who allegedly tried to bury this case.

According to public perception, civil servants who most commonly engage in corruption include customs officials, members of the police force and gendarmerie, justice officials, healthcare workers, educators, tax collectors, and civil servants working in government procurement.

One of the main governmental bodies for fighting official corruption is the Superior Authority of State Control (ASCE), an entity under the authority of the Prime Minister.  ASCE has the authority to investigate ethics violations and mismanagement of public funds in the public sector, including state civil service employees, local and public authorities, state-owned companies, and all national organizations involved with public service missions.  ASCE publishes an annual report of activities, which provides details on its investigations and issues recommendations on how to resolve them.  Many of its findings are followed by judicial action.

The Autorité de Régulation de la Commande Publique (ARCOP), established in July 2008, is the regulatory oversight body that ensures fairness in the procurement process by monitoring the execution of all government contracts.  ARCOP may impose sanctions, initiate lawsuits, and publish the names of fraudulent or delinquent businesses.  It also educates communities benefiting from public investment monies to take a more active part in monitoring contractors.  ARCOP works with the media to strengthen journalists’ capacity to investigate suspected fraud cases.  Since 2012, the media has noticeably increased its coverage of high-profile corruption cases.

The Reseau National de Lutte Contre la Corruption (REN-LAC) publishes an annual report on the state of corruption in the country, and has established a wide range of anti-corruption initiatives and tools.  REN-LAC has a 24-hour hotline that allows it to gather information on alleged corrupt practices anonymously reported by citizens. African Parliamentarians’ Network against Corruption also has a local chapter in Burkina Faso and cooperates with REN-LAC.

As a member of the West African Economic and Monetary Union (WAEMU), Burkina Faso has agreed to enforce a regional law against money laundering and has issued a national law against money laundering and financial crimes.

Burkina Faso has taken steps to fully adopt regional and international anti-corruption frameworks, and the country ratified the UN Convention against Corruption in October 2006.

However, the World Bank rating for control of corruption for Burkina Faso has declined since 2003 from the 56th percentile to the 33rd percentile.  This means that while Burkina Faso was once rated much more favorably than its regional peers for limiting corruption, it is now close to the average for sub-Saharan African countries.

Resources to Report Corruption

REN-LAC hotline: (+226) 8000 1122

Or contact:

Sagado NACANABO
Executive Secretary
REN-LAC
Telephone: +226 25 36 32 15

Luc Marius Ibriga
Contrôleur Général d’Etat
Autorité Supérieure de Contrôle d’Etat et de la Lutte contre la Corruption (ASCE-LC)
Telephone: +226 25 30 10 91 or +226 25 33 60 39

10. Political and Security Environment

Violent extremist elements remain active in Burkina Faso and throughout the region. They have specifically targeted Westerners in attacks and kidnappings. Terrorists may conduct attacks anywhere with no warning. Targets include hotels, restaurants, police stations, customs offices, military posts, and schools. There have been over 550 terrorist incidents in Burkina Faso since 2015, including ambushes of security forces and improvised explosive device (IED) attacks. VEOS have also targeted civilians and worshippers including Christians and Muslims. In addition to attacking police stations, customs offices, military posts, and schools, extremists have attacked Ouagadougou three times since January 2016.  On March 2, 2018, extremists attacked the French Embassy and Burkina Faso’s military headquarters in downtown Ouagadougou. Eight security force personnel, including soldiers and police officers, were killed, and over 80 others were injured. In August 2017, a small group of armed men attacked the Aziz Istanbul Café, a restaurant in downtown Ouagadougou, and killed approximately 19 people. Extremists attacked the Cappuccino café and Splendid Hotel in the heart of Ouagadougou’s downtown on January 15, 2016.  The Government of Burkina Faso has declared a state of emergency due to insecurity in parts of 6 out of 135 administrative regions.

Since 2015, 680 events including 261 battles, 81 riots, and 322 violent incidents against civilians  resulted in 2,772 fatalities, according to the Armed Conflict Location and Event Data project (Acled).  Some of these attacks target local and foreign companies, including attacks against security forces escorting convoys of mining company employees, as well as hijackings of company vehicles and kidnappings of company personnel.

In the past 13 months, Post has upgraded the public travel advisory three times to reflect deteriorating security in various regions of the country. Burkina Faso is rated as “Level 3: Reconsider Travel” with areas of “Level 4: Do Not Travel”. The “Level 4” areas have increased from just a portion of the northern Sahel Region in early 2018, to include the Est Region (except Gnagna Province) in September 2018, and again in January 2019 to include all of the Est Region, Sahel Region, and portions of the Centre-Est Region and regions in western Burkina Faso bordering Mali.

11. Labor Policies and Practices

Burkinabe workers have a reputation as hardworking and dedicated employees.  There is a scarcity of skilled workers, mainly in management, engineering, and the electrical trades.  While unskilled labor is abundantly available in Burkina Faso, skilled labor resources are limited.  Construction, civil engineering, mining, and manufacturing industries employ the majority of the formal labor force.  According to the UNDP in 2018 11 percent of parliamentary seats were held by women, and six percent of adult women had reached at least a secondary level of education compared to 12.1 percent of their male counterparts. For every 100,000 live births, 371 women die from pregnancy related causes; the adolescent birth rate is 104.3 births per 1,000 women ages 15-19. Female participation in the labor market is 58.5 percent compared to 75.1 percent for men.

Burkinabe law allows workers, except for essential workers such as magistrates, police, military, and other security personnel, to form and join independent unions of their choice without previous authorization, and to bargain collectively.  The law provides for the right to strike, but also limits this right with pre-strike requirements or restrictions (including notice submission and government’s requisition power to secure minimum service in essential services).

Public servants are also entitled to engage in bargaining.  In recent months, a series of public sector unions have gone on strike to demand better living and working conditions.  However, increasing labor demands across multiple ministries have begun to put stress on an already strained public finance system, and have affected the tax collection processes.  Although President Kabore has announced the intention to present a global labor deal (as opposed to the piecemeal settlement of strikes in different sectors that has been the case until now), it is not clear that any progress is being made on this front. The Minister of Public Service has decided to put a new salary scale for more justice and fairness in the remuneration of civil servants.

It is the GoBF’s policy to increase employment opportunities for Burkinabe workers.  Therefore, in professions where there are too many registered and unemployed Burkinabe, a job-seeker card will not be issued to non-nationals.  When non-nationals are hired, the Director of Labor authorizes their employment contract.  According to the 1967 decree, statements must be made to the Regional Inspector of Work and Social Rules before the start-up of any new enterprise.

Burkina Faso has undertaken reforms of labor policy to make the labor market more flexible while ensuring workers’ rights, including workers’ safety and health.  To promote local employment, the government has established several financing instruments targeted at firms interested in obtaining start-up monies.  These instruments include Fonds National d’Appui à la Promotion de l’Emploi – FONAPE (Employment Promotion Support Fund), Fonds d’Appui au Secteur Informel – FASI (Informal Sector Support Fund), Fonds d’Appui aux Activités Génératrices de Revenus des Femmes – FAARF (Women’s Income Generating Activities Support Fund), Fonds d’Appui aux Initiatives des Jeunes – FAIJ (Youth Initiative Support Fund), and Fonds Burkinabe de Développement Economique et Social – FBDES (Burkinabe Fund for Social and Economic Development).

In the event of a reduction in personnel, the labor code requires the employer to first dismiss employees with the least training and seniority.  The employer must advise employees of termination at least 30 days in advance.  Workers terminated in a general workforce reduction have re-employment priority over other applicants for a two-year period.  Employees terminated for reasons other than theft or flagrant neglect of duty have the right to termination benefits.

To date, Burkina Faso has approved and ratified 43 conventions of the International Labor Organization, including conventions on Freedom of Association and the Right to Organize, Abolition of Forced Labor, and the Worst Forms of Child Labor.  Mainly the Ministry of Civil Service, Labor, and Social Security and a labor court enforce the labor code.  Unions are well organized, independent from the government, and defend employee interests in industrial disputes.  Workers know their rights and do not hesitate to seek redress of grievances.

Despite the government’s substantial efforts to reduce child labor in the past few years, 42 percent of children in Burkina Faso continue to engage in child labor, particularly in agriculture.  The worst forms of child labor take place in mining.  Cotton and gold are included on the U.S. government’s Executive Order 13126 List of Goods Produced by Forced and Indentured Child Labor.

The 1982 Commercial Sector Collective Agreement divides employees (laborers, artisans, and senior staff) into eight categories with minimum basic pay rates from 25,000 FCFA (about USD 45) per month.  Conditions for the employment of workers by enterprises are provided in Decree no. 98 of 1967.  An employer should ask job candidates for their job-seeker registration card issued by the Office of Employment Promotion, which is part of the Ministry of Civil Service, Labor, and Social Security

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 $15,746 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 2019 16.9% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
  
Table 3: Sources and Destination of FDI
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 3,322 100% Total Outward 143 100%
Canada 1,091 N/A Mali 33 N/A
Barbados 662 N/A Senegal 30t N/A
France 283 N/A Côte d’Ivoire 24t N/A
United Kingdom 250 N/A Togo 20 N/A
Mali 178 N/A Benin 18 N/A
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

Chad

Executive Summary

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

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

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

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

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

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

3. Legal Regime

Transparency of the Regulatory System

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

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

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

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

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

Chad is not listed on www.businessfacilitation.org .

International Regulatory Considerations

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

Legal System and Judicial Independence

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

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

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

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

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

Laws and Regulations on Foreign Direct Investment

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

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

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

Investor-State Dispute Settlement

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

Bankruptcy Regulations

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

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

4. Industrial Policies

Investment Incentives

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

Performance and Data Localization Requirements

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

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

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

5. Protection of Property Rights

Real Property

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

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

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

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

Intellectual Property Rights

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

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

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

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

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

6. Financial Sector

Capital Markets and Portfolio Investment

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

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

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

Money and Banking System

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

Remittance Policies

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

Chad does not engage in currency manipulation.

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

Sovereign Wealth Funds

The GOC does not currently maintain a Sovereign Wealth Fund.

7. State-Owned Enterprises

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

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

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

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

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

Privatization Program

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

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

Chad is considering privatization in the following sectors:

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

9. Corruption

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

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

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

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

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

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

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

Resources to Report Corruption

Government agency contact responsible for combating corruption:

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

Contact at watchdog organizations:

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

10. Political and Security Environment

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

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

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

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

11. Labor Policies and Practices

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

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

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

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

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

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) N/A N/A 2018 $11.273 World Bank data available at
https://data.worldbank.org/
country/chad
 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A N/A N/A BEA data available at
https://www.bea.gov/international/
di1usdbal
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2018 $1 BEA data available at
https://www.bea.gov/international/
di1fdibal
 
Total inbound stock of FDI as % host GDP N/A N/A 2018 55.9% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.

Egypt

Executive Summary

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

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

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

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

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

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

3. Legal Regime

Transparency of the Regulatory System

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

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

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

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

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

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

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

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

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

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

International Regulatory Considerations

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

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

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

Legal System and Judicial Independence

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

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

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

Laws and Regulations on Foreign Direct Investment

No specialized court exists for foreign investments.

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

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

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

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

Competition and Anti-Trust Laws

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

Expropriation and Compensation

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

Dispute Settlement

ICSID Convention and New York Convention

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

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

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

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

Investor-State Dispute Settlement

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

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

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

International Commercial Arbitration and Foreign Courts

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

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

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

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

Bankruptcy Regulations

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

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

4. Industrial Policies

Investment Incentives

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

General Incentives:

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

Special Incentive Programs:

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

Additional Incentive Program:

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

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

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

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

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

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

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

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

Foreign Trade Zones/Free Ports/Trade Facilitation

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

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

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

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

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

Performance and Data Localization Requirements

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

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

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

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

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

5. Protection of Property Rights

Real Property

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

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

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

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

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

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

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

Intellectual Property Rights

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

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

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

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

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

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

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

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

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

6. Financial Sector

Capital Markets and Portfolio Investment

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

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

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

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

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

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

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

Money and Banking System

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

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

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

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

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

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

Foreign Exchange and Remittances

Foreign Exchange

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

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

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

Remittance Policies

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

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

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

Sovereign Wealth Funds

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

7. State-Owned Enterprises

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

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

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

OECD Guidelines on Corporate Governance of SOEs 

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

Privatization Program

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

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

9. Corruption

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

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

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

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

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

Resources to Report Corruption

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

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

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

Resources to Report Corruption

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

10. Political and Security Environment

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

11. Labor Policies and Practices

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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

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

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

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

Gabon

Executive Summary

Gabon is a historically stable country located in a volatile region of the world and has significant economic advantages:  a small population (roughly 2 million), an abundance of natural resources, and a strategic location along the Gulf of Guinea.  After taking office in 2009, President Ali Bongo Ondimba introduced reforms to diversify Gabon’s economy away from oil and from traditional investment partners and to position Gabon as an emerging economy.  Gabon promotes foreign investment across a range of sectors, particularly in the oil and gas, infrastructure, timber, ecotourism, and mining sectors.  Despite these efforts, Gabon’s economy remains dependent on revenue generated by the exportation of hydrocarbons.  Gabon’s commercial ties with France remain very strong, but the government continues to seek to diversify its sources of investment by courting investors from the rest of the world.  In 2018, the Gabonese government lifted exit visa requirements for U.S. citizens.

Although Gabon is taking steps towards making the country a more attractive destination for foreign investment, it remains a difficult place to do business, especially without in-country or francophone experience.  Foreign firms are active in the country, particularly in the extractive industries, but the difficulty involved in establishing a new business and the time it takes to finalize deals are impediments to increased U.S. private sector investment.  In order to attract new investment into the country, Gabon adopted a new hydrocarbon code and a new Mining code in July, 2019. These laws will provide a modernized basis for the legal, institutional, technical, economic, customs and tax regimes of the Gabonese hydrocarbons and mining sector.

Corruption and lack of transparency remain an impediment to investment.   The Gabonese government inconsistently applies customs regulations. Economic conditions in Gabon weakened throughout 2017, 2018, and 2019.  In addition to budget constraints due to low oil prices, the government lacks fiscal transparency.  Many international companies, including U.S. firms, continue to have difficulties collecting timely payments from the Gabonese government, and some companies in the oil sector have closed down operations.  To address fiscal imbalances, Gabon signed in June of 2017 a three-year Extended Fund Facility arrangement of $642 million with the IMF, which has now expired.  While opportunities exist, the investment climate in Gabon will remain difficult as the government must have the political will to make prudent decisions.  In 2019, higher oil prices, new investments in the oil sector and export processing zones, and the increasing manganese production helped support a modest recovery of economic growth of about 2,8 percent (according to the IMF estimates).

Table 1
Measure Year Index/ Rank Website Address
TI Corruption Perceptions Index 2019 123 of 198 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2020 169 of 190 www.doingbusiness.org/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2019 USD
–172
https://apps.bea.gov/international/
factsheet/index.cfm
World Bank GNI per capita 2019 USD 7210 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

3. Legal Regime

Transparency of the Regulatory System

Government policies and laws often do not establish clear rules of the game, and foreign firms can have difficulty navigating the bureaucracy.  Despite reform efforts, hurdles and red tape remain, especially at the lower and mid-levels of the ministries.  Lack of transparency in administrative processes and lengthy bureaucratic delays occasionally raise questions for companies about fair treatment and the sanctity of contracts.

Rule-making and regulatory authority rests at the ministerial level.  There are no nongovernmental organizations or private sector associations that manage informal regulatory processes.  The government of Gabon has not exhibited any recent tendency to discriminate against U.S. investments, companies, or representatives.

The government does not publish proposed laws and regulations in draft form for public comment.  There are no centralized online locations where key regulatory actions, nor are their summaries published.  Key regulatory actions are published in the government’s printed Official Journal.  It is not uncommon for legislative proposals to be provided “off the record” to the press.

In 2015, Gabon implemented a recommendation from CEMAC to program its budget by objectives.  Despite improvements, Gabon still does not have a fully transparent budget. No new regulatory systems have been announced in the last year, and no new reforms have been implemented in the last year.  Regulations are developed by the relevant ministry concerned, and regulatory enforcement is controlled by individual ministries.  There are no instances of regulations being reviewed on the basis of scientific or data-driven assessments.

International Regulatory Considerations

Gabon is a member of CEMAC, along with Cameroon, the Central African Republic, the Republic of Congo, Equatorial Guinea, and Chad.  Gabon is also member of a larger economic community: The Economic Community of Central African States (ECCAS).  Headquartered in Gabon, ECCAS has 11 members: Gabon, Angola, Burundi, Cameroon, Central African Republic, Chad, the Republic of Congo, Democratic Republic of Congo, Equatorial Guinea, Rwanda, and São Tomé and Príncipe.  Both CEMAC and ECCAS work to promote economic cooperation among members.

Legal System and Judicial Independence

Gabon’s legal system is based on French Civil Law.  Regular courts handle commercial disputes in compliance with the Organization for Harmonization of Business Law in Africa (OHADA).  Courts do not apply the law consistently, and delays are frequent in the judicial system.  Lack of transparency in administrative processes and lengthy bureaucratic delays call into question the country’s commitment to fair treatment and the sanctity of contracts.  Judicial capacity is weak, and many government contacts underscore the need for specialized training in technical issues such as money laundering and environmental crimes.  Foreign court and international arbitration decisions are accepted, but enforcement may be difficult.

Gabon has a written code of commercial law.  Gabon is affiliated with OHADA and has been a WTO member since January 1, 1995.

The judicial system is not independent from the executive branch.  Gabon’s judicial bodies are subject to political influence, creating uncertainty concerning fair treatment and the sanctity of contracts.  Regulations or enforcement actions are appealable and are adjudicated in the national court system.

Laws and Regulations on Foreign Direct Investment

Gabon’s 1998 investment code, which gives foreign companies operating in Gabon the same rights as domestic firms, allows foreign investors to choose freely from a wide selection of legal business structures, such as a private limited liability company or public limited liability company.  The distinctions arise primarily from the minimum capital requirements and the conditions under which shares may be re-sold.  Foreign investment in Gabon is subject to local law that is in many instances unsettled or unclear, and in certain cases, Gabonese law may require local majority ownership of businesses.  The state reserves the right to invest in the equity capital of ventures established in certain sectors (e.g., petroleum and mining).  There are no known systemic practices by private firms to restrict foreign investment, participation, or control.

ANPI-Gabon’s website contains some information on investing in Gabon: https://www.investingabon.ga

Competition and Anti-Trust Laws

Gabonese Law No. 5/89 of July 6, 1989 on Competition covers all aspects of competition and anti-trust (http://www.wipo.int/wipolex/en/details.jsp?id=8814 ).  The relevant ministry for a given dispute reviews transactions for competition-related concerns.

Expropriation and Compensation

Foreign firms established in Gabon operate on an equal legal basis with national companies. Businesses are protected from expropriation or nationalization without appropriate compensation, as determined by an independent third party.  The Gabonese government has not exhibited a tendency to discriminate against U.S. investments, companies, or representatives, nor have there been any indications or reports of incidences of indirect expropriation, such as through confiscatory tax regimes.

Dispute Settlement

ICSID Convention and New York Convention

Gabon is a member state of the International Centre for the Settlement of Investment Disputes (ICSID) and a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).  The 1965 Code of Civil Procedure provides for various means of enforcement of judgments (both foreign and domestic), depending on the nature of the decree or decision.

Investor-State Dispute Settlement

Gabon does not have a BIT with the United States.  Post is aware of one investment dispute involving a U.S. company.

In 2018, there was one case of a foreign arbitral award issued against the government.  In March 2018, the Société d’Energie et d’Eau du Gabon (SEEG), a subsidiary of the Veolia Group, filed a request for conciliation against Gabon at the International Centre for the Settlement of Investment Disputes (ICSID).  Veolia and the Gabonese government signed an agreement to settle the case in February 2019.  Gabon agreed to buy Veolia’s 51 percent stake in SEEG and Veolia agreed to withdraw its arbitrage case once the agreement is finalized.

International Commercial Arbitration and Foreign Courts

No alternative dispute resolution options exist within Gabon.  Investment disputes are generally negotiated directly with the governmental entity involved.  There is no domestic arbitration body within the country.  Local courts recognize foreign arbitral awards, but enforcement may be difficult.

Post is not aware of any cases of state-owned enterprises (SOEs) being involved in investment disputes in the court system.

Bankruptcy Regulations

Gabon has a bankruptcy law, but it is not well developed.  In the World Bank’s Doing Business Report 2020 (http://documents.worldbank.org/curated/en/134861574860295761/pdf/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies-Economy-Profile-of-Gabon.pdf), Gabon ranks 130 out of 190 economies on the ease of resolving insolvency.

Gabon’s bankruptcy law is based on OHADA regulations.  According to Section 3: Art 234-239 of OHADA’s Uniform Insolvency Act, creditors and equity shareholders, collectively or individually, may designate trustees to lodge complaints or claims to the commercial court.  These laws criminalize bankruptcy, and the OHADA regulations grant Gabon the discretion to apply its own remedies.

4. Industrial Policies

Investment Incentives

Some of Gabon’s main industries (oil and gas, mining, and timber) enjoy investment preferences through customs and tax incentives.  For example, oil and mining companies are exempt from customs duties on imported working equipment.  The government has implemented a new tourism code passed in February 2019 that provides tax exemptions to foreign tourism investors during the first eight years of operation.

President Ali Bongo Ondimba outlawed the export of unprocessed wood in 2009 to boost Gabon’s value-added wood products and increase domestic consumption.  The government and Singaporean-based firm Olam partnered to set up the SEZ at Nkok to process timber, and later expanded the mandate of the SEZ to open it to a broader range of businesses.  The SEZ provides a single-window business service to participants and provides new investors with beneficial fiscal incentives, including tax-free operation for 25 years, no customs duties on imported machinery and parts, and 100 percent repatriation of funds.

Gabon’s agriculture code of 2008 gives tax and customs incentives to agricultural operators, with a particular focus on small and medium-sized enterprises.  Land used for agriculture and farm exploitation is exonerated from fiscal tax.  All imported fertilizers and food for ranch exploitation are additionally exempt from customs duties.

As a member of CEMAC, Gabon’s trade with other member countries (Cameroon, Central African Republic, Chad, Republic of Congo, and Equatorial Guinea) is subject to low or no customs duties.

Foreign Trade Zones/Free Ports/Trade Facilitation

Inaugurated in 2011, the special economic zone “SEZ” at Nkok is a public-private partnership between the government of Gabon and Arise, a recently formed company that plans to operate multiple similar industrial facilitation zones in the region based on expected success in Gabon  Singapore-based Olam completed the infrastructure phase for the Nkok SEZ, and multiple companies are actively operating there.  All SEZs offer tax and customs incentives to attract foreign investors.  In 2017, the Gabon Special Economic Zone (GSEZ) inaugurated the New Owendo International Port.  With a surface area of 18 hectares, the terminal has annual capacity of three million tons.  Gabon has plans to expand the number of SEZ facilities.

Performance and Data Localization Requirements

Employment and Investor Requirements

Firms are required to obtain authorization from the Ministry of Labor before hiring foreigners.  Foreign workers must obtain permits before working in Gabon, and the availability of a permit for a job depends on the availability of Gabonese nationals to fill the job in question.  The government may set quotas for the number of foreign workers.  When hiring workers, firms must give priority to Gabonese nationals.  If no Gabonese worker with the appropriate qualifications can be found, a firm is expected to hire a Gabonese to work along with the foreigner and, within a reasonable time, the Gabonese worker should replace that foreigner.  In late 2010, the Gabonese government agreed to National Organization of Petroleum Workers demands to limit foreign workers in the oil sector to 10 percent of a company’s workforce and to require that Gabonese occupy all executive posts.  Foreign firms maintain there is a lack of qualified Gabonese workers, requiring companies to often request authorization to hire foreigners.  Non-Gabonese Africans find it increasingly difficult to obtain employment authorization; non-African expatriates have less difficulty.  Chinese industry in Gabon historically imports its labor force and management.  However, these rules do not apply in Gabon’s SEZ at Nkok, a free trade zone, where investors can bring foreign workers.

Goods, Technology, and Data Treatment

There is no known policy requiring foreign investors to use domestic content.  There is no specific performance requirement imposed as a condition for establishing, maintaining, or expanding investment.  There are no performance requirements for investors, nor are there any requirements for foreign IT providers to turn over source code and/or provide access to encryption.  There are no measurements that prevent or unduly impede companies from freely transmitting customer or other business-related data outside the economy/country’s territory.  No mechanisms exist to enforce rules on local data storage.

Performance Requirements

There is no performance requirement imposed as a condition for establishing, maintaining, or expanding investment.  There is no requirement for investors to buy local products, to export a certain percentage of output, or to invest in a specific geographical area.  There is no blanket requirement that nationals own shares in foreign investments in Gabon or that the share of foreign equity be reduced over time, or that technology be transferred on certain terms.  Nonetheless, many investors find it useful to have a local partner who can help navigate the business environment.

5. Protection of Property Rights

Real Property

Secured interest in property is recognized, and the recording system is relatively reliable.

There are no specific regulations for foreign and/or non-resident investors regarding land lease or acquisition.  Laws in Gabon for private and commercial property do not provide any restrictions on nationality for the possession and ownership of property in Gabon.

Almost 85 percent of Gabon’s area (and possibly 95 percent or more) is legally owned by the state.  Only 14,000 private land titles appear to have been registered in Gabon according to a 2012 report; most refer to tiny urban parcels.  Urban areas constitute no more than one percent of total land area.  The government created the National Agency for Urban Planning, Surveys and the Land Registry in 2011.

If property legally purchased is unoccupied by the owner, property ownership can revert to others.

Intellectual Property Rights

As a member of CEMAC and ECCAS, Gabon adheres to the laws of the African Intellectual Property Office (OAPI).  Based in Yaoundé, Cameroon, OAPI aims to ensure the publication and protection of patent rights, encourage creativity and transfer of technology, and create favorable conditions for research.  As a member of OAPI, Gabon acceded to a number of international agreements on patents and intellectual property (IP), including the Paris Convention, the Berne Convention and the Convention Establishing the World Intellectual Property Organization (WIPO).  As a member of the WTO, Gabon is also a signatory of the Agreement on Trade-Related Aspects of Intellectual Property Rights.  U.S. companies have not raised IP rights (IPR) concerns with the Embassy.

During the past year, no IP related laws or regulations were enacted concerning IPR protection.  Gabon does not report on seizures of counterfeit goods.  Gabon is not in the United States Trade Representative (USTR) Special 301 Report.  Gabon is not listed in USTR’s Notorious Markets List.

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

Resources for Rights Holders

John McGuire
Economic Chief
U.S. Mission to Gabon and São Tomé & Príncipe
Tél: (241) 11.45.71.11
Librevilleeconomic@state.gov

For a list of local attorneys visit:  https://ga.usembassy.gov/u-s-citizen-services/attorneys/

6. Financial Sector

Capital Markets and Portfolio Investment

The Gabonese government encourages and supports foreign portfolio investment, but Gabon’s capital markets are poorly developed.  Gabon has been home to the Central Africa Regional Stock Exchange, which began operation in August 2008.  However, the Bank of Central African States consolidated the Libreville Stock Exchange into a single CEMAC zone stock exchange based in Douala, Cameroon in July 2019.

There are no existing policies that facilitate the free flow of financial resources into the product and factor markets.

On June 25, 1996, Gabon formally notified the IMF that they accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement. Article VIII, Sections 2 and 3 provides that members shall not impose or engage in certain measures, namely restrictions on making payments and transfers for current international transactions, discriminatory currency arrangements, or multiple currency practices, without the approval of the Fund.

Foreign investors are authorized to get credit on the local market and have access to all the variety of credits instruments offered by the local banks, without any restrictions.

Money and Banking System

The banking sector is composed of seven commercial banks and is open to foreign institutions.  It is highly concentrated, with three of the largest banks accounting for 77 percent of all loans and deposits.  The lack of diversified economy has constrained bank growth in the country, given that the financing of the oil sector is largely undertaken by foreign international banks.  Access to banking services outside major cities is limited.

The IMF December 2019 report indicated the banking system’s capital adequacy ratio increased to 15.1 percent at end-March 2019, well above the CEMAC regulatory requirement of 10.5 percent. Banks remained relatively liquid and profitable. However, the significant decline in oil revenues and the associated cash constraints, and weak PFM practices have contributed to a rapid increase in domestic arrears.  Gabon estimated the net deposit money of banks in the third quarter of 2018 at 435 billion CFA (USD 725 million).

Gabon shares a common Central Bank (Bank of Central African States) and a common currency, the Communauté Financière Africaine (CFA) Franc, with the other countries of CEMAC.  The CFA is pegged to the euro.

Foreign banks are allowed to establish operations in the country.  There is one U.S. bank (Citigroup) present in Gabon.  There are no restrictions on a foreigner’s ability to establish a bank account.

Gabon’s financial system is shallow and financial intermediation levels remain low compared to other developing countries.  The government plays an important role in the financial sector.  It controls two of the nine banks and has a stake in most of the others.  Domestic credit is limited and expensive in Gabon.  The microfinance sector is only just starting to emerge in the country with few regulated microfinance institutions (MFIs) registered, covering only a limited segment of the population.  However, a substantial number of informal, unregulated MFIs are believed to operate in the country.  Banks, even though highly liquid, are extremely prudent in providing credit.  The majority of the population lacks access to any type of financial services, as even traditional informal mechanisms, prevalent in other African economies, are scarce.  In efforts to increase access to finance, Gabon has recently supported the establishment of a development and growth fund to support small and medium enterprises, as well as the creation of a specialized agency to promote private investment.

Foreign Exchange and Remittances

Foreign Exchange Policies

The Bank of Central African States’ policy on foreign exchange requirements is in flux.  Major international companies have cited the foreign exchange regime, including currency localization requirements, as among the greatest risks to their investments.  Please contact the Embassy for additional information.

Gabon’s currency is CFA, which is convertible, subject to CEMAC restrictions, and tied to the Euro (EUR 1 equals CFA 656).  As of March 2020, 1 U.S. dollar is roughly equivalent to CFA 575 to 600.

Remittance Policies

There government recently changed investment remittance policies to tighten access to foreign exchange for investment remittances.  There is no time limitation on capital inflows or outflows.

Sovereign Wealth Funds

Gabon created a Sovereign Wealth Fund (SWF) in 2008.  Initially called the Fund for Future Generations (Fonds des Génerations Futures) and later the Sovereign Funds of the Gabonese Republic (Fonds Souverain de la République Gabonaise), the current iteration of Gabon’s SWF is referred to as Gabon’s Strategic Investment Funds (Fonds Gabonaise d’Investissements Stratégiques, or FGIS).  As of September 2013, the most recent FGIS report, the FGIS had a reported S2.4 billion in assets and was actively making investments.  The FGIS has the goals of allowing future generations to share income derived from the exploitation of Gabon’s natural resources, diversifying risk by investing surplus revenue, contributing to economic development, and encouraging investment in strategic sectors of Gabon’s economy.  Officially, 10 percent of Gabon’s annual oil revenues are dedicated to the sovereign wealth fund.  Details regarding the FGIS’ assets and investments are not publicly available.  Gabon’s sovereign wealth fund does not follow Santiago principles, nor does Gabon participate in the IMF-hosted International Working Group on SWFs.

7. State-Owned Enterprises

Government-appointed civil servants manage Gabonese state-owned enterprises (SOEs), which work primarily in energy, extractive industries, and public utilities.  SOEs generally follow OECD guidelines on corporate governance.  Corporate governance of SOEs usually consists of a board of directors under the authority of the related ministry.  Each ministry chooses the members of the board.  The ministry does not allocate board seats specifically to government officials and may choose members from the general public.  The SOEs often consult with their ministry before undertaking any important business decisions.  The corresponding ministry in each sector prepares and submits the budget of each SOE each year.  Independent auditors examine the activities of SOEs each year, conducting the audit according to international standards.  Auditors do not publish their reports, but rather, submit them to the relevant ministry. There is no published list of SOEs.

There are no specific laws or rules that offer preferential treatment to SOEs.  However, although private enterprises may compete with public enterprises under open market access conditions, SOEs often have a competitive advantage in the industries in which they operate.

9. Corruption

Gabon has established a legal framework to fight corruption, yet enforcement remains limited and official impunity is a problem.  Corruption is rarely, if ever, prosecuted in Gabon.  Transparency International lists Gabon rank is 123 of 180 countries (2019 Transparency International report).  The Gabonese Penal Code criminalizes abuse of office, embezzlement, passive and active bribery, trading in influence, extortion, offering or accepting gifts, and other undue advantages in the public sector.  Private sector corruption is criminalized whenever a given company is related to a public entity.  Punishments for public officials found guilty of soliciting or accepting bribes include prison sentences ranging from two to 10 years, and a fine of CFA five million (USD 8,572).

The government established the Commission to Combat Illicit Enrichment (CNLCEI) in 2004.  In summer 2018, the CNLCEI’s five-year mandate was not renewed.   The CNLCEI regulations do not extend to family members of civil servants or to political parties.

The Gabonese government launched an anti-corruption campaign in January 2017 called Operation Mamba.  The first conviction occurred in April 2018 but was overturned on appeal in April 2019.  Few details of the investigations have been made public.  In 2019, the anti-corruption campaign Operation Scorpion generated eight arrests of senior Gabonese administration officials, accused of “siphoning off public funds and money laundering” through the end of October 2019. On December 13, 2019, the former presidential Chief of Staff Brice Laccruche was arrested and sent to prison.  Pro-government newspaper L’Union reported in November 2019 that more than 85 billion CFA ($142 million) has “evaporated” over the past two years from the funds of the Gabon Oil Company (GOC). Under Gabonese law, embezzlement of public funds is punishable by up to 20 years’ imprisonment and a fine of up to 100 million CFA ($170,000).

There are no known laws or regulations to counter conflict of interest in awarding contracts or government procurement.  There is no information about action on the part of the government to encourage or require private companies to establish codes of conduct that prohibit bribery of public officials.  Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.

Gabon is a signatory to the United Nations Convention against Corruption and is a member of The Task Force on Money Laundering in Central Africa (Groupe d’action contre le blanchiment d’argent en Afrique Centrale, or GABAC).

No international or regional watchdog organizations operate in Gabon.  Local civil society lacks the capacity to play a significant role in highlighting cases of corruption.

Companies contend with a high risk of corruption when dealing with the Gabonese extractive industries.  Gabon has vast oil, manganese, and timber resources; however, contracting and licensing processes lack transparency.

Resources to Report Corruption

National Financial Investigations Agency
Tel: +241 0176 1773
Agence Nationale d’Investigation Financière
Immeuble Arambo, Boulevard Triomphal
BP:189
Libreville, Gabon
contact@anif.ga

10. Political and Security Environment

Violence related to politics is relatively rare in Gabon.  Elections, however, can lead to heightened tensions or erupt in violence.  The 2018 legislative and local elections took place without major incident.  Violence broke out on August 31, 2016, after the National Electoral Commission announced incumbent president Ali Bongo Ondimba defeated opponent Jean Ping in the August 27 presidential election by a margin of less than 2 percent of the vote.  Protestors took to the streets, attempting to burn the National Assembly building.  There were numerous arrests.  Nongovernmental organizations stated the government’s use of excessive force to disperse demonstrators resulted in approximately 20 deaths and over 1000 arrests; the opposition claimed at least 50 persons were killed.

Gabon’s reduced oil production, in addition to political tensions after the 2016 elections, fostered frustration and disappointment within the country.  In 2018, public and private sector strikes continued over unpaid salaries, benefits, and worsening work conditions.  The coalition of oil, mining, and energy sector unions announced a five-day strike across the country from January 23 January 27, 2020 because of the decision of the Gabonese government to review the Gabonese labor code.  The government met with striking unions representatives and was able to negotiate an agreement to end the strike after four days.

11. Labor Policies and Practices

Gabon’s population is approximately 2 million, and third country nationals (TCNs) represent one-third of the population.  Many young Gabonese are unable to acquire vocational skills and are thus excluded from the labor market.  A report in October 2018 indicated 60% of Gabonese under 30 are unemployed.  This is due to the low quality of the basic education system, insufficient output of technical and vocational training, and a lack of resources and effectiveness in the education sector.

Foreign firms report a shortage of highly skilled Gabonese labor.  Chinese industry, in particular, imports the majority of its workers from China.  Authorization from the Ministry of Labor is required in order to hire foreigners.  Reforms adopted in 2010 in the education and research system represent a step towards developing in-service training and encouraging public-private partnerships.  For example, the Petroleum and Gas Institute, located in Port-Gentil and supported by the Gabonese government and oil industry, has been training engineers specialized in oil-related technical areas since 2014.

Labor laws differentiate between layoffs and firing.  There is no unemployment insurance or other social safety net program for workers laid off for economic reasons.

Gabon’s Special Economic Zone is not subject to the same foreign labor restrictions as the rest of the country. 

Collective bargaining is common in Gabon.  Gabon’s French-inspired labor code recognizes the right of workers to form and join independent unions and bargain collectively, and prohibits anti- union discrimination, but the right to strike is limited or restricted.  Strikes may be called only after eight days’ advance notification and only after arbitration fails.  Public sector employees are not allowed to strike if public safety could be jeopardized.  The law does not define essential services sectors in which workers are prohibited from striking.  The Gabonese government strictly enforces the labor code’s mandatory retirement age of 65. Gabon started developing proposals for a new labor code in January 2020.  Despite the January strike, reforms are likely to be announced before the end of 2020 in part of the government’s plans to kick-start the economy after oil price stagnation.

Public and private sector strikes are frequent and disruptive.  From February-June 2018 Gabon court clerks  were on strike, limiting the functions of the justice system.  The civil servants in the financial authorities initiated strikes several times in the past few years; these strikes slow customs processing and work done in the tax, custom, treasury, and hydrocarbons sectors.

Gabon has ratified most of the International Labor Organization (ILO) laws and conventions.  There are no gaps in compliance in law or practice with international labor standards that may pose a reputational risk to investors.

Gabon has no specific trade agreements with the United States that require the execution of U.S. labor laws.

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 $16,658 https://www.worldbank.org/
en/country/gabon
 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 – $172 BEA data available at
https://apps.bea.gov/international/
factsheet/index.cfm
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2019 N/A BEA data available at
https://apps.bea.gov/international/
factsheet/index.cfm
 
Total inbound stock of FDI as % host GDP 2015 6.8% 2018 5% UNCTAD data available at
https://unctadstat.unctad.org/
CountryProfile/GeneralProfile/en-GB/266/index.html
 

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

Table 4: Sources of Portfolio Investment
Data not available.

Iraq

Executive Summary

The Government of Iraq (GOI) continues to face reconstruction challenges after the defeat of the ISIS physical caliphate, an uneven security environment, an economy primarily dependent on oil revenues, and deep institutional corruption. Widespread street protests that began October 2019 led to the resignation of then Prime Minister Adil Abd al-Mahdi, amid calls for greater government accountability, improved government services, and more jobs. After two other PM-designates were unsuccessful, the Iraqi Council of Representatives approved Mustafa al-Kadhimi, his political platform, and some proposed cabinet ministers on May 7, 2020.

An uneven security environment, including the threat of resurgent extremist groups, remains an impediment to investment in many parts of the country. Other lingering effects of the fight against ISIS include major disruptions of key domestic and international trade routes and the destruction of economic infrastructure, especially in the ISIS-controlled territory in Mosul and parts of northern and western Iraq. Some militia groups that participated in the fight against ISIS remained deployed even after the completion of combat operations. Some militia also appear to be under only marginal government control and have been implicated in a range of criminal and extralegal activities, including extortion. However, the security situation varies throughout the country and is generally less problematic in the Iraqi Kurdistan Region (IKR).

Despite these challenges, the Iraqi market offers some potential for U.S. exporters. Iraq imports large volumes of agricultural commodities, machinery, consumer goods, and defense articles. While non-oil bilateral trade with the United States was just over USD1 billion in 2019, Iraq’s economy had an estimated GDP of USD200 billion.  Government contracts and tenders are the source of most commercial opportunities in Iraq in all sectors, including the significant oil and gas sectors, and have been financed almost entirely by oil revenues. Increasingly, the GOI has asked investors and sellers to provide financing options and allow for deferred payments. Although there has been slow progress in negotiating flare-gas-capture projects on associated gas-to-oil production and licensing the exploration of free gas fields, Iraq announced the release of a national gas plan in early 2020, which identified several long-term investment projects to modernize and increase the capacity of the country’s gas industry.

Investors in Iraq continue to face extreme challenges resolving issues with GOI entities, including procurement disputes, receiving timely payments, and winning public tenders. Difficulties with corruption, customs regulations, irregular and high tax liabilities, unclear visa and residency permit procedures, arbitrary application of e-regulations, lack of alternative dispute resolution mechanisms, electricity shortages, and lack of access to financing remain common complaints from companies operating in Iraq. Shifting and unevenly enforced regulations create additional burdens for investors. The GOI currently operates 192 state-owned enterprises (SOEs), a legacy from decades of statist economic policy.

Investors in the IKR face many of the same challenges as investors elsewhere in Iraq, but have a pro-business, visa-on-arrival option and traditionally more stable security situation. However, the region’s economy has struggled to recover from the 2014 ISIS offensive, the drop in oil prices, and the aftermath of the 2017 Kurdish independence referendum. Key factors in the IKR’s ability to attract business and investment interests include: stable oil prices, budget support to the Kurdistan Regional Government (KRG) from the central government, and agreements between the GOI and KRG on a unified customs system and the shipment of Kirkuk oil through the IKR pipeline to Turkey.

Numerous efforts to facilitate business climate improvements saw positive movement in the past year. Since November 2018, the U.S. Embassy Baghdad Trade and Investment Team has operated as a partner post of the U.S. Commercial Service, supported by its office at the U.S. Embassy Amman. As a result, the U.S. Embassy in Baghdad now offers eight fee-based services, including market reports, local partner matching, and trade missions.

The U.S. government and the GOI have revived the 2005 U.S.-Iraq Strategic Framework Agreement and the Trade and Investment Framework Agreement (TIFA), and held the second TIFA meeting in June 2019 with good success. The American Chamber of Commerce in Iraq, having relaunched in October 2015, provides a platform for commercial advocacy for the U.S. business community. Local businesses also are re-energizing an American Chamber of Commerce presence in the IKR.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 162 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 172 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 Not Ranked https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 2,216 https://apps.bea.gov/international/
factsheet/factsheet.cfm
World Bank GNI per capita 2019 5,740 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

3. Legal Regime

Transparency of the Regulatory System

Iraq’s overall regulatory environment remains opaque and the Investment Law does not establish a full legal framework governing investment. Corruption, unclear regulations, and bureaucratic bottlenecks are major challenges for companies that bid on public procurement contracts or seek to invest in major infrastructure projects. The KRG procurement reform measures, beginning in 2016, sought to address these problems, but with little result. Iraq’s commercial and civil laws generally fall short of international norms.

The absence of other investment laws, and the GOI’s failure to implement laws, creates ambiguity. One example is Iraq’s Legislative Action Plan for the Implementation of WTO Agreements, which is the legislative “road map” for Iraq’s eventual WTO accession. While the Council of Representatives passed a Competition Law and a Consumer Protection Law in 2010, the GOI has not established the legally-requisite Competition and Consumer Protection Commissions that would implement the reforms and oversight. Without these commissions, investors do not have recourse against unfair business practices such as bid rigging or abuse of a dominant position in the market.

The process of Iraqi government rulemaking can be opaque and lends itself to arbitrary application. To illustrate, while ministries must publish regulations imposing duties on citizens or private businesses in the official government gazette, internal ministerial regulations have no corresponding requirement. This loophole allows officials to create internal requirements or procedures with little or no oversight, which can result in additional burdens for investors and businesses. Furthermore, the lack of regulatory coordination between GOI ministries and national and provincial authorities can result in conflicting regulations, which makes it difficult to accurately interpret the regulatory environment. In addition, accounting and legal procedures are opaque, inconsistent, and generally do not meet international standards.

Draft bills, including investment laws, are not available for public comment. The promulgation of new regulations with little advance notice and requirements related to investment guarantees have also slowed projects.

The GOI encourages private sector associations but private sector associations are generally not influential, given the dominant role of SOEs in Iraq’s economy. In the IKR, private sector associations have some influence and many, such as the contractors’ union, are very active in advocacy with the KRG.

Iraq has limited transparency of its public finances or government held debt. Publicly available budgets did not include expenditures by ministry or revenues by source and type. The budget provided limited details regarding allocations to, and earnings from, SOEs. Financial statements for most SOEs were generally not publicly available. Limited information on debt obligations was available on the Central Bank and Ministry of Finance websites.

International Regulatory Considerations

Iraq is not a member of the WTO and is not a signatory to the Trade Facilitation Agreement.

Legal System and Judicial Independence

Iraq has a civil law system, although Iraqi commercial jurisprudence is relatively underdeveloped. Over decades of war and sanctions, Iraqi courts did not keep up with developments in international commercial transactions. Corruption and bureaucratic bottlenecks remain significant problems. As trade with foreign parties increases, Iraqi courts have seen a significant rise in complex commercial cases. Although contracts should be enforceable under Iraqi law, such enforcement remains a challenge due to unclear regulations, lack of decision-making authority, and rampant corruption.

Laws and Regulations on Foreign Direct Investment

Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983). Iraq formally joined the ICSID Convention on December 17, 2015, and on February 18, 2017, Iraq joined the Investor-State Dispute Settlement (ISDS) process agreement between investors and states.

Additional information can be found in “A Legal Guide to Investment in Iraq” http://cldp.doc.gov/programs/cldp-in-action/details/1551 .

Competition and Anti-Trust Laws

The Council of Representatives (COR) passed a Competition Law and a Consumer Protection Law in 2010. However, the Iraqi government has yet to form the Competition and Consumer Protection Commissions authorized by these laws. The COR has also amended Iraqi law several times to promote fair competition and “competitive capacities” in the local market (2010, 2015).

The Council of Ministers has also issued many recommendations regarding the amendments of investment licenses and to improve the investment and businesses environment in Iraq. The August 2019 Resolution 245 announced investment opportunities through the NIC.

The prominent role of SOEs in Iraq and corruption issues undermine the competitive landscape.

Expropriation and Compensation

The Iraqi Constitution prohibits expropriation, unless done for the purpose of public benefit and in return for just compensation. The Constitution stipulates that expropriation may be regulated by law, but the COR has not drafted specific legislation regarding expropriation. Article 9 of the Investment Law guarantees non-seizure or nationalization of any investment project that the provisions of this law cover, except in cases with a final judicial judgment. The law prohibits expropriation of an investment project, except in cases of public benefit and with fair compensation. Iraq’s Commercial Court is charged with resolving expropriation cases. Over the past six years, there have not been any government actions or shifts in government policy that would indicate possible expropriations in the foreseeable future.

In the IKR, the BOI can impose fines and potentially confiscate land if it determines that investors are using land awarded under investment licenses for purposes other than those outlined in the license. The IKR investment law (Article 17) outlines an investor’s arbitration rights, which fall under the civil court system. Arbitration clauses should be written into local contracts in order to facilitate enforcement in the event of a dispute.

Dispute Settlement

ICSID Convention and New York Convention

Iraq is considering, but has not yet signed or ratified, the convention on Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) and the ad hoc arbitration rules and procedures that the UN Commission on International Trade Law has established (UNCITRAL Model Law). The enforcement of arbitral awards must comply with the special requirements set forth in current Iraqi civil procedure law and other related laws.

Investor-State Dispute Settlement

In November 2010, Iraq’s Higher Judicial Council established the First Commercial Court of Iraq — a court of specialized jurisdiction for disputes involving foreign investors — as part of a national strategy to improve Iraq’s investment climate. This court began hearing cases in January 2011. In 2017, a Higher Judicial Council survey of the 16 federal courts of appeals that heard Iraq’s commercial cases showed that 1,565 commercial cases had been filed and 83 percent of those cases had been completed. Given that all of Iraq’s ministries are located in the capital, and the vast majority of commercial cases involve a foreign party and an Iraqi government agency, the Baghdad Commercial Court reviews far more commercial cases than the general jurisdiction courts in the surrounding provinces. In 2017, 982 commercial cases were filed with Baghdad’s Commercial Court, representing 63 percent of the total commercial cases filed.

In the IKR, commercial disputes are handled through the civil court system.

Additional information can be found in “A Legal Guide to Investment in Iraq:”  http://cldp.doc.gov/programs/cldp-in-action/details/1551 

International Commercial Arbitration and Foreign Courts

Iraq is a signatory to the League of Arab States Convention on Commercial Arbitration (1987) and the Riyadh Convention on Judicial Cooperation (1983). Iraq formally joined the ICSID on December 17, 2015, and on February 18, 2017, Iraq joined the ISDS process agreement between investors and states.

Bankruptcy Regulations

Under Iraqi law, an Iraqi debtor may file for bankruptcy, and an Iraqi creditor may file for liquidation of the debtor. Bankruptcy is not criminalized. The Iraqi Companies Law regulates the process for the liquidation of legal entities. Nevertheless, the mechanism for resolving insolvency remains opaque. Iraq ranks 168 out of 190 countries in the category of Resolving Insolvency, according to the World Bank’s 2020 Doing Business Report.

4. Industrial Policies

Investment Incentives

The Iraqi Investment Law offers foreign investors several exemptions for qualified investments, including a ten-year exemption from taxes, exemptions from import duties for the necessary equipment and materials throughout the period of project implementation, and exemption from taxes and fees for primary materials imported for commercial operations. The exemption increases to 15 years if Iraqi investors own more than 50 percent of the project. The law allows investors to repatriate capital brought into Iraq, along with proceeds. Foreign investors are able to trade in shares and securities listed on the Iraqi Stock Exchange. Hotels, tourist institutions, hospitals, health institutions, schools, and colleges enjoy additional exemptions from duties and taxes for the import of furniture, tools, equipment, machinery, and means of transportation, but foreign companies that sell goods or services to any entity in Iraq may be subject to Iraqi taxes.

Foreign and domestic companies may have tax-exempt profits if their project is with the GOI and the project is listed in the National Investment Plan, which the Ministry of Planning prepares annually. The GOI ministries overseeing investment projects provide updates for the list of investment contracts to the Ministry of Finance, including its tax commission, the GCT. Foreign and domestic companies that have registered businesses in order to execute contracts outside the National Investment Plan do not receive tax exemptions. Companies have reported difficulties obtaining favorable tax treatment after deals are struck. However, in some cases, GOI entities have negotiated partial or short-term tax exemptions for companies as part of a project contract.

Income tax language is included in GOI petroleum contracts with the Ministry of Oil and applies to each consortium and its partners. The Council of Ministers ratified the contract language, which supersedes the Tax Code. Secondary contracts that a consortium issued are treated differently. The consortium is required to withhold 7 percent from secondary contracts for remittance to the GOI. Companies pay a profit tax of 15 percent unless they operate in the oil sector, which has a 35 percent tax profit rate. The definition of “petroleum activities” is subject to interpretation. Any business or individual considering doing business in Iraq should obtain competent advice from a private accountant and attorney.

Under the IKR’s investment law, foreign and national investors are treated equally and are eligible for the same benefits. Foreign investors may choose to invest in the IKR with or without local partners, and full repatriation of profits is allowed. While investors have the right to employ foreign employees in their projects, priority is given to awarding projects that employ a high share of local staff and involve significant knowledge transfer. Additionally, the law allows an investor to transfer his investment totally or partially to another foreign investor with the approval of the BOI.

Foreign Trade Zones/Free Ports/Trade Facilitation

Free Trade Zones (FZs) are permitted under Iraqi law per the Free Zone Authority Law No. 3/1998, for industrial, commercial, and service projects. The Free Zone Commission in the Ministry of Finance administers the law, but lacks a specific mandate to develop the FZs. Under the law, capital, profits, and investment income from projects in an FZ are exempt from all taxes and fees throughout the life of the project. Goods entering into Iraq’s market from FZs are subject to normal import tariffs; no duty is levied on exports from FZs.

Activities permitted in FZs include: industrial activities such as assembly, installation, sorting, and refilling processes; storage, re-export, and trading operations; service and storage projects and transport of all kinds; banking, insurance, and reinsurance activities; and supplementary and auxiliary professional and service activities. Prohibited activities include: weapons manufacture and environmentally-polluting industries.

Iraq currently has four FZs with tax exemptions and other incentives for the transportation, industrial, and logistics sectors. The largest is the Basrah/Khor al-Zubair FZ, comprising 18 square km and located southwest of Basrah at the Khor al-Zubair seaport. Operational since June 2004, it hosts a number of local and foreign companies. The Ninewa/Falafel Free Zone is located in the north. Plans to develop the FZ in Fallujah are ongoing. The Falafel and Fallujah zones are located in formerly ISIS-held areas, and the possibility of continued political instability makes further development in the near future unlikely. There is also an FZ in Baghdad. In May 2019, Iraq and Kuwait announced a new joint FZ project in Safwan port, pending approvals.

In the IKR, there are currently no FZs. The KRG has approved plans for zones in all IKR provinces.

Performance and Data Localization Requirements

Iraqi labor law describes two categories of workers: local Iraqis and foreign workers whom the GOI other Iraqi entities employ. The Investment Law stipulates that foreign workers may be hired for investment projects, after priority has been given to Iraqi workers. At least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that Iraq lacks skilled labor and it can be a challenge to meet this requirement. Foreign investors are expected to help train Iraqi employees to increase their efficiency, skills, and capabilities.

In the IKR, hiring locally is encouraged, but not mandated. Before applying for the residency permit required for legal employment, foreign workers must obtain a security clearance from the KRG Ministry of Interior, a medical clearance which includes an HIV test, and a work permit from the KRG Ministry of Labor and Social Affairs (MOLSA). Some foreign companies have reported prolonged delays in obtaining necessary residency permits for foreign workers. The appointment of foreign nationals as managers of foreign-owned limited liability companies requires additional clearances.

Foreign investors can apply for a visa at Iraqi embassies, or in some cases, through the NIC. In other cases, investors can apply for and receive visa approval letters from the Ministry of Interior, which grants visa upon arrival to one of Iraq’s airports. An Iraqi government entity must sponsor a foreign investor and provide him/her with an official invitation letter. Obtaining visas for foreign contractors regularly takes several months and allegations of corruption are commonplace. Business travelers are supposed to be granted a one-year, multiple-entry visa, although sometimes Iraqi embassies outside of the United States grant shorter visa duration to U.S. citizen applicants.

Once in Iraq, foreign investors and employees must obtain work permits, the process for which is often lengthy and unpredictable. There are frequent instances when work or business travel is delayed because foreign employees are unable to receive a visa.

U.S. citizens traveling to the IKR can obtain a visa upon arrival at the airport, valid for 30 days. This visa is not valid for travel in Iraq outside the IKR, as the GOI does not honor KRG-issued visas. U.S. citizens who plan to stay for longer than 30 days must extend their IKR visa or obtain a residency permit. The KRG does not require HIV tests if the travel is shorter than 15 days.

Additional information can be found on the U.S. Department of State’s website: www.travel.state.gov.

The GOI does not follow any forced localization policy in which foreign investors must use domestic content in their goods and technology. There are no requirements for IT providers to turn over source code and/or provide access to surveillance.

The GOI strongly resists offering ownership or profit sharing with any potential foreign investor. The GOI prefers to structure foreign investments as contracts by which it agrees to pay for services or equipment at a price that a clause in the annual budget law guarantees, as opposed to a price based on profits or returns. The KRG, in contrast, has employed “build-own-operate” project structures and production sharing contracts in its management of the energy, oil, and gas sectors.

5. Protection of Property Rights

Real Property

Since 2009, Iraqi law has allowed foreigners to own land and the amended Investment Law expressly provides foreigners the right to own land for the purpose of developing residential real estate projects. It also allows foreign investors to own land for industrial projects if they have an Iraqi partner. Additionally, foreign investors are permitted to rent or lease land for up to 50 years, with an option to renew. The GOI approved implementing regulations in 2010 that allow investors to obtain land for residential housing projects free of charge on the condition that land value is excluded from the sales price. The land registration can be revoked if the domestic or foreign investor does not carry out the obligations of their agreement.

For non-residential, commercial investment projects — including agriculture, services, tourism, commercial, and industrial projects — investors can lease government land. The terms and duration of these leases vary by project type and the result of negotiations between the parties. Land for non-residential projects will be leased free of initial down payment, and compensation will be either a percentage of pre-tax revenue or a specified percentage of the “rent allowance” for the land. These smaller percentages of the “rent allowance” rate, ranging from 1 percent to 25 percent, amount to significant rent reductions for leased land.

In the IKR, foreign land ownership is allowed under Law Number 4 (2006). The BOI initially awarded more than half of all investment licenses to housing projects, but that percentage has declined in favor of priority sector development areas of agriculture, industry, and tourism. Delays in the transfer of land title have sometimes slowed projects.

Mortgages and liens exist in Iraq, and there is a national record system. However, mortgages are not common. Iraq ranks 121 out of 190 countries in the World Bank’s “registering property” index of its 2020 Doing Business report.

Intellectual Property Rights

Legal structures that protect intellectual property (IP) rights in Iraq are inadequate and infringements are common. Counterfeit products are widespread in the Iraqi marketplace, including pharmaceutical drugs. According to a 2018 study by the Business Software Alliance on self-reported piracy, 85 percent of Iraq’s software was unlicensed in 2017, consistent with the levels found in each survey since 2009. During the past year, the COR has not enacted any new IP-related laws or regulations. The GOI attempts to track seizures of counterfeit medicines. Reporting is inconsistent.

The GOI’s ability to enforce IP protections remains weak and spread across several ministries. The Ministry of Culture handles copyrights, and the Ministry of Industry and Minerals houses the office that registers trademarks. The Central Organization for Standardization and Quality Control, an agency under the Ministry of Planning, handles the patent registry and the industrial design registry. The Ministry of Planning’s patent registry office has occasionally included Arab League Israel Boycott questionnaires in the patent registry application, which U.S. companies are not allowed to complete under U.S. law. IP infringement cases are primarily heard in commercial courts, although on a relatively infrequently basis cases may be transferred to the criminal courts.

A draft IP law, which would comply with the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and consolidate all IP responsibilities into a single body, has been redrafted several times but has not progressed in the COR.

In 2018, the Council of Ministers Secretariat reviewed IP forms and processes for simplification. As a result, the patent application is now based on World Intellectual Property Organization (WIPO) standards. However, the application processes for all classes of IP protection favor domestic applicants through requirements for local Iraqi-national agents and optional, but advantageous, in-person review committee meetings.

Iraq is a signatory to several international intellectual property conventions and to regional and bilateral arrangements, which include: 1) the Paris Convention for the Protection of Industrial Property (1967 Act), ratified by Law No. 212 of 1975; 2) the WIPO Convention, ratified by Law No. 212 of 1975 (Iraq became a member of the WIPO in January 1976); 3) the Arab Agreement for the Protection of Copyrights, ratified by Law No. 41 of 1985; and 4) the Arab Intellectual Property Rights Treaty (Law No. 41 of 1985).

Iraq is not listed in USTR’s Special 301 report or notorious market report.

A copy of a public list of local lawyers can be obtained by emailing BaghdadACS@state.gov. The American Chamber of Commerce in Iraq can be reached at: inquiries@amcham-iraq.org.

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

Iraq remains one of the most under-banked countries in the Middle East.  The Iraqi banking system includes 68 private banks and seven state-owned banks.  As of early 2020, 20 foreign banks have licensed branches in Iraq and several others have strategic investments in Iraqi banks.  The three largest banks in Iraq are Rafidain Bank, Rasheed Bank, and the Trade Bank of Iraq (TBI), which account for roughly 85 percent of Iraq’s banking sector assets.  Iraq’s economy remains primarily cash based, with many banks acting as little more than ATMs.  Rafidain and Rasheed offer standard banking products but primarily provide pension and government salary payments to individual Iraqis.

Credit is difficult to obtain and expensive.  Iraq ranks 186 out of 190 in terms of ease of getting credit in the World Bank’s 2020 Doing Business Report.  Although the volume of lending by privately-owned banks is growing, most privately-owned banks do more wire transfers and other fee-based exchange services than lending.  Businesses are largely self-financed or between individuals in private transactions.  State-owned banks mainly make financial transfers from the government to provincial authorities or individuals, rather than business loans.

The CBI introduced a small and medium enterprise lending program in 2015, in which 35 of the 48 private banks have participated.  In early 2020, it launched a real estate lending initiative, and an Islamic finance consolidation program.

The main purpose of TBI is to provide financial and related services to facilitate trade, particularly through letters of credit.  Although CBI granted private banks permission to issue letters of credit below USD50 million, TBI continues to process nearly all government letters of credit.

Money and Banking System

Although banking sector reform was a priority of Iraq’s IMF Stand-By Arrangement, the GOI has had only incremental success reforming its two largest state-owned banks, Rafidain and Rasheed.  Private banks are mostly active in currency exchanges and wire transfers.  CBI is Iraq’s central bank, headquartered in Baghdad, with branches in Basrah and Erbil.  CBI’s Erbil branch, and the IKR’s state-owned banking system, are now electronically linked to the CBI system.   The CBI now has full supervisory authority over the financial sector in the IKR, including the banks and non-bank financial institutions.

Foreign Exchange and Remittances

Foreign Exchange

The currency of Iraq is the dinar (IQD).  Iraqi authorities confirm that in practice, there are no restrictions on current and capital transactions involving currency exchange as long as valid documentation supports underlying transactions.  The Investment Law allows investors to repatriate capital brought into Iraq, along with proceeds.  Funds can be associated with any form of investment and freely converted into any world currency.  The Investment Law also allows investors to maintain accounts at banks licensed to operate in Iraq and transfer capital inside or outside of the country.

The GOI’s monetary policy since 2003 has focused on ensuring price stability primarily by maintaining a de facto peg between the IQD and the USD, while seeking exchange rate predictability by supplying U.S. dollars to the Iraqi market.  Banks may engage in spot transactions in any currency; however, they are not allowed to engage in forward transactions in Iraqi dinars for speculative purposes through auction but can do so through wire transfer.  There are no taxes or subsidies on purchases or sales of foreign exchange.

Remittance Policies

There are no recent changes to Iraq’s remittance policies.  Foreign nationals are allowed to remit their earnings, including U.S. dollars, in compliance with Iraqi law.  Iraq does not engage in currency manipulation.  Iraq is listed as a jurisdiction with strategic deficiencies according to the Financial Action Task Force.

Sovereign Wealth Funds

Iraq does not have a sovereign wealth fund.

7. State-Owned Enterprises

tableSOEs are active across all sectors in Iraq. GOI ministries currently own and operate over 192 SOEs, a legacy of the state planning system. The GOI’s continued support of unprofitable entities places a substantial fiscal burden on Iraq, as many SOEs are unproductive. These firms employ over half a million Iraqis, many of whom are underemployed. The degree to which SOEs compete with private companies varies by sector; SOEs face the most competition in the market for consumer goods. The GOI had expressed a commitment to reforming the SOEs and taking steps toward privatization as part of its previous international financing programs.

Iraqi law permits SOEs to partner with foreign companies. When parent ministries wish to initiate a partnership for an SOE under their purview, they generally advertise the tender on their ministry’s website. Partnerships are negotiated on a case-by-case basis, and require the respective minister’s approval. The Ministry of Industry and Minerals (MIM), which oversees the largest number of Iraq’s SOEs, established the following requirements for partnerships: minimum duration to three years, the foreign company must register a company office in Iraq, and the foreign company must participate in the production of goods. Foreign companies have faced challenges in partnerships because the GOI has, at times, cut subsidies to SOEs after partnerships were formed and due to conflicts between the parent ministry and the GOI’s official policy. In addition, the MIM has often required that the foreign investor pay all SOE employees’ salaries regardless of whether they are working on the agreed project.

GOI entities are required to give preferential treatment to SOEs, under multiple laws. A 2009 Council of Ministers’ decision requires all Iraqi government agencies to procure goods from SOEs unless SOEs cannot fulfill the quality and quantity requirements of the tender. A Board of Supreme Audit decision requires government agencies to award SOEs tenders if their bids are no more than 10 percent higher than other bids. Furthermore, some GOI entities, including the MIM, have also issued their own internal regulations requiring tenders to select Iraqi SOEs, unless Iraqi SOEs state that they cannot fulfill the order. Sometimes a foreign firm must form a partnership with an Iraqi firm to fulfill SOE-promulgated tenders. Further, SOEs are exempt from the bid bond and performance bond requirements that private businesses are subject to.

As a result of years of sanctions and war, most of these SOEs suffer from sclerotic management and dependence on GOI contracts. Many of them are not commercially viable due to bloated payrolls and obsolete equipment, although some have adapted and are producing goods for the domestic market. In 2015, the MIM developed a plan to restructure its 59 SOEs. Under the proposed plan, the MIM would rate SOEs based on their profitability and degree of government dependence. The government would then sell or shut down unprofitable SOEs that are unable to cover payroll obligations. However, no action to implement this plan has been undertaken. Another attempt at reform under the 2017 Federal General Budget Law would have expanded the potential role of private investment in SOE reform, giving governorates the mandate to expand partnerships with the private sector, with approval of the governorate’s council.

Iraq is not party to the Government Procurement Agreement within the framework of the WTO.

Iraqi law supports a degree of autonomy in the selection process of an SOE’s board of directors. For example, it requires that a minister’s sole appointment to a board of directors receive the approval of an “opinion board.” Nevertheless, in practice, the majority of board members have close personal and political connections to their parent ministry’s leadership.

SOEs do not adhere to OECD Guidelines. Iraq does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. SOEs are required to seek their parent ministry’s approval for certain categories of financial decisions and operation expansions. However, in practice, SOEs defer to the parent ministry for the vast majority of decisions. SOEs submit financial reports to their parent ministry’s audit departments and the Board of Supreme Audit. These reports are not published and sometimes exclude salary expenses.

Privatization Program

The GOI has repeatedly announced that it plans to reorganize failing SOEs across multiple sectors.  Additionally, the GOI is eager to modernize Iraq’s financial and banking institutions.  There are, however, no concrete timelines for these initiatives, and entrenched patronage networks tying SOEs to ministries remain a stumbling block.  Presumably, foreign investors would have an opportunity to invest in privatization projects.  The IMF Stand-By Arrangement had required the GOI to conduct an audit of state-owned banks and the World Bank’s Development Policy Loan had required Iraq to audit SOEs.

9. Corruption

Iraq ranked 162 out of 180 on Transparency International’s 2019 Corruption Perception Index. Public corruption is a major obstacle to economic development and political stability. Corruption is pervasive in government procurement, in the awarding of licenses or concessions, dispute settlement, and customs.

While large-scale investment opportunities exist in Iraq, corruption remains a significant impediment to conducting business, and foreign investors can expect to contend with corruption in many forms, at all levels. While the GOI has moved toward greater effectiveness in reducing opportunities for procurement corruption in sectors such as electricity, oil, and gas, credible reports of corruption in government procurement are widespread, with examples ranging from bribery and kickbacks to awards involving companies connected to political leaders. Investors may come under pressure to take on well-connected local partners to avoid systemic bureaucratic hurdles to doing business. Similarly, there are credible reports of corruption involving large-scale problems with government payrolls, ranging from “ghost” employees and salary skimming to nepotism and patronage in personnel decisions.

Moving goods into and out of the country continues to be difficult, and bribery of or extortion by port officials is commonplace; Iraq ranks 181 out of 190 countries in the category of “Trading Across Borders” in the World Bank’s 2020 Doing Business report.

U.S. firms frequently identify corruption as a significant obstacle to foreign direct investment, particularly in government contracts and procurement, as well as performance requirements and performance bonds.

Several institutions have specific mandates to address corruption in Iraq. The Commission of Integrity, initially established under the Coalition Provisional Authority (CPA), is an independent government agency responsible for pursuing anti-corruption investigations, upholding the enforcement of laws, and preventing crime. The COI investigates government corruption allegations and refers completed cases to the Iraqi judiciary. COI Law No. 30, passed in 2011, updated the CPA provisions by granting the COI broader responsibilities and jurisdiction through three newly created directorates: asset recovery, research and studies, and the Anti-Corruption Academy. On October 28, the COR abrogated CPA Order 57, which had established Inspectors General (IGs) for each of Iraq’s ministries. Similar to the role of IGs in the U.S. government, these offices had been responsible for inspections, audits, and investigations within their ministries, although detractors claimed they in fact added another layer of bureaucracy and corruption.

The Board of Supreme Audit, established in 1927, is an analogue to the U.S. government’s General Accountability Office. It is a financially and administratively independent body that derives its authority from Law 31 of 2011 — the Law of the Board of Supreme Audit. It is charged with fiscal and regulatory oversight of all publicly-funded bodies in Iraq and auditing all federal revenues, including any revenues received from the IKR.

None of these organizations have provided an effective check on public corruption.

Neither the Commission for Integrity nor the IGs has effective jurisdiction within the IKR. The Kurdistan Board of Supreme Audit is responsible for auditing regional revenues with IKP and GOI oversight. The IKP established a regional Commission of Integrity in late 2013 and increased its jurisdiction the next year to include other branches of the KRG and money laundering.

Iraq is a party but not a signatory to the UN Anticorruption Convention. Iraq is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

According to Iraqi law, any person or legal entity has the right to submit corruption-related complaints to the Commission for Integrity and the inspector general of a GOI ministry or body.

Commission for Integrity
Department of Complaints and Reports
Mobile: 07901988559
Landline: 07600000030
Hotline@nazaha.iq

10. Political and Security Environment

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

The Department of State maintains a Level Four Travel Advisory for Iraq and advises travelers not to travel to Iraq due to terrorism, kidnapping, and armed conflict.  U.S. government personnel in Iraq are required to live and work under strict security guidelines.  State Department guidance to U.S. businesses in Iraq advises the use of protective security details.  Detailed security information is available on the U.S. Embassy website: http://iraq.usembassy.gov/.  Some U.S. and third-country business people travel throughout much of Iraq; however, in general their movement is restricted and most travel with security advisors and protective security teams.

11. Labor Policies and Practices

Iraq continues to face high unemployment, a large informal sector, lack of satisfactory work standards, and a large unskilled labor force. Domestic and foreign investors often cite the lack of skilled Iraqi labor as one of the major impediments to investing in Iraq, as political instability and violence led many highly-educated Iraqis to leave the country in recent years. More than 1.7 million Iraqis remained displaced as of April, with most unable to find jobs or pursue livelihood activities to support their families.

Foreign investors tend to rely on foreign workers, although at least 50 percent of an investment project’s workers must be Iraqi nationals. International companies have noted that it can be a challenge to meet this requirement.

In the IKR, hiring locally is encouraged but not mandated. Foreign employees must obtain a security clearance and a work permit before applying for the residency permit required for legal employment. Some companies have reported prolonged delays in obtaining necessary residency permits for foreign workers.

The Iraqi Constitution states that citizens have the right to form and join unions and professional associations. Iraq is a party to both International Labor Organization conventions related to youth employment, including child labor. Iraqi labor laws also regulate working conditions and prohibit all forms of forced or compulsory labor, including by children. However, the GOI has not effectively monitored or enforced the law, which has resulted in unacceptable working conditions for many workers.

Iraqi’s labor law, revised in 2016, is more consistent with current international standards than previous laws and allows for collective bargaining, further limits child labor, and provides improved protections against discrimination at work. The law addresses sexual harassment at work and provides protection against it and enshrines the right to strike, which had been banned since 1987. The GOI no longer limits workers’ affiliation with more than one union or federation, and coverage has been expanded to include all workers not covered by Iraq’s civil service law. The IKR did not implement the new labor law and continues to operate under the 1987 statute.

MOLSA sets a minimum monthly wage for unskilled workers. The private sector sets wages by contract, and the GOI sets wages for those working in the public sector. The Council of Ministers last approved changes to the public sector pay scale in January 2015, reducing the pay gap between low- and high-ranking employees. In addition, all employers must provide some level of transport, accommodation, and food allowances for each employee, but the law does not fix these allowance amounts. In December 2013, the GOI launched a Social Safety Net program to assist the unemployed and persons with disabilities in gaining access to financial aid and benefits from the government; as of April 2018, MOLSA’s Directorate of People with Disabilities and Special Needs reported the program covers approximately 4 million individuals. 12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

The GOI collects and publishes limited statistics with which to compare international and U.S. investment data. The NIC and PICs granted 1067 licenses between 2008 and 2015 (latest statistics available) with a total potential value of USD53.9 billion. An investment license does not mean that the proposed investment will be implemented.

In the IKR, the Kurdistan BOI granted 51 licenses in 2018, with a total potential value of USD3.13 billion. Compared to 2017, the BOI granted licenses to 18 more projects, representing a capital increase of USD2.4 billion (340 percent). The granting of an investment license from the BOI does not mean that the proposed investment will be implemented. All of the licenses granted in 2018 were to national (i.e. Iraqi-owned) projects.

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 $224,228 2019 $234,094 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2016 $5,911.2(Central Bank of Iraq) 2018 $2,216 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 Data not available N/A Data not available BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP 2016 3.5% 2019 Data not available UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

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

Table 4: Sources of Portfolio Investment
Data not available.

Jordan

Executive Summary

Jordan is a Middle Eastern country centrally located on desert plateaus in southwest Asia and strategically positioned to serve as a regional business platform. Since King Abdullah II’s 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented, market-based, and globally competitive economy. Jordan is also uniquely poised as a platform to host investments focused on the reconstruction of Iraq and projects in regional markets.

Jordan’s economy grew by two percent in 2019, despite ongoing domestic and regional challenges. Jordan’s economic growth has been slowed for several years by series of exogenous shocks, starting with the Global Financial Crisis in 2008, followed by the Arab Spring in 2011 which resulted in interruptions of energy imports, the 2015 closure of Jordan’s borders with Iraq (reopened in August 2017) and Syria (partially re-opened in 2018), and an influx of Syrian refugees. By October 2019, foreign direct investment had dropped 29 percent from its level at the end of 2018 and 67 percent from 2017 levels.

During this same period, the government ran large annual budget deficits but has been able to reduce its near-term financing gap with loans, foreign assistance, and savings from economic reform measures enacted as part of an International Monetary Fund (IMF) Extended Fund Facility program that began in August 2016. On March 25, 2020, the IMF Board approved a USD 1.3 billion Extended Fund Facility program for Jordan centered on increasing economic growth, job creation, and transparency while and strengthening fiscal stability and social spending.

The COVID-19 outbreak poses a huge burden on the Jordanian economy. The IMF forecasts a 3.4 percent contraction in Jordan’s Gross Domestic Product (GDP) for 2020 as a result of the pandemic. The government of Jordan implemented a set of measures to contain the spread of the virus, which entailed a strict curfew and lockdown of schools, colleges and 75 percent of all economic activity. The IMF Mission Chief to Jordan commended the government’s measures to defeat the pandemic, stating “Jordan will reap from the tough measures the government put in place in the coming weeks and months.” The IMF approved Jordan to receive additional credit from the Rapid Financing Instrument, to help manage its fiscal obligations during the pandemic.

In parallel, Jordan introduced plans to mitigate the negative impact on the economy in the short and medium terms. The Central Bank of Jordan (CBJ) injected JD 1.5 billion (USD 2.1 billion) to reduce hardships in the banking system. It also lowered the lending rate and allowed borrowers to reschedule their loans until the end of 2020. The CBJ launched a JD 500 million (USD 706 million) loan guarantee program at competitive interest rates to help small and medium enterprises (SMEs) resume their operations and pay their operational costs. The government also announced measures to alleviate financial and operational burdens on businesses by postponing General Sales Tax (GST) payment and customs fees, reducing the cost of labor by exempting companies from paying social security retirement insurance for three months starting in March 2020, reducing energy costs for the industrial sector, and facilitating control procedures on incoming goods by reducing inspection rate of essential products, in addition to halting judicial procedures on defaulting individuals/companies.

In response to the COVID-19 crisis, the Prime Minister formed specialized, public-private sector teams focused on setting manufacturing priorities, balancing domestic needs with export obligations, outlining production plans, and developing an enabling environment to ensure sustainability, focusing on sectors that excelled during the crisis, and have great potential to expand. The sector-focused teams are: pharmaceutical manufacturing team; food manufacturing team; medical devices and sterilization manufacturing team.

International reports and metrics indicate that Jordan’s overall investment environment is improving. Jordan was selected as one of the top three most improved business climates in the World Bank’s “Doing Business Report 2020,” jumping 29 places from 104 to 75. Jordan advanced 33 points in the simplified tax services index for implementing an electronic filing and payment system for labor taxes. In ease of getting credit, Jordan ranked on par with the United States and Australia. In the World Economic Forum’s 2019 Global Competitiveness Report Jordan ranked 40, advancing six points in its domestic competition indicator. Jordan also ranks sixty-third on the 2018 Global Entrepreneurship Index, and twenty-ninth on the Global Innovation Index.

The Jordanian Investment Law grants equal treatment to local and foreign investors and grants incentives for local and foreign investment in industry, agriculture, tourism, hospitals, transportation, energy, and water distribution. In 2017, Jordan passed amendments to the Companies’ Law and a law to regulate and unify monitoring and inspection of economic activities. The government implemented additional reforms in 2018, including the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital bylaw, and a new Income Tax Law. In January 2020, The Jordan Investment Commission (JIC) implemented an investors grievances bylaw which enables investors to file complaints concerning decisions issued by government agencies.

In 2020, Jordan endorsed a new Public Private Partnership Law to support the government’s commitment to broadening the utilization of the public-private sectors partnership and encouraging the private sector to play a larger role in overall economic activity.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 60 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 75 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 86 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2019 USD 179 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 USD 4200 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

3. Legal Regime

Transparency of the Regulatory System

Legal, regulatory and accounting policies, applicable to both domestic and foreign investors, are transparent and promote competition. However, historically red tape and bureaucratic procedures, particularly at the local government level, presented problems for foreign and domestic investors.

The government is gradually implementing policies to improve competition and foster transparency in implementation. These reforms aim to change an existing system influenced in the past by family affiliations and business ties. The Jordan Investment Commission (JIC), through its Fast Track Investment Window, introduced a number of measures to streamline the investment process. All laws and regulations are usually published on the website of the Legislative and Opinion Bureau for public commenting, in addition to executive branch consultations, with the legislative branch and key stakeholders.

Most economic regulations are available on the Jordan Investment Commission website (https://www.jic.gov.jo/ar/investment-regulations-2/ ), or on the Ministry of Industry and Trade and Supply website (https://www.mit.gov.jo/Default/AR). All regulations are published in the Official Gazette (http://pm.gov.jo/newspaper ) or the Legislative and Opinion Bureau (http://www.lob.jo/ ).

The commission issued and published a services and licensing guides outlining processes and fees, in addition to the incentives guide (https://www.jic.gov.jo/en/services-guide/ ). Guides are currently available in Arabic.

Jordan is committed to its fiscal transparency policy, therefore the Ministry of Finance (MoF) publishes a monthly “General Government Finance Bulletin” and that includes detailed information on government’s debt obligations. (www.mof.gov.jo/Portals/0/Mof_content/النشرات والبيانات المالية/نشرة مالية الحكومة/2016/Arabic PDF December 2016.pdf  ).

International Regulatory Considerations

Jordan recognizes and accepts most U.S. standards and specifications. However, Jordan has occasionally required additional product standards for imports. Some of these measures have been viewed as barriers to trade, such as a 2014 restriction imposed on packaging sizes for poultry available for retail resale.

As a member country of the WTO, Jordan is obliged to notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Jordan is a signatory of the WTO Trade Facilitation Agreement. As of March 2018, Jordan had implemented 81.5 percent of its commitments. Jordan submitted its notifications for Category A before the agreement came into force, and is currently in the final review for categories B and C.

Legal System and Judicial Independence

Jordan has a mixed legal system based on civil law, Sharia Law (Islamic Law), and customary law. The Constitution establishes the judiciary as one of three separate and independent branches of government. Jordanian commercial laws do not make a distinction between Jordanian and non-Jordanian investors. However, plaintiffs complain of judicial backlogs and subsequent delays in legal proceedings. Jordan has introduced economic judicial chambers, established under the Amman First Instance Court and Amman Appeal Court under the provisions of the Law of Formation of the amended Courts No. 30 of 2017. These chambers specialize in the adjudication of certain commercial and investment disputes mentioned in Article 4 of the Courts Formation Law.

Laws and Regulations on Foreign Direct Investment

Jordan’s Investment Law governs local and foreign investment. The law consolidated three entities – the Jordan Investment Board, the Jordanian Development Zones Commission, and the Free Zones Corporation – into the Jordan Investment Commission. The law incorporates a statement of investors’ rights and a legal framework for the newly established Investment Window, which is located at the Investment Commission’s headquarters.

The commission issued and published services and licensing guides outlining processes and fees, in addition to other guides ( https://www.jic.gov.jo/en/publications/ ). The commission also issued a new bylaw that regulates non-Jordanian investments to increase investors’ confidence and attract more foreign investment.

In September 2017, Parliament passed the Monitoring and Inspection of Economic Activities Law No. 33/2017, and amendments to Jordan’s Companies Law No. 34/2017. This law governs the requirements to establish venture capital companies for the purpose of direct investment, or for creating funds, to contribute or invest in high-growth companies that are not listed in the stock market.

In 2018, Jordan passed the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital Bylaw, and the Income Tax Law, along with bylaws to ensure proper implementation.

In October 2019, Jordan published an amended Social Security Law stipulating temporary changes to the social security contributions of newly registered entities that meet specific conditions, with an aim to support new companies and startups. The government also issued the Investor Grievance Bylaw and established a special unit to follow up on investors cases. It is also offering 10-year “incentive stability guarantees” to new investors. In January 2020, Jordan passed a new Public Private Partnership (PPP) law, and established a PPP unit to identify and study investment opportunities.

There is no systematic or legal discrimination against foreign participation with respect to ownership and participation in Jordan’s major economic sectors other than the restrictions outlined in the governing regulations. In fact, many Jordanian businesses actively seek engagement with foreign partners as a way to increase their competitiveness and access to other international markets. The government’s efforts have made Jordan’s official investment climate welcoming; however, some U.S. investors have reported hidden costs, citing bureaucratic red tape, vague regulations, and conflicting jurisdictions.

For further details please contact:

Investment Window
Jordan Investment Commission
Telephone: +962 (6) 5608400/9 Ext: 120
P.O.Box 893
Amman 11821 Jordan
E-mail: info@jic.gov.jo

Competition and Anti-Trust Laws

The Jordanian parliament passed amendments to Competition Law No. 33/2004 in 2011 to strengthen the local economic environment and attract foreign investment by providing incentives to improve market competitiveness, protect small and medium enterprises from restrictive anticompetitive practices, and give consumers access to high quality products at competitive prices. The Competition Directorate at the Ministry of Industry, Trade, and Supply conducts market research, examines complaints, and reports violators to the judicial system.

The investor grievance unit established in 2019 at the Jordan Investment Commission can also look into unfair competition cases filed by investors.

Expropriation and Compensation

Article 11 of the Jordanian Constitution stipulates that expropriations are prohibited unless specifically deemed to be in the public interest. In cases of expropriation, the law mandates provision of fair compensation to the investor in convertible currency.

Dispute Settlement

ICSD and New York Conventions

Since 1972, Jordan has been a contracting state to the International Centre for Settlement of Investment Disputes (ICSID Convention). Only a small number of cases between foreign investors and the Jordanian government have been brought before ICSID tribunals. Jordan is also a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).

In January 2018, the Parliament passed amendments to Arbitration Law 2017, which aims to facilitate the use of arbitration as an alternative to dispute settlement procedures.

Investor-State Dispute Settlement

Under domestic law, foreign investors may seek third party arbitration as a means of settling disputes. Jordan abides by WTO dispute settlement mechanisms, and dispute settlement mechanisms under the U.S.-Jordan FTA are consistent with WTO commitments. Article IX of the United States-Jordan Bilateral Investment Treaty (BIT) establishes procedures for dispute settlements between Jordanians and U.S. persons.

Investment disputes are treated as any other commercial or civil dispute in the Jordanian judicial system. Investment agreements with the Jordanian government as a party generally contain a dispute resolution clause that would refer cases to arbitration in Jordan. On average, it takes three to four years for cases that go through the local court system to reach a verdict. Cases settled through arbitration take between 12 to 18 months. The main challenge regarding litigating cases is being able to conduct proper process of service upon all concerned parties. Another challenge is the lack of specialized investment and commercial courts, limiting judges’ capacity to adequately review cases.

Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.

International Commercial Arbitration and Foreign Courts

In March 2018, King Abdullah II approved Arbitration Law No. 16, amending the 2001 law. The amendment introduced changes to the procedural framework of arbitrators seated in Jordan, which can be traced in the UNCITRAL model law. The amended law gives more authority to the Arbitral Tribunal and limits the role of the Court of Appeal.

Rulings by U.S. courts or other international arbitration committees can be upheld through the filing of an Enforcement of Ruling motion in a Jordanian court.

Bankruptcy Regulations

The Commercial Code, Civil Code, and Companies Law collectively govern bankruptcy and insolvency proceedings. In December 2017, the cabinet endorsed a bankruptcy bylaw which stipulates procedures for optional and compulsory liquidation, along with the mechanism, liquidation plan, and required documentation and reporting. In 2018, Parliament passed the Insolvency Law, which allows individuals and companies to offset their financial position through a debt management plan. The law helps the insolvent entity to continue its economic activity, rather than directly resorting to bankruptcy, and regulates insolvency proceedings for foreign organizations according to international conventions ratified by Jordan.

Defaulting on loans or issuing checks without adequate available balances is a crime in Jordan and may subject the offender to imprisonment under Jordan’s penal system. While Jordan is reexamining these laws, prison terms for debtors remains a legal practice in Jordan. Investors should conduct thorough due diligence on potential partners and avail themselves of local legal counsel in order to understand best business practices in Jordan and conform with local laws. The U.S. Commercial Service office of the Embassy of the United States in Amman can assist American businesses in these endeavors.

4. Industrial Policies

Investment Incentives

Under Investment Law No. 30/2014, the Council of Ministers, upon the recommendation of the Investment Council, may offer investment incentives in accordance with the law and governing regulations for projects outside the Development and Free Zones. The Investment Council and Investment Commission can also offer certain exemptions for projects in the following sectors:

  1. Agriculture and livestock
  2. Hospitals and specialized medical centers
  3. Hotel and touristic facilities
  4. Tourism-related entertainment and recreation
  5. Contact and communication centers
  6. Scientific research centers and medical laboratories
  7. Technical and media production

Such incentives include customs exemptions, refunding of the general tax for production inputs, and no sales tax. JIC can provide investors with further information on these exemptions (https://www.jic.gov.jo/en/incentives-outside-the-dz-and-fz/ ). Automatic exemptions are also granted for specific services whether purchased locally or imported. The Income and Sales Tax Department will refund the general tax levied within 30 days from submitting a written request in accordance with the terms and conditions determined by the Regulations Governing Investment Incentives (Number 33 of 2015).

A number of non-automatic exemptions are granted for production requirements and fixed assets used in industrial or handicrafts activities. Such exemptions are subject to administrative procedures and approvals obtained from the Jordan Investment Commission Technical Committee and are governed by the previously referenced regulation.

Article 8-A of the 2014 Investment Law allows the cabinet to grant additional advantages, exemptions, or incentives to any economic activities in the Kingdom. Under this article, the cabinet granted additional incentives to the ICT, tourism, and transport sectors in 2016, as published in the Official Gazette.

Net profits generated from most exports were exempt from income tax until December 2018. The new Income Tax Law No. 38 (2018) imposed taxes on income generated from exports, in accordance with WTO agreements.

In October 2019, the government announced an economic stimulus package granting direct incentives to investors in industrial and commercial sectors, offering cash incentives for companies that replace foreign laborer with Jordanian staff, and covering health insurance for employees and their families.

Foreign Trade Zones/Free Ports/Trade Facilitation

The country is divided into three development areas: Zones A, B, and C. Investments in Zone C, the least developed areas of Jordan, receive the highest level of incentives while those in Zone A receive the lowest level. All agricultural, maritime, transport and railway investments are classified as Zone C, irrespective of location. Hotel and tourism-related projects along the Dead Sea, leisure and recreational compounds, and convention and exhibition centers receive Zone A designations. Qualifying Industrial Zones (QIZs) are zoned according to their geographical location unless granted an exemption. The three-zone classification scheme does not apply to nature reserves and environmental protection areas.

Jordan’s 2014 investment law merged the Development and Free Zones Commission (DFZC) into the newly formed Jordan Investment Commission, an independent governmental body responsible for creating, regulating, and monitoring Jordan’s free trade zones, industrial estates, and development zones. The development areas are the King Hussein Bin Talal Development Area (KHBTDA) in Mafraq, the Ma’an Development Area, the Irbid Development Area (IDA), the Dead Sea Development Zone, the Jabal Ajloun Development Zone, and the King Hussein Business Park Development Zone. The Investment Law assigns the Jordan Industrial Estates Corporation (JIEC) and the Development and Free Zones Corporation (DFZC) as main developers of industrial estates and development and free zones, under the supervision of the Investment Commission.

As part of Jordan’s efforts to foster economic development and enhance its investment climate, the government has created four industrial estates in Amman, Irbid, Karak, and Aqaba, in addition to several privately-run industrial parks, including al-Mushatta, al-Tajamouat, al-Dulayl, Cyber City, al-Qastal, Jordan Gateway, and al-Hallabat. These estates provide basic infrastructure for a wide variety of manufacturing activities, reducing the cost of utilities and providing cost-effective land and buildings. Investors in the estates continue to receive incentives until their contracts expire, and receive various additional exemptions, such as a two-year exemption on income and social services taxes, complete exemptions from building and land taxes, and exemptions or reductions on most municipalities’ fees.

Besides the six public free zones in Zarqa, Sahab, Karak, Karama, Mowaqaar, and Queen Alia Airport, Jordan has over 37 designated private free zones administered by private companies under the DFZC’s supervision. The free zones are outside of the jurisdiction of Jordan Customs and provide a duty and tax-free environment for the storage of goods transiting Jordan.

Jordan has announced plans for new specialized development zones in a number of governorates including two solar parks in Ma’an and Ajloun, and four new industrial parks in Salt, Madaba, Tafileh, and Jarash.

Under Investment Law No. 30 of 2014, establishments operating within Development Zones are subject to a unified tax rate of 5 percent. However, Income Tax Law No. 38 of 2018 modifies the tax rates applicable to entities operating in the Development Zones depending on the source of the income; industrial activities with a local value-added of at least 30 percent are subject to 5 percent income tax rate, while other projects and activities are subject to 10 percent.

The Investment Law also grants entities registered in the Free Zones a tax exemption on ny activities conducted within the borders of the Free Zones, the export of goods and services outside the Kingdom, and associated transit trade. Profits earned on activities pertaining to the sale, disposal, or importation of goods and services within the borders of the Free Zones are subject to tax based on the normal income tax rates applicable to each entity, depending on its status (corporation or individual).

The Aqaba Special Economic Zone (ASEZ) is an independent economic zone not governed by the Investment Commission or the articles in the Investment Law governing investments in free zones or development zones. It offers special tax exemptions, a flat five percent income tax, and facilitates customs handling at Aqaba Port. In recent years, ASEZ has attracted projects, mainly in hotel and property development sectors, valued at over USD 8 billion. The government continues to implement development projects aimed at attracting commerce and tourism through the Port of Aqaba. The Aqaba New Port project, initiated in 2010, became operational November 2018, reaching design capacity in 2019. The new port, 20 km south of the previous port, added four new terminals and expanded general ship berthing and marine services, in addition to adding dedicated terminals for grain silos, liquefied natural gas, phosphates, and propane.

Investors, either foreign or domestic, face specific requirements in trade, services, and industrial projects in free zones. Industrial projects must be related to one of the following industries:

  • New industries that depend on advanced technology;
  • Industries that require locally available raw material and/or locally manufactured parts;
  • Industries that complement domestic industries;
  • Industries that enhance labor skills and promote technical know-how; or,
  • Industries that provide consumer goods and that contribute to reducing market dependency on imported goods.

For further details, please visit:

  • Jordan Investment Commission (http://www.jic.gov.jo/)
  • Jordan Industrial Estate Corporation (http://www.jiec.com)
  • Aqaba Special Economic Zone (http://www.aqabazone.com/)

Performance and Data Localization Requirements

Jordan has a well-educated and trained labor force of 2.5 million people, of which approximately 700,000 are registered foreign workers. Unregistered foreign workers may be nearly double this number. Most foreign laborers are employed in construction, agriculture, and domestic housekeeping sectors. Approximately 70,000 also work in the QIZs as textile workers.

The Ministry of Labor regulates foreign worker licensing, licensing fees, prohibited sectors, and employer liability. Along with the Ministry of Interior, the Ministry of Labor is responsible for approving the hiring of professional foreign workers by private businesses.

Official unemployment reached 20 percent at the end of 2019, leading the Ministry of Labor to announce new labor regulations aimed at creating jobs for Jordanian youth through the dismissal of foreign labor by 2024. New regulations stipulate increases in permit fees for non-Jordanians and closure of certain jobs to foreign employment altogether.

In February 2020, the government issued Industrial Sector Incentives Bylaw No. 18 granting incentives to industries that employ female Jordanian laborersg and whose finished products contain at least 30 percent local content.

Jordan does not have requirements for foreign IT providers to turn over source code or provide access to surveillance.

5. Protection of Property Rights

Real Property

The legal system reliably facilitates and protects the acquisition and disposition of property rights. Foreign ownership of land and assets is governed by The Leasing of Immovable Assets and Their Sale to Non-Jordanian and Judicial Persons Law No. 47/2006. Under Article 3 of the law, if the buyer’s country of residence has a reciprocal relationship with Jordan, foreign nationals are afforded the right of ownership of property within urban borders in Jordan for residential purposes. According to the law, foreign nationals may rent immovable assets for business or accommodation purposes, provided that the plot of land does not exceed 10 acres and the lease is for no more than three years in duration. Interest in real property is recognized and enforced once recorded in a legal registry.

A new Property law passed in 2019 aims to consolidate 13 laws governing property ownership in one legislation, and addresses issues such as zoning, and the facilitation of ownership and leases for foreign investors.

All land plots in Jordan are titled and registered with the Jordanian Land and Survey Department; any land not titled as private property is considered government property.

According the Ease of Doing Business report of 2020, Jordan ranked 78 out of 190 countries in “Registering Property.”

Intellectual Property Rights

Jordan has passed several laws in compliance with international commitments to protect intellectual property rights (IPR). Laws consistent with Trade Related Aspects of Intellectual Property Rights (TRIPS) now protect trade secrets, plant varieties, and semiconductor chip designs.

Copyrights are registered with The Ministry of Culture’s National Library Department, and patents are registered with the Registrar of Patents and Trademarks at the Ministry of Industry and Trade.

Jordan is a signatory to the Patent Cooperation Treaty and the Madrid Protocol and amended its patent and trademark laws in 2007 to enable ratification of the agreements. Jordan is a signatory to World Intellectual Property Organization (WIPO) treaties on both copyrights and on performances and phonograms, and it has been developing updated laws for copyrights, trademark standards, and customs regulations to meet international standards. Jordanian firms are able to seek joint ventures and licensing agreements with multinational partners.

In 2017, Jordan acceded to the Patent Cooperation Treaty (PCT); the treaty entered into force October 2017. The Ministry of Industry and Trade introduced an e-filing service in 2018 through https://ippd-eservice.mit.gov.jo/ .

Amendments to article 41 of Customs Law No. 33 of 2018 granted more time for legal agents to file trademark violation complaints. Jordan’s record on IPR enforcement has improved in recent years, but more effective enforcement mechanisms and legal procedures are still needed. In particular, a large portion of pirated videos and software remain in the marketplace. Enforcement action against audio/video and software piracy is more frequent and enforcement capability is improving. Since 2000, 6,229 violations of Jordan’s current copyright law have been referred to the judiciary, including 218 cases in 2018 and another 218 cases in 2019. In 2019, Customs also referred 40 counterfeiting cases for prosecution.

The U.S. Patent and Trademark Office has an Intellectual Property Attaché for the Middle East and North Africa region based in the U.S. Embassy in Kuwait City, Kuwait. Please see: https://www.uspto.gov/learning-and-resources/ip-policy/intellectual-property-rights-ipr-attach-program/ip-attach-kuwait  for contact information. Jordan is not listed in USTR’s Special 301 report, nor in the Notorious Markets report.

Jordan is not listed in USTR’s Special 301 report, nor in the Notorious Markets report.

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

There are three key capital market institutions: the Jordan Securities Commission (JSC), the Amman Stock Exchange (ASE), and the Securities Depository Center (SDC). The ASE launched an Internet Trading Service in 2010, providing an opportunity for investors to engage in securities trading independent of geographic location.

Jordan’s stock market is among the most open among its regional competitors, with no cap on foreign ownership. At the end of 2018, non-Jordanian ownership in companies listed on the ASE represented 51.6 percent of the total market value (35.8 percent Arab investors and 15.7 percent for non-Arab investors). Jordanian ownership in the financial sector was 56.5 percent, 18.3 percent in the services sector and 61.4 percent in the industrial sector. All investors, both foreign and domestic, are permitted to open margin accounts and to engage in short selling (commercial banks hold securities for their clients in a sub-account format).

In spite of recent reforms and technological advances, the ASE suffers from intermittent liquidity problems and low trading activity. The financial market peaked in 2007-2008, with average trading volumes topping USD 118 million per day. Following the global economic downturn, the market declined precipitously, with market capitalization falling from USD 41 billion in 2007 to USD 21 billion as of Dec 31, 2019.

By the end of 2019, the ASE price index had dropped 1815.2 points (4.9 percent) over the same period in 2018, while trading volume declined 31.6 percent, only totaling USD 2.3 billion.

In 2019, the total net profits of listed companies increased to USD 1.3 billion (according to preliminary financial statements provided to the ASE), a slight increase of 0.3 percent over 2018.

Money and Banking System

Jordan has 25 banks, including commercial banks, Islamic banks, and foreign bank branches (Jordan does not distinguish between investment banks and commercial banks.) Banks continue to be profitable and well capitalized with deposits being the primary funding base, and indicators remain strong largely due to strict regulations on lending, particularly mortgage lending. Liquidity ratios and provisioning remain high, while non-performing loan ratios modestly decreased over the past couple of years. Jordan’s rate of non-performing loans, as a percentage of all bank loans, was 4.2 percent in 2017, and reached 4.6 percent in the first half of 2018.

Banking law No. 28 of 2000 does not discriminate between local and foreign banks, however capital requirements differ. The minimum capital requirements for foreign banks are JD 50 million (USD 70.6 million), and JD 100 million (USD 141 million) for local banks. The law also protects depositors’ interests, diminishes money market risk, guards against the concentration of lending, and includes articles on electronic banking practices and anti-money laundering. The CBJ set up an independent Deposit Insurance Corporation (DIC) in 2000 that insures deposits up to JOD 50,000 (USD 71,000). The DIC also acts as the liquidator of banks as directed by the CBJ.

In January 2017, the CBJ established the “Jordan Payments and Clearing Company,” with an aim to establish and develop digital retail and micro payments along with the investment in innovative technology and digital financial services.

There is no legal impediment to applying block-chain technologies in banking transactions. TheCentral Bank actively supports the technology and is running two pilot projects deploying block- chain technologies: the Mobile Payment System (JoMoPay), and another for the verification of bank documents.

Foreign Exchange and Remittances

Foreign Exchange

The Central Bank of Jordan (CBJ) supervises and licenses all currency exchange businesses. These entities are exempt from paying commissions on exchange transactions and therefore enjoy a competitive edge over banks.

The Jordanian Dinar (JD or JOD) is fully convertible for all commercial and capital transactions. Since 1995, the JD has been pegged to the U.S. dollar at an exchange rate of JD 1 to USD 1.41.

Other notable foreign exchange regulations include:

  • Non-residents are allowed to open bank accounts in foreign currencies. These accounts are exempted from all transfer-related commission fees charged by the CBJ.
  • Banks are permitted to purchase unlimited amounts of foreign currency from their clients in exchange for JODs on a forward basis. Banks are permitted to sell foreign currencies in exchange for JODs on a forward basis for the purpose of covering the value of imports.
  • There is no restriction on the amount of foreign currency that residents may hold in bank accounts, and there is no ceiling on the amount residents may transfer abroad. Banks do not require prior CBJ approval for a transfer of funds, including investment-related transfers.

Jordanian law entitles foreigners to remit abroad all returns, profits, and proceeds arising from the liquidation of investment projects. Non-Jordanian workers are permitted to transfer their salaries and compensation abroad.

Remittance Policies

Jordanian law entitles foreigners to remit abroad all returns, profits, and proceeds arising from the liquidation of investment projects. Non-Jordanian workers are permitted to transfer their salaries and compensation abroad.

Sovereign Wealth Funds

Jordan does not have a sovereign wealth fund.

7. State-Owned Enterprises

A number of state-owned enterprises (SOEs) exist in Jordan. Seventeen SOEs of different sizes and mandates are fully owned by the government, five of which were established in 2016 and are not yet operational. Wholly-owned SOEs employ around 3,000 individuals, with assets exceeding USD 11 billion.

Most of the operational SOEs are small in terms of the size of operations, assets, number of employees, and income. The largest SOEs are: National Electrical Power Company (NEPCO), Samra Electric Power Company, the Yarmouk Water Company, and Aqaba Development Corporation (ADC).

Jordan’s economy is private sector led, accounting for 71 percent of GDP and 75 percent of net cumulative investment. SOEs in Jordan exercise delegated governmental powers and operating in fields that are not yet open for investment, such as managing the transmission and distribution of electrical power and water. Other activities include logistics, mining, storage and inventory management of strategic products, in addition to economic development activities. The government supports these companies as necessary, for example, the government has issued and guaranteed Treasury bonds for NEPCO since 2011 to ensure continuous power supply for the country.

SOEs generally compete on largely equal terms with private enterprises with respect to access to markets, credit, and other business operations. The law does not provide preferential treatment to SOEs, and they are held accountable by their Board of Directors, typically chaired by the sector-relevant Minister and the Audit Bureau.

The government, enterprises and NGOs are progressively taking initiatives to incorporate Responsible Business Conduct into their practices.

Jordan is not a party to the Government Procurement Agreement.

Privatization Program

Over the last fifteen years, the Jordanian government has engaged in a wide-scale privatization program, including in the telecom, energy, and transportation sectors. The few remaining government assets not privatized, including Jordan Silos and Supply Company, have elicited little private sector interest.

In 2020, Jordan published a new Public Private Partnership Law to support the government’s commitment to broadening the utilization of public-private sector partnerships (PPPs) and encouraging the private sector to play a larger role in the economy. The law does not limit PPPs to certain sectors, or nationalities. A PPP unit housed at the Prime Ministry supports the government in identifying and prioritizing projects and their implementation. The unit has already identified a list of potential PPP projects in several sectors; water, energy, transport, tourism, education, health, environment and information and communication technology.

9. Corruption

Jordan was the first Middle Eastern country to sign and ratify the United Nations Convention against Corruption (UNCAC) in 2005 and has initiated several reforms in similar spirit over the last two decades; including a code of conduct for the public sector in 2006. Furthermore, the government drafted an action plan to address corruption with Jordan’s National Integrity System (NIS), developed in 2012.

Jordanian Anti-Corruption law defines corruption as any act that violates official duties, all acts related to favoritism and nepotism that could deprive others from their legitimate rights, economic crimes, and misuse of power. However, the use of family, business, and other personal connections to advance personal business interests is endemic and regarded by many Jordanians as part of the culture. In 2006, Parliament approved an Illicit Gains Law, which officially required public office holders and specified government officials to declare their assets. The 2018 amendments to the Illicit Gain Law expanded the employees subject to the financial disclosure requirement to include heads and members of ad hoc municipal councils, executive directors of municipalities and heads and members of governorate councils. The Law requires the prime minister, Cabinet members, and senior employees to provide financial disclosures for themselves, their spouses, and minor children.

In 2006, Parliament also enacted an Anti-Corruption Law that created the Anti-Corruption Commission (ACC) to investigate allegations of corruption. In 2016, the Integrity and Anti-Corruption Commission (“IACC”) came into force by Law No. 13/2016 (“IACC Law”). Two Authorities were merged into one, repealing the Bureau of Ombudsman Law No. 11 of 2008 and the Anti-Corruption Law No. 62/2006.

The IACC received 790 new investigation files on corruption in 2018, of which 173 cases were referred to the Public Prosecutor in the commission, 342 files were closed and archived because either corruption offenses were found and therefore no administrative action was required to correct / rectify the situation, and 275 files still are under investigation.

In 2018, the government issued the Code of Governance Practices of Policies and Legislative Instruments in Government Departments, to improve the predictability of legal and regulatory framework governing the business environment.

In July 2019, Parliament amended the IACC Law granting the IACC more authority to access asset disclosure filings. The amendment empowers the commission to request asset seizures, international travel bans, and suspension of officials under investigation for corruption. The amendment also increases the IACC’s administrative autonomy by enabling the commission to update its own regulations and protecting IACC board members and the chairperson from arbitrary dismissal.

The IACC opened 609 new investigations in 2019. The IACC referred 234 cases to the courts for prosecution, closed 316 for lack of evidence, and transferred three cases within the commission. Another 56 cases remained under investigation.

A new Audit Bureau Law was enacted in October 2018 to strengthen the Bureau performance, capacity and independence in line with INTOSAI standards.

Other related laws include the Penal/Criminal Code, Anti-Money Laundering Law, Right to Access Information Law, and the Economic Crimes Law.

Jordan is not a party to the OECD Convention on Combatting Bribery.

Resources to Report Corruption

H.E. Mohannad Hijazi
Chairman
Jordan Integrity and Anti-Corruption Commission (JIACC)
P.O. Box 5000, Amman, 11953, Jordan
+962 6 550 3150

Contact at “watchdog” organization:

Sawsan Gharaibeh
Director
+962 079 905 2555
swmkgf@gmail.com

And/ Or

Abeer Mdanat
Executive Director
Rasheed Coalition
P.O. Box 582662, Amman, 111585, Jordan
+962 5 585 2528
amdanat@rasheedti.org

10. Political and Security Environment

While politically motivated violence is rare in Jordan, the threat of terrorism remains high. Terrorist organizations, including the self-proclaimed Islamic State of Iraq and Syria (ISIS), its affiliates, and sympathizers, have successfully conducted attacks in Jordan and continue to plot assaults in the country. Jordan’s prominent role in the Defeat-ISIS Coalition and its shared borders with Iraq and Syria maintains potential for future terrorist incidents. Within the last year, Jordanian authorities have disrupted terrorist plots. Visitors should consult current State Department public announcements at www.travel.state.gov before traveling to Jordan.

Peaceful protests occur frequently but are usually limited to a few hundred (and often only a few dozen) participants. Most demonstrations focus on frustration with perceived economic inequality and corruption or on the Israeli-Palestinian conflict and the status of Jerusalem.

11. Labor Policies and Practices

According to the Department of Statistics annual report for 2018, the total population of Jordan is 10.5 million, of which 69 percent are Jordanians (7.3 million) and approximately 31 percent are non-Jordanians, including 1.3 million Syrian refugees. UNHCR has registered 655,435 Syrian refugees in Jordan.

Approximately 70 percent of the population is estimated to be under the age of 30. Literacy rates are 98.2 percent for men and 92.9 percent for women. Jordan has a generally well-educated labor force of about 2.6 million Jordanians. According to the Department of Statistics, official unemployment in 2019 reached 19 percent.

Certain types of work are restricted to Jordanians only. In 2019, the Ministry of Labor increased the number of closed professions from 11 to 28. However, employers may request the Ministry of Labor to review applications for foreign workers in restricted sectors if local expertise cannot be found; these requests have generally been approved. Local labor requirements in development and free zones vary based on the type of economic activity.

Labor unions serve primarily as intermediaries between workers and the Ministry of Labor (MOL) and may engage in collective bargaining on behalf of workers. The 17 recognized unions are all members of the General Federation of Jordanian Trade Unions. Estimates put union membership at less than 10 percent of the labor force. Additionally, there are 40 active professional associations, including many that have mandatory membership, in addition to 15 Independent Unions covering the rest of the professions and trades. According to official figures, about 30 percent of the total labor force, including government workers, belongs to either a union or a professional association. There is a labor mechanism in place for labor dispute resolution beginning with labor inspector mediation. If mediation fails, the Minister of Labor reviews the case, followed by the Conciliation Council, then finally by the Labor Court under the Magistrate and Penalty Court to resolve the case within seven days.

The labor law does not require employers to include retirement plans in employment packages. However, if the employer agreed to provide retirement benefits when the worker was contracted, the employer must fulfill that commitment. The law addresses layoffs, and requires ministerial notification and guarantee of legitimate and entitled benefits and severance, but also allows firing without prior notice on certain conditions. Companies with the appropriate justification may obtain permission from the Ministry of Labor (MOL) to reduce their staff as a result of business restructuring. The social security system provides up to six months of unemployment benefits.

In 2017, Jordan introduced amendments to the labor law regarding flexible work hours and the provision of daycare; the amendments were approved and published in the official gazette in May 2019. The amendments enhanced the work environment for employees, including a definition for flexible work hours, and provisions against gender wage discrimination. The law granted paternity leave for three days, tied the eligibility for daycare to the total number of employees’ children under the age of five (minimum 15 children from the age 0-4 years old), and exempts non-Jordanian children of Jordanian women from needing a work permit.

The amendments establish flexible work hour as agreements to be negotiated between employers and employees but does not mandate them as an employee right. The current law governing daycare requires a business with at least 20 female employees with children between the age of one day and four years, to make daycare services available to the employees. The proposed amendments will require employers with employees, regardless of gender, that cumulatively have 15 or more children under the age of five years, to provide a suitable childcare facility for them.

The government has been reforming and strengthening its legal framework and labor inspections since 2006. In 2010, Jordan fully implemented its Free Trade Agreement (FTA) with the United States, which requires Jordan to continuing making improvements on labor rights issues.

The Better Work Jordan program (BWJ), funded by the U.S. Department of Labor (USDOL), was launched in 2008 as a joint project between the Ministry of Labor, the International Labor Organization (ILO), and the International Finance Corporation to improve garment sector labor standards and conditions, and raise compliance levels through public reporting and technical assistance. In 2016, USDOL removed the Jordanian garment industry from its “List of Goods Produced by Child Labor or Forced Labor.” As of December 2018, 86 garment factories were enrolled in the BWJ program. Following its successes, BWJ is expanding its mandate to cover manufacturing and industrial sectors in order to facilitate their obligations to the European Union’s under newly relaxed rules-of-origin trade agreement requirements. At the end of 2018, 12 companies qualified to benefit from the simplified rules-of-origin initiative. The Ministry of Labor drafted manuals in cooperation with BWJ on Occupational Safety and Health Safety in four sectors; agriculture, chemicals, engineering and plastic in 2019.

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 $42,150 2019 $43,744 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2019 $ 179 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 2019 82.6 % UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Central Bank of Jordan

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

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Equity Securities Total Debt Securities
All Countries Amount 100% All Countries Amount 100% All Countries Amount 100%
U.S. 3,570 59% West Bank 260 36% U.S. 3415 63%
West Bank 1,009 16% U.S. 155 22% West Bank 749 14%
Luxembourg 375 6% Lebanon 102 14% Luxembourg 345 6%
Ireland 198 3% UK 80 11% Ireland 190 4%
UK 163 2% KSA 54 7 % Netherlands 112 2%

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

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.

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.

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

Morocco

Executive Summary

Morocco enjoys political stability, a geographically strategic location, and robust infrastructure, which have contributed to its emergence as a regional manufacturing and export base for international companies.  Morocco actively encourages and facilitates foreign investment, particularly in export sectors like manufacturing – through dynamic macro-economic policies, trade liberalization, investment incentives, and structural reforms.  Morocco’s overarching economic development plan seeks to transform the country into a regional business hub by leveraging its unique status as a multilingual, cosmopolitan nation situated at the tri-regional focal point of Sub-Saharan Africa, the Middle East, and Europe.  The Government of Morocco implements strategies aimed at boosting employment, attracting foreign investment, and raising performance and output in key revenue-earning sectors, such as the automotive and aerospace industries.  Morocco is increasingly investing in energy, boasting the world’s largest concentrated solar power facility with storage near Ouarzazate.

According to the United Nations Conference on Trade and Development’s (UNCTAD) 2019 World Investment Report, Morocco attracts the fourth-most foreign direct investment (FDI) in Africa, rising from $2.7 billion in 2017 to $3.6 billion in 2018.  Morocco continues to orient itself as the “gateway to Africa” for international investors following Morocco’s return to the African Union in January 2017 and the launch of the African Continental Free Trade Area (CFTA) in March 2018.  In June 2019, Morocco opened an extension of the Tangier-Med commercial shipping port, making it the largest in the Mediterranean and the largest in Africa.  Tangier is connected to Morocco’s political capital in Rabat and commercial hub in Casablanca by Africa’s first high-speed train service.  Morocco continues to climb in the World Bank’s Doing Business index, rising to 53rd place in 2020.  Despite the significant improvements in its business environment and infrastructure, high rates of unemployment (particularly for youth), weak intellectual property rights (IPR) protections, inefficient government bureaucracy, and the slow pace of regulatory reform remain challenges.

Morocco has ratified 71 bilateral investment treaties for the promotion and protection of investments and 60 economic agreements– including with the United States and most EU nations– that aim to eliminate the double taxation of income or gains.  Morocco is the only country on the African continent with a Free Trade Agreement (FTA) with the United States, eliminating tariffs on more than 95 percent of qualifying consumer and industrial goods. The Government of Morocco plans to phase out tariffs for some products through 2030.  The FTA supports Morocco’s goals to develop as a regional financial and trade hub, providing opportunities for the localization of services and the finishing and re-export of goods to markets in Africa, Europe, and the Middle East.  Since the U.S.-Morocco FTA came into effect bilateral trade in goods has grown nearly five-fold.  The U.S. and Moroccan governments work closely to increase trade and investment through high-level consultations, bilateral dialogue, and the annual U.S.-Morocco Trade and Investment Forum, which provides a platform to strengthen business-to-business ties.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 80 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 53 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 74 of 126 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 $412 http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2018 $3090 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

3. Legal Regime

Transparency of the Regulatory System

Morocco is a constitutional monarchy with an elected parliament and a mixed legal system of civil law based primarily on French law, with some influences from Islamic law.  Legislative acts are subject to judicial review by the Constitutional Court excluding royal decrees (Dahirs) issued by the King, which have the force of law.  Legislative power in Morocco is vested in both the government and the two chambers of Parliament, the Chamber of Representatives (Majlis Al-Nuwab) and the Chamber of Councilors (Majlis Al Mustashareen).  The principal sources of commercial legislation in Morocco are the Code of Obligations and Contracts of 1913 and Law No. 15-95 establishing the Commercial Code.  The Competition Council and the National Authority for Detecting, Preventing, and Fighting Corruption (INPPLC) have responsibility for improving public governance and advocating for further market liberalization.  All levels of regulations exist (local, state, national, and supra-national).  The most relevant regulations for foreign businesses depend on the sector in question.  Ministries develop their own regulations and draft laws, including those related to investment, through their administrative departments, with approval by the respective minister.  Each regulation and draft law is made available for public comment.  Key regulatory actions are published in their entirety in Arabic and usually French in the official bulletin on the website  of the General Secretariat of the Government.  Once published, the law is final.  Public enterprises and establishments can adopt their own specific regulations provided they comply with regulations regarding competition and transparency.

Morocco’s regulatory enforcement mechanisms depend on the sector in question, and enforcement is legally reviewable.  The National Telecommunications Regulatory Agency (ANRT), for example, created in February 1998 under Law No. 24-96, is the public body responsible for the control and regulation of the telecommunications sector.  The agency regulates telecommunications by participating in the development of the legislative and regulatory framework.  Morocco does not have specific regulatory impact assessment guidelines, nor are impact assessments required by law.  Morocco does not have a specialized government body tasked with reviewing and monitoring regulatory impact assessments conducted by other individual agencies or government bodies.

The U.S. Mission is not aware of any informal regulatory processes managed by nongovernmental organizations or private sector associations. The Moroccan Ministry of Finance posts quarterly statistics  (compiled in accordance with IMF recommendations) on public finance and debt on their website.  A report on public debt is published on the Ministry of Economy and Finance’s website and is used as part of the budget bill formulation and voting processes. Fiscal year 2020 debt report was published October 11, 2019.

International Regulatory Considerations

Morocco joined the WTO in January 1995 and reports technical regulations that could affect trade with other member countries to the WTO.  Morocco is a signatory to the Trade Facilitation Agreement  and has a 91.2 percent implementation rate of TFA requirements.  European standards are widely referenced in Morocco’s regulatory system.  In some cases, U.S. or international standards, guidelines, and recommendations are also accepted.

Legal System and Judicial Independence

The Moroccan legal system is a hybrid of civil law (French system) and some Islamic law, regulated by the Decree of Obligations and Contracts of 1913 as amended, the 1996 Code of Commerce, and Law No. 53-95 on Commercial Courts.  These courts also have sole competence to entertain industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties.  According to the European Bank for Reconstruction and Development’s 2015 Morocco Commercial Law Assessment Report , Royal Decree No. 1-97-65 (1997) established commercial court jurisdiction over commercial cases including insolvency.  Although this led to some improvement in the handling of commercial disputes, the lack of training for judges on general commercial matters remains a key challenge to effective commercial dispute resolution in the country.  In general, litigation procedures are time consuming and resource-intensive, and there is no legal requirement with respect to case publishing.  Disputes may be brought before one of eight Commercial Courts (located in Rabat, Casablanca, Fes, Tangier, Marrakech, Agadir, Oujda, and Meknes), and one of three Commercial Courts of Appeal (located in Casablanca, Fes, and Marrakech).  There are other special courts such as the Military and Administrative Courts.  Title VII of the Constitution provides that the judiciary shall be independent from the legislative and executive branches of government.  The 2011 Constitution also authorized the creation of the Supreme Judicial Council, headed by the King, which has the authority to hire, dismiss, and promote judges.  Enforcement actions are appealable at the Courts of Appeal, which hear appeals against decisions from the court of first instance.

Laws and Regulations on Foreign Direct Investment

The principal sources of commercial legislation in Morocco are the 1913 Royal Decree of Obligations and Contracts, as amended; Law No. 18-95 that established the 1995 Investment Charter; the 1996 Code of Commerce; and Law No. 53-95 on Commercial Courts.  These courts have sole competence to hear industrial property disputes, as provided for in Law No. 17-97 on the Protection of Industrial Property, irrespective of the legal status of the parties.  Morocco’s CRIs and AMDIE   provide users with various investment related information on key sectors, procedural information, calls for tenders, and resources for business creation.  Their websites are infrequently updated.

Competition and Anti-Trust Laws

Morocco’s Competition Law No. 06-99 on Free Pricing and Competition (June 2000) outlines the authority of the Competition Council  as an independent executive body with investigatory powers.  Together with the INPPLC, the Competition Council is one of the main actors charged with improving public governance and advocating for further market liberalization.  Law No. 20-13, adopted on August 7, 2014, amended the powers of the Competition Council to bring them in line with the 2011 Constitution.  The Competition Council’s responsibilities include making decisions on anti-competition practices and controlling concentrations, with powers of investigation and sanction; providing opinions in official consultations by government authorities; and publishing reviews and studies on the state of competition.  After four years of delays, the Moroccan Government nominated and approved all members of the Competition Council in December of 2018.

The Competition Council is investigating years of alleged collusion by oil distribution companies, releasing an incriminating preliminary report in 2019.  The case includes investigations into two foreign-owned firms:  Vivo Energy, an affiliate of the British-Dutch company Royal Dutch Shell, and Total Maroc, a subsidiary of the French multinational Total. Also in 2019, the council released a report outlining barriers to entry that protect established fuel distribution companies like Vivo and Total Maroc, to the detriment of consumers.

In February 2020, the Moroccan telecommunications regulator, National Telecommunications Regulatory Agency (ANRT), issued a $340 million fine against Maroc Telecom for abusing its dominant position in the market.  Maroc Telecom is majority owned by Etisalat, based in the United Arab Emirates (UAE), and is minority owned by the Moroccan government.  ANRT ruled in favor of rival telecoms operator INWI, which is majority-owned by Morocco’s royal holding company, and is minority-owned by Kuwait’s sovereign wealth fund and a private Kuwaiti company, which had filed the complaint with ANRT.

Expropriation and Compensation

Expropriation may only occur in the public interest for public use by a state entity, although in the past, private entities that are public service “concessionaires” mixed economy companies, or general interest companies have also been granted expropriation rights.  Article 3 of Law No. 7-81 (May 1982) on expropriation, the associated Royal Decree of May 6, 1982, and Decree No. 2-82-328 of April 16, 1983 regulate government authority to expropriate property.  The process of expropriation has two phases: in the administrative phase, the State declares public interest in expropriating specific land and verifies ownership, titles, and appraised value of the land.  If the State and owner are able to come to agreement on the value, the expropriation is complete.  If the owner appeals, the judicial phase begins, whereby the property is taken, a judge oversees the transfer of the property, and payment compensation is made to the owner based on the judgment.  The U.S. Mission is not aware of any recent, confirmed instances of private property being expropriated for other than public purposes (eminent domain), or in a manner that is discriminatory or not in accordance with established principles of international law.

Dispute Settlement

ICSID Convention and New York Convention

Morocco is a member of the International Center for Settlement of Investment Disputes (ICSID) and signed its convention in June 1967.  Morocco is a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  Law No. 08-05 provides for enforcement of awards made under these conventions.

Investor-State Dispute Settlement

Morocco is signatory to over 60 bilateral treaties recognizing binding international arbitration of trade disputes, including one with the United States.  Law No. 08-05 established a system of conventional arbitration and mediation, while allowing parties to apply the Code of Civil Procedure in their dispute resolution.  Foreign investors commonly rely on international arbitration to resolve contractual disputes.  Commercial courts recognize and enforce foreign arbitration awards.  Generally, investor rights are backed by a transparent, impartial procedure for dispute settlement.  There have been no claims brought by foreign investors under the investment chapter of the U.S.-Morocco Free Trade Agreement since it came into effect in 2006.  The U.S. Mission is not aware of any investment disputes over the last year involving U.S. investors.

Morocco officially recognizes foreign arbitration awards issued against the government.  Domestic arbitration awards are also enforceable subject to an enforcement order issued by the President of the Commercial Court, who verifies that no elements of the award violate public order or the defense rights of the parties.  As Morocco is a member of the New York Convention, international awards are also enforceable in accordance with the provisions of the convention.  Morocco is also a member of the Washington Convention for the International Centre for Settlement of Investment Disputes (ICSID), and as such agrees to enforce and uphold ICSID arbitral awards.  The U.S. Mission is not aware of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Morocco has a national commission on Alternative Dispute Resolution (ADR) with a mandate to regulate mediation training centers and develop mediator certification systems.  Morocco seeks to position itself as a regional center for arbitration in Africa, but the capacity of local courts remains a limiting factor.  The Moroccan government established the Center of Arbitration and Mediation in Rabat and the Casablanca International Mediation and Arbitration Center (CIMAC).  The U.S. Mission is not aware of any investment disputes involving state owned enterprises (SOEs).

Bankruptcy Regulations

Morocco’s bankruptcy law is based on French law.  Commercial courts have jurisdiction over all cases related to insolvency, as set forth in Royal Decree No. 1-97-65 (1997).  The Commercial Court in the debtor’s place of business holds jurisdiction in insolvency cases.  The law gives secured debtors priority claim on assets and proceeds over unsecured debtors, who in turn have priority over equity shareholders.  Bankruptcy is not criminalized.  The World Bank’s 2020 Doing Business report ranked Morocco 73 out of 190 economies in “Resolving Insolvency”.  The GOM revised the national insolvency code in March of 2018.

4. Industrial Policies

Investment Incentives

As set out in the Investment Code (Section 2.4), Morocco offers incentives designed to encourage foreign and local investment.  Morocco’s Investment Charter gives the same benefits to all investors regardless of the industry in which they operate (except agriculture and phosphates, which remain outside the scope of the Charter).  With respect to agricultural incentives, Morocco launched the Plan Maroc Vert  (Green Morocco Plan) in 2008 to improve the competitiveness of the agribusiness industry.  This plan offers technical and financial support to federations in the citrus and olive sectors to boost agribusiness value chains.

Morocco has several free zones offering companies incentives such as tax breaks, subsidies, and reduced customs duties. Free zones aim to attract investment by companies seeking to export

products from Morocco.  As part of a government-wide strategy to strengthen its position as an African financial hub, Morocco offers incentives for firms that locate their regional headquarters in Morocco at Casablanca Finance City (CFC), Morocco’s flagship financial and business hub launched in 2010.  For details on CFC eligibility, see CFC’s website . Morocco is on the European Union’s tax “grey list ” for pursuing a harmful tax policy based on the tax advantages offered to export companies, companies operating in free zones, and CFC.  In response to EU pressure and the desire to avoid negative consequences for investment, Morocco’s 2020 budget law transforms the country’s free zones into “Industrial Acceleration Zones” with a 15 percent corporate tax rate following an initial five years of exemption, compared to a previous corporate tax rate of 8.75 percent over 20 years.  Similarly, companies holding CFC status will be taxed 15 percent both on their local and export activities as of 2021, after a five-year tax exoneration.  The new measures adopted pertain to both Moroccan and foreign companies already established in these zones.

The Moroccan government launched its “investment reform plan” in 2016 to create a favorable environment for the private sector to drive growth.  The plan includes the adoption of investment incentives to support the industrial ecosystem, tax and customs advantages to support investors and new investment projects, import duty exemptions, and a value added tax (VAT) exemption.  AMDIE’s website  has more details on investment incentives, but generally these incentives are based on sectoral priorities (i.e. aerospace).  Morocco does not issue guarantees or jointly finance FDI projects, except for some public-private partnerships in fields such as utilities.

The Moroccan Government offers several guarantee funds and sources of financing for investment projects to both Moroccan and foreign investors. For example, the Caisse Centrale de Garantie  (CCG), a public finance institution offers co-financing, equity financing, and guarantees.

Beyond tax exemptions granted under ordinary law, Moroccan regulations provide specific advantages for investors with investment agreements or contracts with the Moroccan Government provided that they meet the required criteria. These advantages include: subsidies for certain expenses related to investment through the Industrial Development and Investment Fund, subsidies of certain expenses for the promotion of investment in specific industrial sectors and the development of new technologies through the Hassan II Fund for Economic and Social Development, exemption from customs duties within the framework of Article 7.I of the Finance Law n°12/98, and exemption from the Value Added Tax (VAT) on imports and domestic sales.

More information on specific incentives can be found at the Invest in Morocco website .

Foreign Trade Zones/Free Ports/Trade Facilitation

The government maintains several “free zones” in which companies enjoy lower tax rates in exchange for an obligation to export at least 85 percent of their production.  In some cases, the government provides generous incentives for companies to locate production facilities in the country.  The Moroccan government also offers a VAT exemption for investors using and importing equipment goods, materials, and tools needed to achieve investment projects whose value is at least $20 million.  This incentive lasts for a period of 36 months from the start of the business.  Due in part to an ongoing dispute with the European Union, the 2020 budget law will transform the country’s free zones into “Industrial Acceleration Zones” with a corporate tax of 15 percent after an initial five years of tax exemption.  Previously, companies in free zones paid a corporate tax rate of 8.75 percent.

Performance and Data Localization Requirements

The Moroccan government views foreign investment as an important vehicle for creating local employment.  Visa issuance for foreign employees is contingent upon a company’s inability to find a qualified local employee for a specific position and can only be issued after the company has verified the unavailability of such an employee with the National Agency for the Promotion of Employment and Competency (ANAPEC).  If these conditions are met, the Moroccan government allows the hiring of foreign employees, including for senior management.  The process for obtaining and renewing visas and work permits can be onerous and may take up to six months, except for CFC members, where the processing time is reportedly one week.

The government does not require the use of domestic content in goods or technologies.  The WTO Trade Related Investment Measures’ (TRIMs) database does not indicate any reported Moroccan measures that are inconsistent with TRIMs requirements.  Though not required, tenders in some industries, including solar energy, are written with targets for local content percentages.  Both performance requirements and investment incentives are uniformly applied to both domestic and foreign investors depending on the size of the investment.

The Moroccan Data Protection Act (Act 09-08) stipulates that data controllers may only transfer data if a foreign nation ensures an adequate level of protection of privacy and fundamental rights and freedoms of individuals with regard to the treatment of their personal data.  Morocco’s National Data Protection Commission (CNDP) defines the exceptions according to Moroccan law.  Local regulation requires the release of source code for certain telecommunications hardware products.  However, the U.S. Mission is not aware of any Moroccan government requirement that foreign IT companies should provide surveillance or backdoor access to their source-code or systems.

5. Protection of Property Rights

Real Property

Morocco permits foreign individuals and foreign companies own land, except agricultural land.  Foreigners may acquire agricultural land in order to carry out an investment or other economic project that is not agricultural in nature, subject to first obtaining a certificate of non-agricultural use from the authorities.  Morocco has a formal registration system maintained by the National Agency for Real Estate Conservation, Property Registries, and Cartography (ANCFCC), which issues titles of land ownership.  Approximately 30 percent of land is registered in the formal system, and almost all of that is in urban areas.  In addition to the formal registration system, there are customary documents called moulkiya issued by traditional notaries called adouls.  While not providing the same level of certainty as a title, a moulkiya can provide some level of security of ownership.  Morocco also recognizes prescriptive rights whereby an occupant of a land under the moulkiya system (not lands duly registered with ANCFCC) can establish ownership of that land upon fulfillment of all the legal requirements, including occupation of the land for a certain period of time (10 years if the occupant and the landlord are not related and 40 years if the occupant is a family member).  There are other specific legal regimes applicable to some types of lands, among which:

  • Collective lands: lands which are owned collectively by some tribes, whose members only benefit from rights of usufruct;
  • Public lands: lands which are owned by the Moroccan State;
  • Guich lands: lands which are owned by the Moroccan State, but whose usufruct rights are vested upon some tribes;
  • Habous lands: lands which are owned by a party (the State, a certain family, a religious or charity organization, etc.) subsequent to a donation, and the usufruct rights of which are vested upon such party (usually with the obligation to allocate the proceeds to a specific use or to use the property in a certain way).

Morocco’s rating for “Registering Property” regressed over the past year, with a ranking of 81 out of 190 countries worldwide in the World Bank’s Doing Business 2020 report.  Despite reducing the time it takes to obtain a non-encumbrance certificate, Morocco made property registration less transparent by not publishing statistics on the number of property transactions and land disputes for the previous calendar year, resulting in a lower score than in 2019.

Intellectual Property Rights

The Ministry of Industry, Trade, Investment, and the Digital Economy oversees the Moroccan Office of Industrial and Commercial Property (OMPIC), which serves as a registry for patents and trademarks in the industrial and commercial sectors.  The Ministry of Communications oversees the Moroccan Copyright Office (BMDA), which registers copyrights for literary and artistic works (including software), enforces copyright protection, and coordinates with Moroccan and international partners to combat piracy.

In fall 2020, OMPIC will launch its second strategic plan, Strategic Vision 2025, following the conclusion of its 2016-2020 strategic plan.  The new 2025 plan has three pillars: the creation of an environment conducive to entrepreneurship, creativity, and innovation; the establishment of an effective system for the protection and defense of intellectual property rights; and the implementation of economic and regional actions to enhance intangible assets and market-oriented research and development.  From 2015-2019, OMPIC recorded a 168 percent increase in the number of patent applications filed and a 35 percent increase in the number of trademark registration requests.

In 2016, the Ministry of Communication and World Intellectual Property Organization (WIPO) signed an MOU to expand cooperation to ensure the protection of intellectual property rights in Morocco.  The memorandum committed both parties to improving the judicial and operational dimensions of Morocco’s copyright enforcement.  Following this MOU, in November 2016, BMDA launched WIPOCOS, a database for collective royalty management organizations or societies, developed by WIPO.  In spite of these positive changes, BMDA’s current focus on redefining its legal mandate and relationship with other copyright offices worldwide has appeared to lessen its enforcement capacity.

Law No. 23-13 on Intellectual Property Rights increased penalties for violation of those rights and better defines civil and criminal jurisdiction and legal remedies.  It also set in motion an accreditation system for patent attorneys in order to better systematize and regulate the practice of patent law.  Law No. 34-05, amending and supplementing Law No. 2-00 on Copyright and Related Rights, includes 15 items (Articles 61 to 65) devoted to punitive measures against piracy and other copyright offenses.  These range from civil and criminal penalties to the seizure and destruction of seized copies.  Judges’ authority in sentencing and criminal procedures is proscribed, with little power to issue harsher sentences that would serve as stronger deterrents.

Moroccan authorities express a commitment to cracking down on all types of counterfeiting, but due to resource constraints, must focus enforcement efforts on the most problematic areas, specifically those with public safety and/or significant economic impacts.  In 2017, BMDA brought approximately a dozen court cases against copyright infringers and collected $6.1 million in copyright collections.  In 2018, Morocco’s customs authorities seized $62.7 million worth of counterfeit items.  In 2018, Morocco also created a National Customs Brigade charged with countering the illicit trafficking of counterfeit goods and narcotics.

In 2015, Morocco and the European Union concluded an agreement on the protection of Geographic Indications (GIs), which is currently pending ratification by both the Moroccan and European parliaments.  Should it enter into force, the agreement would grant Moroccan GIs sui generis. The U.S. government continues to urge Morocco to undergo a transparent and substantive assessment process for the EU GIs in a manner consistent with Morocco’s existing obligations, including those under the U.S.-Morocco Free Trade Agreement.

Morocco is not listed in USTR’s most recent Special 301 Report or notorious markets reports.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles .  For assistance, please refer to the U.S. Embassy local lawyers’ list, as well as to the regional U.S. IP Attaché .

6. Financial Sector

Capital Markets and Portfolio Investment

Morocco encourages foreign portfolio investment and Moroccan legislation applies equally to Moroccan and foreign legal entities and to both domestic and foreign portfolio investment.  The Casablanca Stock Exchange (CSE), founded in 1929 and re-launched as a private institution in 1993, is one of the few exchanges in the region with no restrictions on foreign participation.  The CSE is regulated by the Moroccan Capital Markets Authority.  Local and foreign investors have identical tax exposure on dividends (10 percent) and pay no capital gains tax.  With a market capitalization of around $60 billion and 76 listed companies, CSE is the second largest exchange in Africa (after the Johannesburg Stock Exchange). Despite its position as the second largest exchange in Africa, the CSE saw only 13 new listings between 2010-2018.  There were no new initial public offerings (IPOs) in 2019.  Short selling, which could provide liquidity to the market, is not permitted.  The Moroccan government initiated the Futures Market Act (Act 42-12) in October 2015 to define the institutional framework of the futures market in Morocco and the role of the regulatory and supervisory authorities. As of February of 2020, futures trading was still pending full implementation.

The Casablanca Stock Exchange demutualized in November of 2015.  This change allowed the CSE greater flexibility, more access to global markets, and better positioned it as an integrated financial hub for the region.  Morocco has accepted the obligations of IMF Article VIII, sections 2(a), 3, and 4, and its exchange system is free of restrictions on making payments and transfers on current international transactions.  Credit is allocated on market terms, and foreign investors are able to obtain credit on the local market.

Money and Banking System

Morocco has a well-developed banking sector, where penetration is rising rapidly and recent improvements in macroeconomic fundamentals have helped resolve previous liquidity shortages.  Morocco has some of Africa’s largest banks, and several are major players on the continent and continue to expand their footprint.  The sector has several large, homegrown institutions with international footprints, as well as several subsidiaries of foreign banks.  According to the IMF’s 2016 Financial System Stability Assessment on Morocco , Moroccan banks comprise about half of the financial system with total assets of 140 percent of GDP – up from 111 percent in 2008.  According to Bank Al-Maghrib (the Moroccan central bank) there are 24 banks operating in Morocco (five of these are Islamic “participatory” banks), six offshore institutions, 28 finance companies, 13 micro-credit associations, and thirteen intermediary companies operating in funds transfer.  Among the 19 traditional banks, the top five banks comprise 79 percent of the system’s assets (including both on and off-balance sheet items.)  Attijariwafa, Morocco’s largest bank, is the sixth largest bank in Africa by total assets (approximately $54 billion in June 2019).  The Moroccan royal family is the largest shareholder.  Foreign (mainly French) financial institutions are majority stakeholders in seven banks and nine finance companies.  Moroccan banks have built up their presence overseas mainly through the acquisition of local banks, thus local deposits largely fund their subsidiaries.

The overall strength of the banking sector has grown significantly in recent years.  Since financial liberalization, credit is allocated freely and Bank Al-Maghrib has used indirect methods to control the interest rate and volume of credit.  The banking penetration rate is approximately 56 percent, with significant opportunities remaining for firms pursuing rural and less affluent segments of the market.  At the start of 2017, Bank Al-Maghrib approved five requests to open Islamic banks in the country.  By mid-2018, over 80 branches specializing in Islamic banking services were operating in Morocco.  The first Islamic bonds (sukuk) were issued in October 2018.  In 2019, Islamic banks in Morocco granted $930 million in financing. The GOM passed a law authorizing Islamic insurance products (takaful) in 2019, but the implementation regulations are still pending, and the products are not yet active.

Following an upward trend beginning in 2012, the ratio of non-performing loans (NPL) to bank credit stabilized at 7.5 percent in 2017 at $6.5 billion.  According to the most recent data from the IMF, NPL rates in July 2019 were 7.7 percent.

Morocco’s accounting, legal, and regulatory procedures are transparent and consistent with international norms.  Morocco is a member of UNCTAD’s international network of transparent investment procedures .  Bank Al-Maghrib is responsible for issuing accounting standards for banks and financial institutions.  Circular 56/G/2007 issued by Bank Al Maghrib requires that all entities under its supervision use International Financial Reporting Standards (IFRS).  The Securities Commission is responsible for issuing financial reporting and accounting standards for public companies.  Circular No. 06/05 of 2007 reaffirmed the Moroccan Stock Exchange Law (Law No. 52-01), which stipulated that all companies listed on the Casablanca Stock Exchange (CSE), other than banks and similar financial institutions, can choose between IFRS and Moroccan Generally Accepted Accounting Principles (GAAP).  In practice, most public companies use IFRS.

Legal provisions regulating the banking sector include Law No. 76-03 on the Charter of Bank Al-Maghrib, which created an independent board of directors and prohibits the Ministry of Finance and Economy from borrowing from the Central Bank except under exceptional circumstances.  Law No. 34-03 (2006) reinforced the supervisory authority of Bank Al-Maghrib over the activities of credit institutions.  Foreign banks and branches are allowed to establish operations in Morocco and are subject to provisions regulating the banking sector.  At present, the U.S. Mission is not aware of Morocco losing correspondent banking relationships.

There are no restrictions on foreigners’ abilities to establish bank accounts.  However, foreigners who wish to establish a bank account are required to open a “convertible” account with foreign currency.  The account holder may only deposit foreign currency into that account; at no time can they deposit dirhams. One issue, reported anecdotally, is that Moroccan banks have closed accounts without giving appropriate warning and that it has been difficult for some foreigners to open bank accounts in Morocco.

Morocco prohibits the use of cryptocurrencies, noting that they carry significant risks that may lead to penalties.

Foreign Exchange and Remittances

Foreign Exchange

Foreign investments financed in foreign currency can be transferred tax-free, without amount or duration limits.  This income can be dividends, attendance fees, rental income, benefits, and interest.  Capital contributions made in convertible currency, contributions made by debit of forward convertible accounts, and net transfer capital gains may also be repatriated.  For the transfer of dividends, bonuses, or benefit shares, the investor must provide balance sheets and profit and loss statements, annexed documents relating to the fiscal year in which the transfer is requested, as well as the statement of extra-accounting adjustments made in order to obtain the taxable income.

A currency-convertibility regime is available to foreign investors, including Moroccans living abroad, who invest in Morocco.  This regime facilitates their investments in Morocco, repatriation of income, and profits on investments.  Morocco guarantees full currency convertibility for capital transactions, free transfer of profits, and free repatriation of invested capital, when such investment is governed by the convertibility arrangement.  Generally, the investors must notify the government of the investment transaction, providing the necessary legal and financial documentation.  With respect to the cross-border transfer of investment proceeds to foreign investors, the rules vary depending on the type of investment.  Investors may import freely without any value limits to traveler’s checks, bank or postal checks, letters of credit, payment cards or any other means of payment denominated in foreign currency.  For cash and/or negotiable instruments in bearer form with a value equal to or greater than $10,000, importers must file a declaration with Moroccan Customs at the port of entry.  Declarations are available at all border crossings, ports, and airports.

Morocco has achieved relatively stable macroeconomic and financial conditions under an exchange rate peg (60/40 Euro/Dollar split), which has helped achieve price stability and insulated the economy from nominal shocks. In March of 2020, the Moroccan Ministry of Economy, Finance, and Administrative Reform, in consultation with the Central Bank, adopted a new exchange regime in which the Moroccan dirham may now fluctuate within a band of ± 5 percent compared to the Bank’s central rate (peg).  The change loosened the fluctuation band from its previous ± 2.5 percent. The change is designed to strengthen the capacity of the Moroccan economy to absorb external shocks, support its competitiveness, and contribute to improving growth.

Remittance Policies

Amounts received from abroad must pass through a convertible dirham account.  This type of account facilitates investment transactions in Morocco and guarantees the transfer of proceeds for the investment, as well as the repatriation of the proceeds and the capital gains from any resale.  AMDIE recommends that investors open a convertible account in dirhams on arrival in Morocco in order to quickly access the funds necessary for notarial transactions.

Sovereign Wealth Funds

Ithmar Capital is Morocco’s investment fund and financial vehicle, which aims to support the national sectorial strategies.  Ithmar Capital is a full member of the International Forum of Sovereign Wealth Funds and follows the Santiago Principles.  Established in November 2011 by the Moroccan government and supported by the royal Hassan II Fund for Economic and Social Development, the fund initially supported the government’s long-term Vision 2020 strategic plan for tourism.  The fund is currently part of the long-term development plan initiated by the government in multiple economic sectors.  Its portfolio of assets is valued at $1.8 billion.

7. State-Owned Enterprises

Boards of directors (in single-tier boards) or supervisory boards (in dual-tier boards) oversee Moroccan SOEs.  The Financial Control Act and the Limited Liability Companies Act govern these bodies.  The Ministry of Economy and Finance’s Department of Public Enterprises and Privatization monitors SOE governance.  Pursuant to Law No. 69-00, SOE annual accounts are publicly available.  Under Law No. 62-99, or the Financial Jurisdictions Code, the Court of Accounts and the Regional Courts of Accounts audit the management of a number of public enterprises.  A list of SOEs is available on the Ministry of Finance’s website .

As of March 2020, the Moroccan Treasury held a direct share in 225 state-owned enterprises (SOEs) and 43 companies.  Several sectors remain under public monopoly, managed either directly by public institutions (rail transport, some postal services, and airport services) or by municipalities (wholesale distribution of fruit and vegetables, fish, and slaughterhouses).  The Office Cherifien des Phosphates (OCP), a public limited company that is 95 percent held by the Moroccan government, is a world-leading exporter of phosphate and derived products.  Morocco has opened several traditional government activities using delegated-management or concession arrangements to private domestic or foreign operators, which are generally subject to tendering procedures.  Examples include water and electricity distribution, construction and operation of motorways, and the management of non-hazardous wastes.  In some cases, SOEs continue to control the infrastructure while allowing private-sector competition through concessions.  SOEs benefit from budgetary transfers from the state treasury for investment expenditures.

Morocco established the Moroccan National Commission on Corporate Governance in 2007.  It prepared the first Moroccan Code of Good Corporate Governance Practices in 2008.  In 2011, the Commission drafted a code dedicated to SOEs, drawing on the OECD Guidelines on Corporate Governance of SOEs.  The code, which came into effect in 2012, aims to enhance SOEs’ overall performance.  It requires greater use of standardized public procurement and accounting rules, outside audits, the inclusion of independent directors, board evaluations, greater transparency, and better disclosure.  The Moroccan government prioritizes a number of governance-related initiatives including an initiative to help SOEs contribute to the emergence of regional development clusters.  The government is also attempting to improve the use of multi-year contracts with major SOEs as a tool to enhance performance and transparency.

Privatization Program

The government relaunched Morocco’s privatization program in the 2019 budget.  Parliament enacted the updated annex to Law 38-89 (which authorizes the transfer of publicly held shares to the private sector) in February 2019 through publication in the official bulletin, including the list of entities to be privatized. The state still holds significant shares in the main telecommunications companies, banks, and insurance companies, as well as railway and air transport companies.

9. Corruption

In the 2019 Corruption Perceptions Index  published by Transparency International (TI), Morocco declined one point from the previous year (from 40 to 41) and moved down seven spots in the rankings (from 73rd to 80th out of 180 countries).  According to the State Department’s 2019 Country Report on Human Rights Practices, Moroccan law provides criminal penalties for corruption by officials, but the government generally did not implement the law effectively.  Officials sometimes engaged in corrupt practices with impunity.  There were reports of government corruption in the executive, judicial, and legislative branches during the year.

According to the Global Corruption Barometer Africa 2019 report published in July 2019, 53 percent of Moroccans surveyed think corruption increased in the previous 12 months, 31 percent of public services users paid a bribe in the previous 12 months, and 74 percent believe the government is doing a bad job in tackling corruption.

The 2011 constitution mandated the creation of a national anti-corruption entity.  Morocco formally adopted the National Authority for Probity, Prevention, and Fighting Corruption (INPLCC) through a law published in 2015.  The INPLCC did not come into operation until late 2018 when its board was appointed by King Mohammed VI, although a weaker predecessor organization continued in existence until that time.  The INPLCC is tasked with initiating, coordinating, and overseeing the implementation of policies for the prevention and fight against corruption, as well as gathering and disseminating information on the issue. Additionally, Morocco’s anti-corruption efforts include enhancing the transparency of public tenders and implementation of a requirement that senior government officials submit financial disclosure statements at the start and end of their government service, although their family members are not required to make such disclosures. Few public officials submitted such disclosures, and there are no effective penalties for failing to comply. Morocco does not have conflict of interest legislation. In 2018, thanks to the passage of an Access to Information (AI) law, Morocco joined the Open Government Partnership, a multilateral effort to make governments more transparent.

Although the Moroccan government does not require that private companies establish internal codes of conduct, the Moroccan Institute of Directors (IMA) was established in June 2009 with the goal of bringing together individuals, companies, and institutions willing to promote corporate governance and conduct.  IMA published the four Moroccan Codes of Good Corporate Governance Practices.  Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials.  Morocco signed the UN Convention against Corruption in 2007 and hosted the States Parties to the Convention’s Fourth Session in 2011.  However, Morocco does not provide any formal protections to NGOs involved in investigating corruption.  Although the U.S. Mission is not aware of cases involving corruption with regard to customs or taxation issues, American businesses report encountering unexpected delays and requests for documentation that is not required under the FTA or standardized shipping norms.

Resources to Report Corruption

Organization: National Authority for Probity, Prevention, and Fighting Corruption

Address: Avenue Annakhil, Immeuble High Tech, Hall B, 3eme etage, Hay Ryad-Rabat
Telephone number: +212-5 37 57 86 60
Email address: contact@icpc.ma
Fax: +2125 37 71 16 73

Organization: Transparency International National Chapter
Address: 24 Boulevard de Khouribga, Casablanca 20250
Email Address: transparency@menara.ma
Telephone number: +212-22-542 699
http://www.transparencymaroc.ma/index.php 

10. Political and Security Environment

Morocco does not have a significant history of politically motivated violence or civil disturbance.  There has not been any damage to projects and/or installations, which has had a continuing impact on the investment environment.  Demonstrations occur in Morocco and usually center on political, social, or labor issues.  They can attract thousands of people in major city centers, but most have been peaceful and orderly.

11. Labor Policies and Practices

In the Moroccan labor market, many Moroccan university graduates cannot find jobs commensurate with their education and training, and employers report insufficient skilled candidates. The educational system does not prioritize STEM literacy and industrial skills and many graduates are unprepared to meet contemporary job market demands. In 2011, the Moroccan government restructured its employment promotion agency, the National Agency for Promotion of Employment and Skills (ANAPEC), in order to assist new university graduates prepare for and find work in the private sector that requires specialized skills. The Bureau of Professional Training and Job Promotion (OFPPT), Morocco’s main public provider for professional training, also launched the Specialized Institute for Aeronautics and Airport Logistics (ISMALA) in Casablanca in 2013 to offer technical training in aeronautical maintenance. According to official figures released by the government planning agency, unemployment was 10 percent in 2019, with youth (ages 15-24) unemployment hovering around 40 percent in some urban areas. The World Bank and other international institutions estimate that actual unemployment – and underemployment – rates may be higher.

The Government of Morocco pursues a strategy to increase the number of students in vocational and professional training programs. The government opened 27 such training centers between 2015 and 2018 and nearly doubled the number of students receiving scholarships for training between 2017 and 2018. The government announced that the number of scholarships granted to vocational trainees increased by 177 percent between 2018 and 2019. In 2018, the Government of Morocco launched a National Plan for Job Promotion, created after three years of collaboration with government partners involved in employment policy, to support job creation, strengthen the job market, and consolidate regional resources devoted to job promotion. This plan promotes entrepreneurship – especially in the context of regionalization outside the Casablanca-Rabat corridor – to boost youth employment.

Pursuing a forward-leaning migration policy, the Moroccan government has regularized the status of over 50,000 sub-Saharans migrants since 2014.  Regularization provides these migrants with legal access to employment, employment services, and education and vocation training.  The majority of sub-Saharan migrants who benefitted from the regularization program work in call centers and education institutes, if they have strong French or English skills, or domestic work and construction.

According to section VI of the labor law, employers in the commercial, industrial, agricultural, and forestry sectors with ten or more employees must communicate a dismissal decision to the employee’s union representatives, where applicable, at least one month prior to dismissal.  The employer must also provide grounds for dismissal, the number of employees concerned, and the amount of time intended to undertake termination.  With regards to severance pay (article 52 of the labor law), the employee bound by an indefinite employment contract is entitled to compensation in case of dismissal after six months of work in the same company regardless of the mode of remuneration and frequency of payment and wages.  The labor law differentiates between layoffs for economic reasons and firing.  In case of serious misconduct, the employee may be dismissed without notice or compensation or payment of damages.  The employee must file an application with the National Social Security Funds (CNSS) agency of his or her choice, within a period not exceeding 60 days from the date of loss of employment. During this period, the employee shall be entitled to medical benefits, family allowances, and possibly pension entitlements.  Labor law is applicable in all sectors of employment; there are no specific labor laws to foreign trade zones or other sectors. More information is available from the Moroccan Ministry of Foreign Affairs Economic Diplomacy unit.

Morocco has roughly 20 collective bargaining agreements in the following sectors: Telecommunications, automotive industry, refining industry, road transport, fish canning industry, aircraft cable factories, collection of domestic waste, ceramics, naval construction and repair, paper industry, communication and information technology, land transport, and banks. The sectoral agreements that exist to date are in the banking, energy, printing, chemicals, ports, and agricultural sectors.  According to the State Department’s Country Report on Human Rights Practices, the Moroccan constitution grants workers the right to form and join unions, strike, and bargain collectively, with some restrictions (S 396-429 Labor Code Act 1999, No. 65/99).  The law prohibits certain categories of government employees, including members of the armed forces, police, and some members of the judiciary, from forming and joining unions and from conducting strikes.  The law allows several independent unions to exist but requires 35 percent of the total employee base to be associated with a union for the union to be representative and engage in collective bargaining.  The government generally respected freedom of association and the right to collective bargaining.  Employers limited the scope of collective bargaining, frequently setting wages unilaterally for the majority of unionized and nonunionized workers. Domestic NGOs reported that employers often used temporary contracts to discourage employees from affiliating with or organizing unions.  Legally, unions can negotiate with the government on national-level labor issues.

Labor disputes (S 549-581 Labor Code Act 1999, No. 65/99) are common, and in some cases, they result in employers failing to implement collective bargaining agreements and withholding wages.  Trade unions complain that the government sometimes uses Article 288 of the penal code to prosecute workers for striking and to suppress strikes.  Labor inspectors are tasked with mediation of labor disputes.  In general, strikes occur in heavily unionized sectors such as education and government services, and such strikes can lead to disruptions in government services but usually remain peaceful.  In July 2016, the Moroccan government passed the Domestic Worker Law and the long-debated pension reform bill; the former entered into force in 2018.  The new pension reform legislation is expected to keep Morocco’s largest pension fund, the Caisse Marocaine de Retraites (CMR), solvent until 2028, with an increase in the retirement age from 60 to 63 by 2024, and adjustments in contributions and future allocations.

Chapter 16 of the U.S.-Morocco Free Trade Agreement (FTA) addresses labor issues and commits both parties to respecting international labor standards.

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 $115,321 2018 $117,921 World Bank 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $567.3 2018 $408 BEA
Host country’s FDI in the United States ($M USD, stock positions) 2017 $5.5 2018 $-21 BEA
Total inbound stock of FDI as % host GDP 2017 55.47% 2018 54.3% UNCTAD

* Source for Host Country Data: Moroccan GDP data from Bank Al-Maghrib, all other statistics from the Moroccan Exchange Office .  Conflicts in host country and international statistics are likely due to methodological differences

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 30,353 100% Total Outward 4,501 100%
United Arab Emirates 10,524 35% France 892 20%
France 10,077 33% Ivory Coast 754 17%
Switzerland 1,856 6% Luxembourg 338 8%
Spain 1,175 4% Switzerland 254 6%
Kuwait 948 3% Mauritius 235 5%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

Mozambique

Executive Summary

Mozambique stands on the cusp of transformative economic growth driven by the development of one the largest natural gas discoveries in the world. In the next five years, Mozambique expects to see nearly $60 billion in investment to develop its offshore natural gas reserves and an onshore facility that will convert the gas to liquefied natural gas (LNG) for export to global markets. However, between the combination of the outbreak of COVID-19, an increasingly violent extremist movement in northern Mozambique, and the impact of the global downturn on Mozambique’s resource dependent economy, the start of that transformation is likely to be delayed.

Following three years of slow economic growth, driven by a combination of the lingering impacts of Mozambique’s 2016 hidden debt crisis and the back to back devastating cyclones in 2019, 2020 was supposed to be Mozambique’s breakout year. Throughout 2019 Mozambique made important strides toward realizing its potential.

In June 2019, Anadarko made the Final Investment Decision (FID) on the first of two expected LNG megaprojects. However, nearly a year later, the LNG site (now run by Total) is the center of Mozambique’s COVID-19 outbreak and the violent extremists in the surrounding province have grown in size and effectiveness, declaring themselves an affiliate of the Islamic State and conducting increased attacks throughout the province. Against this backdrop, ExxonMobil, the co-lead of the second major LNG project in northern Mozambique announced in April 2020 that it would delay FID on its project until at least 2021 due to the impact of the COVID-19 pandemic on global commodity prices.

Despite these setbacks, however, there are still reasons for optimism about Mozambique’s mid- term outlook. Following three years of reforms since the hidden debt scandal, Mozambique has made progress in the fight against corruption. Since February 2019, it arrested more than 20 politically connected officials for their role in the scandal and in August 2019, the country adopted a 27 point plan to fight corruption and improve governance with the IMF. Thanks in part to this solid progress, the IMF and Mozambique entered into discussions to re-launch a new lending program, potentially the first non-emergency budgetary assistance to the government in four years. If Mozambique continues on this path of reform, it will be better placed to manage its eventual resource income and attract other investments.

The country has also made significant progress toward consolidating the peace process. In August 2019, the government and the main opposition party signed a ceasefire agreement and peace accord, bringing to an end years of sporadic conflict. These agreements also set the stage for national elections in October 2019 that brought President Nyusi back to power for a second five-year mandate. Despite credible allegations of significant election-related fraud and intimidation, President Nyusi and the opposition leader Ossufo Momade continue to work together to consolidate the peace agreement finalize the disarmament, demobilization, and reintegration of former opposition movement fighters.

As Mozambique looks to its future, U.S. businesses are poised to play a key role in this country’s transformation. In June 2019, Mozambique signed a commercial Memorandum of Understanding with the Department of Commerce, outlining five key areas for investment including energy, infrastructure, financial services, agri-business, tourism and fisheries, opening the door to increased cooperation and U.S. investment. In December, the U.S. government’s Millennium Challenge Corporation also announced that Mozambique was eligible to develop a second compact. While still under development, this compact will make available $350 million or more in targeted development assistance to create the enabling environment for additional investments.

Mozambique offers the experienced investor the potential for high returns, but remains a challenging place to do business. While the country welcomes foreign investment, investors must factor in corruption, an underdeveloped financial system, poor infrastructure, and significant operating costs. Transportation inside the country is slow and expensive, while bureaucracy, port inefficiencies, and corruption complicate imports. Local labor laws remain an impediment to hiring foreign workers, even when domestic labor lacks the requisite skills. In addition to the LNG and associated industries there are also significant opportunities for investment in the power and infrastructure sectors, particularly related to the reconstruction after Cyclones Idai and Kenneth devastated large swaths of the country in March and April 2019. The agriculture and tourism sectors remain underdeveloped relative to their potential, as do critical services sectors, such as health care.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 146 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 138 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 119 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD 332.0 million https://apps.bea.gov/
international/factsheet/
World Bank GNI per capita 2018 USD 460 million http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

3. Legal Regime

Transparency of the Regulatory System

Investors face myriad requirements for permits, approvals, and clearances that take substantial time and effort to obtain. The difficulty of navigating the system provides opportunities for corruption and bribery, a scenario that is aggravated by the prevailing low wages for administrative clerks. Labor, health, safety, and environmental regulations often go unenforced, or are selectively enforced. In addition, civil servants have threatened to enforce antiquated regulations that remain on the books to obtain favors or bribes.

The private sector, through the Confederation of Business Associations (CTA, Confederacao das Associacoes Economicas), Mozambique’s primary business and industry association, maintains an ongoing dialogue with the government, holding quarterly meetings with the Prime Minister and an annual meeting with the President. CTA provides feedback to the GRM on laws and regulations that impact the business environment on behalf of its members and other business associations. However, because of its exclusive role in communicating with the government on behalf of the private sector, some businesses have expressed concern that minority voices are not heard and that CTA, because of its close relationship with the government, is no longer an effective advocate.

Draft bills are usually made available for public comments through the business associations or relevant sectors or in public meetings. Changes to laws and regulations are published in the National Gazette. Public comments are usually limited to input from a few private sector organizations, such as CTA. There have been complaints of short comment periods and that comments are not properly reflected in the National Gazette. The government is considering a law that would make public consultation on future legislation mandatory.

Overall fiscal transparency in Mozambique is improving gradually in the wake of the 2016 hidden debt crisis which saw the government own up to contracting around $2 billion dollars in secret loans in 2013 and 2014. Publicly available budget documents provide an incomplete picture of the government’s planned expenditures and revenue streams, especially with regard to natural resource revenues and allocations to and earnings from state-owned enterprises, which generally did not have publicly available audited financial statements. The government also maintains off-budget accounts not subject to adequate audit or oversight. For portions of the budget that were relatively complete, the provided information is generally reliable.

International Regulatory Considerations

Mozambique is a member of SADC (Southern African Development Community). In June 2016, the SADC EPA Group, which includes Mozambique, Botswana, Lesotho, Namibia, South Africa, and Swaziland, signed an Economic Partnership Agreement (EPA) with the European Union. Mozambique exports aluminum under the EPA agreement.

The GRM ratified the Trade Facilitation Agreement (TFA) in July 2016 and notified the WTO in January 2017. A National Trade Facilitation Committee was established to coordinate the implementation of the TFA.

Legal System and Judicial Independence

Mozambique’s legal system is based on Portuguese civil law and customary law. In December 2005, the Parliament approved major revisions to the Commercial Code which went into effect in 2006. The previous Commercial Code was from the colonial period, with clauses dating back to the 19th century, and it did not provide an effective basis for modern commerce or resolution of commercial disputes. In 2018, the Council of Ministers passed new provisions for the Commercial Code, which were debated and approved in Parliament. In recent years Mozambique’s legal system has shown a degree of greater independence, for example pursuing some politically connected former officials and their family members for their role in the hidden debt scandal.

Laws and Regulations on Foreign Direct Investment

The Code of Fiscal Benefits, Law No. 4/2009, passed in January 2009, and Decree No. 56/2009, approved in October 2009, form the legal basis for foreign direct investment in Mozambique. Operating within these regulations, APIEX (http://invest.apiex.gov.mz/ ) analyzes the fiscal and customs incentives available for a particular investment.  Investors must establish foreign business representation and acquire a commercial representation license. During project development, investors must document their community consultation efforts related to the project. If the investment requires the use of land, the investor will also have to present, among other documents, a topographic plan or an outline of the site where the project will be developed.

If the investment involves an area under 1,000 hectares and the investment is up to approximately $25 million, the governor of the province where it will be located can approve the investment. There has been no update to the law since the introduction of provincial level State Secretaries with the new government in 2020. APIEX has the authority to approve any project between $25 million-$40 million. The Minister of Economy and Finance must approve national or foreign investment between $40 -$225 million. If the investment (national or foreign) occupies an area of 10,000 hectares or an area superior to 100,000 hectares for a forestry concession, or it amounts to more than $225 million, the project must be approved by the Council of Ministers.

Competition and Anti-Trust Laws

Law 10/2013, passed on April 11, 2013, and known as the Competition Law, established a modern legal framework for competition in Mozambique and created the Competition Regulatory Authority. A budget has still not been allocated to this body, but the government appointed a director in April 2020.

The framework is inspired by the Portuguese competition enforcement system. Violating the prohibitions contained in the Competition Law (either by entering into an illegal agreement or practice or by implementing a concentration subject to mandatory filing) could result in a fine of up to 5 percent of the turnover of the company in the previous year. Competition Regulatory Authority decisions may be appealed in the Judicial Court in Maputo, for cases leading to fines or other sanctions, or to the Administrative Court for merger control procedures.

Expropriation and Compensation

While there have been no significant cases of nationalization since the adoption of the 1990 Constitution, Mozambican law holds that “when deemed absolutely necessary for weighty reasons of national interest or public health and order, the nationalization or expropriation of goods and rights shall (result in the owner being) entitled to just and equitable compensation.” No American companies have been subject to expropriation issues in Mozambique since the adoption of the 1990 Constitution.

Dispute Settlement

ICSID Convention and New York Convention

Mozambique acceded in 1998 to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

For disputes between U.S. and Mozambican companies where a Bilateral Investment Treaty (BIT) violation is alleged, recourse via the international Alternative Dispute Resolution may also be available. No investment disputes in the past ten years have involved U.S. investors. Investors who feel they have a dispute covered under the BIT should contact the U.S. Embassy.

International Commercial Arbitration and Foreign Courts

In 1999, the Parliament passed Law no. 11/99 (Law on Arbitration), which allows access to modern commercial arbitration for foreign investors. The Judicial Council approved Resolutions No. 1/CJ/2017 and No. 2/CJ/2017 in 2017, creating the Regulations of Mediation Services in Judicial Courts and the Judicial Mediators’ Code of Conduct. These new resolutions are designed to promote the mediation process as an alternative to litigation. Labor and commercial arbitration are recognized by local courts as well as cases judged internationally.

The Center of Arbitration, Conciliation, and Mediation (CACM) offers commercial arbitration. During 2019, CACM handled 22 cases of commercial arbitration, and another ten cases are in process. CACM has 316 arbitrators, 12 of which are international. One of the main constraints to the use of arbitration is that many contracts do not incorporate a clause that allows conflicts to be resolved via arbitration instead of in the courts.

Bankruptcy Regulations

In June 2014, the GRM passed a comprehensive legal regime for bankruptcy, streamlining the bankruptcy process and setting the rules for business recovery. Globally, Mozambique stands at 86 of 190 economies on the ease of resolving insolvency issues, according to the 2019 Doing Business Report.

In the 2020 World Bank Doing Business Report, Mozambique ranked 86 overall for resolving insolvency, scoring well above average for sub-Saharan Africa, but below South Africa and Mauritius in the most recent report.

4. Industrial Policies

Investment Incentives

The Code of Fiscal Benefits contains specific incentives for entities that intend to invest in certain geographical areas within Mozambique that have natural resource potential but which lack infrastructure and have low levels of economic activity. Rapid Development Zones (RDZ) were also created to facilitate investment. Investments in these zones are exempt from import duties on certain goods and are granted an investment tax credit equal to 20 percent of the total investment (with a right to carry the credit forward for five years). Additional modest incentives are available for professional training and the construction and rehabilitation of public infrastructure, including, but not limited to roads, railways, water supply, schools, and hospitals.

The Code of Fiscal Benefits, Law No. 4/2009, passed in 2009, is available at: https://investmentpolicyhubold.unctad.org/InvestmentLaws/laws/108 . The Regulations for the Code of Fiscal Benefits are set forth in Decree No. 56/2009, which was approved in October 2009. APIEX can assist companies with the investment incentives stipulated in the Code of

Fiscal Benefits

With the exception of sectors like oil and gas where government participation is mandatory, the government does not issue joint guarantees or jointly finance foreign direct investment projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

Mozambique has seven free trade zones in the country, which provide a variety of fiscal exemptions depending on the sector of investment as well as the project location. Investors should pay close attention to documents and procedures requested in order to establish a business locally or to request fiscal and customs incentives if investing in an industrial free zone. Information regarding business registration and administrative practices are available at: http://www.portaldogoverno.gov.mz/por/Empresas/Registos .

Performance and Data Localization Requirements

The government generally does not require investors to purchase from local sources, nor does it require technology or proprietary business information to be transferred to a local company. Within certain sectors, however, the government has implemented sector specific local content requirements. A proposed “Local Content” law could create additional requirements in this realm and consolidate the various requirements into a single law. This proposed law has been drafted and presented at the Council of Ministers, and is likely to be approved before the end of 2020.

Regulations for new mining and petroleum laws may require investors to give preference to local sources available in Mozambique if the goods or services are of an internationally comparable quality and competitively priced.

Companies may hire foreign workers only when there are not sufficient Mozambican workers available that meet specific job qualifications. The Ministry of Labor enforces quotas for foreign workers as a percentage of the workforce within companies that varies based on the size of the company. Per the 2007 Labor Law (23/2007) companies with 10 employees or fewer can employ no more than 10 percent expatriates (effectively 1 person in a 10 person company), companies with 11-100 employees may employ up to 8 percent expatriates, and large companies with over 100 employees may employ no more than 10 percent expatriates. Many companies use foreigners as outside consultants, which allows them to get around the quota system by hiring a “company” instead of a foreigner who would be subject to the quota requirement. Work permits for foreigners cost approximately USD370 and take at least one month to be issued. All investments must specify the number and category of Mozambican and foreign workers.

There are currently no data localization policies in effect in Mozambique. The government agency responsible for enforcing IT policies and rules is:

UTICT – Unidade Tecnica de Implementacao da Politica de Informatica
Technical Implementation Unit for IT Policy
Tel: (258) 21 309 398; 21 302 241
Mobile (258) 305 3450
Email: cpinfo@infopol.gov.mz

5. Protection of Property Rights

Real Property

The legal system recognizes and protects property rights to buildings and movable property. Private ownership of land, however, is not allowed in Mozambique. Land is owned by the State. The government grants land-use concessions called DUATs (Direitos de Uso e Aproveitamento de Terra, or a land-use title) for periods of up to 50 years, with options to renew for an additional 50 years. Essentially, land-use concessions serve as proxies for land titles. There is no robust market in land use rights and land use titles are not easily transferable. The process to award land concessions is not transparent and the government at times has granted overlapping land concessions that often require lengthy negotiation to resolve. It takes an average of 90 days to issue a land title for most of the concessions. Banks in Mozambique rely on property other than land – cars, private houses, and infrastructure – as collateral, as it is not possible to securitize property for lending purposes.

In urban areas, the DUAT of a plot passes automatically to the purchaser following the sale of a house or building. In rural areas, the purchaser of physical infrastructure or improvements and crops must request authorization from the government for the DUAT to be transferred. This requirement is often cited as a barrier for loans in the agricultural sector and is seen as a potential barrier to investment in the agriculture sector and the transition to more intensive, commercial forms of agriculture.

Investors should be aware of the requirement to obtain endorsement of their projects in terms of land use and allocation at a local level from the affected communities. APIEX assists investors in finding land for development and obtaining appropriate documentation, including agricultural land. The government advises companies on relocating individuals currently occupying land designated for development; however, companies are ultimately responsible for planning and executing resettlement programs.

Intellectual Property Rights

Intellectual property rights (IPR) enforcement in Mozambique remains sporadic and inconsistent. Mozambique’s National Inspectorate of Economic Activities (INAE) has increased seizures, confiscating Hewlett-Packard (HP) toner cartridges, Nike, Adidas, Ralph Lauren, and other falsely branded merchandise in several raids in 2019. However, in general, enforcement and prosecutions are limited. Pirated DVDs and other counterfeit goods are commonly sold in Mozambique.

The Parliament passed a copyright and related rights bill in 2000, which, when combined with the 1999 Industrial Property Act, brought Mozambique into compliance with the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The law provides for the security and legal protection of industrial property rights, copyrights, and other related rights. In addition, Mozambique is a signatory to the Bern Convention, as well as the New York and Paris Conventions.

Despite enforceable laws and regulations protecting intellectual property rights (IPR and providing recourse to criminal or administrative courts for IPR violations, it remains difficult for investors to enforce their IPR. The registration process is relatively simple. and private sector organizations have been working with various government entities on an IPR taskforce to combat IPR infringement and related public safety issues stemming from the use of counterfeit products.

Mozambique is not included in he 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 https://www.wipo.int/directory/en/details.jsp?country_code=MZ  .

6. Financial Sector

Capital Markets and Portfolio Investment

The Mozambique Stock Exchange (BVM, Bolsa de Valores de Mocambique) is a public institution under the guardianship of the Minister of Economy and Finance and the supervision of the Central Bank of Mozambique. In general, the BVM is underutilized as a means of financing and investment. However, the government has expressed interest in reforming market rules in an effort to increase capitalization and potentially prepare the ground for new rules that would require foreign companies active in Mozambique to be listed on the local stock exchange. Corporate and government bonds are traded on the BVM and there is only one dealer that operates in the country, with all other brokers incorporated into commercial banks, which act as the primary dealers for treasury bills. The secondary market in Mozambique remains underdeveloped. Available credit instruments include medium and short-term loans, syndicated loans, foreign exchange derivatives, and trade finance instruments, such as letters of credit and credit guarantees. The BVM remains illiquid, in the sense that very limited activity occurs outside the issuing time. Investors tend to hold their instruments until maturity. The market also lacks a bond yield curve as government issuances use a floating price regime for the coupons with no price discovery for tenures above 12 months.

The GRM notified the IMF that it has accepted the obligations of Article VIII sections 2, 3, and 4 of the IMF Articles of Agreement, effective May 20, 2011.

Money and Banking System

According to the Mozambican Association of Banks (AMB) and KPMG, in 2019 the Banco Comercial e de Investimentos SA (BCI), Banco Internacional de Mocambique SA (BIM), and Standard Bank accounted for more than 65% of the total assets, total loans and advances, and total deposits held by commercial banks in Mozambique. In 2018, Mozambique had 669 bank branches, up from 641 in 2017. The majority of these branches is concentrated in major cities and rural districts often have no banks at all. As of December 2019 there were 1790 Automated Teller Machines (ATMs) throughout the country. Thanks to the partnership between mobile communications companies and banks for electronic or mobile-money transactions, the number of services available from ATMs is also increasing.

Credit is allocated on market terms, but eligibility requirements exclude much of the population from obtaining credit. Banks request collateral, but since land cannot be used as collateral, the majority of individuals do not qualify for loans. Foreign investor export activities in critical areas related to food, fuel, and health markets have access to credit in foreign and local currencies. All other sectors have access to credit only in the local currency.

The value of non performing loans increased by 16 percent from 18.6 billion meticais as of December 2017 to 21.5 billion meticais as of December 2018. This increase happened at a time when the value of all loans remained largely unchanged when compared to the previous year. The non performing loans (NPLs) ratio for the sector has slightly improved from 8.3 percent at the end of 2017 to 7.1 percent by December 2018, due in part to write offs.

Foreign Exchange and Remittances

Foreign Exchange

In December 2017, Mozambique approved new exchange control rules in Decree 49/2017. Residents in Mozambique are now required to remit export earnings to Mozambique into an export earnings account in foreign currency, which can only be used for specifically defined purposes. Under the new decree, the mandatory registration of foreign exchange operations will now be processed electronically in real time by the commercial banks. Applications for capital operations are now processed by commercial banks and forwarded to the Central Bank of Mozambique. Foreign direct investment (FDI) up to USD 250,000 no longer requires prior authorization from the Bank of Mozambique and only needs to be registered with the commercial bank handling the transactions. Shareholder and intercompany loans made by foreign entities up to USD 5 million require no authorization from the Central Bank, provided the loans are interest free or lower than the base lending rate for the relevant currency, the repayment period is at least three years, and no other fees or charges apply.

A special foreign exchange regime for oil, gas, and mining sectors allows for greater flexibility in foreign exchange and financing operations. The law, which went into force in January 2018, stipulates that profits from petroleum rights are entirely taxed at an autonomous tax rate of 32 percent. The law also guarantees tax stabilization for up to 10 years, starting from the beginning of commercial production with an investment amount of USD 100 million. The Ministry of Economy and Finance can also approve the use of U.S. dollars, if the company has invested at least USD 500 million and more than 90 percent of its transactions are in U.S. dollars. The law also revoked a 50 percent tax rate reduction related to the production tax that was available when extracted products were used locally.

Remittance Policies

Under the 2017 Decree, there is no longer an obligation to convert 50 percent of export proceeds into the local currency. The new decree only requires that a sufficient quantity be converted into the local currency to cover payments to residents locally.

Sovereign Wealth Funds

The government is exploring establishing a sovereign wealth fund for LNG revenues that are expected in the next decade. Currently there is an off-budget account for capital gains revenues, in particular the approximate USD 830 million the government received following the transfer of Anadarko’s Mozambique assets to Total. The Budget Law authorizes the government to save or spend windfall revenues on investment projects, debt repayment, and emergency programs. However, there are limited details on how off-budget spending should be planned and approved. The Ministry of Economy and Finance is currently leading efforts to develop a proposal for a sovereign wealth fund that it hopes to present to parliament before the end of 2020.

7. State-Owned Enterprises

Mozambique’s State-owned enterprises (SOEs) have their origin in the socialist period directly following independence in 1975, with a variety of SOEs competing with the private sector in the Mozambican economy. Government participation varies depending on the company and sector. SOEs are managed by the Institute for the Management of State Participation (IGEPE – Portuguese acronym). Following past privatization and restructuring programs, IGEPE now holds majority and minority interests in 128 firms, down from 156. IGEPE’s holdings are listed on its website: http://www.igepe.org.mz/ 

Some of the largest SOEs, such as Airports of Mozambique (ADM) and Airlines of Mozambique (Travel – airports and air transportation), and Electricity of Mozambique (Energy & Mining – electrical utility), have monopolies in their respective industries. In some cases, SOEs enter into joint ventures with private firms to deliver certain services. For example, Ports and Railways of Mozambique (CFM-Portuguese acronym) offers concessions for some of its ports and railways. Many SOEs benefit from state subsidies. In some instances, SOEs have benefited from non-compete contracts that should have been competitively tendered. SOE accounts are generally not transparent and not thoroughly audited by the Supreme Audit Institution. SOE debt represents an unknown, but potentially significant liability for the GRM. SOEs were also at the heart of the hidden debt scandal revealed in 2016.

In March 2018, the Parliament passed a new law that broadens the definition of state-owned enterprises (SOEs) to include all public enterprises and shareholding companies. The law seeks to unify SOE oversight and harmonize the corporate governance structure, placing additional financial controls, borrowing limits, and financial analysis and evaluation requirements for borrowing by SOEs. The law requires the oversight authority to publish a consolidated annual report on SOEs, with additional reporting requirements for individual SOEs. The Council of Ministers approved regulations for the SOE law in early 2019, but there has still not been a meaningful increase in public disclosure by the state owned companies.

Privatization Program

Mozambique’s privatization program has been relatively transparent, with tendering procedures that are generally open and competitive. Most remaining parastatals operate as state-owned public utilities, with government oversight and control, making their privatization more politically sensitive. While the government has indicated an intention to include private partners in most of these utility industries, progress has been slow.

9. Corruption

Corruption is a major concern in Mozambique. Though Mozambique has made progress developing the legal framework to combat corruption, the policies and leadership necessary to ensure effective implementation have been insufficient. While the 2016 hidden debt scandal involving a cadre of former government officials is the most infamous example of government corruption, it is not the only case.

However, the government is taking concerted action to address the problem. In 2019, Mozambique made a string of arrests of 20 politically connected individuals related to the hidden debt case. The government also moved forward with cases against the former Minister of Transport and Communications Paulo Zucula, the former CEO of the national airlines (LAM – a parastatal), and Mateus Zimba, former director of Sasol. In 2019, the government in cooperation with the IMF also released a Diagnostic Report on Transparency, Governance and Corruption outlining 29 measures to fight corruption and improve transparency. The full report is available online at: https://www.imf.org/en/Publications/CR/Issues/2019/08/23/Republic-of-Mozambique-Diagnostic-Report-on-Transparency-Governance-and-Corruption-48613 .

Thanks in part to these efforts, Mozambique rose six places on Transparency International’s 2019 Corruption Perceptions Index, and now ranks 146 out of 180 countries in 2019.

Mozambique’s civil society and journalists remain vocal on corruption-related issues. Action related to the hidden debt scandal is being led by a civil society umbrella organization known as the Budget Monitoring Forum (FMO, Forum de Monitoria de Orcamento) that brings together around 20 different organizations for collective action on transparency and corruption related issues. Another civil society organization, the Center for Public Integrity (CIP, Centro de Integridade Publica), also continues to publicly pressure the government to act against corrupt practices. CIP finds that many local businesses are closely linked to the government and have little incentive to promote transparency.

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

Ana Maria Gemo
Central Anti-Corruption Office (Gabinete Central de Combate a Corrupcao)
Avenida 10 de Novembro, 193
+258 82 3034576
gabinetecorrupção@yahoo.com.br

Contact at “watchdog” organization

Fatima Mimbire
Project Coordinator Extractive Industries
Center for Public Integrity (Centro de Integridade Publica)
Rua Fernão Melo e Castro, 124
+258 82 5293957
fatima.mimbire@cipmoz.org

10. Political and Security Environment

The greatest security concern in Mozambique is the growing Islamic insurgency in the country’s northern provinces. What started as a homegrown threat in October 2017, likely emboldened by Tanzania-based extremist leaders, has evolved into a more organized insurgency, and was officially recognized by the Islamic State (IS) as an affiliate organization in June 2019. IS now provides support to the combatants in northern Mozambique and frequently claims credit for their attacks. The violence has resulted in an estimated 930 deaths and led to more than 150,000 internally displaced persons in Cabo Delgado Province (CDP). Since 2017, the IS-affiliate has carried out more than 250 deliberate attacks against unarmed civilians, creating a high risk for atrocities committed by the violent extremist organization. 2020 is on pace to be the conflict’s deadliest year.

The Islamic State-affiliate primarily operates in CDP, which is also the site of the major LNG investments being led by Total and the ENI/ExxonMobil consortium, but maintains networks in neighboring Niassa and Nampula provinces, and has proven capable of attacking villages in southern Tanzania. In early 2019, the insurgents killed a contractor associated with the LNG project and there have since been several other victims among LNG company staff. However, to date, the insurgents’ target remains villages and government forces and institutions. While the violence has not directly impacted the LNG project site, it has raised costs and put a damper on follow-on investments in CDP that could provide services to the projects in a more permissive security environment. Mozambique’s military and police forces have often proved ineffective in defending many communities in CDP. While the GRM is in need of outside military assistance, the continued use of private military companies risks further aggravating local grievances.

In March 2020, the GRM announced the creation of the Integrated Development Agency of the North. The United States and other international partners look forward to working with this new agency to address the underlying socio-economic drivers of violent extremism in Cabo Delgado.

In addition, following Mozambique’s largely peaceful elections in October 2019, there has been a resurgence of violence in central Mozambique led by a Renamo splinter group known as the “Junta” despite the definitive ceasefire and peace agreement signed in August 2019. Renamo denies any connections to or support for the Junta. Until recently, the splinter group primarily targeted road transport along the major north-south and east-west highways that pass through Manica and Sofala provinces. However, in April 2020, the group attacked a logging camp killing one expatriate worker and wounding several others. The Junta leader does not recognize the leader of the Renamo party and has stated that the attacks will continue until the government enters into direct negotiations with him.

11. Labor Policies and Practices

The labor market is dominated by the informal economy with the vast majority of people (approximately 70 percent) working in subsistence agriculture, particularly in rural areas. People in cities often work in informal trade.

There is an acute shortage of skilled labor in Mozambique. As a result, many employers import foreign employees to fill these skill gaps. The government limits the number of expatriates a business can employ in relation to the number of Mozambican citizens it employs. The government passed a labor regulation in 2016 strengthening the requirement for employers to devise a skills transfer program that trains Mozambican nationals to eventually replace the foreign workers.

The constitution and law provide that workers, with limited exceptions, may form and join independent trade unions, conduct legal strikes, and bargain collectively. The law requires government approval to establish a union. The government has 45 days to register employers’ or workers’ organizations, a delay the International Labor Organization (ILO) deemed excessive. Approximately three percent of the labor force is affiliated with trade unions. An employee fired with cause does not have a right to severance, while employees terminated without cause do. Unemployment insurance does not exist and there is not a social safety net program for workers laid off for economic reasons.

The Government of Mozambique is reviewing the Labor Law to align it with international conventions related to forced labor, health and safety issues in mining, and the worst forms of child labor. The proposed law would also extend the maternity leave period from 60 to 90 days. The new labor law will also address sexual harassment.

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 $14.717 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2018 $332 BEA data available at:
https://apps.bea.gov/
international/factsheet/
 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2018 $ -1 BEA data available at
https://apps.bea.gov/
international/factsheet/
 
Total inbound stock of FDI as % host GDP N/A N/A 2019 288.4 UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
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 41,530 100% Total Outward N/A 100%
United Arab Emirates 8,115 20% N/A
South Africa 7,630 18%
Mauritius 6,093 15%
Portugal 3,862 9%
U.K. 2,965 7%
“0” reflects amounts rounded to +/- USD 500,000.

UAE and Mauritius are both have bilateral tax agreements with Mozambique and host holding company accounts used by companies involved in Mozambique’s LNG industry.

Table 4: Sources of Portfolio Investment
Data not available.

Nigeria

Executive Summary

Nigeria’s economy – Africa’s largest – exited recession in 2017, assisted by the Central Bank of Nigeria’s more rationalized foreign exchange regime.  No growth is expected in the near term and although 2019 ended with a real growth rate of 2.3 percent this is still below Nigeria’s population growth rate of 2.6 percent.  With the largest population in Africa (estimated at nearly 200 million), Nigeria continues to represent a large consumer market for investors and traders.  Nigeria has a very young population with nearly two-thirds under the age of 25.  It offers abundant natural resources and a low-cost labor pool and enjoys mostly duty-free trade with other member countries of the Economic Community of West African States (ECOWAS).  Nigeria’s full market potential remains unrealized because of pervasive corruption, inadequate power and transportation infrastructure, high energy costs, an inconsistent regulatory and legal environment, insecurity, a slow and ineffective bureaucracy and judicial system, and inadequate intellectual property rights protections and enforcement.  The Nigerian government has undertaken reforms to help improve the business environment, including making starting a business faster by allowing electronic stamping of registration documents, and making it easier to obtain construction permits, register property, get credit, and pay taxes.  Reforms undertaken since 2017 have helped boost Nigeria’s ranking on the World Bank’s annual Doing Business rankings to 131 out of 190.

Nigeria’s underdeveloped power sector remains a bottleneck to broad-based economic development.  Power on the national grid currently averages 4,000 megawatts, forcing most businesses to generate much of their own electricity.  The World Bank currently ranks Nigeria 169 out of 190 countries for ease of obtaining electricity for business.  Reform of Nigeria’s power sector is ongoing, but investor confidence continues to be shaken by tariff and regulatory uncertainty.  The Nigerian Government, in partnership with the World Bank, published a Power Sector Recovery Plan (PSRP) in 2017.  However, three years after its launch, differing perspectives on various PSRP interventions have delayed implementation.  The Ministry of Finance is driving the implementation effort and has convened three Federal Government of Nigeria committees charged with moving the process forward in the areas of regulation, policy, and finances.  Discussions between the government and the World Bank are continuing, but some sector players report skepticism that the World Bank’s USD 1 billion loan will be enacted, though FGN may proceed without it.  The plan is ambitious and will require political will from the administration, external investment to address the accumulated deficit, and discipline in implementing plans to mitigate future shortfalls.  It is, nevertheless, a step in the right direction, and recognizes explicitly that the Nigerian economy is losing on average approximately USD 29 billion annually due to lack of adequate power.

Nigeria’s trade regime remains protectionist in key areas.  High tariffs, restricted forex availability for 44 categories of imports, and prohibitions on many other import items have the aim of spurring domestic agricultural and manufacturing sector growth.  Nigeria’s imports rose in 2019, largely as a result of the country’s continued recovery from the 2016 economic recession.  U.S. goods exports to Nigeria in 2018 were valued at USD 2.7 billion, up nearly 23 percent from the previous year, while U.S. imports from Nigeria totaled USD 5.6 billion, a decrease of 20.3 percent.  U.S. exports to Nigeria are primarily refined petroleum products, used vehicles, cereals, and machinery.  Crude oil and petroleum products continued to account for over 95 percent of Nigerian exports to the United States in 2018 (latest data available).  The stock of U.S. foreign direct investment (FDI) in Nigeria was USD 5.6 billion in 2018, a substantial increase from USD 3.8 billion in 2016, but only a modest increase from 2015’s USD 5.5 billion in FDI.  U.S. FDI in Nigeria continues to be led by the oil and gas sector.

Given the corruption risk associated with the Nigerian business environment, potential investors often develop anti-bribery compliance programs.  The United States and other parties to the Organization for Economic Co-operation and Development (OECD) Anti-Bribery Convention aggressively enforce anti-bribery laws, including the U.S. Foreign Corrupt Practices Act (FCPA).  A high-profile FCPA case in Nigeria’s oil and gas sector resulted in U.S. Securities Exchange Commission (SEC) and U.S. Department of Justice rulings in 2010 that included record fines for a U.S. multinational and its subsidiaries that had paid bribes to Nigerian officials.  Since then, the SEC has charged an additional four international companies with bribing Nigerian government officials to obtain contracts, permits, and resolve customs disputes.  See SEC enforcement actions at https://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml.

Security remains a concern to investors in Nigeria due to high rates of violent crime, kidnappings for ransom, and terrorism.  The ongoing Boko Haram and Islamic State in West Africa (ISIS-WA) insurgencies have included attacks against civilian and military targets in the northeast of the country, causing general insecurity and a major humanitarian crisis there.  Militant attacks on oil and gas infrastructure in the Niger Delta region restricted oil production and export in 2016, but a restored amnesty program and more federal government engagement in the Delta region have brought a reprieve in violence and allowed restoration of oil and gas production.  The longer-term impact of the government’s Delta peace efforts, however, remains unclear and criminal activity in the Delta – in particular, rampant oil theft – remains a serious concern.  Maritime criminality in Nigerian waters, including incidents of piracy and crew kidnapping for ransom, has increased in recent years, and law enforcement efforts have been ineffectual.  International inspectors have voiced concerns over the adequacy of security measures at some Nigerian port facilities onshore.  Businesses report that bribery of customs and port officials remains common to avoid delays, and smuggled goods routinely enter Nigeria’s seaports.

Although the constitution and laws provide for freedom of speech and press, the government frequently restricts these rights. A large and vibrant private, domestic press frequently criticizes the government, but critics report being subjected to threats, intimidation, and sometimes violence as a result.  Security services increasingly detain and harass journalists, including for reporting on sensitive topics such as corruption and security.  As a result, some journalists practice self-censorship on sensitive issues.  Journalists and local NGOs claim security services intimidate journalists, including editors and owners, into censoring reports perceived to be critical of the government.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 146 of 180 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 131 of 190 http://www.doingbusiness.org/
en/rankings
Global Innovation Index 2019 114 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2018 USD

5.6 billion

https://apps.bea.gov/international/
factsheet/
World Bank GNI per capita 2018 USD 1,960 http://data.worldbank.org/indicator/
NY.GNP.PCAP.CD

3. Legal Regime

Transparency of the Regulatory System

Nigeria’s legal, accounting, and regulatory systems comply with international norms, but application and enforcement remain uneven.  Opportunities for public comment and input into proposed regulations sometimes occur.  Professional organizations set standards for the provision of professional services, such as accounting, law, medicine, engineering, and advertising.  These standards usually comply with international norms.  No legal barriers prevent entry into these sectors.

Ministries and regulatory agencies develop and make public anticipated regulatory changes or proposals and publish proposed regulations before their application.  The general public has opportunity to comment through targeted outreach, including business groups and stakeholders, and during the public hearing process before a bill becomes law.  There is no specialized agency tasked with publicizing proposed changes and the time period for comment may vary.  Ministries and agencies do conduct impact assessments, including environmental, but assessment methodologies may vary.  The National Bureau of Statistics reviews regulatory impact assessments conducted by other agencies.  Laws and regulations are publicly available.

Fiscal management occurs at all three tiers of government: federal, 36 state governments and Federal Capital Territory (FCT) Abuja, and 774 local government areas (LGAs).  Revenues from oil and non-oil sources are collected into the federation account and then shared among the different tiers of government by the Federal Account Allocation Committee (FAAC) in line with a statutory sharing formula.  All state governments can collect internally generated revenues, which vary from state to state.  The fiscal federalism structure does not compel states to be accountable to the federal government or transparent about revenues generated or received from the federation account.  The federal government’s finances are more transparent as budgets are made public and the financial data are published by the Central Bank of Nigeria (CBN), Debt Management Office (DMO), the Budget Office of the Federation, and the National Bureau of Statistics.  The state-owned oil company’s (Nigerian National Petroleum Corporation) financial data is very opaque.

The DMO puts Nigeria’s total debt stock at USD 84 billion as of December 2019 – USD 27.7 billion or nearly 33 percent of which is external.  The total debt figures presented by the DMO usually do not include off-balance-sheet financing such as sovereign guarantees.

International Regulatory Considerations

Foreign companies operate successfully in Nigeria’s service sectors, including telecommunications, accounting, insurance, banking, and advertising.  The Investment and Securities Act of 2007 forbids monopolies, insider trading, and unfair practices in securities dealings.  Nigeria is not a party to the WTO’s Government Procurement Agreement (GPA).  Nigeria generally regulates investment in line with the WTO’s Trade-Related Investment Measures (TRIMS) Agreement, but the government’s local content requirements in the oil and gas sector and the Information and Communication Technology (ICT) sector may conflict with Nigeria’s commitments under TRIMS.

In 2013, the National Information Technology Development Agency (NITDA), under the auspices of the Ministry of Communication, issued the Guidelines for Nigerian Content Development in the ICT sector.  The Guidelines require original ICT equipment manufacturers, within three years from the effective date of the guidelines, to use 50 percent local manufactured content and to use Nigerian companies to provide 80 percent of value added on networks.  The Guidelines also require multinational companies operating in Nigeria to source all hardware products locally; all government agencies to procure all computer hardware only from NITDA-approved original equipment manufacturers; and ICT companies to host all consumer and subscriber data locally, use only locally manufactured SIM cards for telephone services and data, and to use indigenous companies to build cell towers and base stations.  Enforcement of the Guidelines is largely inconsistent.  The Nigerian government generally lacks capacity and resources to monitor labor practices, technology compliancy, and digital data flows.  There are reports that individual Nigerian companies periodically lobby the National Assembly and/or NITDA to address allegations (warranted or not) against foreign firms that they are in non-compliance with the Guidelines.

The goal is to promote development of domestic production of ICT products and services for the Nigerian and global markets, but the guidelines pose risks to foreign investment and U.S. companies by interrupting their global supply chain, increasing costs, disrupting global flow of data, and stifling innovative products and services.  Industry representatives remain concerned about whether the guidelines would be implemented in a fair and transparent way toward all Nigerian and foreign companies.  All ICT companies, including Nigerian companies, use foreign manufactured equipment as Nigeria does not have the capacity to supply ICT hardware that meets international standards.

Nigeria is a member of the Economic Community of West African States (ECOWAS), which implemented a Common External Tariff (CET) beginning in 2015 with a five-year phase in period.  An internal CET implementation committee headed by the Fiscal Policy/Budget Monitoring and Evaluation Department of the NCS was set up to develop the implementation work plans that were consistent with national and ECOWAS regulations.  The CET was slated to be fully harmonized by 2020, but in practice some ECOWAS Member States have maintained deviations from the CET beyond the January 1, 2020, deadline.  The country has put in place a CET monitoring committee domiciled at the Ministry of Finance, consisting of several ministries, departments, and agencies (MDAs) related to the CET.  Nigeria applies five tariff bands under the CET:  zero duty on capital goods, machinery, and essential drugs not produced locally; 5 percent duty on imported raw materials; 10 percent duty on intermediate goods; 20 percent  duty on finished goods; and 35 percent duty on goods in certain sectors such as palm oil, meat products, dairy, and poultry that the Nigerian government seeks to protect.  The CET permits ECOWAS member governments to calculate import duties higher than the maximum allowed in the tariff bands (but not to exceed a total effective duty of 70 percent) for up to 3 percent of the 5,899 tariff lines included in the ECOWAS CET.

Legal System and Judicial Independence

Nigeria has a complex, three-tiered legal system comprised of English common law, Islamic law, and Nigerian customary law.  Most business transactions are governed by common law modified by statutes to meet local demands and conditions.  The Supreme Court is the pinnacle of the judicial system and has original and appellate jurisdiction in specific constitutional, civil, and criminal matters as prescribed by Nigeria’s constitution.  The Federal High Court has jurisdiction over revenue matters, admiralty law, banking, foreign exchange, other currency and monetary or fiscal matters, and lawsuits to which the federal government or any of its agencies are party.  The Nigerian court system is slow and inefficient, lacks adequate court facilities and computerized document-processing systems, and poorly remunerates judges and other court officials, all of which encourages corruption and undermines enforcement.  Judges frequently fail to appear for trials and court officials lack proper equipment and training.

The constitution and law provide for an independent judiciary; however, the judicial branch remains susceptible to pressure from the executive and legislative branches.  Political leaders have influenced the judiciary, particularly at the state and local levels.

The World Bank’s publication, Doing Business 2020, ranked Nigeria 73 out of 190 on enforcement of contracts, a significant improvement from previous years.  The Doing Business report credited business reforms for improving contract enforcement by issuing new rules of civil procedure for small claims courts which limit adjournments to unforeseen and exceptional circumstances but noted that there can be variation in performance indicators between cities in Nigeria (as in other developing countries).  For example, resolving a commercial dispute takes 476 days in Kano but 376 days in Lagos.  In the case of Lagos, the 376 days includes 40 days for filing and service, 194 days for trial and judgment, and 142 days for enforcement of the judgment with total costs averaging 42 percent of the claim.  In Kano, however, filing and service only takes 21 days with enforcement of judgement only taking 90 days, but trial and judgment accounts for 365 days with total costs averaging lower at 28 percent of the claim.  In comparison, in OECD countries the corresponding figures are an average of 589.6 days and averaging 21.5 percent of the claim and in sub-Saharan countries an average of 654.9 days and averaging 41.6 percent of the claim.

Laws and Regulations on Foreign Direct Investment

The NIPC Act of 1995 allows 100 percent foreign ownership of firms, except in the oil and gas sector where investment remains limited to joint ventures or production-sharing agreements.  Laws restrict industries to domestic investors if they are considered crucial to national security, such as firearms, ammunition, and military and paramilitary apparel.  Foreign investors must register with the NIPC after incorporation under the Companies and Allied Matters Decree of 1990.  The NIPC Act prohibits the nationalization or expropriation of foreign enterprises except in case of national interest, but the Embassy is unaware of specific instances of such interference by the government.

Competition and Anti-Trust Laws

After years of debate, the Nigerian government enacted the Federal Competition and Consumer Protection (FCCPC) Act in February 2019.  The act repealed the Consumer Protection Act of 2004 and replaced the previous Consumer Protection Council with a Federal Competition and Consumer Protection Commission while also creating a Competition and Consumer Protection Tribunal to handle issues and disputes arising from the operations of the Act.  Under the terms of the Act, businesses will be able to lodge anti-competitive practices complaints against other firms in the Tribunal.  The act prohibits agreements made to restrain competition, such as price fixing, price rigging, collusive tendering, etc. (with specific exemptions for collective bargaining agreements and employment, among other items).  The act empowers the President of Nigeria to regulate prices of certain goods and services on the recommendation of the Commission.

The law prescribes stringent fines for non-compliance.  The law mandates a fine of up to 10 percent of the company’s annual turnover in the preceding business year for offences.  The law harmonizes oversight for consumer protection, consolidating it under the FCCPC.

Expropriation and Compensation

The FGN has not expropriated or nationalized foreign assets since the late 1970s, and the NIPC Act of 1995 forbids nationalization of a business or assets unless the acquisition is in the national interest or for a public purpose.  In such cases, investors are entitled to fair compensation and legal redress.  A U.S.-owned waste management investment expropriated by Abia State in 2008 is the only known U.S. expropriation case in Nigeria.

Dispute Settlement

ICSID Convention and New York Convention

Nigeria is a member of the International Center for Settlement of Investment Disputes and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (also called the “New York Convention”).  The Arbitration and Conciliation Act of 1988 provides for a unified and straightforward legal framework for the fair and efficient settlement of commercial disputes by arbitration and conciliation.  The Act created internationally-competitive arbitration mechanisms, established proceeding schedules, provided for the application of the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules or any other international arbitration rule acceptable to the parties, and made the New York Convention applicable to contract enforcement, based on reciprocity.  The Act allows parties to challenge arbitrators, provides that an arbitration tribunal shall ensure that the parties receive equal treatment, and ensures that each party has full opportunity to present its case.  Some U.S. firms have written provisions mandating International Chamber of Commerce (ICC) arbitration into their contracts with Nigerian partners.  Several other arbitration organizations also operate in Nigeria.

Investor-State Dispute Settlement

Nigeria’s civil courts have jurisdiction over disputes between foreign investors and the Nigerian government as well as between foreign investors and Nigerian businesses.  The courts occasionally rule against the government.  Nigerian law allows the enforcement of foreign judgments after proper hearings in Nigerian courts.  Plaintiffs receive monetary judgments in the currency specified in their claims.

Section 26 of the NIPC Act of 1995 provides for the resolution of investment disputes through arbitration as follows:

  • Where a dispute arises between an investor and any Government of the Federation in respect of an enterprise, all efforts shall be made through mutual discussion to reach an amicable settlement.
  • Any dispute between an investor and any Government of the Federation in respect of an enterprise to which this Act applies which is not amicably settled through mutual discussions, may be submitted at the option of the aggrieved party to arbitration as follows:
    1. in the case of a Nigerian investor, in accordance with the rules of procedure for arbitration as specified in the Arbitration and Conciliation Act; or
    2. in the case of a foreign investor, within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties; or
    3. in accordance with any other national or international machinery for the settlement of investment disputes agreed on by the parties.
  • Where in respect of any dispute, there is disagreement between the investor and the Federal Government as to the method of dispute settlement to be adopted, the International Centre for Settlement of Investment Dispute Rules shall apply.

Nigeria is a signatory to the 1958 Convention on Recognition and Enforcement of Foreign Arbitral Awards.  Nigerian Courts have generally recognized contractual provisions that call for international arbitration.  Nigeria does not have a Bilateral Investment Treaty or Free Trade Agreement with the United States.

Bankruptcy Regulations

Reflecting Nigeria’s business culture, entrepreneurs generally do not seek bankruptcy protection.  Claims often go unpaid, even in cases where creditors obtain judgments against defendants.  Under Nigerian law, the term bankruptcy generally refers to individuals whereas corporate bankruptcy is referred to as insolvency.  The former is regulated by the Bankruptcy Act of 1990, as amended by Bankruptcy Decree 109 of 1992.  The latter is regulated by Part XV of the Companies and Allied Matters Act Cap 59 1990 which replaced the Companies Act, 1968.  The Embassy is not aware of U.S. companies that have had to avail themselves of the insolvency provisions under Nigerian law.

4. Industrial Policies

Investment Incentives

The Nigerian government maintains different and overlapping incentive programs.  The Industrial Development/Income Tax Relief Act, Cap 17, Laws of the Federation of Nigeria, 2004 provides incentives to pioneer industries deemed beneficial to Nigeria’s economic development and to labor-intensive industries, such as apparel.  There are currently 99 industries and products that qualify for the pioneer status incentive through the NIPC, following the addition of 27 industries and products added to the list in 2017.  The government has added a stipulation calling for a review of the qualifying industries and products to occur every two years.  Companies that receive pioneer status may benefit from a tax holiday from payment of company income tax for an initial period of three years, extendable for one or two additional years.  A pioneer industry sited in an economically disadvantaged area is entitled to a 100 percent tax holiday for seven years and an additional five percent depreciation allowance over and above the initial capital depreciation allowance.  Additional tax incentives are available for investments in domestic research and development, for companies that invest in LGAs deemed disadvantaged, for local value-added processing, for investments in solid minerals and oil and gas, and for several other investment scenarios.  For a full list of incentives, refer to the NIPC website at https://www.nipc.gov.ng/investment-incentives/ .

The NEPC administers an EEG scheme to improve non-oil export performance.  The program was suspended in 2014 due to concerns about corruption on the part of companies that collected grants but did not actually export.  It was revised and relaunched in 2018.  The federal government set aside 5.12 billion naira (roughly USD 14.2 million) in the 2019 budget for the EEG scheme.  The NEXIM Bank provides commercial bank guarantees and direct lending to facilitate export sector growth, although these services are underused.  NEXIM’s Foreign Input Facility provides normal commercial terms for the importation of machinery and raw materials used for generating exports.  Repayment terms are typically up to seven years, including a moratorium period of up to two years depending on the loan amount and the project being finance.  Agencies created to promote industrial exports remain burdened by uneven management, vaguely defined policy guidelines, and corruption.

The NIPC states that up to 120 percent of expenses on research and development (R&D) are tax deductible, provided that such R&D activities are carried out in Nigeria and relate to the business from which income or profits are derived.  Also, for the purpose of R&D on local raw materials, 140 percent of expenses are allowed.  Long-term research will be regarded as a capital expenditure and written off against profit.

Foreign Trade Zones/Free Ports/Trade Facilitation

The Nigerian Export Processing Zone Authority (NEPZA) allows duty-free import of all equipment and raw materials into its export processing zones.  Up to 100 percent of production in an export processing zone may be sold domestically based on valid permits and upon payment of applicable duties.  Investors in the zones are exempt from foreign exchange regulations and taxes and may freely repatriate capital.  The Nigerian government also encourages private sector participation and partnership with state and local governments under the free trade zones (FTZ) program, resulting in the establishment of the Lekki FTZ (owned by Lagos State), and the Olokola FTZ (which straddles Ogun and Ondo States and is owned by those two states, the federal government, and private oil companies).  Workers in FTZs may unionize but may not strike for an initial ten-year period.

Nigeria ratified the WTO Trade Facilitation Agreement (TFA) in 2016 and the Agreement entered into force in 2017.  Nigeria already implements items in Category A under the TFA and has identified, but not yet implemented, its Category B and C commitments.  In 2016, Nigeria requested additional technical assistance to implement and enforce its Category C commitments.  (See https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm )

Performance and Data Localization Requirements

Foreign investors must register with the NIPC, incorporate as a limited liability company (private or public) with the CAC, procure appropriate business permits, and register with the Securities and Exchange Commission (when applicable) to conduct business in Nigeria.  Manufacturing companies sometimes must meet local content requirements.  Long-term expatriate personnel do not require work permits but are subject to needs quotas requiring them to obtain residence permits that allow salary remittances abroad.  Expatriates looking to work in Nigeria on a short-term basis can either request a temporary work permit, which is usually granted for a two-month period and extendable to six months, or a business visa, if only traveling to Nigeria for the purpose of meetings, conferences, seminars, trainings, or other brief business activities.  Authorities permit larger quotas for professions deemed in short supply, such as deep-water oilfield divers.  U.S. companies often report problems in obtaining quota permits.  The Nigerian government’s Immigration Regulations 2017 introduced additional means by which foreigners can obtain residence in Nigeria.  Foreign nationals who have imported an annual minimum threshold of capital over a certain period may be issued a permanent residence permit, if the investment is not withdrawn.  The Nigerian Oil and Gas Content Development Act, 2010 restricts the number of expatriate managers to five percent of the total number of personnel for companies in the oil and gas sector.

The National Office of Industrial Property Act of 1979 established the National Office for Technology Acquisition and Promotion (NOTAP) to regulate the international acquisition of technology while creating an environment conducive to developing local technology.  NOTAP recommends local technical partners to Nigerian users in a bid to reduce the level of imported technology, which currently accounts for over 90 percent of technology in use in Nigeria.  NOTAP reviews the Technology Transfer Agreements (TTAs) required to import technology into Nigeria and for companies operating in Nigeria to access foreign currency.  NOTAP reviews three major aspects prior to approval of TTAs and subsequent issuance of a certificate:

  • Legal – ensuring that the clauses in the agreement are in accordance with Nigerian laws and legal frameworks within which NOTAP operates;
  • Economic – ensuring prices are fair for the technology offered; and
  • Technical – ensuring transfer of technical knowledge.

U.S. firms complain that the approval process for TTAs is lengthy and can routinely take three months or more.  NOTAP took steps to automate the TTA process to reduce processing time to one month or less; however, from the date of filing the application to the issuance of confirmation of reasonableness, TTA processing still requires 60 business days.  https://notap.gov.ng/sites/default/files/stages_involved.pdf .

The Nigerian Oil and Gas Content Development Act of 2010 has technology-transfer requirements that may violate a company’s intellectual property rights.

The Guidelines for Nigerian Content Development in the ICT sector issued by the NITDA in 2013, require ICT companies to host all consumer and subscriber data locally to ensure the security of government data and promote development of the ICT sector by mandating all government ministries, departments, and agencies to source and procure software from only local and indigenous software development companies.  Enforcement of the guidelines is largely absent as the Nigerian government lacks capacity and resources to monitor digital data flows.  Federal government data is hosted locally in data centers that meet international standards.  In 2019, NITDA updated the 2013 Guidelines for Data Protection (https://nitda.gov.ng/wp-content/uploads/2019/01/Nigeria%20Data%20Protection%20Regulation.pdf ) and rolled out the regulatory framework for providers of public internet access services such that only registered, verified and vetted providers can provide public internet access service in Nigeria.

The NCS and the Nigerian Ports Authority (NPA) exercise exclusive jurisdiction over customs services and port operations respectively.  Nigerian law allows importers to clear goods on their own, but most importers employ clearing and forwarding agents to minimize tariffs and lower landed costs.  Others ship their goods to ports in neighboring countries, primarily Benin, after which they transport overland legally or smuggle into the country.  The Nigerian government began closing land borders to trade in August 2019, reportedly to stem the tide of smuggled goods entering from neighboring countries and has not reopened borders as this year’s report.  The Nigerian government implements a destination inspection scheme whereby all inspections occur upon arrival into Nigeria, rather than at the ports of origin.  In 2013, the NCS regained the authority to conduct destination inspections, which had previously been contracted to private companies.  NCS also introduced the Nigeria Integrated Customs Information System (NICIS) platform and an online system for filing customs documentation via a Pre-Arrival Assessment Report (PAAR) process.  The NCS still carries out 100 percent cargo examinations, and shipments take more than 20 days to clear through the process.

Shippers report that efforts to modernize and professionalize the NCS and the NPA have largely been unsuccessful – port congestion persists and clearance times are long.  A  presidential directive in 2017 for the Apapa Port, which handles over 40 percent of Nigeria’s legal trade, to run a 24-hour operation and achieve 48-hour cargo clearance is not effective.  The port is congested, inefficient and the proliferation of customs units incentivizes corruption from official and unofficial middlemen who complicate and extend the clearance process.  Freight forwarders usually resort to bribery of customs agents and port officials to avoid long delays clearing imported goods through the NPA and NCS.  Other ports face logistical and security challenges leaving most operating well below capacity.  Nigeria does not currently have a true deep-sea port although one is under construction near Lagos but not expected to be finished before 2021.  Smuggled goods routinely enter Nigeria’s seaports and cross its land borders.

Investors sometimes encounter difficulties acquiring entry visas and residency permits. Foreigners must obtain entry visas from Nigerian embassies or consulates abroad, seek expatriate position authorization from the NIPC, and request residency permits from the Nigerian Immigration Service.  In 2018, Nigeria instituted a visa-on-arrival system, which works relatively well, but still requires lengthy processing at an embassy or consulate abroad before an authorization is issued.  Some U.S. businesses have reported being solicited for bribes in the visa-on-arrival program.  Visa-on-arrival is not valid for employment or residence.  Investors report that the residency permit process is cumbersome and can take from two to 24 months and cost USD 1,000 to USD 3,000 in facilitation fees.  The Nigerian government announced a visa rule in 2011 to encourage foreign investment, under which legitimate investors can obtain multiple-entry visas at points of entry.  Obtaining a visa prior to traveling to Nigeria is strongly encouraged.

5. Protection of Property Rights

Real Property

The Nigerian government recognizes secured interests in property, such as mortgages.  The recording of security instruments and their enforcement remain subject to the same inefficiencies as those in the judicial system.  In the World Bank Doing Business 2020 Report, Nigeria ranked 183 out of the 190 countries surveyed for registering property, a decline of one point over its 2019 ranking.  Property registration in Lagos required an average of 12 steps over 105 days at a cost of 11.1 percent of the property value while in Kano registering property averages 11 steps over 47 days at a cost of 11.8 percent of the property value.

Fee simple property rights remain rare.  Owners transfer most property through long-term leases, with certificates of occupancy acting as title deeds.  Property transfers are complex and must usually go through state governors’ offices, as state governments have jurisdiction over land ownership.  Authorities have often compelled owners to demolish buildings, including government buildings, commercial buildings, residences, and churches, even in the face of court injunctions.  Acquiring and maintaining rights to real property can be problematic.

Clarity of title and registration of land ownership remain significant challenges throughout rural Nigeria, where many smallholder farmers have only ancestral or traditional use claims to their land.  Nigeria’s land reforms have attempted to address this barrier to development but with limited success.

Intellectual Property Rights

Nigeria’s legal and institutional infrastructure for protecting intellectual property rights (IPR) remains in need of further development and more funding, even though there are laws on the books for enforcing most IPR. The areas in which the legislation is deficient include online piracy, geographical indications, and plant and animal breeders’ rights.  A bill to establish the industrial property commission to take over the functions of registration of trademarks, patents, designs, plant varieties, animal breeders and farmers’ rights, and supervise the new registries created under the industrial property act has been in the works since 2016.  No new IPR legislation has been enacted.

Copyright protection in Nigeria is governed by the Copyright Act of 1988, as amended in 1992 and 1999, which provides an adequate basis for enforcing copyright and combating piracy.  The Nigerian Copyright Commission, a division of the Ministry of Justice, administers the Act.  The International Anti-Counterfeiting Coalition (IACC) has long noted that the Copyright Act should be amended to provide stiffer penalties for violators. Nigeria is a member of the World Intellectual Property Organization (WIPO) and in 2017 passed legislation to ratify two WIPO treaties that it signed in 1997:  the Copyright Treaty and the Performances and Phonograms Treaty.  These treaties address important digital communication and broadcast issues that have become increasingly relevant in the 18 years since Nigeria signed them.  The  Draft Copyright Bill in 2016 was revised to bring it into compliance with these two treaties and sent to the National Assembly in 2017, but it was never enacted.

In 2013, he Ministry of Communication Technology (MCT) issued local content guidelines (Guidelines for Nigerian Content Development in Information and Communications Technology) that  raised IPR concerns. Among other issues,  there is concern about the future ability of the Nigerian government to protect data and trade secrets because of the localization processes requiring the disclosure of source code and other sensitive design elements as a condition of doing business.  The ICT industry in Nigeria has pushed back strongly against several of the measures in those guidelines, which remain in effect but have not been fully enforced.  While the NITDA does not currently require in-country product manufacturing due to the difficult business environment in Nigeria, it has noted that it would continue to press for local ICT capacity building programs.

Violations of Nigerian IPR laws continue to be widespread largely due to a culture of inadequate enforcement.  That culture stems from several factors, including insufficient resources among enforcement agencies, lack of political will and focus on IPR, porous borders, entrenched trafficking systems that make enforcement difficult (and sometimes dangerous), and corruption.  The Nigerian Copyright Commission (NCC) has primary responsibility for copyright enforcement but is widely viewed as understaffed and underfunded relative to the magnitude of the IPR challenge in Nigeria.  Nevertheless, the NCC continues to carry out enforcement actions on a regular basis.  According to its report for 2018, the NCC conducted  five anti-piracy operations and seized 288 copyrighted works, including DVDs, books, MP3s, and software.  Anti-piracy operations in 2018 led to  seven arrests.

The NCS has general authority to seize and destroy contraband.  Under current law, copyrighted works require a notice issued by the rights owner to Customs to treat such works as infringing, but implementing procedures have not been developed and this procedure is handled on a case- by-case basis between the NCS and the NCC.  Once seizures are made, the NCS invites the NCC to inspect and subsequently take delivery of the consignment of fake goods for purposes of further investigation because the NCC has the statutory responsibility to investigate and prosecute copyright violations.  The NCC bears the costs of moving and storing infringing goods.   If, after investigations, any persons are identified with the infringing materials, a decision to prosecute may be made. Where no persons are identified or could be traced, the NCC may obtain an order of court to enable it to destroy such works.  The NCC works in cooperation with rights owners’ associations and stakeholders in the copyright industries on such matters.

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

6. Financial Sector

Capital Markets and Portfolio Investment

The NIPC Act of 1995 liberalized Nigeria’s foreign investment regime, which has facilitated access to credit from domestic financial institutions.  Foreign investors who have incorporated their companies in Nigeria have equal access to all financial instruments.  Some investors consider the capital market, specifically the Nigerian Stock Exchange, a financing option, given commercial banks’ high interest rates and the short maturities of local debt instruments.

The Nigeria Stock Exchange (NSE) was reflective of the sluggishness in the larger economy in 2019 as it posted a negative return of -14.6 percent to close the year with its All Share Index at 26,842.07.   The poor performance was mostly attributed to government regulatory uncertainty and the 2019 presidential elections.   However, the equity market capitalization increased by 11 percent to USD 36.0 billion from USD 32.5 billion in 2018, largely due to the notable listings of telecom companies MTN Nigeria Communications Plc and Airtel Africa which had been long awaited.   As of December 2019 the NSE had 164 listed companies.  The total number of securities listed increased by 26 percent to 361 from 286 securities in 2018, largely due to a growth in government bonds.  The Nigerian government has considered requiring companies in certain sectors such as telecoms, oil and gas, or over a certain size to list on the NSE as a means to encourage greater corporate participation and sectoral balance in the Nigerian Stock Exchange, but those proposals have not been enacted to date.

The Government employs debt instruments, issuing bonds of various maturities ranging from two to 20 years.  Nigeria has issued bonds to restructure the government’s domestic debt portfolio from short- to medium- and long-term instruments.  Some state governments have issued bonds to finance development projects, while some domestic banks have used the bond market to raise additional capital.  The Nigerian Securities and Exchange Commission has issued stringent guidelines for states wishing to raise funds on capital markets, such as requiring credit assessments conducted by recognized credit rating agencies.

Money and Banking System

The CBN currently licenses 22 deposit-taking commercial banks in Nigeria.  Following a 2009 banking crisis, CBN officials intervened in eight of 24 commercial banks (roughly one-third of the system by assets) due to insolvency or serious undercapitalization.  At the same time, it established the government-owned Asset Management Company of Nigeria (AMCON) to address bank balance sheet disequilibria via discounted purchases of non-performing loans.  The Nigerian banking sector emerged stronger from the crisis thanks to AMCON and a number of other reforms undertaken by the CBN, including the adoption of uniform year-end International Financial Reporting Standards (IFRS) to increase transparency, a stronger emphasis on risk management and corporate governance, and the nationalization of three distressed banks.

In 2013, the CBN introduced a stricter supervision framework for the country’s top banks, identified as “Systemically Important Banks” (SIBs) as they account for more than 70 percent of the industry’s total assets, loans and deposits, and their failure or collapse could disrupt the entire financial system and the country’s real economy.  These banks are:  First Bank of Nigeria, United Bank for Africa, Zenith Bank, Access Bank, Ecobank Nigeria, Guaranty Trust Bank, and Polaris Bank.  Under the new supervision framework, the operations of SIBs are closely monitored with regulatory authorities conducting stress tests on the SIBs’ capital and liquidity adequacy.  Moreover, SIBs are required to maintain a higher minimum capital adequacy ratio of 15 percent.  In September 2018, the CBN revoked the operating license of one of the SIBs, due to the deterioration of its share capital and its board’s failure to recapitalize the bank, making it the fourth bank to be nationalized.

The CBN reported that total deposits increased by N2.34tn or 10.7 percent and aggregate credit grew by N2.2tn or 14.5 percent by December 2019.  Non-performing loans (NPLs) declined to 6.1 percent in December, 2019 from 14.2 percent in 2018.  However, NPLs are expected to rise following the CBN’s directive to banks to increase their loan to deposit ratio to 6 percent or be penalized.  This has forced several banks to grant more credits, many of which may result in default.  Nigerian government and private sector analysts assess that the volume of NPLs may be higher than these figures, owing in part to banks not reporting non-performing insider loans made to banks’ owners and directors.

The CBN supports non-interest banking.  Several banks have established Islamic banking operations in Nigeria including Jaiz Bank International Plc, Nigeria’s first full-fledged non-interest bank, which commenced operations in 2012.  A second non-interest bank, Taj Bank, started operations in December 2019.   There are five licensed merchant banks: Coronation Merchant Bank Limited, FBN Merchant Bank, FSDH Merchant Bank Ltd, NOVA Merchant Bank, and Rand Merchant Bank Nigeria Limited.

The CBN has issued regulations for foreign banks regarding mergers with or acquisitions of existing local banks in the country.  Foreign institutions’ aggregate investment must not be more than 10 percent of the latter’s total capital.

Foreign Exchange and Remittances

Foreign Exchange

Foreign currency for most transactions is procured through local banks in the inter-bank market.  Low value foreign exchange may also be procured at a premium from foreign exchange bureaus, called Bureaus de Change.  Domestic and foreign businesses have frequently expressed strong concern about the CBN’s foreign exchange restrictions, which they report prevent them from importing needed equipment and goods and from repatriating naira earnings.  Foreign exchange demand remains high because of the dependence on foreign inputs for manufacturing and refined petroleum products.

In 2015, the CBN published a list of 41 product categories which could no longer be imported using official foreign exchange channels; the number of categories has since been increased to 44.  Affected businesses (American and Nigerian) have complained publicly and privately that the policy in effect bans the import of some 700 individual items and severely hampers their ability to source inputs and raw materials.  In February 2019, the Governor of the Central Bank commented that the Bank is currently considering adding more items to the list and bringing the number as high as 50 items.

https://www.cbn.gov.ng/out/2015/ted/ted.fem.fpc.gen.01.011.pdf 

In 2017, the CBN began providing more foreign exchange to the interbank market via wholesale and retail forward contract auctions in order to meet some of the demand that had been forced to the parallel market.    The CBN also established the “investors and exporters” window in 2017, which allows trade to occur at prevailing market rates (around 360 naira to the dollar in December 2019).  In March 2020, the CBN announced it had collapsed its multiple exchange rate policy following a currency adjustment such that the investor and exporters window rate was increased to 380 naira to the dollar, and government transactions are now contracted at approximately 360 naira to the dollar.

Remittance Policies

The NIPC guarantees investors unrestricted transfer of dividends abroad (net a 10 percent withholding tax).  Companies must provide evidence of income earned and taxes paid before repatriating dividends from Nigeria.  Money transfers usually take no more than 48 hours.  In 2015, the CBN implemented restrictions on foreign exchange remittances.  All such transfers must occur through banks.  Such remittances may take several weeks depending on the size of the transfer and the availability of foreign exchange at the remitting bank.  Transfers of currency are protected by Article VII of the International Monetary Fund Articles of Agreement (http://www.imf.org/External/Pubs/FT/AA/index.htm#art7 ).

Sovereign Wealth Funds

The Nigeria Sovereign Investment Authority (NSIA) manages Nigeria’s sovereign wealth fund.  It was created by the NSIA Act in 2011 and began operations in October 2012 with USD 1 billion seed capital and received an additional USD 500 million in 2017.  In its most recent annual report, the total assets being managed by NSIA, increased to N617.7 billion (USD 2.0 billion) in 2018, an increase of 15.7 percent from 2017.  The NSIA also posted total comprehensive income of N44.3 billion (USD 144.9 million) in 2018, a 58.8 percent growth over the 2017 figure of N27.9 billion (USD 91.2 million).  http://www.nsia.com.ng/~nsia/sites/default/files/annual-reports/NSIA%20Annual%20Report%202018.pdf   It was created to receive, manage, and grow a diversified portfolio that will eventually replace government revenue currently drawn from non-renewable resources, primarily hydrocarbons.

The NSIA is a public agency that subscribes to the Santiago Principles, which are a set of 24 guidelines that assign “best practices” for the operations of Sovereign Wealth Funds globally. The NSIA invests through three funds:  the Future Generations Fund for diversified portfolio of long term growth, the Nigeria Infrastructure Fund for domestic infrastructure development, and the Stabilization Fund to act as a buffer against short-term economic instability.  The NSIA does not take an active role in management of companies.  The Embassy has not received any report or indication that NSIA activities limit private competition.

7. State-Owned Enterprises

The Nigerian government does not have an established practice consistent with the OECD Guidelines on Corporate Governance for state-owned enterprises (SOEs), but SOEs do have enabling legislation that governs their ownership.  To legalize the existence of state-owned enterprises, provisions have been made in the Nigerian constitution under socio-economic development in section 16 (1) of the 1979 and 1999 Constitutions respectively.  The government has privatized many former SOEs to encourage more efficient operations, such as state-owned telecommunications company Nigerian Telecommunications and mobile subsidiary Mobile Telecommunications in 2014.

Nigeria does not operate a centralized ownership system for its state-owned enterprises.  The enabling legislation for each SOE stipulates its ownership and governance structure.  The Boards of Directors are usually appointed by the President on the recommendation of the relevant Minister.  The Boards operate and are appointed in line with the enabling legislation which usually stipulates the criteria for appointing Board members.  Directors are appointed by the Board within the relevant sector.  In a few cases, however, appointments have been viewed as a reward to political affiliates.

The Nigerian National Petroleum Corporation (NNPC) is Nigeria’s most prominent state-owned enterprise.  NNPC Board appointments are made by the presidency, but day-to-day management is overseen by the Group Managing Director (GMD).  The GMD reports to the Minister of Petroleum.  In the current administration the President has retained that ministerial role for himself, and the appointed Minister of State for Petroleum acts as the de facto Minister of Petroleum in the President’s stead.  The National Assembly passed a Petroleum Industry Governance Bill in March 2018, but the President sent it back to the National Assembly requesting amendments.  The bill would clarify regulatory, policy, and operational roles in the petroleum sector and pave the way for partial privatization of NNPC.

NNPC is Nigeria’s biggest and arguably most important state-owned enterprise and is responsible for exploration, refining, petrochemicals, products transportation, and marketing.  It owns and operates Nigeria’s four refineries (one each in Warri and Kaduna and two in Port Harcourt), all of which operate far below capacity, if at all.  Nigeria’s tax agency receives taxes on petroleum profits and other hydrocarbon-related levies, while the Department of Petroleum Resources under the Ministry of Petroleum Resources collects rents, royalties, license fees, bonuses, and other payments.  In an effort to provide greater transparency in the collection of revenues that accrue to the government, the Buhari administration requires these revenues, including some from the NNPC, to be deposited in the Treasury Single Account.

Another key state-owned enterprise is the Transmission Company of Nigeria (TCN), responsible for the operation of Nigeria’s national electrical grid.  Private power generation and distribution companies have accused the TCN grid of significant inefficiency and inadequate technology which greatly hinder the nation’s electricity output and supply.  TCN emerged from the defunct National Electric Power Authority as an incorporated entity in 2005.  It is the only major component of Nigeria’s electric power sector, which was not privatized in 2013.

Privatization Program

The Privatization and Commercialization Act of 1999 established the National Council on Privatization, the policy-making body overseeing the privatization of state-owned enterprises, and the Bureau of Public Enterprises (BPE), the implementing agency for designated privatizations.  The BPE has focused on the privatization of key sectors, including telecommunications and power, and calls for core investors to acquire controlling shares in formerly state-owned enterprises.

The BPE has privatized and concessioned more than 140 enterprises since 1999, including an aluminum complex, a steel complex, cement manufacturing firms, hotels, a petrochemical plant, aviation cargo handling companies, vehicle assembly plants, and electricity generation and distribution companies.  The electricity transmission company remains state-owned.  Foreign investors can and do participate in BPE’s privatization process.  The BPE also retains partial ownership in some of the privatized companies.  (It holds a 40 percent stake in the power distribution companies.)

The National Assembly has questioned the propriety of some of these privatizations, with one ongoing case related to an aluminum complex privatization the subject of a Supreme Court ruling on ownership.  In addition, the failure of the 2013 power sector privatization to restore financial viability to the sector has raised criticism of the privatized power generation and distribution companies.  Nevertheless, the government’s long-delayed sale in 2014 of state-owned Nigerian Telecommunications and Mobile Telecommunications shows a continued commitment to the privatization model.

9. Corruption

Foreign companies, whether incorporated in Nigeria or not, may bid on government projects and generally receive national treatment in government procurement, but may also be subject to a local content vehicle (e.g., partnership with a local partner firm or the inclusion of one in a consortium) or other prerequisites which are likely to vary from tender to tender.  Corruption and lack of transparency in tender processes has been a far greater concern to U.S. companies than discriminatory policies based on foreign status.  Government tenders are published in local newspapers, a “tenders” journal sold at local newspaper outlets, and occasionally in foreign journals and magazines.  The Nigerian government has made modest progress on its pledge to conduct open and competitive bidding processes for government procurement with the introduction of the Nigeria Open Contracting Portal in 2017 under the Bureau of Public Procurement.

The Public Procurement Law of 2007 established the Bureau of Public Procurement as the successor agency to the Budget Monitoring and Price Intelligence Unit.  It acts as a clearinghouse for government contracts and procurement and monitors the implementation of projects to ensure compliance with contract terms and budgetary restrictions.  Procurements above 100 million naira (about USD 277,550) reportedly undergo full “due process,” but government agencies routinely flout public procurement requirements.  Some of the 36 states of the federation have also passed public procurement legislation.

The reforms have also improved transparency in procurement by the state-owned NNPC.  Although U.S. companies have won contracts in numerous sectors, difficulties in receiving payment are not uncommon and can deter firms from bidding.  Supplier or foreign government subsidized financing arrangements appear in some cases to be a crucial factor in the award of government procurements.  Nigeria is not a signatory to the WTO Agreement on Government Procurement.

In 2016, Nigeria announced its participation in the Open Government Partnership, a potentially significant step forward on public financial management and fiscal transparency.  The Ministry of Justice presented Nigeria’s National Action Plan for the Open Government Partnership.  Implementation of its 14 commitments has made some progress, particularly on the issues such as tax transparency, ease of doing business, and asset recovery.  The National Action Plan, which ran through 2019, covered five major themes:  ensuring citizens’ participation in the budget cycle, implementing open contracting and adoption of open contracting data standards, increasing transparency in the extractive sectors, adopting common reporting standards like the Addis Tax initiative, and improving the ease of doing business.  Full implementation of the National Action Plan would be a significant step forward for Nigeria’s fiscal transparency, although Nigeria has not fully completed any commitment to date.

Businesses report that bribery of customs and port officials remains common and often necessary to avoid extended delays in the port clearance process, and that smuggled goods routinely enter Nigeria’s seaports and cross its land borders.

Domestic and foreign observers identify corruption as a serious obstacle to economic growth and poverty reduction.  Nigeria scored 26 out of 100 in Transparency International’s 2019 Corruption Perception Index, with an overall ranking of 146 out of the 180 countries, a two-point drop since 2018.  The Economic and Financial Crimes Commission (EFCC) Establishment Act of 2004 established the EFCC to prosecute individuals involved in financial crimes and other acts of economic “sabotage.”  Traditionally, the EFCC has achieved the most success in prosecuting low-level Internet scam operators.  A relative few high-profile convictions have taken place, such as a former governor of Adamawa State, a former governor of Bayelsa State, a former Inspector General of Police, and a former Chair of the Board of the Nigerian Port Authority.  However, in the case of the convicted governor of Bayelsa State, the President of Nigeria pardoned him in 2013.  The case of the former governor of Adamawa, who was convicted in 2017, is under appeal, and he is currently free on bail.

Since taking office in 2015, President Buhari has focused on implementing a campaign pledge to address corruption, though his critics contend his anti-corruption efforts often target political rivals.  Since then, the EFCC arrested a former National Security Advisor (NSA), a former Minister of State for Finance, a former NSA Director of Finance and Administration, and others on charges related to diversion of funds intended for government arms procurement.

The Corrupt Practices and Other Related Offences Act of 2001 established an Independent Corrupt Practices and Other Related Offences Commission (ICPC) to prosecute individuals, government officials, and businesses for corruption.  The Corrupt Practices Act punishes over 19 offenses, including accepting or giving bribes, fraudulent acquisition of property, and concealment of fraud.  Nigerian law stipulates that giving and receiving bribes constitute criminal offences and, as such, are not tax deductible.  Since its inauguration, the ICPC has secured convictions in 71 cases (through 2015, latest data available) with nearly 300 cases still open and pending as of July 2018.  In 2014, a presidential committee set up to review Nigeria’s ministries, departments, and agencies recommended that the EFCC, the ICPC, and the Code of Conduct Bureau (CCB) be merged into one organization.  The federal government, however, rejected this proposal to consolidate the work of these three anti-graft agencies.

Nigeria gained admittance into the Egmont Group of Financial Intelligence Units in 2007.  In July 2017 the Egmont Group suspended Nigeria due to concerns about the Nigeria Financial Intelligence Unit’s operational autonomy and ability to protect classified information. It lifted the suspension in September 2018 due to the Nigerian government’s efforts to address the Egmont Group’s concerns, through the passage of the Nigerian Financial Intelligence Agency Act in July 2018.

The Paris-based Financial Action Task Force (FATF) removed Nigeria from its list of Non-Cooperative Countries and Territories in 2006.  In 2013, the FATF decided that Nigeria had substantially addressed the technical requirements of its FATF Action Plan and agreed to remove Nigeria from its monitoring process conducted by FATF’s International Cooperation Review Group.  Nigeria, as a member of the Inter-governmental Action Group Against Money Laundering in West Africa, is an associated member of FATF.

The Nigeria Extractive Industries Transparency Initiative (NEITI) Act of 2007 provided for the establishment of the NEITI organization, charged with developing a framework for transparency and accountability in the reporting and disclosure by all extractive industry companies of revenue due to or paid to the Nigerian government.  NEITI serves as a member of the international Extractive Industries Transparency Initiative, which provides a global standard for revenue transparency for extractive industries like oil and gas and mining.  Nigeria is party to the United Nations Convention Against Corruption.  Nigeria is not a member of the OECD and not party to the OECD Convention on Combating Bribery.

Resources to Report Corruption

Economic and Financial Crimes Commission
Headquarters:  No. 5, Fomella Street, Off Adetokunbo Ademola Crescent, Wuse II, Abuja, Nigeria.
Branch offices in Ikoyi, Lagos State; Port Harcourt, Rivers State; Independence Layout, Enugu State; Kano, Kano State; Gombe, Gombe State.
Hotline: +234 9 9044752 or +234 9 9044753

Independent Corrupt Practices and Other Related Offences Commission:
Abuja Office – Headquarters
Plot 802 Constitution Avenue, Central District, PMB 535, Garki Abuja
Phone/Fax: 234 9 523 8810   Email: info@icpc.gov.ng

10. Political and Security Environment

Political, religious, and ethnic violence continue to affect Nigeria.  The Islamist group Jama’atu Ahl as-Sunnah li-Da’awati wal-Jihad, popularly known as Boko Haram, and the ISIS-WA have waged a violent campaign to destabilize the Nigerian government, killing tens of thousands of people, forcing over two million to flee to other areas of Nigeria or into neighboring countries, and leaving more than seven million people in need of humanitarian assistance in the country’s northeast.  Boko Haram has targeted markets, churches, mosques, government installations, educational institutions, and leisure sites with improvised explosive devices (IEDs) and suicide vehicle-borne IEDs across nine northern states and in Abuja.  In 2017, Boko Haram employed hundreds of suicide bombings against the local population.  Women and children were forced to carry out many of the attacks.  There were multiple reports of Boko Haram killing entire villages suspected of cooperating with the government.  ISIS-WA targeted civilians with attacks or kidnappings less frequently than Boko Haram.  ISIS-WA employed targeted acts of violence and intimidation against civilians in order to expand its area of influence and gain control over critical economic resources.  As part of a violent and deliberate campaign, ISIS-WA also targeted government figures, traditional leaders, and contractors.

President Buhari has focused on matters of insecurity in Nigeria and in neighboring countries.   While the two insurgencies maintain the ability to stage forces in rural areas and launch attacks against civilian and military targets across the northeast, Nigeria is also facing rural violence in the Nigeria’s north-central states caused by criminal actors and by conflicts between migratory pastoralist and farming communities, often over scarce resources.  Another major trend is the rise in kidnappings for ransom and attacks on villages by armed gangs.

Due to challenging security dynamics throughout the country, the U.S. Mission to Nigeria has significantly limited official travel in the northeast and travel to other parts of Nigeria requires security precautions.

Decades of neglect, persistent poverty, and environmental damage caused by oil spills have left Nigeria’s oil rich Niger Delta region vulnerable to renewed violence.  Though each oil-producing state receives a 13 percent derivation of the oil revenue produced within its borders, and several government agencies, including the Niger Delta Development Corporation (NDDC) and the Ministry of Niger Delta Affairs, are tasked with implementing development projects, bureaucratic mismanagement and corruption have prevented these investments from yielding meaningful economic and social development in the region.  Niger Delta militants have demonstrated their ability to attack and severely damage oil instillations at will as seen when they cut Nigeria’s production by more than half in 2016.  Attacks on oil installations have since decreased due to a revamped amnesty program and continuous high-level engagement with the region.

Other security challenges facing Nigeria include thousands of refugees fleeing to Nigeria from Cameroon’s English-speaking region due to tensions there and kidnappings for ransom.

11. Labor Policies and Practices

Nigeria’s skilled labor pool has declined over the past decade due to inadequate educational systems, limited employment opportunities, and the migration of educated Nigerians to other countries, including the United Kingdom, the United States, Canada, and South Africa.  The low employment capacity of Nigeria’s formal sector means that almost three-quarters of all Nigerians work in the informal and agricultural sectors or are unemployed.  Companies involved in formal sector businesses, such as banking and insurance, possess an adequately skilled workforce.  Manufacturing and construction sector workers often require on-the-job training.  The result is that while individual wages are low, individual productivity is also low, which means overall labor costs can be high.  The Buhari Administration is pushing reforms in the education sector to improve the supply of skilled workers but this and other efforts run by state governments are in their initial stages.

Labor organizations in Nigeria remain politically active and are prone to call for strikes on a regular basis against the national and state governments.  While most labor actions are peaceful, difficult economic conditions fuel the risk that these actions could become violent.

Nigeria’s constitution guarantees the rights of free assembly and association, and protects workers’ rights to form or belong to trade unions.  Several statutory laws, nonetheless, restrict the rights of workers to associate or disassociate with labor organizations.  Nigerian unions belong to one of three trade union federations:  the Nigeria Labor Congress (NLC), which tends to represent junior (i.e., blue collar) workers; the United Labor Congress of Nigeria (ULC), which represents a group of unions that separated from the NLC in 2015; and the Trade Union Congress of Nigeria (TUC), which represents the “senior” (i.e., white collar) workers.  According to figures provided by the Ministry of Labor and Employment, total union membership stands at roughly 7 million.  A majority of these union members work in the public sector, although unions exist across the private sector.  The Trade Union Amendment Act of 2005 allowed non-management senior staff to join unions.

Collective bargaining occurred throughout the public sector and the organized private sector in 2019.  However, public sector employees have become increasingly concerned about the Nigerian governments’ and state governments’ failure to honor previous agreements from the collective bargaining process.

Collective bargaining in the oil and gas industry is relatively efficient compared to other sectors. Issues pertaining to salaries, benefits, health and safety, and working conditions tend to be resolved quickly through negotiations.  Workers under collective bargaining agreements cannot participate in strikes unless their unions comply with the requirements of the law, which includes provisions for mandatory mediation and referral of disputes to the Nigerian government.  Despite these restrictions on staging strikes, unions occasionally conduct strikes in the private and public sectors without warning.  Localized strikes occurred in the education, government, energy, power, and healthcare sectors in 2019.  The law forbids employers from granting general wage increases to workers without prior government approval, but the law is not often enforced.

Despite widespread opposition from state governors, in April 2019, President Buhari signed into law a new minimum wage, increasing it from 18,000 naira (USD 50) to 30,000 naira (USD 83) per month.  After months of negotiations, the government finally reached an agreement with organized labor in October 2019 on the consequential adjustments in civil servants’ salaries that must be implemented across the board to apply the new minimum wage.  While the VAT rate was recently raised from 5.5 to 7.5 percent to help fund the increased minimum wage, it will not be enough to offset the cost of the adjustments.  This, in turn, means that the government will need to borrow more money, which will not only increase the debt burden but open it to criticism that that money should be used for critical infrastructure projects rather than civil servant salaries.

The Nigerian Minister of Labor and Employment may refer unresolved disputes to the Industrial Arbitration Panel (IAP) and the National Industrial Court (NIC).  In 2015, the NIC launched an Alternative Dispute Resolution Center.  Union officials question the effectiveness and independence of the NIC, believing it unable to resolve disputes stemming from Nigerian government failure to fulfill contract provisions for public sector employees.  Union leaders criticize the arbitration system’s dependence on the Minister of Labor and Employment’s referrals to the IAP.

Nigeria’s laws regarding minimum age for child labor and hazardous work are inconsistent. Article 59 of the Labor Act of 1974 sets the minimum age of employment at 12, and it is in force in all 36 states of Nigeria.  The Act also permits children of any age to do light work alongside a family member in agriculture, horticulture, or domestic service.

The Federal 2003 Child Rights Act (CRA) codifies the rights of children in Nigeria and must be ratified by each State to become law in its territory.  To date, 25 states and the FCT have ratified the CRA, with all 11 of the remaining states located in northern Nigeria.

The CRA states that the provisions related to young people in the Labor Act apply to children under the CRA, but also that the CRA supersedes any other legislation related to children.  The CRA restricts children under the age of 18 from any work aside from light work for family members; however, Article 59 of the Labor Act applies these restrictions only to children under the age of 12.  This language makes it unclear what minimum ages apply for certain types of work in the country.

While the Labor Act forbids the employment of youth under age 18 in work that is dangerous to their health, safety, or morals, it allows children to participate in certain types of work that may be dangerous by setting different age thresholds for various activities.  For example, the Labor Act allows children age 16 and older to work at night in gold mining and the manufacturing of iron, steel, paper, raw sugar, and glass.  Furthermore, the Labor Act does not extend to children employed in domestic service.  Thus, children are vulnerable to dangerous work in industrial undertakings, underground, with machines, and in domestic service.  In addition, the prohibitions established by the Labor Act and CRA are not comprehensive or specific enough to facilitate enforcement.  In 2013, the National Steering Committee (NSC) for the Elimination of the Worst Forms of Child Labor in Nigeria validated the Report on the Identification of Hazardous Child Labor in Nigeria.  The report has languished with the Ministry of Labor and Employment and still awaits the promulgation of guidelines for operationalizing the report.

The Nigerian government adopted the Trafficking in Persons (Prohibition), Enforcement, and Administration Act of 2015.  While not specifically directed against child labor, many sections of the  law support anti-child labor efforts.  The Violence against Persons Prohibition Act was signed into law in May 2015 and again while not specifically focused on child labor, it covers related elements such as “depriving a person of his/her liberty,” “forced financial dependence/economic abuse,” and “forced isolation/separation from family and friends” and is applicable to minors.

Nigeria’s Labor Act provides for a 40-hour work week, two to four weeks of annual leave, and overtime and holiday pay for all workers except agricultural and domestic workers.  No law prohibits compulsory overtime.  The Act establishes general health and safety provisions, some of which specifically apply to young or female workers, and requires the Ministry of Labor and Employment to inspect factories for compliance with health and safety standards.  Under-funding and limited resources undermine the Ministry’s oversight capacity, and construction sites and other non-factory work sites are often ignored.  Nigeria’s labor law requires employers to compensate injured workers and dependent survivors of workers killed in industrial accidents.

Draft legislation, such as a new Labor Standards Act which includes provisions on child labor, and an Occupational Safety and Health Act that would regulate hazardous work, have remained under consideration in the National Assembly since 2006.

Admission of foreign workers is overseen by the Federal Ministry of the Interior.  Employers must seek the consent of the Ministry in order to employ foreign workers by applying for an “expatriate quota.”  The quota allows a company to employ foreign nationals in specifically approved job designations as well as specifying the validity period of the designations provided on the quota.

There are two types of visas which may be granted, depending on the length of stay.  For short-term assignments, an employer must apply for and receive a temporary work permit, allowing the employee to carry out some specific tasks.  The temporary work permit is a single-entry visa, and expires after three months.  There are no numerical limitations on short-term visas, and foreign nationals who meet the conditions for grant of a visa may apply for as many short-term visas as required.

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 $448 billion www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A 2018 $5,630 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 2018 $75 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 25.1% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
  
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 Amount 100% Total Outward Amount 100%
Bermuda 15,684 17% Data Not Available
The Netherlands 14,185 15%
United Kingdom 11,714 13%
France 10,913 12%
United States 9,058 10%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

Somalia

Executive Summary

Somalia moved from a transitional government to a globally recognized government in September 2012, after a new president was elected for the first time since 1991. In another successive peaceful transfer of power, the current government was elected in 2017 and has pursued an aggressive policy of economic reforms that allowed the country to re-engage the international financial institutions. The country has revived key economic institutions and ministries and initiated a capacity building programs for the existing ones, such as the country’s central bank. The ongoing economic reforms have broadened the government’s tax base and strengthened tax administration, leading to an increase in domestic revenue for the first time in two decades. However, the country still faces serious security challenges and political uncertainty. The leadership of the federal government and federal member states are in a constant political tussle that hinders efforts at state building, while the terrorist group al-Shabaab remains a threat to stability and security.

Generally, the government welcomes and seeks foreign direct investment; however, the current investment climate poses considerable risks for U.S. or other foreign investors. Formal economic activity is largely restricted to Mogadishu and the regional capitals that are under the control of the federal government or regional administrations. Somalia lacks a legal framework that would provide the basis for safe investment, including a strong judiciary, enforceable property rights and arbitration and dispute resolution processes. Corruption is rife in all government sectors and civil courts are largely nonfunctional. Despite economic reforms, according to Transparency International’s perception index, Somalia was perceived to be the most corrupt country in the world again in 2019.

Despite this, there has been a positive economic trend over the past couple of years. According to the International Monetary Fund (IMF), economic growth has rebounded, inflation has slowed, and the trade deficit has narrowed. Somalia’s Ministry of Finance reports domestic revenue collection in 2019 reached $230 million, up from $183 million in 2018. Economic sectors such telecommunications, agriculture and construction have experienced steady growth in recent years. The current administration has undertaken crucial reforms, including biometric registration of security personnel, paying civil servants by direct deposit, and fighting rampant corruption in the public sector. This has significantly raised the confidence of the Somali people, as well as Somalia’s international partners. Further, Somalia’s government is inviting bids for an offshore hydrocarbon licensing round.

Reflecting Somalia’s significant progress over the last five years, in March 2020, the IMF and the World Bank announced that Somalia has made commendable economic reforms under the successive IMF Staff Monitoring Programs (SMP), and reached debt relief Decision Point under the Highly Indebted Poor Countries (HIPC) program. This milestone will keep Somalia on an internally monitored program of assistance while allowing its economy to integrate into the global economic system after 30 years of relative isolation.

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

3. Legal Regime

Somalia’s limited business laws do not cover outward investment by companies registered in Somalia.

Transparency of the Regulatory System

Somalia’s regulatory system is largely nonexistent. The country’s 2012 provisional constitution is currently under review. Many of the current investment regulations are outdated, having been developed by the central government before 1991. The current FGS has revised some of these regulations and has begun development of modern business and investment legislation to conform to the global business environment. Some new pieces of legislation recently approved and signed into law include: telecommunication, petroleum, company, public finance management, and anti-corruption laws. Several more business-related laws are currently under review.

International Regulatory Considerations

Somalia is a member of Inter-Governmental Authority on Development (IGAD) and in 2018 obtained provisional membership in the Common Market for Eastern and Southern Africa (COMESA) with a number of conditions to fulfill before resuming full membership. Somalia is a member of Arab League and Organization of Islamic Cooperation (OIC). Somalia is not yet a member of the World Trade Organization (WTO).

Legal System and Judicial Independence

Somalia’s legal system derives from four sources, including the Italian and British legal systems, customary dispute resolution (xeer) principles, and Islamic law. The majority of citizens rely primarily on xeer, Sharia courts and local imams, or private mediators to resolve disputes. The provisional constitution establishes a judiciary system that is independent of the executive and the legislature, however, the necessary laws to operationalize this structure are not in place and the legal system revolves around the executive. Somalia’s legal system is based in Islamic law, which includes mechanisms for addressing commercial disputes. However, due to the prolonged absence of a functioning central government and judicial system, businesses and individuals often resort to Somali customary law. This informal system provides a framework for settling disputes, including business disputes, through clan and religious leaders. In some instances, Mogadishu residents seek intervention from al-Shabaab’s “courts” to resolve disputes, particularly when one of the disputing parties is from a minority community that lacks confidence in other dispute resolution mechanisms, including Somali customary law.

Laws and Regulations on Foreign Direct Investment

While Somalia’s 2018 Investment Law provides some guidance for foreign investors, there are no laws or regulations related specifically to foreign direct investment. The Ministry for Commerce and Industry is working on the development of FDI laws. In 2019 the Ministry of Planning opened its Investment Promotion Office(SomInvest ), to provide potential investors with guidance on working in Somalia. Sominvest has already provided guidance and assistance to U.S. companies looking to register business entities in Somalia. (http://sominvest.mop.gov.so/ )

Competition and Anti-Trust Laws

Competition and Anti-Trust laws do not exist in Somalia. Local business disputes are informally settled through the intervention of traditional elders.

Expropriation and Compensation

Somalia is still rebuilding from decades of lawlessness and the legal and regulatory environment is undeveloped. There are no laws or acts that define how government or authorities can expropriate private properties. However, the provisional constitution states, “The state may compulsorily acquire property only if doing so is in the public interest. Any person whose property has been acquired in the name of the public interest has the right to just compensation from the State as agreed by the parties or decided by a court.” Many government-owned properties ended up in private hands illegally after the 1991 collapse of the central government and the current government has now indicated an interest in repossessing these properties.

Dispute Settlement

ICSID Convention and New York Convention

Somalia is not a party to the convention on the settlement of investment disputes between States and Nationals of other States, known as the International Centre for Settlement of Investment Disputes (ICSID), or the New York Convention of 1958.

Investor-State Dispute Settlement

The government has limited capacity to enforce laws or settle disputes domestically. Many businesses in Somalia are owned by members returning from the diaspora, though they operate as Somali businesses rather than foreign entities. Some of the basic laws that would provide the foundation for investor-state dispute settlement, such as the company law, are in the process of being implemented. Somalia is not a signatory to any internationally binding treaty or investment agreement to arbitrate investment disputes. The government has no bilateral investment treaty or free trade agreement with an investment chapter with United States. There have been no investment disputes involving U.S. persons or other foreign investors for the past 30 years.

International Commercial Arbitration and Foreign Courts

Somalia is not signatory to any convention on commercial arbitration and local courts have limited capacity to enforce dispute resolutions arbitrated by them. Domestically, people normally resort to a local council of elders and clan elder, or religious leader to settle disputes. Many foreign companies rely on arbitration courts in Djibouti or United Arab Emirates. The Intergovernmental Authority on Development (IGAD) is working on a regional initiative to establish a business dispute and arbitration center in Djibouti.

Bankruptcy Regulations

Somalia has no bankruptcy laws.

4. Industrial Policies

Investment Incentives

There are no formal investment incentives available to foreign investors and the government does not issue grants or jointly finance foreign direct investment projects. There are no laws or acts that support investment incentives or grants to foreign investors. However, informal and ad hoc tax exemptions are used as an investment incentives. The Director of Revenue at the Ministry of Finance is legally the authority for granting them, but in practice ministers and often the Prime Minister have offered tax exemptions to foreign investors.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no laws or policies that designate any area as a free trade zone or area with special tax treatment. Somaliland is currently constructing a free trade zone dubbed the Berbera Economic Free Zone, funded jointly by the Somaliland government and UAE-based DP World. The agreement was in December 2019 in a ceremony graced by Somaliland President Muse Bihi and the DP World deputy president.

Performance and Data Localization Requirements

The Somali government does not mandate local employment. There are no laws inhibiting foreign investors or foreign employees. Currently there are a few foreign companies operating in Somalia, mostly based within the confines of the secure compound surrounding Mogadishu’s airport. Most of these companies are contracted by either the government or other international organizations to undertake infrastructure and security related projects. In some instances, local companies in the service sector such as hoteliers contract foreign employees with specific skillsets that are not locally available. These companies process entry visas for these employees and later facilitate their return after the expiration of their contracts. DP World operates in Somaliland and Puntland to implement port expansion projects in those regions.

5. Protection of Property Rights

Real Property

When the government collapsed in 1991 there was widespread conflict over land, land-grabbing by warlords, and huge displacement of local populations, especially in southern Somalia. While there is more security in Somaliland, the movement of internally displaced persons within the region and the return of refugees from outside the country has also contributed to significant land disputes.

The various systems used to manage land are complex and include customary rules and traditions used by Somalia’s clan-based society, Western style laws from the periods of colonialization by the Italian and British, remnants of the authoritarian rule of the Barre regime, and Islamic law and tradition. While there have been no federal efforts to catalogue property ownership and title land, some Federal Member States have made efforts to document land ownership for the purposes of taxation. In addition, land within the major cities, including Mogadishu, is generally documented for taxation purposes. There are no specific regulations regarding land leases or acquisition by foreign investors.

The national legal framework related to land tenure is largely limited to Article 26 of the provisional constitution, which states: (1) Every person has the right to own, use, enjoy, sell, and transfer property; and

(1) Every person has the right to own, use, enjoy, sell, and transfer property; and (2) The state may compulsorily acquire property only if doing so is in the public interest. Any person whose property has been acquired in the name of the public interest has the right to just compensation from the State as agreed by the parties or decided by a court.

(2) The state may compulsorily acquire property only if doing so is in the public interest. Any person whose property has been acquired in the name of the public interest has the right to just compensation from the State as agreed by the parties or decided by a court.

The autonomous state of Somaliland has a more advanced land tenure legal framework and dispute mechanisms. The Somaliland legal framework addresses urban land management, agricultural land ownership, urban land dispute resolution, and civil procedures for hearing property disputes.

Intellectual Property Rights

There are currently no laws protecting or enforcing intellectual property rights (IPR). The Ministry of Commerce and Industry sent draft IPR legislation to the cabinet for review in February 2019. In February 2020, both houses of the Federal Parliament approved standardization and quality control legislation, which is currently with the President for signature. This will pave the way for the formation of the Somalia Bureau of Standards (SBS) as the enforcement authority for quality control. There are no official reports on seizures of counterfeit goods. However, the perception is that almost all the goods coming into the country are counterfeit. The government has no capacity to seize or track counterfeit goods entering the country.

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

6. Financial Sector

Capital Markets and Portfolio Investment

Somalia has no structured financial system. It also does not have any form of portfolio investment financial products in the market. The country has no government bonds or corporate bonds. There is one private stock exchange operating in Somalia (http://www.somalistockexchange.so/ ) but the government lacks the authority to regulate the trade in stocks and securities.

Money and Banking System

The Central Bank of Somalia (CBS) was reestablished in 2009 and is slowly developing the capacity to oversee the licensing and supervision of money-transfer businesses and commercial banks. The CBS has registered seven hawalas and 11 banks to provide financial services. Nine of these banks are operational whereas the other two have yet to be operationalized.

Most Somalis do not have access to formal banking services due to the lack of available branches in many parts of the country, as well as the difficulty of obtaining acceptable forms of identification to open bank accounts. There is limited data or information regarding the operations and assets of these privately-owned banks and the CBS has no capacity or competency to regulate them to required standards. At this time, no foreign banks or any branch of a foreign bank operate in Somalia. The Central Bank licensed an Egyptian bank in April 2019 but it is not operational.

Somalia’s financial risk profile remains high due to legitimate concerns about money laundering and terrorism financing. The financial system is stymied by the lack of any national identification, creating challenges for banks and money transfer services to verify client identity. In 2019 the government finalized anti-money laundering/countering terrorism financing (AML/CFT) regulations that will require banks to implement stricter know your customer (KYC) controls. As of September 2019, all licensed banks were providing suspicious transaction reports to the government’s Financial Reporting Center (FRC).

Foreign Exchange and Remittances

Foreign Exchange

While the official currency for Somalia is the Somali shilling, there is very limited use of the currency in the country’s dollarized economy. In addition, a significant portion of day to day transactions are conducted through phone-based mobile money managed by the telecommunications sector. According to the IMF, almost all the current shilling notes in Somalia are counterfeit, illegally printed by individual businesses and regional administrations since the CBS has not issued any new notes since 1991. There is no restriction or limitation on converting or repatriating funds associated with outside investment. The shilling is volatile and fluctuates rapidly against the dollar. Since there is no government agency that determines monetary policy at this time, the exchange rate is set by several currency traders located in Mogadishu’s Bakarat market. The government is planning to print a new currency.

Remittance Policies

For two decades, there was no functioning banking system in Somalia. Instead, informal money transfer systems known as hawalas allowed for the transfer of money to, from, and within Somalia. Somalis in the diaspora remit over $1 billion annually, making up between 20% and 40% of Somalia’s GDP. While the impacts of the COVID-19 pandemic on Somalia’s financial sector are still uncertain, the country is already seeing a drop in remittances. In 2019 the government finalized AML/CFT regulations that require money transfer businesses to implement stricter know your customer (KYC) controls and report suspicious transactions to the government.

Sovereign Wealth Funds

There are no sovereign wealth funds or any other state-owned investment fund.

7. State-Owned Enterprises

There are no fully or partially state-owned active enterprises in Somalia.

Privatization Program

The government does not own any business entity, therefore there are no state-owned entities to privatize. The World Bank has supported development of a public-private partnership law but parliament has not yet acted on the draft law.

9. Corruption

The provisional constitution criminalizes several forms of corruption that include abuse of office, embezzlement of funds, and bribery. The president signed the anti-corruption bill into law in September 2019. The new law will pave the way for the formation of an independent anti-corruption commission on both federal and regional levels. Somalia’s procurement legislation has provisions to address potential conflicts of interest in awarding government contracts, but enforcement is lax. Corruption is rampant in all sectors of government, particularly government procurement. Transparency International ranked Somalia 180 out 180 in its 2019 perceptions of corruption index.

Somalia’s current government has waged a campaign against public corruption and graft, resulting in high profile dismissals and arrests over the past three years. However, without a robust asset declaration mechanism, an updated penal code, and a functioning criminal justice system, including police and prosecutorial services, very few penalties exist for corrupt activities. Legislation on government procurement was passed in 2015 and officially all government contracts must go through an open tender process unless they meet specified conditions for limited competition. However, in practice this has been slow to be implemented and lucrative contracts are still awarded based on close relationships and favors. Moreover, the FGS has not yet established a Procurement and Concessions Board as required in the Procurement Act, which makes it difficult to ensure transparency and accountability in government procurement activities. An interim Procurement Board is in place but meets irregularly. https://mof.gov.so/public-procurement 

Resources to Report Corruption

Currently there is no central agency or office where whistleblowers can report corruption. There is no legal framework to protect whistleblowers. The FGS has not established an Office of the Ombudsman, as provided for in the provisional constitution. In December 2018, the Ministry of Justice and Judiciary Affairs signed a Project Initiation Plan (PIP) with UNDP to help the government strengthen its institutions to fight corruption and promote accountability.

10. Political and Security Environment

Somalia has a long history of political and clan-based violence that destroyed the basic state institutions that support economic development. Most of Somalia’s infrastructure was destroyed during the 30 years of civil war and violence. While pockets of stability are slowly growing, Somalia remains an insecure environment. Attacks by al-Shabaab, ISIS, regional militias and others can impact individuals and businesses throughout the country. The U.S. State Department advises U.S. citizens against traveling to Somalia.

11. Labor Policies and Practices

Somalia is emerging from three decades of political instability and economic hardship that destroyed government institutions, hence hard data is lacking to analyze the status of the current labor market in Somalia. According to UNICEF in 2017, 75 percent of the population is under the age of 30, with 67 percent youth unemployment. There is a mismatch between the skills the youth possess and the requirements of the labor market.

The International Labor Organization (ILO) has finalized the 2020 survey of Somalia’s labor force. Most labor is unskilled and the majority of Somalis work in the informal sector or agriculture. All sectors of Somalia’s economy lack capacity due to the lack of skills and education of the potential workforce.

There have been some international projects to improve vocational training, but these reach a small portion of the workforce. The private sector, most notably the major telecommunications companies, maintain their own training programs in order to meet the needs of their workforce. Somalia currently does not have a formal labor or employment policy that would limit the hiring of foreigners. In 2019 Somalia finalized a modern labor code and in February 2020 released a social safety net policy. Combined, these policies provide baseline guidance for protecting workers but lack a strong enforcement mechanism.

Past conflicts between the government and labor unions resulted in a formal complaint to the ILO in 2018. Since the filing of that complaint, the government has stopped limiting the activities of the labor unions and has worked cooperatively with the labor union umbrella organization to draft labor policies and codes.

The ILO established an office in Mogadishu in 2018 to address the significant gaps between Somalia’s labor practices and international standards. In February 2019, Somalia’s government, with the support of the ILO and the labor unions, finalized work on a draft employment policy and updated labor codes, currently before the cabinet for adoption. The guidance is aimed at providing stability and clarity to employers and investors.

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 $4,721 https://data.worldbank.org/
country/somalia
 
;
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 $409 https://data.worldbank.org/indicator/
BX.KLT.DINV.CD.WD?locations=SO
 
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 8.6% https://data.worldbank.org/indicator/ BX.KLT.
DINV.WD.GD.ZS?end=2018&locations=
SO&start=1970&view=chart
 

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

Table 4: Sources of Portfolio Investment
No data available.

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

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.

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.

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.

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

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.

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.

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.

Zambia

Executive Summary

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

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

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

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

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

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

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

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

3. Legal Regime

Transparency of the Regulatory System

Proposed laws and other statutory instruments are often insufficiently vetted with interest groups or are not released in draft form for public comment. Proposed bills are published on the National Assembly of Zambia website (http://www.parliament.gov.zm/ ) for public viewing. Hard copies of the documents are delivered by courier to the stakeholders’ premises/mailboxes.

Opportunities for comment on proposed laws and regulations sometimes exist through trade associations, such as the Zambia Chamber of Commerce and Industry, Zambia Association of Manufacturers, Zambia Chamber of Mines, and American Chamber of Commerce in Zambia. Stakeholder consultation in developing legislation and regulation has, however, generally been poor under the current administration. The government established the BRRA in 2014 with the mandate to administer the Business Regulatory Act. The Act requires public entities to submit for Cabinet approval a policy or proposed law that regulates business activity, after the policy or proposed law has BRRA approval. A public entity that intends to introduce any policy or law for regulating business activities should give notice, in writing, to the BRRA at least two months prior to submitting it to Cabinet; hold public consultations for at least 30 days with relevant stakeholders, and perform a Regulatory Impact Assessment (RIA). The BRRA works in collaboration with the Ministry of Justice, which does not approve any proposed law to regulate business activity without the approval of BRRA. While this framework is solid on paper, the BRRA and the consultative process is still relatively new and unknown even by other government officials, and it appears that in some cases the BRRA is informed after the Ministry of Justice has already approved a law.

While there are clear public procurement guidelines, concerns persist regarding transparency and a level playing field for U.S. firms. To enhance the transparency, integrity, and efficiency of Zambia’s procurement system the GRZ launched the electronic government procurement (e-GP) in July 2016. In 2018, Cabinet approved legislation to repeal the Public Procurement Act of 2008 in order to introduce price benchmarking and expert estimates in tendering for capital projects and other high value goods and services, but Parliament has not passed the measure as of April 2020.

International Regulatory Considerations

On October 2, 2000, Zambia became a beneficiary of the African Growth and Opportunity Act (AGOA) market access treaty with the United States, and was again found eligible for continuous benefits under AGOA in March 2019.

Zambia is a member of a number of regional and international groupings aimed at expanding markets for domestically produced goods and services. These include membership in both COMESA and SADC Free Trade Areas (FTAs). Zambia is also an active participant in the establishment of the Tripartite Free Trade Area between COMESA, SADC, and the East African Community (EAC).

In February 2019, Zambia signed the African Continental Free Trade Agreement (AfCFTA); as of the end of the first quarter of 2020, it still awaits ratification by Zambia’s Parliament. The trade agreement among 54 African Union member states creates a continent-wide single market, followed by the free movement of people and a single-currency union; much work remains to develop implementation protocols and mechanisms across Africa.

At the multilateral level, Zambia has been a WTO member since January 1, 1995. Zambia’s investment incentives program is transparent and has been included in the WTO’s trade policy reviews. The incentive packages are also subject to reviews by the Board of the ZDA and to periodic reviews by the Parliamentary Accounts Committee. Zambia is a signatory to the WTO Trade Facilitation Agreement (TFA) but still faces major challenges in expediting the movement, release, and clearance of goods, including goods in transit, which is a major requisite of the TFA. Zambia has benefited from duty-free and quota-free market access to the EU through its Everything but Arms FTA, and to the United States from the Generalized System of Preferences (GSP) and AGOA agreements.

Legal System and Judicial Independence

Zambia has a dual legal system that consists of statutory and customary law administered through a single formal court system. Statutory law is derived from the English legal system with some English Acts of Parliament still deemed to be in full force and effect within Zambia. Traditional and customary laws, which remain in a state of flux, are generally not written or codified, although some of them have been unified under Acts of Parliament. No clear definition of customary law has been developed by the courts, and there has not been systematic development of this subject.

Zambia has a written commercial law. The Commercial Court, a division of the High Court, deals with disputes arising out of commercial transactions. All commercial matters are registered in the commercial registry and judges of the Commercial Court are experienced in commercial law. Appeals from the Commercial Court, based on the amended January 2016 constitution, now fall under the recently established Court of Appeals, comprised of eight judges. The Foreign Judgments (Reciprocal Enforcement) Act, Chapter 76, makes provision for the enforcement in Zambia of judgments given in foreign countries that accord reciprocal treatment. The registration of a foreign judgment is not automatic. Although Zambia is a state party to international human rights and regional instruments, it has a dualist system of jurisprudence that considers international treaty law as a separate system of law from domestic law. Domestication of international instruments by Acts of Parliament is necessary for these to be applicable in the country. Systematic efforts to domesticate international instruments are quite slow, but progressing.

The courts support Alternative Dispute Resolution (ADR) and there has been an increase in the use of arbitration, mediation, and tribunals by litigants in Zambia. Arbitration is common in commercial matters and the proceedings are governed by the Arbitration Act No. 19 of 2000. The Act incorporates United Nations Commission on International Trade Law (UNCITRAL) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Zambian courts have no jurisdiction if parties have agreed to an arbitration clause in their contract. The establishment of the fee-based judicial commercial division in 2014 to adjudicate high-value claims has helped accelerate resolution of such cases.

The courts in Zambia are generally independent, but contractual and property rights enforcement is weak and final court decisions can take a prohibitively long time. At times, politicians have exerted pressure on the judiciary in politically controversial cases. Regulations or enforcement actions are appealable, and adjudication depends on the matter at hand and the principal law or act governing the regulations.

Laws and Regulations on Foreign Direct Investment

The major laws affecting foreign investment in Zambia include:

  1. The Zambia Development Agency Act of 2006, which offers a wide range of incentives in the form of allowances, exemptions, and concessions to companies.
  2. The Companies Act of 1994, which governs the registration of companies in Zambia.
  3. The Zambia Revenue Authority’s Customs and Excise Act, Income Tax Act of 1966, and the Value Added Tax of 1995 provide for general incentives to investors in various sectors.
  4. The Employment Code Act of 2019, Zambia’s basic employment law that provides for required minimum employment contractual terms.
  5. The Immigration and Deportation Act, Chapter 123, regulates the entry into and residency in Zambia of visitors, expatriates, and immigrants.

Competition and Anti-Trust Laws

Market competition operates under a relatively weak regulatory framework, although there is freedom of pricing, currency convertibility, freedom of trade, and free use of profits. A fairly strong institutional framework is provided for strategic sectors, such as mining and mining supply industries, and large-scale commercial farming. The Competition and Consumer Protection Commission (CCPC) is a statutory body established with a unique dual mandate to protect the competition process in the economy and to protect consumers. The mandate of the Commission cuts across all economic sectors. The CCPC regulates the economy to avoid restrictive business practices, abuse of dominant position of market power, anti-competitive mergers and acquisitions, and cartels that erode consumer welfare. The Commission is also mandated to enhance consumer welfare. In general terms, therefore, the principal aim of the Commission is to safeguard competition and ensure consumer protection, but it has been described as ineffectual and lacks legislative influence.

In 2016, the CCPC published a series of guidelines and policies that included adopting a formal Leniency Policy, a policy that encourages persons to report to the CCPC information that may help to uncover prohibited agreements. In certain circumstances, the person receives immunity from prosecution, imposition of fines, or the guarantee of a reduction in fines. The policy also calculates administrative penalties. In addition, the CCPC in 2016 published the draft Settlement Guidelines, which provide a formal framework for parties seeking to engage the CCPC for purposes of reaching a settlement.

The Competition and Fair Trading Act, Chapter 417, prevents firms from distorting the competitive process through conduct or agreements designed to exclude actual or potential competitors, and applies to all entities, regardless of whether private, public, or foreign. Although the Commission largely opens investigations when a complaint is filed, it can also open investigations on its own initiative. Zambian competition law can also be enforced by civil lawsuits in court brought by private parties and criminal prosecution by the Commission is possible in cartel cases without the involvement of the Director of Public Prosecution under the Competition and Consumer Protection Act (CCPA) No. 24 of 2010. However, the general perception is the Commission may be restricted in applying the competition law against government agencies and State-Owned Enterprises (SOEs), especially those protected by other laws.

Expropriation and Compensation

Zambia is a signatory to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank and other international agreements. This guarantees foreign investment protection in cases of war, strife, disasters, and other disturbances, or in cases of expropriation. Zambia has signed bilateral reciprocal promotional and protection of investment protocols with a number of countries. The ZDA also offers further security for investments in the country through the signing of the Investment Promotion and Protection Agreements (IPPAs).

Investments may only be legally expropriated by an act of Parliament relating to the specific property expropriated. Although the ZDA Act states that compensation must be at a fair market value, the method for determining fair market value is ill-defined. Compensation is convertible at the current exchange rate. The ZDA Act also protects investors from being adversely affected by any subsequent changes to the Investment Act of 1993 for seven years from their initial investment.

Leasehold land, which is granted under 99-year leases, may revert to the government if it is determined to be undeveloped after a certain amount of time, generally five years. Land title is sometimes questioned in court, and land is re-titled to other owners.

There is no pattern of discrimination against U.S. persons by way of an illegal expropriation by the government or authority in the country. There are no high-risk sectors prone to expropriation actions.

Dispute Settlement

ICSID Convention and New York Convention

Zambia is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, which entered into force on June 7, 1959, and party to the Convention of the Settlement of Investment Disputes between States and Nationals of Other States of 1965, which entered into force on October 14, 1966. These are enforced through the Investment Disputes Convention Act Chapter 42.

Zambia is a member state of the International Center for the Settlement of Investment Disputes (ICSID) Convention and a signatory to the United Nations Commission of International Trade Law (UNCITRAL Model Law). In 2002, Zambia ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).

Investor-State Dispute Settlement

Over the past 10 years, previous disputes involved delayed payments from SOEs to U.S. companies for goods and services and the delayed deregistration of a U.S.-owned aircraft that was leased to a Zambian airline company that went bankrupt. Currently, a U.S. company is in dispute over the refusal of payment by its local joint venture partner that resulted from goods delivered to the government of Zambia. The case, however, has not officially reached Zambian courts.

Relatively few investment disputes involving U.S. companies have occurred since Zambia’s economy was liberalized following the introduction of multi-party democracy in 1991. The Zambian Investment Code stipulates that claimants must first file internal dispute claims with the Zambian High Court. Failing that, the parties may go to international arbitration. However, U.S. companies can encounter difficulties in receiving payments from the government for work performed or products and services rendered. This can be due to inefficient government bureaucracy or, more often, to a lack of funds available to the government to meet its obligations.

International Commercial Arbitration and Foreign Courts

The Zambian Arbitration Act Number 19 of 2000 incorporates the UNCITRAL and the New York Convention on the recognition and enforcement of foreign arbitral awards. The Act applies to both domestic and international arbitration and is based on the UNCITRAL model law. Foreign lawyers cannot be used to represent parties in domestic or international arbitrations taking place in Zambia. There are no facilities that provide online arbitration, although the Zambia Institute of Arbitrators promotes and facilitates arbitration and other forms of ADR. The New York Convention on the recognition and enforcement of foreign arbitral awards has been domesticated into Zambian legislation by virtue of Section 31 of the Arbitration Act. Arbitration awards are enforced in the High Court of Zambia, and judgments enforcing or denying enforcement of an award can be appealed to the Supreme Court.

Bankruptcy Regulations

The Bankruptcy Act, Chapter 82 provides for the administration of bankruptcy of the estates of debtors and makes provision for punishment of offenses committed by debtors. It also provides for reciprocity in bankruptcy proceedings between Zambia and other countries and for matters incidental to and consequential upon the foregoing. This applies to individuals, local, and foreign investors. Bankruptcy judgments are made in local currency but can be paid out in any internationally convertible currency. Under the Bankruptcy Act, a person can be charged as a criminal. A person guilty of an offense declared to be a felony or misdemeanor under the Bankruptcy Act in respect of which no special penalty is imposed by this Act shall be liable on conviction to imprisonment for a term not exceeding two years.

Zambia has made strides in improving its credit information system. Since 2008, the credit bureau, TransUnion, requires banks and some non-banks to provide loans requirement information and consult it when making loans. The credit bureau eventually captures data from other institutions such as utilities. The bureau’s coverage is still less than 10 percent of the population; the quality of information is suspect; and there is lack of clarity on data sources and the inclusion of positive information.

4. Industrial Policies

Investment Incentives

The ZDA Act provides for a number of incentives available to both local and foreign investors.

Under the Income Tax Act, Chapter 323 or the Customs and Excise Act, Chapter 322, investors who invest not less than USD 500,000 in an MFEZ, an industrial park, a priority sector, or invest in a Rural Enterprise under the ZDA Act, are entitled to the following fiscal incentives:

  1. A corporate tax rate of 0 percent for 5 years from commencement of operations.
  2. Taxation on only 50 percent of profits in year 6 through year 8 from commencement of operations and only 75 percent for years 9 and 10.
  3. 5-year exemption on dividend taxes following the first year of declaration.
  4. 5-year customs duties exemption on imported machinery and equipment.
  5. Improvement allowance of 100 percent of capital expenditure on improvements or upgrading of infrastructure.

In addition to fiscal incentives, the above category of investors, along with those who invest an amount not less than USD 250,000 in any sector or product not provided for as a priority sector or product under the Act, are entitled to investment guarantees and protection against state nationalization along with free facilitation for application of immigration permits, secondary licenses, land acquisition, and utilities. For major investments, the Minister of Finance may specify additional incentives for investment in an identified sector or product of not less than USD 10 million or equivalent in convertible currency in new assets that qualify for those incentives.

During the presentation of the 2018 national budget, the Minister of Finance proposed discontinuing the five-year income tax holidays provided under the ZDA Act. Instead, the Minister proposed accelerated depreciation for capital expenditure in an effort to safeguard government revenues eroded through tax holidays. The proposal was criticized by foreign investors, and has led to some investors putting the brakes on additional investment in the country. The proposal to discontinue the five-year income tax holiday is not yet enacted.

Foreign Trade Zones/Free Ports/Trade Facilitation

An investor may apply to be appointed and licensed by the Commissioner General to establish and operate a bonded factory under Section 65 of the Customs and Excise Act. In early 2007, the GRZ announced the creation of MFEZs in which investors enjoy waivers on customs duty on imported equipment, excise duty, and value added tax, among other concessions. It is currently unclear if the government will maintain these incentives (see Investment Incentives section).

There are three MFEZs currently operating: the Chambishi MFEZ in Copperbelt Province and the Lusaka East MFEZ located near Lusaka’s international airport, both of which are heavily (if not exclusively) dominated by Chinese-owned enterprises; and the Lusaka South MFEZ, which has a mix of multi-national firms. Foreign-owned firms enjoy the same investment opportunities as domestic firms in MFEZs. The ZDA Act is the primary legislation for investment in Zambia. An investor, foreign or local, is free to identify and suggest any other location in the country deemed economical for MFEZ development, although the government has prioritized designated areas in Lusaka, Ndola, Mpulungu, Chembe, Nakonde, Kasumbalesa, and Mwinilunga. Investors are encouraged to provide local employment and skills transfer to local entrepreneurs and communities. Investors are also encouraged to utilize local raw materials and intermediate goods and engage in technology transfer to qualify to operate in an MFEZ.

Zambia is active in several key regional organizations that promote regional trade and regulatory harmonization. COMESA launched its FTA in October 2000 and established a customs union in June 2009. The top five intra-COMESA exports from Zambia include tobacco, raw sugarcane, wire, refined copper, and cement. The SADC Protocol on Trade came into force in 2008. The Trade Protocol promotes regional integration through trade development and develops natural and human resources for the mutual benefit of their people. Trade among SADC member states is conducted on reciprocal preferential terms. Rules of Origin define the conditions for products to qualify for preferential trade in the SADC region. Products have to be “wholly produced” or “sufficiently processed” in the SADC region to be considered compliant with the SADC Rules of Origin. The SADC Rules of Origin are product-specific and not generic, like the Rules of Origin for COMESA.

COMESA, the EAC, and SADC member states agreed in October 2008 to negotiate a Tripartite Free Trade Area (TFTA) covering half of Africa. The Tripartite Free Trade Area (TFTA) was launched in June 2015 in Egypt; to date, Zambia is one of the 22 out of the 27 member states which have signed the agreement. The Agreement will enter into force once it has been ratified by 14 Member States; only Egypt and Uganda have ratified the Agreement thus far. In February 2019, Zambia signed the African Continental Free Trade Agreement (AfCFTA); it must still be ratified by Parliament. The trade agreement between 49 African Union member states plans to create a single market, followed by the free movement of people and a single-currency union; much work remains to develop implementation protocols and mechanisms continent-wide. The TFTA and AfCFTA have yet to enter into effect.

Zambia performs better than the average sub-Saharan African and lower middle-income countries in the areas of information availability, involvement of the trade community, appeal procedures, and automation, according to OECD trade facilitation indicators. Zambia’s performance for internal border agency co-operation and governance and impartiality is below average for sub-Saharan African and lower middle-income countries.

Performance and Data Localization Requirements

Although performance requirements are not imposed, authorities expect commitments made in applications for investment licenses to be fulfilled. Foreign contractors bidding on infrastructure projects are required by law to give 20 percent of works to Zambian small contractors. Outside of infrastructure projects, no requirements currently exist for data localization, local content, equity, financing, employment, or technology transfers. However, in January 2018 the government issued a Statutory Instrument (SI) instructing all industries to transport 30 percent of their cargo by rail. The government does not impose offset requirements or impose conditions on permission to invest in a specific geographic area or local content, but investors are encouraged to employ local nationals. There is no legal definition of local content, and the most comprehensive local content legislation is contained in the Mines and Minerals Development Act of 2008. The Citizens Economic Empowerment Act of 2006 and Statutory Instrument of 2008 also contain local content provisions.

The GRZ favors the use of local workers for unskilled labor as well as for skilled middle or senior management workers. Under the ZDA Act, any foreign investor who invests a minimum of USD 250,000 or its equivalent and employs a minimum of 200 employees at certain technical or managerial levels is entitled to a self-employment permit or resident permit. The ZDA assists the qualifying investor to obtain work permits for up to five expatriate employees. In practice, however, some foreign companies, especially smaller-scale investors, have had difficulty securing these permits. Any entry permit holder can apply for a dependent’s pass for each of his dependents. The government is considering limiting foreigners to obtain work permits only for rare skills not found in Zambia. While not yet implemented, the GRZ has at times denied work permits or work permit renewals. The ZDA is also in the process of developing standards regarding investment performance benchmarks that it seeks to establish within an MFEZ to assist the government in monitoring company performance against the commitments made when investment incentives are granted.

The GRZ encourages investors where possible to use domestic content in goods or technology if available. In 2017 the government started the formulation of a local content strategy to promote inclusive and sustainable growth through increased use of locally available goods and services in development sectors. According to the Ministry of Commerce, Trade, and Industry, once the strategy is developed, a law will be passed to compel businesses to use a certain percentage of local inputs and products in the production and provision of goods and services. In a speech to Parliament in March 2018, the president criticized a perceived influx of foreign workers into Zambia’s mining industry; the government followed with a month-long review of foreign labor quotas in the sector. The developed sustained opposition to working practices by domestic unions and civil society organizations.

While this was not the first time that scrutiny of foreign labor has surfaced as a strategic issue for the government, the latest review is a reminder of the burgeoning pressures that continue to underpin sector management and policymaking. To date, the current administration has adopted a relatively pragmatic approach to managing the mining sector’s fiscal and regulatory framework, acknowledging the challenging commercial conditions for some mining companies, and the need for stability in the operating environment.

Currently, there is no requirement for foreign information technology providers to turn over source code or provide access to surveillance. The telecommunications sector is governed by the Information and Communications Technology Act No. 15 of 2009 (ICT Act) and falls under the Ministry of Communications and Transport.

The government strives to be consistent with Trade Related Investment Measures (TRIMs) requirements and generally abides by the WTO’s TRIMS obligation. Although performance requirements are not imposed, authorities expect commitments made in applications for investment licenses to be fulfilled.

5. Protection of Property Rights

Real Property

Property rights and the regulation of property are well defined in principle, but face problems in implementation. Contractual and property rights are weak. Courts are often inexperienced in commercial litigation and are frequently slow in reaching their decisions. The ZDA Act ensures investors’ property rights are respected. Secured interests in property, both movable and real, are recognized and enforced. Property can be owned individually, jointly in undivided shares, or by an entity such as a company, close corporation or trust, or similar entity registered outside Zambia. The ZDA Act provides for legal protection and facilitates acquisition and disposition of all property rights such as land, buildings, and mortgages. The Lands and Deeds Registry Act of Zambia states that a mortgage is only to operate as security and not a transfer or lease of the estate or interest mortgaged. There are two types of mortgages in Zambia, a legal and an equitable mortgage. A legal mortgage is created in respect to a legal estate by deed. An equitable mortgage does not convey legal title to the mortgage, and no power of sale vests in the mortgagee.

The president holds all land on behalf of the people of Zambia, which he may give to any Zambian, but the process is set in law. The Lands Act, Chapter 184, places a number of restrictions on the president’s allocation of land to foreigners. The ZDA Act makes provision for leasehold tenure of land by investors. The ZDA, in consultation with the Ministry of Lands, assists an investor in identifying suitable land for investment, as well as assisting the investor to apply through the Ministry of Lands. While land is technically owned by the president, it is worth noting that traditional chiefs have jurisdiction over traditional, or customary, land, which makes up roughly 70 percent of Zambia.

The Commissioner of Lands verifies that properties can be transferred after checking if ground rent has been paid and conducting due diligence on the purchaser. As all land in Zambia belongs to the state, Zambians, Zambian companies, established residents, or investors can only lease it under lease terms established by law. Land held under customary tenure has no title, but where a sketch plan of the area exists, the chief can give written consent to an investor and a 14-year lease can be obtained for traditional land. In March 2017, the president expressed concern that land was being given to foreigners at an alarming rate by traditional chiefs and called for an inquiry into this by the Ministry of Lands, which had the lead in forming a new land policy. The current draft of the new land policy would assert more central government control over traditional lands and seeks to reduce the lease tenure on foreign-owned land from 99 years to renewable periods of 25 years. Both traditional chiefs and foreign investors have objected to terms in the draft bill, which has since stalled with Ministry of Lands and has not been presented to Parliament.

Despite Zambia’s abundant land for agriculture and other purposes, the process of land acquisition and registration is a major obstacle for investors. About 70 percent of available land is under traditional ownership. Its acquisition involves negotiations with traditional leaders who have to balance the demands of their subjects with the pressure to convert land for commercial purposes. Most available land has not been surveyed or mapped and where this has been done, records are often outdated or difficult to retrieve from the Ministry of Lands.

The Ministry of Lands is centralized in Lusaka and faces problems with poor record keeping and slow processing of title deeds. To address these challenges the government, with the support of donor partners, has been working to reform land policy, including modernization of the Lands Department at Ministry of Lands, establishment of Land Banks, establishment of a Land Development Fund, demarcation of MFEZs and industrial parks, and development of farming blocks.

Many of Zambia’s urban poor who live on statutory land are not aware of the ways in which they can secure their rights to land. Some civic leaders, cadres (political party supporters), and traditional leaders allocate and sell land without following required procedures. As such, many urban poor find refuge in unplanned settlements, which in some cases are not approved in accordance with Zambian law. This has led to the continued proliferation of informal and unplanned settlements, illegal land allocations, land grabbing, and misplacement of resources, all of which slow development.

People living on both customary land and in unplanned settlements therefore do so with a sense of insecurity of land tenure due to the absence of documentation to support land ownership coupled with a poor land administration system. Civil and traditional leaders have demonstrated little transparency and accountability in land governance. Most often, community members have little knowledge about either their land rights or how they can protect themselves.

Intellectual Property Rights

Intellectual property laws in Zambia cover such areas as domain names, traditional knowledge, transfer of technology, patents, and copyrights, etc. Zambia is also party to several international intellectual property agreements. The legal framework for trademark protection in Zambia is adequate. However, enforcement of intellectual property rights (IPR) is weak, and courts have little experience with commercial litigation. Copyright protection is limited and does not cover computer applications. Of the many pirated and counterfeit goods in Zambia, the main ones are: DVDs, CDs, audio-visual software, infant milk, pharmaceuticals, body lotions, motor vehicle spare parts (such as tires and brake pads), beverages, cigarettes, toothpaste, electrical appliances, fertilizer, pesticides, and corn seed. Small-scale trademark infringement occurs in connection with some packaged goods utilizing copied or deceptive packaging. In 2016, the government enacted the Industrial Designs Act and the Protection of Traditional Knowledge, Genetic Resources, and Expressions of Folklore Act. The Industrial Designs Act encourages the creation of designs and development of creative industries through enhanced protection and utilization of designs, and it provides for the registration and protection of designs and the rights of proprietors of registered designs. The Protection of Traditional Knowledge, Genetic Resources, and Expressions of Folklore Act provides a transparent legal framework for the protection of, access to, and use of, traditional knowledge, genetic resources, and expressions of folklore and guarantees equitable sharing of benefits and effective participation of holders.

The Zambia Police Service Intellectual Property Unit (IPU) carries out raids in shops and markets to confiscate counterfeit and pirated materials. The IPU tracks and reports on seizures of counterfeit goods, but no consolidated record is available. There are fines for revealing proprietary business information, but they are not large enough to adequately penalize possible disclosures. Zambia’s patent laws conform to the requirements of the Paris Convention for the Protection of Industrial Property, to which Zambia is a signatory. It takes a minimum of four months to patent an item or process. Duplicative patent searches are not performed, but patent awards may be appealed on grounds of infringement.

Zambia is a member of the World Intellectual Property Organization (WIPO). In addition to the Paris Convention, Zambia is a signatory to a number of international agreements on patents and intellectual property, including the Berne Convention and the UNESCO Universal Copyright Convention. Zambia is also a member of the African Regional Industrial Property Organization (ARIPO). The country is a signatory to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which is an international legal agreement among all the member nations of the World Trade Organization.

The Ministry of Commerce, Trade, and Industry and the Patents and Companies Registration Agency (PACRA) are the leading institutions responsible for the implementation of IPR laws in Zambia. The industrial property registration system at PACRA underwent an upgrade that linked its electronic documentation management system to WIPO’s WIPOScan, which provides for digitization of IPR records. Though major strides have been made in Zambia in the fight against piracy and counterfeiting, more needs to be done.

Zambia is not included in the United States Trade Representative (USTR) Special 301 Report nor its 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

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

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

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

Money and Banking System

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

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

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

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

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

Private firms are open to foreign investment through